__ Today's smartest broadcast networkers know the future lies in all-in-one infotainment. __
As he leapt forward to greet me in his expansive office on the 52nd floor of 30 Rockefeller Plaza, my first thought was that Robert Wright had been remastered.
Gone were the off-the-rack fashions and dour mien he sported in 1986, when, newly appointed as president and chief executive of NBC, America's oldest television network, he would grimly tell advertisers, competitors, and underlings that the networks had to remake themselves - or die. Now, after three straight Number One seasons, resplendent in an exquisite gray suit and electric silk tie, Wright was in an ebullient mood.
For good reason. He'd just scored another triumph: NBC's portal play. Days earlier, the company had acquired a dusty search engine called Snap and promised to build it into a nationally recognized consumer brand. Almost immediately, the deal had paid for itself, as shares in Snap's parent company (into which NBC had also bought) soared. Valuations of other search services also skyrocketed, making it more expensive for NBC's competitors to follow suit. It was the latest move in a program Wall Street was hailing as the most brilliant convergence strategy among conventional television companies.
Yet for all his buoyancy, Wright, nervously tugging at a gold wedding band and pouring popcorn into his gullet, was still dwelling on his old fear: decline. While he talked with excitement about his company's evolution of the MSNBC cable-and-Internet business model, its experiments with Golf.com and NBC.com, and the portal wars, he quickly turned to the tale of Sylvester "Pat" Weaver, the NBC chief who invented the modern television industry. After leaving NBC in the 1950s, Weaver moved to California and became the president of a pioneer pay-per-view TV service. The movie studioses waged a savage war to protect their interests. Weaver's enterprise - and the promise of a new kind of television - collapsed.
"I like to do the Pat Weaver stuff," Wright told me, almost defiantly. "I'm one of those people who tends to believe that what could happen will happen. But if your timing is off by what seems a small amount in hindsight, the whole thing can collapse."
Wright's preoccupation at first seemed odd. NBC was on track for a record $1 billion in annual profits, while the five other broadcast networks were at best barely breaking even. His fixation, though, was astute. Alone among the conventional broadcast networks, NBC has conceded that television is not dying, but dead. Alone in the industry, NBC has staked its entire future on convergence - on the assumption that unlimited choices in entertainment, information, and transactions, in video, audio, and text, are moving inexorably onto a single home appliance, in a way that undermines traditional media economics.
And alone among television executives, Wright knows that his network, to this point almost uniquely positioned to capitalize on these developments, may dissolve if its meticulously crafted convergence strategy proves hollow.
"You can be the guy who is still trying to make buggy whips - or you can be the person who's always 10 years ahead and broke," Wright said. "Both of these are fraught with peril."
'Twas not ever thus. For most of this century, broadcasting enjoyed technological and regulatory protections that gave its proprietors oligopolistic market power. With only a few national networks to serve as intermediaries between viewers and advertisers, owning a network was like commanding a private mint. The lords of airspace stayed ahead of the technological curve by colluding to delay new product rollouts until the industry could adjust; network TV wasn't introduced until decades after the invention of television, to allow the radio networks and ad agencies to plan for and control its disruptive influence.
Convergence technologies are different. Unlimited, ubiquitous, real-time, full-motion, personalized, integrated media fragment the monolithic audience into myriad pieces, subverting the rules by which conventional communications companies operate. New distribution technologies are introduced and revised as soon as the processing power and bandwidth allow, forcing media companies to swim in the swirling whitewaters, or drown. "Every single one of my clients is facing uncertainty right now," says Michael J. Wolf, an influential media consultant at Booz, Allen & Hamilton in New York, who counts NBC among his charges. "Every one is looking at and recognizing the threat, seeing the migration of their audiences' viewing time to new media. But they're still wondering about the business model."
Even in its most primitive form - the unified delivery of cable and broadcast signals into a single box - convergence has laid waste to the TV industry. In 1997, the share of the prime-time audience held by CBS, ABC, and NBC, once above 90 percent, fell for the first time below 50 percent. To maintain their hold on increasingly distracted viewers, networks have had to multiply the fees they pay entertainment providers well beyond sustainable levels, pummeling their owners' earnings.
But even as profits are eroding, the playing field is becoming more crowded. Bud Paxson's Pax-TV network joined the broadcast fray this year; perennial posturer Barry Diller intimates he, too, will soon launch a network. A study by Rupert Murdoch's News Corporation estimates that within the next 12 years Net-TV convergence will provide viewers with 1,000 channel choices - up from an average of 55 now. That estimate may actually be conservative, if you believe (as I do) that digitization, compression, new wiring, and satellite delivery will effectively transform any Web site into a global television network.
NBC has withstood the ravages of convergence through the crafty application of the profits spun off during the Seinfeld era by its broadcast network and its 13 owned-and-operated stations. Pushing relentlessly into alternative distribution, NBC is now among the top three owners of cable programming services, along with TCI and Time Warner, with stakes in such brand-name networks as Bravo and American Movie Classics. Its first cable network, CNBC, earned $125 million last year - a figure that could double by next year, say analysts. Even before this summer's investments in Snap, Intertainer (an on-demand video entertainment and shopping service), and Gemstar (the developer of interactive programming guide services), NBC was driving furiously onto the Net, acquiring stakes in chat, entertainment, music, travel, retail, and data-mining services and sites.
The result: metamorphosis. Today, more than a dozen networks - analog and digital; in Europe, Asia, and North America; on broadcast, cable, and the Web - carry the initials of the now-anachronistic National Broadcasting Company.
"NBC has the best convergence strategy of all the major networks," Ira Carlin, worldwide media director of the McCann-Erickson advertising agency, says. "They've been much more forthright in articulating that, through convergence, they will be able to put together multiple distribution channels for content as well as multifaceted forms of content. Other than ABC, which had a head start with ESPN, it's the only broadcaster to go successfully down the cable path. They have a unique relationship with Microsoft. And their people are the tops."
But for how long? Disney, the parent of archrival ABC, has raised the stakes in the convergence game, anteing up big bucks to buy content developer Starwave and a stake in Infoseek, and launching a powerful consumer portal brand in Go.com. NBC, forced by the relative penuriousness of its parent company to rely on a strategy of small bets, risks watching advertising and transaction dollars migrate to such freer spenders. As Peter Neupert, the former Microsoft executive who negotiated the MSNBC deal, asks skeptically, "Are they building value in ways that can win?"
Based on NBC's decade-plus fighting the convergence wars, the answer remains a guarded yes. For NBC's convergence strategy is not about technology. Rather, it is a case study in the management of technological uncertainty. Bob Wright and his crew know that convergence is a game of political intrigue, financial scheming, and industrial brinksmanship - a game at which they have repeatedly outmaneuvered their competition.
Alternative distribution weighed heavily on Wright's mind from the moment he ported over to 30 Rock from the GE campus in Fairfield, Connecticut, 12 years ago. A 43-year-old lawyer who'd been running GE's finance division, he was a pure product of a General Electric culture that demanded rational analysis. That analysis said the networks' audience was evaporating and it was time to find new ways to connect.
There were two problems, though. First, GE and its investors were religious in their devotion to ever improving earnings, not merely increasing cash flow. That limited the amount Wright could spend experimenting. Second was GE chair John F. Welch Jr.'s distaste for new media. "Jack is not a particular fan of this area of activity," Wright allows, "because he's very skeptical of the models and of the unproven nature of a cash return on many of these investments." NBC's metamorphosis strategy would be strictly pay-as-you-go.
Wright gave this difficult and even contradictory battle plan - re-create us, but do it cheaply - to his first major executive hire, a young lawyer from Washington named Thomas S. Rogers, who shortly after joining NBC formed the new cable division. A chronic dealmaker, Rogers, then 33, had already helped deregulate the cable industry, as senior counsel on the House Telecommunications, Consumer Protection, and Finance Subcommittee.
His single-mindedness in driving the company into a competing medium won him few friends. NBC - the first radio network, the first television network, the first to broadcast "in living color," established, tweedy, proud - was resting comfortably in first place. The last thing anyone wanted to hear about was change. Rogers became known as an abrasive character, "needlessly querulous" in the words of one top cable executive. He was also among the earliest prophets of convergence - a concept he was patiently explaining long before the term entered the parlance.
Even as recently as 1987, cable was not a sure bet. Fortunes had been lost; although afterthoughts like ESPN were growing into multibillion-dollar assets, no one seemed able to predict a hit. Regulatory and technological issues clouded the landscape. How much control would municipalities exert over cable providers? Would the government allow cable-broadcast cross-ownership? Many mainstream media companies - notably CBS - were paralyzed by doubt.
Wright and Rogers knew they had to forge ahead, but into what, exactly? News was the one product they believed they could repurpose. "When you own news," Rogers notes, "its ability to be massaged and played out across all these platforms is far greater than sports or entertainment, where by definition you are dealing with a rights owner."
Equally important, some form of news was less likely to alienate the affiliates. For large entertainment companies, broadcast affiliates and cable operators are the Scylla and Charybdis of convergence. The affiliates see cable as a threat; anger them by going up with directly competitive programming, and they could abandon your broadcast network for syndicated shows or another network. And the cable operators have traditionally hated the broadcasters, who fought unsuccessfully to halt the spread of cable; irritate them further, and they may refuse carriage to your new network. The trick was to find programming impressive enough to compel cable carriage without antagonizing the affiliates. For NBC, that meant not just news - the basis of Ted Turner's CNN, a darling of the cablers - but business news.
In April 1989, NBC went up with the Consumer News and Business Channel. It was low-rent (faceless financial news by day) and low-class (talk, especially sex talk, by night). Yet underlying the new network was a business model that proved a big winner: It was financed largely by direct-response advertising, theretofore used primarily for cheap come-ons by magazines and record companies. Financial advertisers like Fidelity and Morningstar later expanded their advertising to include straightforward brand advertising, putting NBC's fledgling cable network, says Booz, Allen's Wolf, in the forefront of a new approach to marketing communication that saw no distinction between brand advertising and direct marketing.
The company's other innovation was in how it marketed itself. The acronym CNBC prepared the way for NBC, in a strategy borrowed from consumer-product marketing, to position itself as a portfolio of products in different product categories under a consistent brand umbrella.
But CNBC had a perilously small audience. In 1990, a quick fix presented itself when cable's Financial News Network, which reached 35 million households, filed for bankruptcy and was put up for sale.
Welch placed several conditions on the acquisition, the most difficult of which involved securing guaranteed commitments for continued distribution of the combined CNBC-FNN. That meant neutralizing Ted Turner and his cable partners, who would naturally see a revitalized CNBC as a threat to CNN.
The tool used to force Turner to blink was the Persian Gulf War. NBC floated a rumor that it intended to launch a "cable war channel," programmed with pool feeds - another threat to CNN's franchise. The company would put it up on a satellite and make it available to any cable operator who wanted it. One of Rogers's former lieutenants says, "We were within 24 hours of going up, and Turner found out, and we basically swapped it for FNN." Rogers says there was never a real plan for such a service.
Either way, NBC won the FNN bankruptcy sale with a bid of $155 million. But the victory was bittersweet. NBC's ratings were plummeting and its profits diving, to $204 million in 1992 from $603 million in 1989. Less than a year after authorizing the FNN purchase, Welch came close to selling NBC to Paramount.
One of the few rays of hope was the Olympics, to which NBC owned the US television rights. Together with Cablevision, the nation's fifth-largest cable operator and the co-owner of several programming services with NBC, Rogers's unit devised a plan to put the extravaganza at the center of an ambitious convergence experiment. The idea was to supplement the broadcast network's coverage of the Barcelona games with pay-per-view coverage on three dedicated cable channels. The scheme seemed almost foolproof. Crews would already be in place; subscription fees promised a neat new revenue stream; and NBC had 90 million broadcast households to which it could promote the spectacle.
But the TripleCast, as it was called, lost NBC about $100 million. And Tom Rogers shouldered the blame. "People thought that was the demise of Tom Rogers," says one former executive. "They thought that was the big one that would bring him down."
Yet something else happened entirely. Rogers was promoted - to executive vice president, later taking the additional role of chief strategist. The lesson of his revival was not lost inside the company. As Kenneth Bronfin, then an executive in the budding new media unit, recalls it: "NBC sent a clear message that Tom was being rewarded for risk-taking."
The TripleCast, though, reinforced NBC's financial risk-aversion. Time and again, fearful of earnings dilution, the company would pass on large acquisitions, including buying the Family Channel last year and, just this past summer, merging with the USA Network. At the same time, NBC and GE were reinforced in their belief that even cable was not enough. "That didn't solve the problem of the broadcast networks," says Tom Wolzien, a former business development executive. "They knew they had to come up with different stuff."
A crew of young MBAs inside Rogers's business development unit had no doubt what that different stuff had to be: digital.
Ken Bronfin was having trouble getting people to focus. Everyone assumed digital television was around the corner. But few were grappling with the one question he considered crucial: What to do with the digital spectrum once they got it?
"The limits on most people's creativity was, 'We'll do three video channels and five audio channels,'" recalls Bronfin, now a senior vice president in the Hearst Corporation's new media division. "I said, 'It could be a lot more than that. More and more and more channels. So what are the things we're gonna want?'"
To test the potential of digital telecasting, Bronfin was developing a technology to allow broadcast television to come in on a desktop PC and simultaneously push related Web pages into the computer. How could he get his superiors to sign off on the project, which was called Intercast? "I said," Bronfin recalls, "'The way to get Tom Rogers interested in this is to create technology that can make money immediately.'"
Bronfin concocted a business plan that showed profitability in the first year, partly by getting Intel to invest in the creation of Intercast. He took the proposal to Marty Yudkovitz.
Just as Tom Rogers had signed on to be Wright's henchman, Yudkovitz, a lawyer in NBC's sports division, had offered himself to Rogers as his instrument of change. He took charge of organizing Rogers's business development unit. It was an apt pairing. Yudkovitz, 44, is a bald, brash scrapper with the disposition of an osprey, always on the lookout for any deal that might score cash for NBC's coffers. "When you are out there playing the game, the deal flow occurs," Yudkovitz says of his business philosophy. "You find yourself in the middle of the deal flow, you find yourself in the information flow, you have yourself a seat at the strategic table." Although the digerati MBAs used to joke about Yudkovitz - they called him "Beethoven," because he could expertly orchestrate his unit's affairs even while being deaf to the actual music of convergence - they were drawn by his hunger for opportunities.
Those opportunities, of course, absolutely could not cost - thus requiring a novel type of currency. This generally took the form of take-it-or-leave-it offers to trade NBC's brand name and the credibility attached to it for cash up-front and an equity stake in interesting new projects. Inside the company, execs called this funny money "peacock dollars." They were shameless in the way they played with them. Once, Yudkovitz tried to get Intel to increase its ante in Intercast by demanding, "We are the NBC peacock. We are value. If you wanna have the peacock, you're gonna have to give us something!"
While Wright and others busied themselves trying to resurrect the lumbering NBC broadcast network, the MBAs eagerly parlayed the peacock treasury into various digital schemes.
At the height of the CD-ROM craze in 1994, a young staffer developed a plan for a CNBC disc. Teaming with a CNBC business development executive, they found distributors and technicians who were willing to finance all but $20,000 of the product, in return for the CNBC brand label and some $75,000 worth of advertising on the cable network. The CD-ROM, titled Your Portfolio Interactive, which also directed people to the online Reuters Money Network, ended up making NBC about a quarter of a million dollars.
With such experiments, it began to dawn on Rogers, Yudkovitz, and their team that the ancient television concept of audience flow could be applied to new media. They could herd viewers not only from Seinfeld to Frasier, but from one medium to another. Or, as Lisa Simpson, then the director of business development at NBC News, puts it: "The way to unleash value from distribution control is to arbitrate the audience, and out of that audience arbitration you can grow the NBC brand."
Yudkovitz dispatched the MBAs to find ways to capitalize on the new insight.
"These are assassins," he says. "You shove them out the door and say, 'You come back with a carcass or you don't come back.' Half the people in the world will dissolve into tears. And the others will go out and say, 'I do not necessarily know what I am looking for. But I'll know it when I see it, and I will kill it.'"
It was just about then that Microsoft came calling.
Television wasn't even on Microsoft's radar screen when it began its search for a primary news provider for its forthcoming online service; it was looking for a newspaper. "The broadcast networks are dinosaurs," Nathan Myhrvold, the executive in charge of networked media, repeatedly told his staff.
He soon recognized that the broadband environment would eventually require sound and pictures, but even then, finding a TV partner to dance with proved difficult. ABC, the gold standard in news, was his content team's first choice, but it had its own plan for going digital. The second choice was CNN. But several meetings ended inconclusively. So a young Microsoft executive made a suggestion: How about NBC?
The proposal sat poorly in Redmond. NBC had slipped to third in the ratings. In news particularly, the company was a laughingstock; only a year earlier, the network had replaced its unpopular division president after a scandal over the doctoring of a newsmagazine segment. But with the deadline for Microsoft Network beta-testing drawing nearer and no partner in view, the content team reluctantly agreed to take a meeting at 30 Rock.
Where the other networks had played coy, NBC pitched ardent woo. Into sports president Dick Ebersol's conference room trooped not only the leaders of Rogers's and Yudkovitz's nascent interactive unit, but executives from most of its major divisions - sports, marketing, news, cable. The Microsofties quickly saw that these people gleaned the big picture: The venture wasn't about starting a newswire or finding a new promotional outlet. A partnership with Microsoft, NBC affirmed, was a step toward developing an entirely new distribution platform, as significant a departure from broadcasting as television had been from radio. "None of the other networks got that," recalls Mark Benerofe, the Microsoft executive leading the partnership search. Both companies also shared a vision of the riches that would accrue from the combination of advertising and subscriber fees, the very model that had delivered wealth to owners of cable networks.
That potential wasn't lost on investors. When the deal - by which NBC, in return for $4.5 million, granted Microsoft exclusive online rights to its content and agreed to jointly develop new services and do comarketing - was announced on May 16, 1995, Microsoft shares shot to an all-time high of 847/8. GE hardly budged. "Bill Gates made an extra $17 billion, and we made a hundred thousand dollars or something," Ken Bronfin recalls. "It was a sad day."
Sadder still was the MSN kickoff a few months later: The service crashed on launch. It was a harbinger of an ongoing culture clash between the partners. The broadcasters couldn't understand the software company's rush to put things out to the public before the bugs had been fixed. The tensions - "We get it right the first time: We're NBC" versus "You don't get it; this is software: We iterate" - were smoothed in the back channel maintained by business-development execs in both companies. Still, when Microsoft and NBC each began exploring further developments in convergence space, neither considered the other. Instead, they thought about Ted Turner.
NBC was almost obsessively focused on Turner. A year earlier, GE chair Jack Welch had offered to buy Turner's company, merge it with NBC, and save $200 million through layoffs and consolidation - an overture Turner rejected. Now NBC wanted to start a cable news channel, to assure consumer recognition of the NBC brand once the billion-channel universe opened wide, and to amortize the cost of news across multiple distribution platforms, as Turner had done by creating CNN, Headline News, and the Airport Channel.
Microsoft, meanwhile, was negotiating with Turner, who had come to Bill Gates seeking funds to make a run at the hapless CBS. An ownership position in a network, Microsoft came to believe, was a major evolutionary step toward convergence.
It was Welch, at a biannual planning meeting, who brought the partners back to the same table. Listening to NBC News explain the need for a cable channel and to NBC Interactive detail its vision for an enhanced Internet presence, he asked, in the best peacock-dollars tradition: Why not combine the two ideas and get Microsoft to pay for the new cable network?
Marty Yudkovitz called Microsoft's lead dealmaker, Peter Neupert. As both reconstruct their conversation, Yudkovitz asked, "What's going on with Turner? Don't forget about us."
"Well, you know, Marty, I don't really think of NBC News as having the worldwide presence and capabilities of CNN," Neupert replied.
"No, no, no, Peter, you've got it all wrong," Yudkovitz insisted. "In terms of reach, in terms of the overall meaning of the brand, in terms of the vastness of content, this is the company that makes sense."
Ted Turner forced the issue. In September, he sold Turner Broadcasting to Time Warner. Microsoft, hungering for a network, turned around and offered to buy 10 percent of NBC. Welch rebuffed Redmond. But in a meeting in Wright's office, Rogers and Andrew Lack, who had joined the company as news-division president two years earlier, made a counterproposal directly to Gates. NBC was willing to transform America's Talking, its somnolent cable talk-show network, into a news channel, sell Microsoft half, and link it with a branded Internet site.
The deal smelled less strategic than opportunistic. The $220 million acquisition price for the cable channel covered virtually all of NBC's development costs in cable since the launch of CNBC. And the roughly $200 million in operating costs that Microsoft was willing to guarantee would pay almost all the additional costs in maintaining the new network, over and above what NBC was already spending to run America's Talking.
But Lack had seen the strategic prospects inside the deal. If convergence was real, then NBC couldn't stop at a cable-Internet marriage. The broadcast network, too, had to be involved. Lack believed that the network's real value lay in its ability to direct chunks of its audience to cable and the Net, where the viewers' economic value might be extracted more efficiently than it could on the troubled broadcast medium. Instead of keeping news stars like Tom Brokaw and Jane Pauley tethered to broadcasting, Lack recommended that NBC repurpose them, the same way Viacom was repurposing Happy Days on Nick at Nite. In other words, instead of being a protectorate, the broadcast network would be the tail, wagging the dog of new media. "The strategy," Tom Rogers explains, "was to use the network to create a brand presence for us in this convergence world."
MSNBC Cable and MSNBC Internet were launched in the summer of 1996 - the first large-scale convergence experiment in the age of the Net. Under Lack's direction, NBC News remade itself to present a unified brand position. Dateline NBC was stripped across five prime-time hours; the show's anchors, Stone Phillips and Jane Pauley, became prominent figures on MSNBC Cable.
Indeed, Tom Brokaw has routinely directed viewers to MSNBC Cable and Internet - the latter of which received a significant boost when Microsoft gave it high billing on its Internet Explorer channel bar.
But the quality of the video news programming has certainly sunk below earlier standards. Two years ago, Lack told me one of his goals was to re-create the depth and quality of the legendary CBS Reports documentaries on which he'd once worked. Instead, MSNBC, CNBC, even Dateline routinely spool the tabloid reel. And it's taken the better part of two years to get NBC News personnel to stop thinking of the Net as more than a stepchild. When news veteran Andrea Mitchell landed a Nigeria-related scoop too late to break on the network and took it to the MSNBC site last summer, it was considered, says MSNBC Internet editor in chief Merrill Brown, "a consciousness breakthrough."
Coordinating advertising sales has been an even bigger problem. NBC insisted that a separate sales force was needed to sell each medium, limiting the growth of MSNBC Internet and any opportunity to fashion integrated marketing campaigns for advertisers. "Good ideas have been slow to get executed," complains former Microsoft exec Neupert. "Our relationships on the editorial and production level have been good, but on the sales level, those relationships have been competitive."
The largest dilemma facing the new partners, though, was that their financial model for convergence was not working. Even after the Web vanquished the proprietary online model, NBC and Microsoft clung to the belief that subscriber fees and advertising revenues would fuel convergence media. Wrong. "That model," Wright says, "became shaky almost before the ink was dry."
The failure of the fee portion of the business model was already apparent in the early days of MSN. With television viewers flocking to the prime-time shows that had powered it back into first place, NBC assumed it could flow them onto official pay sites built around those programs. Instead, wired viewers were constructing and surfing to free Web sites for Friends and Seinfeld.
The paucity of advertising was a bigger blow. Even when independent monitoring showed that MSNBC Internet had become perhaps the most widely used general news service on the Web, advertisers refused to follow.
If the traditional television-industry approach - sell advertising against audience-attracting content - didn't work, what then?
The answer seemed to reside with the Internet search engines. Users were increasingly gravitating toward them, even making them their homepages, as they tried to navigate through an ever more crowded Net. This sheer bulk had made search engines among the few places on the medium to draw significant advertising revenue.
NBC, though, saw something that, for the first time since convergence had begun rocking the networks, looked comfortingly familiar. These aggregation sites appeared to be conforming to the same theories of audience flow that had helped make NBC the commanding TV network of the mid-1990s. Get viewers in the morning with a top-rated Today show (the theory went) and you'll have them after they come home from work, when you can take them from Tom Brokaw to an 8 p.m. sitcom, a 10 p.m. drama, over to CNBC for Geraldo, back to the affiliate's local news, and into The Tonight Show. Then they'll start all over with you again tomorrow morning.
Networks or search engines, the strategy was the same: These are portals to which audiences return repeatedly as they maneuver their way through a larger space. "The network business is the business of aggregation," Bob Wright came to believe. Adds Tom Rogers: "As things move to a single appliance and what's available on the computer becomes available by remote control on the television set, what is an Internet portal today may well evolve into the starting point for the television user tomorrow."
As portalmania coursed through the media industries this year, boosting search-engine share prices, pressure increased on NBC to do a deal before a deal became too expensive to do. After considering and rejecting the idea of building its own portal site with licensed technology, the company went shopping. Everywhere it looked, it felt the hot breath of competition, especially from ABC. "We saw those Disney ears in a lot of the stores we were in," says Wright. "We saw them in the Infoseek store, we saw them in the Excite store, we saw them in the Yahoo! store. It did give us a sense of urgency." The more so, since the publicly held search engines were too rich for GE, which scotched a possible deal with Infoseek because it would have been too dilutative. (NBC also passed on a deal for the HotBot site built by Wired Ventures, the former owner of Wired magazine, because Wired wanted the arrangement to include all its properties. Wired Digital - including HotBot - was recently sold to Lycos.) NBC eventually settled on one of the few search engines still available on the cheap - Snap.
Introduced in the fall of 1997 by CNET, an Internet media company, Snap had one of those liabilities that, in the Wonderland of new media, can seem advantageous: It had no audience. User traffic last April amounted to a paltry 1.67 million visitors, less than 10 percent the number using Yahoo!, according to the Media Metrix rating service. But it was traffic (rendered, like a bounty hunter's prey, as x-dollars-per-head) that had made the public search companies' market caps so astronomically high - $5.5 billion, in Yahoo!'s case. CNET was willing to part with 19.9 percent of Snap for just $5.9 million and, later on, another 40.1 percent for $32 million more. NBC took the deal, and bought 4.99 percent of CNET itself.
The acquisition represented an ultimate form of wag-the-dog: The belief that in the time left before conventional networks disintegrate, NBC, CNBC, and MSNBC can use their promotional power to build the Snap brand into a portal so formidable that it will be able to drive people back and forth between NBC properties when convergence occurs.
CNET stock nearly doubled within two months of the deal. Shares in the other search engines also surged. A week after the Snap deal, Disney agreed to buy 43 percent of Infoseek, in a complex arrangement that will ultimately cost it between $200 million and $450 million - a sum that ain't peacock dollars.
NBC's portal strategy doesn't end with Snap. Senior executives foresee networks, broadcast and cable, evolving into niche portals to convergence space, each themed around broad consumer interests, each serving as a gateway to and return anchorage from a limitless universe of digital text, sound, and video offerings.
The company's current Web products and television sub-brands could become entryways for different classes of consumers: MSNBC for people interested in general news, CNBC for those invested in finance and business, NBC.com for consumers attracted to entertainment. NBC Interactive Neighborhood, which provides the affiliates locally oriented Web gateways replete with regional classified ads, weather reports, even scrolling headlines from the nabes, could replace the local stations - or assure their continued vitality when the Web renders geography otherwise moot.
"Specialty portals are a fundamental ingredient here," says Rogers, who is either more forthright or foolhardy than his associates in projecting the post-TV future. We are sitting in his cramped office across from Wright's on 30 Rock's 52nd floor. At the far end of the room, a TV screen displays CNBC, with a tailored analog feed providing GE's real-time share price. A second, outfitted with the newest iteration of WebTV for Windows, seamlessly blends MSNBC Cable and Internet.
"We moved away from thinking that aggregation is created merely by content," Rogers is saying. "Now, it's having the simple, easy way to access things. If you can create an overall general portal, you don't have to own the underlying content."
While the strength of its TV networks may give NBC a brand-building, audience-driving advantage over plain vanilla Internet services, portals represent, contra Wright, an inversion of the traditional network business, not a re-creation of it. Under portal economics, television revenues derive not from control of pipeline or content - both of which are now ubiquitous - but by providing consumers the most efficient access to the content. This model, as media investment banker Richard MacDonald says, is "a telecommunications model," not unlike the one that has guided the long distance market since deregulation eliminated AT&T's monopoly.
This model is fraught with risk, as the long distance providers have learned. Portal economics is open to commodity pricing pressures. It's also subject to suppression by new kinds of monopolies - in particular, those that might be created by cable operators with digital set-top boxes that tune automatically to their own portal sites. Indeed, NBC executives believe that monopoly control of portal space will eventually turn into a regulatory struggle that could pit the company against Microsoft, which is heavily engaged in set-top development.
"A real challenge," says Tom Rogers, "is the cable operator - or whoever controls the set-top box, whether it's Microsoft or cable operators - becoming a middleman. That is going to be a very major public policy battle, because I think the starting point on your television set is effectively going to be your starting point for everything that a PC does today."
Even if the networks win that battle, portal theory represents an enormous, a-historical gamble: that in a convergence world of limitless homepages, people will choose those provided by traditional TV outlets.
The television companies and their allies base their confidence on two articles of faith: Consumers will remain with existing brands even as new ones emerge; and its continued inertia will lead the mass audience to abjure the wired world's delights and bring it back repeatedly to the same place. "Yes, there will be infinite choice," says CNET founder Halsey Minor, "but I don't think people want it."
But many media consultants and senior advertising executives, including those otherwise smitten with NBC, see the future differently. They believe the networks should refocus themselves on the development of quality entertainment - in particular, the kind that will play well on the large-screen, high-definition television sets beginning to come to market. "There's a difference between an NBC that gets a real audience with a real product, and a portal that you pass through on your way to something else," says Mike Samet, head of Young & Rubicam's interactive division.
A more chilling prospect, though, is that portal theory is solid - but that NBC's stinginess will prove inadequate to the task of executing it. Peacock dollars may be fine fuel for the fantasies of young MBAs. But they have the value of Monopoly money in a game that requires serious players to "prepare to make a significant up-front investment to establish a dominant position quickly," as a recent Andersen Consulting report on ecommerce put it. That's a path that Disney - with its expensive maneuvering to acquire and amalgamate Starwave and Infoseek, and its decision to turn the heavily trafficked Infoseek into consumer portal Go.com - seems more prepared to follow.
"I would much prefer to end up where Disney is, where they have significant traffic today, a reasonable management team, talent in place," says Peter Neupert of the networks' portal plays. NBC's Snap deal, he says, "is like me saying, 'I'm going to go into their TV production business, but I don't want to hire the best talent.' I want to know who the Tom Brokaw of Snap is."
GE's unwillingness to shoulder the steep costs of convergence has persuaded many on and off Wall Street that Jack Welch is preparing to sell his television company before he retires two years hence. It also taxed some of its most creative digerati, who fled NBC for more fertile ground. "You become much more creative in an environment like that," one of the emigrants told me, "but the problem is, you end up with a lot of pasted-together ventures that nobody is really supremely happy with."
NBC's response to such criticism is subtle but strong. True, executives say, they may not be spending enough to assure quick leadership in new technological territory. But if portal theory goes the way of push theory goes the way of content theory, they also won't be stuck with an expensive, wasting asset that will depress earnings and share price. In the convergence wars, NBC contends, the better strategy is not to win, but to not lose.
The company's fans also believe that GE's resources, particularly the financing, insurance, and credit-insurance capabilities inside GE Capital, give it formidable strength in electronic commerce that Disney and other competitors cannot easily match. By moving into portal space, NBC is positioned to be "a one-stop facilitator for consumers to purchase products on the Net," says Nicholas Heymann, a leading GE analyst at Prudential Securities. So much so that he predicts ecommerce could earn NBC between $100 million and $200 million annually as early as 2002, more than offsetting a decline in broadcast network earnings to $475 million or $500 million, from $573 million in 1997.
Far from impinging on its parent's profitability, NBC's "postindustrial economic model of infotainment and transaction processing" could, Heymann believes, contribute as much as 10 percent to GE's billion-dollar-plus operating profit shortly after the turn of the century, up from 7.7 percent now. "Nobody else in the media industry," he says, "has the resources GE can draw on to make the Net a success."
Maybe that's why Bob Wright, for all his anxiety over failure, seemed comfortable with the ambiguities of his pay-as-you-go convergence strategy - even as he refused to affirm that today's way is the right way.
At one point when I pushed him a bit far, he interrupted me, not with annoyance, but with a burst of nervous enthusiasm.
"Look, I can't answer your question about what happens in five years," he said. "People keep coming to me and asking, 'Well, you know, you lost all that Seinfeld audience, so how are you gonna survive?'"
"Right, right," I goaded.
"And I say, 'Well, it's like the Cheers audience we lost and it's like the Cosby audience we lost.' You have to just find ways to keep them connected."
But there'll be real-time, full-motion video on the Web, fragmenting that audience into a billion bits, I responded.
"Plus," he added, "you'll have a digital set-top device on some kind of major display in your home that will bring in two or three times as many package services as there are today."
"So," I asked the president and CEO of America's last profitable broadcast network, "why aren't you jumping out the window?"
"We don't have to just watch everything crumble," Bob Wright said, against a backdrop of 10 framed pictures depicting the evolution of the NBC logotype, from its radio-days ownership by RCA to the animated peacock of today. "You have to give us credit that we can be adaptive."
