Profiles in Cowardice

It looks as though the negotiations between NBC and Conan O'Brien will be completed as early as tomorrow, and I couldn't be happier. With the disaster in Haiti, this entire situation doesn't even deserve ranking as a sideshow. However, a couple of things have happened that tick me off and point to the high level of cowardice within NBC's current management. First, Dick Ebersol, the president of NBC Sports, criticized O'Brien and David Letterman for their jokes about Jay Leno, saying that it was "chicken-hearted and gutless to blame a guy you couldn’t beat in the ratings." He went on to say that "what this is really all about is an astounding failure by Conan." Later, he claimed that if O'Brien had only taken his (Ebersol's) advice to water down his comedy to fit the 11:35 p.m. audience, everything would have been fine.

Let's take those arguments, in reverse order. O'Brien DID make his comedy blander and less pointed in order to avoid offending the "Tonight Show" audience. I don't think they ran the Masturbating Bear once during the last seven months, for example. I'd argue that it was removing exactly that edge that made The Tonight Show less entertaining and less interesting. In the last week, O'Brien has taken the gloves off, and his ratings have soared.

Second, the "failure" at 11:35 was hardly Conan's fault alone. NBC knew that putting Jay Leno on at 10 p.m. was going to draw away some of the older audience, and that they might not stay up later to watch O'Brien. If I recall the statistics, the average shortfall in ratings that NBC affiliates suffered by putting Leno on at 10 was 17%. That meant that a 17% lower audience was carrying over into the 11:35 time period for NBC. Of course O'Brien's ratings were lower, because he wasn't fighting on a level playing field. He had to start with the damage caused by The Jay Leno Show.

Before I skip to the first charge by Ebersol, let me bring you another quote, this time from an article last Friday in the New York Times, including a quote from Jeff Zucker, chairman of NBC Universal:

"Mr. Zucker said that it was during a phone call in the first week of January from Jeff Gaspin, NBC Universal’s head of entertainment, that he learned that the network’s affiliates were threatening to pre-empt the Leno show. 'It was becoming tough to deal with,” Mr. Zucker said. “The pressure from the affiliate body was strong.'

Mr. Gaspin’s idea was to move Mr. O’Brien’s show to 12:05 a.m., and give Mr. Leno a half-hour show at 11:35 p.m. 'That’s what he wanted to do, and I said, O.K., give it a shot,' Mr. Zucker said. The shot exploded in their faces."

Ahh, so it's Jeff Gaspin's fault, is it? If all that Zucker was doing was assenting to a plan proposed by his subordinate, why did Zucker go ballistic and threaten to not only pay O'Brien nothing but to keep him off the air for 3 1/2 years? He seems awfully invested in someone else's idea. It sounds more like Zucker is trying to make Gaspin the fall guy. Zucker was the one who came up with the plan to give The Tonight Show to O'Brien in the first place and to give Leno a show at 10 p.m. after Leno wouldn't agree to a show at 8 p.m. If he didn't originate the harebrained scheme of musical chairs starting with moving Leno back to 11:35, he most certainly approved it.

Which brings me to the "chicken-hearted and gutless" remark by Ebersol. Who's more chicken-hearted and gutless in this situation: O'Brien, standing up for himself, or Zucker, hiding behind Gaspin? For that matter, when Ebersol's Winter Olympics coverage loses $100 to $200 million for NBC, which he's said that it's going to do, I wonder who he'll blame or whether Zucker will stand up for him.

Comcast/NBC Universal: It's Not AOL Time Warner

Comcast's acquisition of 51% of NBC Universal from GE has been derided by some observers as the second coming of the AOL-Time Warner deal--two big media companies merging with few real synergies. On the contrary, I think that it's a very good deal for both companies--but it's not without risks.

AOL was "circling the drain" before the merger with Time Warner--subscriptions rates were flattening out, churn was increasing, as were subscriber acquisition costs. The company was hard-pressed to find growth, so it instead engineered one of the dumbest mergers in U.S. history, getting one of the biggest media companies in the world to essentially give itself to AOL. (Let's be clear...the merger was dumb for Time Warner but brilliant for AOL.)

By contrast, NBC Universal is in far better shape than AOL was. NBC's broadcast network is a mess, and the Universal movie studio is questionable (as it's been ever since MCA was acquired by Panasonic years ago), but its cable networks are generally strong, well-run and profitable. It's the cable networks that formed the primary reason for Comcast's interest.

The FCC is almost certainly going to require Comcast to either divest NBC's owned-and-operated television stations in markets where Comcast has cable systems (in Chicago, Philadelphia and Washington, D.C., among other cities) or its cable systems in those same markets. I suspect that it's the television stations rather than the cable systems that will be sold off.

Antitrust arguments against the merger are going to be a lot harder to make; for years, Time Warner owned Time Warner Cable (the second-largest cable operator), a movie studio and a collection of cable networks at least as powerful as those of the Comcast/NBC Universal combination without running afoul of antitrust regulators. Comcast has already pledged to make NBC Universal's cable networks available to competitors. The deal is likely to get done without major concessions beyond those required by the FCC.

The NBC television network can be fixed; it fell from first to fourth place in little more than a year, and one or two years of strong program development could turn things around. (To do so, however, Comcast will have to get Jeff Zucker and his cronies away from the network and install a new programming team.) Universal is a bigger problem, in that Comcast will be its sixth owner in less than 20 years, and no one in that time has figured out how to return the studio to success. The solution may be to sell off Universal in parts, keeping its library and selling off the ongoing studio operations.

NBC Universal's digital assets have been called a key reason for the deal, but I think that they're clearly the tail in this deal, not the dog. The most important digital asset is Hulu, but NBC Universal is a minority owner. Comcast will get a seat at the table, and Hulu will get to play in the TV Everywhere initiative, but it's not going to negate News Corporation's and Disney's interests.

I've learned from my own sources is that Comcast is working on its own low-cost, Roku-style set-top box to make its Xfinity service available on television sets without having to replace millions of existing set-top boxes. This could become the "official" mechanism through which Hulu will get to television sets.

In short, this deal makes sense for both Comcast and GE: Comcast gets control of a treasure trove of content, decreases its costs for distributing some of the most popular cable channels (they become internal transfer costs instead of outright expenses) and gets partial ownership of the Internet video distributor that poses the biggest risk to cable operators. GE gets out of the entertainment business without taking a financial bath, and can focus on industrial, medical and financial areas. The merger will almost certainly go through.