What's the deal with NBC Universal's new 2.0 strategy? First thing: nice job coming up with such positive spin on layoffs. $750,000,000 in cuts correlates with a lot of layoffs, but this isn't about that. It's about "reallocating resources."
Apparently, 700 people will be losing their jobs. Does that mean the average person being canned is paid over $1 million? If so, that would explain a few things.
On a more serious note, here's what NBC plans on doing with the salaries of those 700 employees:
"NBC executives said savings would be invested in new growth areas of media. They said they expected revenue from digital operations like Internet or mobile entertainment to exceed $1 billion by 2009."
What makes the Internet so profitable? Chris Anderson, author of The Long Tail, has some interesting thoughts on this
regarding NBC Universal:
"Earlier this week Universal Music released some initial results from its experiment in tapping its deep archives to measure Long Tail demand for older music (European music, in this case). Unlike most traditional backcatalog re-release efforts, which lead with CDs, Universal made these tracks available only as downloads to keep the costs as low as possible. The aim was to go further down the tail than the economics of physical media and traditional retail would allow, which makes a lot of sense.
The Long Tail equation is simple: 1) The lower the cost of distribution, the more you can economically offer without having to predict demand. 2) The more you can offer, the greater the chance that you will be able to tap latent demand for minority tastes that was unreachable through traditional retail. 3) aggregate enough minority taste, and you'll often find get a big new market."
If NBC is following Universal's lead, the future may be online reruns. Not a bad concept, considering the content is already paid for may times over and the cost of delivering that content - at most a few cents an episode - is nothing compared to what consumers appear to be willing to pay for it. Traditioal TV requires too large of an audience to justify digging into the archives for likable shows.
Of course, in the long run a strategy based on monetizing reruns won't make it because you need good quality first-run shows to create reruns worth rerunning. This is where things get a bit more complicated. Check out this clip from PaidContent
"As reported by WSJ, NBC will abandon high-cost dramas and comedies in the 8 p.m. slot although it is not giving the slot back to affiliates."
No high-cost dramas or comedies but they're still going to run something? Sounds like they're betting on reality shows or yet another news magazine show. If so, the question for people looking out more than a year is, "Do reality shows and news magazines have the long-term syndication potential of dramas and comedies?" Absolutely not. Check out the sales for DVD sets of Friends, Grey's Anatomy, or Seinfeld vs. Survivor, Big Brother, or Average Joe if you don't immediately see the problem here.
The initial layoffs will come from the news divisions; NBCU spends about $1.5 billion annually on news gathering.
To me, this means we'll see even more reports on the latest medical breakthrough from a major pharmaceutical company between commercials from major pharmaceutical companies. And we'll see more regurgitation of press releases from the White House, political parties, and businesses since there won't be enough staff to find out what's really going on in government or corporate America. This will likely drive even more people to news sources other than NBC to find out what's really going on in the world.
What NBCU is really doing right is realizing the benefits of the Internet as a new channel for monetizing their enormous archives of entertainment. However, cuts to today's news coverage, new comedies and dramas doesn't do much to increase market share in today's market and bodes even worse for long term long tail success. With more people turning to the web for entertainment and more people using TiVo and other commercial skipping technologies, the advertising pie will have to shrink at least until businesses figure out how to generate comparable income off their content online.