March 18, 2002

The Letterman Fiasco Holds a Lesson for Disney

For the sake of argument, put the public interest aside. Forget that broadcast airwaves are public property. Strictly in economic terms, the Walt Disney Co. got lucky when it failed to woo David Letterman to join ABC. The public nature of the Letterman embarrassment has granted Disney something rare in business–a second chance.

It is a moment not unlike the one General Electric, another nonbroadcaster, had a decade ago after the network it owns, NBC, faked news footage of exploding pickup trucks on “Dateline.” The humiliation shook GE into approaching the network business differently–starting with news. That turnaround is now the key to the NBC’s fortunes.

Disney could have a similar awakening. To meet its fiduciary responsibility to shareholders, Disney should either recognize that it does not understand the broadcast TV business and drastically change the way it manages ABC. Or it should divest itself of the network while it still has marketable value.

Don Hewitt, the longtime CBS executive, once noted that a broadcast television network is sometimes a cathedral, sometimes a sports stadium, sometimes a dinner table, sometimes a fireside. Implicit in that insight is that, to succeed, broadcast networks must excel at offering viewers a broad and rich brand–sports, comedy, drama, news, spectacle and more.

Unlike cable “narrowcasters,” to amass the kind of audiences required in advertising-based broadcasting, ABC, CBS and NBC must do it all and do it well. They are to television what Yahoo is to the Internet or a big metropolitan newspaper is to a community.

Building this kind of franchise brand requires a long-term strategy. This is what the record suggests Michael Eisner and his Disney executives do not understand, even if they pay lip service to it.

For example, ABC’s scorecard in sports has been uneven at best. It lost the U.S. Open in golf and missed the rise of NASCAR (Fox and NBC cashed in). Its answer to the decline of “Monday Night Football” was to hire a comedian. Contrast that with the way Fox quickly established brand with its own sports division.

In news, Disney acquired the best of the three network news divisions, then thinned the ranks of experienced hard-news reporters in favor of big-ticket anchors. It has further devalued news by placing in charge a non-newsperson, lawyer David Westin, who lacks influence with Eisner and the news staff.

It also walked away from plans to create a cable news network, which, as NBC’s MSNBC has shown, could have become a key to ABC’s economic health.

When Disney took over, ABC news programs were No. 1 in evenings and Sundays and strong in mornings, and its prime-time magazines were both more serious and more successful. Now it lags behind NBC in every category. In entertainment, after failing to create its own hits, Disney copied a British game show, “Who Wants to Be a Millionaire,” and when it took off made the mistake of airing it four nights a week. When inevitably it wore out, the entertainment division was left with its brand cheapened and its schedule without other hits.

In attempting to steal Letterman from CBS, Eisner and company saw a similar quick fix, a publicized raid on a rival network that would fill a hole in its late-night balance sheet created by losses at “Politically Incorrect,” a show it stole from Comedy Central.

Disney soared under Eisner by restoring and then nurturing its historic brand–animated features and theme parks. Network television has bedeviled him. ABC makes sense on paper for Disney, but it has handled the network as if it were fundamentally a platform for marketing and distributing Disney products.

But it’s not too late. It took the “Dateline” fiasco to turn around NBC. Disney can use the Letterman fiasco as a similar watershed.

If it doesn’t, it will fail not only its stockholders but the American public, which owns the airwaves, and should just sell the network to a company that gets it.