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March Madness Puts CBS Online on the Line

March is a great month for office-bound but work-bereft sports fans with speedy company Internet connections.

For example, they could watch Marquette take on Utah State in a real-time college basketball throwdown, thanks to the “March Madness On Demand” free video-streaming site (complete with a “Boss Button” to bring up an Excel-like spreadsheet, which recorded 3 million clicks in 2008). Then, in preparation for the new baseball season, they can surf over to Sportsline and study player stats in advance of their fantasy draft.

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While the time-wasting effects of the Final Four may be inflated, surely all this online activity means a mint for the sites’ proprietor, CBS?

The company is expanding its Internet presence, with investments in sports properties like those above and with a $1.8 billion acquisition of tech portal CNet Networks in May 2008. CBS’s interactive division now runs Web sites from foodie property Chow to geek paradise Startrek.com. It’s a tangle of niche audiences, each taking a slice of online traffic by stealth, with little CBS trace.

CBS is now a solid No. 2 player in many online realms, but while it’s growing its library of offerings, it doesn’t control the game-changing means of production. Its niche-picking feels more like an assembly of tactics rather than a full-blown strategy.

The CBS acquisition of CNET seemed dollars long and years late at the time.

It was a respected player in technology news and reviews, but the 10-figure amount (paying a 45 percent premium over CNET’s stock value) seemed pretty dear for a company better known for its underused but potentially useful URLs (news.com, TV.com, even com.com) than for its online time-sucking potential.

Meanwhile Fox’s acquisition of a majority stake in MySpace three years earlier for less than one-third of the cost came with an initial audience of 22 million, growing at 2 million a month, all served up on a platter for Rupert Murdoch’s edification.

Now, the acquisition is returning a profit (the unit as a whole turned an operating profit of $28.7 million on revenues of $186.3 million in the last quarter of 2008 after incurring a loss in 2007) and has moved CBS Interactive up to second place in total page views among major media sites (CBS’s 53.5 million visitors in January 2009 was dwarfed by the Fox empire’s 90.5 million users but puts it ahead of media rivals New York Times, Disney/ABC/ESPN, Time Warner, and NBC).

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So CBS has turned its ambitions to a different community—TV fans—and has tried to build it up with some pretty attractive exclusive content (as opposed to some of the detritus on MySpace).

Once merely a fan site to discuss shows, CBS is now pumping TV.com, one of the CNET prizes, with shows produced by Sony, MGM, PBS, Endemol (the Dutch reality show pioneer responsible for Big Brother), and Manga Entertainment (the purveyors of that manga classic Astro Boy), as well as streaming content from its own Showtime and CBS television stations.

CBS Interactive President Neil Ashe, the former CNET CEO, told The Big Money that 98 percent of TV.com content is contributed by users via chat room discussions and popularity polls. (But don’t expect those fans to be remixing or repurposing TV.com videos; this is still a corporate Web site, and Web 3.0 work techniques aren’t yet welcome.)

The problem is that TV.com can’t simply act as CBS’s online TV arm. Sanctioned online video is subject to a hodgepodge of agreements and permissions; networks may own some shows outright but buy others from independent producers.

Sure, five of the top 10 TV shows on the air last week were CBS fare (as were five of the top seven non-“reality TV” shows). But of these, only full episodes from the CSI detective procedural series are available on TV.com; you’ll have to settle for short clips from CBS TV-broadcast detective procedurals Criminal Minds (Nielsen’s No. 6 show) and The Mentalist (Nielsen’s No. 7 show).

And the online streaming marketplace is extremely crowded. Hulu.com, the Fox/NBC-owned partnership, has some of the same constraints (no full episodes of NBC’s Law & Order here) but has got some its own ideas around building traffic. It has been more aggressive in seeking partnerships with other portals, such as AOL, Comcast, Yahoo, MSN, and MySpace.

Just this week, Hulu announced its own social networking hub, Hulu Friends, taking on TV.com on its own turf. Last month it pulled content it had shared with TV.com. And it’s investing heavily in TV ads, with the Alec Baldwin spot aired during the Super Bowl being the most deliciously malevolent in a while. What does CBS make of Hulu’s foray into mainstream advertising? “They can spend a billion dollars, and their brand name is still not as big as the brand of ‘TV,’ ” said Ashe.

Competition is Stiff and Plentiful

There are other, dreamier players. IMDB.com, now owned by Amazon, has 14,000 full-length TV episodes on its site and has announced its intention to eventually stream all 1.3 million titles that it indexes. Apple’s iTunes, Netflix , and more nimble startups like Boxee are all also competing for eyes.

So TV.com’s quest for market domination is a challenge. Its growth has been impressive, with a 28 percent increase in unique viewers and a 11 percent increase in minutes spent on the site from January to February 2009, although it still trails Hulu against a number of major metrics. (For example, Hulu claimed 24.6 million unique viewers and almost 10 videos per viewer in the United States in December 2008, while CBS video streams only claimed 14.8 million unique viewers and 3.7 videos per viewer, according to comScore data.) YouTube, of course, is still the online video champion.

While TV.com and Hulu battle over content libraries and viewers, CBS Interactive does have a leg up in a few other areas. Again, these are salami tactics oriented for pretty discrete audiences.

One little-noticed aspect of its strategy is its growth overseas. It now counts around 20 percent of its revenues from overseas markets and claims to be the largest U.S.-owned media company operating in China (with properties such as women’s fashion site Onlylady.com, another CNET inheritance).

And TV.com will soon be streaming legacy content to international audiences (satisfying Spaniards’ long-held demand for on-demand Love Boat streaming), whereas Hulu is still available only in the United States.

Sports is another bright spot.

Through fantasy-draft registration fees, the Sportsline property gets the biggest share of CBS Interactive’s 15 percent of revenues that come from nonadvertising sources. The company says it will bring in $30 million this season from advertisers for March Madness On Demand (and it hasn’t had to go down the “flat stomach now” route to get there, getting big names like AT&T and Coca-Cola).

It’s been able to lure advertisers by blocking “channel changing” during online breaks (whereas you can still grab your remote when watching on TV). But even then, CBS doesn’t get sports fans’ love altogether. In March 2008, they were more likely to choose ESPN and Yahoo Sports over CBS Sports for online coverage, each by a 2-to-1 margin.

If “content is king,” as both Ashe, and CBS President Leslie Moonves believe, CBS can still do more to place its radio, news, sports, outdoor billboards, and publishing properties across different platforms. Including within the company—Last.fm and CBS radio, for example, are natural partners. Or the Chow food site content could be promoted via CBS daytime TV programming.

That all of these opportunities haven’t yet been sorted out may be one reason why Ashe suggests that another major acquisition—a major content provider, or a major portal or platform—likely won’t be forthcoming any time soon.

Making Money is the Hard Part

The money may not be there for it, anyway: The parent company is having the same struggles as other advertising-dependent conglomerates. In February, it cuts its dividend to 5 cents per share from 27 cents, and Barclays Capital analyst Scott Shiffman says it still faces an $893 million funding gap for its bonds. CBS’s stock is now down 81 percent in the last 12 months, compared with a 62 percent decline in News Corp’s stock.

Ashe says CBS Interactive is “the unportal,” feeling the love from many different slices of online fandom.

Within the next month, CBS will launch Moneywatch, “the first personal finance site of the post-crash era” targeted to the “50-million plus managers” in the United States. This could be another late move into a saturated market (CBS sold highly regarded Marketwatch to Dow Jones in 2005). Or it could be another shrewd move to build market share.

Regardless, many niches may not an empire make.

There may not be an overall story to CBS’s online foray, but as long as each piece is doing its job, the company may be happy to chug along, managing its morass of sites. But if the future of the Internet is those transcending communities of Google searchers, Tweeters, Facebook frienders, and MySpace denizens, then the company could be in for tough times.

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