Content Awaits Its Crown: ar

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.


Said another way, Infoseek paid rock-bottom wholesale while Wall Street
paid retail for WBS. In fact, investors got so euphoric they tripped over
themselves piling into SEEK and finally giving its users a valuation more
in line–perhaps prematurely–with Excite (NASDAQ:XCIT).


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?

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