Here's the cbs marketwatch interview
Ticketmaster Online/CitySearch
Whom We Talked
To
Alan Citron, chairman;
Charles Conn, CEO
IPO Date
Dec. 3
Offering Price
$14
Stock High
80 1/2
Stock Low
31 13/16
Last Update: 7:41 PM ET Jan 27, 1999
Profile: Los Angeles-based Ticketmaster Online/CitySearch (TMCS)
operates numerous Web sites for local communities and also acts as
Ticketmaster's exclusive online seller of concert tickets.
Notable: Ticketmaster Online CitySearch sold 7 million shares at $14
to the public in an IPO headed by NationsBanc Montgomery Securities.
The deal followed a late summer CitySearch IPO attempt that was pulled
at the last minute after the company decided to merge with USA
Networks' Ticketmaster Online. USA Networks (USAI) was also a
significant shareholder in CitySearch.
Earlier this month, the company announced the
purchase of CityAuction, an eBay (EBAY)
competitor focused on helping users who live close
to each other sell goods to each over the Internet.
At a recent trading price, Ticketmaster
Online/CitySearch has a market cap of about 3.9
billion, despite the fact that it lost more than $56.8
million during the first nine months of 1998. Sales
for all of the company's businesses, however, more
than doubled during the fourth quarter compared to
the year-ago period.
* * *
You recently announced the purchase of CityAuction, a
person-to-person online auction. Why did you decide to make that
purchase, and what kind of expectations do you have for the service?
Conn: We made the purchase because it was in line with our strategy to
expand the platform for local online commerce. Most of what's been
talked about, and people have gotten excited about on the Internet, is
national and international commerce. We think local-ness is a really
important aspect to people's Web-using experience.
We'd like to expand the platform for local transactions. Obviously,
CitySearch and Ticketmaster Online today make a pretty great
combination in that area, where the CitySearch city guides provides
information on where to go and what to do, and Ticketmaster Online
allows people to then take action by getting a ticket to an event that they
want to go to.
We'd like to extend beyond that into areas like reservations, other types
of ticketing, and posting on CityAuction provides an additional extension
of that platform.
What about expectations? I know eBay generally dominates that
market, and I don't know how many sales CityAuction has ...
Conn: Let me explain why CityAuction is attractive. CityAuction has
been designed in a way to find your auction geographically, as a poster or
a purchaser. And that's really important for goods that are either bulky or
fragile or really expensive. You don't find many couches for sale on
national auction sites. You tend to find things like Beanie Babies because
they're easy to mail and they're relatively low in value.
Imagine that you had something that was very expensive, you'd want to
make the exchange face-to-face so that you got the money at the same
time you handed over your goods, and vice-versa. Similarly, for a piece of
furniture or a car, you couldn't buy it from someone in Poughkeepsie if
you were purchasing in San Francisco.
But that doesn't seem like it'd be tough to implement a local
service.
Conn: It turns out to be pretty complicated from a programming
standpoint, and CityAuction has a pretty good lead in the area. It has
something like 50,000 registered users already and it's been growing very
quickly.
You mentioned other forms of local online commerce. I could
see how groceries or food would be another possible revenue stream. Are
you looking or are you talking to Peapod (PPOD) or anyone else out
there about that?
Conn: Absolutely, and you're right. That's the
right kind of thinking, which is that ... for any reason
you go out your front door in the local community,
we want to be there with information to help you
make a decision, and the ability to make
transactions once you've made the decision.
So hotel and restaurant reservations, event tickets,
movie information and things like food delivery,
including prepared meals and groceries ... and a
whole related set of transactions are right in line
with that. So we would like to make it easy for you
to literally make an appointment with your doctor
or your dentist right on line. There's no reason we
have to do the complicated telephone transactions. That will take more
time of course, because it requires good reservations systems on the side
of the customer.
Getting to the local sites that you guys have developed. It costs a
lot of money to get these things up and running, doesn't it?
Conn: Yes it does.
How quickly do you expect when you launch a site to get your
return on investment?
Conn: It depends on the size of the city, but somewhere between two
years and three-and-a-half years.
What I will say about that, Darren, is making a real investment in having a
local presence with original content designed by people in that city for
people in that city has really paid off in terms of our ability to penetrate our
audience. Those sites that are just incomplete, hypertext collages of links
that pose as local sites have much less intensity of use than CitySearch,
and because we have better intensity of use, we're a better vehicle for
local advertisers.
Do you consider newspapers a more formidable competitor than
sites like [America Online's (AOL)] Digital City or [Microsoft's (MSFT)]
Sidewalks?
Conn: Like good students of Andy Grove, we are
paranoid of all competitors. But I think you're right,
that established media companies that have good
brand in their local communities and understand the
Web can be very effective competitors. Now many
established media companies don't understand the
Web, [but] some of them do.
Now this is very interesting to me, when
[CitySearch] originally filed for the IPO, the
language was vague as to whether you were going
to expand [into more cities] using the partner model
or the owned-and-operated model.
Then when you amended the filing, it did indicate that more [city sites]
were going to [be launched] the partner route. And then when you refiled
with Ticketmaster -- because obviously you withdrew the original
registration and came back as a merged entity -- it became more vague
again. I'm curious as to what you think the best model is?
Conn: That's good research and we had no intention to be vague. We
intend to expand the city guide network through both means,
owned-and-operated cities, where we provide the management and
capital, and partner-led cities where our partner does and [we] share via
license fees and royalties.
I don't know exactly how that will play out over time. We do intend to
aggressively expand a new kind of local city site that's owned and
operated that we call the local portal site which requires less capital to
build out. But we also intend to support our existing partners and to work
with new partners over time.
I guess the thinking behind doing a partner site is that the initial
launch is rather capital-intensive and this strategy obviously minimizes that
greatly. And yet if you make the argument that making an initial investment
in the long run will pay off within three years, then shouldn't the model
(you pursue) be owned-and-operated?
Conn: I think your thinking is right. Here's the
issue. We were able to expand the size of our
network and the credibility of the network by
working with superb partners like the Washington
Post (WPO) or L.A. Times (TMC). And although
we gave up value in order to do that, it really
helped us enormously at an important stage in our
development.
I would also say there are some cities, where the
strength of management at the established media
company and their Web savvy is high enough that
it's the best competitive option to work with them
rather than against them.
I noticed the Los Angeles site basically gives you minimal
exposure, one little [graphic] on the front page, and that varies from site to
site.
Conn: You noticed that it's much stronger, say in a Toronto or Baltimore
or a Dallas.
Right. Do you have no control over that, and is it your opinion
that even with that kind of minimal brand exposure that partnering with the
LA Times is still a desirable thing?
Conn: Yeah, we wish the brand exposure was better for sure on that
site, and it's something we talk about with them all the time. It's still to our
benefit to be associated with and learn from Times-Mirror, which is a
great media company.
Let's go to Ticketmaster, because Alan is just sitting there,
anxious to jump in, I'm sure. It seems like you're basically relying on
Ticketmaster to hold onto the customers it has already. I know that [the
two companies] have a relationship, and it's in Ticketmaster's interests to
see Ticketmaster Online do well, but is there a fear someday a challenger
may actually appear to Ticketmaster and cause some problems?
Citron: Any smart company worries about competition, and this
business has plenty of competition, but Ticketmaster is a huge asset
because it has the relationships with more than 3,000 major venues
around the country and it's able to sustain those relationships on our
behalf.
There was an indication that when Ticketmaster was sold to
USA Networks that some of those relationships may not be as strong as
they were beforehand.
Citron: No, I think that history has proven that that was unwarranted
concern.
If you think about the last few months, Ticketmaster
struck its biggest deal ever with SFX Entertainment
(SFXE), solidifying its position in the concert
business. It also re-signed Madison Square Garden
in that time period, which historically has been one
of the company's biggest clients and certainly a
marquee client. I think, if anything, Ticketmaster's
position has actually grown stronger since USA
bought it.
And what was the thinking behind
Ticketmaster wanting to [sell Ticketmaster Online]?
Obviously the online portion would seem to be the
company's biggest growth and highest-margin
[market]. Why would they want to divest themselves of ... that revenue?
Citron: Keep in mind that Ticketmaster Online City Search is still within
the family Ticketmaster/USA; it didn't really divest itself of its revenue. I
think [the merger] was a creative way to produce even more revenue out
of that very strong base of online ticketing, because what you've got is a
case where online ticketing is strong and will continue to grow stronger,
but now we've layered in the city guide business which has huge upside
potential which did not exist with Ticketmaster Online by itself.
Conn: We think that particularly with the sales force that CitySearch has
in these local cities, we may be able to provide tickets for smaller venues
and open up a whole new area of ticketing.
We'd like to think that the combination isn't just divvying up existing ticket
[sales], but has the ability to both sell tickets to audiences that wouldn't
necessarily buy tickets in the past and to provide ticketing services to
venues that wouldn't have used professional ticketing in the past.
About the N2K (NTKI) lawsuit, what's the latest on that?
[Ticketmaster and N2K are embroiled in a legal battle over a distribution
agreement that gave N2K the right to sell CDs off of Ticketmaster's site]
Citron: Oh nothing. It's just in process. Those
things tend to take a while
[Do you expect to announce] Any new
music-retailing partners? It seems like a natural fit.
Citron: Well we found Elvis. He's alive, and we
are going to do business with him.
No, we're talking with all the usual suspects and I
think you will see us do a deal with someone else in
the near future, but again that takes time as well.
We want to do the right deal.
[Most of] CitySearch's revenue is derived by charging businesses
to develop their Web sites. How do those costs compare to other local
advertising methods [available to businesses]?
Conn: Actually, they're really quite favorable. We build Web sites for
these medium-sized businesses. The average Web site is about six or
seven pages, a fully interactive Web site, as opposed to what many
Yellow Pages sites are -- just a scanned-in display ad.
We typically don't charge any set-up fee at all, so we eat all of the set-up
costs to develop a fully customized site, and then we charge a small
monthly fee, an average of about $200 a month. And if you compare that
to the cost of having a site developed by the large-scale developers or
even by mom-and-pop development shops, plus hosting, plus advertising
to drive traffic to the site, it's really favorable.
And if you compare it to the established media, it's also a terrific deal
because we're driving tons of traffic to these businesses. In fact, in most
large-scale metropolitan newspapers, it will cost you $5,000 to put in a
3"x5" ad or slightly larger ad for one day, and that would pay for a
CitySearch site for two years plus.
Despite that, though, churn is probably pretty high. Any numbers
on what kind of turnover rate you guys have?
Conn: We don't actually report numbers on that, but you're right, early
on we did experience high churn and so did everybody else in the
industry, much like the cell phone industry early in its history.
We've seen churn come down substantially and it's making good progress
to our long-term goals. Remember when we first started back in 1995
there wasn't much traffic on the Web at all, only 8 [percent] or 10 percent
of the population was using the Web. Last year we tripled our traffic, so
we're delivering good value to businesses.
Is there a sense that business don't understand the value of the
ads?
Conn: I think that's right, and what's interesting is early on of course
most of the medium-sized business owners weren't on the Web, so they
didn't really have the ability to go in and see their site. And I'm not sure we
did as good a job back then at helping people understand the value
proposition.
You get a fully interactive site, you can commerce-enable the site, it can
be used to communicate with your users, and in addition, we drive
substantial local traffic from relevant consumers who are ready to buy.
I think we're doing a much better job of getting the message out of what
we're bringing.
Let's talk about Wall Street a little bit here. Definitely investors
are willing to look past the near-term losses -- significant huge losses in
the case of CitySearch -- for the potential and the future. What happens if
that investor sentiment changes? In previous manias, investors get
impatient. Do you sense that your strategy would have to change at all?
Conn: It's an interesting question. You're right, we've built our company
at a fortunate time, for raising money for long-term ventures. We really
feel blessed that throughout the 3 1/2 years of our existence, our investors
really have understood the long-term value that we're building.
I think if you look at the history of some other industries that required long
build-outs and really changed the face of communications and media,
investors do show good patience over time. I think you'd find that in the
early days of radio and television, and much more recently, you'd find it in
investors' willingness plays like cable television, which have held their
value over time.
I think we will see investor sentiment rise and fall, [but] we're pretty
confident that at this point of time, that we've demonstrated an ability to
build an audience, which is a critical thing, and to build a revenue base. So
we're confident about our future.
Can you give me a sense of how quickly you expect to expand
your network?
Conn: It's always hard to give forward-looking statements about
growth. You know we've been expanding at a pretty good clip up 'til now.
We now have more complete funding via the IPO, so we expect to
expand our number of cities more quickly. I believe the analyst models
have an additional 10 owned-and-operated cities in 1999, and an
additional three or four partner-led cities, and we hope to do at least as
well as that.
Internationally, what are the specific challenges there?
Conn: Internationally, we work with established media companies
exclusively. We don't have any owned-and-operated city guides, partly
because we don't want to stretch our capital and management too far, and
partly because there's higher media company concentration in those
places.
I would say the challenges are two-fold: First of all, is language, and we
managed to crack that with our Stockholm and Copenhagen sites, and
second, just the differences in time and local behavior. We're very
encouraged by additional sites in Europe, Canada, and we hope, sort of
the last frontier, in Asia.
Darren Chervitz is the IPO reporter for CBS MarketWatch.
|
