UPDATE Reversing course, General Electric-owned NBC said Monday it will purchase the outstanding 61.4 percent of the NBCi portal it doesn't already own for an estimated $85 million.
The development marks the end of the big portal era for TV broadcast companies and follows on the heels of similar rollbacks by NBC competitors, including Disney's ABC and Viacom's CBS, which have retrenched as online revenues failed to grow as quickly as initially expected. All of the big networks have either retired tracking stocks for Web divisions or rolled online units back into mainline divisions.
Executives blamed the downturn in the advertising market in general and the near evaporation of the online ad market in particular for NBCi's woes. The economic viability of the portal was premised on traditional advertising support, which never materialized, they said.
"Today's declining market conditions in the Internet space have made it difficult for NBCi to remain competitive," CEO Will Lansing said in a prepared statement. "This was a hard decision, but in the end we have determined that this course of action is best for the company's public stockholders."
Rumors had been circulating for months on both coasts about a potential exit strategy for NBCi, the last remaining publicly traded portal founded by a broadcast network. Observers and former employees had previously said that NBC would delay such a move until at least the fourth quarter. It remains unclear exactly what NBC's plans are for NBCi's assets.
At $2.19 per share, the deal represents a 46 percent premium over NBCi's closing price of $1.50 a share Friday. Predictably, shares of the portal jumped 64 cents, or more than 40 percent, to close at $2.14. Even with the day's rise, NBCi is well off its 52-week high of $42.87.
Lansing will likely step down after the deal closes, which is expected in about 90 days. Layoffs are expected, but it remains unclear how many employees will be affected.
The deal was negotiated by non-NBC board members, but requires the approval of the company's public shareholders.
NBCi was founded in 1999 as a joint venture with Xoom.com, a direct-marketing company, and Snap.com, a portal run by CNET. It operated as a Snap.com until last fall, when it was renamed NBCi.
NBCi, which Lansing pledged as recently as February would remain independent, has already been restructured once. In January, nearly 30 percent of the company's staff was laid off and revenue projections were slashed to $100 million from an earlier projection of $150 million.
General Electric will inevitably take a charge for losses incurred at NBCi, although the extent of that charge is still not known, said NBC CFO Mark Begor. He added that the charge was unlikely to be large enough to impact GE's overall earnings. Approximately $200 million in cash and marketable equities held by NBCi will transfer to NBC.
That amount, however, will be offset by a loss in revenues from a remaining $200 million in credits extended to NBCi for on-air promotions that will cease to exist when the deal is completed. NBC's ad sales team booked the credits as revenue when the spots were used.
Sources familiar with the matter told TheStandard.com that NBCi was shopped since last year to a list of companies including USA Networks, Microsoft and Excite@Home. Executives at NBC and NBCi said the option to sell pieces of the remaining assets remains open.
A sale to Excite seemed possible last winter, when NBCi's Lansing was being considered for the top spot at Excite, these sources said. At that time, Lansing proposed that Excite@Home consider either a partnership with or acquisition of NBCi. When asked whether employment at the Excite@Home remained an option, Lansing said "most likely not."
Officials at Excite@Home were not available to comment.
What NBC will do with NBCi remains unclear. The peacock network's other Internet division, NBC.com, will now fall under NBC Entertainment, headed by
