This broadcast-Internet marriage thing is overrated.
Executives from NBC, Snap and Xoom.com Inc. (Nasdaq: XMCM) touted today's merger announcement as the "the true convergence that everyone has so breathlessly waited for and talked about for so long," since it combines a leading TV broadcaster with a Web portal and an e-commerce site. That's the positive spin.
| Will the new NBC Internet be a Web force to reckon with? |
Now look at what's actually happening: basically, a pair of second-tier websites get tagged with the Peacock brand, and combined with minor NBC assets. It's not a watershed deal, even if it does create the seventh-largest Web property in terms of reach. Don't get me wrong, convergence looks to have a huge impact -- on the hardware side, with gadgets like digital set-top boxes and information appliances. But with content providers, it's not a sure homerun.
The venture announced today promises to get tons of promotion on NBC television, which always helps. Unfortunately for those who would own shares in this new company, the future NBC Internet also promises to pay for it, committing to at least $880 million over the next decade. To be fair, it should be noted that NBC is actually putting money into the new company, by purchasing debentures that can be converted into common stock later.
NBC adds brings little else to the deal besides a self-promoting site in NBC.com and a 10 percent stake in CNBC. Oh, and the NBC moniker, which seems to be the linchpin of the whole thing.
Xoom CEO Chris Kitze might as well have chanted "branded media property" like a mantra for all the times he referred to it during this morning's analyst conference cal. But despite what he and other executives claim, NBC's power to lure TV viewers to the Web isn't proven. Snap's reach has grown to 16 percent from 3 percent since NBC bought a piece of Halsey Minor's portal idea, but who's to say how much of that would have happened anyway? After all, Cnet has its own audience leverage. Besides, it's a lot faster to go from nothing to something, than to go from something to something even bigger.
Not to worry -- the Brand will rule all, claim this deal's advocates. "We think that the next way to go is going to be in a branded media environment, we think the next thing to create is an integrated media platform," Kitze declared.
Is that right? Then explain the Go Network's flat performance so far.
During the analyst call, Kitze did take the time to twice disparage Infoseek as having no media brand of its own ("They haven't had the full wind of Disney behind them"), simply because Infoseek isn't called "Disney.com", while Snap-Xoom-and-friends will become a publicly-traded company known as NBC Internet. But make no mistake about it, the Go Network is a Disney property, and gets a ton of promotion on ABC television and other Disney properties.
Snap, Xoom and company (kind of a catchy title itself, come to think of it) would combine to rank seventh in terms of percentage of Internet users reached -- a metric even Kitze admitted "isn't necessarily the best way to do a measurement." Still, reach shouldn't be all that important, theoretically, since NBC Internet won't be about advertising; the company plans to use Xoom's e-commerce model and extend it.
There's a lot of extending to do. NBC may be a television elephant, but even with Snap and Xoom it'll be an Internet peanut: on a pro forma basis, the combined entity saw revenue $10 million in the first quarter, and expects annual revenues of up to $70 million at first, said Bob Wright, NBC's president and CEO.
Contrast that with Web leaders such as Yahoo, raking in $86 million in just in the first three months of this year, or America Online, with revenues of $1.3 billion in the same period. And neither of them needed a Big Brand Media partner to get those sales.
At least the division of equity is even. Xoom, Snap and NBC's other aggregate contributions each represent roughly third of the new company, which means NBC, because it already owns a piece of Snap, ultimately gets anywhere from 49 to 53 percent of the whole thing.
If you're enamored of NBC Internet's prospects, Xoom's Kitze can tell you how to get a piece: "From a Xoom shareholder point of view" -- Kitze happens to be one 4.1 million times over -- "if you want to own this stock, buy some Xoom stock today. That would be the way to participate in this venture."
And the way to make him even richer.
Other issues to think about:
The overall technology market was up a bit in mid-afternoon trading. The Nasdaq Composite Index had gained 20.58 to 2524.20, the S&P 500 was down 1.50 to 1343.50, and the Dow Jones Industrial Average clung to a slight gain of 2.29, to 11033.88. 22GO>