When Viacom Chairman Sumner Redstone looks back at his legacy, 2005 must be one painful year to recollect.
That was the year, with all due respect, that News Corp. pulled away from Viacom. Sure, the companies were always fairly different in various ways, but to most, they were two sides of the same coin: TV properties, movie production houses, aspiring Web ambitions… News Corp. was far stronger in print, of course, but to make up for that, Viacom kicked News Corp.’s derriere in radio and outdoors.
2005 changed all of that, partially because of what happened online: in a matter of months, Rupert beat Sumner over MySpace, paying a bit more ($580M) for MySpace parent Intermix… then a few months later, Murdoch once again beat Redstone over IGN, who at the time was my employer after they bought my website in May 2005.
Oddly enough, apparently Viacom’s Spike thought of buying up our site… but they passed, so we eventually sold to IGN Entertainment, who got bought out by News Corp. in the last 24 hours of bidding. Mark Jung, IGN’s CEO, and Great Hill Partners, the Boston-based VC flipped IGN for $650M.
What does Viacom have to show for 2005? A $36M write-off on Amp’d mobile, who burned through $375M. Even its VCs were clueless about what was going on at Amp’d. Typical, really. $375M. Wow. No comments…
Actually, that year, Viacom NeoPets for $160M. It also bought iFilm in 2005, for some $49M. iFilm had a lot of potential and was, until YouTube popped up, the one player in video you thought would go places. But from what I heard, iFilm was suffocated by Viacom, whose integration and management were very different from News Corp. The next year, in 2006, Viacom bought Atom Entertainment for $200M. News Corp. struck back with a bunch of investments, with Strategic Data Corp. coming in 2006, finishing up with 2007’s deal for Photobucket.
From a personal perspective, I wonder what would have happened had Viacom bought us, either the first time around before we sold to IGN, or had they bought IGN. For sure Spike would be a powerful player… I would not had to put up with the disgraceful display of petty, jealousy and envy my back-stabbing ex-partners put me through last year (that didn’t go anywhere of course, because they have the combined IQ of a pea and the class of a charlatan, but I digress).
The point is, business has a very funny way of unfolding.
To feel better about 2005, Redstone canned Tom Freston, spun off CBS from Viacom, now sits atop both companies as Chairman. His CBS was pegged as the income, value component with Viacom seen as the growth engine, but oddly enough, CBS has been the more aggressive company, scooping up companies such as Last.fm and investing in a cornucopia of players. While Viacom has lured dealmakers Philippe Dauman but yet to get really aggressive, CBS has poached executives from Google and Yahoo! to compement dealmaker Quincy Smith. Smith’s team went on a torrid pace to start off 2007, prompting us to ask if CBS was the News Corp. of 2006, but they’ve slowed down of late. Of course, as I say that, expect them to announce 17 deals in August.
In all fairness, CBS’s unique video strategy online has differed from News Corp./NBC’s NewSite but allowed them to get out of the gates faster, while NewSite has given YouTube an extra year to build out a considerable lead. It’s not obvious, being a media company, just this morning I asked “If you’re old media, exactly what do you do” when going online means you effectively shrink your business.
It’s quite possible that since 2005, News Corp. has pulled away considerably and for good from CBS/Viacom, but you never know, because in business - and online - things can indeed turn on a dime.
See our coverage of News Corp., CBS and Viacom in our archives. And see Who is King of Digital Media, here.
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WatchMojo NewsletterAs I alluded to in a previous post on Handheld Entertainment’s $17.5M acqusition of eBaum’s World, GoFish made it official today: the deal for Bolt.com is off. Bolt.com was a promising content producer once upon a time, but then envy and greed, I presume got to its head and it veered off into UGC (read: copyright violated content). Universal Music came knocking, sued for $30M and somehow, GoFish decided to buy it.
GoFish is one of the many distribution partners in WatchMojo.com’s web syndication network…
Today, it announced that the deal is off, the PR reads:
GoFish Terminates Plan to Acquire Bolt Media
GoFish Corporation (OTCBB:GOFH), the leading Internet Video Network showcasing original, Made-for-Internet (’MFI’) programming, today announced it has terminated the company’s agreement to acquire Bolt, Inc. (aka Bolt Media).
SAN FRANCISCO (BusinessWire EON) August 2, 2007 — On February 12, 2007, GoFish announced its intention to acquire Bolt Media, subject to certain closing conditions. One of these conditions was that Bolt Media finalize a definitive settlement to the outstanding copyright infringement lawsuit filed against it by UMG Recordings Inc. and settle comparable potential claims from other record labels and music publishers, subject to financial parameters acceptable to GoFish. Bolt Media was ultimately unable to reach a definitive settlement within these agreed upon parameters.
As the overhanging lawsuits against Bolt represent too much of a liability for GoFish at this stage of the company’s growth, GoFish’s board of directors and its management have decided not to proceed with the merger.
No termination or other fee will be payable in connection with the deal’s cancellation.
“After concerted efforts to reach a viable economic settlement with the music industry, we concluded that Bolt’s potential liabilities would be too difficult for GoFish to absorb at this time. While we have determined that this merger no longer makes strategic sense for GoFish, we will continue to weigh business opportunities based on their ability to deliver meaningful returns for our shareholders,” commented Tabreez Verjee, president of GoFish.
“GoFish remains firmly focused on delivering the most compelling, original video content on the Internet,” says Michael Downing, CEO of GoFish. “As part of our strategy to expand the GoFish Network, we continue to explore revenue generating opportunities through partnerships, mergers and acquisitions.”
There’s at least two sides to this story, if in fact “GoFish remains firmly focused on delivering the most compelling, original video content on the Internet,” then Bolt.com had no business being a part of that strategy, but in all fairness, despite my wishes to see GoFish succeed, Michael Arrington yesterday did make the point that once GoFish’s market cap fell from $100M to $15M (what it is today), forking over $30M for a liability without much upside, the Board could no longer honor its fiduciary duty and vote for this deal.
The future for these high traffic destinations could be very bright… if they just listen to me. I’m joking in the last sentence there, I think so anyway.
Interesting denouement today connects one of the trailblazing sites in viral media and an ambitious team of executives I’ve had the pleasure to meet. The former is eBaum’s World, no stranger to controversy and criticism; the latter is Handheld Entertainment, a company that’s been around for years and has in the past 12 months moved aggressively away from the handheld device market (whose Zuve player has competitors like Apple, Sandisk and Microsoft) into the online media segment.
[Full disclosure: Handheld Entertainment has in the past approached Mojo Supreme about an acquisition, mainly for our WatchMojo.com web video unit].
Some info on eBaum’s World:
Founded in 1998, eBaum’s World is one of the oldest and most successful user-generated content (UGC) sites in the world, generating approximately $5.2 million in revenue and $1.6 million in net income before income taxes in 2006. During the last 12 months, eBaum’s World served more than 2.5 billion unique page views and video streams, with an average time on site per user visit of more than 10 minutes. As a pioneer of viral video, eBaum’s World has helped shape the UGC market with its loyal following and growing community, becoming one of the world’s largest independent online publishers of humor-related content. The company has relationships with such leading media companies as AOL Video, Facebook, FOX Mobile and others.
Today Handheld decided to acquire eBaum’s World:
Under the terms of the acquisition, which is expected to close later this year, HandHeld will pay $17.5 million for eBaum’s World at closing, including $15.0 million in cash, $5.0 million in common stock, which is subject to a $2.5 million one-year hold-back based on achievement of certain financial targets. In addition, HandHeld may pay earn-outs of up to $32.5 million ($17.5 million in stock and $15.0 million in cash) over three years to the owners of eBaum’s World, dependent on the achievement of certain financial and operational milestones of the purchased business.
To finance the deal:
HandHeld has entered into an agreement to sell $24.0 million of three-year, 7.5% convertible debentures with a fixed conversion price stock at $1.90 per share subject to adjustment. Of the proceeds, $15.0 million is for the acquisition of eBaum’s World and $9.0 million is for future mergers and acquisitions, working capital and fees. Other significant terms of the notes include:
- 3.0 million warrants with an exercise price of $1.90 and 2.7 million warrants with an exercise price of $2.09;
- Principal and interest on the debentures in either stock or cash, at HandHeld’s option; and
- Customary registration rights and anti-dilution provisions.
Company insiders are expected to provide $1 million of the $24 million financing.
My Two Cents:
In some ways, I understand management’s approach to building a media company. The idea is most web surfers, regardless of language and age look for comedy. The company first sought to ramp up its new media portfolio by scooping up the major properties that pop up on Google’s first page for humor… but, at some points, the laws of diminishing returns kick in, in my humble opinion.
The company’s current market cap at $30M, the stock has hovered as high as $7.78 in the past 52 weeks and now sits near its 52 week low of $1 at $1.30. To finance the deal, in fact shareholders are diluting themselves once again.
Now say what you want about the reality of those economics; from a strategic perspective, as a producer of premium, rights-owned, professional video content at WatchMojo.com, I think the idea of piling up more and more UGC is not wise, long term (and therein lied a philosophical disagreement in talks, basically).
Don’t take it from me, take it from the marketplace.
Yesterday we heard by way of Tech Crunch that GoFish (more disclosure: GoFish is one of the many distribution partners in our syndication network) was having difficulty finding monetizable content on its site. We have 100 or so clips on GoFish’s site (out of a library of 4,000 clips), within weeks and months we’ll have more and more… and I personally think that is the brass ring is in made-for-web video content, not the TV companies’ content, and certainly not UGC. I also think that file sharing destinations are a hit-or-miss, whereas content is destination agnostic, which runs counter to conventional wisdom and the institutional imperative of the VC world where they’ll invest in yet another file sharing site but they view video content as risky.
Of course, not all UGC sites are created equally. eBaum’s World adds a recognizable brand to Handheld’s portfolio, albeit one that carries both goodwill and a stigma with marketers. The site has in the past received many copyright-violating notices from the very same media companies that represent huge advertising budgets. Of course, YouTube showed that violating copyright, even if unintentionally, need not be a bad thing.
It will be very interesting how this one pans out… the deal is expected to close in the next 75 days and is subject to shareholders’ approval. And, as the Bolt/GoFish deal proved, nothing is a done deal, especially in the murky UGC market.
Finally, the deal is for anywhere from $15M to as much as $52.5M… but as YouTube (disclosure #3: YouTube is another one of our many distribution partners, here’s our old account, and our new one) is showing, monetizing content you don’t own the rights to and advertisers are not comfortable with is no obvious task… so for the time being, this one is a $17.5M deal. Then again, eBaum’s CFO is an experienced finance manager, so I presume the targets are attainable…
Oh, and one last disclosure, sitting on my desk is a licensing agreement for our video library from Handheld Entertainment. Yes, it’s a small world.
Read about this deal on NewTeeVee, hesitated to comment for obvious reasons, but it’s an interesting one if you are into M&A. PaidContent is now running the story, too.
It might seem counter-intuitive, but while this post is all about media and advertising, let’s start with technology and software.
There are now a lot of options for consumers in terms of free software. Google has been coming strong, and they’re not alone. This week, Microsoft announced a free, ad-supported of MSFT Works. Of course, giving away Works for free is just the beginning, some would argue, if it proves to make sense, then one day you can expect to see versions of MSFT Office available for free. Sure, corporations need 100% uptime and robust versions of the software and would pay for it regardless of the cost to avoid being targeted by ads, but it could be argued that many small businesses and consumers would opt for an ad-supported Office if it’s reliable and not ad-heavy.
Also this week, MSFT CEO Steve Ballmer said that his company was “hell-bent” on making more money from ads. As more and more consumers get online, are connected 24/7 and broadband continues to rise in adoption, it could be argued that online advertising will become far larger than we expect. But in 2006, online ads clocked in $16.9B in the US and $25B worldwide. In 2010, the global number is set to be in the vicinity of $60B, as high as $90B (I did see PriceWaterhouseCoopers peg the Asian ad market alone at $110B by 2010, but despite my attempts to get a clarification from them, I am not sure how reliable that figure is).
Point is: yes, online ads might be huge. As a web entrepreneur, I sure hope so. But, I fear we’re seeing some irrational management. It’s great for MSFT to get online, they’ve bought aQuantive for $6B, so they will have plenty of exposure to web advertising, but shifting sales of software to advertising seems unwise.
MSFT generates a large portion of its $51B per year from the sale of software, I touched on this in “Should MSFT spin off MSN.com/Live.com into Yahoo!” after seeing MSFT’s own Don Dodge comment on MSFT’s various revenue streams. Whether this Google-envy proves wise, time will tell.
But MSFT’s decision to put a relatively weak product (Works) instead of a lighter Office version is actually quite symbolic of the issues facing media, old media that is.
When a media company cuts outakes of the Sopranos and pimps it online, then calls it premium content, they are dreaming. That’s an ad. It’s not premium. A few years ago (a whole 2 years), iFilm would run movie trailers and call it premium, too. It was laughable. Viacom paid $49M for iFilm. Then, YouTube took its spot as where people went to see videos.
This week, News Corp. made it official: it bought the parent of Wall Street Journal and Barron’s, Dow Jones. A lot of people came out and said News Corp. Chairman Rupert Murdoch should make the WSJ.com free. To put this into context, I asked if Print should go free some time ago, but whether or not WSJ.com should be free - when it’s the most successful paid site on the Web is not an easy question.
Fred Wilson is right pretty often, but his math is off and some of the figures are wrong in his post, though his heart is in the right place. Mainly, he got blinded by the major trendline in this graph:
Yes, the NYT is larger than the WSJ, but guess what, they’re both trending downward. Why? Mainstream media just isn’t what it used to be. They’re slow to react. That statement could apply to business or editorial. Business we’ve seen that: print companies were slow to get online, and those who did, like the Chronicle, just killed their businesses faster.
Bottom line, the Web shrinks the media business by making it more effective for consumers and advertisers, but the result is a smaller advertising market.
Back to WSJ and News Corp.: the Globe and Mail (Canada’s answer to the WSJ, basically)’s own Mathew Ingram refers to a story in WSJ that mentions Murdoch has looked into making the Journal’s website free:
To make a portal work, News Corp. may have to convert WSJ.com to a free site. Mr. Murdoch said yesterday he hadn’t made up his mind about the wisdom of such a move. In June, Mr. Murdoch noted that a study he commissioned concluded that “you’d have 10 times as many visitors and let’s say five times as much advertising” with a free site. The increased ad dollars were offset by loss of subscription revenue, making the move a wash, he added.
Let’s repeat: by going free, yes, more people would get the Journal, but it would make less money. To an old media company like News Corp. that just paid a 67% premium for DJ, that’s not a realistic thing to do then. I respect Murdoch’s business savvy, I dispespect his pro-war stance, and yes, for the sake of disclosure, I don’t quite appreciate that he bankrolled my former partners’ jealous, petty, frivolous and ultimately unsuccessful vendetta against me… but it’s very odd how one Board’s reversal from “no” to “yes” made everyone suddenly come out post-deal announcement and love Murdoch.
Will Murdoch make DJ stronger? Probably. Without Murdoch, the NY Post might not exist today. Will he do everything he said before the deal? No. Example:
“What if, at the Journal, we spent $100 million a year hiring all the best business journalists in the world? Say 200 of them. And spent some money on establishing the brand but went global — a great, great newspaper with big, iconic names, outstanding writers, reporters, experts. And then you make it free, online only. No printing plants, no paper, no trucks.”
Yeah, guess what? $100M on 200 writers means $500,000 per writer. If that’s the case, I’ll sell Mojo Supreme tomorrow, cash out, then go sit on a beach and pump out business articles for Murdoch anyday. The point I’m making is that there’s a good chance Murdoch won’t make WSJ look all that much different, apart from leveraging it to help make FOX Business Channel a worthy competitor to CNBC and Bloomberg TV.
Will Murdoch invest in the Web, for sure, he must. But he won’t forget that he needs to protect and strengthen TV, because that is where News Corp. makes its money:
In fact, it will need all of the help it can get. Just yesterday, CBS’s stock was brought to reality because, as Forbes puts it: Is Anybody Watching TV?
The Tiffany network told Wall Street that its second-quarter profit tumbled, as top-line growth was stung by the absence of UPN, the timing of the semifinals of the NCAA Men’s Basketball Tournament and the impact of radio and television station divestitures.
Television revenues for the second quarter of 2007 decreased 4.0% to $2.2 billion, stung by the timing of the semifinals of the NCAA Men’s Basketball Tournament, which aired in the first quarter in 2007 versus the second quarter in 2006. UPN had also stopped broadcasting in September 2006.
Advertising revenues fell 11.0% from the same prior-year period. Radio revenues for the quarter, CBS said, also dropped 11.0% to $463.4 million, reflecting the impact of radio station divestments in ten markets, as well as continued weakness in the radio advertising market. Adjusted to compare revenue of stations owned in both quarters, revenue decreased 5%.
Yikes.
Chairman Sumner Redstone, still upset about losing MySpace to archnemesis Murdoch said in a separate announcement that the company is eyeing strategic acquisitions and selective investments for the future. More on this later.
I’m not sure. I don’t. It’s inconvenient and the quality of the content is not all that good. TV executives are, in my humble opinion, in one of two boats:
Boat 1 (The Titanic): believers who think that the Web obsession will pass, sticking to their guns, even as the fundamentals erode.
Boat 2 (The Mayflower): crossing the chasm and coming online, but a good portion come on with the same approach (largely) as they had for TV… mainly, a lot of these executives are tired of the TV environment and don’t get online thinking of consumers and viewers. These are smart, experienced people, but figuratively speaking, you can’t teach an old dog new tricks…
It’s not so much that old media doesn’t get it, they do. Problem is that investors are fickle and advertisers get it too. But steering a large ship out of the way of an oncoming iceberg is not an obvious thing to do.
You saw Redstone say something about eyeing strategic acquisitions and selective investments for the future, if the old media companies are smart, they would:
- do their best to leverage their offline assets to get a foothold online, but
- protect their offline revenues, because the Web is and will remain a smaller ad market, and
- buy up as many assets as they can for reasonable premiums, because small, young, lean companies will get a better portion of web revenues and only these will really be incremental; revenues off web assets of traditional offline assets are in fact cannibalistic.
Ultimately, with all due respect to people like John Dvorak, yes, we might be in good times again, but one thing is quite different, this generation really did not grow up on radio, TV and never cared much for print. They’re online, on their wireless devices and outdoors. Trying to serve up Madison Avenue’s messages to them via old media will simply old media become irrelevant, faster.
Now, whether or not Madison Avenue is as relevant as it was in the 20th Century, that, my friends, is a different post, for a different day.
But to connect the dots and get back to where we started. We opened this piece on media and advertising with technology and software: despite what many said about how the Web would make MSFT irrelevant, we see that its software is as relevant as ever in technology and leveraged it to get into the ad business overnight with the aQuantive deal.
In turn, we saw that Madison Avenue stalwart WPP get into software with the purchase of 24/7 Realmedia… indeed, the lines are blurring and that is a threat to some, but an opportunity to others.
