With its $500-million investment in the maker of Snapchat, NBCUniversal might just prove that you can teach an old dog new tricks.
The 90-year-old media company this week scooped up about 15% of Snap Inc.’s available shares during the Venice-based messaging app’s initial public offering. The move was part of NBCUniversal’s aggressive mission to immerse itself in digital media by forging tight partnerships with leading players of the space such as BuzzFeed News and Vox Media.
Navigating digital media to engage younger consumers is critically important for the company and other traditional media outlets grappling with rapid changes in consumer behavior.
NBCUniversal, owned by Comcast Corp., generates about half of its $7.2 billion a year in cash flow from its traditional TV properties, including the NBC broadcast network and cable TV channels such as Bravo, USA, Syfy, Golf Channel, E!, MSNBC and CNBC. But every year, TV ratings continue to decline, putting pressure on the company to adapt.
“Increasingly, people want news and entertainment on a mobile phone,” NBCUniversal Chief Executive Steve Burke said Friday in an interview. “We need to respect that.”
The investment also is an acknowledgment that traditional platforms and delivery systems such as cable and satellite TV might have reached their peak. Younger consumers are less inclined to sign up for costly cable bundles and are opting instead for Facebook or Snapchat.
“An increasing percentage of video consumption around the world is going to be on these platforms,” Burke said. “There are a handful of big platforms, and Snapchat is the fastest growing. We need to program for that and take our existing programs and format them for these platforms.”
Burke’s investment strategy has been different from other big media companies. Instead of gobbling up whole digital companies, which Walt Disney Co., 21st Century Fox and Verizon Communications have done, NBCUniversal has been making shrewd bets with minority investments in just a handful of leading players.
NBCUniversal’s investment Thursday in Snap — acquiring a 2% equity stake in the company for $17 a share — represents one of NBCUniversal’s biggest digital investments to date.
The company in the last few years has invested $400 million in BuzzFeed News and another $200 million in Vox Media, which owns the Verge, Eater and SB Nation.
Through such investments, NBCUniversal gets a firsthand look at how younger viewers are consuming their entertainment. The media company can sell ads, promote their shows and customize programs to Snap’s audience.
“NBC has been the most aggressive of U.S. media companies in terms of strategic investment[s],” said Peter Csathy, founder and chairman of Creatv Media, which advises media and technology companies. “NBCUniversal needs to reach a younger audience … and that’s Snapchat.”
Snap also benefits from the expertise and advertising dollars that come its affiliation with the media giant that produces such popular programs as “The Voice” and “Saturday Night Live.”
“Snap needs to expand its audience, [and] the natural way to do that is reach out to some of the older folks and more traditional types,” Csathy said.
Burke calls his company’s strategy “beacon investing,” which has its roots in a $1-billion bet that Microsoft co-founder Bill Gates made on Comcast in 1997. The investment came at a time when cable companies like Comcast needed money to make substantial upgrades to their networks to handle broadband data transmission, which helped to turbocharge the Internet.
“Microsoft didn’t put $1 billion in Comcast to take it over, they thought it would be a good investment and it sent a message that it was important,” Burke said.
Embracing the evolution of media, he said, is part of the strategy.
“We think we are going to make money on our investments in Snapchat, BuzzFeed and Vox,” Burke said. “As importantly, our investments make it clear to our people that these are special companies and we want to work closely with them and learn from them.”
NBCUniversal approached Snapchat’s leadership team, including Chief Executive Evan Spiegel and Imran Khan, the company’s chief strategy officer, in early 2016 about buying a stake in the company.
NBCUniversal was told to wait for the IPO, but, in the meantime, the two companies began working together.
Increasingly, people want news and entertainment on a mobile phone. We need to respect that.
They created a pop-up channel for Snapchat users that featured NBC content from last summer’s Rio Olympics, which was produced by BuzzFeed. NBCUniversal’s E! channel developed a celebrity themed series for Snapchat called “The Rundown.”
Other collaborations with Snap are in the works, including an expanded effort to showcase athletic competitions during the 2018 Winter Olympics in South Korea.
“We want to do a lot of things with them for many years to come,” Burke said.
Including the Snap shares, NBCUniversal has invested more than $1.5 billion in digital businesses during the last 18 months. It bought a software business called SportsEngine that helps manage youth sports leagues.
NBCUniversal also owns the fast-growing Internet movie ticketing service Fandango. And in the last couple of years it added the popular movie ratings website Rotten Tomatoes and listing service Flixster to its portfolio.
Through its $3.8-billion acquisition last year of DreamWorks Animation in Glendale, NBCUniversal picked up a 51% stake in Awesomeness TV, which has one of the top channels on Google’s YouTube. NBC also was one of the founders of the online video site Hulu.
In the past, media companies have vacuumed up the smaller companies and tried to run them themselves. But the track record is mixed. Consider Time Warner Inc.’s disastrous merger with AOL and News Corp.’s $580 million purchase of MySpace, which was soon overtaken by Facebook. Even Walt Disney Co., which has scored with such big bets as buying Pixar Animation and Marvel Entertainment, has struggled with digital properties, such as Maker Studios.
“We don’t know how to run these businesses and we should be humble enough to admit we have a lot to learn,” Burke said.
Times Staff Writer Nina Agrawal contributed to this report.