Last year, in the final week of February, with CBS ”Evening News”
ratings precariously near those of a resurgent NBC ”Nightly News,” Dan Rather took his show on the road, giving his audience a firsthand look at hard times in the American heartland.
On a dusty country road outside Beeville, Tex., his features as grim as the winter landscape, Rather gently probed the grief of a bankrupt farm family while in the background an auctioneer`s staccato incantation disposed of all that was left of their lives. In terms as bleak as despair and as sparse as a welfare check, they counted their losses.
”That`s our job, it`s our home, it`s our way of living, it`s everything
–everything we`ve worked for,” said the weeping farm wife. ”There`s just nothing gonna be left.”
Exactly one year later Rather might have taken the same ”hard times”
format and applied it outside his own network`s headquarters on New York`s West 57th Street, where 230 of his colleagues–correspondents, producers, technicians–were laid off in one day in continuation of the worst budget crunch in network television history.
CBS was not alone. All along Broadcast Row the fiscal ax, like the guillotine in the Reign of Terror, was rising and falling under the stern hands of a new breed of bosses, nurtured on balance sheets and baptized in the bottom line: Lawrence Tisch, the self-made multimillionaire at CBS; General Electric`s investment-banking whiz Robert Wright at NBC; and the duo of John B. Sias and Thomas S. Murphy at Capital Cities` ABC.
Rather and several other CBS stars, in open rebellion against their new boss and the zero-based fiscal policy that had just trimmed the CBS News department budget by $31 million, marched in a picket line of striking writers and offered to take cuts in their own Olympian salaries.
Rather, in a signed commentary for the op-ed page of the New York Times, lamented the layoffs.
”Our chief executive officer, Lawrence Tisch, told us when he arrived that he wanted us to be the best,” Rather wrote. ”We want nothing more than to fulfill that mandate. Ironically, he has now made the task seem something between difficult and impossible.”
To be sure, the very profile of television tended to expand the story out of proportion to actual numbers involved. In early February General Motors announced a $3 billion cost-cutting program that would result in the loss of 40,000 jobs. The story wound up on page 7 of the Wall Street Journal. When CBS laid off 230 at its news division one month later, the story was front-page news in the Journal and most other newspapers. Don Hewitt, executive producer for the CBS newsmagazine ”60 Minutes,” says that was the genesis of all the turmoil.
”They fired a lot of people, and I wish it hadn`t happened, but they`ve fired a lot of people in aerospace and steel and cars, too,” he says.
”Turmoil is what the press makes it. Let a steelworker be out of work, and nobody cares. Let a journalist be out of work and it`s, `Oh, my God . . .` You`d think this was the priesthood. We weren`t ordained; we were hired.”
But there was a motive beyond mere celebrity for all the headlines. For the first time in its brief and often profligate life, network television
–news and entertainment alike–was in trouble, and the affliction involved more than a beady-eyed view of the bottom line. The piper, wearying of the tune at last, had packed it in and presented his bill.
Always, the commercials that pepper prime-time programming had been worth just what the networks said they were worth, and they were worth more and more every year. For advertisers, ABC, CBS and NBC were the only game in town. Producers of prime-time programming, which frequently costs more than $1 million per episode for an hour show, went deep into debt to create the series and sitcoms that carried the commercials, hoping to recoup their investment in syndication after a successful network run. Like a blackjack dealer with a shaved deck, the networks couldn`t lose, and they reflected the fact through decades of perks and privileges and executive suites filled with art and opulence, and through lush years of courting television writers and critics with champagne, caviar and Hollywood stars at Tavern on the Green
or 21 in New York and the Polo Lounge or the Century Plaza in Los Angeles, where the price of a single ”press tour” could have kept a middle-management employee on staff for a year. But the rules of the game were changing.
Affiliates, once the obedient vassals of their networks, had broken out of bondage, pre-empting their parents` programming at will in favor of highly rated syndicated fare. Abetted by a satellite-fed technology barely out of the realm of science fiction, they had taken to sending their own camera crews, often with little experience beyond coverage of police and city-hall beats, to world hot spots traditionally the turf only of seasoned network correspondents. Resulting pictures, often on local newscasts two hours ahead of network evening newscasts, were eroding evening audiences.
James Rosenfield, a veteran both of NBC and CBS, where he rose to senior executive vice president of the broadcast group before he took early retirement several months before Tisch arrived, says the troubles had been incubating for years. ”We saw a lot of it coming, but we didn`t realize the true impact it would have,” he says. ”Some of us did, but we didn`t believe it enough to take the steps that were necessary.”
Rosenfield says it all began in 1976 when, after decades of steady but unspectacular growth, the television advertising market suddenly erupted as a whole new stream of consumer products, ranging from computers and electronic games to fast-food franchises, washed over the marketplace, leaving ABC, CBS and NBC swimming in surplus wealth.
”Prior to 1976 the advertising expenditure was approximately the rate of inflation plus (the year`s growth in) the basic gross national product,”
Rosenfield says. ”I can easily remember the budgeting process from year to year. It was as complicated as adding 9 or 10 percent to the revenue stream and letting all the other numbers flow from that. It was automatic. I remember I was a big hero in `76 because I had budgeted for a 12 percent increase and, in fact, we had a 21 percent increase. It was unbelievable.”
What was equally unbelievable was the suddenness with which the great gravy train ground to a halt. Rosenfield says that came about largely as the result of a sudden lessening in the rate of inflation, the flurry of mergers, takeovers and acquisitions that became the vogue in the early 1980s and of the Reagan administration`s determination to deregulate American business
–broadcasting included.
”Disinflation hit at the same time we had this frenzy of megamergers in which a significant number of network television advertisers merged and economies of scale were taken where 1 plus 1 represented 1, or 1 1/2, instead of 2,” he says.
The merger mania, with its resulting consolidation of advertising budgets, left the networks with fewer sponsors than they had before, even though the same number of companies were in the marketplace. Procter & Gamble and Nabisco both went on acquisition sprees, swallowing up nearly a dozen companies, and Philip Morris acquired the giant General Foods, always a massive television advertiser.
”You put those companies together, and the total advertising expenditure became less than the sum of the parts,” Rosenfield says. ”At the same time, the new media were finally beginning to challenge network as an alternate electronic sight, sound and motion opportunity. Cable suddenly was a viable source, getting into more than 50 percent of the homes, and basic cable channel operators became sophisticated enough in marketing to be able to undercut the networks in segments–teeny, tiny segments, but segments, nonetheless.”
As competition increased for a shrinking audience and a narrowing commercial base, the networks started offering advertisers 15-second spots, a move that eroded income even further because advertisers then could get almost the same exposure for half the price, and by February the segments being cut by cable were no longer so ”tiny.”
As network fortunes foundered on the shoals of merger and deregulation, cable operators and programmers swarmed in to salvage the flotsam. The Cabletelevision Advertising Bureau estimated television households soon will be spending $12 billion a year on cable programming and that this year cable advertising revenue will top the $1 billion mark for the first time in history. Deregulation made it possible for ESPN, the sports cable channel, to land the juicy plum of a National Football League contract giving it 13 games this season as well as the Pro Bowl, which will be seen for the first time in prime time.
With the refinement of satellite distribution and the formation of a ubiquitous television news service called Conus Communications, under which member stations supply each other with film clips and stories, independent stations also entered a gold rush, adding 250 new stations to the marketplace in five years.
What was a boom for the independents, however, swiftly turned to bust, as independents and networks alike live by the sword of advertising. Suddenly, with ad budgets combining and the market going soft, the ”indies” greeted 1987 with a flurry of bankruptcies and ”for sale” signs. By February the trade journal Electronic Media was reporting 60 of the country`s 305 independent television stations were on the block.
”The independents are suffering the same thing as the nets,” says Daniel J. Good, head of merchant banking for Shearson Lehman. ”Grant Broadcasting, down in Florida, just went bankrupt. That was a double whammy because they were so leveraged through the use of junk bonds. They didn`t have their costs under control.”
William Suter, media analyst for Merrill Lynch, agrees.
”The independents have had trouble,” he says. ”They`ve got all day to program and all day to sell. An affiliated station, which has network programming coming in, only has to program 30 percent of the time, so he`s got less programming to spend money on and less time to sell. So when things slow down he`s hurt less than the independent who has a big inventory and not as much demand for it. The independents have gotten whipsawed by higher programming costs and more inventory and, therefore, lower revenue growth. When things slow down, they get hurt the worst.”
To make matters worse, networks and independents alike emerged from their decade of plenty with their assets clustered together the way the U.S. Navy had its battleships laid out at Pearl Harbor. When the economic air raid came, the bombs could scarcely miss.
”In the network economy, for 20 years, never less than eight nor more than nine corporations represented 25 percent of the network business,”
Rosenfield says.
Last year, according to the Television Bureau of Advertising, the current eight top-spending corporations–Procter & Gamble, Phillip Morris, General Motors, Unilever, McDonald`s Corp., Ford Motor Co., American Home Products and Anheuser-Busch–alone pumped $1.97 billion into network coffers in an overall $21.6 billion television advertising market, of which ABC, CBS and NBC are only a part. Even with those gargantuan figures, however, CBS and ABC were down from the previous year. Only NBC showed a gain.
”The next quartile was never more than 20 companies and never less than 18, and they brought in another 25 percent,” Rosenfield says. ”Another 50 companies raised the percentage of business to 75 percent, and the last 25 percent came from 400 companies. When half your business is affected by the megamergers, it`s no wonder network television was hit hardest, and that`s exactly what happened.”
But mergers and takeovers hit the networks in another way undreamed of when the Federal Communications Commission was in the business of issuing and enforcing rules and regulations instead of dismantling them. One of the first things President Reagan`s FCC Chairman Mark Fowler did in the drive to deregulate and re-establish a free market was throw out the old rule that said the purchaser of a television station must operate it for three years before selling it. The ”three-year” rule made it impractical, if not impossible, to buy television stations or networks on a speculative basis with the hope of turning a quick profit through resale. Television, with its regulated emphasis on public service, was shielded from the corporate raiders and arbitragers of Wall Street.
With the rule gone, stations and the networks themselves suddenly became choice properties with undervalued stocks ripe for speculation. CBS, already reeling from a financially exhausting libel suit brought by retired Army Gen. William Westmoreland, soon found itself under buyout pressure from conservatives allied with Sen. Jesse Helms, Wall Street arbitrager Ivan Boesky, a bid from Denver oil baron Marvin Davis and finally a junk-bond siege from Atlanta broadcasting maverick Ted Turner. That is when Tisch, who did not build his Loews Corp. into a billion-dollar holding company by ignoring the bottom line, stepped in to ”save” the network, ultimately by purchasing 24.9 percent of its stock. By then, after its own bid to buy back stock and thwart Turner, CBS Inc. had accrued a crushing debt burden of $1 billion.
While Tisch deposed president and chief operating officer Thomas Wyman and assumed the throne at CBS, General Electric moved to acquire RCA and with it NBC, which soon found itself being run by Wright, a brilliant business executive but one whose broadcast experience was limited to Cox Cable, of which he once was president. Meanwhile, a floundering ABC was taken over by Capital Cities Communications Inc., a broadcast group with impeccable credentials, and given to the care of Sias and Murphy, who at least were conversant with the business. Rosenfield predicts that move eventually will mean ”a very significant competitive advantage to ABC.”
