Cable's Black Friday: How a Collapsing Business Model Caused Heads to Roll

Last Friday was a big day in television with the announced departure of three different executives ranging from Jeff Zucker at the top of NBC Universal to Bill Roedy, who created Viacom's (VIA) international network of cable clones, to Jon Klein, the much less important but more visible head of CNN in the US.

It's tempting to see all three moves as symptoms of the erosion of television in the digital age. Klein's CNN has been clobbered by the rise of rodomontade TV; Zucker's NBC has been trounced by the other three networks for years but the Jay Leno fiasco was a costly trip up; and Viacom's overseas operations are facing challenges that the Hollywood Reporter describes as including the global ad recession and a shift from Europe's aging population to the younger demographics in the emerging world, "but there the challenge is growing ad revenues and subscriptions from a much lower base."

Television is a rapidly changing business but these moves reflect less the deflationary pressure of digitization than a realignment of television in both content and distribution. The distribution issue -- which is what caused Zucker's departure -- is a bigger story. So let's deal with the personality heavy soap opera of Klein's defenestration.

Jon Klein has few friends in the television business. And that's not just because he was fiddling with the network while his ratings burned. CNN's prime-time ratings fell 31% from the second quarter of 2009 to the second quarter of 2010.
Although he refused to remake the network in the stentorian and operatic voice of his rivals at Fox News and MSNBC (or even HLN, the cousin network where his successor was chosen from,) Klein did make some significant changes. The new show with Eliot Spitzer and the choice of Piers Morgan to replace Larry King are the obvious ones. Klein also fired Lou Dobbs and went out of his way to humiliate Tucker Carlson when he arrived at CNN.

As Mickey Kaus so neatly points out, Klein's disdain for the opinion-driven web-based media blinded him to important shifts in the cable market. For better or worse, cable news is much more like political blogging than network news. This transformation coincided with Klein's tenure and his tone-deafness was exemplified by the cancellation of Crossfire, a show that might have allowed CNN to reap the benefits of the polarization of discourse without having to pander to it . . . entirely.

The loneliness of Jon Klein was made all too real over the weekend as reporter after reporter found it too easy to get a defiantly miffed quote from the former executive. With no one else to defend him, and the media speculation settling on a total lack of confidence in the Spitzer-Morgan moves as the cause of his firing, Klein fades into the soft shadows of ignominy.

The common refrain about both Klein and Zucker is wonderment that the firings hadn't happened sooner. Both CNN and NBC have been in prolonged ratings declines. CNN has been borne aloft by rapid and profitable expansion abroad. Jim Walton, the company's international head, says CNN has 23% compounded annualized growth over the last five years. That's surely not coming from the US.

NBC, on the other hand, has thrived because of the cable assets Robert Wright bought and Zucker managed. Cable, of course, is the reason that Comcast acquired a controlling stake in NBC Universal from GE. Cable is also the reason that the very visible problems at NBC haven't caused Zucker to lose his job. In fact, Lawrence Haverty, a Gamco portfolio manager, thinks the problems at NBC are about to turn around.

Haverty says NBC will be a solid third in the ratings this year with ABC falling to the basement because of the loss of Lost. Being in the basement, Haverty says, costs the network a few hundred million in revenue. Though the network business is fading like the cigarette business, there's still good money to be made in television by changing the flow of dollars through the industry.

Increasingly, integrated media companies are moving toward distributing content that they own and owning content that cannot be distributed another way. By running more shows that they produce themselves and getting tougher on the fees they charge cable operators to carry their content, the media conglomerates are amping up their margins.

That's the secret of the Comcast acquisition of NBC Universal which Haverty describes as "propitious" because the capital was easy to raise in this moment of cheap corporate debt, NBC U's price was depressed by the fixable cashflow problems in primetime and the movie business and, of course, they had the ideal executive in Steve Burke there to fix whip the company into shape.

Most important, Haverty doesn't worry about customers cutting the cable cord because of NBC's investment in sports. Zucker spent a lot of money on the NFL to promote his network shows but that money may have been better spent as an insurance policy against cord-cutting.

The Wrap's Johnnie Roberts adds to that with some speculation that Burke too has plans to try to expand and extend that moat around television content:

For example, some say he has considered giving Comcast cable subscribers on-demand access to NBC's entire nightly lineup immediately after airing the shows -â€" a radical idea that isn't entirely new. Comcast considered the move years ago in a bid to thwart or slow demand for DVRs, which are costly for the cable giant to deploy.

Image of cable remotes courtesy of startswithJ89 via Flickr