The broadcast networks have lost hundreds of millions of dollars covering the terrorist attacks on the World Trade Center and the Pentagon, and its volatile, uncertain aftermath. But there is more at stake than purely bottom line considerations, according to NBC Chairman and CEO Bob Wright, 58, who also is vice chairman of corporate parent General Electric.
For 15 years he has led NBC through periods of economic turbulence and military conflict. As an architect of industry reform-from affiliate relations to broad deregulation-he brings a unique perspective to these troubled times.
EM: What will be the ultimate earnings damage by a weakened ad market, the terrorist attacks and any ongoing conflict?
Mr. Wright: Analyst reports I have seen in the last couple days have attempted to bracket the industry at down 10 percent to 15 percent in revenue this year. It’s purely speculative beyond the next few weeks. If there is a war atmosphere with events to cover every day, that will take its toll. If it’s more clandestine, with not a lot of pre-emptions, it won’t have as much an impact on advertising revenues. Pre-emptions are really the principal issue.
EM: How much did NBC lose?
Mr. Wright: This was costing us as a group probably about $100 million a day the week of the attacks.
EM: How much might be lost the second or subsequent weeks when things slow down?
Mr. Wright: Maybe half of what was lost the first week. I don’t think we’re going to get any aid for dealing with that. But it may give more credibility to the argument for consolidation of one kind or another with some companies having poorer forecasts going forward.
EM: Could it speed up NBC’s consideration to merge or acquire?
Mr. Wright: It’s hard to tell. [New GE Chairman] Jeff Immelt has been very positive about NBC and very supportive and is not looking to reduce his ownership in it at this time. But there could be opportunities to get bigger, merge and create more size. Having four major news operations gives us a lot of strength economically. Other companies have done that in the entertainment area, like Viacom and Time Warner.
One thing we all may be faced with is whether we want to further align our interests through mergers and acquisitions so we can be less vulnerable to short cycle problems. But right now there is nothing imminent.
EM: Some industry experts say there is no way to offset these initial losses with cost cuts, that they just will fall to the bottom line.
Mr. Wright: I would agree with it as a general principle. But we have an advantage over most of our competitors because we got in the cost reduction mode almost a year ago. We put into place many problems to reduce our cost structure-some of them permanent. And we’re getting the benefit of some of those cost reductions now, including digitizing our operations. So we have more room to deal with increased expenses from more news coverage and the decreased ad revenue that goes with that. We also have three news networks with big news budgets that don’t need to increase costs so dramatically right now. They can just shift one level of coverage to another. So we may not be as impacted as others.
EM: Some analysts estimated that sustained news coverage and loss of ad revenues added up to as much as $10 million in daily losses for each network initially. What will it be going forward?
Mr. Wright: It’s impossible to say. It depends on what happens. When you get outside the U.S., you have different kinds of incremental costs-higher telecommunications costs and restricted access to satellites and communications. There’s the cost of housing and moving people around.
The biggest issue is revenue. It’s been hard even to schedule advertising when you have so many interruptions because of the emergency nature of the coverage. Advertisers are not anxious to get into certain kinds of news coverage. Right now we’re OK with that. But if you have to constantly jump to special announcements and speeches, you just lose a lot of units. We just do the best we can.
EM: How much could sustained news coverage of this conflict cost you?
Mr. Wright: We have no idea because we don’t know what it is. Analysts are basically saying the industry will be impacted 10 percent to 20 percent next year in earnings. We already reported that for the first half of 2001, before all of this, we were down 10 [percent] to 15 percent. The rest of the year could be substantially impacted by the fourth quarter.
EM: What are you expecting from the fourth-quarter advertising market?
Mr. Wright: I think the fourth quarter, absent a war, will be pretty strong because there are lots of advertisers who lost a couple of weeks of reaching their largest audience. So they need to get their marketing plans going. There will be a carryover of money that would have been spent in the third quarter. These are marketing companies, so advertising is not a luxury.
EM: Are you trying to special-package or special-price the fourth quarter?
Mr. Wright: It’s not a price issue. Pricing is down anyway. The issue now is just getting them on the air. There are some advertisers who are quite anxious to get on but who think their creative needs a little change. Starting this week, I think you are going to see very heavy advertising blocks, and pricing will be strong because of the demand.
EM: So make-goods and placement are issues that will iron out over time?
Mr. Wright: The problem is you just don’t know how long it goes. If you’re carrying tremendous make-goods into 2002, that’s not very positive.
A lot of advertisers don’t want to be in certain kinds of news material, but that doesn’t necessarily work for the entertainment people because if there is heavy news going on and we’re running it, we’re going to get big numbers in the news.
EM: So are you trying to get some advertisers to consider news programming placement?
Mr. Wright: Yes. I remember we had this exact problem with coverage of the Gulf War. We have relatively solid evidence from that period that the audience reaction was quite positive to the presence of advertising after the initial breaking news was reported.
We are trying to get our message to the agencies and buying groups to make the point that we’ve been through this before.
EM: Which advertisers are buying into news?
Mr. Wright: The foreign automotives seem to be taking advantage of this, and that was also the case in 1991.
EM: Do you think your programming costs will rise if you and other networks decide to shed less costly reality programming for more costly, feel-good family dramas and comedies?
Mr. Wright: The biggest cost issue potentially will be the fact that we have some programming that we own that we can’t run when we want to because of these sensitive times. We have the added cost of pre-empting our own programming with news programming. If you don’t run an episode of `Friends,’ you run the risk of losing all the revenue that went with it-and having too many episodes to shove out later into the year. And then you have the pocket cost of producing the news.
I do not believe we will change the mix of entertainment programming that we already planned.
EM: Would this be a time for broadcast networks to shift their evening news to an hour in prime time, which has periodically been considered?
Mr. Wright: I don’t think so. I think that time is past. We have regular newscasts on two of our networks that reach over 70 million homes.
EM: Are you concerned the February Olympic Games you televise might be jeopardized from a security or promotion standpoint?
Mr. Wright: No. I think just the opposite. That’s why I was disappointed to see the Ryder Cup canceled. I think those kinds of events are bonding, and they are very valuable to the viewer’s list of options. I think they will be extremely well supported. People don’t want to be depressed on a 24-hour basis by television or anything else.
EM: How could the industry be forever changed by all of this?
Mr. Wright: I think we’re all going to be more security-conscious, and that will help and hurt our busine
ss. It will give our employees a greater sense of protection, but it also will have the unintended impact of reducing our ability to cover news, or make it more expensive or awkward to do that.
EM: How concerned are you that major affiliated TV station groups are warning they will miss earlier earnings forecasts?
Mr. Wright: Don’t forget, many of them have very high margins and are not in any economic danger. But it depends on the company.
EM: I understand you were on the West Coast when the World Trade Center was attacked and that upon returning, you and your wife Suzanne visited all the East Coast news operations.
Mr. Wright: It was one of the hardest times since I’ve been with NBC. I was in Long Beach, California, meeting with a group of customers, which I do periodically. We were stuck because of the travel ban. I finally got a ride with a group of oncology specialists who chartered a DC-9 to take them back East in the first available window on that Thursday.
So Suzanne and I, Friday through Sunday, visited the various NBC News, WNBC, MSNBC and CNBC operations. It’s one of the more reassuring things you get to do. They [the news staffs] are tired but energized. They really rise to the occasion.
One of the more gratifying things was to learn that within 24 hours of the attack, Jeff Immelt called New York Mayor Giuliani and pledged $10 million to support the families of the uniformed firefighters, policemen and emergency services workers who have died. That gave all of us a great sense of pride. GE was the first company in the nation to make a donation, and it set the bar.
EM: How are you and others getting through this?
Mr. Wright: It’s very hard being in New York. And it’s very sad for New York. The city is all tangled up, and most of the tourists have left. People are concerned to fly. The fire, police and emergency workers have done an incredible job. The city has been hit hard by disaster on one hand and the economic impact on the other. Everyone has a relative, a friend, a business associate or someone they know who was lost. It’s a very difficult period emotionally.
I think the way you go on is to just keep looking forward. I think we’ll all get through this.