NBC's Leno drama might have a happy ending

Host Jay Leno smiles during a panel for his upcoming television series ''The Jay Leno Show'' at the Television Critics Association Cable summer press tour in Pasadena, California August 5, 2009.

LOS ANGELES (Reuters) - NBC's late-night TV troubles are proving embarrassing and costly for the network -- but the drama could pay dividends down the road.

NBC is scrapping its cost-cutting experiment that put "The Jay Leno Show" on TV at 10 p.m. because the show earned poor ratings and backlash from local TV stations that said it hurt the 11 o'clock newscasts that followed. NBC also remains the last of the four big U.S. TV networks in audience ratings.

But the disaster might come with a benefit: it could draw more viewers to the network, media executives and advertising experts said.

"Controversy is sometimes great PR and could reinvigorate Leno's show. More viewers may turn in out of curiosity," said Gabelli & Co analyst Christopher Marangi.

That would provide some comfort to NBC, which faces the prospect of spending $10 million to $20 million to reach a settlement with Conan O'Brien.

The current host of "The Tonight Show" has refused to go along with NBC's plan to push his show back to 12:05 a.m. to accommodate Leno's return to his old time slot.

"The Tonight Show" audience has thinned since O'Brien took over in June, allowing rival David Letterman on CBS to take the lead in the battle for late-night network viewers.

Analysts and industry executives think that NBC will put on a tried-and-true staple like "Law & Order" at 10 p.m. until they have new scripted programing in place. Some believe the move could boost NBC in the hot market for last-minute ad spots at the expense of its competitors.

"While we don't anticipate that NBC's ratings fall will completely reverse as they introduce new 10 p.m. programing and return Jay Leno to late-night, these changes could slightly impact NBC's competitors who have gained relative share on the national and local level," Michael Nathanson, an analyst with Bernstein, said in a research report.

It could also help NBC local stations' performance.

"No doubt, a stronger 10 p.m. show could help the NBC station owner and negatively affect rival CBS, ABC and FOX local stations including owned and operated stations," he said.

An advertising executive, speaking on condition of anonymity, said NBC will likely command better commercial pricing following the switch.

"When all the dust settles it could be a benefit for NBC. They had offered deep discounts and may be able to command better pricing for the 10 o'clock scatter market now," he said.

NBC will rebound, said David Scardino, entertainment specialist at ad agency RPA.

"In the short-term, the network's going to take a hit. They're radically changing their schedule on short notice, but longer term, they'll put scripted programing and the best of their pilots on and they'll come out ahead of where they are now," he said.

"Looking into the 2010-2011 and 2011-2012 season, the network should be re-programed and rescheduled and should be getting higher ratings than what they have been with Leno at 10 p.m.," he said.

Still, there are plenty who view the episode as a setback.

"They have a hole in the programing and will now have to spend about $300 million a year to put programing back and rush it, which does not necessarily guarantee success, versus $100 million they spent for the Leno show," said RBC analyst David Bank, who thinks that it might annoy advertisers.

"I would think the advertisers would cry bloody murder if NBC, after getting them to experiment on Leno, tried to jam up pricing," he said.

And there are also concerns Leno faces an uphill battle to reclaim his ratings and advertisers after suffering a drop in his audience during the prime-time experiment.

NBC, which is owned by General Electric Co declined to comment for this story. Comcast Corp is in the process of buying a controlling interest in NBC from GE.

(Reporting by Sue Zeidler; Editing by Paul Thomasch and Robert MacMillan)