Paramount, studio producer of the hit show "Frasier", is planning to transfer the show to CBS, its sister company, if NBC, the network airing the show, would not accept their proposal of a higher license fee than the present fee. This case discusses the analysis of the situation done by Mark Graboff's, EVP of NBC West Coast.
Guhan Subramanian; Michelle Kalka
Harvard Business Review (801447-PDF-ENG)
May 01, 2001
Case questions answered:
- Complete a “Negotiation Map” of players and interests. Who are the parties in the Frasier negotiation, and what are their interests? A Negotiation Map is a sketch or drawing (as an exhibit) of the players and interests.
- What is Paramount’s BATNA? What is your best estimate of their reservation price?
- What is NBC’s BATNA? What is your best estimate of their reservation price?
- Is there a ZOPA (Zone of Possible Agreement)?
- The End Game Strategy: does NBC’s final act make sense? Should they have passed?
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Case answers for Frasier (A)
Executive summary – Frasier
Mark Graboff was leading a team to negotiate the rights to Frasier for NBC West Coast. The first negotiation period ended with no agreement reached and NBC’s final act was to let Paramount propose the Last Offer. Analysis of this negotiation reveals that:
- Two parties both had BATNA and it seems they were aware of each other’s alternatives;
- ZOPA for this negotiation was from $2.85 to $6.09 million;
- It makes sense for NBC to take the final act despite the fact that the current offering was within ZOPA. This is because they were having better negotiating power thus they could expect a lower price from the Last Offer. Nevertheless, since the deal would provide more benefits for both parties and there are a lot of risks associated with BATNA, NBC should only pass the Last Offer if it is higher than NBC’s reservation price.
Main players and their interests (Exhibit 1)
1. NBC West Coast
- To keep Frasier: this is one of NBC’s top priorities due to the lack of programming success. Without Frasier, NBC’s Tuesday night would be at risk of becoming a wasteland. Also, NBC could use Frasier as a tent pole to increase viewership for other shows and attract high premium ads;
- To minimize loss: NPC prepared to lose money for this show since the current license fee (~$5 million) was already much higher than their break-even for the show. Also, speculates from media (~$5.8 million) and press (~$8 million) would make it harder to lower the deal. Therefore, NBC’s top priority is to limit the loss;
- To prevent bidding war: if NBC lost Frasier to other networks, they would have to shop for a replacement thus trigger a bidding war that could eventually raise programming costs for all the networks.
Individual interest: Mark Graboff wanted to make an impressive start and to increase reputation in the industry.
(1) To maximize profits…