NBC Says It Remains Committed to the Internet Despite NBCi Failure
The network said April 9 that it will shut down its Internet subsidiary and will eliminate many of the 300 jobs associated with the portal.
NBC, the broadcast unit of General Electric Co., which had a 38.6 percent stake in NBCi, said it will fold the portal into NBC and that shareholders in the portal will receive $2.19 in cash for each share of NBCi owned. The purchase will cost NBC about $85 million in cash. NBCi is valued at about $150 million.
"We remain totally committed to the Internet as an inevitably big growth opportunity for our core media business," Marty Yudkovitz, executive vice president at NBC and president of NBC Digital Media, said in a conference call with analysts last week. "What looked like a sector tailor-made to our interest and ready for growth turned out to be an economic disappointment for just about everybody in the portal sector today. But we haven't grown gun shy."
Yudkovitz said NBC plans to take more of a vertically integrated approach to its NBCi subsidiary and may fold it into its other properties, such as NBC News or MSNBC.com. The company plans, however, to exit the portal business.
"We now know better today which approaches work for us, like the MSNBC.com approach, and which don't," he said.
Analysts said this would be a prudent strategy for the network.
"We would expect NBC to roll its MSNBC.com, CNBC.com and other online assets together with NBCi going forward," said Bill Lerner, an analyst at Prudential Securities Inc.
NBCi debuted in November 1999 through the merger of NBC and CNET's jointly owned Snap.com and Xoom.com, as well as other NBC-owned properties. The portal posted a net loss of $245 million on revenue of $31 million in fourth quarter 2000.
The portal had a large user base, with 27 million registered users and 16 million unique users a month, according to analysts. They noted that its significant exposure to dot-com companies, low cost-per-thousand rates and stiff competition in the portal space contributed to its downfall.
Other network executives said NBC will spend the next few weeks deciding which assets will be folded into other NBC properties and which will be shut down or sold.
The network spent more than $100 million on the Internet portal since it debuted in 1999, according to Mark Begor, chief financial officer at NBC and president of NBC business development and interactive media. In fact, under a five-year deal with NBC, NBCi paid the network $90 million a year for the rights to advertise on its television shows. It still owes the network about $200 million, but with the failure of the portal, network executives expect that obligation "to just go away."
The executives noted that one of the major reasons for the failure of NBCi was the dwindling market for Internet advertising. The portal relied on dot-com companies for about 68 percent of its revenue.
"NBCi was highly dependent upon other dot-coms for advertising because the market was so high," Yudkovitz explained. "They were clamoring for what was pretty terrific traffic at good CPMs. As their businesses dissolved beneath their feet, obviously NBCi suffered from losing those clients."