March 10, 1999

ADVERTISING

NBC Moves to Sell Goods to Its Viewers

By BILL CARTER

 

Becoming the first broadcast network to own a portion of a home shopping channel, NBC announced Tuesday that it would make a significant investment in the cable network Value Vision and link it with the NBC network, the cable channels CNBC and MSNBC, and the Web site MSNBC.com.

With the move, NBC is positioning itself to deliver products directly to viewers. The move speaks to NBC's strategy to move away from the old network economic model, which has always generated revenue only through advertising.

Suffering from declining profits and the loss of viewers to cable television, the major networks have set out in recent years to create new revenue streams. NBC has invested heavily in cable and the Internet and lately has used its broadcast network to initiate sales of related products like videocassettes and compact disks.

"Our goal over time is to turn viewers into buyers and customers," said Thomas Rogers, the president of NBC cable.

The move is likely to mean even more effort to merchandise products introduced by NBC programs, typified by last month's sales of a music CD culled from a successful miniseries, "The 60's." "We've made it clear," Rogers said, "that figuring out ways to drive sales of product through our broadcast platform is a key ingredient we see in the overall mix as we figure out the relationship between broadcast, cable and Internet."

Rogers announced that NBC had entered into a strategic alliance with Value Vision and GE Equity, the equity arm of GE Capital, a subsidiary of NBC's parent company, General Electric, that will deliver a 15 percent stake to NBC and GE Equity in exchange for $44 million. (NBC and GE Equity will be able to expand their holdings to 19.9 percent through warrants. That will increase the price to $56 million.)

NBC will then try to get Value Vision placed on more cable systems. Value Vision is a third-tier home-shopping channel. The two big channels, QVC, which is owned by Comcast, and the Home Shopping Network, are in 67 million and 53 million homes, respectively. Value Vision is seen in only 21 million homes, with only 10.6 million on a full-time basis.

Rogers said NBC would be successful because of the leverage it could bring to bear through its ownership of CNBC and MSNBC. NBC could ask for distribution increases for Value Vision in exchange for lowering the fees it charges the cable systems to carry CNBC and MSNBC.

The goal, Rogers said, is to "re-brand Value Vision in conjunction with an Internet portal." NBC owns a majority interest in the portal SNAP, and Rogers said that while he was not ready to announce a direct link between Value Vision and that portal, "SNAP will weigh very heavily in how we put this together."

Despite Value Vision's small size, the chairman of the channel, Gene McCaffrey, said the company had recorded 30 percent increases in profits in the last two quarters and that it was projecting a 50 percent increase for the fourth quarter of 1998.

Rogers said the channel's size would make it easier to re-brand into an Internet-related enterprise. He also said greater cable distribution would be made easier by the fact that home shopping channels, unlike entertainment channels, do not get subscriber fees from cable operators. Instead they pay cable operators a portion of the revenue they take in. That makes them much more attractive to cable operators to add to their existing channel base, Rogers said.

The deal is similar in some respects to the proposed venture put together by the chairman of USA Networks Inc., Barry Diller, in which he is seeking to link his Home Shopping Network cable channel with Lycos, a popular Web portal. The new operation, to be called the USA Lycos Interactive Networks, which is embroiled in a dispute among Lycos shareholders, is designed to entertain, inform and sell things to people online, on television and over the telephone.

Summing up NBC's strategy in entering into the home shopping business, Rogers said, "We are going to be exploring the full potential of creating e-commerce and Internet opportunities, driving them off a cable platform."