Tech Industry

THE DAY AHEAD: Are media titans missing the Net&#039&#039s big picture?

COMMENTARY--Traditional media companies apparently never got that memo about buying low and selling high when it came to Internet ventures.

A year or two ago, media giants bought high or spent big to create Internet subsidiaries in a short-lived, dot-com, greed-inspired love affair. Urged on by fear that upstart dot-coms would make them irrelevant, media giants blindly created or acquired Internet ventures, which were mismanaged in many cases. Now these media titans are cutting their losses.

The evidence is piling up.

General Electric's NBC unit brings NBCi (Nasdaq: NBCI), its doomed Internet venture, back in house Monday--only to take it to the back yard and shoot it. NBC execs used "wind down," "downsizing," and "substantial loss of jobs" to describe this ill-fated Peacock portal.

Disney (NYSE: DIS) buys Infoseek and renames it only to watch its plans unravel. The company then renames to Disney Internet Group, but the switch is futile. Disney announced plans to kill the portal in January and finally ended its Internet unit's days as a tracking stock in March.

News Corp. (NYSE: NWS), New York Times (NYSE: NYT), Viacom (NYSE: VIA) and dozens of other traditional companies ramped up Internet ventures only to cut back. According to Salomon Smith Barney, more than 20 traditional media companies have publicly pulled back from the Internet since mid-2000.

Now, some of these cuts are needed--like dot-coms, many of these media giants bulked up too fast. But there's a big picture being missed here.

What drove traditional media firms to the Web? Fear of being uprooted by dot-coms.

What happened when dot-coms died and weren't much of a threat? Traditional media firms lost the urgency to create any type of long-term Internet plan. Cutbacks soon followed.

Now if you believe that the Internet isn't going anywhere and will be a valuable medium, you have to wonder about traditional media's dramatic cutbacks. Wouldn't this be the perfect time to invest and ensure Internet domination?

The Internet world can't get much lower. Now would be the perfect time for a well-heeled media titan to go shopping or bolster its online efforts. Buy low. Invest in downturns to grab share later. Cook up new business models. It's basic business blocking and tackling.

Profitability? C'mon, most traditional media companies could afford to invest in online ventures and create a workable business.

The rule of thumb is that new magazines should take about 5 years to turn a profit. New cable channels could take a decade. Internet ventures got two years maximum. And it's even less than that when you consider all those wasted middle management synergy meetings and culture wars.

In a recent research note, Salomon Smith Barney analyst Lanny Baker noted some key trends in online advertising. He looked at the supply side of online media and noted that a correction is well under way. Mergers and acquisitions, dot-com failures and lower investment in online media by traditional media firms are all cutting into the supply of Internet advertising to be sold. That means demand will either be in balance or exceed supply at some point.

In other words, online advertising will rebound even though it's struggling now.

What will traditional media companies do?

With the exception of AOL Time Warner--which only has an Internet strategy because AOL bought Time Warner not the other way around--media companies will be behind the curve. They won't have the staffing, and they'll have to go on a hiring binge again.

These media giants should be thinking broadband, wireless and new subscription options while potential rivals are struggling. Instead, they're thinking cutbacks and breathing easy because the upstarts have disappeared.

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