As mergers between offline media and Web firms accelerate sorting out the deal flow seems to be difficult for some investors to figure. Traditional deals are fairly basic, company A acquires company B for $x. Applause begins.
Now what we’re seeing in the Internet mergers and acquisitions arena is older, traditional media companies buying stakes in Internet firms, or bartering air time for equity.
CBS has done a number of deals that way, with Sportsline (NASDAQ:SPLN) and MarketWatch.com (NASDAQ:MKTW). Disney did a similar thing with Infoseek (NASDAQ:SEEK). USA Networks was going to do it with Lycos (NASDAQ:LCOS). NBC is in the process of doing it with Xoom.com (NASDAQ:XMCM), along with throwing in Snap and some other Internet assets.
These larger mergers of assets into larger entities represents to me the media continuum finding its line. Or another analogy, the elephant. If you close your eyes and touch the nose you may think it’s one animal; but the ear feels quite different; foot and tail likewise. Tusks also. Conclusion based on touch: this is more than one animal.
If we back off a little further and open our eyes, what the mergers in this space represent are parts of the same animal coming together. What is that animal? Media. Specifically what I call ‘the media continuum.’
At its essence media is about communication. That dialogue can be a conversation, letter, TV show, article, phone call, purchase (commerce communication), concert and more. No matter what the form the exchange is centered on communicating a need, want, desire using the platforms of voice, writing, visuals, currency, etc.
That’s where I see the value of parts of the continuum coming together. What AT&T (NYSE:T) is doing in my mind is really just throwing off the shackles of thinking media is one component. With the purchase of TCI/@Home/MediaOne, AT&T is assembling the continuum experience.
The shortcoming of perhaps a few investors is they want to delineate the parts from the whole, the tree from the forest. Or, more specifically, the branches from the tree.
When exactly the opposite tends to occur in nature or on Wall Street: consolidation.
What that means in a practical way for Internet investors is this: Consider watching a TV program. First, find the show time in a newspaper. Tune in. Today that show is one-way media. The show, however, promotes a Web site related to the show. The Web site offers community, chat, e-mail and information related to the show. Which points to a special offer in the newspaper next week related to the show.
What you end up with is a continuum experience where media uses the appropriate platform to relay the message best to the end user, as well as allows the end user the ability to join in the media experience with community, chat, commerce.
This is why in 1996 I said in this report that the major media companies would one day end up owning the search engines/Web guides. And today that is proving true.
With Disney considering acquiring the 57% of Infoseek (NASDAQ:SEEK) it doesn’t own and NBC/Xoom.com/Snap merging, it’s important to understand these mergers. I consider them to be inevitable, magnetic, self-assembling on one level as media seeks to fulfill the many aspects of its animal.
On a more mundane example, it’s the same reason why business software such as Microsoft Office outsells any single application. People inevitably want the suite of applications that together represent more value than any one of them.
Along that same line the companies in the media continuum create a ‘suite’ of media experiences that any one of them cannot offer alone.
It may not be as clear to today’s shock jock investor but within 5 years this kind of thinking may be quite accepted. Today’s large mergers preclude what I see as a continual M&A environment as the pieces of the media continuum combine.
So what are the pieces? Internet, TV (broadcast/cable), radio, newspapers, magazines, music, telephony, motion pictures, all are part of the messaging platforms for the media continuum. The continuum itself beings together content, commerce, context, connectivity, creativity, communications in a seamless flow (if done correctly).
First larger pieces but then medium and smaller pieces. Take Yahoo-GeoCities-Broadcast.com-411-Yoyodyne as one example that still has a way to go but has done some of this.
Then larger pieces again as new ways of leveraging the global Internet rise. For example, if Yahoo acquired Viacom or similar.
Against that canvas it’s quite easy to see AOL’s (NYSE:AOL) need for a TV component both in broadcast and broadband. And the advantages @Home (NASDAQ:ATHM) has in parts of the continuum.
It’s also easy to see where a Lycos (NASDAQ:LCOS) seems to be one of the only large Web firms without a partner (yet). The USA bid attempted to bring the pieces together but investors balked at the round peg, square hole valuation given LCOS pro forma.
If USA’s Diller had said 60% USA (with Citysearch at 10% of USA) and 40% Lycos, then a deal may have fit with shareholders. The merger made sense, it was the terms that didn’t. If NBC had bid the same terms of USA then consider NBC’s considerable reach, far beyond USA’s cable network.
Ultimately “audience” and “reach” are convenient terms aimed at describing (at least to me anyway) the intrinsic value of media. It’s not reach for reach’s sake, reach represents nothing more than real people.
Can Disney, NBC, CBS get it “right” and keep the parts in sync? That’s their challenge, thinking not only outside the box (the TV) but thinking that at any given moment the user/viewer/reader/builder/communicator could be at any one point of the continuum looking for the way to the next part.
That’s why all media becomes hypermedia or asynchronous media. Because we will all be moving in and out of the continuum at various points on that line at our own choosing.
Likewise, in the media continuum every logical stepping off and stepping on must be thought of, the ability for the continuum to cater to the user’s demands at any level of platform.
What does that mean for investors?
We may offer up terms like “customer,” “user,” “browser,” “builder,” “viewer,” “reader,” “listener,” “consumer,” “father,” etc. But these are not the value themselves, these are the methods to describing value. In everyday life, people are all of those things all the time.
And just as people are dynamic and all things all the time so is the combined experience and why the mergers occur; one animal, many sides. Because the seamless flow through of content, commerce, context, connectivity, creativity, and communications is actually several aspects of the same thing. It’s not an ear, tusk, trunk, tail or Web, TV, newspaper, movie, phone. It’s the media continuum.
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