The Market Research Failure Behind NBC’s Jay Leno Debacle: Part I

We spend a lot of time here talking about the quality of the research we all see being conducted, and about the respondent experience, and about how it may be difficult to trust the data some of the panel vendors are getting back because of their problems in those areas — if only strange, unrepresentative people are willing to take your survey, how representative can it be of the population as a whole?

We don’t, however, spend very much time looking at the other problems market researchers can run into, and I think the NBC television network ran into a really big one of those when they ran whatever research they ran on moving Jay Leno’s show to 10 pm.  (Some may question if they ran any research at all, but they seem to have accurately predicted the ratings he’d receive, so let’s be nice and assume they did.) It’s really a simple problem — a failure of imagination, basically — but to understand what I mean, it’s going to be necessary to understand how the American television broadcast system operates. I’m not sure how well this is understood outside America, or, for that matter, within the country, either. That’s what I’m going to write about today: the underlying system and the reason the Leno experiment failed. The next post will explain the market research implications.

Some of the explanation that follows is going to be too simplistic for some of you: I’ve tried to write an explanation that would also explain the American TV business for some of my non-US readers, who may have a different system where they’re from. I think NBC’s failure is hard to understand if you don’t understand the network/affiliate relationship, though, so here it is. If you get bored, scroll down a bit.

The United States has been divided into something like 200 local TV markets. A market is essentially the area surrounding a particular city. Some are geographically huge, others geographically tiny, but in general, it’s the area that looks to a particular major city. Within each market, there are a number of local TV stations competing with each other. Some are affiliated with networks, others are independent; for this discussion, we can ignore the independent ones. Some stations are owned by the networks themselves; most are not. The three major broadcast networks are ABC, CBS, and NBC; Fox is the fourth network, and because it doesn’t program as many hours in the day as the others, we’re going to ignore it as well. In most of the markets, each network has an affiliated station. Each of them (like all TV stations) makes most of their money by selling advertisements on the programming they air. Now, some of that programming is stuff they produce themselves — the local newscast, for instance. Other programming is syndicated and purchased from distributors — the Oprah Winfrey show would be an example. Finally, the network itself provides a lot of programming, mixed in with the station’s own content throughout the day — network morning news might be followed by a locally produced or syndicated talk show and a local noon newscast; the network then might provide some afternoon soap operas before more local syndicated fare and local evening news. Then comes the national network newscast, followed by an hour of local local time often used for syndicated game shows and celebrity “news” shows, and finally, the important part of our story: evening “prime time” entertainment shows, followed by the local 11 pm newscast, and of course, starting at 11:35 pm, the late night shows.

During the programming the local station provides, they sell most of the commercial slots themselves; during the network shows, it’s the other way around, with the network selling the time to national advertisers and the station getting a small percentage of those commercial slots to sell to local advertisers. (This is why you’ll see a terrible commercial for a local used car dealer in the middle of your favorite network program.) In days gone by, the networks paid the affiliates to air their programs; these days, those payments are stopping, and in some cases, reversing, with the stations now paying the network for the privilege of airing their programs. The prices the stations get to charge for the advertisements they sell time for depend entirely on the number of people watching the show, as determined by the Nielsen ratings. If a show gets a lot of viewers, the commercials cost a lot of money. Important to know: some of these commercial breaks also include promotional spots for the local upcoming programming — during a 10 pm prime time network drama, for instance, you might hear something like “After CSI, stay tuned for Channel 3 Eyewitness News! Don’t miss tonight’s top story — we’ll tell you which local restaurant is killing its customers with tainted food!” You’ll also see network promos — “After your late local news, don’t miss David Letterman, with tonight’s guest former President Clinton!”

So: in a perfect world, the network provides very popular programming that gets people to watch their affiliated stations and see all those promos, which produces great ratings for everything, and as a result, everyone makes money. The 11 pm news has long been a cash cow for local affiliates, who benefited from a strong network prime time lineup and kept those viewers for their late news, where they sold all the ads and did very, very well. You’d think people would just turn the channel at 11:00 and watch whichever local newscast they liked best, but in reality, many viewers don’t seem to feel that strongly about the shows and are easily swayed to watch one or another based on the promos they see and by simple inertia. All three local affiliates are going to be covering the same upcoming storm and the same local shooting and the same warehouse fire at 11, so why change the channel? (Indeed, why watch any of them, but that’s another post for another blog.) In any case, this is the root of NBC’s problem: putting Leno on at 10 destroyed their prime time lineup, which destroyed 11 pm news ratings, which removed more ad revenue from the stations, which are already paying to air this junk in the first place. Angry affiliates do not make for a happy network.

(How angry? This study that I just saw now, right after this post initially went live, says affiliates lost 1/4 of their late news audience (“in a key advertising demo”) from November 2008 to November 2009, and another 3 months of Leno would have cost the affiliates another $22 million in lost ad revenues. Ouch.)

Next time: how NBC’s failure of imagination led to this mess, and a look at the questions I bet they didn’t ask their respondents.

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2 Comments

Filed under Conan, Failure of imagination, Leno, Market Research, TV

2 responses to “The Market Research Failure Behind NBC’s Jay Leno Debacle: Part I

  1. Pingback: The Market Research Failure Behind NBC’s Jay Leno Debacle: Part II « Bad Research; No Biscuit.

  2. No question, the situation with Leno at 10pm was a market research fiasco that promptly morphed into a public relations nightmare. Some of it was wishful thinking. Some of it was just incomplete market research.

    Thankfully, for NBC’s next 10pm project, they got a really good market research firm on board.

    http://www.mediabistro.com/tvnewser/nbc/nbc_testing_new_10pm_shows_149213.asp?c=rss

    Thankfully, Vision Critical is quite discriminating in their methodology, and are not fans of the “neither agree or disagree” line of questioning that get lots of firms like NBC in hot water.

    http://www.visioncritical.com/2010/01/neither-agree-nor-disagree-why-fish-don%E2%80%99t-belong-in-apple-sauce/

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