NBC to take NBCi back in-house

NBC said it will pull the online portal back into its operations and shut down NBCi's operations in San Francisco. The broadcasting company is currently a minority shareholder in NBCi, with approximately 38.6 percent of the company's outstanding shares.

"The company of 339 people will not exist as it is today," said NBC spokeswoman Rebecca Tompkins, adding that some employees will remain. "We will retain parts of what NBCi is right now, but I don't know if we will retain the NBCi name."

Under the terms of the agreement, other shareholders of the Internet portal company will receive $2.19 for each share of NBCi that they own. This price represents a 46 percent bonus over NBCi's closing price of $1.50 Friday, the company said in a statement. CNET Networks, publisher of News.com, has a stake in NBCi.

Executives said NBC is determining how to use NBCi's assets and expects to develop its strategy for these Web properties over the next several months. NBC.com, which was owned by NBCi, will be the first unit integrated with the broadcaster under the management of Scott Sassa, president of NBC's West Coast operations.

"We will clearly be downsizing NBCi, and over the course of coming weeks we'll be sorting out which of its assets will be integrated into NBC and which of its assets will be" eliminated, Will Lansing, chief executive of the Web portal, said in a conference call.

The NBCi integration is the latest the example of an overall retrenching among TV broadcasters' Internet efforts. In January, Walt Disney laid off the entire staff of its Go.com Web portal and announced its intention to buy back shares of the Walt Disney Internet Group from the public market. News Corp.'s Fox and Viacom's CBS have folded their once-independently run Internet operations into their respective TV counterparts.

NBC executives were frank about their decision, blaming the virtual collapse of the online advertising market. At the height of the Internet craze, NBCi was able to book multimillion-dollar deals with Web companies looking for exposure on its site. But as the public market for Internet companies has plummeted, leaving many dot-coms dead in the water, revenue growth has slowed drastically.

"What looked like a sector tailor-made to our interests?turned out to be an economic disappointment to everybody in the sector," Marty Yudkovitz, president of NBC Interactive Media, said in a conference call. "We now know better which approach works for us, like the MSNBC approach, and which doesn't."

NBC's foray in Web portals began in 1998 when it acquired a stake in Snap.com, a portal developed by CNET. The company eventually acquired community site Xoom.com then folded NBC.com into the two to create NBCi.

Although the investment may have made sense at the time, reality hit when the market soured. Gone were the days when Web portals such as Yahoo and Lycos dazzled Wall Street with skyrocketing valuations. At the same time, former employees have described NBC's commitment into the effort as half-baked. Lack of communication and stonewalling between NBC and NBCi stalled the Web portal's growth, they say.

Now, NBC executives admit that the portal game of attracting viewers and selling advertising no longer makes sense.

"The business model was not viable or sustainable," Mark Begor, chief financial officer of NBC, said during the conference call. "A sharp decline in the Internet advertising space demonstrated it didn't make sense to pursue an independent portal strategy."

Instead, NBC will focus on its more successful Web initiatives, such as MSNBC.com and CNBC.com, while tying NBC.com more closely into programming.

NBC executives have been exploring many options for NBCi over the past few months. Executives said during the conference call that they considered liquidating the company and returning cash to investors or selling it off. In the end, NBCi's Lansing said selling its assets to NBC made the most sense for investors.

NBCi has seen tough times as the Internet industry and advertising-based Web sites have struggled. The Web company announced layoffs in January, which brought its employee count down to around 300 employees today. In addition, its stock price has tumbled from a 52-week high of $42.87.