Posted at 2:16 p.m. PDT Sunday, April 4, 1999
Does AOL want to buy CBS?
BY CHRIS NOLAN
Mercury News Staff Writer
Is America Online going to buy CBS?
Some say yes, some say no. But a few -- looking at the talks the
two companies have been having and considering the high price
of entering the online media business -- say it's inevitable. CBS,
which is only a broadcast network, is getting outpaced in the
news, information and entertainment businesses by rivals who
have toes in the cable, Internet and movie businesses.
But just the idea that the Tiffany network -- once home to
broadcast journalism's patron saint Edward R. Murrow -- could
become part of the service that hosted Matt Drudge says
volumes about the triumph of new, interactive media.
The deal is certainly possible. With a market cap of just over $28
billion, CBS could easily be swallowed by AOL, particularly if
AOL, which has a market cap of about $150 billion, pays in
stock. Would CBS Corp. President and Chief Executive Mel
Karmazin accept stock? Probably not, says a source who is
familiar with the talks that CBS and AOL have been conducting
over the past year.
''It feels like one of those cosmetic deals,'' he said, arguing that
the deal is much more likely to end up as a press-release
partnership than an outright purchase. Spokespeople at AOL and
CBS declined to comment.
The companies already have a pretty close relationship. In
January, they announced a deal where CBS News would supply
AOL sites. AOL promoted CBS's fall line-up last year and both
sides of that deal credit the online ads with boosting CBS's
ratings.
An even closer relationship makes sense, for all sorts of
reasons.
And there's little question within CBS that the broadcaster will be
sold within the year. The question is, who will buy it? Under U.S.
law, CBS can't become the property of another broadcaster. And
the well-publicized talks between CBS and Time Warner Inc.
over the sale of CBS News apparently have fallen apart. ''Mel
has decided that's not the way to go,'' said one person familiar
with CBS's thinking.
Karmazin has also said he does not want the company to miss
out on the Internet the way it missed the growth of cable
television. But CBS can't afford to buy its way into the Internet
space. Its competitors, meanwhile, are already there: NBC, of
course, has a partnership with Microsoft. ABC is owned by Walt
Disney Co. and is part of Disney's Go Network.
AOL wants to compete with all these businesses, too. But it also
has to keep an eye on the business it's in -- and how it's
positioned there. Yahoo has bought Broadcast.com, a deal that
many think will give the Internet portal a way to provide
high-speed access. @Home, of course, has high-speed access
and plenty of friends in the cable television business. If AOL were
to buy CBS, it would get some prime celestial real estate owned
and operated by the network's radio and television stations.
CBS owns and operates 14 TV stations in most of the nation's
largest TV markets. It owns 160 radio stations. The networks
broadcast with analog technology, but those days are ending.
The use of digital techniques to carry television and radio signals
is seen by many broadcasters as a way to expand what they can
do with their airwaves. That could easily mean that stations start
to carry TCP/IP signals within their broadcast signals -- meaning
an AOL-owned CBS could send Internet content directly to your
house. And cable operators are required to carry TV
broadcasters' signals to all of their subscribers. It might not be
the highest speed possible, but it would be direct access to
customers.
But just as there are many who say this deal will happen, there
are those who say the companies are just not compatible. ''The
shareholders who own CBS are different from the shareholders
who own AOL,'' said the source who had heard about the talks
between the two.
Yes, but everybody likes making money, don't they? And with
falling viewership -- many of whom are leaving for online sources
of information and entertainment -- network TV isn't the cash
cow it used to be.
Posted at 7:33 a.m. PST Friday, April 2, 1999
Why AOL is world's most
valuable media company
BY RICHARD WATERS
The Financial Times
NEW YORK -- America Online is now worth more than Walt
Disney, Viacom and CBS combined, according to investors
who have driven the company's stock market value up by $62
billion in just four weeks.
The latest rally in the shares of this online media and
entertainment company has put even its own, earlier stellar performance in the shade.
However, the company's emergence as the most valuable media and entertainment
company in the world -- a mantle it took on earlier this year -- owes more to stock market
enthusiasm for the Internet in general than excitement over AOL's own prospects, according
to Wall Street analysts.
The latest bout of enthusiasm for AOL has lifted its market capitalization to about $140
billion, compared with the $66 billion value placed on Walt Disney, the $35 billion of Viacom
and the $30 billion of CBS. A stock market reassessment of Time Warner over the past six
months has driven that company's value up by 75 percent, to $87 billion.
The latest stampede into AOL's stock reflects an attempt by many institutional investors,
who missed out on the stock market's first big Internet wave at the turn of the year, to make
up for lost time.
Many investors have now given up trying to put a value on Internet stocks and have decided
that they cannot afford to be left out of an industry that has such huge potential, said Abhi
Gami, an Internet analyst at brokerage William Blair.
That has created massive demand for AOL, which is rare among Internet companies in
having a large enough ''float'' of shares trading on the stock market for big investors to
accumulate the positions they want, he said.
With 16 million subscribers and revenues that are expected to top $4 billion this year, AOL is
one of the few pure online companies to produce a profit, earning $134 million last year.
However, its earnings are dwarfed by the combined revenues of $45 billion and earnings of
$2.5 billion that Disney, Viacom and CBS are expected to produce this year. |
