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Is Jay Leno NBC’s Waterloo or Borodino?

Jay Leno
NBC puts its big bet on the big chin.

Today marks the first day of Jay Leno’s new 10 PM show, a startling gamble on NBC’s part, a network that hasn’t won, placed, or shown in almost five years of ratings races with the other three broadcast networks. Other networks execs have popped the champagne corks and started crowing that NBC has, with the Leno show, more or less thrown in the towel rather than continue competing as a viable prime-time network, there’s more here than meets the eye. Even James Ponewozik, who understands the TV biz as well as any reporter out there, concedes that “the cold fact about NBC’s Leno strategy is, it is giving up” in his recent (quite excellent) cover story in this week’s Time magazine.

The cold fact about NBC’s Leno strategy is, it is giving up. Whether it’s a brilliant strategic retreat or a premature surrender remains to be seen. But bottom line, what was once TV’s premier network is drastically reducing its expectations: giving up the possibility of developing a lucrative CSI-size hit at 10, swinging for singles rather than the fences, seeking — wisely, for all we know — to ride out the decline of big media with a minimum of damage.

But there’s more here than meets the eye.

It’s a competitive strategy that is not only a viable business strategy, but one that every small business or startup should consider if the circumstances are ripe. I call it the Kutuzov strategy, and there seems no business more ripe for it than network television. Those of us running small businesses and startups might want to learn a lesson from the old, one-eyed Russian general.

You’ve all heard of the Duke of Wellington, the guy who cleaned Napolean’s clock way back in 1815 in a field outside of Waterloo (if Napolean hadn’t been busy text messaging his Twitter followers all that day, things might have turned out differently). But the dude who really did Napolean in was an old and spent general named Kutuzov who, for the most part, is credited with wiping out Napolean’s army in 1812 when the little guy came to party in Russia. And Kutuzov did it . . . by not fighting. By running away.

Now, there’s a certain somewhat sociopathic class of business strategists who are all into war strategy and frantically ply you with quotes from Sun Tzu and Clausewitz. Believe it or not, Clausewitz was hanging around headquarters when Kutuzov beat Napolean’s Grand Army; Kutuzov wisely did not take Clausewitz’ advice seriously (because, despite the fact that Harvard MBA types like to read and quote Clausewitz, he was one of the most losingest military officers in history — next time some MBA wonk quotes Clausewitz, just say “Jena” and “Auerstadt” and leave it at that).

Kutuzov’s great achievement was to run away when Napolean’s army came calling. However, at Borodino, he stood his ground and fought. His only goal was to stand his ground there some 17 miles south of Moscow. 70,000 souls lost their lives at Borodino and the Russian army was nearly devestated; but the French army was mortally wounded.

Kutuzov’s strategy was then to stay out of range and let the French army pretty much die off while his army recovered. Napolean did win the battle of Borodino and was able to occupy Moscow, but the victory cost him his army and his empire. Kutuzov’s army replenished itself and Napolean’s died off. Over half his army was gone by the time Napolean left Moscow. Even then, Kutuzov refused to engage the rapidly fleeing French army, despite the advice of all his other generals. Why attack when the enemy was already dying? Even though the Russian army harassed the French army, they barely engaged it (with a couple notable exceptions). By the time Napolean crossed back into Eastern Europe, a little over 40,000 of his 400,000 man army was left. You read that right — Napolean lost 360,000 men in Russia.

Here’s what Napolean said of the battle of Borodino:

Of the fifty battles I have fought, the most terrible was that before Moscow [Borodino]. The French showed themselves to be worthy victors, and the Russians can rightly call themselves invincible.

That’s what I call the Kutuzov strategy. You’re facing business competition that is much more powerful than you are in a situation that is changing rapidly . . . you don’t engage them on their terms. Your strategy is to hold a long-term profitable ground without taking on your competition head-to-head . . . and wait for them to defeat themselves. You aim to survive and watch the situation defeat your competition for you. When they realize they’re on the wrong path, you now have the strategic advantage and the required competencies.

Here’s NBC’s strategy: while other networks spend upwards of $3 million per show for dramas (the 10 PM slot is literally owned by CBS’s CSI, a bore-a-minute crappy police procedure drama) attempting to pull in 14, 15, or 16 million viewers, NBC is going to spend a fraction of that sum on the Jay Leno show and try to pull in 4 to 5 million viewers (you can see why other network execs think that NBC has “given up”). If they can pull in that many viewers, they can profitably sell their advertising revenue. Spend a tenth of the amount for a third of the viewers.

Here’s the strategic situation:

  • Advertising revenues are in free-fall. The top television advertisers are auto companies (by far), restaurants, and financial services. Auto companies, as you may have heard, are freezing to death in this Russian winter of the recession. The most optimistic projections don’t show any turnaround in advertising revenues for at least a year — some are counting on three to four years out before the TV advertising game starts recovering (if ever — see point bullet two below). Expect quarter-after-quarter declines for at least a couple years.
  • Viewers are leaving network television in a steady and unrelenting stream. Every year brings lower overall numbers for the networks; outside of a few outliers, such as ABC’s Lost, the creative edge has gone entirely over to the cable side of the spectrum. We’re all aware of this and we’re voting with our feet.
  • DVD sales are in free-fall. For a very short time, the pricey dramas and comedies served up by network television had a lucrative second life in DVD release. In fact, through most of the last few years, DVD’s were the one bright, shining spot in television land. No more. Sales have plummeted and the much-vaunted HD technology has not inspired people to go out and stock up on new Everybody Loves Raymond DVDs. Turns out that three million bucks on a CSI episode was a legitimate investment when you considered the DVD revenue window. No longer.
  • Technology is moving blindingly fast — especially when you consider that it can take a couple years for a major series to hit the airwaves, enough time for “the airwaves” to become the horse-and-buggy of content delivery. The most popular channel is now TiVo — further reducing the value of advertising inventory — and major players are scrambling to deliver network content online. I have served as a major consultant for two major, major players (I can’t tell you who) who are moving into the online space. No online content delivery model can deliver anywhere near the advertising value of broadcast. Not even close. So how are the networks going to pay for CSI now?

    Cable fragmented the industry; online content delivery promises to explode it into a million pieces. If you can do a series and get it on Hulu, Netflix, or some other, future online service, why bother with CBS? Or FX, for that matter?

    So what is NBC’s Jay Leno/Kutuzov strategy? Focus on the people who still watch network TV and will still be watching TV in four or five years, do it cheaply, offer reasonable but profitable advertising rates, and fill advertising inventory year after year when the other networks are going bust. NBC plans to have a solid performer in its 10 PM slot in 2011, 2012, or 2013 when CBS, ABC, and Fox cannot generate the revenues to keep doing what they’re doing. And they won’t have the kind of show that can compete against Leno’s solid performance when they start to retool.

    Online content delivery is a rapidly moving target; five million people watching your show on TV will sound like a helluva lot of viewers in four years.

    That’s NBC’s strategy. When confronted with change that can take down major players, find a long-term, profitable ground, stand your ground, avoid direct confrontation, and watch your competition die out.

    But if the networks figure out how to make crap like CSI profitable when most of the audience has migrated online (and stopped buying DVDs), then . . . NBC still has a profitable ground to stand on.

    Look at your business or start-up. Is it founded on long-term profitable ground that avoids direct competition with the big bruisers that can outspend and outmaneuver you? Is the industry changing so rapidly that the major players are, in fact, mortally wounded, but don’t know it? (Think of social networking: Twitter still is a venture capital charity for the rest of us. I don’t care about the millions using Twitter. Is it going to be around in three or four years if they don’t figure out how to make money?) Are you positioned to still be profitable when the industry has totally changed?

    As Kutuzov said, why fight your enemy when they’re already doing a great job killing themselves off?

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  • One Response to “Is Jay Leno NBC’s Waterloo or Borodino?”

    1. It’s now Tuesday morning, and Jay Leno grabbed 17.7 million viewers last night and a 5.1 share in the 18-49 demographic. 16 million is a CSI-level audience and Leno needs to maintain a 1.5 in the 18-49 demographic to attract advertisers and stay profitable. Everyone expected a big first night audience, but not this big. Stay tuned.

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