In Depth

TV Industry Job Cuts: What’s Next?

More Bad Economic, Advertising News Coming

Last week’s avalanche of pink slips emanating from Viacom and NBC Universal may be the worst of it for the immediate future, but media executives will have to digest more bad news on the economic and advertising fronts before television industry workers feel much security.

“I think for now, meaning over the near term, they’ve done what they have to do and they’ll just sit back and assess the progress of the economy,” said Harold Vogel, veteran media analyst and CEO of Vogel Capital. “That doesn’t preclude another round of layoffs sometime next year.”

Mr. Vogel expects the deterioration of the economy to flatten out, but thinks a real recovery won’t happen for two and a half to three years.

“It is a three- to five-year process correcting a 30-year party in the equity markets, and borrowing has to be reduced significantly,” he said.

Last week, Viacom, which owns MTV, Nickelodeon, BET and other cable networks, said it was cutting staff by 850 people, or 7% across all of its divisions. NBC Universal, which owns the faltering broadcaster and several strong cable networks, said it was cutting 500, or 3%. Though both companies have operational soft spots, they cited the economy as necessitating their cuts.

Even before the economic meltdown that accelerated stock market declines in October, television companies had been struggling to make the transition from traditional broadcast and cable delivery to a digital world. That transition, along with cultural changes in how leisure time is spent and technologies that disrupt ad viewing, have altered the fundamentals of their business.

Now, with the economy officially in recession for 12 months, there’s even more pressure on ad-supported media.

Giant media agency ZenithOptimedia today is releasing a new forecast that predicts spending on major media will drop 6.2% in 2009 compared to 2008, which will finish with a 3.8% decline. The next two years won’t make up the losses, as the agency projects a gain of just 2.1% for 2010 and 2.8% in 2011.

In the television market for 2008, Zenith forecasts that spending on network will be flat, cable will be up 6%, spot will be down 8% and syndication up 6%, for a total decline of 1.5%.

In 2009, Zenith expects network to be down 5%, cable down 2%, spot down 12% and syndication off 2%, for a total drop of 6.7%.

Bruce Goerlich, president of strategic resources for ZenithOptimedia North America, said this recession is different from past recessions because, instead of being led by business spending, it’s being powered by a drop in consumer spending. That will translate into less advertising in many categories, led by the automakers, he said.

While some companies, notably consumer packaged-goods marketers, may spend more to try to capture market share, they tend to buy less prominent advertising inventory at lower prices. That means their dollars won’t really replace spending by the automakers, who pay for premium opportunities, Mr. Goerlich said.

Advertisers that are spending will tend to want higher-quality programming, which will help the broadcast networks even as their audiences shrink, he said. It also will help top-tier cable networks with high-rated original programming, he said.

Viacom announced its long-anticipated staff cutbacks on Thursday. The company also is suspending pay raises for senior-level managers in 2009 and will write down the value of some programming and other assets.

The cuts, which show the company isn’t immune to the declining economy, follow a difficult third quarter in which overall profit declined. Operating profit at Viacom’s cable networks also fell in the third quarter, reflecting ratings challenges at some networks and a tough advertising sales environment.

In a research report, analyst Spencer Wang of Credit-Suisse said ratings continue to be soft at some of Viacom’s most important networks, including MTV, VH1 and BET.

“We believe that Viacom’s ratings weakness will continue to exacerbate the macro-related ad market softness,” Mr. Wang said, estimating that the company’s domestic ad sales will fall 4% in the fourth quarter.

Mr. Vogel, who authored the book “Entertainment Industry Economics,” added that Viacom “had a tremendous spurt of growth for 10 to 20 years. Usually when those things happen, there’s an excess of employees.”

Paring too deeply carries its own dangers.

“I think firing people ought to be the last thing that any company does,” Mr. Vogel said. Media companies are “getting to the point where they have to be careful about cutting back too far, which is a point that they reduce their productivity and their creativity and they lose good people that they’re going to need when this thing finally turns around.”

Viacom CEO Philippe Dauman said the moves were necessary to adapt to the challenges of the economy.

“The changes we are making in our organization and processes will better position Viacom to navigate the economic slowdown and generate sizable efficiencies that will help us to drive our business as the marketplace stabilizes and conditions improve,” Mr. Dauman said.

Judy McGrath, CEO of Viacom’s MTV Networks division, said some groups and functions are being consolidated and others are being outsourced. The company’s resources are being aligned across brands and platforms, and international operations are also under the microscope, Ms. McGrath said in a memo to staff.

“This is not just about MTVN, Viacom or even sister media companies—it’s happening in every industry, all over the world. This doesn’t make it easier to say goodbye to people we love and respect, but it is the hard truth,” Ms. McGrath said.

The restructuring will result in a charge of $400 million to $450 million against fourth-quarter earnings, Viacom said, and the staffing and compensation actions and writedowns are expected to result in pre-tax savings of $200 million to $250 million in 2009.

NBC Universal’s staff cuts were part of the cost-cutting plan it announced two months ago.

“This kind of message is never easy, but it is the right step to make, and the right time to make it,” NBC Universal President-CEO Jeff Zucker said in an internal e-mail at that time. “We have no choice but to respond quickly to the external economic forces that are affecting the entire world economy.”

Mr. Zucker also warned of difficulties to come: “We are living in a time of unprecedented economic challenges, and it is increasingly clear that the worldwide economic slowdown will continue well into next year.”

In October Mr. Zucker decreed $500 million in companywide cuts, but he left it to executives to decide how and where to make the reductions. It is the second wave of cutbacks and restructuring at NBCU in three years.

According to people familiar with the situation, some NBC News bureau operations are affected, including the Washington bureau, where a handful of people assigned to “Dateline NBC” are gone. Among the casualties in the Los Angeles bureau is correspondent Mark Mullen. Veteran Dallas-based correspondent Don Teague also is among those affected.

At CNBC, which is having a boom year because of the economic turmoil, the cuts are said to be far fewer than the 80 reported elsewhere. All the cuts at the financial news network involve off-air personnel.

Among those opting to leave is Josh Howard, head of the long-form unit that just last week won its third Emmy in his three-year tenure. The unit will not be disbanded. In addition, prime-time show “The Big Idea” is on hiatus, but host Donny Deutsch remains part of CNBC’s business plans with monthly specials and long-form programming, as well as appearances on NBC’s “Today.”

“The NBC Nightly News With Brian Williams” and “Today” are said to be minimally affected, with trims being dealt with mostly by retirement and buyouts.

In addition, Amy Chiaro, a well-regarded senior producer from “Today,” had resigned to become co-executive producer with Mindy Moore of next season’s much-anticipated syndicated talk show starring Dr. Mehmet Oz. The expectation is that Ms. Chiaro will not be replaced but that her duties will be parceled out among others.

The layoffs began in NBC Universal’s ad sales department, where about 30, mostly support staffers and researchers, were let go.

The waves of staffing cutbacks at NBCU also hit the Universal City offices of NBC Entertainment.

Around 20 staffers will be leaving the division as part of the companywide cutbacks at NBC Universal, a person familiar with the situation said. Approximately 15 staffers have been let go at the unit, while an additional half-dozen or so positions will be eliminated through attrition.

NBC’s entertainment division already was considered lean due to several past waves of cutbacks over the last decade. The cutbacks in the West Coast unit were said to be smaller than some in other parts of the company.

Josef Adalian contributed to this story.