(Editor's note: Paul Noglows is a senior Internet analyst with Hambrecht & Quist in San Francisco. There is a disclosure at the bottom of this column indicating H&Q's relationship to companies mentioned in this column.)
This week, broadcaster
bought a 19% stake in
Internet/online service for $6 million with a three-year option to increase its ownership to 60% for an incremental $32 million. I believe the deal has numerous ramifications -- for CNET, for Snap!, for NBC and other traditional media companies; for other Internet portals such as
; and for the Internet sector as a whole.
For CNET, the investment (which includes NBC taking a 4.9% stake in CNET itself) is like a dose of
. While launched to much fanfare in June 1997, Snap! had not had tremendous success establishing its brand and drawing traffic to the service. With access to 73 million viewers who tune in to its television programming every week, NBC should fix both of those problems -- in a big way. The network plans to promote the service heavily. In announcing the deal on June 9, NBC said it intends to make Snap! "the
Internet starting point that the nation's TV viewers are most aware of." Long-standing concerns over CNET's operating costs should at least be partially put to rest; the stock jumped 12 points on news of the agreement, and H&Q estimates that CNET will, in its fourth fiscal quarter ending Dec. 31, 1998, record a profit for the first time in the company's three-year operating history.
The deal raises the bar for portal competitors and puts pressure on other traditional media companies to address their current Internet strategies, or lack thereof. For emergent portals like Lycos, Excite and Infoseek, the pressure to sign a similar traditional media partnership intensifies. In order to compete with the promotional prowess of NBC, these services will have to seek out and sign similar partnerships if they hope to keep pace in terms of reach, traffic and mind share.
While the investment casts doubts about the strength of NBC's three-year old partnership with
, it is further testament to NBC's keen desire to not be left behind in the digital revolution and willingness to make bold moves to expand its brand beyond broadcast television.
"We are clearly defining the Internet and interactive media as fundamental to NBC's growth strategy," said Bob Wright, president and CEO of NBC. "The agreement to join forces with CNET will provide tremendous opportunity for NBC to apply its traditional media core competencies to capture Internet audience share."
For other traditional media companies such as
, the investment should serve as a clarion call to reexamine their shocking lack of coherent Internet strategies. Disney and Viacom own some of the strongest media franchises and their brands --
Walt Disney World
The Disney Channel
-- are easily among the most highly recognized worldwide.
Yet, while Disney's acquisition of
has allowed it to port some of its brands like
successfully to the Web, it still has a long way to go with its core studio and theme park assets.
Viacom has been even less successful. Despite initiatives like its
Web music guide, which it produces in partnership with Yahoo!, the company has been plagued by a series of half-hearted false starts, and its potent television brands have been exploited nowhere near their full potential in the digital world. I wouldn't be surprised if the NBC investment prods these traditional media players into making similar portal investments themselves.
The impact on Yahoo! and America Online is less clear-cut. Both companies have built potent stand-alone brands that might actually be co-opted by a sweeping partnership with a traditional media partner. Ballooning market capitalizations -- $6.3 billion for Yahoo! and $21 billion for AOL -- make an outright purchase look pricey and difficult to swallow. After all, part of the reason NBC bought into Snap! was because it was comparatively cheap. Still, both Yahoo! and AOL have to take seriously the new partnership and examine ways they too could potentially bolster their brand through traditional media partnerships or joint ventures.
For the Internet sector as a whole, we believe the investment represents a validation not only of what these Internet upstarts have already accomplished, but also of the very real opportunity they represent longer term.
Paul Noglows is a senior analyst in Hambrecht & Quist's Internet Research Group. The opinions represented here are his, and not those of TheStreet.com
. His column is not a recommendation to buy or sell stocks or to solicit transactions. H&Q has investment banking relationships with Lycos and CNET, two companies featured in this column. In addition, Nowglows currently has buy recommendations on America Online, Lycos and Yahoo!. H&Q currently has a buy recommendation on CNET. Noglows welcomes your comments, which you can send to