The Humbled Peacock NBC : Network Struggles for Hits : Media: President Robert Wright has steamrolled change but often gets blamed for a ratings debacle.

Earlier this year, 90 of NBC’s top executives met at General Electric’s spartan Crotonville, N.Y., conference center for three days of corporate brainstorming.

Such retreats tend to be routine. But on this occasion, NBC President Robert C. Wright called the group together for what one participant described as “shock therapy.”

One cold slap was an NBC-produced video called “The Comet.” Interviews with such heavyweights as John Malone of Tele-Communications Inc., Michael D. Eisner of Walt Disney Co. and former Hollywood studio chief Barry Diller laid out an alarmist message:

Technology is moving forward so rapidly, they said, that the wrenching changes that have scorched the networks in recent years will look mild compared to what is just around the corner. By the turn of the century, Wright told the executives, the three networks will see their share of the viewing audience plummet to 42%.

For seven years, Wright, a Jesuit-educated former prosecutor, had been working to craft an NBC that could compete in this new environment. Believing that traditional over-the-air broadcasting had a limited future, Wright plunged the company into cable programming, overseas partnerships and high-tech ventures.

But clarity of long-term vision is not how TV networks are judged--not by the critics, not by advertisers, not by producers, and not even by so notoriously brutal a competitor as GE Chairman John F. Welch Jr., who bought the company from RCA in 1986.

Then, NBC was at the crest of a six-year prime-time winning streak that generated billions of dollars in profits.

Now, as the chastened executives gathered outside New York City, NBC was mired in third place in the ratings. It had only one show in the top 10. The daytime schedule had shrunk to four hours. Important affiliates such as KRON-TV in San Francisco no longer carried the network’s Saturday morning schedule. David Letterman had humiliated the network by defecting to CBS. A scandal was about to break out at NBC News.

So when Welch rose at the retreat to deliver what was supposed to be a pep talk, he could barely conceal his displeasure.

One of the managers indiscretely suggested that the network could be “a lot more successful” if GE gave a “little more support.” Welch’s face reddened.

“Well, let’s see,” Welch shot back. “Seven years and $500 million in development money, and you guys haven’t produced one hit yet.” He paused. “Where are the hits?”

Judged by that standard, these indeed are troublesome times for NBC--worse than the dark days of the early 1980s, when the network had been in third place for so long that it was dismissed as “brain dead.”

That world was much simpler. A typical TV viewer had only a dozen channels to choose from. The networks collectively pulled in 80% of prime-time viewers. Advertisers stampeded to pay ever-increasing ad rates to hawk soap and cars. There were no VCRs.

It was an old-fashioned cure--hits--that revived NBC from its ‘80s malaise. The unprecedented success of such shows as “Cheers,” “Family Ties” and “The Cosby Show” powered the network into first place.

And as Welch observed, no such rating successes have arisen on Wright’s watch.

Yet despite Welch’s bluster--no real surprise to NBC executives who have endured two years of rumors that Welch and GE want to dump the network--GE may be ready to embrace the structure Wright has created, hits or no hits, as it leaps into the video unknown.

In a rare appearance last week, Welch told NBC employees that he had no plans to sell the network. Instead, say knowledgeable industry executives, Welch will probably “rebirth” NBC within General Electric.

Aware of the rapid changes taking place in the TV industry because of fiber optics, satellites, digital storage and video compression--the electronic architecture behind the 500-channel cable TV systems of the near future--Welch wants to find ways that NBC can take advantage of GE’s high-technology base in the “post-channel” world that TV is entering.

It is unclear if Wright, 49, will be present for the rebirthing. A cerebral manager with a lawyer’s penchant for argument, Wright frequently is blamed for NBC’s problems.

A few weeks ago, Welch--unhappy with NBC’s blizzard of bad press--sounded out ABC News President Roone Arledge about the possibility of running the company. Arledge, who created ABC’s “Monday Night Football” and built ABC News into an industry leader, declined.

No wonder. NBC’s core business--its broadcast network and the seven TV stations it owns--is rapidly shrinking. The company’s revenue has slid since 1988; operating profit is at a third of its 1989 peak. NBC’s prime-time ratings this season are down 10% from a year ago and more than a third below their peak.

And within the network itself, which accounts for about 65% of NBC’s annual revenue, there are major programming problems.

Veteran sports producer Don Ohlmeyer, hired to revitalize NBC’s entertainment division, still has not nailed down a replacement for Letterman. That delay in filling one of the network’s most profitable time slots could prove costly. Also, the network may dump almost half of its low-rated prime-time programming next fall--one of the biggest overhauls of all time.

These can’t be written off as transient, short-term problems; network TV remains the heart of NBC, and the heart is sick. But the biggest challenge remains positioning NBC for the new television era.

In this new world, the most-valued companies are no longer NBC, CBS and Capital Cities/ABC--which had combined network revenue of $10 billion last year--but instead are cable/entertainment conglomerates such as Time Warner Inc., Tele-Communications Inc. and Turner Broadcasting Systems Inc.

Wright would like NBC to look more like TCI and less like ABC or CBS. He wants NBC to be less dependent on the cyclical, hit-driven nature of network television that has so clouded his years at the helm.

The most ambitious of Wright’s ventures has been the launch of CNBC. Transmitted now to 49 million homes, the cable channel, with its inexpensive mix of business and personal finance news, prefigures the NBC of the future.

CNBC spends an average of $2,700 an hour on programming--a fraction of the parent network’s costs. After a $200-million investment and five years of losses, CNBC is projected to earn a $10-million profit this year. Next year, the amount is expected to double.

But the Ft. Lee, N.J.-based cable channel is hardly a glamorous property. Its signature program has turned out to be “Real Personal,” a talk show on American sexual mores that has featured a colorful parade of guests, including high-class call girls, polysexual couples and dominatrixes.

CNBC is only one dimension of NBC’s electronic diversification.

Even before Wright’s arrival, NBC had a stake in the Arts & Entertainment cable channel. And under Wright, it has invested in a slew of cable TV networks--American Movie Classics, Bravo, Court TV, News 12 Long Island, Prime Sports Channels America. NBC also grabbed stakes in emerging technologies--San Francisco-based Interactive Network, which allows home viewers to play along with game shows, and NBC Desk Top News, a joint venture with IBM that delivers customized news reports to personal computers.

Combined, the new businesses now bring in $330 million--10% of NBC’s overall revenue. Wright expects cable to make up 25% of NBC’s revenue within five years.

“GE didn’t buy into NBC to be limited to the traditional core business,” Wright said. The additional revenue from these ventures--coupled with cost cutting--are the reasons that NBC today makes money rather than loses it, he contends.

For all the innovative investments, though, it was the cost cutting--and the decimation of the network’s way of life that it wrought--which brought Wright the enmity of the established TV world.

An outsider whose only previous TV experience had been as president of Atlanta-based Cox Communications’ cable TV division, Wright knew little about network broadcasting when he became NBC president in 1986. Welch plucked him from his post heading GE’s financial services arm.

An elitist, Wright’s replacements for top NBC executives came from the ranks of Washington political insiders, not the network. Several were GE cronies.

His blunt operating style cut like a knife. During a management conference in Florida, he rebuked station managers after a weak presentation, calling them a “corporate embarrassment” in front of their wives.

Wright waged a jihad against NBC, seeking to remake its hidebound corporate culture--where a waistcoated butler punctually would serve cocktails on a silver platter every afternoon at 4 p.m.--into the GE paradigm of competitiveness and efficiency. He shed about 2,000 jobs at the company--25% of its work force--and sold off NBC’s once-proud radio business.

NBC News alone lost 400 of its 1,400 employees, closing bureaus in San Francisco, Paris and San Salvador and downsizing outposts in Rome and Miami. Wright contends that those changes have enabled NBC News finally to turn a profit, earning an anticipated $20 million this year compared to a $125-million loss five years ago.

But it was as if a neutron bomb had hit the place.

“Bob eliminated the institutional memory at NBC,” said Francis Martin, former president of KRON. “He thought he knew more about the business than anybody else.”

Wright, added former NBC Chairman Grant Tinker, “was asked to take on too much, and in the process let get away key people who were the difference between success and failure.”

In Tinker’s view and others’, the upshot has been NBC’s ongoing slide in prestige and profitability. The diversion of energy and resources to new ventures, critics say, was not accompanied by sufficient attention to the company’s key asset--its network and its television stations.

Put off by glitzy Hollywood manners, with no background in programming, Wright ceded virtually unchallenged authority from the outset to then-chief programmer Brandon Tartikoff. Tartikoff, along with Tinker, was credited with the network’s tremendous ratings gains in the 1980s.

But the hit shows faded--in part because, as NBC became more successful, it also grew more cautious, sticking with proven but aging hits longer than it should have. By eliminating the layer of management directly beneath him, Wright left NBC’s entertainment division executives with no sounding board for their ideas. Tartikoff left in 1991 to head Paramount Pictures. Wright continued to leave programming choices to his successor, Warren Littlefield.

Last year, to capture younger viewers targeted by ABC and the new Fox network, NBC jettisoned some of its popular shows whose appeal was mostly to older viewers, such as “In the Heat of the Night,” “Matlock” and “Golden Girls.” The programs immediately were picked up by ABC and CBS.

Nor have programming misfires been the only problem within the troubled entertainment division.

No matter how much Wright whacked away at overhead by laying off employees, closing news bureaus or selling “non-strategic assets,” the cost cutting had limited effect because of rising entertainment program expenses.

From 1987 to 1992, program costs shot up to $1.2 billion from $800 million, even as the shows failed to deliver the audiences that could be counted on in the past. Producers played on the network’s fears of losing its hit shows unless their stiff financial terms were met.

Such circumstances have not been limited to NBC, although the network has been the most pronounced victim. And despite being caught in an economic vise, NBC is on sounder financial footing today than it was in the early 1980s, when its third-place ranking left it barely breaking even. NBC made $204 million last year, and is expected to top that figure in 1993.

Wright is counting on Ohlmeyer to revive the network’s ratings fortunes. But whether NBC ever again achieves unqualified supremacy in its traditional business is not as important to him as the company’s being a player in as many different emerging corners of the television business as possible.

If his strategy is right, NBC will be ahead of its old network competitors. CBS once was a broad-based entertainment company, but pruned back to its broadcasting roots when investor Laurence A. Tisch took over; the company, he explained, did not need “another new toy in the house.” Capital Cities/ABC Inc. has not expanded its cable holdings in years.

Jim Waterbury, president of NBC-affiliate KWWL-TV in Waterloo, Iowa, and chairman of the network’s affiliate board, says that he originally resisted Wright’s scenario. But now Waterbury, like many affiliate station managers, agrees with much of Wright’s vision.

“He told us that in order to survive, this business required radical surgery,” Waterbury said.

“We had a few incredible years and were feeling good about ourselves. We thought the bubble was just going to increase forever,” Waterbury added. “Wright saw the changes coming. It was not a popular thing to say.”

As NBC’s prime-time ratings swoon...

Percentage of households watching NBC’s prime-time programs.