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Internet

TV changes channels

The television networks' online failures lead to losses and retrenchment.

 

Strategic confusion, internal politics lead to failures online

By Jim Hu
Staff Writer, CNET News.com
March 27, 2001, 3:00 a.m. PT

In the summer of 1998, Walt Disney Chief Executive Michael Eisner visited the headquarters of Infoseek bearing the promises of a savior: The search engine would become the heart of the Go Network, promoted on ABC, ESPN, videotapes, movie trailers, theme parks--everything Mickey's white glove touches.

It was an inspiring message for the Magic Kingdom's newest member and online hub. What followed over the next two years, however, was anything but a fairy tale.


After grand Net plans go awry, broadcasters pull back.

Walt Disney
Then: Bought a stake in search engine Infoseek in 1998, acquired the rest of it in 1999, and launched the Go Network--combining ESPN.com, ABCNews.com, Disney.com and other assets. Spun out to public in November 1999.

Now: In January announced plans to shut down Go.com and lay off 400 employees. Relaunched the site in March as a gateway for Disney properties such as ESPN.com, Disney.com and ABCNews.com. Sold search rights to GoTo.com.

General Electric's NBC
Then: Acquired a stake in Snap.com from CNET Networks, publisher of News.com, in 1998. Bought home page community Xoom.com in 1999. Folded Xoom, Snap and NBC.com into a new NBC Internet unit. Spun out NBCi in 1999 with 47.3 percent ownership. Touched $100-per-share mark in January 2000.

Now: Laid off 150 employees in January after reducing revenue projections. Saw President Edmond Sanctis and sales executives resign in October. Is trading near $2 per share.

Viacom's CBS
Then: Invested in several content sites, including MarketWatch, SportsLine, and sweepstakes site iWon. Resisted buying a portal.

Now: Still has ownership stakes in vertical sites. Recently folded CBS.com and CBSNews.com into respective TV divisions. Has touted success of "Survivor" and "Survivor 2" Web sites in generating traffic spikes. Is seeing MarketWatch and SportsLine each trade around $4 a share.

News Corp.
Then: Created News Digital Media to operate Web sites such as Fox.com, FoxNews.com and FoxSports.com. Acquired a 10 percent stake in health site Healtheon/WebMD and created News Digital Ventures in 1999 to invest in Internet companies. Remained noncommittal about big Internet investments.

Now: In January eliminated hundreds of jobs in News Digital Media's Fox Web site divisions as cost-saving measure. Like CBS, folded Web sites into TV operations.

Andy Bensky remembers the Eisner visit well. "He said, 'We're going to form the Go Network, and we're going to put the full marketing muscle of the Walt Disney Company behind everything we do,'" said Bensky, a founder of Infoseek. "The closest that came was the Go Network logo that would appear on ESPN during games or on the ticker. We got no cooperation from the Disney side at all."

So much for the highly anticipated marriage of television and the Internet. The Disney-Infoseek relationship, which officially ended this month when a new search engine was chosen to power the latest incarnation of Go.com, underscores the myriad problems in the major TV networks' efforts to create a presence on the Web.

Confusion over strategy, internal politics, negligence from executive offices and a fundamental lack of understanding about new media have contributed to the failure of television's online initiatives, according to current and former executives from the online and offline arms of various network ventures. And after some high-profile false starts--most notably by Disney's Go.com and General Electric's NBC Internet--any moves by the TV networks online have fallen into virtual paralysis.

"It does seem across the media industry that people are entering holding patterns in the hope of someone coming up with a better economic model" on the Internet, said Nicholas Weinstock, a spokesman for News Corp., owner of the Fox network. "The jury's out."

For the most part, the networks began their online initiatives by taking one of two paths. Some created divisions that would go public and tap Internet wealth, experimenting with new ways to reach viewers in the process. Others held back and took minority stakes in different companies, hoping to profit from the Internet investment craze when those partners went public.

Neither course has proven particularly effective, especially since the value of almost all online companies has plummeted in the last year. Those that did attract attention became known more for their drawbacks than for their advantages or innovations.

At bottom, those in the industry say, the networks were never able to reconcile the fundamental difference between the two media: Television automatically delivers programming and information to viewers, while the Internet requires people to ask for information through their own initiative.

One former NBCi executive said the confusion has been so pronounced that online media insiders began calling the company "NBCy"--as in, why did the network create this online division if it was going to ignore it?

If they were confused about the Web, network executives were absolutely sure about one thing: They all feared the encroachment of Internet media companies, whose market values soared into the stratosphere before the bubble burst.

"A lot of their strategy was driven by fear and me-too-ism," said one former NBCi executive. "It wasn't driven by, 'Let's sit down and see if we can create a company.' I don't think people looked at the ways that it could be complementary to the core business."

Beating Yahoo at its own game
Disney's ambitions went even further, as the company aimed to topple Yahoo and take over the Web portal business--before the reverse could occur.

"Disney felt potentially threatened by these growing portals providing more and more information at a higher level," said one former Disney executive who spoke under the condition of anonymity.

The networks embarked on their Web initiatives in earnest in 1998. That's when Disney took a stake in Infoseek, which would later become the foundation for its Go.com portal.

Then NBC bought a sizable piece of Snap.com, a portal developed by CNET Networks, the publisher of News.com. The network would eventually acquire community site Xoom.com, fold in NBC.com, and spin out the combination as a new public company known as NBCi.

Meanwhile, CBS began investing in a flurry of Web start-ups, such as SportsLine, MarketWatch and sweepstakes site iWon, but stopped short of making any outright acquisitions. CBS.com served as a springboard to the company's local affiliate station sites but was largely overshadowed by the Web properties run by its network rivals.

CBS merged with Viacom in a $35 billion deal in 1999 and arguably came out ahead of its competitors by doing less on the Web.

"You don't have to own a portal to get people to the destinations you want them to visit," CBS Chief Executive Leslie Moonves said at Jupiter Research's Media Forum this month in a speech devoted to congratulating his network for staying out of the portal game. "And with all the power of network television, we can drive them to wherever we want them to go, and we can drive them in record numbers, too."

Whether it was wise abstention or lack of vision, there's no denying that CBS escaped the sobering fiscal realities that have saddled the other networks.

In January, Disney announced it would shutter Go.com and lay off 400 employees, including the entire office in Sunnyvale, Calif., that had once served as Infoseek's headquarters. Go.com now serves as a "gateway" to redirect traffic to Disney's Web content; as a cost-saving measure, the site is fully automated, requiring no human staff.

That same month, NBCi cut 30 percent of its staff and lowered revenue expectations for 2001 to $100 million from $150 million.

CBS, News Corp.'s Fox network and AOL Time Warner's CNN have all reined in their online operations, giving their TV businesses full control of their once independently managed Internet properties. But Disney and NBC remain the loss leaders among their network brethren, as far as the Web is concerned.

One source close to NBC's strategic discussions said the network is considering all options, including selling the portal, taking NBCi off the publicly traded market, or pursuing a partnership with another Web property.

"We're taking everything we've got, dumping it on the table, removing all of the preconceived notions, and thinking about how we can get all the pieces to come together or go apart," said the source, who requested anonymity.

Synergy? What synergy?
Publicly, NBC and Disney have blamed the softening advertising market for much of their Web operations' red ink. But current and former executives say their problems are also the product of corporate neglect and turf battles, issues that only worsened in the blind rush to cash in on the Internet stampede.

"It's amazing the amount of brick walls you encounter," one Disney online source said. "Sometimes we are stonewalled, and occasionally we have to pull teeth to get TV's help. The much-vaunted synergies of the Walt Disney Internet Group do not work as well that way."

That term--synergies--is one heard with numbing refrain in the pseudo-language of big business. It means cooperation between departments that can enhance each other's performance or, better still, cut costs by eliminating redundant operations.

For media companies, synergy can mean practices such as sharing one advertising sales force for two or more divisions. "You can create a product that works across the Internet and television and get bundled sales opportunities," said Jim Walton, president of domestic networks for CNN. "And that works best with one voice."

That was easier said than done, according to those working on the online end of such business.

"NBC said its sales teams would leverage the combination of broadcast and Internet," a former NBCi executive said, but "there was very little interaction" because of internal rivalries. "They would get the packages together, but they didn't want our integrated sales force to see the clients."

Disney sources offered similar accounts, adding that the lack of a cohesive sales effort was part of a broader confusion about the company's online direction.

"They promoted their non-strategy--the idea that they didn't know what they wanted to do--and that led employees into a mode of not knowing what they were doing," Infoseek founder Bensky said. "Did they want to run a search service? Did they want to create a portal? They would never commit to what they wanted to do."

Disney spokeswoman Michelle Bergman refuted Bensky's comments, saying: "We looked for opportunities throughout the company on behalf of Go at the beginning. We were constantly evaluating the best way to leverage the reach of the Walt Disney Company to promote all our Web properties, including Go."

Bergman did, however, add that it has been an "education process" for the online and offline entities to work together on joint efforts. "I think we've been doing that since the beginning and constantly figuring out how to do that," she said.

Today, Disney and NBC may be in the worst of all possible worlds where the Web is concerned: Both are loath to make further investments in their money-losing operations, but they are also reluctant to abandon the online properties because they have already spent so much on them--in pride and public relations, as much as in capital.

"Now that we've touched the hot stove, we're trying to figure out when we jump back into water, how will we make this a sustainable business?" a Disney source said. "We can't get out. It would be shameful." 


 



The TV networks may have scaled back their online initiatives, but that doesn't mean they've abandoned all hope for the Internet.

Rather than running their online operations as separate, broadly focused entities, the networks are using Web sites as extensions of hit TV shows.

Those that have worked best are ones that lend themselves to online interactivity, such as game shows and reality programs. But executives are trying to repeat the formula with popular sitcoms and dramas.

The result, it is hoped, will be the first steps toward fulfilling the elusive promise of interactive TV. Some examples:

• Viacom's CBS sees huge increases in traffic to its "Survivor" and "Survivor 2" sites when the shows air. The sites feature exclusive video, chat rooms, photos and contestant profiles. CBS.com's traffic has increased 500 percent since "Survivor" began airing in January.

• ABC, which is owned by Walt Disney, sees tremendous online activity related to its hit game show "Who Wants to be a Millionaire?" Viewers can play along with the program through ABC's "Enhanced TV" or play their own versions of the game.

• General Electric's NBC has developed companion sites for many of its shows, such as "Will & Grace" and "Friends." The network also developed an online quiz that tests viewer knowledge of its Saturday-night movies. NBC gave away $100,000 in prizes every week, including a check for $50,000.

• USA Networks has developed the most natural use of the Web, using its sites to sell products featured on the cable Home Shopping Network. HSN's site generated nearly $50 million in revenue last year.

But networks, especially the Big Three broadcasters, face the difficult challenge of creating strong businesses that bridge television and the Internet consistently for a wide range of programming.

The TV business is predicated on selling advertising for programs that air at specific hours, for example, while Web surfers go online at varying times throughout the day.

"Reality TV lends itself more to contest-type applications on the Web," said John Megahed, research director at PC Data, a marketing research firm. "People want to touch it and be a part of the game show. 'Survivor' is almost a game with predictions, and 'ER' and 'Will & Grace' are more for when you're in veg-out mode."

If this line of thinking holds true, the first generation of truly interactive TV programming may not offer the most sophisticated fare.

"My personal opinion is you need to turn as much of this stuff into a game as possible," said Andrew Shotland, vice president of NBCi Entertainment, "because it's the easiest thing for viewers to understand."

--JH

 


CBS, the Survivor
TheStandard.com

Traffic doesn't always equal revenue
MSNBC

CBS says its Net divisions will profit this year
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Fox to put Web sites under TV's control
USA Today

CNN plans to lay off 400
The New York Times--free registration required

Web portals undergo makeovers
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Are portals passe?
MSNBC

Disney 'Goes' to open source
Wired

NBCi's branding problem
TheStandard.com



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