Jay Leno Decision
As an expert in decision making, I pride myself on identifying examples of good and bad decisions. When NBC fist announced its decision to bring Jay Leno to prime time, I saw it as a terrific bold move decision. The television industry was facing declining viewership and advertising revenue and increasing production costs. Reality TV shows were one way to manage costs and increase profits. With one bold move, NBC created a new business model by putting Jay Leno into five prime time hours a week. The economics were beautiful. NBC reduced costs from about $3M per hour to produce a drama to about $300K. This lowered costs by almost $10M per week. Even if viewership was low, this was good economically. Jay Leno claimed that even if NBC got only 1.5% of the viewers it could make $300M a year. This bold move also kept Jay Leno with NBC instead of defecting to another network. This strategy worked reasonable well for NBC.
But, the economics for NBC were not the entire story. Its local affiliates rely heavily on their 11 PM news for most of their revenues, and the lower ratings for the Leno show significantly drove down their viewership. It seems that a lot of TV viewers simply stay on the same station when the local news comes on. This move was killing local affiliates, and they threatened to stop showing the Jay Leno show to protect themselves. The decision was reversed this week.
So the question is: why was this impact on local affiliates overlooked in the original decision? Was it not considered much at all and became an unintended consequence? Was it an assumption that the impact on local affiliates would be negligible? Was the decision made by NBC in isolation, without any concern about the impact on local affiliates? No matter which of these it was; it was a faulty decision and expensive mistake that could have been avoided if the decision was made more thoroughly.
The decision to bring Jay Leno to prime time provides a case study in decision making, but not the good decision example I originally thought it was. It provides an example of how important it is to think through decisions better than this.
January 13th, 2010 at 11:03 am
This was a great blog and very informative. This decision by NBC will be studied for years as a bad decision and one in which unintended consequences were not considered. For CEOs and businesses to avoid such disasters in the future, they would be advised to read McGrath’s book, Business Decisions!.
January 29th, 2010 at 9:26 pm
REALLY good post here. This is a fantastic explanation.
February 2nd, 2010 at 9:36 pm
The real lesson here is on the lost concept on accountability. Why hasn’t Jeff Zucker been fired? He has made many similar mistakes as the NBC leader but they haven’t been as public. Also, why hasn’t Zucker’s boss ( Jeff Immelt)been fired? The stock price has continually fallen under his leadership , yet neither he nor his direct reports have walked the plank. Under Welch, all these leaders would have been canned a long time ago. I worked at GE for many years and it used to be all about accountability. In corporate America today, the Board of Directors aren’t providing oversight. The CEO reports to them. Unfortunately, as in GE’s case, they are packed with lawyers, politicians and hacks who have never run a business. They are friends of the CEO.
February 2nd, 2010 at 9:37 pm
To go even further - people were tuning out the 10:00 Jay Leno Show, so fewer people were tuned in to the 11:00pm News. That, in turn, kept fewer people tuned into the 11:35 Conan Show, so his ratings were going down.
This winter has been pretty hazardous, weather wise, throughout the country. That typically means more people are tuned into the news to keep an eye on the weather forecasts. NBC has hurt themselves even more than normal due to this!
February 7th, 2010 at 8:10 am
I like to propose other theory why ratings were bad for after Jay Leno show segments.
In the past, Jay Leno show was a major attractor, that required audience to ’sit through’ 11:00PM news just to watch Jay. Once he moved to 10:00PM slot, this no longer was necessary, and people tuned off right after his show was over. Thus the rating dorp for follow-up shows - News and Connan show including.
February 26th, 2010 at 4:42 pm
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March 1st, 2010 at 1:44 pm
Leno doesn’t have to “rehabilitate his image” for me as he wasn’t the ‘bad boy’ in this skirmish with O’Brien. NBC made the decision to move Leno back to his old broadcast time and O”Brien was given every chance to stay on and was compensated handsomely when he refused. Leno didn’t ‘kick anyone to the curb’—he did what he was told in order to keep his job.
March 6th, 2010 at 9:45 pm
Totally agree with you. Great blog!