NBC axes internet business

NBC Internet will be sold back to its parent

The US broadcasting giant NBC is pulling the plug on its loss-making internet subsidiary.

The company has said that it is buying back the internet spinoff called NBC Internet (NBCi), and will lay off most of its 300 remaining staff.

The sharp declines in the internet advertising market convinced us that it didn't make sense to pursue a portal strategy

Mark Begor
NBC

NBC is one more company to admit defeat as the downturn in internet advertising puts the squeeze on vulnerable dot.coms.

Walt Disney and Rupert Murdoch's News Corp are among high-profile companies that have been forced to scale back their internet ambitions this year.

'Sharp declines'

"The sharp declines in the internet advertising market convinced us that it didn't make sense to pursue a portal strategy," said NBC's chief financial officer Mark Begor.

"We wanted to find a way to maximise shareholder value and wind down the business in the best way possible."

It's a deal!

NBC offers $2.19 a share

Deal values NBCi at $138m

At its peak, NCBi was worth $5.7bn

NBC will spend $85m on the deal

NBCi lost $245m in the fourth quarter

NBC, owned by General Electric, will pay $2.19 per share for the company, valuing it at $138m. At the peak of NBCi's share price - about $100 in January 2000 - its was worth $5.7bn.

As NBC already owns about 39% of NBCi, it will only have to spend $85m on buying the company back.

Any NBCi assets will be folded into NBC following the sale.

"Rather than continuing to operate at a significant loss, and having the value of NBCi continue to erode, we believe this transaction is in the best interest of NBCi's public stockholders," said Will Lansing, NBCi's chief executive.

Mr Lansing will leave the company after seeing it through its transition period.

Losing money

NBCi has lost money after it was set up in 1999. In the three-month period ending in December, it posted a net loss of $245m on sales of $31m.

The company was created when NBC merged several of its key internet assets.

NBC's terms to buy back the company represent a premium of 46% over the closing share price of $1.50 on Friday.

The shares, which are listed on Nasdaq, jumped 64 cents to $2.14 in early trading on Monday.

MSNBC.com, a popular news site on the internet, is a joint venture between NBC and Microsoft, and is not part of NBCi. Similarly, the successful website for CNBC has only a minor stake in NBCi.

Internet cutbacks

NBC has been trimming its workforce over the past nine months from 850 last August to the current 300. Mr Begor said NBC would "significantly reduce" the head count as NBCi is integrated back into the network.

NBC has not been alone.

At the beginning of this year, News Corp decided to shut down its US online division and axe more than 200 jobs, in an effort to save money.

Similarly, the media and entertainment company Walt Disney has laid off 535 workers from its Walt Disney Internet Group over the course of the year.

Last Wednesday, the online financial news provider TheStreet.com announced it would cut its workforce by 20%.