Tuesday, March 14, 2006

THE NETWORKS ARE SEIZING NEW PLATFORMS TO REINFORCE THEIR BRANDS AND CAPTURE AD DOLLARS
Mark Fratrik, VP BIAfn and Steve Passwaiter, VP Business Development BIAfn

NBC Universal's (NBCU) recent acquisition of iVillage.com represents another in a string of recent strategic purchase by an "over-the-air" networks racing to increase their presence on the Internet. Fox made this move in late 2005 with the acquisition of the popular social networking site, MySpace.com. The once Internet-leery broadcast networks have quickly recognized the benefits of the Internet market space, and are making bold moves to rapidly evolve their digital strategy.

Historically, networks have pursued content strategies to bolster their brands and expand into related markets with larger annual growth potential, by either vertical acquisitions, such as acquiring a movie studio, or horizontal acquisitions, such as purchasing a competitive cable network.

However, now we are seeing a strategic acquisition strategy which plays to the strengths of their content and brand. Over the last two years, broadcast networks have increasingly deployed efforts to distribute their content across multiple digital platforms as they recognize that the Internet is providing tangible new options for success as well as proven realized advertising revenue. (NBC Universal, which owns sites for each of its media properties, such as nbc.com and telemundo.com, had digital revenue of nearly $100 million.)

Clearly, advertisers are sending strong signals with their wallets. According to The Interactive Advertising Bureau (IAB) and PricewaterhouseCoopers (PwC), Internet advertising revenues are projected to exceed $15.5 billion in 2006, a dramatic 24% growth over 2005. As seen with the recent indications of a coming surge of interactive advertising from the Detroit automakers, this shift is a strong indication of the viability and flexibility that the Internet offers to marketers in reaching distracted consumers. Undoubtedly, we will continue to see traditional advertisers devote more of their resources to the Internet as a competitive part of their media mix. Therefore, as these key ad dollars are increasingly allocated to digital media, the broadcast networks must make a concerted effort to entrench themselves online to both retain revenues and capitalize on the strength of this rapidly growing advertising medium. According to AdAge, iVillage earned $9.5 million on sales of $91 million last year.

The last time we saw the networks move strategically to chase a major shift in ad spending was in the 1990s as the cable networks grew in popularity. At that time, NBC, as a part of the retransmission agreements with the cable operators, developed the cable networks America's Talking (now, CNBC), and then later MSNBC alongside Microsoft to be "part of that game." By repurposing programs and other assets (e.g., news gathering teams/talents) for multiplatform distribution (i.e., broadcast and cable) NBC became owners of competitive cable networks which held promise for projected higher advertising growth rates. Similarly, Fox developed FX, the Fox News Channel, and the various regional Fox sports networks. Additionally, ABC-Disney expanded their holdings of cable networks by acquiring what is now called the ABC Family cable network, which added to their existing cable portfolio of the Disney Channel and ESPN properties. The remaining major over-the-air network, CBS, experienced a different route as they were acquired by Viacom which already owned very popular and successful cable networks.

Much like the co-mingling of assets and significant cross promotion of the programming on the aforementioned competitive cable and over-the-air networks, these same opportunities exist with the Internet. As such, further acquisitions in the Interactive zone by the over-the-air networks are to be expected. ABC/Disney's ESPN.com is a very popular site, catering to a lucrative niche audience. Given recent activity, they may be considering acquisition of other sites targeted to other similarly attractive demographic groups. CBS will most likely jump into the mix given its past acquisitions in the online arena and the fact that its sister company, Viacom, just announced its desire to compete in the same social networking space as Fox's MySpace.com.

What is clear is that those who own/license/distribute quality and distinguishable content can obtain a definite edge in taking advantage of interactive media, and its associated lucrative advertising dollars. Those networks following this course of action, especially with a focused acquisition strategy, may prove to be the ultimate winners in this multi-platform digital world.