True, an upstart company like Amazon.com can conquer a “brick-and-mortar”
powerhouse like Barnes & Noble. But can an upstart Net entertainment
business do the same?
I don’t think so. In entertainment, big is better.
After all, entertainment is about hits and flops; unfortunately, the flops
dominate. In other words, to be successful, you need infinite amounts of
capital.
You also need to diversify risks, such as by integrating vertically. Take a
movie. In the old days, a movie made money primarily from the domestic
gross.
Now, there are a myriad of revenues streams: the soundtrack, the
network TV rights, the cable rights, foreign distribution,
toys/merchandising, a book deal, perhaps even theme park rides and
restaurant deals. Oh, and yes, the Web site.
This is why Viacom (VIA)
and CBS (CBS)
merged yesterday (the new entity will be called Viacom), with a combined
market value of about $80 billion.
Expect more of this. For example, the latest rumors are a combination
of NBC and Paxson, as well as a combination between Disney and USA Networks.
Media Marriage
Here’s how Viacom and CBS stack-up. CBS has 163 radio stations, 14
television stations, and cable properties such as The Nashville Network
(TNN) and Country Music Television (CMT). Of course, CBS is also the
biggest prime time network.
As for Viacom, it has MTV, Showtime, Nickelodeon, VH1, TV Land, as well as
19 broadcast TV stations.
The company also owns Paramount Studios and
Spelling Entertainment. There is also Simon & Schuster.
In fact, while CBS has the older-generation demographic, Viacom has the
younger generation. By combining the two, you have a so-called
“cradle-to-grave” strategy.
But most importantly, the new Viacom has the two most important elements
for Net entertainment: content and distribution.
I think the Viacom Net strategy will involve a variety of targeted
spin-offs. This makes it easier for Wall Street to value the companies.
Also, managements will not be hindered by unnecessary bureaucracies. So
far, CBS has been successful with this strategy with the IPOs of SportsLine
USA and MarketWatch.com.
Others I expect include:
1. MTV.com: This will be combination of
MTV.com, VH1.com, Image Radio and SonicNet.
2. Nickelodeon.com: This, of course,
will target the young market. Folded into this will be such properties as
SimonSaysKids.com and Noggin.
Conclusion
But there are no guarantees. The biggest risk: integration. It’s not easy
to mesh huge media empires.
What’s more, there are two huge egos involved,
Viacom’s Sumner Redstone and CBS’ Mel Karmazin.
Although, if both can work together — and I think they can — they have an
Internet powerhouse on their hands.
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