NBCi new casualty of ad slump

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Internet good (potentially), portal business bad. NBC became the latest media company in recent months to deliver that message to investors last week when it announced that it is essentially abandoning its money-losing Internet portal business for a more targeted approach to the Web.

In the process, NBC said, it is buying the 61.4% of portal NBCi it doesn't already own for $2.19 a share, or roughly $85 million. That's a 46% premium over the $1.50 per share at which NBCi was trading on April 6, the last business day prior to the announced buyout, but about 98% below its highest price. When NBCi went public about a year and a half ago, the stock opened at $74 and change per share and peaked at $100.17 on Jan. 27, 2000.

Parts of NBCi will be folded into NBC, namely NBC.com, which will be overseen by NBC West Coast head Scott Sassa out of Burbank, Calif. The remaining parts will be sold off or shut down.

Executives said NBCi's 300-person work force, already down from its peak of 800, will be reduced "dramatically." Top management, lead by CEO Will Lansing and CFO Tony Altig, will leave the company upon the closing of the sale to NBC. That's expected in about three months. Until then, they will be working with NBC Chief Financial Officer Mark Begor and NBC Digital Media President Marty Yudkovitz to sort out which NBCi assets will be integrated into the network and which will be disposed of.

Lansing told analysts and reporters last week that liquidating NBCi's assets and splitting the cash among investors was one option the company considered before selling to NBC. He also said that other sale offers were considered, but, in the end, NBC's offer gave the most cash back of any scenario.

"This was a difficult decision for NBC," said Begor, who is also president of NBC business development and interactive media. But ultimately, he said, it was the best deal that shareholders, including NBC, could hope for. "Looking back, NBCi had a strong brand, a competitive portal offering," but unfortunately "the business model was not viable or sustainable."

Executives blamed the soft ad economy for the demise of the portal. Dotcom advertising is practically nonexistent, and traditional advertisers never bought ads in significant numbers. "The sharp advertising declines in the Internet advertising space both in banner advertising and sponsorships," Begor said, "demonstrated that it didn't make sense to pursue an independent portal strategy."

Close to 70% of NBCi's advertising came from the dotcom sector. But as the dotcoms began to dissolve, NBCi's efforts to get more-traditional advertisers to replace them didn't bear much fruit. "We think that will continue to be a challenge. We don't see real revenue upside by having this integrated." In the near term, NBC.com will be focused more as a promotional tool, Begor said.

These efforts were hurt, of course, by the downturn that has hit traditional-media advertising, as well. "What we found broadly was that the effectiveness of the banner and Internet sponsorship advertising for all of our Internet business has really come into question," said Begor. "NBCi was built on that, and, as that revenue model collapsed, it wasn't a business."

The acquisition was negotiated and approved by non-NBC members of NBCi's board of directors, the companies said.

NBC's Yudkovitz said that NBC entered the portal business "very early on" for a traditional-media company. "What looked like a sector tailor-made to our interests turned out to be an economic disappointment for just about everybody in the portal sector." But, he added, "we haven't grown gun-shy. We remain totally committed to the Internet as an inevitably big growth opportunity for our core media business."

NBC has learned that targeted approaches to the Internet—like CNBC.com and MSNBC.com—work better than a scattershot portal approach, Yudkovitz noted. "Therefore, we will be taking a vertical integrated approach tied to our core brands.."

NBCi was formed in November 1999 with the combined assets of Internet companies Snap, Xoom.com and C-Net and included NBC.com and other properties.

NBC has invested "well over" $100 million in NBCi, according to Begor. Financial losses widened as the portal's audience eroded. The fourth quarter 2000 loss totaled $245 million, more than triple the comparable-period's $68.2 million loss.

And it had become clear that NBCi was not going to hit its revenue targets for 2001, initially projected at $100 million. For the first quarter, revenue totaled about $16 million, and, according to NBCi's Altig, second-quarter revenues would not reach that mark.

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