NBC ownership highlights Comcast’s programming investment risks

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Comcast is learning that money can’t buy happiness -- or bigger ratings.

In the months leading up to the the Philadelphia-based cable television giant’s takeover of NBCUniversal from General Electric Co., top Comcast executives told Wall Street and Hollywood that they would spend about $300 million more on broadcast and cable programming this year and in 2012 over the levels set by NBCUniversal’s longtime owner, GE.

Comcast has made good on its pledge to invest more on programming, and third-quarter earnings for the company were lower than analysts’ expectations, in part because Comcast ramped up spending for programming, including the launch of NBC’s new fall season.

However, during the first six weeks of the new TV season, NBC’s ratings are down 11% in the key audience demographic of viewers 18 to 49, the group that advertisers pay the most to reach. On many nights, shows on Univision, the Spanish-language television network, score better ratings than those on NBC.

Comcast executives realized they needed to spend millions of dollars to fill cracks that had developed because of ill-fated management decisions by NBC’s previous owner, including the hiring of producer Ben Silverman to program the NBC broadcast network, and GE’s relentless demands that NBCUniversal executives find ways to reduce spending to help shore up the industrial giant’s bottom line. It was such cost-cutting that led to the disastrous decision to give Jay Leno a prime time show after Conan O’Brien took over the storied ‘Tonight Show’ franchise. But Leno tanked and moved back to late night, and O’Brien left in a huff and is now on Time Warner Inc.’s cable channel TBS.

So far this season, NBC already has canceled two new shows, ‘The Playboy Club’ and ‘Free Agents.’ Newsmagazine ‘Rock Center with Brian Williams’ generated weak ratings in its inaugural outing Monday night.

Stalwart network hits -- including ‘The Biggest Loser,’ ‘Law & Order: SVU’ and ‘The Office’ have posted steep declines in ratings. ‘The Office’ and ‘Law & Order: SVU’ have been suffering from the loss of their longtime stars Steve Carell and Christopher Meloni.

‘If you take away ‘Sunday Night Football,’ NBC is really down,’ said Brad Adgate, research director for the ad-buying firm Horizon Media. ‘Their ratings are in cable television channel territory. Their fourth quarter has been pretty disappointing, particularly given all that they have invested.’

Comcast Chief Executive Brian Roberts and Steve Burke, a top Comcast executive who is now chief executive of NBCUniversal, have consistently warned that it could take years to turn around the broadcast network. Comcast owns 51% of NBCUniversal. GE has the remaining 49%.

‘It’s only been nine months since we arrived and started making these investments,’ Burke told analysts during a Wednesday morning conference call to discuss Comcast earnings. Analysts wondered whether NBCUniversal would spend even more.

‘We are where we thought we would be,’ Burke said. ‘I don’t think there is a huge amount of incremental investment in cable and broadcast. But we are still finding areas where we think there are very good return-on-investment, solid investments, and we don’t want to box ourselves in.’

NBCUniversal, Roberts said, was picking its shots.

NBCUniversal’s Spanish-language television unit, Telemundo, in late October outbid its longtime rival Univision Communications for the rights to World Cup soccer tournaments later this decade.

‘This investment should be profitable for Telemundo, and a real game changer for this business and an opportunity for our company,’ Roberts told analysts.

One bright spot looms on the horizon. NBC has sold 90% of its commercial spots for next year’s Super Bowl, Burke said. That revenue should help to defray the costs of the company’s hugely expensive NFL broadcast package. The football championship also will give the network a much-needed boost in prime-time ratings.

‘Programming costs are a challenge, and we are continuing to focus on that, but we are making a real investment,’ Comcast’s Chief Financial Officer Michael J. Angelakis said.

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-- Meg James