NBC Universal announced NBCU 2.0, its plan to reposition (and streamline) the company to focus on digital media. Read about NBCU’s digital strategy in Shirley Brady’s Q&A with David Zaslav, president of cable and domestic TV and new media distribution for NBC Universal, for CableWorld’s Sep. 25, 2006 cover story:

David, how would you sum up your—meaning NBC Universal’s—digital strategy?

Zaslav: We’re really trying to focus on two paths. We have our traditional business, which is the re-sale of our content through syndication and to the cable industry as well as our cable channels and our digital 24-hour channels. We’re focusing on making those traditional media as strong as they can be because those have very good economic models, they’re very sturdy, and continue to try and build those by getting a stronger viewership.

And we’re working on new ways to work with advertisers on traditional platforms whether it be interactivity or a series of initiatives to try and figure out how to get the advertiser more excited about the traditional platforms. That’s our first path, which is to grow our traditional business by executing and being as strong as we can be with our content.

What’s the second path?

Zaslav: Path two is to try and take advantage of all these new platforms that are developing. They’re really driven by the fact that consumers seem to be interested, at least on an experimental basis, with viewing content in different ways whether it be on an iPod or on their DVR or on broadband.

We’re really focused on, to start, consumer behavior. How much of this experimentation is a dead end and how much of it is a real behavioral shift? Because it’s very hard to know that, we’re trying to be aggressive in putting our content on as many new platforms as possible—with the caveat that we see these new platforms as not just an opportunity to build a better relationship with these new viewers but also to try and create an economic model around each of these platforms that makes sense for us. That’s the biggest challenge. 

It would be very easy to just take our best content and push it onto every new platform, portable or otherwise, and just see how the consumers like it. The bigger challenge is to try and figure out what’s the right model. Should it be a subscription model on broadband where you pay a certain fee and you get access to a significant amount of content. Should the EST [electronic sell through] model of iPod be one that grows and prevails? The early look of EST is that it was hot out of the box and it’s still interesting to some consumers but it doesn’t seem to be building the way that a lot of people predicted it would. So we’re still interested in EST but it still remains to be seen whether it’s a small business or whether it’s a big business.

With so many new media and digital opportunities, how do you pick your deals?

Zaslav: We’re spending a lot of time talking to everybody who has an interesting platform to put programming on whether it’s long form programming or short form programming, whether it’s wireless or whether it’s broadband or some new portable device.

We have three basic tenets in putting our stuff on there. The first is our content has got to be protected from piracy. So even if it’s the greatest platform, if it’s not protected we won’t put our content on there.

The second is we need an economic model that makes sense for us. We want to reach out to consumers in a meaningful way but at this new period, we also want to try and create some kind of a sturdy platform, something like basic cable that’s worked very well, or the syndication model, which has worked very well. We want to create some kind of model that we could build on.

Third, we want to try and include advertisers as much as possible. Advertisers are very interested in exploring these new platforms, which is a huge help to us. We have a big relationship with advertisers on all of our content because they’re our partners, so if we can start to explore these platforms and have the advertisers come along with us it’s a big advantage. We’re talking to everybody.

Talk about some of your digital deals to date.

Zaslav: We’ve cut some very interesting deals with peer-to-peer players like Wurld Media. We’ve been aggressive in the paid space with CinemaNow and MovieLink and Netflix, companies like that. We’ve done a lot of promotional deals with clips and such, we just announced one with YouTube. In each case, we’re looking back to those three tenets and stay true to those because that’s going to be the foundation that we build on.

NBC Universal came out before this year’s upfront with what was called the company’s TV360 strategy. Talk about that.

Zaslav: 360 has been a huge hit for us. It’s a big deal because the advertiser is our customer and they want to be part of these new platforms. The same way that we want to understand how people consume content on these new platforms, so do our advertisers. There’s a real opportunity to have 1 + 1 = 3. We have our traditional advertisers in our content create a group of new media opportunities for those same advertisers and create a chance for them to have a better experience; for us to reach more viewers; and when we add it up, for us to get more ad dollars.

What’s in all this for your traditional distributors?

Zaslav: The good news is that the distributors, whether it be the cable guys or the DBS players or the phone companies, they’re extremely aggressive in this area and they’re very thoughtful. So we’re doing things like Start Over with Time Warner. We’ve done a 99-cent ‘best of NBC and NBC Cable’ deal with Comcast, where we have some free VOD in the news area in a number of markets with a number of operators. We’re talking to all of them now. There’s a real chance to do something exciting because they’re multiplatform.

We still say ‘cable’ operator but they’re in the phone business, they’re in the wireless business, they’re in the broadband business and they’re in the multichannel to the home business. So our discussions have been much broader than they’ve been in the past. It’s easier to find common ground when you have more pieces to the puzzle. When you’re talking to a cable operator today, they’re looking to do something interesting around wireless and they want to figure out how to distinguish themselves in broadband and they want to enhance their traditional cable [TV] offering by showing off the great digital opportunity and interactive opportunity that they have with their pipe to the home.

The phone companies are playing catch-up and they want an opportunity to say hey look at me, I’ve got a lot of interesting things going on. I think over the next six to nine months there’s going to be more and more content on these platforms in innovative ways, whether it be through interactivity or more of a chance for viewers to pick and choose what they want to watch when they want to watch in a selective way.

So when Comcast says it wants to be the Amazon of video on the Internet and boost their video on not only VOD but also broadband, it creates more opportunities for you to do business with them?

Zaslav: If you look at all the platforms, what everyone’s trying to do is pretty simple. If you take away the content, what the cable guys essentially have is a pipe. Whether it’s a wireless pipe or a broadband pipe or a pipe that delivers multichannel content, if you look at Verizon or you look at DBS, these are all just pipes. And in order to make them sexy, if everybody has the same thing it’s a commodity. And then you’re really arguing about price and service. Price and service are a lot harder to distinguish yourself on.

The real driver to all this innovation, which gives the content players a very interesting opportunity, is the way to de-commoditize these platforms, the way to make these pipes sexy, is the content. If iPods came in 14 colors, if they changed color and could come in whatever shape you like, if they didn’t have interesting and dynamic content on them they wouldn’t be selling. It’s the content that makes the pipe. It’s a creative opportunity, and everybody’s playing it, to say how can I make my pipe prettier.

What has NBC Universal learned so far about cross-platform marketing and cross-promotion?

Zaslav: We’ve learned that there’s an advantage in being first to market. When you’re the first to market you’re the first to know what the consumer is really doing. Often you can set the market price and often you can get a premium for being the first guy in to experiment. There are a lot of economic and educational reasons why you’d want to be the first to play.

Any other lessons learned?

Zaslav: The other thing we’ve learned is what often looks like an open road can be either a dead end or the road can be a lot shorter than you thought. Consumer behavior is difficult to figure out and that’s what’s going to drive all of us. TV didn’t change for 50 years and [former Time Warner CEO] Jerry Levin thought everyone was going to want to do everything interactively on TV and in the early ’90s spent a lot of money to try and chase that and we did too. Almost every content company invested in interactive TV.

As dynamic as it was and as robust as the offering may have been, consumers didn’t want to do it. They do seem to want to really play with content in a more meaningful way right now. The question is, it is a sea change and is it going to change the television basis in a meaningful way—or is it going to be a cherry on top? You have to be there in order to see it and if you’re not you’re going to get left behind. But none of us really have the answer at this point.

What kind of research have you done into how consumer behavior is changing?

Zaslav: We did a big research project where we looked at—and it wasn’t scientific—50 families. We sent people into the house to see how they consumed TV, into every kid’s room, into the living room. We learned that probably the biggest change is not necessarily that their viewing is that dramatically different.

The biggest change is that they’re doing a lot of things while they’re viewing. They may be IM-ing and surfing on Yahoo or Google while talking on the phone while the TV is on. Our generation was sitting on a couch watching TV, often with more people in the room. Now, there’s a lot more multitasking. There’s also a willingness now to view content on different platforms. We’ve had portable TVs for 20 years but it just wasn’t that attractive. You didn’t go to the beach and see people sitting there watching a portable TV even though they were available at any electronics store. Something’s going on and we just have to figure out how to be a part of it and how big it is.

In this era of experimentation, how do you determine the ROI for your digital media tests?

Zaslav: You have to create the economic model out of the box. First of all, depending on how you offer it, you’re beginning to teach the consumer how to consume this new media. DVR came out five years ago and all it did was allow you to pick the shows you want to watch when you wanted to watch them. If it didn’t allow fast-forwarding of commercials, chances are consumers wouldn’t have missed that feature and still loved that device. But we added the fast-forward of commercials and now we’re all dealing with it.

When you talk to people about DVRs, the fact that they can come home from a weekend and watch their favorite shows, that’s the killer app. But we added this commercial [skipping] piece. If out of the box we had said, ‘we’re all part of this thing but no fast-forwarding because that doesn’t help, we could put more content, there’s more we could do…’ If we’re offering content on a new platform for nothing because we’re experimenting, it’s very hard to turn around and say OK now we’re going to charge to this consumer that’s been experimenting with us for six months for free. They’ll say, ‘why should I pay for it?’ So we’re playing a little bit with dynamite when we experiment. We’ve got to be careful with it.

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