Neal R@nts

Gratitude and Loyalty Are Easy to Come By in a Bad Economy, But...

News Flash!  The economy stinks.

We live in unprecedented times.  Uncharted waters.  Not since the great depression have we been in such a state within our economy and I would argue that, for employers, it may be worse.  We are no longer a manufacturing, industrial economy.  We are a service/informational based economy that is heavily dependent on skilled professionals who are unbound by normal processes or taught methods.  These are people like those in media, advertising, and other creative pursuits--industries heavily reliant on the talent of individuals.  Put sales in that category too. That makes for dicey dealings in an economic climate such as ours.

In our economy, most businesses, in order to survive, have been doing the unthinkable.  Salaries have been cut, mandatory unpaid furloughs have been imposed, pension plans have been frozen, and stock options have been terminated (and existing options are so far under water that they are, in effect, worthless).    Many businesses have half the people doing twice the work these days. Drastic times call for drastic measures.

And the employee base, looking around and seeing that every tenth person is praying their unemployment doesn't run out before the economy rebounds, is grateful to be working and still drawing a paycheck.  They have no intention of going anywhere.  In a bad economy, loyalty runs deep.

It really begs the question--what happens when the economy turns?

There are really no more golden handcuffs.  Employers may think that those loyal employees will still remain loyal and grateful, or even their carefully crafted employment agreements with terms and conditions--particularly non-compete clauses--will be intact.

I'm not an employment lawyer, but I've been on both ends of employment agreements for many people.  I certainly know that all employment contracts are written differently.  But I also know that any one of the basic terms of any agreement, once breached, effectively renders the entire agreement null in many cases.  So if you're an employer who has imposed furloughs, cut salaries, etc. for contracted employees, those contracts may no longer be binding.  What an employee verbally agreed to will not likely have any bearing on the written terms.  It's more likely that agreements will be void.

I'm big on predictions.  I am going to predict that smart employers, anticipating the economic turnaround will see the signs and become protective, and at the same time, predatory.  They're going to know that there are no strings attaching employees.  Even if some employers don't see it coming, the headhunters are likely strategizing about the potential now.  The gloves will be off even before the economy turns to acquire top-level talent from companies who have left themselves vulnerable in a down economy.  "I'll make it up to you someday" won't be good enough.  And all that gratitude and loyalty will quickly dissipate when dollars from businesses who want to acquire top talent are dangled.

The question (always) is "when?"

I have a few suggestions that smart employers will embrace today, regardless of the "when" if they want to retain their top talent:

1.    Identify your franchise players.  You'd best make a list of the people whom you'll need to be able to rebuild your workforce in the near term.  I'm talking about those people that are highly skilled thinkers and creative people who don't perform skills, but rather, produce work.  Those are the people that must be retained.

2.    Schedule individual meetings with each franchise player.  In that meeting, first--thank them for their loyalty and acknowledge the fact that they have sacrificed in the difficult environment (communicates that they are important-that can go a long way).  At the same time, structure a new agreement to supersede any previous agreements--even if an agreement didn't previously exist.  It can be triggered by certain economic events/conditions for the business.  But there must be a commitment to the franchise employee for some payoff that will keep them working for you (literally and figuratively).  The employee must have something to look forward to.  They must have a reason to stay, outside of these are nice people.

3.    Make a list of potential players from other teams.  If there is going to be switching, best be prepared for the turnover.  Assume that companies will acquire employees from you; you'd best be prepared to get some from others; be opportunistic.  Seize the opportunity to upgrade in key areas.

The real goal should be to retain the franchise players that make things run.

I theorize that many businesses are going to be caught like proverbial deer in the headlights.    For the time being they are just trying to survive day to day.  The smart businesses--perhaps those who read this, will start planning ways to keep the employees who are loyal today but may not be when the headhunters start calling and there is no incentive to stay.  Employees who feel underpaid and undervalued and who have made sacrifices will be vulnerable to predators.  There will be winners and there will be losers in the workforce shuffle that will occur.

Recognize the perils of risk walking into an empty office when things rebound and business starts heating up.

Newspapers Could Learn A Thing Or Two From HBO

No two businesses could be farther from one another.  Premium television and newspapers really have little in common, except they're both in the content business.  It pretty much ends there.  That said, there are parallels.

I doubt there are many who would read this column who have any notion of who Michael J. Fuchs was or is.  But it was under his active leadership as President of HBO that a very fundamental shift took place in the premium television business.  To get a real grasp of what HBO accomplished, one really needs to understand the environment of the mid-eighties. 

When HBO first launched-technically in 1975 as a premium service (and 24/7 in 1981-my first year in what was then a nascent industry) , their business was movies, thus the name Home Box Office.  Nothing but movies, and an occasional boxing match like the Thrilla From Manilla.  And when they launched there wasn't much in the way competition.  Then it seemed that in a matter of a year, there was Showtime and the Movie Channel, and HBO's sibling, Cinemax.  The result was a small market (at that time) with a lot of movie channels in what became a pretty competitive landscape with competing services with essentially the same product.  There were exclusive movie rights deals, but in the minds of consumers, all the services had difficulty differentiating themselves from one another.

At the same time, a new technology no one had seen coming came on the scene.  It would revolutionize the secondary video market.  The VCR made for a new competitor with whom the cable networks had difficulty competing.  The VCR rental market had release windows for movies that beat the cable networks to market by sometimes months.  Needless to say, the value of what the premium cable channels offered was greatly diluted.  The subscriber base of movie services was compromised because there was little point in paying for a subscription for in-demand content you could get now at a video store or wait months and see on the premium networks.

Lastly, during the mid-eighties, there was an unbelievable proliferation of basic cable networks to compete for eyeballs.  Going from 12 channel cable systems to 36 channel systems gave viewers lots of viewing options.  We used to say that every basic cable channel that was launched, to some degree eroded the viewership, and thus, the value of Home Box Office, threatening erosion.  Most systems went from 12 to 36 channels during a period between 1983 and 1985, thanks to nets like MTV, Nashville Network, TNT, and many others.

Not many businesses have had to contend with such competitive forces in such a short period of time.  With all the challenges facing HBO, a new direction was required for survival.

That's where Michael J. Fuchs comes in.  Before he was a president of HBO, he was a producer and had a keen eye for understanding the power of certain entertainment forms.  He made a very bold move that, in the mid eighties seemed risky, but proved to be brilliant.  Even back as far as 1982 Fuchs understood that the very survival of HBO was dependent on being able to move from being a movie service to being an original entertainment company.  Early programs like The Terry Fox Story-the first made for premium television movie, and Fraggle Rock, the first original premium children's series, were received well, but once HBO started launching programs like their first weekly series, 1st and Ten, starring a very young and sexy Delta Burke, it was clear that Fuchs had set a new course for HBO.  Series like Inside the NFL which launched in 1977 in a talk format paled in comparison to the popularity of their original drama and comedy series.  Fast forward to series like The Sopranos, Sex and the City,  and Curb Your Enthusiasm.  HBO could no longer be compared to its competitors; it had established itself as being a very  different sort of service.  They had become a differentiated original content company.

The comparisons to the newspaper industry as a whole provide many lessons.  Newspapers found themselves in a similar situation to HBO some ten years ago.  Just like HBO, the exclusivity of content they used to claim as their local franchise eroded because so much of their content like the syndicated content they carry was so readily available elsewhere.  The proliferation of news channels on cable created competition for the news franchise, and most importantly, a new technology obliterated the speed in which the news cycle moved.  Just the way the VCR created a competitive disadvantage to the premium cable services by invoking earlier movie release windows, the Internet created windows for news that made news new for about only one hour, generously.

Unlike HBO, newspapers made the wrong moves.  Seeing the competitive landscape and understanding the change, the newspapers jumped on the Internet, hoping to extend the franchise to the Web, wrongly believing that sparse local content in print would somehow multiply online.  What they should have been concentrating on was the creation of content and lots of it.  Ten years ago, the newspapers should have revolutionized their newsrooms and challenged them to localize and deliver content not available anywhere else-and lots of it.  Instead, they did just the opposite.  They acquired more and more syndicated fare and expected less and less from local writers.  The real crux of the problem was thinking that all the syndicated fare (comics, syndicated columns, obits, associated press articles-most of the content that comprises a daily newspaper) was a part of the franchise they owned just because they were the only newspaper in town carrying that content.  Nothing could be farther from the truth.  That content is readily available many places online, and beats the printed newspaper delivery window each and every day-and newspapers have no license to distribute much of it online.

Newspapers either didn't see it coming, or, more likely-chose to continue to manage a business on a 12-month financial model, enjoying short term high operating margins even as innovations were coming on scene that shattered the myth that content they license for use from others is theirs exclusively in the age of the World Wide Web.  They are noted for preaching, "content is king", but they only half-heartedly practice it.  HBO they're not.

There is a bitter sweet ending for Michael Fuchs and his career at HBO.  He ascended to actually run a large part of the Time-Warner empire but was ousted in exchange for Gerald Levin, who also originally came out of the HBO side of the Time-Warner house.  Jerry Levin was one of the architects in the ill-fated AOL-Time-Warner deal that still depresses and haunts the stock today, as the merger proved to be a not-so-smart move in a post dot com bubble era.  Fuchs still produces programs, such as A Lesson Before Dying.  But for the bold course that he guided HBO through in the mid-eighties, he deserves accolades he never really received.

I've met and known many interesting people throughout my media career.  Michael Fuchs would be along side the likes of Ted Turner and John Malone.  If you don't know who they are, you should read more.  Next: John Malone and the lessons he taught me.