On Monday, NBC Universal chief executive Jeff Zucker told weary investors at an industry conference that the network was determined to cut costs. His comments came as the company laid off 500 employees and annnounced it would move Jay Leno to its 10 pm weekday time slot. This makes sense for NBC: Every hour of scripted programming costs about $5 million — for fleets of writers, directors, cinematographers, actors, editors, and everyone in between. Leno’s compensation is hefty but not nearly $5 million an hour, and his live show costs a fraction of that. (Big-name stars come to hawk their latest films and books for free.) The Wall Street Journal estimates the move will save NBC as much as $25 million a week, minus Leno’s larger takehome pay.
It’s happening all over the economy now. Star players are being moved to where they can do the work of many others, who are being laid off in large numbers. The stars earn more yet the companies save big because they decimate payrolls. It’s done to improve profits and thereby calm anxious shareholders.
Somehow, though, it’s not working. Shareholders are still anxious — and becoming ever more so. Why? Because all the payroll cuts, multiplied across the economy, are reducing the capacity of consumers to buy goods and services. Which is why advertising budgets are being slashed. And with less advertising, NBC’s profits will continue to plummet even as it cuts its costs.
What’s rational for an individual company and wonderful for its star players turns out to be irrational for the economy as a whole. It’s not Jeff Zucker’s fault or any other executive armed with an axe. But this does suggest why smart government policies are critically important, especially now, and why a very large stimulus package is in the interest of everyone — including Jeff Zucker and Jay Leno.