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NBC committed to Net, but not to NBCi

Apr 16, 2001  •  Post A Comment

The collapse of NBCi into NBC is being driven by an estimated $85 million in savings, the need to stem future Internet losses and more cautious new media investing, even though the company said it remains committed to interactive and streaming platforms.
But last week’s anticipated move did little to clarify how fast and furiously NBC will pursue digital media, streaming media and interactivity.
“[NBC] hasn’t grown gun-shy,” said Marty Yudkovitz, NBC executive vice president and president of NBC Digital Media. “We remain totally committed to the Internet as an inevitably big-growth opportunity for our core media business. We now know better which approaches work for us.
“As the Internet moves inevitably toward broadband, that means video and that’s our turf. We obviously see a brighter future for advertising in that environment,” he said.
However, a lack of advertiser support is in fact what sealed NBCi’s fate. NBC simply could not get conventional advertisers to crossover into the Internet space. Lucrative advertiser tenancies and large sponsorships also disappeared. A more modest banner ad and CPM-based revenue stream didn’t cover NBCi’s streamlined cost structure.
“This could be a technological timeout to retrench or it could be more of a withdrawal,” said Prudential Securities analyst Nicholas Heymann. “The real question is whether a deteriorating economy and advertising conditions dictated cut and run or whether GE really believes it doesn’t need to invest in this anymore.” In the past two years General Electric’s NBC invested more than $100 million in cash and assets and close to $500 million in NBCi stock acquisitions of other Internet companies. NBC will sell some NBCi assets and integrate others into its own West Coast programming operations. Web sites related to CNBC and MSNBC, which are or can be profitable, are not impacted, though they also have incurred recent staff and cost cuts.
The disposition of companies it acquired-such as GlobalBrain, Flyswat and AllBusiness-is not yet known. The Internet portfolio that once swelled to an estimated $5.6 billion in value is now worth only millions, analysts said.
The elimination of nearly all of NBCi’s 340 full-time employees and the shutdown of much of its operations will generate as much as $85 million in savings, which will help to offset network revenue declines, analysts said.
Analysts recently reduced by half their initial 2001 revenue projections for NBC’s Internet and multimedia operations to $75 million, while expecting losses to swell to $85 million. Virtually all of those losses will not be avoided. NBC declined comment on the numbers.
NBC is starting to show weakness in key areas. Last week, NBC posted a 12 percent decline in first-quarter operating profits on a 3 percent decline in sales, supported by declines in all its core businesses except for CNBC.
NBC’s broadcast network revenues are now expected to drop nearly 20 percent to dip below $4 billion this year, off an original estimate of $5 billion for the full year 2001. At this early juncture, network operating profits could strain to hit $795 million, up just 2.6 percent, off original estimates of $815 million for the current year. NBC’s owned television stations are essentially holding their own at an anticipated flat $785 million in operating profits on $1.4 billion in revenues in 2001, analysts say.
CNBC, originally expected to realize a 25 percent gain in operating profits and in revenues this year, will be lucky to eke out 5 percent increases in both.
Aside from $150 million in cost savings due to rigorous digitalization of its operations, and $60 million from a recent headcount reduction, NBC had few other places to go for major cost savings, analysts said.
The $85 million cash offer for the 61 percent stake in NBCi that NBC already doesn’t own places an estimated value of $150 million on the Internet property. That is well off the $5.7 billion value some analysts assigned to the entity in January 2000, when NBCi stock was trading at a high of just above $104 a share.
The $2.19 a share being paid by NBC, NBCi’s largest shareholder, represents a 46 percent premium over NBCi’s Friday closing price of $1.50 a share. When NBCi went public in fall 1999, it traded at $88 a share.