Leno - O'Brien Mess Offers Lessons in Management 101

The Wall Street Journal

NBC's handling of the Jay Leno-Conan O'Brien succession provides lessons in what not to do, management watchers say.

NBC made two critical missteps six years ago when the network signed Mr. O'Brien to replace Mr. Leno in 2009, say management consultants. It's a bad idea to promise someone a promotion in order to retain him, they say, and so is naming a successor too far in advance.

The moves came back to bite NBC this month, and offer a cautionary tale for managers in other industries.

Lesson No. 1: "Never try to staff an organization just to block the career options that follow from a talent surplus," says Jeffrey Sonnenfeld, a professor at Yale's School of Management, via email.

In 2004, NBC announced Mr. O'Brien would succeed Mr. Leno atop "The Tonight Show" in 2009. Mr. O'Brien's contract was set to expire, and NBC risked losing him to CBS or ABC. The deal meant that Mr. Leno's tenure would last 17 years, much shorter than predecessor Johnny Carson's 30-year run. By 2009, "Leno was not ready to go and his audience was not ready to let him go," Mr. Sonnenfeld says.

He argues that well-run companies can benefit when stars leave to fulfill ambitions elsewhere: The firm gains a reputation as a hotbed for talent. Ironically, GE, in its corporate ranks, is often cited as an example of this phenomenon. After Jeff Immelt won the horse race to succeed Jack Welch in 2000, runners-up James McNerney and Robert Nardelli left to land CEO jobs at other companies. 3M Co. wooed Mr. McNerney; Home Depot Inc. hired Mr. Nardelli. GE has long enjoyed a reputation as a sought-after place to develop a career.

Such companies "are a breeding ground for stars which is a magnet to attract … ambitious new talent," Mr. Sonnenfeld says.

Lesson No. 2: Don't wait five years between the engagement and the marriage. "There's a Goldilocks time frame for a succession: If it's too short, people don't have enough time to get acclimated," says Ben Dattner, an organizational psychologist. "If it's too long, the world can change."

Most well-regarded CEO handoffs are shorter – especially once the successor has been formally announced. Xerox Corp.'s transition to Ursula Burns from Anne Mulcahy is generally viewed as a model of good succession planning. Ms. Mulcahy signaled Xerox's plan in 2007 by naming Ms. Burns, a Xerox veteran, president. In May 2009, Xerox named Ms. Burns CEO, effective July 1.

An NBC spokeswoman said via email the Conan-Leno situation isn't analogous to other corporate successions, saying it's "a unique decision any company in the talent business faces." NBC named a successor far in advance because it has "a responsibility to protect our franchises." She added: "If you sign a sought after quarterback out of college with the promise he will start in a couple of years for the veteran, but when he does can't win a game, you have to decide if that decision you made then worked … Studios sign deals for film and TV projects, often well into the future, all the time. Sometimes they don't work out because things change."

Management watchers see one bright spot for Mr. Leno: Some corporate stars have returned to employers to complete successful second acts.

Steve Jobs is the most famous example. Apple's co-founder left in the 1980s but returned as an adviser in 1996 after Apple agreed to buy NeXT Software Inc., also founded by Mr. Jobs. A board member convinced Mr. Jobs to retake the helm in 1997, as the company struggled; Mr. Jobs was "interim" CEO until January 2000. He returned the company to profitability, launched Apple-branded retail stores and guided the development of the iPod, which transformed the music industry and Apple.

For Mr. Leno, it's key that he address the controversy, says Matthew Paese, vice president, executive succession management, at Development Dimensions International, a consulting firm. It "would be a mistake for Leno to come back and to not acknowledge that there's been a real hitch in his career," he says.

Acquisition Of NBC Would Put Comcast Among Media Elite

San Jose Mercury News

At a dinner 12 years ago in Redmond, Wash., Brian Roberts challenged the richest man in the world to invest in his business — cable TV.

Other guests, cable industry executives older than Roberts, then a 30-something scion of a cable industry family that owns Comcast, looked at their shoes. Someone quickly changed the subject by asking Bill Gates about his vacation plans.

Two days later, one of Gates' deputies at Microsoft called Roberts, and a month later the company invested $1 billion in Comcast, a vote of confidence in an industry that was struggling to adapt to the Internet and slow to build broadband services.

Roberts is on the verge of his next big moment, a takeover of NBC Universal. The $30 billion deal, the final details of which are still being negotiated, will catapult Comcast from being the top cable operator to a major producer of television and movies, and will elevate Roberts to the top ranks of the media industry elite.

For Roberts, 50, acquiring NBC Universal will be the capstone of years of carefully plotting how to control both the distribution of content into homes and the production of it.

The path from Roberts' moment with Gates to his prominence today is terrain marked by successes big and small — the biggest being the $30 billion deal for AT&T Broadband in 2002, which made Comcast, based in Philadelphia, the largest cable company in the country. It was also marked by one big failure, a hostile takeover bid for Walt Disney Co. in 2004.

After that defeat, Roberts took a small-ball approach to building the company's content assets — focusing on networks such as Versus, the Golf Channel, and E the Entertainment Channel.

He still harbored ideas of a big play for content, but he learned that his approach had to be friendly, as Comcast's own shareholders reacted negatively to the Disney bid. The Disney offer was an all-stock bid for the entire company, while in the case of NBC Universal, Comcast is proposing to use only cash to buy a majority stake.

"In today's world," Roberts said at a recent Internet conference, "people want to get connected to content they love." As they find more ways to connect, "you could make a case" that content "is going to grow in value, and is going to be a healthy business."

Comcast, NBC Deal Faces Snags

Story from the Wall Street Journal

A deal to merge General Electric Co.'s NBC Universal into a new joint venture with Comcast Corp.'s cable networks might solve pressing needs for both companies. But a number of financial and legal issues still hang over the talks, which are still at an early stage.

While both sides hope to complete a deal, people familiar with the matter give the transaction "50-50" odds of coming together.

In the deal under discussion, Comcast would contribute cash and its cable networks to NBC Universal for a 51% stake in the expanded company. NBC Universal would borrow money that would be turned over to GE, along with the cash contribution, according to the person familiar with the matter.

GE would use that cash to buy out a 20% stake in NBC Universal held by Vivendi SA and then pocket the remainder, the person said. In the end, GE would have a 49% stake.

The chief issue for all parties remains valuation. Comcast, for instance, is eager to contribute as little cash as possible, meaning it is seeking a high valuation for its cable networks.

The value for NBC Universal, meanwhile, must also win the backing of Vivendi, which must agree to shed its NBC Universal stake as part of the transaction.

The potential deal also includes options for GE to ease out of its investment in NBC Universal in stages, according to people familiar with the matter. Comcast would not pursue a deal for NBC Universal if there weren't an option to eventually own the entire company, one of the people said.

On Friday, Time Warner Inc. Chief Executive Jeff Bewkes said that his company wasn't interested in an NBC Universal deal. Reiterating recent comments about the media industry's poor track record with big mergers and acquisitions, Mr. Bewkes said that "some deals work, but in the media most of them have not."

Such concerns haven't scared Comcast, which has been talking for years about potential deals for NBC Universal, according to a person close to Comcast. This time, according to the person, Comcast saw an opportunity to eventually own all of NBC Universal without spending much money upfront or adding to Comcast's debt load.

The potential tie-up would give Comcast control over more than 45 million customers spread across TV, the Web and telephone businesses as well as access to a raft of popular cable networks and Web hangouts such as Fancast.

The breadth of that combination would be reviewed by the Federal Communications Commission, which would most likely look at competitors' access to Comcast-owned networks and competitors' ability to get their channels on Comcast's cable systems.

Antitrust regulators may also look at concerns about how the deal might affect local advertising rates, particularly in markets like Philadelphia and Washington, D.C., where Comcast is a local cable operator and NBC owns its local affiliate. NBC owns 26 local NBC and Telemundo stations.

Comcast executives are pursuing NBC Universal in large part because of the rising value of cable-TV channels such as NBC Universal's USA and Comcast's Versus. Cable networks have been resilient businesses even during the recession due to a monthly stream of fees that cable companies pay for the rights to air the channels.

It's unclear, however, whether the cable-network gravy train will persist in the Internet era. The growing popularity of online video viewing raises questions about how the companies that produce entertainment content will be paid for it in the future.

Comcast executives hope a tie-up with NBC Universal would allow Comcast to move faster toward offering movies on DVD, video-on-demand and online simultaneously, according to a person close to the company.

Comcast could also move to blunt the effect of digital-video recorders that let viewers skip ads, the person says. That person suggested the company might simply make all of NBC's TV shows available on demand with full advertising but without the fast-forward function enabled during commercial breaks.

Say It Ain't So, Comcast!

Story from Business Week

Reports that the cable giant might want to buy NBC Universal sent its stock reeling. Media investors have seen this horror film before

As Yogi Berra once said, it's déjà vu all over again. Comcast (CMCSA) is rumored to be interested in buying NBC Universal from General Electric (GE). And just like back in 2004, when Comcast bid $54 billion for the Walt Disney Co. (DIS), investors are horrified. The Sept. 30 reports sent the cable giant's stock price plunging the next trading day, down more than 6% as of 2:30 p.m. ET, even after the Philadelphia company hustled out denials as fast as its spokeswomen could e-mail reporters.

Why does Wall Street give so little love to Comcast CEO Brian Roberts whenever he's seen to be straying outside his mainstay business of wiring homes with cable and delivering crisp pictures and Internet service? For starters, it's hard to find a more notoriously fickle business than entertainment, where TV ratings and hit movies often disappear overnight. Just ask Comcast executives, who five years back paid an estimated $300 million for a 20% stake in movie studio MGM. The cable company has since written down that investment as the debt-laden MGM struggles to avoid bankruptcy. Or ask GE, which has spent a decade in the ratings desert with NBC.

So how might this deal be different? Savvy folks like Roberts and lieutenant Steve Burke, a onetime ABC executive, see value in NBC. Comcast already owns cable channels E!, Style, and others, and plainly is aching to add NBC's brace of cable channels, which include Bravo, the USA network, MSNBC, and SyFy. In fact, cable channels are the hottest properties in the fragmented media world. By collecting fees from cable and satellite operators in addition to selling advertising, cable channels are a hedge against the fast-changing (and not for the better) advertising market.

(According to a report on CNBC, Comcast officials are now talking about merging their content assets with those of NBC Universal to create a new company. Comcast would have 51% control and would put in $7 billion, but wouldn't endanger its credit rating or issue any stock.)
Cable Operators Aren't Growing

But you get the idea that Comcast is mostly worried about the rapidly shifting media landscape and where that will leave the company. Increasing numbers of folks are getting video from online sites and some (though not yet a lot) are killing their cable or satellite service to log onto TV shows via the Internet instead.

Satellite continues to add subscriptions, as do telephone operators such as AT&T (T) and Verizon (VZ) that offer TV service. Cable operators, meanwhile, largely haven't been growing. In the last six months, for instance, Comcast lost about 1% of its 24 million subscribers to "increased competition," it said in its most recent financial filing. It's done a great job so far of making up for the loss by selling its customers on higher-priced digital service and phones, but clearly it can't do so forever.

"Owning a major content stake would give Comcast a tremendous amount of control over the future evolution of distribution venues," says Bernstein Research analyst Craig Moffett. He figures Comcast could help control the destiny of Hulu, the online content site started by NBC and Fox (NWS) and whose online TV shows are seen by cable operators as a looming threat. Moffett also postulates that Comcast would be able to control the timing of when NBC shows or Universal movies show up on its video-on-demand services, perhaps making them earlier than current offerings to enhance their popularity. And that may be true: Even as its investment in MGM tanked, Comcast gained access at cut-rate prices to the studio's large library of older films.
Settling for a Only a Piece?

The payouts from those synergies—a frightening word when it comes to media M&A—are mostly theoretical, though. Most analysts believe the staggering price tag for all of NBC Universal—possibly $35 billion—likely would force Comcast to take a smaller piece. For one thing, federal regulators might not allow Comcast to own NBC TV stations in the same markets in which it owns cable systems.

A truncated acquisition might be just as well for Roberts. He would seem to get his prize, while possibly dodging the storm of criticism that an outright deal would almost certainly set off.

TV Networks Join Comcast Web Test

By The Wall Street Journal

More than a dozen TV networks -- including broadcaster CBS Corp. -- agreed to join Comcast Corp.'s nationwide test of an online-video subscription offering, as companies seek additional revenue streams amid the advertising slump.

Comcast's "On Demand Online" will offer a Web authentication system that will allow 5,000 Comcast customers in markets across the country to verify their cable-TV subscription in order to access programming online at Comcast's Fancast.com and Comcast.net sites at no extra cost.

Financial details of the agreement weren't disclosed.

Broadcasters have been putting popular TV content online free on ad-supported Web sites like Hulu. Unlike their cable counterparts, broadcast networks depend mostly on ad revenue and have little incentive to limit access to content to help pay-TV distributors preserve their business.

Hulu is a joint venture of media companies, including News Corp., which owns The Wall Street Journal.

CBS's participation in the trial could signal a willingness to work more closely with distributors as ad markets suffer through the recession and Web players such as Google Inc. steal market share.

"Today's announcement highlights the industry's growing interest to bring long-form content to consumers via a secure and easy-to-use online platform," said Matt Bond, executive vice president of content acquisition with Comcast.

The agreements signal that a critical mass of major players in the TV business are lining up behind a concept championed by Time Warner Inc. Chief Executive Jeff Bewkes known as "TV Everywhere." Mr. Bewkes has said he envisions an industrywide authentication platform that will allow subscribers to any pay-TV service to access programming online on PCs and mobile devices.

CBS has made many of its TV series available on numerous Web sites, including CBS.com and its own video site, TV.com. But the company has made progress recently in increasing carriage fees that it gets from distributors to complement its ad revenue. CBS does not plan to stop streaming shows it has available on its own Web site and may add series from its pay cable network Showtime down the line, said Quincy Smith, CEO of CBS Interactive.

In addition to CBS, the other networks include cable network AMC, owned by Cablevision Systems Corp.; the Food Network, owned by Scripps Networks Interactive Inc.; and BBC America, owned by the BBC. Along with others, they joined Time Warner's HBO and Turner networks as well as Liberty Media Corp.'s Starz.

The trial will provide online access for Comcast's TV subscribers to some of TV's most popular programming, including HBO shows such as "Entourage" and "True Blood" and TNT's "The Closer." AMC's "Mad Men" and "Breaking Bad" are expected to be included later this summer, and the offering will also include major Hollywood films like "The Dark Knight" and "Juno."

Other broadcast giants such as News Corp., Walt Disney Co. and NBC Universal have yet to participate, although A&E Television Networks, which is participating, is part-owned by Disney and NBC Universal. Comcast, however, is still holding talks with most TV companies to bring more in.

Comcast and Time Warner recently agreed on a framework for putting programming from cable networks online to satisfy consumer demand while still requiring customers to subscribe to a TV service in order to prevent an erosion in their revenue base.

Online-Video Ads Show Slower Growth

As posted by: Wall Street Journal

TV networks have long hoped digital dollars would help offset declines in traditional ad spending, but now even online video is showing some signs of faltering amid the recession.

General Electric's NBC Universal, at an investor conference last week, warned of a slowdown in ad spending on high-end Internet video. The company's NBC broadcast network streams many of its shows online, both on its own Web site and through Hulu.com, the sixth-most-popular video Web property, according to market tracker comScore Inc.

"The most surprising thing to us is how fast the digital marketplace has come to a standstill in the fourth quarter," said Jeff Zucker, chief executive of NBC Universal, during the conference.

Online video is still expected to be one of the highlights of the digital-ad market. When it revised its forecasts for U.S. online ad spending earlier this month, research firm eMarketer predicted that online video-ad spending by U.S. advertisers would grow 45% to $850 million in 2009.

By contrast, Bernstein Research forecast last month that total TV advertising would fall 1.9% this year, and another 5% next year, to $65 billion for 2009.

Despite its small footprint, online video has gotten advertisers excited, as they shift dollars to the Web to keep pace with the amount of time consumers spend watching videos there. But the eMarketer forecast is down from earlier projections of 49% growth and, as the recession forces marketers to scrutinize every penny, no area is immune.

Hulu, a joint venture of NBC Universal and News Corp., which offers programming from NBC, Fox and other networks, says its overall revenue is growing month to month, and that revenue per minute of video watched grew in November from October. But while advertising on the site was sold out as recently as August, it is no longer. (News Corp. also publishes The Wall Street Journal.)

"Clearly the environment today is different than it was four months ago," says Hulu Chief Executive Jason Kilar, adding that the venture "will be ahead of plan for 2008."

The slowing growth in video advertising also highlights some of the obstacles that threaten to keep the sector from reaching the lofty heights its popularity has suggested. Some media buyers say premium online video entertainment is still too difficult to buy, the rates are too high and the audiences are too small.

The industry has yet to settle on a single ad format, so marketers have to change the technical details of their ads to fit the specifications of different sites.

"There still is a lot of inefficiency," says Adam Shlachter, senior partner and group director at WPP media-buying firm MEC Interaction.

In particular, media buyers question whether the prices TV networks charge to advertise next to their top-tier online attractions are worth it. Rates are around $40 per thousand views, which can be more expensive than buying ads on conventional TV.

These rates are left over from a time when major marketers stuck with TV-network Web sites as safe, predictable outlets on the online frontier. They were hesitant to advertise with Internet companies that relied on user-created video, which could range from cute to wildly inappropriate.

That is starting to change, as Internet companies produce higher-quality content and new models for advertising. Marketers increasingly are working with companies like Broadband Enterprises and BrightRoll that can create original entertainment, as well as compile and resell the ad space of multiple partners. This lets the marketers buy ads to appear before bigger audiences at cheaper rates.

Meanwhile, some TV networks are distributing their programs on an array of sites to expand the audience they sell to advertisers. CBS says growth in online-video ad spending across a panoply of sites -- including Time Warner's AOL, Microsoft's MSN and its own CBS.com -- is outpacing the growth of the audience.

CBS says it expects fourth-quarter ad-revenue growth from online video of its network programs to be in the high double digits, compared with a year earlier, but that it's too early to forecast the first quarter of 2009.

"The market's challenged," says Neil Ashe, president of CBS Interactive. "But we're outperforming what I expected us to do in the fourth quarter given the economic environment."

ABC, a unit of Walt Disney Co., says its fourth-quarter online-video ad revenue is up from a year earlier, but it is tempering its expectations for 2009 given the weak economy.

Unilever, a top-spending marketer, says it is continuing to shift more ad dollars to digital, and that online video is an important part of its strategy. The consumer-product giant spreads its ad dollars across both the traditional TV networks and Internet companies.

"There is a lot of quality content that is not coming from the networks at this point," says Rob Master, Unilever's director of media for North America.