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At NBC, prime-time tragedy is in the business model

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By Steven Pearlstein
Wednesday, January 13, 2010

"30 Rock" is NBC's critically acclaimed prime-time comedy starring Tina Fey, who plays the head writer for a fictionalized NBC late-night comedy show, and Alec Baldwin, the vice president for East Coast television and microwave programming, sent in from corporate headquarters to boost ratings by pandering to viewers' worst instincts.

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At its heart, "30 Rock" is a satire on corporate culture and the conventions of American business. But as self-parody, it can't hold a candle to the tragicomedy now playing out at the real-life NBC.

Over the weekend, the network announced that after four months of disappointing ratings it was pulling the plug on Jay Leno's new prime-time hour and moving the aging comic and his tired format back to their original 11:30 p.m. slot, nudging Conan O'Brien and his "Tonight Show" into tomorrow. Even if NBC is able to deal with O'Brien's threatened defection, the decision represents an embarrassing retreat from what was billed as a "game-changing" strategy of replacing expensive prime-time dramas with low-budget news magazines, celebrity chatter, game shows and reality TV better suited to an era of market fragmentation and declining advertising revenues.

NBC's late-night farce is emblematic of just about everything that is wrong with American business these days.

It starts with the mind-set that puts short-term profit over long-term value creation. Not long ago, NBC was the undisputed leader in network programming -- the best news organization, the best sports team and an unbeatable prime-time lineup built around long-running popular shows such as "Hill Street Blues," "Friends," "Seinfeld" and "ER." But under the relentless pressure for quarterly earnings from its parent, General Electric, and under the leadership of Jeff Zucker, the Peacock Network has lost much of its luster, particularly in prime time, where it seems to have lost its eye for quality, its knack for innovation and the patience required to develop and nurture loyal audiences.

Other than professional football, it has no top-30 shows; it has managed to bungle even some of its few successes, such as "Southland" and "Friday Night Lights." More than anything else, moving Leno to 10 p.m. five days a week was a tacit acknowledgement of the failure to think up with compelling prime-time programming.

Unable to come up with something new and fresh, NBC's fallback -- like so much of American business -- was simply to do more of what worked, until it didn't. If one late-night show was good, then let's have two. If a cop show works at 9 p.m. on Tuesday, do a variant of the same show on Wednesday and Thursday. And if people will sit for an hour watching stories about people losing weight, why not make it two hours?

Remember: Nothing prevented NBC or any other of the broadcast networks from coming up with Jon Stewart's "Daily Show" or the "Colbert Report" for their late-night lineups, but you can bet your sweet bippy they would have rejected such ideas out of hand.

For NBC, the decision to move Leno to an earlier time slot had nothing to do with the desires of TV viewers. Rather, it seemed like a clever solution to the problem of having promised the "Tonight Show" to O'Brien five years earlier in an effort to prevent him from jumping to a rival network. It's a common mistake in business -- letting key decisions be driven not by market demand but by the need to resolve internal conflicts. As NBC discovered, it rarely works out for the best.

We're hearing a lot this week about Wall Street pay -- how excessive it has become, how it is unrelated to performance and how it has distorted business decision-making. In truth, all that started long before in the sports and entertainment industry. Even investment bankers look on enviously as Leno is guaranteed $30 million a year, even for coming in fifth in a four-man race, while O'Brien earns $25 million for attracting half as many viewers as his predecessor. No pay for performance here.

Truly great companies see themselves as part of a business ecosystem. They understand that their long-term success depends on having financially healthy suppliers and distributors, and take pains not to share gains and avoid profiting excessively at their expense.

But NBC forgot that wisdom when it decided to go for a strategy of low-budget offerings in prime time that would maintain profitability at the expense of program quality or ratings. It turned out that the new strategy posed an existential threat to the independent studios and production houses that networks still rely on to create their entertainment programming. And the smaller audiences that NBC was willing to accept for Leno's 10 p.m. show translated into shrunken audiences for 11 p.m. news shows that generate as much as 40 percent of the revenue for local affiliates that are already reeling from the recession and competition from Internet advertising.

There are many other lessons to be drawn from NBC's late-night debacle -- on the shortcoming of industrial conglomerates (GE), on the difficulty of old dogs learning new tricks (Leno), and surely the one about sacrificing old products to launch new ones (O'Brien). You could probably construct an entire business school class around this case study in mismanagement.

Then again, you could be like NBC and create a TV comedy about it, get Tina Fey and Alec Baldwin to star in it, win a boatload of Emmys and still not learn a thing.

Steven Pearlstein will host a Web discussion Wednesday at 11 a.m. at washingtonpost.com.


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