Hoping its old-media muscle can make it a new-media power, NBC agreed Tuesday to buy a 4.99% stake in online content company CNET Inc. and a 19% stake in CNET's Snap service, an Internet navigation site struggling to keep up with larger rivals.
NBC executives said the $64-million deal is designed to put them in position to capture a piece of the growing online audience at a time when network television ratings are sinking. Snap has tiny ratings compared with rivals such as Yahoo and Excite but is in a category known as "portal" sites that NBC clearly coveted. They are many consumers' first stop on the Net, offering everything from search services to e-mail to chat.
"It's no secret that broadcast television is not a growth business," said Marty Yudkovitz, president of NBC Interactive Media. "But what's going on in this portal space is striking."
Indeed, portal sites have been compared with TV networks because they are among the few online businesses that have managed to attract mass audiences.
For CNET, the deal amounts to a rescue of its flagging portal business, launched last year. But the backing of NBC, a division of Fairfield, Conn.-based General Electric, also puts new polish on a company that has never posted a profit and had recently lost some of its Wall Street luster.
"Obviously, NBC brings a great deal of financial might to this space," said Halsey Minor, chief executive of CNET, which is based in San Francisco. "But given NBC's reach as a media giant, we have an extraordinary opportunity to build awareness for the brand."
The television network will pay $6 million for its initial position in Snap, which will be spun off from CNET and treated as a joint venture between the companies.
NBC plans to raise its stake in Snap to 60% with an additional $32-million investment later. But that's a cheap entry into the portal business, where Yahoo, for example, is valued at $5.5 billion on Wall Street despite meager revenue and earnings.
The news sent CNET's stock soaring 36% to close at $45.13, up $12.13 on Nasdaq.
However, the deal presents several complications. For instance, NBC already has an online relationship with Microsoft Corp., which is planning a portal site of its own.
But executives from both sides made it clear that building the portal business will be top priority. Asked about potential conflicts with Microsoft, Yudkovitz replied, "Who?"
Analysts said the deal makes sense for both companies.
"They both need each other in many respects," said Chris Charron of Forrester Research in Cambridge, Mass. "NBC brings the financial resources, the content, promotion and relationship with advertisers. Snap brings the technology and the ability to program in this medium."
Executives at NBC said they plan to promote Snap aggressively, possibly with ad spots in prime time and references in news programs.
But details of these aspects of the deal were murky Tuesday.
Snap was launched last year by CNET as a belated entry into the portal business. It has built what little awareness it has through deals with Internet service providers and computer makers that offer co-branded versions of the service.
The NBC relationship is expected to not only drive traffic to the company's site at http://www.snap.com but also supply the service with all sorts of NBC content as well as entice legions of new Internet users to make Snap their starting point.
CNET had already spent $25 million developing the site, and analysts said the NBC deal came at a crucial time.
"It saves Snap from oblivion," said Vernon Keenan of Zona Research in Redwood City. "Snap was like an airliner on fire unable to deploy landing gear. This effective takeover by NBC brings out the landing gear at the last moment."
CNET lost $5.7 million on sales of $10.7 million in the quarter ended March 31.