News Coverage of Gulf War Has Cost NBC $37 Million

The Persian Gulf war has cost NBC about $37 million to date in cancelled advertising and increased news expenses, network officials disclosed over the weekend.

The costs, which come at a time when NBC is already suffering from lower ratings and extremely soft demand for advertising, is the first detailed information on the financial impact of the war on one of the networks.

ABC and CBS are believed to have incurred comparable costs . Based on those estimates, the gulf war will have cost all three networks more than $100 million in lost advertising and increased costs since Iraq invaded Kuwait last August.

In addition, NBC officials confirmed that the network has begun to lay off employees in a cost-cutting move due to the recession. One senior executive said that as many as 300 employees could be let go. NBC has about 5,900 employees.

NBC and the other networks were hardest hit financially during the first week of the war, although substantial on-going expenses continue. NBC News is spending between $1.6 million to $2 million extra per week to cover the war.

NBC’s war costs totaled $35.7 million through Feb. 5, but an official said that as of today the cost would rise to $37 million.

Advertiser pullouts peaked between Jan. 16-22, when NBC lost a total of $15.5 million. From Jan. 1 to Feb. 5, the network lost a total of $17.4 million in cancelled advertising.

During the first week of the war NBC, as did the other networks, pre-empted nearly its entire prime-time schedule on Wednesday and Thursday. Thursday is the network’s highest rated and most profitable night.

NBC News, meanwhile, has spent an additional $7.7 million for war coverage during the first three weeks, the majority of it for costly satellite time to get live video feeds out of the Middle East.

War coverage also cost the news division an extra $14.4 million beyond its “contingency budget” during the fourth quarter of 1990. NBC News has an annual budget of about $250 million and a reserve budget to cover major unforeseen news events. But the reserve budget was long ago exhausted.

The war could not come at a worse time for the networks, which are already suffering a slowdown in advertising in the first major recession since 1982. It is estimated total network advertising revenues will rise no more than 3-4 percent in 1991.

Furthermore, sponsors have cancelled between 20 percent to 25 percent of their so-called second quarter options, network officials said. Although that is not as high as some had feared, it is still 10 percent to 15 percent greater than normal. Advertisers have the right to cancel up to 50 percent of their advertising commitments 90 days before the quarter.

Capital Cities-ABC Inc. last week said that the Persian Gulf war “will have a significant negative impact” on first quarter profits which could continue “for an indeterminate period.”

Even without the additional war-related costs, NBC profits are expected to be significantly lower this year. The network’s prime-time ratings are down 13 percent this season, while ABC’s have slid 3 percent and CBS is unchanged. That translates into a loss of about two million TV homes for NBC.

Nicholas Heymann, vice president at County NatWest Securities in New York, estimates that NBC’s network profit margins have slid from 13.3 percent in 1989--its peak year when it earned $375 million--to 10.2 percent in 1990 and a projected 7.8 percent in 1991.

He projects that NBC’s network profits this year could fall to about $200 million on revenues of $2.5 billion. And those estimates do not include additional expenses or lost advertising related to the gulf war.

But the war-related financial affects could actually turn out to be beneficial in the long run to NBC and the other networks.

Next month the Federal Communications Commission is expected to issue new regulations that would allow the networks to share in rerun profits from hit TV shows.