The Internet Puzzle
NBC Universal CEO Bob Wright has put together all the pieces of the perfect media conglomerate. Will the Web tear it apart?
(Business 2.0) – Bob Wright stepped into the big leagues of media last year, when he led NBC's merger with Vivendi Universal Entertainment. The megadeal turned the TV network chief into a major Hollywood player, with movie studios, theme parks, and an expanded lineup of cable channels in his domain. At a time when big media is aching to get smaller--look no further than Viacom's planned breakup into two companies--Wright decided to double down on creative content. And he might not even be done yet: In July the New York Post reported that NBC Universal is in talks to acquire DreamWorks SKG, a move that would beef up its movie portfolio.
So far, sticking with content looks like a smart bet. Even as NBC plummeted to fourth place in viewership, cable and film earnings kept the company, which is 80 percent owned by GE and 20 percent by Vivendi, growing in the double digits. But Wright has more on his mind than a replacement for Friends. Electronic piracy, the bane of the music industry, is starting to hit movies. Google, TiVo, and Yahoo are threatening to upend the video business. Wright still believes he's made the right bet--content, he says, will have value, no matter who distributes it. But he openly admits that the Internet is making things "awkward" for him. Business 2.0 met with Wright to find out how he plans to sort things out.
What do you make of the fact that a major television executive like Lloyd Braun has gone to Yahoo? I'm happy that things worked out so well. You have to admit, it's surprising. A year ago ABC was down in the dumps and he and Susan Lyne got "Goodbye and good luck." Both of their shows, Lost and Desperate Housewives, turned out to be rescue shows for ABC. It's really quite remarkable that both of them are elsewhere now.
This kind of movement is evolutionary, though. We are all migrating to a digital world, and people move from content businesses to distribution businesses all the time. You happen to be picking one who went to the Internet. They could just as easily have gone to the wireless side or cable or satellite, or some other piece of the distribution game. But of those forms of distribution, the most awkward ones for us are the Internet search engines. And they are very important. I don't mean to downplay them.
What do you mean by "awkward"? Our business is developing, producing, and marketing programming. By choice, not chance, we have taken the position that we are not tying ourselves to one or two forms of distribution. We're going to try to make our programming as available and as marketable to as many forms of transmission as possible. We have broadcasting, cable, satellite, DVDs, and our theatrical base. We've seen wireless join recently, though it's still very early there.
But I think the one that we haven't really embraced as much as we'd like is the Internet, which is represented by Lloyd and his compatriots. The awkwardness of the Internet is that in other forms of distribution we have a relative degree of comfort with the security of the programming that we're transmitting. We know there's leakage from theaters, we know there are stolen and counterfeited DVDs, we know that people steal satellite cards and cable boxes. But each one of those channels has its own form of security. When we get to the Internet, it's just much harder. It's early in the process, and you don't have that level of protection.
Do you think the music business has solved that problem? I ask that question all the time. And I get different answers from people in the music industry. I think they feel obligated to say that iTunes has been very beneficial, but then they point out that they really can't live on the revenue. They look at it as sort of supplemental income. It brings some level of recognition that there is real value in their intellectual property, even if it's only 99 cents, that it's valuable, and that people are respecting that it has some value. But I don't think any of them think it's an answer. And the reality of it is that the peer-to-peer aspect of Internet trading is still wide open.
The history of music was radio and a lot of free promotion. It never had the history that motion pictures did, where people paid for it from the beginning, whether it was a nickel at the nickelodeon or $12 today at a theater. Television has always had advertising support with it. It was never really given away.
Online, leaders like Yahoo haven't figured out the value of video content. And we're grappling with that. We've got to find a way to get there. We have to be able to provide programming in such a way that we don't damage our existing distributors intentionally or even accidentally. The process of how we embrace the Internet isn't clear.
Won't we be able to combine advertising and video over the Internet? The model is just taking form. When I talk to advertisers or agencies, it's not clear exactly what they want out of the Internet. We're not there yet. It's not lost on me that video seems to be the fastest-growing segment in search. And Google and Yahoo recognize that they're going to have to start either producing or licensing content. And I think it makes a lot more sense to license because there's so much content available.
News is one of your key content operations. You recently said that despite all the negative stories about the broadcast news business, the sky wasn't falling. Why? There's always going to be a news business. That's the one thing that's for sure. And there's always going to be a large audience for it. The reported death of network news has been the slowest death of all times. You are so overcome today with alarmingly huge choices for information that there is a need for a place for people to come to get a condensed but big view of what's happening. If I go online, it's hard to find that context.
Now that you have Universal, prime-time advertising is only 15 percent of your business. But it's still a critical barometer of the NBC network's health. What has to be done there? We do have work to do. Prime time is the major league of entertainment programming, and you're trying your very best to get the largest possible audience. We're going through a period here where we don't have as many winners as we're accustomed to having. I'm not denying that we would like to have some wonderful replacements for Friends or ER, but, you know, they don't all show up on the same day.
Does the advent of video-on-demand and the DVR mean the 30-second slot is an endangered species? No, I don't think so. Some of the cable operators have said to me, "Bob, you know, if you'll give us your programs and let us put them in a video-on-demand basis, then we'll make sure we attach the advertising to them." That's fair. I think we can have our cake and eat it too. I think people are going to get the ability to pick and choose and we're going to find a way to attach advertising to it. Almost like Yahoo does now with search.
Is Yahoo a partner or a competitor? Six or seven years ago, Yahoo was the king of the Net. Then it went into the ditch with everybody else. After the crash in 2001, the people there went back to their roots and rebuilt Yahoo as a search engine. Terry Semel, when he came in there, said, this is a great deal, but other people can be search engines, so we've got to differentiate ourselves here. Yahoo has a significant future. But it isn't quite clear what it is.
FEATHERING THE PEACOCK'S NEST
Wright's deal with Vivendi Universal transformed NBC from an ad-dependent TV company into a media powerhouse with films, theme parks, and expanded cable channels.
Average Number of Television Viewers (in millions)
NBC Universal Revenue by Segment
Note: 2004 revenue is pro forma. Sources: NBC Universal; Nielsen Media Ratings