For Microsoft, Not Every Loss is a Negative
Jul 20th 2012 9:17PM
Updated Jul 20th 2012 9:22PM
Loss is in the air at the formerly near-impregnable tech fortress that was Microsoft (NAS: MSFT) . Net loss, at any rate, as the company posted its first quarterly bottom-line red figure in its long history as a public firm. The market shrugged this off, because much of it was due to a big write-off for the company's online division, which no one really expects to turn much of a profit, anyway. On a more positive note, the company got rid of a longtime asset -- and this divestment was a positive for all concerned.
Microsoft's loss, announced shortly before the unhappy quarterly results, was of its stake in the MSNBC.com web site. Once upon a time, the company somehow thought it would be a good idea to get into the TV and online news providing game. It chose as its partner one of the venerable old networks, NBC, which is now co-owned by General Electric (NYS: GE) and Comcast (NAS: CMCSA) .
At least the NBC/Microsoft tie-up was ambitious. In 1996, it launched a cable channel, then and now called MSNBC in an obvious combination of the names of the two key entities behind it. Complimenting this was a big, sprawling news web portal of the same name, only with a .com behind it.
In retrospect, it's hard to see any natural synergy in combining a broadcaster and what's essentially a big software company. Outside of operating a large but scattershot web portal (MSN.com), Microsoft had little success, or even a compelling presence, online. For its part, NBC would have likely been better served putting the same effort and resources into further expanding NBCNews.com (the site MSNBC.com will now re-direct to following the deal).
An expensive marriage
Give the companies involved some credit for thinking big; the two-headed MSNBC beast wasn't a cheap enterprise to create and maintain. Microsoft is understandably fairly quiet about its investment in the ventures, but it seems the company shelled out $500 million or so for its 50% stake in both. Its participation in MSNBC, the TV channel, lasted less than a decade; in 2005. it reached a deal with NBC for the broadcaster to buy out its stake in that entity. Terms of the deal were never made public.
According to sources quoted in the national press, the tech giant will receive $300 million by selling its chunk of MSNBC.com. It's hard to break down exactly how much of the company's original investment went towards its stake in the site (as opposed to the TV channel), and even harder to determine what it spent to keep it running.
Going by the lackluster results of the company's online services division, that expenditure was probably significant. The division as a whole has been consistently unprofitable, posting a $479 million operating loss in 3Q alone, and its revenue has been stagnant or dropping. To put it gently, this indicates underperformance in all of the division's assets, including MSNBC.
The parting of ways regarding MSNBC the channel should have been a strong indicator that the website didn't have much of a future with two owners. In order to stand out among the herd of TV news channels, MSNBC swung to the left politically in its coverage of current affairs -- in contrast to the pronounced rightward slant of rival Fox News, controlled by News Corp.
That opened a gap between the TV channel's angle on the news, and that of the web site, which still endeavored to be balanced and objective. That's an awkward state of affairs that had to be resolved sooner or later.
For its part, GE and Comcast's broadcaster will be able to more strongly and directly brand its news coverage. It'll also be able to fold content from its numerous other current affairs programs, like NightlyNews.com and Today.com into NBCNews.com. News is a tough sphere to compete in, given the proliferation of such channels as Time Warner's (NYS: TWX) CNN and the aforementioned Fox News.
Leave news to the news guys
Besides, these days only the largest organizations with the resources to provide standalone, enterprise content even attempt to provide exclusively (or nearly enough) branded news. Most online news destinations rely on the heavy participation of specialty providers; one example is Yahoo!'s (NAS: YHOO) portal, which pulls content from entities such as The Associated Press, and everyone's favorite financial site, The Motley Fool.
It's hard to argue that the final divorce between Microsoft and the firms behind NBC isn't beneficial for all concerned. It's just a shame that the breakup didn't happen much earlier.
Now that General Electric has broken free of the MSNBC.com union, how bright are the company's prospects? We've got plenty of analysis on the subject in our premium report on GE stock, an essential tool for any current or prospective investor in the company. The report is dense and informative, and includes a full year of updates! It's readily available for purchase at this link.
The article For Microsoft, Not Every Loss is a Negative originally appeared on Fool.com.Fool contributor Eric Volkman owns no stocks mentioned in the story above. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft. Motley Fool newsletter serviceshave recommended creating a bull call spread position in Microsoft. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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