General Electric (NYSE:GE) is a massive conglomerate, composed of many industrial and financial companies -- plus one big media business, NBC Universal, in which GE has an 80% stake. (The other 20% is owned by Vivendi Universal.) All of GE's businesses are doing pretty well -- see Foolish colleague Anders Bylund's Take on the company's latest earnings report -- except for NBC Universal, which has seen its profit decline 10% in the past quarter and 9% in the past nine months.
As such, the division decided that a shakeup is in order. According to The Wall Street Journal, NBC Universal plans to cut about 700 positions, which would represent 5% of the current employee count and save about $750 million in the next couple of years. In addition, NBC is putting its faith in unscripted programming for many of its 8 p.m.-9 p.m. prime-time slots. The powers that be call this strategy "NBCU 2.0." How hip, huh?
Although the fourth quarter is expected to show profit growth, NBC Universal is spoiling GE's results right now, so it has no choice but to take drastic steps to find a catalyst or two for itself. Layoffs are always difficult and unwanted, but the hope is that efficiencies will be discovered to help the media unit thrive through tough times at its broadcasting and movie operations.
The question on many a pundit's mind is whether unscripted television is the right way to go. Shows like Deal or No Deal and 1 vs. 100 represent interesting programming, and they're cheaper than a series that requires storytelling via scripted dialogue. Economy becomes the driving force in this decision. But will quality and diversity -- and thus, in theory, ratings -- suffer as a result?
I don't necessarily have a problem with NBC increasing the number of unscripted programs on its airwaves. I do, however, have a problem with its being forced to explore one narrow option of engaging an inexpensive format. As some have pointed out, Disney's (NYSE:DIS) ABC tried to use Who Wants to Be a Millionaire to relieve itself of expensive scripted programming. The company ended up beating that horse dead by airing it too frequently. Will NBC's new game shows suffer the same fate? Why should NBC have to do this? Is there another way?
How about not giving in to expensive producer demands? How about keeping an eye on the value of the contracts to talent? If networks like CBS (NYSE:CBS) and News Corp.'s (NYSE:NWS) Fox are to survive the one-two punch of ratings erosion and escalating production costs, they will have to find a way to keep those talent expenses in check. Viacom's (NYSE:VIA) Sumner Redstone made some effort in keeping his costs down when he disagreed with Tom Cruise over the star's compensation structure. My point is that networks have to figure out how to have their cake and eat it, too -- scripted programming is an important driver for them, and they have to negotiate better deals. It can be done, I think. I don't subscribe to the notion that creative product must be expensive to be successful. At the end of the day, it comes down to strong concepts and interesting presentations, not the price tag of talent.
All of this is probably a pipe dream on my part. For now, we'll have to settle for more cheap game shows and reality programs. I just hope NBC doesn't overdo it, Millionaire-style. We'll have to see how NBCU 2.0 ultimately pans out, and whether the company should have said "No deal!"
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Fool contributor Steven Mallas owns shares of Disney and General Electric. The Fool has a disclosure policy.
