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NBC Losing Sleep Over Late-Night Gamble

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Will Leno's move save the ailing network?

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With the staggering ratings garnered by the premiere of The Tonight Show with Conan O'Brien on June 1, the late-night-television stars have officially (and literally) realigned.

Former Tonight Show host Jay Leno abdicated his seat at NBC (GE) and was replaced by Conan O'Brien. Conan, in turn, was replaced on Late Night by Jimmy Fallon. A ratings favorite for almost 2 decades, Leno returns to NBC in the fall to host his own weeknight program starting at 10 p.m.

And advertisers certainly have stars in their eyes.

"There's a reliability with late night. You know what you're getting. Depending on the show, it's very consistent numbers," says Francois Lee, a Vice President at MediaVest who oversees media buying for clients like Sharp and Activision (ATVI). "[Late Show host David] Letterman and Tonight Show have been doing numbers. Granted, there has been some decline, but it's still pretty consistent and predictable. In this day and age, that is what advertisers like."

NBC is counting on that reliability: Though it was a ratings juggernaut throughout the 1990s, NBC is now the worst-rated of the 4 major networks. Its prime-time line-up has fared particularly poorly. This year's top-rated NBC prime-time show, Law and Order: SVU, hasn't been able to crack any given week's top-20-rated programs, and the third week of May marked one of the lowest-rated non-summer weeks in the network's history.

In fact, the network's only top-rated prime-time show has been its Sunday-night football telecast, which only airs 4 months out of the year; its other ratings powerhouse, the Summer Olympics, airs once every 4 years.

To borrow an analogy from its football coverage, NBC is making a potential last-ditch Hail Mary pass with its sizable investment in Leno's 10 p.m. program. Leno's last NBC contract, a 5-year deal inked in 2004, paid the host over $100 million. His new 4-year deal, which NBC can opt out of after 2 years, is incentive-laden but, depending on ratings, could pay up to $30 million a year compared to the roughly $20 million a year he made hosting The Tonight Show.

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