Yahoo! Holds Talks on Acquiring Broadcast.com, Boosting Its Shares
By KARA SWISHER and EVAN RAMSTAD
Staff Reporters of THE WALL STREET JOURNAL
Yahoo! Inc. has been in talks for a week to acquire Broadcast.com Inc.,
raising the possibility of a stock swap that could quicken the pace of audio
and video usage on the Web.
Shares of Broadcast.com, a Dallas-based
Internet broadcaster, surged 37% Monday
amid speculation about just such a deal. The
online edition of Business Week magazine reported Friday that the two
companies were negotiating. Broadcast.com's stock closed up $31.50, at
$116.50, on the Nasdaq Stock Market, while Yahoo shares declined $5
to $165.
The stock jump boosted Broadcast.com's market value to about $4
billion. Even before that rise, people familiar with the matter said that
Yahoo had internally discussed offering between $110 and $120 a share
for Broadcast.com. They added, however, that Yahoo might not be willing
to pay much more, noting that the deal faces other hurdles and could take
as long as two weeks to negotiate in any event.
Both companies declined to comment Monday. But Yahoo, which has
grown from an Internet directory into a broad portal for information and
commerce, has become increasingly eager to solidify its position on the
Internet as powerful competitors begin to consolidate and launch
challenges. People close to the situation said Yahoo, based in Santa Clara,
Calif., is "serious" about a deal -- which is being spearheaded by Yahoo
co-founder Jerry Yang and President Jeff Mallett -- in order to further
extend its network of branded media sites.
Need for Partners
Another motivation is the need to line up partners as high-speed interactive
services -- which include audio, video and other multimedia data --
become a reality. Internet, telephone and cable-TV companies are all
racing to offer such services to a wider audience. Yahoo's marketing
muscle could accelerate acceptance of services pioneered by
Broadcast.com, which uses the Internet to relay audio and video
programming from radio stations, sporting events and corporate meetings.
"They [Yahoo] are seeing the world line up and they don't want to be
standing in place with their hands at their sides," said one person familiar
with their thinking. "This is the time to move for them."
But the people familiar with the talks said stumbling blocks include worry
by Yahoo -- which has largely been profitable -- that the money-losing
Broadcast.com would dilute earnings, high costs of expanding the Internet
broadcast business and the potential for competing bids that could drive
the price too high.
Yahoo executives also have to complete a pending acquisition of
GeoCities Inc., a community of Internet sites that Yahoo agreed to buy this
year in a stock swap currently valued at about $4.5 billion. Yahoo
executives want to close that transaction before the end of its current fiscal
quarter, in late May, so it can consolidate financials with GeoCities.
Until the GeoCities deal, Yahoo has been regarded as being a cautious
deal maker, and had considered some acquisition opportunities that
ultimately went to other companies. Recently, longtime rival Excite Inc.
agreed to be purchased by high-speed cable access service At Home
Corp. and America Online Inc. bought Netscape Communications Corp.
Because of them and the broader industry trends toward consolidation,
Yahoo has begun to be more aggressive, including making a high-priced
bid for GeoCities to freeze other suitors out. Yahoo has also been striking
distribution deals with computer makers and is in talks with cable and
other communications companies about partnerships. In addition, Yahoo is
attempting to improve its service, developing a "Yahoo Turbo" service for
high-speed users, as well as broadening programming in other ways in
order to keep users on its site longer. Yahoo then leverages that audience
into higher advertising and transactional revenues.
Rival Bids Possible
Adding features from Broadcast.com could help it further, though larger
companies like Microsoft Corp. and AOL are considered possible
alternative bidders for the company. But some industry executives think
Yahoo might have an edge, because it has an existing relationship with
Broadcast.com similar to one it had with GeoCities. More than a year ago,
Yahoo signed a distribution deal with Broadcast.com and took a minority
position in the company, then called AudioNet, for $1,350,000.
Broadcast.com went public in July and its shares have tripled since then.
They rose again last week on comments by Broadcast.com President
Mark Cuban at an industry conference in Austin, Texas, predicting bullish
future growth of streaming audio and video.
But the company has sustained only losses in its efforts so far, including a
1998 loss of $14.9 million on revenue of $22.4 million. It derives about
two-thirds of its revenue from business services, such as hosting a video
conference of a company's sales meeting over the Internet.
The company started in 1995 when Todd Wagner, an attorney, and Mr.
Cuban, a computer-networking executive, learned about RealNetworks
Inc.'s software for transmitting audio signals over the Internet. They
decided they would help radio stations put their broadcasts online, initially
trading their service to radio stations for the right to sell a few minutes of
on-air advertising a day. Web banner ads later supplemented their
revenue.
By the time the company went public in July, it had signed up more than
300 radio stations and locked in exclusive contracts to transmit most major
college athletic events along with several pro sports. Even then, however,
Broadcast.com's business services were beginning to surge as
corporations recognized they could save thousands of dollars by holding a
meeting via an Internet audio conference rather than a phone-company
conference call.
Broadcast.com continued to explore new services, including the
transmission of movies straight from a Hollywood studio through an
agreement last month with Trimark Holdings Inc., a Santa Monica, Calif.,
film producer. Broadcast.com also recently garnered a lot of media
attention from its Web broadcast of lingerie retailer Victoria's Secret's
fashion show. Broadcast.com is currently ranked 14th by Media Metrix of
all Web networks, with 8.9 million visitors, while the Yahoo network ranks
No. 2, with 31.1 million.
-- Nick Wingfield of The Wall Street Journal Interactive Edition
contributed to this article. |
