American Idol rejection

“American Idol” on the Fox TV Network is one of the most popular shows in television history. The show has been a consistent hit in the United States since its premiere in June, 2002. It is currently seen by more than 26 million viewers each week, according to Nielsen Media Research. In March, 2005, Robert Sillerman bought the London-based company that produces “American Idol” for over $200 million in cash and stock.

Yet in 2001, when Simon Cowell was pitching the series to US networks, none were interested. NBC turned the show down. Andrea Wong, the reality-show programming director of ABC, turned the show down, twice. Cowell and his partners didn’t even try to set up a meeting at CBS, given the cold response their phone calls received at the network.

Many of these rejections happened after the show’s developers had created a similar show, “Pop Idol,” for the UK television network ITV. By the summer of 2001, “Pop Idol” had become a tremendous success in the UK, and Simon Cowell had become a celebrity there. Even its success in Britain did not convince US networks to run the show, however.

There were, it turns out, lots of reasons why the US networks all said “no” to American Idol. Two previous music-based reality TV shows, for example, had flopped in the US in the prior two seasons. The argument at the time was that music had become too stratified to have mainstream appeal. For network executives, the “no” decision was much easier to defend to their bosses than a “yes” would have been.

According to The New York Times, Rupert Murdoch himself had to call Peter Chernin, the head of Fox Network, to get the show purchased. When Chernin said that Fox was “still looking” at “American Idol,” Murdoch responded:

Murdoch had two big advantages over other network executives in evaluating “American Idol.” First, he had trustworthy local information – he had heard of the show’s popularity from his daughter Elisabeth, who was living in England at the time. She had urged him to buy the show for the US.

Second, Murdoch’s position enabled him to take risks that his lieutenants could not. Murdoch himself would not have been too adversely affected if the show had failed.

The “American Idol” story is not unique. The structure of executive jobs and incentives will bias most decision-makers away from accepting risky propositions like “American Idol,” even when they should. Their incentives are aligned against innovation.

One of the reasons relates to the nature of innovation itself. It’s risky, and no one likes to fail. If a decisionmaker is going to okay something, it’s because she has confidence that it will succeed.

A second relates to the nature of mistakes. Simply put, mistakes of omission are much harder to identify than mistakes of commission.

Statisticians distinguish between “type 1” and “type 2” errors. A “type 1” error is a mistake of commission. It’s the kind that comes when you take an action and it turns out to be a mistake. For example, green-lighting a project that turns out to be a failure is a type 1 error.

When executives commit to a project that turns out to be a failure, their careers suffer in very public ways. When it was made in 1980, for example, the movie “Heaven’s Gate” cost $36 mm and resulted in catastrophic losses for United Artists. Michael Cimino, the director, never directed another film. These kinds of errors are very visible.

Type 2 errors are errors of omission. They are the kind that come when you don’t take an action, and the mistake comes from missing an opportunity. Andrea Wong at ABC made a type 2 error when she passed on American Idol.

Type 2 errors are often hard to see, but there’s some evidence that this kind of error is quite prevalent. In 2000, Henry Chesbrough, of Berkeley’s Haas School of Business, looked at decisions around project financing at Xerox PARC. He found that PARC declined to fund a lot of projects that went on to become successful companies – Documentum, Adobe, and 3Com, for example.

The problem is, most type 2 errors are never discovered. This is because the development projects in most companies that are killed or shelved never get a second opinion. They are stopped without being shown to other companies to see if someone else wants to take on the project risk.

Because type 2 errors are mostly invisible, they come at less cost to managers than do type 1 kinds of errors. It’s often easier to say “no” to something that might be a huge success than it is to say “yes” because, most of the time, no one will ever know what the outcome might have been. Most managers are evaluated based on what they accomplish, not on what they might have missed.

Good ICE update.

I have been teaching the need to balance between type 1 errors and type 2 errors for many years. This is absolutely a key portfolio management decision issue. In the UK there is a famous example of type 2 error which was the man at EMI in 1962 who turned-down the Beetles. However, the real secret is to ensure the correct balance between both error types – to focus on either one will lead to inefficiencies.