Quincy Smith came to *CBS* in late 2006 to make deals and make them he did — with just about everyone but Hulu. He had been advising CEO Leslie Moonves on corporate internet strategy as an investment banker for Allen & Co. In an interview with paidContent Wednesday afternoon about “the worst kept secret in America,” Moonves recalled Smith introducing him to more than a dozen possibilities to transform interactive for CBS (NYSE: CBS) before he finally said, “Quincy, you’re the guy.”
Smith is returning to those investment banker roots with his M&A sensibilities intact and the desire to keep his hand in industry-wide initiatives. A retainer from CBS is a good place to start. Under this new multi-year arrangement, Smith continues as an adviser to Moonves, who explains: “As you know, Quincy operates from 30,000 feet anyway. I never knew what city he is in. He would be my adviser on this and that, and he will remain that way. He’s our authentication guy, dealing with content online and all sorts of things he’s very involved in that he will continue to be involved in.”
His focus will be more on issues that affect the main business. Smith: “What does CBS need now? It’s going to be block and tackle as the market comes back. I’m going to help them with growth, but I’m also going to help with what I would call larger economic issues today, which is things like TV Everywhere.” That includes the network’s efforts to make more retransmission deals. The recent flurry of activity in retrans and authentication are among the reasons Smith’s departure, now planned for January, was delayed for months, says Moonves.
Open checkbook: Smith’s mission at CBS was to grow online fast and the checkbook was open. Not blank, mind you, but if Smith could justify it, Moonves was likely to spend it from start through CNET. “We had to make acquisitions,” Smith said following the announcement. (The interviews were separate.) The biggest was $1.8 billion for CNET last year, a deal other media companies walked away from but Smith saw as a major complement to what CBS already had as well as a way to push CBS towards the top in traffic and video. (While I was typing this, CBSi sent out a press release saying it had jumped three spots to #4 in unique video viewers, according to *comScore* Videometrix.) Along the way Smith and CBS spent $280 million on UK music discovery service last.fm, $43 million on MaxPreps (Moonves calls it a “tuck in), and a few million here and there on smaller acquisitions and investments. They were buying ahead of the crash, when valuations were higher and money was flowing more easily.
It didn’t take Moonves long when I told him I was working on an estimate of how much CBS has spent on interactive — Smith prefers the term “investment” — in the last three years. I suggested $2.5 billion; no, maybe $2.2 billion is more like it, replied the CBS CEO. Was it worth it? “Absolutely. How would a media company look if they weren’t a major player online with their content?”
For Moonves, part of the halo effect here comes from where CBS was just a few years ago. “When people talk about what CBS was, they forget. We were downgraded because we were the most traditional, old-fashioned media company on the planet. They don’t talk about us that way anymore. I think we’re as far along as anybody is and as integrated as anybody is.” Three years ago, Smith recalls, CBS was 140th, adding that it was because of where the assets landed, not any fault of his predecessor Larry Kramer. “Now we’re top 10 and we’re in top five in video.”
His M&A focus was on being complementary, making sure CBS had more than its own video. “Over 90 percent of CBS Interactive’s business, which is over $600 million top line and over $50 million bottomline — ie profit, is related to stuff that is not about rebroadcasting our content online. It’s about tech reviews and fantasy football, stuff that is additive.” (March Madness on Demand is the exception and even that reaches for audience that wouldn’t be watching TV.) The rest he views as IP-delivered content, using different platforms to add viewers. CBS streams video on demand on its own TV.com, CBS.com and a spectrum of sites through the CBS Audience Network. It’s also the only broadcast network taking part in Comcast’s On Demand Online trial.
Smartest move?: News Corp (NYSE: NWS). did much the same thing when Rupert Murdoch wanted to claim internet victory, buying MySpace, IGN and more for an instant boost in traffic and respectability. They’re still paying the consequences operationally. Smith’s smartest move may have been knowing he wasn’t the one who could make all of the CBSi pieces work together. “He knew that. He understood that,” says Moonves. “It’s not that Neil isn’t a forward thinker as well but he’s a great operations guy and they were very complementary to each other.” He’s referring to Neil Ashe, the CNET CEO who became president of CBSi following the acquisition; Ashe will head the division after Smith leaves.
“What is great about CBS Interactive is they truly are part of just about every division of this company and there is no way we could have built this as rapidly as we have by acquisition and integration. … When you look at where we were three years ago and where we are now in the interactive space, I’m really proud of what we’ve done.” CNET? “That I have no regrets about.” How about not making a deal to be part of Hulu? Smith wanted the flexibility and Moonves backed him up. He still does. “I like being a free agent.”
What didn’t work?: Some of the smaller investments generated a lot of noise but didn’t pay off. Failed video service Joost was a couple of million, says Moonves. “Of those little ones, we invested in a million here, two million dollars there, and a few of those things, Wallstrip, didn’t work. That was a few million dollars there.”
What’s next?: Moonves: “Continuing to find different ways to get our content paid for. Clearly having our content online; authentication’s going to play a major part in it. Continuing to integrate both our traditional businesses with our online businesses. Growth in mobile will become much more important going down the line. Obviously, digital becomes a more and more significant part of this company every day.”