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MAVIS SCANLON
As if anyone needed further proof, the retrenchment at Discovery.com highlights the demise of the trend of throwing money at Internet business models.
Discovery Communications last week slashed the 200-employee staff at Discovery.com, its online division, by about 40%, after earlier this year shelving plans to make the Web division a stand-alone unit. Industry observers say the cutbacks will have little impact on Discovery shareholders, which include Liberty Media Group, Cox Communications and Advance/Newhouse Publications.
"Would people continue to invest in traditional media companies like Discovery?" asks Char Beales, president/chief executive of the Cable Telecommunications and Marketing Society. "Absolutely."
The metamorphosis among traditional media companies rethinking their Internet operations is as much about integrating those divisions within a firm as it is about cutbacks to bolster the bottom line, she adds.
Still, the fallout may mean more intense scrutiny of the Internet investments of cable and media companies, especially Liberty Media Group, Discovery's largest shareholder.
The Discovery layoffs are the latest in a long string of high-profile dot-com restructuring and closure announcements.
Last week, CMGI, a former high-flying Internet incubator, said it will close its iCast entertainment site, sell its 1stUp.com Web-access operation and take a charge against its earnings of as much as $90 million.
Media companies that have restructured Internet units include Viacom and General Electric's NBC. Joining the fray last week was Playboy Enterprises, which withdrew its registration statement for an initial public offering of its Web site, Playboy.com.
Through its Liberty Digital Media unit, Liberty owns stakes in more than two dozen e-commerce and content companies, such as Priceline.com, CarsDirect.com, Drugstore.com, Webvan Group, and Sportsline.com, to name just a few. In general, Liberty Digital's stakes in these companies is small, in the 1% to 3% range, but it has taken stakes as large as 50%.
At the very least, the Internet business downturn may mean Liberty will have to wait longer to see a return on its investments.
As the ownership of broadcast and cable programming converge, NCTA president Robert Sachs says regulation should follow.
Delivering Trinity College's second annual State of the Communications, Entertainment and Information Industries speech in New York last week, Sachs noted that broadcasters now own multiple cable channels. During the still-not-completed campaign, NBC and Fox put live coverage of the presidential and vice presidential debates on their cable outlets to make room for the baseball playoffs, he said.
That behavior is creating "fuzzy" boundaries between broadcast and cable programming, he says.
"All this raises a question as to how long broadcasters should continue to receive preferential, regulatory treatment over cable programming networks," he asserts.
As broadcasters continue to cut back on political coverage and are excused from their public interest responsibilities, Sachs believes it will become "increasingly difficult to justify a regulatory regime that favors broadcasters."
Must carry is one regulation that needs to be re-examined with the major "free" broadcasters pushing to charge the four out of five viewers who receive those networks over cable or satellite.
"Increasingly, the networks are demanding compensation for retransmission of their broadcast signals from cable and DBS providers, who must in turn pass these costs on to subscribers," says Sachs. "We are seeing this right now as ABC demands $0.65 a month per subscriber from Comcast for its broadcast signal."
Sachs says he doesn't perceive AT&T's breakup as a dismissal of a cable telephony strategy.
"With all due respect to those doubters, the spin-off of AT&T Broadband will do nothing to diminish the bright future of cable telephony," he says.
No matter how complex the restructuring deal may seem, Sachs says AT&T CEO Mike Armstrong has gone to "great lengths" to explain AT&T isn't abandoning cable telephony or its commitment to compete in the local phone service arena.
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