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Pearlstein: NBC and Jay Leno dealings symbolize all that's wrong with American business

Steven Pearlstein
Washington Post Columnist
Wednesday, January 13, 2010; 11:00 AM

Washington Post business columnist Steven Pearlstein was online Wednesday, January 13 at 11:00 a.m. ET to discuss NBC and Jay Leno debacle and how it symbolizes everything that's wrong with American business.

Pearlstein won a Pulitzer Prize in 2008 and is co-moderator of the On Leadership discussion site.

Read today's column: At NBC, prime-time tragedy is in the business model.

A transcript follows.

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Annapolis, Md.: The interesting thing to me about all this is that it reveals just how much less power these folks ... Leno, O'Brien, Letterman ... had than Carson did. He was a monopoly in every sense of the word and this kind of thing just didn't happen. Competitors came and went, occasionally scoring relatively minor ratings for a niche market, but no one was a true challenge. And Carson kept putting out a solid, quality product. Leno? Not so much. O'Brien? Not so much but already better than Leno ever was. Letterman? Probably closest to Carson's power compared to the other two, since CBS has no other choices for that slot and since he pulls in solid and reliable ratings with a good product as well. How do you see this changing broadcast TV as far as execs working hard to ensure that a their talent does not ever again have the power of a Carson?

Steven Pearlstein: I generally agree with your preferences, but I think you underestimate how the media world has changed. I'm fairly sure that if Carson were alive today and at the top of his game, he would not have the monopoly on late night that he had back in the 70s. There are just too many alternatives for people to watch that are similar and different. The mass media dominated by three all-powerful networks is dead, whether we like that or not.

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Laurel, Md.: Is there any part of the for-profit communications industry that isn't suffering from the cheap distribution of alternatives (movies, radio, news, magazines, recording)?

Prime time network TV has been locked in a business model requiring 11 hours of original programming a week (22 hours with one cycle of reruns for each show) for half a century. And now that there's ALWAYS something decent to watch among CCN, TCM, ESPN and the educational channels, they can't just put on anything vapid and expect people to watch it. NBC was bowing to what FOX did right -- end prime time at 10.

Personally, I think network TV is running into the same problem I have with the local cable systems. I'd rather have 15 good channels than 200 I don't care about. Let's downsize for quality.

Steven Pearlstein: Amen to that, brother -- although I can't agree that there's always something decent to watch. Maybe it is that my wife doesn't let us buy much beyond the basic package from DirecTV, but I often come up empty.

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Southern Maryland: Good point when you wrote, "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."

And the network had an opportunity to learn this lesson almost two decades ago, the first time that the time slot was coveted by two of its biggest stars. Leno once observed that NBC was like the guy with two girlfriends who can't decide which one he wants to marry. The network's solution this time amounted to the guy deciding to marry both girlfriends, spending the first half of each year with one and the second half with the other. This pseudo-Solomonic idea was hardly Solomonic in wisdom.

Would you agree that the best long-term solution for NBC is to pick either Leno or O'Brien for the "Tonight" slot and focus on maintaining the show as a long-term success? Should the network acknowledge the fact that it can't keep both stars?

Steven Pearlstein: Yes, sometimes the simplest solution is the best. I would have picked Conan, but that's a gamble that a younger, fresher, edgier approach would win out in the long run. And it might well have meant competing against Leno on another network. In business, the hardest decisions are those where you have to cannibalize existing products in order to introduce new ones, and if it doesn't work out (remember New Coke) you always look foolish. But if you're smart about it, and do it at the right time, then it often does work out. Leno to me is a tired act and tired format and I probably would have offered him something splashy and irregular in prime time as a way of winding down gracefully with NBC. But if he wanted to keep going on another network, I would have wished him well, held a great big good bye party and let the chips fall where they might.

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Hollywood, Calif.: Anyone who saw the Simpsons special knows what Conan's price is: a villa in Spain, all the wine he wants, a dollar a year, and writing for the Simpsons. I wonder if NBC is prepared to make that deal.

Steven Pearlstein: I'm embarrassed to admit I don't have a clue what you're referring to, but it sounds wise, anyway.

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Vienna, Va.: Steven, as usual, an excellent, thoughtful column. This has been a classic screwup from its inception years ago, when NBC tried to keep Conan happy by ensuring his ascension to the throne in 2009, all without figuring out what to do with Leno! Why didn't they just man up and say goodbye to Leno and focus their efforts on making Conan successful in the "Tonight Show," especially if you believe the show is more important than the individual hosting it?

They also seem to have forgotten their own history. Leno struggled in the ratings when he first took over before finally passing Letterman. They should have stuck with Conan and tried to make him successful.

But, finally, why are they paying any of these guys this much money? I'm sure the overall audience for these shows is shrinking, which is happening elsewhere in broadcast TV. How do you justify millions in upfront salaries with those ratings?

Steven Pearlstein: They pay so much as a defensive maneuver, which the agents take advantage of mercilessly. Superstar salaries are just a way of life out there, and as in other industries, once one guy earns $30 million then anyone who competes against him earns that much, or a little less, even though the number has almost nothing to do with the value they uniquely create. To look at the revenue generated by Leno and say, "There's nobody else in America who could generate anything near that amount of revenue," is absurd. He may be good, but not that special, and in time lots of people could generate the same revenue all other things held equal. The Tonight Show brand/time slot/NBC support by itself generates most of that revenue, not Leno.

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McLean, Va.: What makes you think that the Northrop Grumman move to NoVA is a slam dunk? They do have a huge presence in Linthicum.

Also, why just FFX, DC, or Mont. Cty? Why isn't PG County a player?

washingtonpost.com: When aerospace is under Washington's wing (Jan. 8)

Steven Pearlstein: This is about last Friday's column. Northern Virginia is a slam dunk because these guys aren't very original or creative and they simply follow the herd, which in terms of the marketing efforts of defense firms is all centered in Northern Virginia. They're like sheep, just like most executives in most industries.

The huge presence in Linthicum, Md., the old Westinghouse radar complex, is very big and it would be a great place to locate, as close as it is to the Baltimore airport. But the commute to the Pentagon and the Capitol is terrible and unreliable at many hours of the day, and as I said, being close to real workers is not really what drives the corporate move in the first place. They couldn't give a damn about being near front line workers. This is about influence peddling and customer relations.

I wish more people would see the advantages of PG. But none of these guys has the imagination or the willingness to be the pioneer. They didn't get to the top of the greasy pole that way.

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Arlington, Va.: So, from a purely business perspective, how badly does NBC look as it tries to shove Conan to 12:05 and give Leno his old 11:35 slot back (albeit with a shortened program)? I mean, I get that its the fourth place network and all, but the way they've handled all of this just seems to be a nightmare, at least on the PR front - and who knows how much they'll have to pay out to whomever leaves.

Steven Pearlstein: Strictly amateur hour.

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Mount Rainier, Md.: Mr. Pearlstein, It seems to me that the Leno/O'Brien dilemma, like the Wall Street bonus fiasco (and the housing bubble and the derivatives regulation scandal), are just more evidence that Clayton Christensen was right in his conclusions in "The Innovator's Dilemma." Any thoughts on how we, as a nation, create some disruptive economic advances?

Steven Pearlstein: We create them all the time -- it is what makes our economy the most vibrant in the world. But herd behavior is very ingrained in the way people operate and in business cultures. That's why the really breakthrough innovation comes from the insurgent competitors rather than from within most of the time.

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Boston: Your column on the aerospace industry consolidating (in more ways than one) around Washington and spending energy continously improving its lobbying operations is near and dear to me. The DoD's industrial policy unit (it has one) did a study 5-10 years ago that identified 100 key future technologies for the DoD under development by industry and found that 35-45% of those technologies came from companies with less than 100 employees. The government encourages those companies through small business set-asides/SBIR/DARPA grants but what happens to the successful ones who "graduate" beyond being very small? They can't compete with the armies of lobbyists of the big boys and mountains of cash generated by the 5-10 oligopolies really who can make huge premium cash offers. These huge offers are (1) impossible to refuse from a fiduciary standpoint vs. continuing to go-it alone given the limitations to growth against the oligopolies/current system but (2) barely a rounding error as a material fact reportable for public disclosure by the majors. What's left? The lack of small/mid-tier innovative and responsive companies which best serve the customer which you described. I would point you to innovative companies serving the Intelligence Community and the recent announcement of small cap, Argon ST, that they have hired bankers to look at "startegic options" and previous names like Essex (Northrop acquired in 2006) and Veridian (GD acquired in 2004). Does this current "market" structure best serve the customer (the government and us as taxpayers/citizens) and, if not and the "customer" has some control over the system, why not change it to better serve the customer? I'm sure the armies of lobbyists and their corporate leaders who have all moved close to town have thought about that question.

Steven Pearlstein: I'm very disappointed you brought this up in so thorough and intelligent a manner, since I intended to write a follow up column on just this subject. It is a big problem, I think, for which there aren't really any good answers, since I can't imagine the government blocking these acquisitions and thereby preventing these entrepreneurs from realizing the value of their innovation and risk-taking. We might slow down the process, however, if the Pentagon makes it clear that it won't tolerate it if a transaction results in higher costs because of the inefficiencies and higher overhead rates that come with aglomeration.

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Ellicott City, Md.: I don't know what's in whose contract ... if Leno wanted to do the right thing and walk away from this mess, would he be allowed to do that? Or has NBC ensured that this cannot happen?

Steven Pearlstein: The network has made it clear it wants Leno back at 11:30 more than it wants Conan to remain at 11:30. So I think the real question is whether its willing to let Conan out of his contract.

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Washington, D.C.: How does Zucker hold on to his job at NBC? Do you see this as just more of the decline of traditional media vs. cable/internet?

Steven Pearlstein: Some guys are just brillant at managing up -- Zucker has already got himself a cushy three-year contract from his new bosses at Comcast, who apparently care more about his successes in cable programming than his utter failure in managing the broadcast network.

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Washington, D.C: So NBC's long-term vision is to stick with the old guy who was willing to sink the reputation of the "Tonight Show" brand by airing it at 12:05, but not the younger guy who respected the brand so much that he's willing to walk away?

Absurd.

Steven Pearlstein: Yes.

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Washington, D.C.: What's the word from Comcast about NBC's mismanagement of their prime-time lineup?

Steven Pearlstein: They paid a premium to acquire it.

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Washington, D.C.: I'm struck by the lack of long term managerial decisions at NBC. Leno will be turning 60 this year, and can't possibly continue much longer without alienating a whole generation of viewers, while Conan gets shown the door, thereby creating the chance for yet more competition for NBC.

Why do so many U.S. companies lack long-term planning? It reminds me of GM back in the early '90s refusing to stick with developing hybrid technology because of the drop in oil prices, while Toyota kept true to their vision.

Steven Pearlstein: It reminds us exactly of that kind of thinking -- protecting an aging bird in the hand as opposed to letting go and trying to grab two in the bush. As I said, it is the biggest problem for established companies. They just can't do it.

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Baltimore, Md.: This simply reveals that GE/NBC/Universal can't bother to keep its promises. The whole reason they offered O'Brien the Tonight Show a half decade ago was to keep him from jumping to another network. Now, after giving him less than a year on the job and seeing their 10 p.m. Leno experiment flame out, they want the franchise back.

O'Brien, in his statement, was smart enough to take the high road and be funny (e.g., addressing himself to "The People of Earth.")

And David Letterman summed up the affiliates displeasure with NBC last night by saying they told the network to do something or, "We're outta here. We're going to Telemundo."

Steven Pearlstein: I'm not sure its a moral thing. It's just incompetence.

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Ohio: Just my 2 cents. Hate Conan - quite crude and I just don't get his humor. Love Leno - not so crude and always good for a laugh.

Steven Pearlstein: I'm sure there is a profitable market for a Leno show. In the long run, there is a bigger market for Conan.

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Rockville, Md.: I caught the last few minutes of Leno's show the other night while waiting for Channel 4's news. It was absolutely stupid--two guys throwing something into beer cups. I have always preferred Letterman to Leno although I rarely stay up late. The Post refuses to list Stewart's guests in the Highlights. The other evening it was John Yoo--the "president is king" guy. The interview was great but this was overlooked by the Post. Stewart/Colbert put the other two guys to shame and the humor is based on real news.

Steven Pearlstein: Got that right.

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DVR Effect: Steve, you're right that there's rarely "anything good on." But there's almost always something good in the server when we feel like sitting down to some TV. Plus, with the DVR, you can watch an hour show in 40 minutes, or a three-hour football game in 90 minutes without missing anything.

Steven Pearlstein: Yeah, and when I learn how to do it, it's gonna be great. (Actually, my wife does it and we use it all the time.)

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Winnipeg, Canada: Maybe it's just me, but I never found Leno all that funny. Plus, on the rare occasions when I've watched, he had this annoying habit of repeating anything noteworthy that his guests said, as if to say, "Ok, dummies, this is the part you should be laughing at." I kind of wonder if his primetime failure might bleed into his late-night audience.

Steven Pearlstein: I'm with you.

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Bippy Betting: Great reference to "Laugh-In" and happier days for NBC.

Steven Pearlstein: Glad you picked that up. I thought of explaining it, mentioning Rowan & Martin Laugh In, and then I realized that nobody under 40 would get the explanation either.

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Washington, D.C.: Why do the suits at NBC like Leno so much? His act is tired, and too often it feels like he's only on stage in order to support his automobile hobbies. He always looks like he'd rather be back in the garage.

Steven Pearlstein: In fact, they should shoot the show in his garage. It would be better.

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Suitland, Md.: Even if NBC tried to put Leno out to pasture a little prematurely, shouldn't they have stuck with their decision since Conan has started attracting a younger demographic that will be more profitable in the future?

If you look at it like a product lifecycle management, it seems like they're in a classic conundrum of not knowing when to let go of an aging but still profitable product that's approaching the end of it's lifecycle and emphasize another product with more potential.

If NBC wants to be relevant in late night television 10-15 years from now, they've gotta commit to O'Brien now. Maybe Leno can eke out another good 5 years on another station, but I don't think anybody expects him to still be relevant too much longer.

Steven Pearlstein: Exactly.

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Hartford, Conn.: Are we losing some kind of common vocabulary of culture when audiences are so fragmented? Is there a value in having only 2-3 touchstones of snarky commentary on the world (Say Conan, Dave, and John Stewart) instead of dozens? Doesn't that corporate herd instinct exist in consumers too? Look at the way one cable show a year tends to get anointed (Sopranos! Deadwood! Battlestar Galactica! Mad Men!)... it's like we want to cluster with others so we can have a common water-cooler language. If so, does that mean there isn't room in the collective consciousness for too many 11:35 talk shows?

Steven Pearlstein: Actually, we're in a fragmentation that has been created by new technologies and other factors and it has resulted in lots of interesting innovation even as it has deteriorated the quality and power of the major networks. That said, there is a cycle to these things, and going forward you are likely to see consolidation as a few winners get bigger and stronger and a lot of laggards fall by the wayside. And this will be a more sustainable equilibrium. It doesn't mean there won't be small niche players or that small niche players might not grow up to be big players if they are very clever, but it will be a more stable situation than we have now in which people can make long-term investments and earn respectable long-term returns.

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then I realized that nobody under 40 would get the explanation either: I turned 50 recently. Watching "Laugh-In" from under our kitchen table (while the adults were sitting around the table) is one of my most vivid memories from my childhood.

Steven Pearlstein: Say Good Night, Dick.

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Columbia, Md.: Steve, I don't get the dig on Leno as 'tired old act'. May be for you, and that is your right, but "The Tonight Show" was working just fine...Why do we blame Leno for NBC's bungling? Some people say Leno should retire gracefully? WHY OH WHY? When did we become a nation of great arbiters on retirement age? I just don't get it!

Steven Pearlstein: Its a tired act and a tired show, that's all I can say. And I'm a pretty conservative, keep-things-that-are-working kind of guy, normally. I actually liked the old Jack Paar show better.

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Alexandria, Va.: Is Leno the Brett Favre of TV? And Jeff Zucker is the Norm Childress?

Steven Pearlstein: Jeff Zucker is the Steve Spurrier of network TV.

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Vindication: Dave must the happiest man in show business these days. I watched him last night and he was gleeful to the point of levitating. I could never stomach Leno after the way he weaseled into the Tonight Show.

Steven Pearlstein: Being happy is the point of the exercise, isn't it? It's not ratings, it's not money, it's what these things can get you, which we generally summarize under happiness. Charlie Rose is happy and he has a much smaller audience still. Good to remember, although that's sometimes very difficult in commercial TV.

My feeling is that if you produce quality programming that appeals to a large audience, and build on successes over time, you get the best outcome for everyone -- viewers, shareholders, creative types and the society as a whole.

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Las Vegas: You use NBC as an illustration of what's wrong with generic US business. I'm OK with that. The emphasis on short-term profit is equaled by an obsession with 'growth.' What's wrong with a little stability in a business so that a steady return is always there? See the utility companies that continue to pay a good dividend based upon a restricted local (state) monopoly. It seems to me that a long-term approach with enough innovation to maintain a steady return would be a good thing. Too much to ask of the traders?

Steven Pearlstein: I love to tell the story of my dad, who owned a very nice clothing store. He had some very good years and I can imagine there were times he came home and said, "You know, last year was our best year ever and I'd be happy to do the same thing again." And of course that is the way many business proprietors look at things. But if you run a big public company and ever dared to utter that sentiment in public, you'd be out of a job before you could get back to your limousine. This double-digit earnings growth fixation has been very harmful.

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Alexandria, Va.: My solution. Tonight Show at 11:35 with Conan O'Brien Monday - Thursday (same days as Jon Stewart, and Carson always took one day a week off)), and then weekly show on Fridays at 11:35 with Jay Leno. Where do I send my bill?

Steven Pearlstein: It's a very good solution actually. Send it to your local NBC affiliate general manager. He's someone that they'll listen to. You, they couldn't care less.

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Washington, D.C.: If it is entertainment they are trying to provide why not address the fact that Leno is not original, creative, clever or funny? It may be an opportunity to fine tune Conan and make a hit out of his time slot.

Steven Pearlstein: Right.

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Charlottesville, Va.: What is NBC going to be doing with 10pm Monday through Friday slot now?

I mean do they know have to come up with 5 original programs? I mean new shows premiere all the time, but 5 all at once?

That seems to me the bigger problem for them compared to Tonight Show.

I like David Letterman's suggestion of new drama entitled "Law & Order: Leno Victims Unit"

Steven Pearlstein: Didn't hear that one. Very funny. Law & Order LVU.

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Arlington, Va.: NBC is treating Jay and Conan like Michael Corleone treated Tessio and Clamenza: Treat them both like crap until one of them just can't take it anymore. Then reward the other one. (They probably won't have Conan killed, though.)

Steven Pearlstein: Careful with those analogies.

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Laugh-In: When I was a kid watching Laugh-In, NBC was definitely the best entertainment and news network. Cronkite was fine, and the whole Saturday night lineup (including Mary Tyler Moore, Bob Newhart and Carol Burnett) was great, but overall, NBC was the best, CBS was second and ABC was kind of cheesy and low-budget. How times have changed.

Steven Pearlstein: And don't forget Get Smart!

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Arlington, Va.: Does Tina Fey just need to hang it up over at 30 Rock? The reality of what's going on at NBC at this points outstrips even her wonderful efforts to satirize the corporate culture, don't you think?

Steven Pearlstein: Hey, didn't I just write that.....We're out of time today, folks. "See" you next week.

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