NBC IS NO LONGER A FEATHER IN GE'S CAP
Robert C. Wright has grown accustomed to the japes from David Letterman and Johnny Carson. On NBC's Late Night, Letterman routinely refers to the president of the network and his bosses as "those weasels from GE." NBC and its parent company, General Electric Co., are fodder for Carson, too. When he couldn't get a set of plastic teeth to chatter recently on the Tonight Show, Carson joked: "NBC probably cut out the chatter."
Wright endures the sniping stoically: "All I ask is that it's funny. And by and large, it's very funny." One thing he's not smiling about is NBC Inc.'s recent performance. "The network is not making a return on investment," says Wright, who once ran GE's financial services arm.
Until this year, the company's 1986 purchase of NBC's parent, RCA Corp., for $6.3 billion seemed to be paying off handsomely. Riding the huge popularity of programs such as The Cosby Show and Cheers, NBC regularly topped the ratings and raked in more profits than either CBS Inc. or Capital Cities/ABC Inc.
AGING HITS. Now, though, the network is reeling. The recession has depressed business: In 1990, NBC's revenues fell 4.6%, to $3.2 billion, while operating profits plunged 21%, to $477 million. This year looks even worse. The war cost NBC $55 million in extra news costs and lost ad revenue. Meanwhile, the network's ratings have slid because it has found no replacements for Cosby and other aging hits. Even more troubling is the competition for viewers and ad revenue from cable and other media, which threatens the future of all three networks.
No wonder, then, that industry sources say GE is shopping NBC around. Rumors have the parent, which is based in Fairfield, Conn., courting a major Hollywood movie studio as a buyer. One company insider reports GE's investment banking subsidiary, Kidder, Peabody & Co., is studying various ways to dispose of the network. "If there was a way to unload it right now, there's no one in Fairfield who wouldn't jump at the chance," says the executive, who has attended some of the Kidder strategy sessions. Another top investment banker also says GE is looking for a buyer.
Wright describes such talk as "purely speculative." He says GE Chairman John F. Welch Jr. has not asked him to come up with any plan to sell off NBC. But Wright acknowledges he wants to keep all his options open. And he confirms he has listened to proposals about NBC's future from Kidder and three other investment banking firms.
A sale of NBC, if it took place, would require lots of patience and creativity. For one thing, the effects of the recession would dampen the price that NBC could fetch right now. What's more, the Federal Communications Commission effectively lowered the value of NBC by recently refusing to free up another key source of income for all three networks.
NBC and its rival networks had been lobbying the FCC to rescind regulations that allow Hollywood producers instead of the networks to reap profits from reruns. The Cosby Show, for example, earned $600 million when it was syndicated in 1986--more than the entire profit of GE's broadcast division. But in an Apr. 9 ruling, the FCC left in place many of its restrictions. One is that if a movie studio buys a network, the studio forfeits syndication rights to programs aired by that network.
SPIN-OFF? The networks are appealing, but Wright holds out little hope for a quick reversal. So far, the FCC ruling has cooled the studios' interest. For example, Paramount Communications Inc., which recently lured away NBC's programming guru, Brandon Tartikoff, was said to be discussing a merger with the network. But Paramount Chairman Martin S. Davis now says: "It's a figment of somebody else's imagination."
One widely discussed strategy to make the networks more attractive to studios is to evade the legal constraints placed on them. If NBC reduced its prime-time programming from the current 21 hours a week to under 15 hours, the FCC would no longer define it as a network. So a studio could buy NBC without forfeiting any syndication revenue. Wright says such a plan doesn't make sense because NBC would lose the ad revenue from two evenings of prime-time shows, while still bearing most of the costs of a full network. Selling to a studio may not be the only option: Another plan being studied by Kidder would spin off NBC as a separate public company.
The network can't blame all its troubles on more competition or federal interference. For one thing, NBC's lackluster new programming has loosened its long grip on ratings supremacy. Since the 1986-87 season, the network has lost its wide lead, finishing last season in a virtual dead heat with ABC and CBS. Worse, it has lost its edge among the younger viewers that advertisers crave. The average age of NBC viewers rose from 40 to 42 while ABC's stayed at 38. Rival network executives say that in the upcoming season, ratings erosion could cost NBC as much as $100 million in ad revenue compared to last year. NBC won't make predictions but acknowledges it faces a tough advertising climate.
Tartikoff's departure won't help: The 42-year-old programmer is widely credited with NBC's dazzling success in the 1980s. But media buyers have doubts that Tartikoff's successor and former deputy, Warren Littlefield, will be able to match Tartikoff's record. Even with Tartikoff at the helm, NBC didn't produce a hit last season. The network, which unveiled its new shows on May 23, has extensively overhauled its programming schedule for next season. Offerings include Fresh Prince of Bel Air and Law and Order, two shows from last season that had strong appeal to younger viewers, and The Adventures of Mark and Brian, a situation comedy about two Los Angeles disk jockeys.
TOUGH TACTICS. "I know it looks like a rocky year," admits Tartikoff, who is staying at the network long enough to fine-tune next season's programming. But he insists that the schedule "has the smell of victory." Indeed, NBC got off to a promising start in the recent May sweeps period with a convincing win over ABC and CBS.
While Tartikoff tinkers with the schedule, Wright has been paring costs all around the network--shuttering bureaus at NBC News and making life hard for Hollywood producers. Two years ago, for example, NBC refused to match ABC's $70 million offer for Steven Bochco, who created NBC's hit show, L. A. Law. So Bochco left for ABC, where he produced another hit, Doogie Howser, M. D. "The way GE does business may be suited to making jet engines and refrigerators, but they haven't made many friends in this town," says Grant Tinker, the producer who was NBC's chairman until the GE takeover.
Wright is unapologetic about the penny-pinching. He says NBC's costs are the vestige of an era when the networks commanded 90% of the viewing audience and the lion's share of TV ad revenue. "If we can't get our programming costs down considerably," he says, "we either get another source of revenue, or we go out of business." Such pessimism is certainly warranted. So for now, Wright will keep cutting. The big question is whether he'll find a way to turn the peacock network over to another keeper.Ronald Grover in Los Angeles and Mark Landler in New York