The Economics of Jay Leno

Television is the next form of content everyone will demand for free.

If Comcast takes over NBC Universal, will Jay Leno return to 11:35 pm?
That unimportant question is emblematic of the pending sale by GE of a controlling stake in its media properties to the cable giant. Mr. Leno was moved to 10 p.m. as a cost-saving gesture: Since his show is so cheap, GE can make money even after chasing away much of its audience for the high-end scripted shows that used to appear at that hour.
As Mr. Leno explained in a candid interview with trade bible Broadcasting & Cable: "If you are making buggy whips and no one is buying buggies anymore, do you keep making buggy whips? I don't know. This is an economic decision."
In Jack Welch's day, an employee perhaps would not have expounded so freely. Otherwise, however, GE is behaving like what it's always been, an unsentimental owner of a business that it no longer likes and doesn't know how to fix.
Yet, truth be told, Comcast's shareholders don't want the job of fixing NBC either. Only the controlling Roberts family does—and then because the alternative may be having no great future as a prominent American business family. Ergo, a deal merging "content" and "distribution" seems inevitable, even though the track record of such deals is unpropitious.
This would be a merger, after all, of two businesses that seem headed toward some combination of the fates of newspapers, music CDs and the old wireline telephone business. Customers want the product for free. Comcast's lifeblood, the $100-a-month cable bill and the $50-a-month broadband bill, increasingly look like duplicative expenses. And so on.

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Associated Press

Jay Leno

True, the number of households that have actually dropped their cable subscriptions in favor of subsisting on TV streamed or downloaded from the Internet is not yet large. But for the Roberts family and its Comcast property, their worst fears lurk just around the corner—being reduced to a "dumb pipe," subject to commodity pricing while somebody else (Google) makes all the money.

Yet an escape route is vexingly hard to envision. Time Warner and Comcast have been talking up plans to make their respective cable lineups available by computer—as long as you keep paying your cable bill. This is a stopgap, especially appealing to anyone who owns two homes but wants to pay only one cable bill. Never mind, too, that hundreds of shows are already available online for free, via Web sites operated by none other than Comcast and the TV networks themselves.
Yes, there's talk of dropping a tollgate next year to encourage customers to keep paying for traditional TV. Good luck with that—if the goal is still to discourage viewers from patronizing illegal file sharing.
No wonder Comcast shareholders say they wish the company would just Leno-ize its cable business—i.e., slash costs and extract cash from it. If there's a miracle out there, it probably resides in that unlikely and humble appliance, the set-top box, which also happens to be an untapped cornucopia of information about what you watch and when, recording every click of your remote.
Set-top data, when married with demographic information and purchasing histories, has long been touted as the foundation of a new kind and a better kind of advertising—personalized, less annoying, capable of commanding higher rates from marketers who lament that half their ad budgets are wasted (i.e., selling cat food to dog lovers), but they don't know which half.
For Comcast and other signal deliverers, then, the long-term trick may be inveigling households into keeping the set-top box at the center of their entertainment lives. Maybe the box will be offered free in the future with your broadband subscription. Maybe it will be offered free regardless of who supplies your broadband. The set-top box will morph into your personal "media computer," a gift from a programming aggregator, as long as you agree to surrender large amounts of personal data about your viewing, surfing and purchasing habits.
Of course, Google and others are already trying to create this business model on the open Internet, without proprietary hardware in your house. If that weren't enough, there's also regulatory risk. Control of popular NBC cable networks such as CNBC and The Weather Channel might seem to Comcast a good source of leverage to keep viewers wedded to Comcast's box—but this is exactly the sort of leverage regulators will be keen to take away as their pound of flesh for approving the deal. Washington's bias, since the Internet went commercial in the 1990s, has been to use every such opportunity to impose on carriers the dumb pipe scenario that carriers are trying to avoid. Just ask the late-great AOL Time Warner.
Bottom line, since a deal seems nearly certain to happen: Would a savvy media investor wish the Roberts family luck in their gamble? Absolutely. Would such an investor care to come along for the ride? Maybe not so much.