4 Business Lessons from Old Media's Reaction to the Dot-Com Bubble

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In 1999, the Internet and new media were about to destroy old media, from staid broadcast networks to "dead tree" print publications. That was the new conventional wisdom when POV Magazine released its annual Top 100 list of websites. (This is part 2 of a series on Internet business before the dot-com bubble.)

The irony is that many of the new-media superstars were swallowed up by old media companies that date back, in one case, to the 1830s: Big buyers included Viacom  (NASDAQ: VIA  ) (spun off from CBS in 1971), Vivendi (founded in 1853), and Bertelsmann (1835).

Sometimes vestiges of the start-ups remained visible for years to come under their new owners. But mostly they offered fresh resources for the uber-giants. Here are three reasons old-media companies outlasted many of their new-media competitors, plus a cautionary lesson in bargain-hunting.

Older companies had money and an eye for bargains

Online retailer CDNow (#41 on POV's list) was bought by German mass-media company Bertelsmann in 2000 on the heels of CDNow's financial trouble and a failed merger with Columbia House. Bertelsmann planned to use CDNow to modernize its record club business at a time when mail-order music was still popular, but soon sold the CDNow brand to (NASDAQ: AMZN  ) .

Meanwhile, Viacom and its subsidiary MTV Networks were snapping up smaller video and music sites like candy, including indie film wunderkind (#32) and MP3 and music-news site (#21).

The law applied to the Internet, too (#2) was a haven for independent music acts and for music lovers looking for the newest sounds. But its 25 million users and ease of file sharing set off alarm bells for traditional record companies and raised accusations from the labels of copyright infringement.

MP3's record-setting IPO in June 1999 ($370 million, the largest at the time for a tech business) was followed six months later by a court decision that resulted in a $53 million settlement with UMG (Universal Media Group) Recordings and financially hobbled

Age and guile eat youth and exuberance struggled until French old-media company (and owner of UMG) Vivendi stepped in. Vivendi, like Bertelsmann, had been around long enough to know how to spot a bargain and promising new technology. They may have been "dinosaurs," but they had proved wily and durable enough to survive two world wars, the stock market crash of 1929, and whatever else history could throw at them. Vivendi bought in 2001 with hopes of using its distribution technology for its own online music business.

Old-media companies couldn't always make their new purchases work

Vivendi sold to CNET within two years when it ran into its own financial troubles. These days, is a moribund part of CBS (NYSE: CBS  ) Interactive, with a Free MP3 of the Day blog that hasn't been updated in more than a year. The only current content seems to be music video reviews., the independent film site, was rebranded under Viacom as an all-comedy site., too, is gone--completely absorbed into VH1. CDNow, the online retailer, became a featured brand on Amazon, but has lapsed into disuse as CDs were supplanted by downloads and streaming music services like Spotify.

The bottom line is that the Internet-led demise of old media didn't happen because old media was virtually unbeatable on content rights, branding, and production--and it was easier for established content providers to acquire new distribution channels than it was for many start-ups to acquire competitive content.  Although the newspaper business in particular has taken a terrible beating since 1999, it, along with magazines, radio, and TV, have assimilated Internet and mobile use into their business models. As we'll see in the final part of this series, the companies that provided hot content or presented it in a new and more usable way were the dot-com bubble's wiliest survivors.

Up next: A look at dot-com bubble survivors, from the just-surviving to the thriving.

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