9-29-2000 Take Two....
MEDIA / ENTERTAINMENT
Take two
Friday, Sep. 29, 2000 11:29 PDT
By Margaret Boles, America-iNvest.com
As analysts continue to focus on the path to profitability of Internet companies, consolidation and reorganization have become commonplace. This is especially true among the online operations of traditional media companies as they attempt to survive in the competitive world of cyberspace.
On Wednesday, Viacom Inc. (VIA) owned MTVi Group laid off 25% of its
work force in an attempt to streamline its operations and reduce costs. In addition, MTVi postponed plans to take the company public until market conditions improve.
As MTVi steps aside to revamp the company, Walt Disney Internet Group (DIG) and NBC Internet (NBCI) are both on round two in their attempts to succeed in the dot-com market. Shares of Disney-Internet, formerly Go.com, and NBCi have fallen 70% and 94%, respectively, from their January highs.
Although re-launching at virtually the same time, the companies are taking different approaches this round. NBCi will attempt, again, to go head-to-head with portal favorites Yahoo Inc. (YHOO) and America Online (AOL). Disney hopes to separate itself from the competition by integrating the company's core brands and strengths into its Go.com site.
Although both companies face a bumpy road in the near future, analysts have more confidence in Disney’s ability to prove financially viable in the long term.
Sticking with what they know
Disney’s Internet arm, Walt Disney Internet Group (WDIG) originally launched its Go.com site in January 1999 after acquiring the search engine Infoseek. By early 2000, Go.com had succumbed to the intense Internet competition, and Disney abandoned its plan to make the site a rival to AOL and Yahoo as a general search engine.
While WDIG’s new Go.com site, unveiled earlier this month, will still offer general search engine capabilities, it hopes to separate itself from the competition by specializing in the entertainment and lifestyle areas in which Disney excels. The site will play a lesser role among the WDIG properties, acting more like a sibling than parent to the company’s more successful sites such as ESPN.com and ABC.com.
In addition to numerous visual and aesthetic changes on the site, users can look forward to a significantly different search-results page. Instead of displaying random results from the Web, the new page will give priority to sites that have been rated by a peer panel, known as ``Go Guides.''
By combining guidance with content, analysts believe WDIG will be able to separate itself from competitors who offer only single-dimension search utilities.
“The new Go portal is a smart, pertinent blend of an Internet directory and search engine,” said Hibernia Southcoast Capital analyst Daniel Davila. “It accomplishes what WDIG set out to do: filtering the seemingly boundless Internet, so users spend less time in the frustrating search for useful information and more time engaged with Disney content.” Davila rates the company as a strong buy with a $45 price target.
In an effort to make the site profitable, Go.com hopes to bring in more ad revenue from its “Big Impression” ad space. Debuting on ESPN.com, the ad space is 30% bigger than the traditional banner ad and will appear in the upper right hand corner of the screen for the entire day, ensuring that every user that day sees it. Flash and blue-streak technology gives advertisers the ability to create more robust marketing campaigns online.
WDIG will sell the space for a daily rate of $87,000. Seagram (VO) owned Universal Studios has already purchased the ad space during the 2001 NFL Super Bowl and will use it to stream video clips of upcoming movies.
(DIG)
In addition to Go.com, WDIG plans to launch an auction site in conjunction with eBay Inc. (EBAY), where collectors will be able to bid on memorabilia and authenticated merchandise. Company executives said they already have 90,000 items ready to be auctioned that are expected to sell for tens of thousands of dollars. Analysts say that the arrangement demonstrates management’s flexibility in developing strategic partnerships where it makes sense, as opposed to developing all from within.
According to PaineWebber analyst Christopher Dixon, “Investing in WDIG represents, first, a way to participate in the rapid development of the Internet as a primary medium to obtain information and entertainment and, second, a way to participate in the Internet properties associated with the Walt Disney Co. (DIS) and its various divisions.” Dixon gives WDIG a buy rating with a price target of $28.
ABN Amro also rates it as a buy, but with a $31 target price: “WDIG has entered the beginning of a major upgrade cycle for its online properties, with its huge promotional campaign starting this fall. While WDIG is already a leader in all of its core categories, the improvements in the site should boost audience metrics and make the site more attractive to advertisers.”
Shares of WDIG were at 10 13/16 in Friday trading, down 3.6%.
Head-to-head with the big guys
The re-launch of NBCi.com comes less than a year after the company was formed. The new NBCi is the consolidation of the company’s consumer Internet sites, such as Snap.com and Xoom.com. With a $55 million advertising campaign, beginning during the Olympics, NBCi hopes it can avoid disaster the second time around.
The huge ad campaign is funded by General Electric (GE) owned NBC, which holds a 47% stake in its Web operation. NBCi has a total of $327 million in advertising credits on NBC properties that it will use to market itself on NBC, MSNBC, CNBC and local NBC TV stations.
Over the past year, NBCi has made several acquisitions to enhance the technology, products and services it can offer its users. Many of these will now be available in the new format of the site. For example, NBCi has introduced a “Personal Agent” that is designed to guide users through the site.
Other forms of technology NBCi has incorporated into the site will help the company leverage user data to broker information between its consumers and marketing partners.
In an effort to jump-start page views, NBCi has partnered with Montgomery Ward. The retailer will distribute 1 million CD-ROMs offering free Internet access through NBCi to store cardholders and walk-in customers. NBCi executives said this is the first of many strategic partnerships scheduled for this fall.
Although NBCi appears to be stronger and more organized for its second launch, investors need to be prepared for the rough road ahead.
Path to profitability
(NBCI)
Because of the significant challenges NBCi faces, investors need to keep in mind that there is no prospect for near-term profitability, according to ABN Amro analyst Arthur Newman, who rates NBCi a hold. “NBCi needs to significantly increase its 'stickiness,'" said Newman. “Among the major portals, NBCi has one of the lowest levels of usage, averaging only 17.6 minutes per unique visitor in July 2000, while Disney Internet Group averaged 33.7 minutes, and Yahoo averaged 119.9 minutes.
During August 2000, NBCi generated 4.3 million hours of usage, but DIG generated three times that amount and Yahoo 24 times more. “While NBCi is valued at a sharp discount to the group, investors will be cautious, adopting a wait-and-see attitude rather than risk getting involved too early in the turnaround attempt, particularly given the overall weakness in the sector,” Newman said.
The company gets an intermediate-term market performer and a long-term outperformer rating from Gruntal & Co. analyst Catherine Skelly. “NBCi has approximately $300 million in cash and an additional $350 million in NBC promotional credits,” said Skelly. “We expect the company to turn cash flow positive in 2002." Target prices were reduced to $8 and $10 from $15 and $20, respectively.
BlueStone Capital analyst Kathleen Heaney maintains a positive long-term outlook for NBCi based on the company’s early focus on incorporating broadband into the site and the “power of the peacock.” “NBCi is well-positioned with a large user base and powerful brand equity.” Heaney gives the stock 2/1 rating as a market perform/outperform.
NBCi shares were at 6 25/32 in Friday trading, down 6%.
Questions remain whether Disney and NBC can successfully (and profitably) bring their brands onto the Net. However, analysts believe that in this battle of the media titans, the Magic Kingdom may be your better bet.
Margaret Boles is a staff writer for America-iNvest.com
The above statements are an editorial from the contributing writer and do not necessarily constitute the opinions of America-iNvest.com, its officers, directors, or employees. For more information, please view our Site Disclaimer and terms of use. |
