Entertainment media companies that control cable networks have decided to make strategic investments in the Internet in an if-you-can't-beat-'em-join-'em approach.
GATEWAYS HOLD THE KEY
Specifically, the deals are links with so-called portals-those sites billing themselves as "gateways" to the Internet, which usually offer an array of services such as search engines and free e-mail.
Examples of the new pairings include Walt Disney Co. with the portal Infoseek; NBC with portal Snap, the cable TV venture @home with portal Excite, and the proposed merger between cable TV's USA Networks and Lycos.
More flirting has been reported, with additional marriages predicted later this year.
Entertainment companies "bring a couple of key assets," explains Chris Charron, Internet analyst for Forrester Research Group. "First, they bring cash for much-needed investment. Second, they bring offline promotion. Third, they bring in brand-name categories. And fourth, they have advertising connections."
Perhaps a fifth element is the Internet's latest hot-button-e-commerce-sprung from those successful shopping operations such as Amazon.com and a host of others.
LINK THROUGH LYCOS
Entertainment and cable company USA Networks hopes to leverage its broad viewer and customer base by connecting its cable network shopping channels, Home Shopping Network and QVC, to the Lycos portal. This, in turn, would raise Lycos' somewhat low-key stature in the Internet world.
"Consumers don't have a brand affiliation with portals," says Patrick Keane, senior analyst for Jupiter Communications.
"Lycos can have that by having a credit-card relationship, as well as having a [home shopping] fulfillment relationship. This has been a powerful combination for AOL."
DISNEY IN A CHARGE
Walt Disney's deal with Infoseek, which has now become the Go Network [www.go.com], is more of a long-term play, first as a straightforward investment. "Disney wants to have a channel for its content," says Joe Kraus, co-founder of Excite. "But it's not there yet."
Disney, according to industry analysts, is probably the most aggressive in using its traditional networks-both broadcast and cable-to promote its Go network and gain increased traffic, and thus charge more for advertising.
But there is a danger there, warn industry insiders.
Entertainment companies could alienate consumers with their aggressive Internet marketing tactics.
Some traditional entertainment companies believe portal deals can bring back their weakening television audiences, say analysts. The fear is that traditional entertainment companies would steer consumers toward their own sites, while it's widely assumed consumers want what the Internet is most known for: the greatest variety of Web sites and areas of content.
"Obviously, these sites need promotion, but you have to give consumers choice," says Mr. Keane. Racing for portal supremacy is the goal of many of these deals.
Mr. Charron says it's a close race between AOL and Yahoo. But, after these two companies, the other portals fall off dramatically in terms of value and marketability to the consumer. Excite, Go, and MSN all are vying for the third best option. Lycos comes way behind these companies, he says.
Currently, major entertainment companies have been buying portals because these are the places on the Internet with the most traffic and most immediate value to consumers.
Viacom is one entertainment company that doesn't believe the link-with-a-portal strategy will work for the long term.
DIFFERENT ROUTE BY VIACOM
With its brand names, MTV and Nickelodeon, Viacom has decided on a different route: to establish its own specific Web sites. Viacom executives believe consumers go to portals as a way to get to their final destination, a specific Web site.
Viacom claims its Internet strategy makes sense when looking at the traditional ways cable networks have operated their businesses.
"It does make sense for cable [to invest in the specific Internet sites] because the Internet has been a medium of niches and cable is a business of niches," says Mr. Keane.
Going forward, the investment in the Internet will only get more expensive, he says, so attaching cable networks to specific Web sites may be the best-perhaps the only-way for media companies to ride the Internet train.
"For any media company, the investment in a portal has now become prohibitively expensive," says Mr. Charron. "We believe the better value is investment in a vertical commerce play."
Excite's deal with @home is a different approach to the Internet by relying on cable's intent to provide what it has always provided best: connection to programming and content.
CABLE ACCESS SPEED
Cable companies want to use use superior high-speed cable access modem technology to improve Internet service to consumers. Owned by a group of 19 multiple systems cable operators, @home currently goes to 300,000 customers.
"Historically, the combination of connectivity and content has been successful," says Mr. Kraus. "The major question is whether it can be done [again with the Internet]." Though existing and proposed deals are still relatively new, industry executives say, the marketplace is already yielding results.
"The cable companies' value has increased three times in the last 18 months