ValueVision Takes ITV Lead as NBCi Folds

Cable World, April 16, 2001 by Richard Cole

In one of the harshest indictments of e-commerce yet, NBC has folded up its NBCi portal, questioning whether the Web -- at least in its current form -- can support any profitable advertising-based business model.

NBC shuttered its money-losing Web site in a week that also saw Kozmo.com and Borders.com call it quits. Walt Disney recently gave up on its Go.com e-venture, while News Corp. closed its digital unit and moved online initiatives to its divisions.

GE-owned NBC apparently felt so burned by its dot-corn disaster that executives decided to take no chances with interactive television. NBC's in-house Enhanced Broadcasting Group has now been shifted to the ValueVision shopping network, 40% of which is owned by NBC and GE Equity. ValueVision now takes over all interactive services for NBC properties, including The Tonight Show with Jay Lend, Notre Dame football coverage and CNBC.

NBC spokeswoman Rebecca Tompkins denies that the move means scaling back the network's commitment to ITV, saying the change instead underscores its commitment to the medium.

Cable operators shrugged off the move. "It doesn't mean much," says Mike Luftman, spokesman for America Online's Time Warner Cable division.

He says TWC is concentrating on rolling out video-on-demand. "It's still very early in this industry, and you can expect reorganizations like this," he adds.

Carmel Group analyst Jim Stroud sees a connection between the NBCi debacle and moving ITV to ValueVision.

"I think NBC learned from NBCi that it takes a great deal of infrastructure, and it takes a great deal of money to build up another service," Stroud says. "With interactive TV in only a few households in the United States, I think [NBC] realized it might be better to give [ITV] to someone who concentrates on that instead of trying to do it in-house."

Why struggle over integrating NBC's ITV programming with Liberate or OpenTV platforms, for example, when another company is already working on the problem?

Dedicated approach

ValueVision executives see the move as an opportunity to integrate PC and ITV sales.

"This dedicated approach is a natural extension of our existing e-commerce and TV programming strategies," says Kevin Hanson, SVP/CTO of ValueVision. "It will provide consumers with more ways to make retail purchases directly from their TV sets."

The decision to close down the NBCi Web portal -- technically the network will buy back NBCi for $2.19 a share, or about $136 million -- follows similar moves by Disney and News Corp. During their press conference on the move, NBC executives painted a bleak picture of their foray into e-commerce.

NBC poured at least $100 million into NBCi, which had bought Snap, Xoom and other properties in an effort to position itself as a portal, says network CFO Mark Begor. NBCi staff, which had dropped to 300 from 800 employees, was expected to be halved again last week.

NBCi's dependence on dot-com advertising -- 68% of its fourth-quarter ads were from fellow Internet companies -- was its initial Achilles heel. NBC found persuading old-economy advertisers to buy ads on the Web was a tough sell.

"Traditional advertisers really aren't getting the payback for their Internet ad buy, and we've had great difficulty moving their money off our screen to the PC," Begor says. "It will be challenging going forward. We don't see some big hope for us in the future that we're going to create real revenue upsides."

Softening market

Outgoing NBCi CEO William Lansing says whatever hope of survival the portal had died as the traditional ad sales market softened following the dot-com meltdown.

"What we see now is that the portal business that we were in at our level of scale was not viable," he says.

NBC's more successful online properties -- MSNBC.com and CNBC.com -- will now be based on a branded vertical model, rather than a portal model. NB.com will be mostly a promotional vehicle for network programming.

That doesn't mean the network has given up permanently on the Internet, says Marty Yudkovitz, president of NBC Digital Media.

"We haven't grown gun-shy. We remain totally committed to the Internet as inevitably a good growth opportunity for our core media business," he says.

What could bring NBC back to the Web is the growth of high-speed Net access, say the executives.

"As the Internet moves inevitably toward broadband, that means video," Begor says. "That's our turf, and we see a brighter future for advertising in that environment."