Big-name media backers hit by dot-com tumult

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Despite a landscape littered with dead and dying dot-coms, major media companies that have invested in Internet start-ups haven't given up on the fledgling industry.

Though they may proceed with greater caution, companies such as Viacom's CBS and General Electric Co.'s NBC still plan to invest both cash and media time to gain new advertisers, access to new technologies and an equity stake.

But with companies such as shutting their doors despite big backing -- Walt Disney Co. pumped $25 million in cash and $20 million in marketing support for a majority stake in the e-tailer -- another question lingers: Does backing by a major, global media company matter anymore?

In addition to Toysmart, Brandwise, a comparison-shopping Web site ( backed by Hearst Corp., shut down earlier this month.

NBC-backed Digital Entertainment Network went belly-up in May.

News Corp.-backed's TV show on News Corp.'s Fox News Channel was canceled.


Media companies also have invested in the overcrowded pet site category, with Walt Disney Co. owning a stake in while NBC owns a piece of Petopia. -- which in the first quarter not only sold its goods well below cost, but also had marketing and sales expenses nearly four times its revenue -- appeared on a May listing by Goldman Sachs & Co. analyst Anthony Noto of "third tier [e-tailers that] may have difficulty existing as standalone companies." The stock traded just above $2 a share late last week.

CBS-backed ThirdAge Media recently cut staff, as did Meanwhile, health site Medscape, 32.4% owned by Viacom, has seen its stock in a tailspin; Medscape's marketing and sales expenses in the first quarter were three times its revenue.

The dot-com tumult continues to mount, with layoffs of 13 staffers last week at media site in a cost-cutting move and termination of the entire staff at (See column above). Oxygen Media, the TV and online women's network backed by America Online, Walt Disney Co. and others, also cut 15 staffers last week after putting two TV shows "on hiatus" for the summer.


What's the payoff in media-company support if it can't keep a dot-com's boat afloat?

David Card, a Jupiter Communications senior analyst, argued it still can. "The things that a media company brings to the table are beyond the dollars," he said, citing the cache of a big-media brand; management expertise; a shared ad sales force, content or services; and promotional capacity as benefits of a relationship with a large media company.

In defense of ThirdAge, Mr. Card said, "it isn't dead yet." As for Disney, he said the company was wise to drop the Toysmart ball because "[online toy sales] is a tough category. They realized that right now, they don't want to be in the online toy business." In fact, he said, online retailing is a hard business for any media company to learn. Viacom also recently shut a toy e-tail site, Red Rocket, it owned.

Mainstream media money put many dot-coms on the map., 70% owned by CBS and The Financial Times, launched in 1997 with $30 million in media time from CBS. In April, the company got another $43 million in cash from The Financial Times and $43 million from CBS, of which $30 million was promotional services and $13 million was cash.


CBS' investment has made all the difference, said MarketWatch President-CEO Larry Kramer.

"They were able to give us something we needed: a lot of branding and marketing," he said, noting CBS' logo on all MarketWatch properties, including its Web site as well as radio and TV shows. CBS' lack of a medium specifically focused on financial coverage made its investment in MarketWatch a smart move, Mr. Kramer said. "They needed us as much as we needed them."

Plus, he added, "When our salesmen go in and say we're from CBS MarketWatch, they're immediately credible. In some cases, huge deals were signed across all CBS media properties."

Fidelity Investments, for example, advertised across properties.

Media trade-outs also allow dot-coms to conserve cash. Medscape last year gave equity to CBS in return for $150 million in ads and promotion on CBS properties over seven years. In the first quarter, more than half of Medscape's marketing/sales expense came in the form of CBS media that didn't cost Medscape any cash.

Both CBS and NBC are re-evaluating their Web investments. CBS is expected to announce a business plan by which it links or creates synergy among its Internet investments, and NBC is continually determining which additional compan- ies in which it should invest.

NBC has chosen to fund dot-coms including content, commerce, communications and infrastructure companies, said James Schwab, senior VP-digital media strategy and development at NBC.

NBC will look at every company individually, he said. "There continue to be a lot of opportunities out there that have tremendous relevance to our business," such as enabling technologies for wireless devices and other new platforms. "Where appropriate, we'll continue to invest," Mr. Schwab said, adding that the benefits for NBC include "the ability to create a new stable of advertisers and the opportunity to learn from companies developing new technologies."

What do the media companies think about troubles at dot-coms they have invested in? If a dot-com isn't around six months from now, "we didn't do as good a job in terms of picking the right horse," Mr. Schwab said, admitting that NBC has invested in some companies that "haven't performed according to their plan."

However, he said all the companies NBC has invested in have been "deserving of funding."

"If they fail, we will learn from our mistakes and be smarter next time," he said. "But that's true of any business."


As part-time venture capitalists, media companies need only a few big hits to cover their dot-com failures. Mr. Card said CBS, which made its name in the Internet space by trading promotional slotting in its broadcast network for equity, is "ratcheting down further investments and focusing on what they have made investments in, many of which are doing well."

MarketWatch, for example, expects to be profitable by the fourth quarter of 2001. The stock last week traded around $29, less than half its 52-week high but still well above its January 1999 $17 IPO.

"You have to be a media brand to be big time," Mr. Kramer said. "To do that, you either build one or borrow it."

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