Article written by Brian Williams, Co-Founder, Principle Management Consulting
NBC’s late night programming debacle provides object lessons for corporate executives in a number of critical areas. NBC’s executives’ bold game-changing gamble, followed by their quick mid-course correction and its messy fallout, is instructive for executives and business owners regarding leadership; strategic planning; succession and talent retention; distribution; new product development; and, finally, public relations. NBC’s very public predicament also begs the question, as a business owner or senior executive, how do you handle a business blunder?
Nearly six years ago, in a bid to retain a valued talent, NBC agreed contractually to hand the reins of the venerable Tonight Show over to Conan O’Brien, who at the time had been host of the Late Night show for nearly 12 years. In 2004, Jay Leno was 12 years into a successful run as host of the Tonight Show franchise. The then-54 year old Leno was expected to retire, or move into a different role in 2009.
However, as 2009 approached, NBC found that Leno’s Tonight Show was the brightest light in NBC’s sagging schedule in either prime time or late night. NBC was in last place among the four major broadcast networks, and the industry was questioning the wisdom of NBC Universal Chairman Jeff Zucker’s programming decisions. So the quandary Zucker faced was the same one faced by professional sports GMs and corporate CEOs alike: “How do I keep my current franchise player, without losing the guy who is the team’s future?”
The network had faced a similar predicament 18 years earlier, when choosing between Leno and David Letterman, then-host of the Late Show, to replace Johnny Carson as host of the Tonight Show in 1993. History shows that NBC likely made the better choice in picking Leno, but it simultaneously created a monster competitor when Letterman left NBC for CBS, and a newly christened Late Show With David Letterman in the same 11:35pm time slot.
Similarly, a disgruntled O’Brien may have switched to, say, the Fox Network and created yet another viable competitor to an ongoing Leno-helmed Tonight Show. So, back in 2004, NBC capitulated and agreed to a Leno-O’Brien transition in the then-distant future of 2009. At some point before the succession, NBC executives hatched a plan to have their cake and eat it too: move O’Brien into the 11:30 Tonight Show as promised; and “promote” Leno into prime time with an unprecedented, daily, one-hour talk show in the 10:00 pm time slot.
This seemed to be a master stroke of new product development that achieved not only the aim of keeping both Leno and O’Brien on the team, but had a secondary benefit of saving the beleaguered network a ton of cash. The average cost of producing The Jay Leno Show was only $400,000 compared to the cost of a typical scripted one-hour show (think Law and Order) at $1,000,000. To the extent that ratings held up and advertisers stayed on board at 10:00 pm, the new strategy would be a Win-Win-Win for the network, advertisers, and for the two stellar talents.
STRATEGIC PLANNING
In addition to spelling out the details of “What is to be done” and “How it is to be accomplished” a strategic plan needs to be vetted and viewed through multiple filters that include viewpoints of all the “stakeholders” who will be affected by the plan, or on whose buy-in the plan’s success depends. These stakeholders include owners, managers, staff, and customers, but also partners, suppliers and distributors if the company relies on other companies to get their product to market. Any good strategic plan also takes into consideration the element of time – a plan that’s great for the coming five years may be awful for the five years that follow.
In NBC’s case, the strategy that Zucker and his team put in motion in 2004 was actually brilliant – for years 1 through 5 – because it kept both of NBC’s late night stars satisfied, in place, and generating huge profits through 2009. And by the way, the stakes were huge: according to the New York Times, quoting an NBC executive, NBC made more than $200 million in profit on Leno’s and O’Brien’s shows this past year, on revenues of approximately $320 million.
However, the wisdom of the plan fell apart in year 6, when NBC pushed out the 15-year late-night ratings champion prematurely, sending him on what turned out to be a fool’s errand to stake out a place in prime time territory.
This bias toward short-term planning occurs frequently in both big and small business, especially in organizations where senior executives are compensated based on short term profit targets. Especially in today’s environment, where long-term employment is unlikely, or at least uncertain, what incentive does the typical executive have for creating a plan that pays off ten years from now vs. next year? Even the owners of small businesses are often short-sighted because the future is “out of sight, out of mind” while this year’s profits, or next year’s tuition bills, are ever-present and looming.
DISTRIBUTION
Zucker’s plan not only failed to take into account the critical element of timing – was Leno even ready to “retire” from the Tonight Show in 2009? – but it failed to consider the impact on the network’s distribution channel, the local affiliates. Even more damning, Zucker’s plan showed a failure to recognize some key customer insights and consumer behaviors that would ultimately doom their experiment.
Like many businesses, big broadcasters rely on a network of distributors to get their products out to consumers or end users. In NBC’s case, the local TV stations that produce the morning and evening news broadcasts are the conduit for NBC’s programming. The local stations share in the network’s advertising revenues from national programs like Law and Order and the Tonight Show, but they earn a large portion of their profits from advertising sold to run during the local news broadcasts.
The viewership of the late local news depends heavily on the “lead-in audience” they receive from the preceding programs, which are typically big budget, one-hour dramas that have large built-in audiences. Viewers may have some allegiance to a particular station’s news anchors, but they often will simply leave the remote by the bed and watch the news program that follows their favorite drama. After the news, many will simply keep watching the late-night programming that follows, whether it’s O’Brien’s Tonight Show on NBC, or Letterman’s Late Show on the CBS affiliate.
These critical bits of customer insight escaped Zucker’s crew, and they paid the price for it in massive dissatisfaction of local affiliates, who threatened a mutiny if the ratings in the 10pm slot didn’t improve. These affiliates – or distributors – saw their profits slipping by double digits as advertisers defected to the other networks’ affiliates.
NBC’s execs maintains that Leno’s show was meeting the network’s expectations, especially given its lower programming costs, but they failed to calculate the effect on the distributors of their content. So, while the strategy may have been a Win-Win-Win for the network, advertisers, and the talent, it was an unmitigated loss for another stakeholder group, the local affiliates.
In summary, a game-changing strategic thrust can either make or break a business. To make a bold move pay off, executives must consider all the consequences of their actions, much like a chess player considers the ramifications of each move and all the possible permutations of responses. Businesses in any industry ignore the impact of their strategic decisions on downstream stakeholders – like distributors – at their peril. And business owners need to ensure that the timing of strategic maneuvers is geared to meet the company’s needs, rather than to meet managers’ bonus targets.
SUCCESSION PLANNING
The transition from one leader to another is often a traumatic event. From the viewing public’s perspective, the initial transition at the Tonight Show succeeded in being orderly and seemingly well planned. However, we now know that behind the scenes there was pressure and jockeying for position that resulted in Leno’s premature “retirement,” O’Brien’s untimely ascension, and all of the unintended consequences that followed.
Rather than second guess NBC’s planning of the initial transition, it’s more instructive to look at the network’s second transition as an example of what NOT to do when making a mid-course correction. Companies often find themselves in this situation after making a hiring mistake, an acquisition, or other organizational change. It is routine for a VP to be fired, or for a struggling manager to be moved to a more suitable position.
NBC’s decision to make the mid-course correction may be laudable, but their prosecution of it was hopelessly flawed. First, they allowed the news to leak before it was intended to be released. Second, they failed to bring the principals into the loop – and reach agreements – before the news leaked. Third, they failed to respond coherently once the news broke.
The objective of good succession planning is to minimize an organization’s disorientation in the aftermath of change. Another objective is to retain key employees who have been passed over, or who may feel their prospects are lessened under the new leader(s). Still another is to maintain employee morale and productivity. An overriding objective of succession planning is simply to prevent uncertainty and chaos, and to put on a face of stability to the outside world and, especially investors and customers.
Whether it’s transition in the corner office, a change of department leadership or that of another important figure, a clean and orderly transition is not always possible, as in the case of an urgent firing or an unexpected loss. In such cases, communication is especially important to explain the path forward and reassure the “survivors.” In NBC’s case, millions of viewers – the network’s most important stakeholders – are feeling the uncertainty that employees and customers feel when there’s a messy transition at the top of a company. The impact of a poor succession can be the loss of employees, customers, and, even worse, reputation.
NEW PRODUCT DEVELOPMENT
The Jay Leno Show is, arguably, the first new product developed for network TV in the past two decades. Seen as a product, the show was an attempt to create a new hybrid product: part daily late night talk show, part weekly variety show, served at an unfamiliar time, to an uncertain audience.
Any entrepreneur or executive who has developed and launched a new product knows the process is fraught with difficulty and risk. In the end, the success of a launch is a function of two factors: the new product’s features and benefits; and the new product’s fit with its targeted users, their buying behavior, and usage patterns. In other words, a product can have whiz bang features, but fail because the product doesn’t fit with customers’ usage patterns. Alternately, a marketer can have their thumb on the pulse of the target audience’s behavior and usage, but fail due to a product miscue.
NBC’s new product failed because the execs failed to bring distributor and consumer insights – Market Research 101 – into their go/no-go decision making. They thought, because Leno was a known quantity and a proven audience draw, that his popularity after the news would translate to acceptable ratings before the news. But this thinking failed to take into account consumer insights that could have been culled from appropriate pre-launch research and testing.
Too many times, business executives substitute their own experience and knowledge for consumer insight when making product development decisions. Would the CEO of a pet food manufacturer trust her own judgment about the new “Chunky Beef Formula,” or get data from actual dogs? There is no substitute for interviews, focus groups, and quantitative consumer testing among the targeted users of a new product. Such research would have illustrated the difficulty of Leno’s show competing against entrenched one-hour dramas each day of the week.
PUBLIC RELATIONS
In the wake of their decision to pull the plug on Leno’s show, and their clumsy attempt to re-shuffle the late night lineup, NBC and its top brass have been villainized as being inept, callous and dishonorable. Moreover, for a week since news of their plans leaked, the network has become the butt of unremitting jokes and tirades in the press and on TV. And the firm that is buying NBC, Comcast, is being questioned for its judgment in maintaining Zucker as chief.
So, what should a company do when disaster strikes, or when bad news is leaked prematurely?
Many of the developments befalling NBC could have been averted by the implementation of a well-conceived communication plan. NBC should have waged a public relations campaign as aggressive as the one being waged against it in the press and on the talk circuit. Such a campaign would have the following components: 1) Clear confirmation or denial of statements made in the press; 2) Explanation of its position; 3) Expression of appreciation for its star talents; 4) Expression of concern for the well-being of its business partners; 5) Expression of NBC’s desire for a mutually agreeable solution.
Jeff Zucker had an opportunity at the outset of the debacle to take the lead and express his respect and appreciation for the stars; his disappointment that changes have to be made; and his willingness to negotiate openly and fairly with the parties involved. Such gestures could have blunted the negative publicity and even made the network more sympathetic in the public’s eye. In other words, personalizing NBC instead of allowing the network to be characterized as a bumbling, uncaring monolith. After all, NBC made a bold and daring attempt to change the landscape of prime time TV – this type of behavior is worthy of reward rather than punishment. That is, if public opinion SAYS it is.
LEADERSHIP
Even in Hollywood, where employment contracts involve a platoon of lawyers, agents and business managers, there is still a paternal relationship between Boss and Employee. As boss, one cannot cede one’s leadership role to attorneys, spokespeople, or underlings. Direct and earnest communication – after careful strategic and practical planning – is the best way to “hold the high ground” in business relationships.
Since disagreements and disputes are inevitable in the life cycle of every company, the only way to mitigate their impact on a company’s morale, external reputation, and ongoing operations is to lead with compassion, integrity, and certain amount of transparency. It is not necessary – or advisable – for management to divulge every motive and machination within the executive suite. However, executives and owners should strive for enough transparency to make management’s good intentions clear. And when a dispute becomes public, a well-conceived and proactive communication campaign is a critical tool in maintaining the goodwill of external stakeholders and the public.
In NBC’s case, a transparent approach could have allowed the world to see a carefully crafted and respectable public image of a firm trying its best to do the right thing under difficult circumstances. Instead, the network’s leaders largely retreated into the shadows, leaving others to characterize it as uncaring or, worse, incompetent. Either characterization is a poor platform for retaining talent, shareholders, or viewers.
Brian Williams is a veteran management consultant and turnaround expert. As a senior consultant at McKinsey & Co. he advised executives of Fortune 100 companies, and as a marketer at Procter & Gamble, he helped managed such franchises as NyQuil and DayQuil, Pepto-Bismol and Vicks. In his current role as co-founder of Principle Management Consulting he and his partners advise the owners of small and medium-sized companies on strategy, operations, finance, marketing and sales. Contact Brian at brian.williams@pmcadvisors.com.
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