NBC finally gets the Net
Spring 1998 will be remembered as the season of TV's religious awakening--a time when NBC, one of the world's foremost media companies, finally jumped onto the Internet with both feet.
In doing so, NBC not only embraced the Web, but--more impressively--it avoided falling into the NIH (Not Invented Here) trap. Instead, the network stuck to its knitting and partnered. So, even as NBC is running like hell to catch up, it is raising the bar for those who would compete in the global media game.
NBC can be credited with understanding that it is a broadcast network, not a Web design and production company. On May 28, the company announced that it would outsource all of its Internet production to USWeb, one of the largest Internet-centric professional services firms. By hiring USWeb as its Internet design and production house, and by taking a stake in it, NBC set itself up to compete with Internet-fluent content companies on the Web.
Now NBC can focus on its core competencies--and still participate in the upside generated by its association with USWeb. The USWeb deal will save it significant production money and increase its ability to adapt.
NBC also deserves credit for understanding that--despite its deep pockets and the significant number of "eyeballs" it has attracted to its site--it still lacked a product. On June 6, the network announced plans to purchase a majority share of Snap, CNET's portal initiative. NBC paid $5.9 million for 19 percent of Snap, and got an option to raise its stake to 60 percent for another $32 million. At the same time, NBC bought nearly 5 percent of CNET. (CNET: The Computer Network publishes NEWS.COM.)
The investment means that NBC ultimately can become the majority owner of a portal that lacked the key ingredients it could provide: traffic and cash. In fact, it's very possible that NBC could turn Snap into one of the top three portals on the Web. The network can leverage its 78 million-strong viewer base to encourage consumers to start their Internet experience with Snap, and it walks away with an Internet-ready portal and the commitment of an Internet company.
NBC also understands that it does not have to limit itself to content. On the same day as the Snap announcement, NBC launched Giftseeker, a sales initiative that leads NBC television viewers to a Web site specifically designed to encourage impulse purchases. Launched to correspond with Father's Day, Giftseeker involves nine vendors (including Amazon.com, Cyberian Outpost, and iMall) that are paying NBC for commercial airtime, including 30-second spots during the network's Thursday "Must See TV" lineup. During the spots, NBC viewers are pointed to www.nbc.com/giftseeker to shop for gifts.
Giftseeker may be a primitive and fairly basic way to add an online commerce dimension to the broadcast business model, but it nevertheless demonstrates the awesome leverage a global media company can have. Whereas NBC's earlier moves showed that it could get up to speed on the Information Superhighway, Giftseeker illustrates NBC's potential.
While it is difficult to measure the degree to which TV commercials drive traffic to the Web, the successes of entities such as CBS SportsLine, ESPN SportsZone, and CNET all point to the strategy's effectiveness. Additionally, Hambrecht & Quist's ongoing WebCensus survey (conducted in conjunction with LinkExchange) provides encouragement. Of the 100,000 respondents to an Internet-based survey, H&Q found that the most frequent viewers of television also are among the heaviest Internet users.
Media convergence is still in its early stages, but I believe that 1999 will be the year in which TV and the Internet come together for real.
What does this mean from a stock perspective? Look for investment and acquisition fury to continue unabated during the remainder of 1998 and into 1999. The latest activity appears to be just the beginning.
Danny Rimer is a senior equity analyst at Hambrecht & Quist, which maintains a market and has served as underwriting manager or comanager for CNET, Amazon.com, and USWeb. Rimer writes regularly about the Internet in Marketwise.