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Last year, I composed a not-so-bullish appraisal of NBC Universal's Jay Leno strategy. NBC Universal, which General Electric (NYSE: GE) has an 80% stake in, wanted to make sure that Leno's services did not wind up in the hands of a competing media entity when they handed The Tonight Show over to Conan O'Brien, so they bestowed upon him a talk program to be aired weeknights at 10 PM. It debuts tonight. I basically argued that NBC would survive without Leno, and that such an odd programming choice at 10 PM, when scripted intellectual assets are usually broadcast, might not be the optimal paradigm to engage.
Well, I still feel this is a risky move, but I do have to say that an article by Scott Collins over at the Los Angeles Times has piqued my interest in the expected economical benefit that Leno-at-10 might imply. Leno might not bring in a ton of eyeballs, but his profit margin could be acceptable given the lower capital necessary to fund his extravaganza.
From a shareholder perspective (and I do own GE, sadly or otherwise), I am fascinated. I was particularly pleased by two quotes in the article attributed to a couple powerful Hollywood players who seem to be miffed by the possibility that the network is attempting to cut costs via the Leno move. One was made by James Duff of The Closer. According to Collins, Duff said putting Leno on at 10 is like moving back in time to the days of AM radio. Industry people, from my read of the article, are apparently worried that if NBC has success with Leno, then it could lead to deflation of their salaries.
That remains to be seen, but I would love it if that were to happen. Hollywood, quite frankly, pays itself too much. You think CEOs are bad? Some of the talent working on television shows are given obscene amounts of money for jobs that would be easily filled by qualified human resources even if the amounts paid were radically reduced. And who suffers? Investors like you and me. NBC is essentially rejecting the idea, in this case, that it always has to chase revenues. This time around, it wants to chase profits. Of course, I don't buy that this was NBC's original intention. NBC, like I said in my previous piece about the subject, was having an anxiety attack over Leno leaving. Will Jeff Zucker, CEO of NBC Universal, replicate the Leno strategy with other time slots, foregoing big ratings for juicier margins? Very, very doubtful. Which is too bad. Some could argue that the reality-show phenomenon proves that networks do think about profits first (like Leno, they're cheaper alternatives to highly-compensated scribes/producers), but I'm not sure filling up a schedule with just reality shows would work. The better concept would be to demand that producers take less money.
I wish NBC the best of luck with Leno. I still stand by my reservations, but I would have no problem with each and every one of them being proven wrong. If the return on investment with Leno pans out, then it could signal at least a minor shift in thinking inside the offices of media executives. Then again, maybe this will turn out to be nothing more than a special situation. You can bet that Disney (NYSE: DIS), News Corp. (NASDAQ: NWS), and CBS (NYSE: CBS) will analyze the ratings for Leno as soon as they come out. Whether the comedian succeeds or fail, he'll have an impact on the future of the network model.
Disclosure: I own Disney, GE; positions can change without notice.
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