U.S. studio cutbacks dictated by Wall Street.

While a cursory look at the U.S. studios' bottom lines shows large amounts of cash sitting idle in their coffers (it's been reported that CBS has somewhere around $3 billion burning a hole in its corporate pocket; last year Disney's ABC division raked in a $400 million profit), a serious sense of gloom has descended upon many Hollywood executives in the last year or so thanks to the studios cutting back in a big way.

As a result of not-so-stellar returns on the stock market, companies are using some of their excess cash to buy back their own stock. For lack of alternatives, they see investment in their own companies as a good deal. Last month, the CBS Corporation reported a quarterly profit and announced a buyback of $1.5 billion worth of its shares. Last February, Disney reported quarterly profits of 50 cents per share and tied with News Corp. atop the media sector.

Paying dividends is no longer Wall Street's favorite form of ROI (return on investment)--indeed dividends are seen as a weak way to pay for parent companies' debts. Take, for example, Viacom, whose fourth quarter profit rose 271 percent in 2006. At the same time, the company's Class B shares dropped 47 cents to $38.57 on the New York Stock Exchange.

Additionally, growth through acquisition is becoming increasingly difficult since there is very little to acquire that is big enough to get the Street salivating (this explains why billions sit idle).

Venture capitalists (VCs) and investment funds are furious at the economic environment because they too are sitting on huge piles of cash with nowhere to invest them for "indecent" returns (indeed some VCs are even returning funds to investors).

Under these circumstances studios' MBAs do what they were trained to do and know best: cut costs to show "efficiency," hoping they can get the Street panting (since showing increased revenue through strength is no longer sufficient).

Some of the first signs of this trend could be seen back in 2005, when Warner Bros. Entertainment cut 300 jobs, due to the drying up of TV syndication. Last year, Disney made drastic changes, laying off 650 of its employees and cutting back on the number of films released annually (from somewhere around 18 to approximately eight). Despite the fact that, thanks to a batch of blockbusters, the overseas box office bounced back in 2006, the low revenues of 2005 seem to be ringing in the ears of execs and parent companies that have chosen layoffs and cutbacks as deterrents.

At the beginning of this year, Paramount Pictures announced a restructuring that divided the company into four units--DreamWorks, MTV Films/Nickelodeon Movies, Paramount Pictures and Paramount Vantage--which led to the exit of studio president Gail Berman. Since then, industry observers have painted a picture of Paramount as a studio in constant transition.

In February, Paramount's MTV Networks jumped on the layoff bandwagon, handing out 250 pink slips (representing about six percent of the company's worldwide workforce) within a one-week period. Additionally, the company shut down the MTV World linear channels designed to serve young, multicultural viewers. The Los Angeles Times reported that Viacom's new management team is very focused on driving earnings growth and cost-cutting is, in their view, necessary to accomplish that.

But perhaps the most significant studio shift happened at the end of last year, when NBC Universal announced that it would restructure to save $750 million in two years. The NBCU 2.0 plan is designed to tighten budgets in every department and increase companywide efficiency. But with the initiative comes about 700 expected layoffs (over the two-year period), with the NBC News division taking the bulk of the hits.

As part of its 2.0 initiative, the network announced that its 8 p.m. time slot would be dedicated to game shows and other lower-cost fare. Besides being cheaper to produce (though recognizably less so when the shows become very successful), those shows also manage to bring in a younger median age, which translates into ready and willing advertisers.

When the NBC 2.0 initiative was announced, Bob Wright, vice chairman of GE, and then-president and CEO of NBC Universal, explained the company's move: "Success in this business means quickly adjusting to and anticipating change. This initiative is designed to help us exploit technology and focus our resources as we continue our transformation into a digital media company for the 21st century." Jeff Zucker, then-CEO of NBC Universal Television Group (who recently took over Wright's job) added: "We have to recognize that the changes of the next five years will dwarf the changes of the last 50."

When asked whether other studios will follow in NBC's footsteps, Brad Adgate, Horizon Media's svp, Corporate Research Director, said, "We'll have to wait and see. If this move is successful, the other studios will follow. Imitation is the sincerest form of flattery."

But Adgate acknowledged that relying on non-scripted programs in such a hot daypart, as NBC is, involves a definite risk. "You have to worry about over-saturation and the fact that these shows have a limited shelf-life and don't repeat well. The studios need to do a comprehensive financial analysis to see if all of these things are worth it." But lately, even hit scripted series like Lost have had difficulty finding audiences for their second-runs, so the studios face a real conundrum.

According to Adgate the need for cutbacks and restructuring in Hollywood can be traced back to consolidation. "There are relatively few really big companies out there, and they all have their tentacles in a lot of different places," he said. "Take Sony, for example: The company had a great year at the box office in 2006, but they still managed to show a loss in the first quarter of 2007 because Playstation didn't do very well. All these businesses are tied together and there's a corporate profit statement they have to worry about," he said.

But Shelly Palmer, TV industry expert and author, explained that worrying about the bottom line is nothing new. "With any publicly traded company, the focus is going to be on enhancing shareholder value and making a larger profit. These layoffs and restructurings are not being done in desperation, and are not a reflection of a struggling economy," he said. "In fact, TV continues to be a fairly robust business. They are a result of some major changes happening in the TV industry at the moment.

"It's becoming abundantly obvious that you can't float through the TV business," Palmer said. In the Brave New World you either know your stuff and are ready to keep up with media changes, or you're not."

Specifically, Palmer said, the kinds of employees that are needed have shifted. "There are vendors that can be outsourced, and in many cases in-house employees need a whole different set of skills," he said. "In a lot of cases you need managers rather than builders."

Palmer stressed that thanks to all the changes ahead, now is just about the most exciting time in TV history. But he also recognized that with those changes come some unwanted layoffs and seat shifting. "If the business is changing, and you don't stay on your game, you do so at your own peril," he said. "A lot of people will have to do some personal remediation. Obviously there will be some unfair layoffs. But everyone I know is bullish. There's a real transition that's happening, where the networks are not just networks, they're truly digital content distribution companies, and that means a whole new structure. There's plenty of action, and lots of money available--both experimental and real," he said.

While new technological innovations are undoubtedly affecting the structure of the companies, there's no question Wall Street is strongly influencing these decisions, seeing the media mammoths as bloated entities. "Wall Street is watching, and the focus is on moneymaking," said Adgate. "In the past, when a Woody Allen film came out you'd ask if it was funny. Now when a movie comes out all anyone asks is how much money it made."