Internet Media a Mixed Bag in ’01

Publicly traded media companies held up better than expected during the
difficult economic conditions in 2001, despite the drag from write-downs
related to dot-com investments, according to a new report about the media

Media investment firm Veronis Suhler Stevenson,
in its annual Communications Industry Report (CIR), said media industry
revenues were up by 2.5 percent to $261.7 billion during 2001.

The report tracked 353 publicly traded media companies across 12 industry segments, including print and broadcast media, specialized business information, and Internet-related companies.

Despite a collapse in advertising dollars and industry contractions related
to dot-com shutdowns in 2001, total operating cash flow edged up 1.7
percent to $54.8 billion that year.

The report said despite the bursting of the Internet bubble almost three
years ago, that segment has actually performed quite well. From 1997 to
2001, the Internet segment posted a compound annual growth rate (CAGR) of
32.3 percent, the highest of any media industry sector the report tracks.

Dot-com content providers were hammered the hardest by the collapse of
after the tech bubble burst, with their cash flow margins declining the
most: 151.9
percent during the year.

Internet service providers, however, shot to the number 2 ranking for
operating cash flow margin among all the report’s communications
sub-segments, from a prior ranking of 29 in 2000 and 28 the year before. In
addition, cash flow margins among Internet service providers ranked at 39
percent of revenue, “a remarkable turnaround” from a negative cash flow
margin of 71.4 percent the prior year.

Leo Kivijarv, PhD, director of research and publications at the New York investment
firm who wrote the report, said the America Online division of AOL Time Warner was the major influence on the new media segment’s numbers.

Despite AOL’s influence, Internet-related data show that “a lot of companies in the Internet space have survived the shakeout,” Kivijarv said. Now “those companies surviving are attempting to come up with business plans and looking to generate a profit. Operating cash flow is now positive for many of these companies for the first time,” he
wrote in the annual media report.

“Five years ago, the Internet was still a developing medium. Having an
extremely low starting point, the growth in the sector was able to be
explosive, posting strong numbers early on in the time frame and is now
settling down as a more mature media segment.”

Breaking out results in the consumer Internet category, 2001 was a massive market contraction year. The report tracked 36 publicly reporting companies, down from 112 in
1999 and 63 in 2000.

Revenues in the sector grew 9.1 percent to $12.3 billion. Operating cash flow fell by 11.2 percent decline to $2.3 billion. But annualized over a five year period,
revenue grew at 32.3 percent from 1997 to 2001 and operating cash flow was
an astonishing 99.6 percent, a reflection of many companies that went from
no revenues to a rapid influx of cash.

The top three companies in the sector were AOL Time Warner ,
EarthLink Network and Yahoo!.

In the communications industry overall, spending fell by .03 percent in 2001
while experiencing the slowest growth in a decade. In addition, when
compared against nominal GDP growth of 3.4 percent for that year, “the
publicly reporting universe of communications companies held its own.
Operating cash flow margins, even in this difficult environment, was a great
20.9 percent.”

Digital piracy continued to eat into the entertainment sector’s cash flow, the report asserted: total revenues fell 6.9 percent to $44.1 billion, and operating income declined by 11.6 percent to $1.5 billion. The top three companies in the 39 overall it tracked in the entertainment sub-sector sector were AOL Time Warner, Sony and Vivendi Universal , based on their revenues.

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