REMARKS of Beth Comstock, president of digital media and market development, NBC Universal
Delivered at the TVB Annual Marketing Conference, April 20, 2006

The 3 C’s of the Digital Age

Thank you, Chris [Rohrs, President, TVB].

When Bob Wright and Jeff Immelt asked me to take on this new assignment last December, I had to weigh the pros and cons.

On the con side - I was being asked to come into a mature industry with a long history of success doing things a certain way and lead dramatic change. I was being asked to walk into a room full of great big personalities and convince them they needed to rethink their approach. Most daunting, I was being asked to meet financial targets that make GE’s famous “stretch” goals look like a walk in the park.

On the pro side - well, I’m still thinking ...

Actually, I did think of one upside: Finally, no more lunches in the GE Cafeteria!

Seriously, I had managed to wean a giant organization off of one of the most beloved taglines in corporate history - “We bring good things to life” - and get 300,000 employees to embrace a motto that better reflects GE’s 21st century vision - “Imagination at Work.”

If I could do that, then I figured I had a good shot at helping lead necessary change at NBC Universal.

Working for Jeff Immelt, I learned a fair amount about driving change.

I learned that the best time to change internally is when everything externally is in flux as well. But you have to make sure you’re changing the right things. Not merely reacting or changing for the sake of change.

I learned that conventional wisdom is the enemy at a time like this.

“Convention” is exactly what needs to be done away with. At GE, this led us to create an initiative called “Imagination Breakthroughs” - new business ideas, each with hundreds of millions of dollars of revenue potential - and hold our marketing teams responsible for driving topline revenue.

In media today, I don’t think there is a single rule that can’t - and probably shouldn’t - be broken. Because if we don’t break them ... well, they’re being broken anyway. We might as well be in control.

I also learned that you need to allow room for failure.

Not every idea that sounds like a winner is going to actually be a winner. But there is so much to learn from the ideas that don’t pan out. This, too, is true for everyone in this room. If you are paralyzed by the fear of failure, you’ll never make a move and will suddenly find yourself irrelevant.

And, finally, I learned that you can’t drive change without getting everyone on board, and making sure they know that change is essential for survival and will involve everyone.

I don’t need to convince anyone here that the television business - perhaps especially the local TV stations business - has to change to survive.

So, these are some of the thoughts I had when I first arrived at 30 Rock in January.

Since then, I’ve basically been preaching to the choir. All my colleagues agree we need to change - it’s just the part when I tell them they actually have to do something different where things get interesting!

To tell the truth, it’s been a lot of work and a lot of fun. Jeff and Bob gave me a few hundred million dollars to make a significant acquisition in the online world. We’re in the process of buying iVillage, which will give us scale and access to a large, loyal audience of 14 million women, and which nicely complements our on-air audience. We’re excited about the possibilities and look forward to making major steps to capitalize on this investment after the deal closes later this quarter.

Those kinds of opportunities ... and checkbooks ... don’t come along very often. No matter whether you’re an entertainment company or a local television station, most of us here are not talking about just weathering a storm, but about jumping in a raging river.

Which means we have to find a way to participate in the booming online ad market ... to develop digital capabilities and make our content more interactive. This isn’t just about driving growth ... it’s about staying in business!

The good news is that I believe local stations have some advantages that will help them not just survive in a digital world but prosper.

How can you do this?

I want to suggest that you could do worse than to focus on what I call the 3 C’s of navigating the digital world: context, community, and content.

In a time when it seems that every week brings a new announcement that is a challenge to the historic network-affiliate relationship, the 3 C’s are your rock.

Context, community, and content. These can be your competitive advantage.

Before I explain why I feel this way, let’s quickly review some of the trends in technology and consumer behavior that we all are dealing with.

On the technology side, everything is pointing toward consumer freedom - video content is being untethered from time and place, making real the long-heralded promise of giving consumers what they want, where and when they want it.

The computing power that you can buy today for $40 and hold in your hand, forty years ago would have cost you $30 million and taken up a room the size of a football field.

At the same time, storage costs have decreased from $2 million a gigabyte to $7 a gigabyte.

Bandwidth increases are slashing download speeds ... so that even downloading a movie as big as KingKong is manageable. A DVD that you can download today in 80 minutes would have taken 3 years in 1985. In another 10 years ... it will take 5 minutes.

Consumers are getting more and more comfortable with streaming video on the Web, with downloading video, and with walking around town carrying video content that only a few years ago you had to watch on a TV screen or movie theater.

Last year, more than 20 billion videos streamed across the Internet - up 50% from the year before. And nearly 60% of Internet users stream video on a regular basis.

Computing costs are down ... storage costs are down ... download speeds are up.

This opens the door to a brand-new era - one that will enable video content providers to have a much bigger presence on the Web ... and to be rewarded financially.

Technology indeed creates important tipping points. But ...it’s very important not to confuse technological capability with consumer need or interest.

Our research department spends a lot of time trying to distinguish the myth from the reality when it comes to consumer behavior. Nothing is more important than knowing what our customers want.

But just because consumers say they want something, doesn’t mean they will act on it. We saw that in 1992 with the Triplecast of the Olympics. Time Warner faced the same problem in 1995 with its so-called Full Service Network, which allowed the handful of viewers who signed up to use their TV to order pizza. Most consumers thought the telephone worked just fine.

Some ideas are good but ahead of their time. Herbert Hoover tried out a videophone almost 80 years ago.

Some ideas are definitely ahead of their time. In the 1940s, the Car TV failed to catch on.

And some ideas are too clever for their own good. In 1952, someone thought the Stove TV would be hot. It wasn’t. (Although maybe we should revisit this now that we have flat-screen TVs and Celebrity Cooking Showdown.)

What we say as consumers and what we do are often two very different things. I believe behavior is the key predictor. Listen to understand the need and watchclosely to see the action.

And that’s what I mean about context.

Few people are going to curl up on the sofa or have friends over to watch the big game seated around a 2x2 cellphone or ipod. But when I’m on the train home, you bet that 2x2 screen is the right option to view news highlights of the day. Ask me if I want a 2x2 experience, and I’d probably say no. But put it in the right context, and the technology and content solve a need.

The way consumers - you and me - consume media is different at different times of the day and in different situations.

How are you making yourself relevant in the context of your viewers’ busy, matrixed lives? Many of you are doing great things with websites that allow people to stay connected at work or school or at a café. Local weather has been an amazingly relevant offering for many of you.

Where can you go from there? Do you offer news alerts on mobile devices? There’s probably a big market for getting local sports scores delivered to parents stuck at a kid’s ballet recital. Context.

Context also means that people usually want news that is most relevant to them. The good news for local TV is that when you focus on giving your viewers what they want you get results. Recently, San Francisco ’s KNTV/NBC 11 marked the 100 year anniversary of the 1906 earthquake by creating a video-rich site call “Echoes From the Past.” Though it’s still early, traffic has spiked and the station has heard from teachers who are using it as a resource in their classrooms.

You are trusted providers of information in your communities. Your audience knows your logo, your call letters, your news anchors. This is a relationship of amazing value - built on a bond. You connect viewers to what is happening in their community.

The word community has been bandied about a lot in recent months. In the Internet world, MySpace is a community. Craigslist is a community. iVillage is a community.

Friendster is hot ... and then it’s not. YouTube has come from nowhere to become a site that serves up 35 million videos per day. Is this an enduring community? Well, I’d suggest the idea and reality of community existed long before the Internet came along.

Local broadcasters have been serving and helping to build communities for more than fifty years. For the residents of your cities and towns, you are an integral part of their lives.

In the digital age, community is all about gathering people with shared interests and giving them a platform to interact with each other, to engage in relevant content and to create something new.

Only time will tell, but I know that local stations are perfectly positioned to move into the digital world ... and bring their community with them.

What are the communities of interest within your large local community? What are your connection points to this community - what can you do better and first?

People are hungry to engage. How can you create more opportunities to bring people together around different points of interest - as parents, as musicians, as whatever. The possibilities are limitless. I’d suggest this gives you a significant advantage as you morph into the digital age.

And of course all of this is built on a foundation of great content.

In a world of infinite content, quality becomes an even greater differentiator than ever before. Your specialty is storytelling with video ... and video is a growth market, whether we’re talking about early morning newscasts or video accessed through the Web.

Over the last decade, the number of local newscasts has grown nearly 70%. And even though network prime is down, late local news is essentially flat during the past 12 years ... and early morning is a real bright spot with nearly 60% growth!

We need to focus on local content creation. Stations have at least 50% of their broadcast time where they schedule their own programming. The more you can create original, local programming, the more you can capitalize on that local bond.

And a word about original programming - it’s not enough just to repurpose your television content onto digital platforms. The ultimate challenge is in developing good content that is right for the digital medium.

Finally, let me mention one more “C” - commerce. This is the bottom line, literally. It’s what keeps us going.

The formula is simple: Content, context, and community yields commerce.

Advertisers will be there for you. They will go where the eyeballs are ... but just as important ... they’ll go where they know their brand will be enhanced. As a former marketer, I know, they want and need to be in good company. And that’s what you provide.

There’s much to figure out. Audience measurement becomes incredibly challenging. There are questions of ad effectiveness, engagement, optimization, consumer behavior.

Working with the ad community, we need to collect and analyze the data and figure these things out. And we will.

Certainly, the opportunity is tremendous.

Local advertising is a $94 billion market. You get about 30% of it. The local online ad market is a $3.4 billion industry, you get 4%. This represents an $850 million opportunity for local television, if you matched the same market share online as you did offline.

And there is no reason why you shouldn’t be doing this. For most marketers, it’s a matter of getting the right advertising mix. Yes, they’re shifting ad dollars online as a way to ensure effectiveness and a more well-rounded connection with their brands.

Online provides a way to engage users and target those most relevant and receptive to a given message. But as online advertising increases, let’s not forget that television is still an incredibly effective medium.

NBC recently partnered with TNS Media Intelligence on a study to measure the effectiveness of TV advertising versus print and radio. The metrics we used went beyond simply measuring recall and measured involvement and motivation.

By these measures, television advertising is significantly more effective than radio and print, with the TV ads reinforcing the relationship between the brand, on the one hand, and the consumer, on the other ... which is the point of advertising in the first place.

I want to suggest that the reason TV ads score higher in these measures is simple: The power of sound and images working in concert to tell a story. And as video moves to the web, the power of video advertisements will move there as well.

And we know that people are willing to watch ads in return for having access to high-quality content on demand for free or for a reduced price.

Recent research from Points North Group and Horowitz Associates indicates that, by a three-to-one margin, consumers would prefer to watch free VOD content with commercials rather than pay.

We’re also starting to understand that making our TV programs available on new platforms does not cannibalize our TV audience but in fact has the ability to attract new viewers. The Office has had its largest audiences on the NBC network since we made episodes available on iTunes. While you can’t attribute it solely to iTunes, this enhanced exposure has certainly been good news for the network - and for our affiliates.

So, yes, the media landscape is changing rapidly. I believe passionately that mastering the 3 Cs of context, content, and community are essential to prospering in our new digital world. This is the strategy we’re pursuing at NBC Universal: to develop and extend great content, to make sure it’s relevant and put into the context of our viewers’ lives, and to build efforts around communities of users and their interests.

I also believe you have to keep an eye on some other Cs - creativity, competition, and collaboration.

We live in a time of incredible competition ... and the reality is that most of your local competitors, especially those in print and the yellow pages - still haven’t found their way in the digital space. In times of change, be sure to rely on your strengths - especially understanding the power of your content and its creativity.

Creativity is essential - in how you develop content and in thinking and collaborating with business partners. The NBC affiliates here today know about this. Creativity and collaboration are what have been driving our success with ventures like Weather Plus and NBCOlympics.com. When we combine network and affiliate resources, the whole is much greater than the sum of the parts. All the affiliate organizations understand that networks and their affiliates have to work together in new ways.

The network-affiliate relationship goes back more than 50 years. It has served the nation well during the days of radio ... of black-and-white and color television TV... and of cable. I have no doubt it will continue to serve the nation during our new age of digital television and multiplatform video content.

The challenges of broadcast television in a multiplatform age are clear ... we know what we need to do. But the opportunities are virtually limitless. I wish you all the best as you meet the challenges and grab the opportunities.

It is an honor to have a chance to share these thoughts with you. Thank you very much for your attention, and enjoy the rest of the conference.