CBS' Departing Digital Chief Will Be Free Agent of Change

Outgoing CBS Interactive CEO Quincy Smith says one of his priorities as an independent consultant will be finding ways to make the $120 billion television market profitable online.

“How do you turn television buyers into video buyers?” Smith said this week.

“There is a lot more I can do outside of CBS on that particular issue than inside,” said Smith, who will continue to advise CBS on digital matters under a multi-year agreement beginning next year.

His predecessor, Larry Kramer, says such major industry challenges are best tackled outside of corporations. Kramer, a media entrepreneur, forged CBS’ digital operations before turning over the reigns to Smith in 2006.

“What he (Smith) is after is what everyone is after. It is the Holy Grail, and it is difficult to go after it working inside any media company that is trying to preserve its traditional business,” Kramer said.

Both Kramer and Smith concede it will take years to create methods to measure and qualify interactive users (which the industry calls authentication) in order to charge for advertising and content that is distributed seamlessly across digital platforms. The complex process will require the cooperation of many companies in media, technology, the Internet and advertising.

Like other media companies, CBS has found ways to stream its TV content on interactive platforms such as TV.com, but digital dollars remain elusive.

“Some of the platforms they need haven’t even been invented yet,” said Kramer, who pioneered CBS Marketwatch, which he later sold to Dow Jones. He now advises Polaris Ventures and other firms on their digital enterprises.

So far, Netflix on-demand and Apple’s iTunes are among the few new revenues models that have taken hold in the media industry. Apple’s highly anticipated Tablet and the TV Everywhere paid content experiment (spawned by cable operators and CBS) are among next year’s promising developments.

Smith has used his investment banking skills to expand CBS Interactive through acquisitions such as buying CNET for $1.8 billion in 2008. CBS Interactive is the ninth largest global Internet property, reaching 200 million people a month, according to comScore MediaMetrix.  Analysts expect CBS Interactive to report $75 million in operating income (before depreciation and amortization) on nearly $600 million in revenues in 2009.

Smith says he will use his finance and technology contacts and skills to help build media’s digital economy. I believe that he could emerge as an effective intermediary between traditional media and technology companies in that process.

“CBS has done a good job of  building its interactive operation. A lot of companies are experimenting with a lot of ideas. But most media companies right now are struggling with difficult P&Ls in a down economy. They are heavily focused on saving their existing businesses,” Kramer said.

“Media companies are trying to get these new business models to happen on their own timetable, and it just doesn’t happen that way,” Kramer said.