WILL MAJOR MEDIA TYCOONS WARM UP TO LYCOS?
Last week I pointed out that a variety of recent deals (most notably
theglobe.com/Azazz.com and Alta Vista/Shopping.com) suggest the emergence
of a trend among second-tier portals toward embracing e-commerce and
becoming online merchants.
While it remains to be seen whether or not these two portals will be able
to pull it off, as the second-tier players combat slipping into obscurity,
neither of them has much to lose.
I simultaneously asked whether first-tier players like Yahoo!, Excite and
Lycos would be forced to take this same path and acquire e-commerce sites.
Less than a week later, I have my answer.
Barry Diller's USA Networks and Lycos announced on Monday that they plan to
merge in a complicated deal valued at approximately $22 billion. The newly
combined company will fold USA properties The Home Shopping Network, First
Auction, Ticketmaster and Ticketmaster Online-CitySearch into the existing
Lycos Network of sites.
Content + e-commerce has arrived. As Barry Diller put it, "I think we are
at a period of new convergence, and the new convergence is about
information, entertainment, and direct selling."
WILL UNIVERSAL STEP UP TO THE PLATE?
One major question remains. What will USA Networks' investors - Seagram,
Paul Allen and Liberty Media - bring to this deal? They have ostensibly
approved of the merger announcement, but will they step forward with
significant promotional support for the new Lycos/USA Networks?
Seagram controls 92% of Universal Studios - including theme parks, filmed
entertainment and music (Polygram). These relationships could afford
Lycos/USA Networks highly valuable cross-media tie-in's if Seagram CEO
Edgar Bronfman decides to play ball. If you thought Lycos CEO Bob Davis
was salivating about the prospects of TV promotion for Lycos on USA
Network, The Sci-Fi Channel and HSN, then imagine the cartwheels he is
doing to get Bronfman gung-ho about the Net.
WILL MALONE GET INVOLVED?
Liberty Media is the programming arm of cable giant TCI and has stakes in
roughly 100 channels. These channels include CNN, TNT, QVC, E! and
Discovery Channel among others. Will cable industry legend and Liberty
Media chairman John Malone (who joined the USA Networks board last year)
step forward to promote Lycos? Or, since TCI is a controlling shareholder
in @Home - new parent to competing portal site Excite - will Malone stick
to the sidelines?
A number of such significant questions swirling in the wake of this deal
remain unanswered.
WHERE DOES PAUL ALLEN FIT INTO THE MIX?
Paul Allen, the well-known technology venture investor and Microsoft
co-founder, is also a major shareholder in USA Networks. In May of 1997,
Allen sold a large portion of his stake in Ticketmaster to Diller's HSN.
Allen's remaining stake has since been converted into shares of USA
Networks stock and he currently serves on USA Networks' board of directors.
William Savoy, President of Allen's Vulcan Northwest venture capital firm,
is also a USA Networks board member.
What can Allen offer Lycos/USA Networks? Plenty. Allen is owner of both The
Portland Trailblazers and The Seattle Seahawks. Why not tie-in Lycos
promotional giveaways with these sporting events? Allen also has stakes in
Internet-related companies like Egghead.com, Beyond.com, Priceline.com,
ZDTV, Value America, CNET and Liquid Audio. He is also one of the original
investors in Dreamworks SKG, the multifaceted entertainment studio started
by entertainment heavyweights Steven Spielberg and David Geffen. Could this
Dreamworks relationship provide Lycos with still more TV and big screen
exposure?
More importantly, Allen became one of the largest cable operators in the
country via last year's acquisitions of Marcus Cable and Charter
Communications. He is now moving aggressively to offer high-speed Internet
services to his customers. Could Lycos become the default broadband portal
for Allen's cable holdings - as Excite is for @home?
It's too early to tell how it will all play out, but Allen holds the cards
that could give Lycos the winning hand.
A WRENCH IN DILLER'S DEAL?
There remains the possibility that Lycos' largest shareholder, Internet
venture capital firm CMGI (holding approximately 20%), will decide not to
vote in favor of the merger, as reported by numerous media outlets earlier
this week.
That scenario seems unlikely, however. I believe some version of this
merger will eventually go through even if major Lycos shareholders like
CMGI successfully push for a restructuring of the deal.
Will Diller bend or break on his original terms? Stay tuned.
REMAING PORTALS: INDEPENDENT AND SITTING PRETTY?
With the recent mergers of portals, online communities and media companies,
one would assume that the remaining private portals would be hot to cut
deals with major media companies. But this is not necessarily the case for
closely-held search engine LookSmart.
According to Media Metrix, LookSmart was the 21st most visited Web property
in December, 1998, with over 5.4 million unique visitors. The company's
CEO, Evan Thornley, however, told me yesterday that he doesn't feel the
urge to merge. Thornley stated that he is busy building a business and
added that he is much more interested in creating a dominant
media/e-commerce franchise than some "combination that would do well on
Wall Street this week."
"Like most commentary on this industry, everyone is focused 95% on the
strategy and the 'story' and very little on the execution. I think some of
these combinations have the potential to be very powerful, but that's only
potential. The real question," he noted, "is can they execute?"
A good question indeed.
While Thornley seems content with his company's independence, he was loathe
to close the door on acquisition.
"Our job is to build a great media company. If people think it's worth more
to them, we'll talk to them."
The dance between offline media companies and the remaining portals
continues.
Note: In the interest of full disclosure, CMGI is an investor in Raging
Bull, Inc.
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