Example 7: Wooing David Letterman

In January 1993, David Letterman made it officialhe would be leaving Late Night on NBC for a new 11:30 P.M. show on CBS beginning in the fall. A tangled web of negotiations preceded the move. In 1992 NBC chose the comedian Jay Leno, instead of Letterman, to succeed Johnny Carson as the host of The Tonight Show in an effort to keep its lock on late-night programming. Accordingly, CBS, a nonentity in late-night television, saw its chance to woo David Letterman.

After extensive negotiations, CBS offered Letterman a $14 million salary to do the new show (a $10 million raise over his salary at NBC). In addition, Letterman's own production company would be paid $25 million annually to produce the show. However, NBC was unwilling to surrender Letterman to CBS without a fight. The network entered into secret negotiations with Letterman's representative, Michael Ovitz, exploring the possibility of dumping Leno and giving The Tonight Show to Letterman.

One group of NBC executives stood firmly behind Leno. Another group preferred replacing Leno to losing Letterman to CBS. In the end, NBC offered The Tonight Show to Lettermanbut with the condition that he wait a year until Leno's current contract was up.

David Letterman faced the most difficult decision of his life. Should he make up and stay with NBC or take a new path with CBS? In the end, he chose to leave. The Letterman negotiations raise a number of questions. How well did Michael Ovitz do in squeezing the most out of CBS on behalf of Letterman? In its negotiations, what (if anything) could NBC have done differently to keep its star?

Question

(a)Define the problem. (1 mark)

(b) What is the objective of the project? (1 mark)

(c) What are the alternatives to consider? (1mark)

(d) How will you predict the consequences? (2 marks)

(e) How will you make a choice from the alternatives? (2 marks)

(f) How will you carry out a sensitivity analysis? (3marks)