Media Giants Buy Into the Net
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Up to now, the Internet has been a frustrating place for traditional media giants. Their Web sites struggled to crack the top 10, which was dominated by Yahoo, Netscape, AOL and Microsoft.
So now some are resorting to an old-fashioned strategy. If you can't beat 'em, buy 'em. "This is kind of like 1950s television" when networks were establishing their control of the new medium, says Mike Slade, president of Disney's Buena Vista Internet Group.
The most interesting, and risky, competition lately is taking place in a hot new business of Internet portals.
Those are the starting blocks of the Internet--the directories and search engines that help users find the Web site needle they want in the cyberspace haystack. And the portals, or Internet gateways, are larding on proven attractions including news, weather, sports, free e-mail and entertainment.
Walt Disney on Thursday agreed to buy 43% of Infoseek, which attracts more than 13 million visitors, in a deal valued at $473 million. That followed by a week NBC's decision to pay $32 million for a minority stake in Snap, a new service with about 2 million visitors.
The dealmaking may still be in its infancy.
"NBC validated media on the Internet," says CNET Chief Executive Halsey Minor, who also runs Snap. "Once the first player moved, the others have to respond."
CBS is said to be talking to search engine Lycos, which gets 11 million Web users. AOL just rejected an overture from AT&T, which was willing to pay more than $19 billion.
And many analysts believe it's just a matter of time before other major players make announcements. Microsoft has yet to establish itself as a major Internet media company despite its fledgling online service MSN, its MSNBC site with partner NBC, and its travel, entertainment and car-buying sites. Yet Microsoft is determined to become an Internet power with a portal called Start, which begins this year. Time Warner is thought to be interested in creating its own portal with easy connections to the company's hundreds of sites in subsidiaries including CNN, Warner Bros., the Cartoon Network, Atlantic Records and DC Comics.
The recent deals seem to make sense for the giants. They build on their already large presence on the Internet. NBC is teamed with Microsoft at MSNBC. Disney's ESPN and CBS have popular destinations for sports news.
"The investments are good hedges for traditional media companies," says Hambrecht & Quist's Paul Noglows. "We're not talking about a lot of money here."
In fact, the cash outlay for portals is relatively tiny by big media standards: NBC's initial stake in Snap could have bought a small radio station, two showings of Titanic or nearly three episodes (plus reruns) of ER.
The payoff could be breathtaking for portals that attract the most visitors. It's widely thought that users who start their Web forays at those sites tend to stay there--making them attractive to advertisers eager to snag their attention. Internet advertising is expected to rise from about $500 million in 1997 to $6.5 billion in 2001. Sites also get a piece of the action when they lead viewers to companies that sell goods and services on the Internet. That could blossom into a $300 billion-a-year business by 2002.
"The next big media networks are being built on the Internet in real time," says Netscape Communications co-founder Marc Andreessen.
Netscape, which once relied on sales of its Web browser, now has staked its future to developing its Web site, NetCenter, as an Internet portal. Last year, NetCenter accounted for 18% of the company's $534 million in revenue. "We will need the kinds of promotion and branding the big media companies offer."