The President's Speak: Ballmer, Dauman Talk on The Economy, Recession and The Biz

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Three of biggest names in the media business today, NBC’s Jeff Zucker, Viacom’s Philippe Dauman and Microsoft CEO Steven Ballmer recently gathered for one powerhouse summit at the Midtown Manhattan headquarters of publishing giant, McGraw-Hill.

Produced by Digital Hollywood and sponsored by Standard & Poor’s and BusinessWeek the two-day Leadership Conference offered four media specific sessions daily with the choice of attending three different panel discussions. The topics encompassed the incorporation of all digital mediums and residual transition effects and ranged from: The Changing Face of Media and the News; Hollywood and the Digital Consumer to Media, Entertainment, Technology and Money: Funds, Mergers, Acquisitions, Takeovers and Targets. 

The Conference opened, and was punctuated, with Super Session Interviews; one-on-one’s conducted by Businesweek’s Executive Editorial team, Executive Editor Ellen Pollack, Los Angeles Bureau Chief, Ronald Grover, and Editor-in-Chief, Steve Adler.

The disastrous economy and its short and long term effects was a present theme in each of the interviews as business today has become model dependent much like Madison Avenue depends on sustaining long term brand association. The volatile market has sent shivers up the spine of business and industry leaders who now look at their model and are forced to question the accuracy of the status quo in riding out this economic nightmare and survival after the economy wakes up.

Beginning with NBC President and CEO, Jeff Zucker when asked by BusinessWeek’s Ellen Pollack, about their current model he stated, “Technology has changed everything. Digital Video Recorders has changed the way people watch primetime television, the internet has changed the way people consume video and advertising is not what it was. In our view we have to think about the model. Yes, NBC in primetime has had a difficult last three or four years. Sometimes you see the mold more clearly after that and it makes you step up and acknowledge what’s going on.”

Continuing he added, “The fact is we don’t measure the amount people who watch television programming in the same way we’ve done previously.  We measure the amount of people from September to May by across the board content viewing factoring in MSNBC.com, Hulu, cable and broadcasting. We’re not interested in just taking on the old model.

Ms. Pollack pressed him for details on NBC’s unusual decision to move Jay Leno into primetime, Mr. Zucker explained, “That move is about changing the model. We, at this point are questioning the model for today; not enough people question the model today. We sell fifty-two weeks a year. We re-think every day. We’re going to program two hours a night and then were going to put Jay in primetime.  No risk no reward.”

Ms. Pollack, added, “If we look at this in the traditional way then you’re messing with the model.”  To which Mr. Zucker replied, “We’re not messing with the model; we’re not calling defeat; we’re questioning the model for today.  Again, too many media organizations, particularly newspapers, weren’t willing to question the model. Nobody was willing to question the local coverage’s model. We can bury our head in the sand and then I know we won’t be here in a year. The only sure way to declare defeat is to say ‘I’m going to do things that same old way.’” He added, “The world has changed.”

The afternoon session brought Viacom CEO Philippe Dauman to center stage who was interviewed by Businessweek’s LA Bureau Chief, Ronald Grover. Dauman, the CEO of Viacom the parent company for entertainment brands such as Nickelodeon, MTV, Comedy Central, BET and Paramount Pictures reiterated the necessity of questioning the business model status quo.

Beginning with the volatile economy, Mr. Dauman stated, “There is clearly a psychological impact. At my last talk I spoke of an orgy of pessimism. It’s never as bad as people think. It’s never hopeless; those of us who have been around long enough know you go through tough times. There is an end somewhere. You contain costs. You continue to build brands. Take advantage of the economic environment by dealing with your suppliers in a different way. We’re relatively, in a depressed economy, extremely well positioned because we have great brands.  We have a whole portfolio of very strong brands.”

The interview danced around assorted questions dealing the economy and the needs of Viacom whose content rich library builds associations and partnerships with marquee talent that can be tempestuous at times and finally landed with Mr. Grover asking specifics beginning with Mr. Redstone’s divergence with Tom Cruise that resulted in a volley of much publicized differences.

Sumner Redstone more or less fired him a couple of years back.” Mr. Grover paused to the light laughter from those in attendance, “And while I say there is usually a method behind this ‘madness.’” At this point the room erupted in laughter, “Was he highlighting the financial issues in Hollywood? That stars get paid too much? That the back-ends are too much or was he highlighting something that needs to change the model or the cost dynamics of this industry?”

Mr. Dauman laughed and stated, “Tom Cruise is a great actor. He was recently in one of our movies, Tropic Thunder, he did a terrific off type character and I think his career is on a very strong trajectory again.  Clearly, with the economy we’re experiencing now we have to be much more selective in the whole green lighting process. When we green light a new movie we have to project, based on the kind of movie it is, the genre, who the actors are and a lot of other factors, how we are going to do in the theaters before the movie ever gets made.”

Explaining the process he added, “And ‘What are we going to gain in the way of DVD sales?’ Clearly, there is a lack of visibility.  How long will the recession last?’ ‘What will the impact be on DVD sales?’ In that kind of environment it isn’t a good business plan for a studio to take on all the risks and pay a lot of money up front when you don’t know what’s coming in on the other end. So clearly the nature of deals with talent has evolved. It was evolving already and I think that evolution will accelerate in this environment. We’re happy to pay Tom Cruise or anyone else and we need for them to invest in the movie along with us. In their case not investing money but investing their talent and we’ll all get rewarded if the movie does well and we take on some risk if it doesn’t.”

Mr. Grover continued, tossing a softball, “Easy Subject: Steven Spielberg, who is not with you in the studio any longer but you just announced the first film that you’ll be making with him in his new place wherever that is, “Dinner with Schmuck’s.”  What happened with Steven Spielberg?

Mr. Dauman added, “We have a terrific relationship with Steven. We’re involved in a lot of films with him. We’re very proud of our association with him and will continue to work with him. We’re both in a better place with the new arrangement. It’s difficult, I think, for Steven who is such a great talent and who’s had a great degree of autonomy over a very long period his career to be subject to a corporate environment with all the restrictions that it implies. So it was important for him to have independence. He’s a fascinating guy and we look forward to working with him.”

The second day began with Standard & Poor’s credit analysts adding a Breakfast round table and presenting sector by sector overviews and without exception the news was grim. Although they do project across the board single digit gains by fourth quarter 2009 with revenue generated from advertising dollars it appears that until then these sectors will barely sustain a pulse.

According to the S & P team newspapers such as the Seattle Intelligencer and Detroit Free Press should work out their issues through Bankruptcy. Every newspaper except the NYT and Gannet have been reduced to triple C rating and unless drastic and progressive action is taken to address liquidity issues the newspaper sector, as we know it, will cease to exist. 

The New York Times was spared the dreaded Triple C rating as their innovative and aggressive action to address their liquidity issues have proven successful. The recent angel investor, Carlos Slim, and the sale of the executive floors of the new building they own at 42nd & 8th Avenue in New York City has addressed the notes that were coming due this year.  With still over 1.1 Billion in debt the S&P reviewed NYT & Company’s strategy and they ended the day with a Double B rating.

Online, formerly called New Media, and not as evolving as most believe is considered  separately by sector and stands alone and is, although again at this point is defined by single digits gains, expected to grow more rapidly and even out faster than the others presented. By fourth quarter ‘09 Online will be steady with high single digits gains from advertising dollars.

This presentation was followed by the morning Super Session with BusinessWeek’s, Editor-in-Chief, Steve Adler interviewing Steven Ballmer, CEO of Microsoft. With ten days of market upswing the first question posed to Mr. Ballmer was his tea leaf read of the markets movement.

“I don’t want to be either pessimistic or optimistic and I don’t want to be swayed by short term market signals. Mr. Ballmer paused, “The principal we’re operating on is the economy will contract, reset and it may take a while before we know exactly what level we reset and then will begin again what I’ll call regular growth. We had abnormal growth fueled by too much debt. You have to take that debt out of the system that could take awhile and then you grow again. And so I don’t know how long it will take it could take one, two, three four years before we get back to what I call normal growth pattern. Certainly,” He added, “I wasn’t particularly down when the market was down and I don’t want to get particularly up when the market is up.”

The interview turned toward Microsoft’s main competition with Apple, I-Pod and Zune. “The broad question,” Mr. Adler began,  “Why does Microsoft, which is so smart and has such amazing people such great power and so many resources,  why does it have so much trouble outside, potentially windows and office, Why is it so difficult to expand beyond that?”  

Mr. Ballmer’s surprise at the question was almost masked by his easy style, “Most people in our industry never expand beyond one thing. There are some areas that we have our work cut out for us. If you were a shareholder I’d also say, ‘Isn’t it great we’ve got some big growth opportunities yet to realize.”

Mr. Adler pressed him what appears to be clear loss in the market share, “Is there a future for Zune? It seems to have a lot of trouble competing with the I-pod.” Mr. Ballmer continued, “We’re going to keep going with Zune. I won’t say full steam ahead because that implies an acceleration of investments.  We’re going to sustain our investment in Zune. We like what we’re doing and the big payoff may come on PC’s, phones and TV’s as opposed to simply on the independent device.”

With MICROSOFT founder Bill Gates recent departure for full time philanthropy the question inevitably turned to life around the halls of Microsoft without him. Mr. Adler asked, “Are there ways in which life is better with him gone? Laughing, Mr. Ballmer stated, “It’s one of those things. It’s different. We have a lot of people who are stepping up and growing in new ways. There’s no question about that. I’m growing in some new ways. Some of the senior technical guys are growing. We miss Bill. On the other hand Bill is doing something important. Take a look at Windows 7. It’s a great piece of work and it was driven by a team independent of Bill and his leadership. We all feel pretty good about it. We have to finish it and when we know when it’s going to be finished we’ll let everyone know.”

The Digital Hollywood Media Summit highlighted concerns faced by major business leaders who candidly agreed the coming year is pivotal in the media industry with basically a no holds barred approach to discovering progressive ideas that will produce market share percentage points. The overall tone was conservation in facing the volatile market place. Shake up the model, pursue progressive ideas and maintain the overall plan. The through line is innovative programming; innovative content innovative product will capture the consumer’s attention.

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