(FORTUNE Magazine) – CBS chief Mel Karmazin has always been known as a green-eyeshade kind of guy, looking to boost margins by cutting costs wherever he can. But lately he's been on a shopping spree. In three days in August, CBS scooped up a 38% stake in online recruiter Jobs.com, and 22% of Wrenchead.com (auto parts e-commerce). Since April, CBS has made seven other similar investments. Add in publicly traded MarketWatch.com and SportsLine USA, and Karmazin is sitting on a total of 11 Internet properties. Sounds more like a spendthrift entrepreneur than a penny-pinching bean counter.

But in truth, Karmazin is still the same old cheapskate. Rather than paying cash or even stock, CBS has exchanged $905 million worth of advertising, promotional, and in some cases branding services for equity in each of these dot.coms. And so far, it's looking like pretty shrewd business. CBS gave $30 million of marketing services to financial Website MarketWatch.com and received 38% of its equity, which is worth $142 million at recent prices. As Christopher Dixon, an analyst at Paine Webber, puts it, "CBS has figured out how to pay cheap currency to purchase something that is very valuable." And in fact, this is a good reason for investors to look at CBS stock's valuation. While 33 times free cash flow seems like a lot to pay for a media company, it's cheap for an Internet stock.

Advertising and promotional services are like gold to young Internets. With hundreds of Websites hitting the cyberwaves each day, consumer-oriented dot.coms will do anything to get noticed. (Outpost.com shot gerbils out of a cannon in a recent advertisement. Though a spokesman assures FORTUNE that no gerbils were harmed in taping the ad, need we say more?) That includes spending a substantial portion of their money to advertise on mainstream media, according to Paine Webber. Then there's the incredible branding power of the CBS name. For roughly 20% of its equity, SportsLine received the right to use the famous eye logo on its Website back in 1997. Since then SportsLine's average daily page hits have increased nearly ninefold. "We've got endorsers like [former Giants quarterback] Phil Simms," says Mark Mariani, SportsLine's head of sales and marketing. "That definitely helps."

Lucky for CBS, ad space is something it has in spades. Not only does the media company control a major television network, but it also has 163 radio stations and 16 television stations, and is No. 1 in outdoor advertising. And while CBS might not be the only media company to exchange advertising for equity (both ABC and NBC have employed similar tactics), it is probably the only one to buy its dot.coms with no money down. In fact, since each of CBS's Internet deals spans an average of six years, the services CBS has given away are a small fraction of its revenues (1.9% of its $6.8 billion in revenues last year). And as revenues grow, that percentage will shrink.

Karmazin and chief financial officer Fred Reynolds have chosen an impressive mix of Websites. CBS has hit on many of the dot.com hot spots--namely sports, finance, and medicine. Just last month, SportsLine eclipsed Disney's ESPN.com to become the most visited sports site around. "We go with companies that enhance our properties," says Reynolds.

CBS claims this is just the beginning. By the end of 1999 it will hire an Internet CEO, who should mold its new assets into an operating company. From there, CBS may spin off its Internet properties into a tracking stock, called CBS.com. "In order to capture the value of our assets, we need an Internet currency," says Reynolds. Such a "currency" would also come in handy for more acquisitions, since CBS could "spend" it without diluting its core shares. That might be how CBS buys or builds its own portal--an idea it's been toying with for some time now.

And even more intriguing, CBS may create an online audio version of the radio properties it acquired from Infinity Broadcasting--a venture known as Infinity.com. With this aggressive strategy, CBS could go head to head with the incredibly successful radio Website broadcast.com. Of course, it's still theoretical. As MarketWatch.com CEO Larry Kramer describes it, "Mel and Fred basically are doing this [Internet strategy] on their own, so this is going wherever Mel thinks it's going on a given day."

That's not to say it is a risk-free strategy. All of CBS's Internet holdings are tied to the stock market's performance, and lately the whole Net sector has fallen on hard times--MarketWatch.com is off a hair-raising 69% from its post-IPO high. If the Internet slide resumes, CBS may lose its chance to take its Internet pups public and possibly its ability to fund a future Internet expansion. However, CFO Reynolds insists that isn't a problem. CBS, he notes, has $742 million in cash--and while its Internet holdings may be falling, CBS stock continues to trade near its 52-week high. So, for investors, CBS could offer a more stable approach to investing in the Internet. And a cheaper way too. Looks as though Mel Karmazin's not the only one who's getting a bargain.

--Amy Kover