eMailbag: WebTV, PSINet and CDNow & Later

“Is the ISDEX an official index? If so, how come I can’t get a quote on
it? Who created the ISDEX and on what basis were these decisions made?”



Reply: ISDEX was created and is maintained by Mecklermedia, producer
of this report. You can get a value for ISDEX anytime on Yahoo! Finance or
Quote.com ($isdex.x on Quote.com for subscribers). ISDEX is reviewed on a
regular basis by Internet experts at Mecklermedia to determine its
representative nature and to ensure that it stays as dynamic as the
industry itself.


We have elected not to list it on exchanges since this would limit its
effectiveness as the leading “pure play” Internet stock index.


All of the other indices include a barrage of stocks only nominally
involved in Internet activities. We chose to serve you as an investor with
a leading
edge, and more importantly, relevant index of Where Wall Street meets the
Web. Dow Jones did the same thing 100 years ago with the Dow Jones
Industrial Average. We’re doing it today with ISDEX, the ‘Dow Jones’ of
Internet stocks.


Tuning In Or Out


“Do you think WebTV sales are going to increase or do you think the product
has peaked out?”


Reply: Recent reports say that stores were sold out of the boxes
over the holidays. Exactly the opposite of what happened in 1996. We think
WebTV could become a major portal to the Internet but may also be two or
three iterations and genuflections away from doing so. The TV and Web
experience is much different than PC and Web.


The content is the key–all of it is designed for PC/Web today. TV and Web
is a 8-foot away experience. PC and Web is a 2-foot away experience. That
determines how content is displayed and used. There’s also a lot of
expectations that come with using a TV such as multimedia that the existing
consumer dialup bandwidth cannot support for most users.


PSIonics


“Psinet has certainly gotten more attention as of late. What do you think
about PSIX being “in play” right now? Will the bid from USI bring some
needed attention to this continual underperformer and might USI
soon come back with a higher bid than the $10 they offered?


“With PSIX being one of the last independents of its kind, what would you
say a fair takeout bid might be?”


Reply: Fair is what anyone’s willing to pay for PSIX. ISPs trade at
about 1x to 2x sales. The question now: PSI, Cinderella or the other step
sister waiting for the golden slipper or musty old shoe? We think there’s
still room for consolidation among ISPs themselves. The telcos prove they
cannot do this type of thing on their own but they also have the cash and
patience to wait for fire sales. This is getting close to Fahrenheit451
even as we speak.


@Rageous


“Your statements on @Home makes it look like a great buying opportunity. My
ISP gives me poor service, and I am ready to move into the 90’s for speed
and access. I have the 56X2 in two computers and my 28.8 DSVD in the other,
I feel like 3COM has sold us a bill of goods, so to speak, on new technology.


“The hook up speed is consistently better with the 28.8 DSVD. My
understanding, limited I admit, is that @home (ATHM) will deliver up to 100
times faster service?”


Reply: @Home seems to have all the necessary ingredients to be huge:
plenty of capital, good backing from major cable companies, media partners,
etc. The only thing that bothers us is that if it already has high-speed
wires passing millions of homes, why does it have only 50,000 customers?
Somebody is asleep at the wheel here. @wake?


Listen Up


“Regarding ISR Jan
27
, it really depends on what you mean by “control”. There are millions
of labels out there, and only a few distributors (like Interscope, A&M,
Polygram, EMI). So aren’t the distribs really resellers as well? What is
it that they “control?” They control financing, marketing and logistics.
They certainly don’t control the artists.


“So, an interesting question is, in a networked world, is control over
financing, marketing and logistics really valuable (you can obviously ask
this same question about the book business which is “controlled” by a few
big publishers, and owned by the same big media that own the major record
labels/distribs).


“So, do EMI and A&M go directly to the Web? Would anybody care if they did?
Nobody listens to an A&M record, the same way that nobody watches an NBC
television show or reads a book published by DoubleDay.


“If the artists went directly to the Web, via CDNow, N2K and AudioNet, where
would that leave big media?”


Reply: It takes more than $1 million to record a world-class album
by a major artist. CDnow and N2K don’t have the ability to hire artists the
same way Virgin or Polygram do. If a tree falls and nobody hears it does
anybody care? Similarly, on the Web, the best musician in the world can put
up an entire CD’s worth but if nobody comes to that Web site then it’s
moot.


Content is king but distribution rules.



CDme


“Your notes on
CDNow
lead me to comment for the first time. I have co-founded a
company that allows music consumers to make their own custom compilation
CDs, at www.EZCD.com, much like one would make a mix tape. My company,
Volatile Media Inc., licenses music from various sources and then allows
customers to browse the catalog on the Web, listen to 30-second samples,
and then order up to ten tracks for $14.99 plus $3 shipping and handling.”


Reply: Proof that someone will always take it to the next
level. And that’s the power of the Internet.

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