General Electric agreed to sell NBC Universal to Comcast, forming a new joint venture television company. The new company will be the third largest television company, controlling networks like NBC, Telemundo, and SyFy. It will operate in an increasingly dynamic industry experiencing audience fragmentation across new distribution platforms. To address this, NBC should expand its portfolio of cable networks through acquisitions or creation of new networks tailored to specific audience segments in order to grow its total audience share.

1. MGMT943
–
Advanced
Business
Strategy
Kellogg
School
of
Management
Orlando
O’Neill
NBCU
TV:
Executive
Summary
In
December
2009,
General
Electric
and
Comcast
Corporation
announced
that
after
months
of
negotiations,
they
had
reached
an
agreement
to
form
a
unique
entertainment
company
through
a
new
joint
venture.
Per
the
agreement,
General
Electric
agreed
to
sell
NBC
Universal
to
Comcast,
which
will
manage
the
company
as
the
majority
stakeholder.1
The
new
company,
if
approved
by
the
FCC,
will
be
the
third
largest
television
company,
behind
Disney
and
Viacom,2
and
control
a
diverse
set
of
well-­‐
known
cable
and
broadcast
television
networks,
including
NBC,
Telemundo,
SyFy,
and
the
Golf
Channel.
The
company
will
be
capable
of
acquiring,
producing,
and
promoting
content
that
can
be
delivered
to
audiences
in
about
200
countries
via
cable,
internet,
and
mobile
platforms
provided
by
Comcast.3
The
new
company
will
shake
up
the
television
industry,
which
is
characterized
by
fierce
competition
for
viewers
that
exhibit
unpredictable,
ever-­‐changing
tastes
and
have
a
vast
array
of
entertainment
options,
including
books,
videogames,
and
the
internet.
Furthermore,
the
industry
is
still
trying
to
determine
the
best
way
to
navigate
in
an
increasingly
dynamic
environment
that
is
witnessing
the
emerging
prominence
of
new
forms
of
distribution,
based
primarily
on
broadband
and
mobile
internet
access.
These
digital
distribution
channels
could
threaten
existing
business
models;
much
in
the
same
way
that
digital
audio
has
impacted
the
music
industry.
It
is
under
these
circumstances
that
we
have
examined
four
aspects
of
NBC
Universal’s
strategy
in
an
effort
to
provide
recommendations
for
the
organization
going
forward.
1. Online
Strategy
–
2. Broadcast
Station
Strategy
–
3. Television
Network
Strategy
–
In
this
section,
we
examined
if
NBC
Universal
should
have
more
or
less
cable
or
broadcast
television
networks.
The
primary
analyses
looks
at
audience
trends
to
determine
the
strategy
that
will
best
position
NBC
to
grow
its
audience
share.
This
is
important
because
advertising
revenue,
which
contributes
a
significant
portion
of
net
income,
is
closely
linked
to
audience
sizes.
Furthermore,
the
section
touches
upon
how
the
relationships
between
the
different
channels
should
be
structured.
4. Type
of
Content
–
(3
of
the
4
sections
have
been
removed
because
they
represent
work
performed
by
my
teammates
that
I
don’t
have
the
right
to
distribute)

2. Chapter
3
–
Television
Network
Strategy
Summary
In
response
to
consumer
trends
in
the
industry,
NBC
should
add
to
its
portfolio
of
cable
networks,
either
through
the
acquisition
or
creation
of
new
networks.
Audiences
continue
to
shift
from
broadcast
to
cable
television,
and
there
is
no
indication
that
this
trend
will
slow
down
or
reverse
any
time
soon.
An
expanded
offering
in
the
cable
market
will
provide
the
company
with
more
avenues
to
air
tailored
content
capable
of
attracting
specific
segments
of
the
fragmenting
audience.
Furthermore,
by
continuing
to
organize
the
networks
in
a
commonly-­‐owned
chain
structure,
NBC
will
have
a
better
chance
of
realizing
the
full
benefits
of
this
strategy.
Audience
Fragmentation
For
the
past
30
years,
the
average
Nielsen
ratings,
which
are
based
on
audience
sizes,
of
the
top
television
shows
have
been
steadily
declining.
This
trend
has
persisted
even
as
the
size
of
the
market
has
continued
to
grow
both
in
terms
of
the
number
of
television
households
and
the
average
time
spent
watching
television
in
each
household.
The
decline
can
be
directly
attributed
to
the
increasing
array
of
content
and
distribution
options,
first
on
the
existing
broadcast
networks
and
then
on
the
emerging
cable
networks.
This
effect
is
often
referred
to
as
“audience
fragmentation,”
and
it
is
particularly
troubling
given
its
impact
on
advertising
and
syndication
revenues,
which
are
both
dependent
on
a
network’s
ability
to
attract
audiences
to
its
programming.
NBC
can
offset
the
impact
of
audience
fragmentation
by
using
cable
networks
to
air
content
tailored
to
specific
target
segments,
such
as
male
boys
aged
9-­‐14
or
science
fiction
fans.
These
segments
can
be
thoroughly
studied
via
marketing
research
to
gain
a
better
understanding
of
their
preferences
and
habits
in
order
to
improve
the
company’s
ability
to
create
content
that
will
be
better
accepted
by
the
audiences.
This
in
turn
could
lead
to
more
shows
reaching
syndication,
which
provides
a
major
source
of
revenue.
In
terms
of
advertising
revenue,
the
portfolio
of
networks
will
allow
NBC
to
deliver
more
value
to
advertisers
by
positioning
advertising
on
the
right
channels,
in
the
right
programs,
for
the
right
audience,
and
at
the
right
price.
This
strategy,
which
is
widely
used
by
major
competitors
in
the
cable
market,
including
Viacom
and
Disney,
depends
on
the
ability
to
air
“niche”
programming,
making
it
less
suitable
for
broadcast
networks.
Factors
favoring
consolidation
Due
to
the
unique
nature
and
“brand
promise”
of
cable
television
networks,
companies
must
continue
to
invest
large
amounts
of
capital
to
expand
their
content
libraries
with
relevant
material
for
each
network
and
attract
audiences
to
that
content
via
advertising.
This
reduces
the
ability
to
realize
savings
by
sharing
content
or
advertising
across
networks,
implying
that
these
costs
will
continue
to
increase
for
incumbents.
Unsurprisingly,
both
expenditures
are
in
the
billions
for
cable
television
companies,
such
as
Viacom,
which
spent
~$3.6
billion
on
content
and
advertising
in
2009,
accounting
for
67%
of
total
annual
expenses,
and
NBC,
which
has
~$9
billion
in
programming
commitments
as
of
2009.
The
effectiveness
of
advertising
in
attracting
audiences
for
new
shows
and
incumbents’
willingness
to
invest
large
amounts
into
it
causes
the
industry
to
favor
consolidation,
which
is
evident
by
the
leading
companies’
network
portfolios.
Consolidation
is
also
favored
by
the
back-­‐end
savings
that
can
be
achieved
in
areas
such
as
broadcasting
equipment.
Relationship
Structure
In
order
to
realize
the
full
benefits
from
this
strategy,
NBC
must
own
the
networks.
Any
other
arrangement
could
undermine
the
company’s
incentive
to
spend
the
requisite
amounts
necessary
to
advertise
the
content
aired
on
those
networks.
Furthermore,
a
well-­‐developed
brand,
such
as
MTV,
can
Page|2

3. be
extremely
valuable
in
the
industry
both
for
attracting
audiences
and
launching
“sister”
networks,
but
it
would
be
difficult
to
quantitatively
measure
an
owners’
performance
in
managing
the
brand.
Lastly,
a
strong,
independent
network
would
have
the
incentive
to
deal
directly
with
third
parties
in
order
to
maximize
its
revenue
by
removing
the
middle
man.
This
would
reduce
NBC’s
ability
to
leverage
that
network
to
its
advantage
when
managing
relationships
with
other
companies,
such
as
advertisers.
SOURCES
1. Arango,
Tim.
(2009).
G.E.
Makes
It
Official:
NBC
Will
Go
to
Comcast.
Retrieved
on
June
3,
2010,
from
the
New
York
Times
website
at
http://www.nytimes.com/2009/12/04/business/media/04nbc.html?_r=2&partner=rss&emc=rss
.
2. Comcast.
(2010).
A
Valuable
Portfolio
of
Profitable
Cable
Channels.
Retrieved
on
May
12,
2010,
from
the
GE
website
at
http://www.ge.com/newnbcu/.
3. Comcast.
(2010).
A
Partnership
Fact
Sheet.
Retrieved
on
May
12,
2010,
from
the
GE
website
at
http://www.ge.com/newnbcu/.
Page|3

4. NBCU
TV:
Detailed
Chapters
Chapter
3
-­‐
Television
Network
Strategy
In
order
to
remain
competitive
in
the
industry,
NBC
should
add
to
its
portfolio
of
cable
networks,
which
will
include
amongst
others
E!,
SyFy,
Oxygen,
and
USA,
the
top
cable
channel
by
primetime
rating.1
This
will
provide
the
company
with
several
benefits
for
managing
revenue,
costs,
and
programming.
By
continuing
to
organize
these
relationships
as
a
commonly-­‐owned
chain
structure,
NBC
will
have
a
better
chance
of
ensuring
the
realization
of
these
benefits.
Owning
a
broad
portfolio
of
networks
will
help
NBC
react
to
changing
market
conditions
that
threaten
traditional
revenue
models.
In
particular,
as
consumers
are
provided
with
an
increasing
array
of
options
for
consuming
media,
audience
fragmentation
continues
to
reduce
the
size
of
television
show
audiences.
During
the
last
30
years,
the
average
Nielsen
Ratings,
a
proxy
for
total
audience
size,
of
the
top
annual
television
programs
have
been
steadily
decreasing,
with
top
programs
now
drawing
less
than
50%
of
the
audience
size
that
was
once
possible
(Exhibit
1).2
As
can
be
seen
in
the
chart
below,
the
decline
has
been
relatively
parallel
on
both
ends
of
the
spectrum,
so
audience
cannibalization
appears
to
be
due
to
an
outside
factor,
which
we
will
show
to
be
the
growing
availability
of
alternate
programming.
Exhibit
1
Average
Nielsen
Ratings
of
#1
and
#30
Ranked
Program
40
Average
Nielsen
RaEng
30
20
10
0
1975
1980
1985
1990
1995
2000
2005
2010
#1
Nielsen
Raung
#30
Nielsen
Raung
The
average
Nielsen
Rating
for
the
top
show
is
projected
to
continue
decreasing
by
~2.7%
annually
with
a
95%
confidence
interval
of
{-­‐3.24%,
-­‐2.14%},
signifying
smaller
audiences
for
even
the
most
popular
shows.
This
estimate
was
arrived
at
by
taking
a
semi-­‐log
regression
of
the
average
Nielsen
rating
for
the
top
show
every
season
by
year,
with
1980
serving
as
the
base.
The
resulting
equation
is
below.
LN(Avg
NiRating
for
Top
Program)
=
3.436
–
0.027*(Current_Year
-­‐
1980)
After
correcting
for
the
log
bias,
the
average
Nielsen
Rating
of
the
top
show
in
2010
should
fall
between
11.83
and
16.46.
The
rating
of
the
top
shows
for
the
weeks
of
April
25,
2010,
the
NCAA
Basketball
Championships,
and
May
3,
2010,
Dancing
with
the
Stars,
was
14.2
and
12.5
respectively.3
This
is
in
line
with
the
estimates
based
on
the
regression
equation,
though
these
are
only
point
samples,
not
full-­‐
season
averages.
Page|4

5. The
regression
points
to
a
continuing
decline
in
audience
sizes
in
the
near
future,
a
notion
that
is
further
corroborated
by
the
two
ratings
samples
taken
this
year.
Given
that
this
projection
is
based
on
past
data,
it
is
impossible
to
accurately
predict
how
long
it
will
remain
valid.
External
factors,
such
as
the
programming
strategies
employed
by
media
companies,
may
accelerate,
decelerate,
or
reverse
the
decline.
Before
accepting
the
increasing
number
of
options
as
the
source
of
the
declining
audience
sizes,
there
are
two
other
possible
explanations
that
must
be
considered:
1)
a
decline
in
the
total
number
of
television
households
and
2)
an
increase
in
the
popularity
of
substitutes,
such
as
videogames
or
books.
Data
released
by
the
Nielsen
Company
refutes
the
validity
of
both
of
these
alternate
explanations.
According
to
the
company’s
estimates,
the
number
of
television
households
continues
to
increase,
though
this
last
year
saw
“the
smallest
increase
in
the
last
10
years”
(Exhibit
2).4
Exhibit
2
Estimated
Number
of
U.S.
Television
Households
On
the
point
of
substitutes,
the
data
shows
that
television
remains
a
very
popular
American
pastime.
The
average
amount
of
time
per
day
spent
watching
television
is
at
the
highest
level
ever
recorded
and
has
been
increasing
for
the
past
decade
(Exhibit
3).5
Exhibit
3
Average
Daily
Television
Viewing
Page|5

6. The
increase
in
television
households
and
average
viewing
per
day
implies
that
audience
fragmentation
is
indeed
a
result
of
increasing
options,
both
in
terms
of
programming
content
and
distribution.
The
fragmenting
audiences
are
increasingly
finding
their
way
to
basic
cable
offerings.
Exhibit
46
below,
which
was
generated
from
Nielsen
Ratings
data,
shows
the
increasing
percentage
of
households
that
are
tuning
in
to
basic
cable
during
primetime,
which
has
long
been
considered
the
most
critical
block
of
programming.
Exhibit
4
Primetime
Viewing
Audiences
by
Households
From
this
data,
primetime
viewership
for
broadcast
networks
is
projected
to
continue
decreasing
at
a
rate
of
about
2.3%
with
a
95%
confidence
interval
of
{-­‐2.6%,
-­‐2.0%}.
This
projection
is
in
line
with
the
2.7%
decline
calculated
above
for
the
ratings
of
the
top
individual
programs,
which
continue
to
be
dominated
by
broadcast
network
shows
that
can
attract
larger
audiences.
Primetime
viewership
is
projected
to
increase
at
a
rate
of
about
10.2%
with
a
95%
confidence
interval
of
{8.8%,
11.6%}.
As
before,
these
estimates
were
calculated
by
taking
semi-­‐log
regressions
of
the
data,
with
1984
serving
as
the
base,
and
yielded
the
following
equations.
LN(Primetime
HH
Rating
for
Network
Affiliates)
=
3.8
-­‐
0.023*(Current_Year
-­‐
1984)
LN(Primetime
HH
Rating
for
Ad/Basic
Cable)
=
1.65
+
0.102*(Current_Year
-­‐
1984)
Broadcast
network
television
continues
to
be
a
successful
medium
for
live
programming7,
such
as
major
sporting
events
like
the
Superbowl,
which
continues
to
attract
larger
audiences.8
Therefore,
NBC
should
hold
on
to
its
broadcast
networks,
but
going
forward,
it
should
focus
any
channel
expansion
in
the
cable
television
market.
If
the
viewership
trends
continue
to
hold,
then
cable
will
eventually
provide
the
most
attractive
opportunity
for
attracting
audiences
to
new
programming.
Audience
fragmentation
is
particularly
troubling
given
its
impact
on
both
advertising
revenue,
which
has
historically
been
tied
to
a
program’s
audience
size,
and
licensing
revenue,
which
is
contingent
upon
a
show
airing
for
three
to
four
seasons.
Both
sources
of
revenue
help
offset
the
high
cost
of
acquiring
and
producing
new
programming.
For
example,
NBC’s
cost
to
produce
one
hour
of
primetime
programming
for
a
drama
can
reach
$4
million9.
At
Viacom,
annual
programming
and
production
costs
were
$2.95
Page|6

7. billion
in
2009,
accounting
for
74%
of
the
company’s
operating
expenses;10
at
CBS,
annual
programming
and
production
costs
of
$5.9
billion
accounts
for
68%
of
the
company’s
annual
operating
expenses;11
and
at
NBC,
the
company
has
programming
commitments
totaling
$8.9
billion
as
of
2009.12
Cable
channels
offer
attractive
incentives
that
can
help
mitigate
the
impact
of
audience
fragmentation
on
the
bottom
line,
including
targeted
audiences
and
two
main
sources
of
revenue.
Cable
channels
have
the
benefit
of
earning
revenue
through
both
advertising
and
subscription
fees.
Although
the
subscription
fees
may
be
small,
the
resulting
revenue
can
be
substantial
when
factored
across
a
large
subscriber
base.
At
CBS,
which
owns
the
cable
networks
Showtime
and
CBS
College
Sports
Network,
cable
revenue
accounted
for
10%
of
total
revenue
in
2009,
and
their
affiliate
and
subscription
fees
increased
by
13%
to
$1.46
billion.11
After
the
merger
between
NBCU
and
Comcast,
cable
channels
will
provide
82%
of
new
joint
venture’s
operating
cash
flow.13
Unlike
broadcast
networks,
which
have
to
air
programming
that
appeals
to
a
wide
range
of
audiences,
cable
channels
can
make
specific
“brand
promises”
to
target
specific
audiences.
For
example,
when
a
viewer
tunes
in
to
SyFy
or
Oxygen,
they
know
that
they
can
expect
a
certain
type
of
programming,
such
as
“Stonehenge
Apocalypse”
or
“DinoShark.”14
Viacom,
Disney,
and
TimeWarner
are
known
to
position
channels
to
target
certain
demographic
groups.
Viacom’s
annual
report
states
that
Our
media
networks
properties
target
key
audiences
considered
particularly
attractive
to
advertisers.
For
example,
MTV
targets
teen
and
young
adult
demographics,
Nickelodean
targets
kids
and
their
families
and
BET
targets
African-­‐American
audiences.10
Audience
segmentation
makes
producing
content
that
appeals
to
the
audience
and
has
a
better
chance
of
reaching
syndication
less
of
a
gamble,
since
the
audience
segment
can
be
better
understood
and
catered
to
in
a
process
akin
to
marketing’s
Segment-­‐Target-­‐Position.
That
same
framework
suggests
that
creating
popular
programming
on
broadcast
television
will
continue
to
be
a
difficult,
unpredictable
task
because
of
the
challenge
of
trying
to
be
“all
things
to
all
people.”
In
the
event
that
one
channel
suffers
due
to
unsuccessful
programming,
the
other
cable
channels
in
the
portfolio
can
buffer
it
until
new
programming
can
be
produced
to
turn
it
around.
For
example,
the
2009
GE
Annual
Report
states
that
“lower
earnings
in
our
broadcast
television
business
($02
billion)
were
partially
offset
by
the
gain
related
to
AETN
($06
billion)
and
higher
earnings
in
cable
($02
billion).”12
The
targeted
audiences
that
cable
channels
draw
can
also
improve
the
value
of
those
channels
to
advertisers,
which
have
steadily
increased
their
annual
cable
advertising
expenditures
(Exhibit
5).15
Exhibit
5
Annual
National
Television
Advertising
Expenditures
Page|7

8. 40,000
Ad
Expenditures
(Billions)
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Network
Broadcast
TV
Nauonal
Syndicauon
Nauonal
Cable
TV
Although
the
size
of
the
audience
is
still
an
important
consideration
for
advertising
decisions,
advertisers
also
emphasize
the
type
of
audience
that
can
be
reached.
In
Disney’s
annual
report
the
company
states
that
for
its
television
networks,
The
ability
to
sell
time
for
commercial
announcements
and
the
rates
received
are
primarily
dependent
on
the
size
and
nature
of
the
audience
that
the
network
can
deliver
to
the
advertiser
as
well
as
overall
advertiser
demand
for
time
on
network
broadcasts.
This
might
explain
why
the
recent
decision
by
the
president
of
Turner
Entertainment
Networks,
Steve
Koonin,
to
hire
Conan
O’Brien
in
an
effort
to
target
a
“youthful
audience”
has
already
caused
two
advertisers
to
take
the
“the
unusual
step
of
calling
Koonin
at
home
to
make
sure
there
would
be
room
for
them
on
O'Brien's
show.”16
CBS
has
identified
this
benefit
as
a
threat
in
its
annual
report,
which
states
“more
television
options
increase
competition
for
viewers
and
competitors
targeting
programming
to
narrowly
defined
audiences
may
gain
an
advantage
over
the
Company
for
television
advertising
and
subscribing
revenues.”11
The
last
piece
of
evidence
favoring
an
expansion
in
cable
channel
ownership
has
to
do
with
the
long-­‐run
industry
structure
analysis
for
the
television
industry.
This
analysis
favors
consolidation
given
the
effectiveness
of
advertising
in
the
industry.
The
cost
of
entry,
F,
for
starting
a
television
channel
is
high,
but
even
if
that
decreases
and
the
market
size
continues
to
grow
in
the
future,
advertising
will
continue
to
buoy
the
cost
to
enter
competitively.
Networks
must
spend
money
on
advertising,
which
plays
a
critical
and
expensive
role,
every
year
to
promote
the
channel
and
new
programming
to
attract
audiences
for
the
shows.
Viacom,
one
of
the
largest
cable
channel
owners
that
relies
on
cable
channel
revenues
to
the
same
extent
as
the
proposed
NBCU/Comcast
venture,
spent
$1.3
billion
(24%
of
total
annual
expenses)
on
advertising
in
2009,
and
that
represents
a
decrease
over
the
$1.6
billion
it
spent
during
each
of
the
two
prior
years.10
Hulu’s
Superbowl
advertisement
in
2009
is
a
testament
to
the
effectiveness
of
this
advertising.
After
airing
the
ad,
“viewership
on
the
video
Web
site
surged
55
percent
to
7.8
million
in
February.”17
Although
Hulu
is
in
a
different
role
as
an
online
video
distributor,
there
are
similarities
in
its
competitive
environment
that
allow
a
comparison
to
be
drawn;
in
particular,
Hulu
competes
with
a
number
of
other
companies,
including
YouTube,
for
viewers
through
advertising
and
content.
A
similar
example
is
available
in
SyFY’s
extensive
marketing
campaign
for
a
new
television
series
that
was
able
to
acquire
a
1.5
million
pre-­‐premier
audience
for
the
pilot.18
Page|8

9.
Now
that
the
case
has
been
made
for
owning
more
cable
channels,
the
next
step
is
to
address
why
ownership
is
a
better
option
for
structuring
those
affiliations
than
contracts
or
other
agreements.
This
section
provides
a
cursory
treatment
of
the
subject
mainly
focused
on
the
benefits
of
ownership
identified
below
in
Exhibit
6,
where
the
items
have
been
grouped
into
broad
categories
and
ordered
by
perceived
importance.
This
discussion
should
be
considered
a
starting
point
for
further
analysis.
Exhibit
6
Pros
and
Cons
of
Cable
Network
Ownership
PROS
CONS
FINANCIALS
FINANCIALS
Acquire
all
advertising
and
subscription
Acquire
all
expenses
and
liabilities
revenue
Protection
against
consolidation
Risk
overpaying
for
the
network
Production
scale
economies
Potential
for
network
to
eventually
fail
PROGRAMMING
PROGRAMMING
Brand
Ownership
Require
programming
to
fill
the
network's
schedule
Full
benefit
of
advertising
and
programming
Need
to
track
consumer
preferences
for
expenses
multiple
groups
Control
over
program
scheduling
Increased
possibility
of
fines,
bad
publicity,
etc.
Increased
utilization
of
content
library
COMPANY
MANAGEMENT
More
touch
points
to
track
consumer
Complexity
of
managing
a
larger
company
preferences
RELATIONSHIPS
Increased
need
for
skilled
managers,
staff,
etc
More
leverage
over
content
producers
Increased
scrutiny
More
leverage
over
multi-­‐channel
video
Risk
diluting
brand
strength
with
central
service
providers
management
Opportunity
for
bundled
advertising
deals
Risk
that
employees
will
“just
sort
of
relax”
There
are
financial
incentives
that
can
only
be
exploited
through
ownership
of
additional
cable
networks.
First
and
foremost,
NBC
gains
all
of
the
network’s
subscription
and
advertising
revenue,
which
is
a
valuable
source
of
the
funding
necessary
to
continue
operations.
As
was
discussed
above,
cable
channels
benefit
from
having
two
sources
of
revenue,
advertising
and
subscriptions
fees.
For
example,
the
cable
networks
that
Disney
owns
“derive
a
majority
of
their
revenues
from
fees
charged
to
cable,
satellite
and
telecommunications
service
providers.”19
If
NBC
structured
the
relationship
contractually,
it
is
uncertain
how
much
of
this
revenue
NBC
could
negotiate
for
from
an
independently-­‐
owned
network.
By
owning
cable
networks,
NBC
will
protect
itself
from
similar
expansion
by
other
companies
that
is
likely
to
occur
given
the
industry
characteristics
favoring
consolidation.
If
NBC
maintains
a
static
portfolio
of
channels,
it
may
see
its
audience
share
and
related
revenue
decline
from
audience
fragmentation
to
the
point
that
its
ability
to
operate
is
significantly
compromised.
This
could
easily
lead
into
a
self-­‐reinforcing
cycle
where
lower
revenue
makes
it
difficult
to
produce
and
acquire
the
programming
necessary
to
attract
and
retain
audiences,
resulting
in
a
cyclical
decline
in
audience
share
and
revenue.
This
threat
is
acknowledged
by
multiple
companies
in
their
annual
reports,
such
as
Disney’s
statement
that
Page|9

10. The
success
of
our
businesses
depends
on
our
ability
to
consistently
create
and
distribute
filmed
entertainment,
broadcast
and
cable
programming,
online
material,
electronic
games,
theme
park
attractions,
hotels
and
other
resort
facilities
and
consumer
products
that
meet
the
changing
preferences
of
the
broad
consumer
market.
Finally,
there
are
production
scale
economies
that
a
company
can
exploit
by
having
multiple
networks
because
“once
you
air
one
channel,
you
can
distribute
a
lot
of
channels
cheaply.”7
This
includes
operational
cost
efficiencies,
such
as
shared
resources,
and
other
back-­‐end
savings,
including
shared
access
to
the
content
library.
When
NBC
purchases
a
network,
it
not
only
acquires
the
channels,
but
more
importantly,
it
acquires
the
associated
brands,
which
can
be
used
to
create
affiliated
channels
where
excess,
similar
content
can
be
placed,
such
as
the
MTV
or
Disney
channels,
to
enhance
its
value
to
the
company.
Developing
a
brand
is
an
expensive
undertaking,
but
once
established,
it
can
be
a
valuable
resource
to
attract
audiences
and
“lift”
associated
content.
If
NBC
allowed
its
channels
to
be
independently
owned,
it
would
be
difficult
to
ensure
that
the
owner
maintained
a
consistent
brand
given
the
incentive
to
air
popular
shows,
regardless
of
their
characteristics
or
source.
Furthermore,
the
independent
network
may
not
possess
the
capital
necessary
to
build
up
its
brand
relative
to
competitors.
In
this
situation,
NBC
would
want
to
advertise
its
programming
to
improve
ratings,
but
that
could
ultimately
have
negatives
consequences.
Any
advertising
by
NBC
would
have
the
potential
to
improve
the
brand
strength
of
the
independently-­‐
owned
network.
This
would
make
the
network
more
attractive
to
competitors
and
increase
its
bargaining
leverage
when
it
comes
time
to
renegotiate
the
relationship.
By
owning
the
networks,
NBC
ensures
that
it
is
the
primary
benefactor
from
its
expenses
in
advertising
and
programming.
Given
that
production
and
programming
costs
are
the
largest
operating
expenses
for
media
companies,
there
is
a
strong
incentive
to
capitalize
on
that
programming
as
much
as
possible.
One
way
to
do
this
is
to
place
the
programs
in
attractive
time
slots
that
are
more
likely
to
result
in
a
larger
audience.
Scheduling
can
ultimately
lead
to
the
success
or
failure
of
a
season
for
a
network.
Fred
Silverman,
who
served
as
president
of
NBC
for
a
brief
period
of
time,
was
known
for
his
skill
in
“the
art
of
scheduling
–
counterprogramming,
stunting,
lead-­‐ins
and
lead-­‐outs.”20
Unless
NBC
owns
the
channels
that
it
contributes
content
to,
it
will
have
to
negotiate
for
the
best
timeslots.
An
independently-­‐owned
channel
would
have
the
incentive
to
maximize
the
benefits
it
receives
for
these
limited
timeslots
to
the
detriment
of
NBC.
If
one
of
NBC’s
shows
becomes
a
hit
on
that
network,
it
may
have
leverage
over
NBC
based
on
the
timeslot
requirement
during
any
renegotiations
depending
on
how
the
contract
is
structured.
NBC
would
have
incentives
to
keep
the
show
from
being
moved
into
a
less
attractive
timeslot,
such
as
the
“Friday
Night
Death
Slot.”21
Control
of
the
programming
schedules
also
provides
NBC
with
the
opportunity
to
utilize
more
of
its
content
library.
Networks
spend
a
large
amount
of
money
to
build
and
expand
a
content
library,
and
there
is
always
a
possibility
that
they
may
have
to
incur
losses
from
write-­‐downs
on
the
value
of
this
content
over
time.
CBS,
which
earns
a
substantial
portion
of
its
revenue
from
licensing,
states
that
“if
the
content
of
its
television
programming
library
ceases
to
be
widely
accepted
by
audiences
or
is
not
continuously
replenished
with
popular
content,
the
Company's
revenues
could
be
adversely
affected.”11
NBC
is
exposed
to
the
same
risk
given
its
programming
commitments
detailed
earlier
and
its
existing
library.
This
should
place
a
sense
of
urgency
on
the
company
to
utilize
content
while
it
is
still
relevant.
Finally,
by
owning
cable
networks,
NBC
gains
an
advantage
in
managing
its
external
dependences
with
advertisers,
content
producers,
and
multi-­‐channel
video
service
providers.
In
the
television
industry,
Page|10

11. “competition
for
popular
programming
that
is
licensed
from
third
parties
is
intense.”11
Contracts
with
top
content
producers,
and
even
television
stars,
for
shows
may
require
guaranteed
commitments
to
purchase
additional
programming,20
which
is
relatively
cheap
to
offer
when
a
company
already
owns
multiple
channels
that
all
have
programming
needs.
NBC
could
also
use
its
ownership
of
popular
channels
as
bargaining
chips
in
its
negotiations
with
service
providers.
These
negotiations
occasionally
lead
to
disputes,
where
the
provider
threatens
to
drop
a
channel
in
order
to
gain
more
attractive
fee
agreements,
as
is
currently
the
case
with
Dish
and
The
Weather
Channel,
which
is
partially
owned
by
NBC.22
If
its
affiliations
with
the
other
networks
were
contractual,
it
would
be
much
harder
to
use
them
as
bargaining
chips
because
the
service
provider
would
just
as
easily
be
able
to
negotiate
independently
with
those
networks,
which
would
have
strong
incentives
to
ensure
the
provider
continues
carrying
their
channel
to
protect
revenues.
Page|11

12. SOURCES
1. Federal
Communications
Commission.
(2009).
13th
Annual
Assessment
of
the
Status
of
Competition
in
the
Market
for
the
Delivery
of
Video
Programming.
Top
20
Programming
Services
by
Prime
Time
Rating,
Table
C-­‐6,
197.
Retrieved
on
April
25,
2010,
from
the
FCC
website
at
http://hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-­‐07-­‐206A1.pdf.
2. Brooks,
Tim
and
Earle
Marsh.
The
Complete
Directory
to
Primetime
Network
and
Cable
TV
Shows:
1946-­‐Present
(9th
Edition).
New
York:
Ballantine
Books,
2007.
3. Nielsen
Wire
Blog.
(2010).
Weekly
TV
Ratings.
Retrieved
on
April
25,
2010,
and
May
15,
2010,
from
the
Nielsen
Wire
website
at
http://blog.nielsen.com/nielsenwire/weekly-­‐tv-­‐ratings/.
4. Nielsen
Wire
Blog.
(2009).
114.9
Million
U.S.
Television
Homes
Estimated
for
2009-­‐2010
Season.
Retrieved
on
May
20,
2010,
from
the
Nielsen
Wire
website
at
http://blog.nielsen.com/nielsenwire/media_entertainment/1149-­‐million-­‐us-­‐television-­‐homes-­‐
estimated-­‐for-­‐2009-­‐2010-­‐season/.
5. Nielsen
Wire
Blog.
(2009).
Average
TV
Viewing
for
2008-­‐09
TV
Season
at
All-­‐Time
High.
Retrieved
on
April
25,
2010,
from
the
Nielsen
Wire
website
at
http://blog.nielsen.com/nielsenwire/media_entertainment/average-­‐tv-­‐viewing-­‐for-­‐2008-­‐09-­‐tv-­‐
season-­‐at-­‐all-­‐time-­‐high/.
6. Gorman,
Bill.
(2008).
Updated:
Where
Did
The
Primetime
Broadcast
Audience
Go?.
Retrieved
on
April
15,
2010,
from
the
TV
By
The
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website
at
http://tvbythenumbers.com/2008/12/03/updated-­‐where-­‐did-­‐the-­‐primetime-­‐broadcast-­‐
audience-­‐go/9079.
7. NBC
Universal
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Telephone
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May
5,
2010.
8. Gorman,
Bill.
(2009).
Superbowl
TV
Ratings.
Retrieved
on
June
5,
2010,
from
the
TV
By
The
Numbers
website
at
http://tvbythenumbers.com/2009/01/18/historical-­‐super-­‐bowl-­‐tv-­‐
ratings/11044.
9. Comcast
and
NBC.
(2010).
The
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Online
Video
Distribution,
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Retrieved
on
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11,
2010,
from
http://www.comcast.com/nbcutransaction/pdfs/ISRAEL%20KATZ%20-­‐
%20Public%20Version%20Stamp%20In.pdf.
10. Viacom.
(2010).
Form
10-­‐K:
2009
Annual
Report.
Retrieved
on
May
11,
2010,
from
http://phx.corporate-­‐ir.net/phoenix.zhtml?c=85242&p=irol-­‐sec.
11. CBS
Corporation.
(2010).
Form
10-­‐K:
2009
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Retrieved
on
April
27,
2010,
from
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