Tuesday July 27, 6:18 pm Eastern Time
Broadcast.com Founder Weighs Future
By DAVID KOENIG
AP Business Writer
DALLAS (AP) -- It took the Gulf War to make CNN famous. For broadcast.com (BCST - news), its first million-hit audience was President Clinton's grand jury testimony about Monica Lewinsky.
The hits have just kept coming for the Internet broadcaster -- sporting events, a lingerie fashion show, an American hero's return to space.
But even more significant, in the view of broadcast.com co-founder and chief executive Todd Wagner, was an event that wasn't hyped on the Internet: a parade for last year's World Series champion New York Yankees.
Despite the last-minute production -- the company wasn't sure it would be able to transmit the pictures until an hour before the parade -- the event still drew 100,000 hits.
''It told me, behavior modification,'' Wagner said. ''People are coming, they're looking for something and finding it. ... People started realizing, 'Wow, there's cool stuff there every day.'''
Wagner's ''behavior modification'' could be just another term for brand loyalty. Wagner said he considers it is a force that already is taking hold on the Internet and will frustrate latecomers -- even those with deep pockets.
''This industry is a dead-out sprint to get there first,'' Wagner said. ''Look at all the companies that sat back and were patient. Look at how expensive it has become to get market share on the Internet. Look at most of the leaders now; they were the ones that got there first.''
Of course, Wagner, 38, and his partner, Mark Cuban, 40, have reason to gloat a little. What started in 1995 -- with $4,000 in equipment in Cuban's spare bedroom -- as a way for the two Indiana University graduates to hear Hoosiers basketball games from Dallas, the company now operates out of a 28,000-square-foot converted warehouse equipped with satellite dishes that pull in TV and radio signals from around the world.
Wagner and Cuban sold $30,000 shares in the company themselves until finding a private underwriter and trading equity to Motorola, Intel (Nasdaq:INTC - news), Yahoo! and other partners. When the company went public last July, Wall Street went wild. From an opening price of $18 a share, the stock shot to $72 before closing its first day at $62.75.
''They had the perfect Internet IPO,'' said Gail Bronson, senior analyst with IPO Monitor, an online tracking service for new stocks. ''They had a good name, they were first to the market, and they had a very engaging, novel technology that was going to offer a solution to a perceived need in the marketplace.''
Ms. Bronson said the company also had strong underwriters and management with good marketing skills.
''Mark Cuban is a very engaging speaker and very good salesman,'' she said.
Earlier this year, the stock price began climbing again, and went over the $100 mark after reports circulated that the company would be bought by Yahoo! Inc. [Nasdaq:YHOO - news], based in Santa Clara, Calif.
In April, Cuban and Wagner agreed to sell to Yahoo in a deal then valued at $5.7 billion. But that was nearly four months ago, and a slump in Yahoo's stock has driven the value of the deal down to about $4.2 billion. (Shares in broadcast.com are currently trading at about $110)
Wagner insists he's not losing sleep over the deal's declining worth or the possibility of it unraveling.
''The market is out of our control and out of our hands,'' he said in an interview at a Dallas country club. ''We don't pay much attention to that.''
While Yahoo's share price sinks, broadcast.com has yet to earn a nickel. After losing $14.9 million last year, the company posted a $3.8 million loss (11 cents per share) on revenue of $10.3 million in the first quarter of 1999. Revenue is growing but not as quickly as costs, mostly for marketing.
Wagner declined to predict when the company will turn a profit. But he noted that analysts suggest it will happen in 2000.
Dressed in a navy suit, red tie and starched white shirt, Wagner looks more like a young law firm associate -- which he used to be -- than an Internet pioneer.
Cuban, who founded and led technology companies before broadcast.com, is usually portrayed as the technical and marketing genius, Wagner as the money guy. Wagner hesitated when asked if that characterization flattered or offended him.
''We're two different people,'' he said. ''My background was obviously going to be more appropriate to be doing deals, and Mark's background was going to be a lot more appropriate to worry about the technology.''
Today, broadcast.com carries about 400 radio stations, 55 television and cable systems, and exclusive deals with the National Hockey League, Major League Baseball and the largest 100 companies on the Nasdaq stock market.
The deal with Nasdaq says something else about broadcast.com: Although the grunts and glitz of sports and lingerie shows draw attention, the company makes most of its money on business teleconferencing.
Wagner and Cuban pitch CEOs this way: Why spend big bucks flying people to meetings or paying for expensive satellite time and equipment when you can broadcast a speech or meeting to workers at their desktops?
Wagner insists that broadcast.com won't change even after it becomes Yahoo Broadcast Services, likely in August. He promises that the company will stick to ''the things that got us here and that we do well.''
In its last big acquisition before broadcast.com, Yahoo laid off two-thirds of the work force at GeoCities (GCTY - news) and moved its headquarters to Yahoo's home in Santa Clara, Calif. Wagner predicted that won't happen to his company, which has more than 300 employees.
Layoffs ''are not contemplated in this transaction,'' he said. ''We'll run as a separate division within Yahoo. We will continue to grow here in Dallas.''
Analysts such as Daniel King of LaSalle Street Capital Markets in Chicago say the deal is a good fit.
''Broadcast.com has a great deal of content but they really need a lot more traffic to grow their client base,'' King said.
Wagner sees growth in the Internet dependent on making the medium more interactive, personal and useful. He predicted that people will pay to get Web sites without advertising and even pay per-view, although broadcast.com has mostly steered clear of that format because it would have to refund customers who caught a poor signal or none at all.
The Internet will change radically in the next few years as wireless and faster broadband connections spread and as people surf the Web with televisions and other appliances -- breaking the tether that ties the Internet to desktop PCs. Wagner said better technology will replace today's jerky, grainy Internet video with high-definition pictures.
So far, 1998 and 1999 have been as good as it gets in the careers of Cuban and Wagner. July 17 marked the first anniversary of the IPO that made them very rich.
''That was a very great day, no question,'' he said with a laugh.
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