Tuesday, November 17, 2009

In business, there are two kinds of decisions: those that are made with an eye towards the bottom line and those that are made for reasons of ego.

And it is often hard for an outside observer to determine which decisions were made because the decision maker thought it would lead to improved profits and which decisions were made because the decision maker just wanted to do so.

For example, take CNN's decision to not only sever ties with Lou Dobbs, but to reportedly pay him $8 million to go away.

Presumably, Dobbs's show was a net positive to CNN's bottom line, bringing in advertising revenue that exceeded the costs of producing the show. So forcing out Dobbs is going to cost CNN not only the net profit it was making but also the $8 million in goodbye money it paid Dobbs.

What does CNN get in return that could justify the hit to the bottom line?

It has a time slot that it needs to fill... and with someone or something that would bring in as much money as it was getting with Dobbs.

It is possible that CNN has such a personality in mind and thinks this new program can make more than Dobbs. But since Dobbs' ratings were higher than for many of the other CNN shows, let's presume that CNN had other shows that produced less of a profit, so bottom line economics would have CNN putting the new show in Dobbs's slot and moving Dobbs to a slot currently occupied by a show making less money.

But CNN didn't do that, they forced Dobbs out altogether.

Is it possible that CNN felt its overall profitability was being hurt by Dobbs, that even though Dobbs was profitable, he was having a negative impact on their other shows, resulting in a net negative for Dobbs?

Maybe, and if that is the case, we should expect to see viewership rising for CNN's other shows - and with it, ad revenue - once all the viewers boycotting CNN because of Dobbs come back to CNN.

But my guess is that isn't the case, that CNN's anemic ratings weren't due to viewers upset that CNN gave Dobbs a platform but rather because CNN's shows just aren't that good.

And if that is the case, then CNN will have turned out to have made this decision on ego grounds: they're going to feel emotionally better not having Dobbs.