As the late-night battle at NBC turns into a lose-lose scenario, Comcast (NASDAQ:CMCSA) must feel as if it's about to be handed a lemon. Its deal to acquire a majority stake in General Electric's (NYSE:GE) NBC Universal is steadily turning sour.

How ugly is the battle between Jay Leno and Conan O'Brien getting? It now appears that NBC is willing to buy out O'Brien's contract for a cool $40 million.

If this were only a one-time hit, it would be lamentable, but ultimately forgettable. If sports teams, major record labels, and company boardrooms buy out their contracted talent when things aren't working out, why not NBC?

Unfortunately, there are a lot of moving parts here. Comcast needs to know what it's getting itself into.

For starters, let's see what started this whole mess. Leno's primetime show was a ratings disaster, upsetting NBC local affiliates that took a hit as Leno's 10 p.m. weekday show handed off thinning audiences for their 11 p.m. news shows. O'Brien's Tonight Show has also done poorly, but replacing him with Leno doesn't make a whole lot of sense.

Here are the problems with the move:

  • Given the rift between the two hosts, it's unlikely that watchers of O'Brien's show will stick around when Leno takes over. In other words, Leno will have to win viewers primarily from CBS' (NYSE:CBS) David Letterman, or Jimmy Kimmel at Disney's (NYSE:DIS) ABC.
  • Overexposure isn't a good thing, and it's clear that audiences are burned out on Leno. NBC should have learned from ABC's Who Wants to Be a Millionaire fiasco. ABC had a hit show, but it bludgeoned its golden goose when it expanded the show to air as many as four nights a week.
  • O'Brien can sign with a rival network within a year, according to yesterday's Wall Street Journal. News Corp.'s (NYSE:NWS) Fox is a no-brainer landing spot, further diluting late-night audiences among rival networks.
  • NBC still has to scramble to find replacement programming, and it remains to be seen whether unproven shows will fare any better in delivering viewers to local news affiliates.

There's more to NBC Universal than this mess. Comcast knew that not all of the NBC peacock's feathers would be colorful. However, buyouts are all about timing. Given this late-night disaster, which will only get worse before it gets better, I can't be the only one thinking that waiting a year on this would have given Comcast a much better deal.

What do you think will become of the Leno vs. O'Brien battle? Share your thoughts in the comment box below.

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