Content Awaits Its Crown: ar
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Investors are tuning into the quantity aspect of Web users and forgetting the quality aspect or the missing part of aggregation--owning content. But first the latest.
Infoseek (NASDAQ:SEEK) zoomed April 15 to a new all-time high of $34.50 per share on superheavy volume--17 million shares traded--as investors finally start believing that the search and content service may be doing deals to open up its future. Recall on April 14th that Infoseek agreed to acquire (for lack of a better term, let's invent some lexicon here) "Websteader" WBS for 350,000 SEEK shares or about $6.7 million based or $2.48 per member.
Pre-deal, Mecklermedia's WebSite Value Index last week showed SEEK trading at $38 per user so it appears Infoseek got a fire sale price here for the new users to draw upon, paying under 10% of its own value per user for new growth. WBS got some instant upside though, thanks to the SEEK run that ensued WBS turned $6.7 million into $11.4 million in a few days.
Still, WBS could have probably got a higher price. Remember Lycos (NASDAQ:LCOS) paid $58 million for the 1.5 million member Websteader Tripod. That's $38 per user, more than 10x what Infoseek paid for WBS.
Mecklermedia's WebSite Value Index
|February||March||April 8||April 15||April 8||April 15|
|Unique||Unique||Percent||Market cap||Market cap||Percent||Value||Value||Percent|
|Users||Users||change||or est. PMV *||or est. PMV *||change||Per||Per||change|
|(sorted by March users)||(millions)||(millions)||(millions)||(millions)||User||User|
|Yahoo||31.3||32.5||3.8%||$ 4,457||$ 5,417||22%||$ 137.25||$ 166.81||22%|
|Netscape.com*||23.1||23.4||1.3%||$ 650||$ 750||15%||$ 27.77||$ 32.05||15%|
|Excite||16.5||19.3||17.2%||$ 852||$ 1,325||55%||$ 44.08||$ 68.53||55%|
|Microsoft.com*||17.9||18.0||0.7%||$ 1,250||$ 1,500||20%||$ 69.38||$ 83.25||20%|
|AOL.com*||14.1||17.7||25.8%||$ 1,200||$ 1,400||17%||$ 67.66||$ 78.94||17%|
|Lycos-Tripod||10.2||15.1||48.3%||$ 906||$ 1,114||23%||$ 59.92||$ 73.65||23%|
|GeoCities*||12.5||14.4||15.3%||$ 260||$ 300||15%||$ 18.04||$ 20.81||15%|
|MSN.com/Hotmail||8.3||14.4||73.7%||$ 725||$ 800||10%||$ 50.29||$ 55.49||10%|
|Infoseek-WBS||13.7||16.2||18.2%||$ 629||$ 1,066||70%||$ 38.81||$ 65.80||70%|
|AltaVista*||7.6||7.5||-1.6%||$ 210||$ 275||31%||$ 28.07||$ 36.76||31%|
|TOTAL||$ 155||$ 179||15%||$ 11,139||$ 13,947||25%||$ 541||$ 682||26%|
|AVERAGE||$ 16||$ 18||15%||$ 1,114||$ 1,395||25%||$ 54||$ 68||26%|
We foresee a huge hole in the strategy (or lack of) by this group of 10, except AOL and Microsoft which produce their own content in some areas. The biggest weakness for all of them, is that none own the majority of the content on their networks--it's all fed by third party providers who probably don't get more than a plug nickel, if that, for providing the content.
These sites don't pay content providers but do deals based on the notion that content providers get distribution. AOL even charges content providers to be on AOL. That works in today's "bulk experience" Internet where Wall Street's fascination doesn't stray farther than "size." But we believe long term that's a flawed strategy for all of them.
Consider TV as a means to understand this. What if Jerry Seinfeld got nothing for doing his show, if NBC received all the revenue and told Jerry "we're giving you distribution, brand recognition."
Further, the show's producer, the cast, the crew, writers, camera people, editors, and mail clerks also got nothing. NBC tells them "we're giving you prime time real estate, the show is on at the best hour. Isn't it great to be associated with NBC?"
That "business model" would be laughed out of Hollywood. Yet here's the Web networks paying zero for content. We think that's the Achilles' Heel to how their value could soften.
Just as "Seinfeld" is found only on NBC because NBC pays handsomely for it, we think that some of the unique content on the Web will be sought after for exclusive network distribution on one of these hubs.
In that way each network can differentiate because you won't be able to get the same high-value added "programming" on each of them. Seinfeld isn't on NBC, ABC, and CBS, for example.
If true, then content producers could be the most undervalued group on Wall Street. So while the navigation hubs above soar, who's not being watched or tuned into now?