The Demise of NBCi

The future of the NBCi site as a search resource is now very much in doubt, given the decision by U.S. television network NBC — which is NBCi’s largest shareholder — to close its spinoff company.

“It’s very much a developing situation,” said NBC spokesperson Rebecca Tompkins. “What we’re doing over the next few months is going through all of NBCi’s properties and deciding what we keep, what we sell, and what we liquidate.”

NBCi was supposed to be NBC’s way of winning the portal wars. Instead, the site has lost money, and NBC has decided to cut its losses. NBC’s announcement on April 9 echoes a similar move by Disney, which essentially shut down its money-losing GO.com portal earlier this year.

Just a month after the Disney announcement, GO’s homegrown Web directory and crawler-based results were gone. No buyer for these search assets had been found, and GO switched over to using pure-paid listings provided by GoTo.com. The demise of NBCi’s search resources will probably take longer, though perhaps NBC will be luckier in finding a buyer for some of them.

NBCi has four major search features. The NBCi Directory is an editor-compiled guide to the Web, similar to those run by Yahoo and LookSmart. NBCi’s LiveDirectory, a system that allows site owners to instantly add their sites to NBCi, supplements this. On top of these listings, NBCi runs a click-through tracking system called GlobalBrain that was acquired in July 1999. Finally, the company acquired the flyswat search companion in April 2000.

What Might Buyers Want?

GO couldn’t sell its directory listings for the price it wanted, so it seems unlikely that NBCi will be successful in its efforts to offload its own directory. The GlobalBrain technology, however, could be used by any search service looking to refine its results. As for flyswat, the tool can be useful, but it has proven difficult for makers of similar tools to earn money from them. That could make any sale more difficult.

Of course, it is possible (but doesn’t seem likely) that NBCi might continue to maintain these search resources. That’s because it would be far cheaper and probably more lucrative to follow Disney’s lead to switch over to a pure-paid listings model, either with a deal through GoTo or perhaps rising contender FindWhat.com. But as with GO, this would be a bad move in that another unique search resource would be lost. However, three major Web directories available to searchers would remain: Yahoo, LookSmart, and the Open Directory.

When Might Changes Happen?

Probably not until summer, when shareholder agreement over NBC’s merger proposal may be obtained.

“Until the day the deal closes, NBCi will look as NBCi looks and will function the same,” Tompkins said. “We’re anticipating that at some point this summer, there will be shareholder approval.”

Understand that NBCi is a separate company that runs the NBCi.com Web site. NBC has a big stake in NBCi — a 38.6 percent share — but since it does not hold a majority of all shares, it cannot force NBCi to do anything without the support of other shareholders. NBC is proposing that it will acquire all of NBCi’s assets, and to gain the support of other shareholders, it’s offering to buy their shares for $2.19. That’s well above the $1.50 NBCi shares were trading at when the announcement was made.

Of course, there’s nothing to prevent NBCi’s own management from taking action to close the company before approval of the merger is obtained. Given this, management has already fired about half the company’s 300 workers, and more cuts are planned. Presumably, NBCi could decide it makes sense to close its directory services sooner rather than later, and release staff involved with that production. NBC didn’t know how many people involved with search had been released already, if any.

One question you might have is why NBC is even bothering with trying to acquire NBCi, especially by paying a premium for its shares.

Why Not Just Let the Company Die?

“For NBC, the reason we are doing this is because it allows us to concentrate our Internet strategies on things that make sense to us,” Tompkins said.

OK, but surely NBC could do that by just walking away from NBCi entirely. Nothing I’ve read suggests that NBC was being forced to put more money into NBCi, nor that it was liable for its debts.

The one key thing that stands out is the fact that NBCi is entitled to about $400 million in television advertising on NBC. Perhaps that’s an asset that could have been passed on to any buyer of NBCi. If so, it may make sense for NBC to acquire and close NBCi if only to remove this liability, especially since the cost of acquiring the outstanding shares is estimated at $138 million — well under the cost of the advertising NBC owes NBCi.

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