Frazier Case Analyisis

Frasier Case Analysis

In 2001 NBC and Paramount began negotiations on the license price for Frazier, the hit TV show. Paramount owned the rights to the show, but the show was aired on NBC as the “tent pole” of the network. Paramount opened the negotiations with an aggressive, single-minded price goal trying to exploit their perceived power imbalance with NBC. The negotiations ended in an apparent deadlock with both parties failing to truly understand each other’s fundamental interests and create desirable value opportunities.

In order to attempt to mitigate deadlocked negotiations, it was important to develop a coherent framework based in the following questions:

• BATNA
• Parties
• Interests
• Value
• Barriers
• Power
• Ethics: ^[1]

Parties

The primary parties involved were NBC, represented by Mark Graboff and Paramount represented by Gary Hart. There were several supporting parties that were not directly involved in the negotiations, but were influential in the outcome: Viacom, the parent unit of Paramount; Leslie Moonves, President of CBS; Kelsey Grammer, Frazier’s main star; Scott Sassa, NBC entertainment President.

Interests

NBC: NBC had a financial interest that would have been satisfied by any offer that would allow them to maintain or increase advertisement value. The secondary interest was not paying too much for the show with the possible drop in ratings due to the age of the show. Paramount: Also had a financial interest in the deal wanting to maximize their profits. Kelsey Grammer was a secondary motivating interest to Paramount, wanting to secure his television legacy.

Value

NBC’s negotiating team proposed ratings-based bonuses based on specific ratings performance. Graboff tried to focu on the mutual interests and separate the problem from the people with mutual gains proposals^[2]. They also agreed to development commitments for Kelsey Grammar’s production company and the executive producer’s production. “Development commitments boil down to money,” explained Graboff, ^[3]  His reasonable approach allowed Paramount to become more flexible and ultimately agree to $5.5 million instead of $6million. Paramount’s team agreed to a more reasonable price of $5.5 million to try and meet NBC halfway between the two positions. The two parties could have collaborated to avoid audience loss and partake in mutual value gained from sharing advertisement revenues while avoiding negative publicity.

Barriers

NBC acted from a strong position of being willing to walk out, if their requests weren’t met, with a “take it or leave it” deal. This was type of single-minded focus on profits.

Paramount also had a single-minded focus on profits, and used their position of power (owned the rights to Frasier) to strong arm NBC into agreement. There was another barrier in the form of outside influences from outside networks.

Ethics

NBC had morally questionable plan if the deal fell through. Graboff would use the media to spread negative coverage of the show, with the intent of hurting the new owners’ revenues.

Paramount understood there was a power differential and tried to exploit NBC’s need for the show’s viewership. In the book “Getting to Yes, they go into detail about maintaining your personal code of ethics and not losing to an emotional ploy from the other side.

NBC’s BATNA

NBC began negotiations about 5% below their current per episode price. Graboff developed their strategic negotiations framework based in the financial analysis of the episode profitability. He It was in NBC’s best interest to keep Frazier, as it was the main driver of advertising revenues for the network, which would have been worth a short-term loss. Below are NBC’s BATNA’s:

·        $5 million per episode

·        Buy another show from a different studio (Dharma & Greg)

·        Begin a new show

NBC Reservation price

NBC should have a reservation price of $5.5 million. They may lose money in the short term, but could leverage better gains in the long run.

Paramount’s BATNA:

Paramount began the negotiations with a degree of over optimism, which somewhat blinded them to NBC’s BATNA. Their single-minded focus on increasing the license fee nearly 20% nearly negated the deal. Paramount’s BATNA’s:

·        Air the show on CBS (would be less than NBC was paying)

·        Shop the show to other networks, possible bidding war

·        Maintain the original agreement

Reservation price

Based on Graboffs estimation of the CBS break-even purchase price, Paramount’s reservation price should have been $3million.

ZOPA

The ZOPA between $3, the estimate CBS could afford and $5.5 million, an increase in current value, while maintaining the show as a platform to launch new material.

NBC should have accepted the $5.5 license agreement to play it safe which would have created motivation to create new shows to offset the new expense. Yet at the same time, their previously agreed negotiation strategy to be willing to walk out (which they did) may result in Paramount agreeing the NBC’s terms, especially if they evaluated the NBC offer and came to the same conclusion Graboff did of a $3 million license agreement.