Monday, April 10, 2006


John Batchelder, the ABC Radio talk show host, told me a funny story today about Katie Couric. Apparently, Ms. Couric was interviewing Mike Wallace and at the end of the interview, asked him what he would like written on his tombstone. "Tough, but fair" said Wallace, who then turned the tables and asked his host the same question. I'm sure you're too young to have even thought about it, said Wallace. No, no, replied Ms. Couric. I know exactly how I would like it to read. Well? asked Wallace. "Perky no more," replied Ms. Couric.

Anyway, here's the piece from the Journal, for those of you unable to access it:

Fatten Before Sale

Fifty years ago, there were two publications that were required reading for all employees at the CIA. One was the New York Times. The other was the morning transcript of the CBS News World News Round-Up. The latter was required reading because if you didn't know what CBS News was saying that day, you didn't know what was going on.

Today, CBS News is a nonessential and under-performing division of a media conglomerate that couldn't care less about journalism and thinks of news as something best practiced at MTV Networks. CBS management would sell the division in a heartbeat if they could, but they can't, at least for the time being. Fiduciary duty thus requires that they do something to enhance the value of the asset, so that it might fetch a higher price when it is finally divested.

The basic math is straightforward. If every broadcast news organization employs roughly 1,000 people and the average salary cost per person is $125,000, then the payroll cost is $125 million. Multiply times three (for overhead, operating costs, special events, etc.) and you have a starting budget of nearly $400 million.

The only real source of revenue to offset these costs is advertising. Unless a broadcast network also owns a cable news channel, there simply isn't enough advertising time to sell to cover costs and deliver an acceptable profit to Wall Street. NBC Chairman Bob Wright understood this when he took the helm at 30 Rock in the late 1980s. He created CNBC as a business news channel and later created MSNBC (in partnership with Microsoft) as a news channel. Those two organizations have time to sell seven days a week, 24 hours a day. And all those ads, cheesy though they may be, make healthier the finances of NBC News.

CBS has no cable news network to spread cost across. It has the CBS Evening News for 30 minutes every night, the successful but aging "60 Minutes" franchise, and its woeful morning news shows. The basic math is therefore untenable. CBS News is not, long term, a viable financial enterprise.

What to do? Ideally, CBS management would like to sell CBS News to Time Warner or -- imagine the culture clash -- to Fox (which has a cable news network, but no broadcast news division). A deal with Time Warner might look like this: TWX buys CBS News for some multiple of revenues. TWX then leases back the "60 Minutes" franchise, the Evening News and a hybrid morning chat-and-news show for inclusion in the regular CBS programming schedule. The costs of maintaining CBS News is transferred to TWX, which can defray those costs across two cable news channels (CNN and Headline News)and repurpose the video and audio libraries of CBS News across those and other TWX channels. CBS gets news programming, ad revenue that easily covers the leasing fees, and the fulfillment of its "public service" obligation that is a requirement of its broadcast license.

When to do it? Never sell at the bottom. CBS News is just now emerging from the debacle that caused Dan Rather to "retire," the dismissal of four senior employees, and the decent-interval defenestration of the news division's then-president. Having lived through the debacle, CBS Chairman Les Moonves knew better than anyone that he had to rebuild the reputation and image of CBS News if he was ever to realize the full value of the asset. Rearranging the deck chairs wasn't going to cut it. He needed something that changed the perception of CBS News and, if possible, wrought some havoc upon the competition.

Hiring Katie Couric certainly rattles NBC News. The "Today Show" franchise has been a money machine for the network since Ms. Couric took the helm there. Will her departure cause morning viewers to graze elsewhere? It's a question Mr. Moonves is happy to have on the table.
Whether or not Ms. Couric can change the context in which CBS News is understood is less certain. But whatever else she may be, Ms. Couric is accustomed to success. She has dominated morning news for nearly 15 years. She is, among baby-boomer women especially, hugely popular. And she's credible enough to keep the CBS knights of journalism quiet. The organization has no choice but to embrace her.

Launching her as the new face of CBS News gives the CBS publicity machine five months to reposition and redefine the news division. Given the resurgence of its prime time schedule and long-established hold on older, less-urban viewers, it seems unlikely that the ratings for the CBS Evening News will be hurt over the time leading up to Ms. Couric's arrival. Given Ms. Couric's proven appeal to baby-boomer women, it seems likely (amid a huge publicity blitz) that the ratings for the evening newscast will tick upward shortly after she assumes the anchor post. And given Ms. Couric's proven ability to hold the viewers she acquires, it seems likely that her $15 million annual salary will be more than covered.

Assuming the prime time schedule continues to perform, it is not hard to imagine that Ms. Couric will lead CBS News into a more competitive stance. At which point, the value of the asset can be realized in a deal. Katie Couric is, metaphorically, the transitional figure between a once-great broadcast news organization and what will almost certainly be the first news division ever sold off by a broadcast network. Given the options available to Mr. Moonves and the playing field he inherited, he could have done a lot worse.