NBC is the first broadcast network to get behind technology that will create hyperlinks between print or TV content and relevant Internet sites.
The new technology from DigitalConvergence.com will allow viewers to interactively link their personal computers with TV programming and advertising during NBC's Olympic and national election coverage and its upcoming fall season.
The network has agreed to use the technology on its national TV network and 12 of its owned stations, as well as its CNBC and MSNBC cable channels.
NBC has a 10% stake in the company. Based on DigitalConvergence's plan to go public in October, NBC's stake could be valued at about $80 million, Wall Street experts said.
IPO COULD RAISE $200 MIL
The company recently filed with the Securities & Exchange Commission to offer between 10% and 15% of its shares to the public; that could raise about $200 million and give DigitalConvergence a public market capitalization of about $2 billion, the experts said.
DigitalConvergence is expected to announce this week that it has raised $165 million through private placement of preferred stock that, along with the warrants issued to NBC, will be converted into common stock. Other strategic equity partners include Young & Rubicam (which has invested $28 million and has an 8% stake); Belo Corp. ($42 million for an 8% stake); Coca-Cola Co. ($10 million for a 4% stake); and ING Barings ($5 million for a 4% stake).
Among the other strategic partners are E.W. Scripps Co.; RadioShack Corp. (which manufactures the Keystroke Automation Technology device that is required, and which will be distributed at RadioShack stores); and A.T. Cross Co. (which will produce portable, penlike enabling devices for the technology).
The company is in discussions with major hardware manufact-urers to bring in additional equity strategic partners, executives close to the company said.
NBC has exclusive use of the DigitalConvergence technology at its national broadcast network only through the end of 2000. DigitalConvergence, which hopes to sign up competitors such as CBS and ABC, will widely license its technology to all media outlets and hardware devices, but could preserve exclusivity in some local markets, company executives said.
Broadcast license fees for use of the technology will depend on the size of the broadcast market, cable subscriber base and overall company deal. For instance, a one-time license fee at a New York TV station could be $500 per 30-second prime-time spot, compared with a one-time use at a national broadcast network for $2,000 per prime-time :30, executives working with the company said.
Media companies will retain all revenue generated by the sale of the new technology-enabled advertising time. But TV networks initially will be limited to selling two such :30s per half-hour of programming.
After the initial launch, Y&R will make more ad time and space available to their clients.
Major advertisers already committed to using the DigitalConvergence technology include Coca-Cola, Colgate-Palmolive Co., Ford Motor Co.'s Lincoln Mercury Co. and Jaguar Cars North America units, Kraft Foods, and Morgan Stanley Dean Witter & Co., executives close to the company said.
The September launch of DigitalConvergence will also be seen in print, in which bar codes will link the reader, via a scanner and their PC, to online information. The technology will appear in the fall in Forbes, Parade (see P. 33) and Wired as well as major metropolitan newspapers.
Aside from MSNBC and CNBC, licensed cable networks will include the Food Channel, HGTV and Do It Yourself Network. DigitalConvergence is also negotiating to bring the Discovery Communications networks, Fox Cable, Home Box Office, MTV Networks, Oxygen and USA Networks into the fold, executives close to the company said.
For advertisers, the technology affords a rare opportunity to track consumers interested in their products and tailor online information accordingly (AA, Jan. 17).
"This will be a way to bring middle America onto the Internet," said Kevin Lavan, exec VP of Impiric, Y&R's direct marketing arm.
Y&R will handle a $20 million launch campaign for DigitalConvergence, which will have several million dollars of promotional support from its media partners.
NUMEROUS REVENUE SOURCES
In its SEC filing, DigitalConvergence says it will develop multiple revenue streams from multibillion-dollar ad markets. The company identifies competitors with similar technology as BarPoint.com, Code Corp., Digimarc Corp., Fast-Frog.com, MicroCast, NeoMedia Technologies, WebTV Networks, Wink Communications and WorldGate Communications.
"Based on the impressive list of strategic partners and companies committed to adopting this new technology, I believe this is rapidly becoming the standard for Internet access," said J. Jovan Philyaw, DigitalConvergence chairman-CEO.
Ms. Mermigas is editor at large for Electronic Media