Thursday, October 19, 2006

Boob tube, meet YouTube

The massive cuts at NBC Universal could be the first step in spinning the network out of General Electric, a company known for aggressively jettisoning business units that are past their (prime)time.

In a plan called NBCU 2.0, operating expenses will be reduced $750 million by the end of next year through the termination of 700 positions (5% of the work force) and the elimination of costly programming in the first hour of prime time.

Assuming GE succeeds in its goal of returning the division to double-digit profitability, there would be three possible outcomes if the division went on the block:

First, it could go public, as did CBS when it was spun out of Viacom earlier this year. CBS stock is up nearly 10% since the free-standing company debuted in January, 2006.

Second, NBCU could be taken private by investors who would further burnish its performance with a view to exit within three to five years. Universal might be split from the television properties as a separate operating unit, or the whole business could be kept intact.

Beyond these two conventional scenarios, however, the most intriguing alternative is that the likes of Yahoo or Google would buy NBCU to create the first truly integrated media company of the digital era. Here’s why the idea makes sense:

While the classic broadcast business has been faltering, the television networks remain powerful brands with unparalleled visibility, reach and revenue. Their problem is that they are hooked, 1950s-style, on trying to sell enormously expensive, lowest-common-denominator content to viewers (especially young ones) who find it increasingly irrelevant.

It’s not that kids don’t want to watch television. Rather, they don’t like what’s on. Unlike their elders, who for the most part have grown from contented tater tots into full-fledged (and full-figured) couch potatoes, young people know where to find what they want. They go online, where the choices are prodigious, peers steer them to the best stuff and gratification is instant and usually free.

Sites like YouTube, MySpace and Yahoo’s Flickr have achieved rapid growth by making a tsunami of home-grown content immediately accessible to the millions of consumers who in an earlier age would have been perfectly happy watching Bonanza.

Notwithstanding the bodacious page views rolled up by the online sites, they represent a major problem for advertisers, because they deliver only micro audiences that are hard to measure, impossible to predict and, consequently, all but prohibitively inefficient to access. Predictability, it must be emphasized, is a major issue, because the unedited nature of the web means that an advertiser could be embarrassed at any moment by inappropriate, offensive or downright illegal content.

If the increasingly flush Google combined the reach, scale and promotional power of NBCU with the technology, creativity and energy of YouTube, it would be combining the best of both worlds.

Costly network content would be supplanted by do-it-yourself programming from literally a world full of wannabe producers, vying for airtime, recognition and perhaps a small honorarium based on the size of the audience they attract. What reality show could be more real than a competition among producers battling to keep their reality shows on the air?

Far from being laid-back or lean-back, the viewers at home would be fully engaged in the show. Not merely voting American Idol-style, they would be encouraged to contribute to the show via clips and comments dispatched through email, Skype, webcam or cell phone.

The considerable national attention created by the TV show could be directed back at the YouTube web site, creating targeted and interactive advertising opportunities of far greater value that even the dime-per-click keyword ads that turned the Little Search Engine That Could into a 21st Century media juggernaut.

The technology necessary to put the buzz back in broadcasting exists today. Apart from a few billion bucks from Google to get the ball rolling, all GooTube-NBC would have to do is establish safeguards to assure that the new do-it-yourself content was acceptable to the audience, the advertisers and, last but not least, the Federal Communications Commission.

While this is sorted out, it wouldn’t hurt to have a big bottle of Maalox in the control room.