By FRANK SWERTLOW
Pay up or bow out.
That was the message behind NBC’s decision to fork over a whopping $858 million for three more years of “ER.”
On the surface, the economics don’t make sense. After all, why would any business want to lose more than $400 million to keep a product in the marketplace?
Most companies wouldn’t, but broadcasting runs by its own rules, where losing millions of dollars in the short term can mean making millions in the long haul.
In this case, NBC has capitalized on its “ownership” of Thursday nights. Its blockbuster three hours of prime-time programming enables the network to launch new shows sandwiched between the hits.
By keeping “ER” on Thursdays, NBC can now calmly rebuild a night that has been hit hard by the loss of “Seinfeld,” TV’s No. 1 comedy. It also takes the edge off of losing NFL football to CBS.
“Thursday night has been the anchor for its whole schedule,” explained Steve Cesinger, managing director of Los Angeles investment banking firm Grief & Co. “They have launched many of their hit shows on this night.”
But holding onto Thursdays will come at a huge price.
NBC is paying $13 million an episode for “ER” or $286 million a year. At current advertising rates, the show generates $525,000 for a 30-second commercial. With 14, 30-second commercials spread over the one-hour drama, NBC will earn an estimated $161.7 million a year and lose $146.3 million a year, based on current ad rates.
That’s not the end of the story. NBC can increase the rates it charges for commercials, something that is all but certain for next year. Even now, the difference in ad rates for competing shows can be compelling.
For example, a 30-second spot on Fox’s “New York Undercover” costs about $100,000, compared with “ER’s” $525,000 tab.
But more than that, NBC can command higher ratings and thus advertising rates for shows throughout the night that “ER” airs.
“It was critical for NBC to keep ‘ER,’ ” agreed Marc Fiedelson, senior vice president in the media department of ad agency Dailey & Associates. “It is a great source of revenue and a seeding ground to build other strong programs. It is a greenhouse for success.”
Indeed, “Veronica’s Closet,” a new comedy starring “Cheers” alumna Kirstie Alley, shows how important that greenhouse effect can be. The sit-com was the No. 3 show for the ratings week ended Jan. 10 a perch that would have been unlikely if it weren’t the lead-in for “ER.”
In addition, the series brings in millions of viewers to the late-night local news at NBC’s 11 network-owned stations. In fact, during the Jan. 8 ratings week, KNBC-TV Channel 4’s 11 o’clock news in L.A. had more viewers than the news shows on KCBS-TV Channel 2 and KABC-TV Channel 7 combined.
The show also impacts “The Tonight Show” and even the “Today” show the following morning. Like all networks, NBC hopes to snare viewers from sign off to sign on.
What’s so special about Thursday? Advertising executives point out that it’s one of commercial television’s key ad venues a night sought out by movie studios, car makers and food companies as the gateway to weekend shopping and entertainment.
“If you have a successful Thursday night,” Feidelson said, “your entire schedule can build off its aura. There has to be a flagship that can go a long way in overcoming weaknesses on other nights.”
At current revenues, NBC will generate $401.5 million a year for its Thursday night lineup. A lower-rated network generates about one-fifth of these revenues.
Beyond the bottom line is a more subtle consideration for NBC: Maintaining the impression that it’s still the leading network, at least in prime time. That impression would have been tarnished with the loss of both “Seinfeld” and “E.R.”
NBC, in short, didn’t want to become another CBS.
That network was severely weakened by the loss of its NFL franchise to Fox four years ago so much so that CBS was compelled to outbid NBC for the rights to the NFL’s American Football Conference games.
“NBC needed to stem the perception that they are losing so much,” said Dave Davis, vice president at Los Angeles investment banking firm Houlihan, Lokey, Howard & Zukin. “They would have taken a severe hit in the press if they lost ‘ER.’ ”
NBC’s troubles are not over. As of last week, it was not clear whether “Mad About You” would be back for another season, as stars Helen Hunt and Paul Reiser weighed career opportunities. But most experts believe NBC is still on a firm foundation, especially with the retention of “ER.”
“NBC has been through this before,” said Bill Croasdale, a media buyer and president of network broadcast for L.A.-based Western International Media. “Remember when ‘Cosby’ went away and then ‘Cheers’ went away? NBC isn’t going to collapse.”