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The new media race is on
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June 18, 1999: 1:00 p.m. ET
Media firms are staking their claim on the Net, but who will strike gold?
By staff writer M. Corey Goldman
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NEW YORK (CNNfn) - It's already a cliché - the far-flung idea of sitting down at a computer and being able to watch movies, listen to music, type a letter, e-mail a friend and order plane tickets. A nice thought, but it's not going to happen, right?
It may not be as far off as you think. CBS (CBS), Walt Disney Corp.'s (DIS) ABC, General Electric Co. 's (GE) NBC, News Corp. 's (NWS) Fox, Time Warner 's (TWX) CNN and others are working feverishly to amass the perfect, blow-your-mind, tech-savvy news, information and entertainment package that will make you loyal to them and them alone.
Newspapers, too. The New York Times Co. (NYT) and Dow Jones & Co. (DJ)'s Wall Street Journal, to name two of the more well-known ventures, are working to get their products on the Web and combine them with other forms of media, with varying degrees of success. Knight-Ridder Inc. (KRI) is into it as well with its realcities.com Web site, an online national network of about 40 of its newspapers.
The common objective among them all: To click on the right combination of entertainment, service and information that will work with future technology and lure the most users, viewers and listeners down the road -- and to make the most money from it.
In other words, they're staking their claims on the World Wide Web and hoping to strike gold.
"This is a land-grab game right now, and if you're not out there playing you may as well throw in the white towel," said Mark Mooradian, an Internet media analyst at New York-based Jupiter Communications Inc. "This is the time when you're going to get out there, stake your territory and then lock in your audience."
The audience is out there
The audience -- you -- is huge. Online usage is projected to grow to more than 57 million U.S. households by the year 2002, almost the same size as the 67 million U.S. cable-watchers tallied last year, according to a Jupiter report.
That's why now is the time for television programmers, network affiliates and cable companies to get out there and retain their audiences, strengthen their brands and prepare themselves for the eventual delivery of digital television content, Meridian said.
And there's money to be made. The Internet economy generated an estimated $301.4 billion in the U.S. alone last year, according to a recent study. Between 1995 and 1998 the Internet economy grew by a whopping 174.5 percent, compared with a worldwide economic growth rate of 3.8 percent during the same period.
Whether it's through subscriptions, advertising revenues, transactions, or from the perceived potential returns of as-yet-unknown ventures, most analysts agree the Internet is a tool by which to make money.
So far almost no one is making any. Marketwatch.com, CBS's market initiative that it spun off into a separate, public company, posted a loss three times the size of the one a year ago. So did the New York Times.
The billion dollar question is, who has the magic formula for doing it most successfully.
"No one knows for sure what direction this is all going in, but they all know it's going somewhere that's definitely lucrative," said Jim Carroll, an Internet expert and author of several Web-related books, including Surviving the Information Age. "The big networks are scrambling in their own ways to get it all together to make it work and avoid getting left behind. For the moment it's an unknown."
Different strokes for different folks
"There's really no right or wrong right now in terms of strategy," said Jill Krutick, an entertainment analyst at Solomon Smith Barney in New York. "It's difficult to judge because it's so early in the game in terms of who has the right strategy."
Take NBC. The media conglomerate owned by General Electric has invested millions along with software mogul Microsoft Corp. (MSFT) to develop and enhance its flagship business news and information site, msnbc.com, a competitor of CNNfn and CNN's Web site, CNN Interactive. NBC also is working on synchronizing its news and entertainment programming with its Net initiatives to get people used to its branding.
Time Warner, by contrast, is playing a little catch-up. The media company by its own admission took the wrong road in 1994 with its multi-million dollar investment in Pathfinder.com, a dud media-orientated portal and search engine that never caught on. Time Warner in late April announced it would shut down the site within six months.
Now it's focusing to some degree on the same strategy as its competitors -- the vertical hub -- where users can maneuver their way to different areas of the Net within one particular "hub" inter-connected with all the CNN and Time Warner Web sites. While it's still too soon to tell, the strategy has met with some early success.
Internet specialists within Time Warner probably are looking at Walt Disney Corp. with a little bit of envy. Disney much earlier in the game teamed up with search engine turned portal company Infoseek Corp. (SEEK). The two companies now jointly run Go.com, a port of entry for Web surfers that allows them to make their way to different destinations from the same starting point.
Broadbanding your horizons
Go.com has links to ESPN sports, ABC news and Disney, among others. Disney announced in mid-June that it may buy the rest of Infoseek's shares it doesn't already own.
News Corp.'s Fox, meantime, is dipping into several ventures at once. It's been dabbling with search engines and other Internet ventures here and there, but is most optimistic about its BSkyB broadband project in England.
Unveiled last fall, the project involves providing digital television, telephone and Internet service that, with a special keyboard, allows users to use their television sets to do everything from view replay angle shots of "futbol" games to ordering a pizza. The service is expected to have more than 1 million subscribers by end of the year.
"When convergence happens, it will totally dominate," said Gary Ginsberg, a spokesman for News Corp. "Television will be the mother of all portals."
CBS has adopted still another approach, one that financial analysts have been receptive to. It has chosen to focus on scooping up chunks of small- and medium-sized Web ventures that it thinks will augment its existing Internet content and eventually make CBS the Grand Central Station of portals.
What has been unusual from an industry perspective is how CBS has managed to stay in the game so successfully.
With little excess capital to buy companies outright, CBS has offered its name -- branding, in ad lingo -- to Internet companies that need exposure to get off the ground. In essence, the company is paying next to nothing to develop its portal-style strategy -- and it's working.
"We put as little money as possible into Internet ventures, which we feel is the best approach," said Dana McClintock, CBS' head spokesman.
Several media analysts, including Krutick, agree that CBS's strategy is best when it comes to broadening one's scope on the Net.
"Branding is key," Krutick said. "Without a household name and some strong marketing attached to it, a particular site is going to have difficulty catching on."
CBS holds anywhere from 20 to 50 percent of seven different Internet concerns, including Sportsline.com and Marketwatch.com. It did not pay directly for any of them.
The old-fashioned way
And then there are the newspapers.
The New York Times, the Wall Street Journal, the Boston Globe, and many others all have initiatives in place to attract users to their Internet sites and keep them there. Some also are involved in television and radio networks.
"It's all the New Media, capital N, capital M," Carroll said. "The distinctions between television, radio, video and the Internet are gone. What matters now for companies is who develops the right strategy to harness the combined New Media first, fastest, best and least expensively."
What that means, Carroll said, is that as television, radio and the Internet become more intertwined, companies -- media companies -- that focus on providing timely, diversified content that draws all media together are the ones that will more than likely benefit most.
Information providers like Bloomberg News L.P., Reuters Group Plc. (RTRSY) and Bridge Information Systems Inc. also are experimenting with different television, radio and Internet partnerships, though with a much narrower, financial-market focus.
Bloomberg began its own business television network long after its news and information business took off; it now broadcasts to selected cable operators and directly to its subscribers through the Bloomberg terminal. Reuters and Bridge Information Systems offer similar services to their own clientele.
In many ways all these wheelings and dealings make sense, analysts say. The Internet has become a multimedia tool capable of combining visual images, sound and text into one data stream. As technology develops to speed up data flow and blend the three formats together, media companies have a vested interest in being there, Carroll said.
So what's wrong with a loss?
What's more, most of the media conglomerates, while not cash rich, typically have relatively easy access to capital, allowing them to invest now in new ideas, technologies and often separate companies in the hopes of striking the right chord with the public later, said Solomon's Krutick.
And, has often been the case for many of the media companies, expanding to incorporate the gestating Internet hasn't been immediately profitable.
The New York Times, for example, posted an operating loss of $3.4 million for its Internet ventures in the first quarter, almost triple its operating loss in that unit of $1.2 million a year earlier. The figures include New York Times on the Web, Boston.com and New York Today. The company as a whole earned $61.4 million in the first quarter.
Marketwatch.com, meantime, lost $6.1 million compared to $1.8 million a year before. It lost $4.2 million in the final quarter of 1998.
Any capital spending that has been made, in most cases, gets put toward more acquisitions, development and expansion, said Jupiter's Meridian.
"Across the board, no one is showing huge profits right now," he said. "Competition is too fierce, which means reinvesting any kind of profits back into building what they hope will be an extremely valuable long-term asset."
The good-ol' dot-com IPO
One way to ensure that the capital keeps flowing is the good old-fashioned Internet IPO -- something Disney's ABC learned the easy way.
Shares of iVillage Inc. (IVLL), the network of Web sites devoted to women's issues, soared 234 percent in its first day of trading back in March to 80-1/8 before settling back down around the 26-and-change mark. Having America Online Inc. (AOL) and Intel Corp. (INTC) involved in the project didn't hurt in drawing investors to the company's stock.
Other new media interests spun off into their own separate companies also have managed to raise exceptional amounts of additional capital.
TheStreet.com (TSCM), the all-business Web site with financial backing from both the New York Times and Rupert Murdoch's News Corp., saw its stock soar 216 percent to $60 a day after pricing 5.5 million shares at $19. TheStreet.com currently trades around the $30-mark.
And marketwatch.com, which began trading in mid-January at an IPO price of $17, surged to $130 a share before settling back down to its current level of 51-3/8. It's expected to lose 48 cents a share in the second quarter and 64 cents in the third.
Rumors have circulated about other media-run Internet ventures going public. Reports surfaced earlier this year that Disney was considering spinning off all its Internet assets such as Infoseek, ABC.com and ESPN.com into one publicly traded unit. CNNfn.com also had been rumored to be mulling a public equity offering, along with many others.
"If you're an Internet media company, you can raise money and do pretty much whatever you want right now without turning too many people off," Meridian said, "but that's going to change soon. When people start getting a more clear perspective of what's successful and what's not, some companies are going to get hurt."
Solomon's Krutick had a different perspective.
"You can weigh the different strategies until you're blue in the face, but the bottom line is who has the branding and who has the name power," Krutick said. "Ultimately that's what's going to win the show."
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