New-media inroads too risky to bypass

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CHICAGO -- As an eventful year draws to a close, there are troubling signs that some media companies are settling into an artificial status quo and abated entrepreneurial risk-taking that could take the edge off of digital broadband growth. There are a handful of potential deals on the horizon that would dramatically reshape the industry landscape in 2007.

For instance, Peter Chernin, News Corp.'s president and chief operating officer, last week confirmed that its Fox Interactive Media unit will focus more on operations than on additional deals like its successful acquisition of MySpace. That shift in thinking resulted in the recent departure of FIM executive officer Ross Levinsohn, who brainstormed the MySpace deal and maintains that such bold investments must prevail if traditional media companies want to realize extraordinary growth in such emerging new fields as social networking and user-generated content. Had he stayed at FIM, Levinsohn likely would have streamlined production processes and solidified content assets to strengthen profit margins while reinvesting in more startups and new-media ventures.

The concern shared by Levinsohn and other new-media executives between jobs -- including former AOL chief executive Jonathan Miller and outgoing Yahoo! chief operating officer Dan Rosensweig -- is that without such healthy reinvestment and innovation, there will be a dearth of next-level media developments and revenue streams in 18-24 months. Sources say FIM will generate its first $100 million in profit in fiscal-year 2007 on revenue of about $600 million, $250 million of which will be generated by the advertising relationship between MySpace and Google. But no one is sure what's next there.

"In the Internet, more than any other media business, it's all about risk-taking," Levinsohn said in an interview. "And when you kill that spirit, you lose your strategic focus, and that can lead to product degradation and the inability to attract the best minds."

Such are the challenges confronting Yahoo! where another disconcerting trend is evident: the lack of progress and clear focus that results from placing traditional media executives, with their conservative ways and limited visions, in charge of new-media properties and growth plans.

Yahoo! is desperately playing catch-up and headed for the all-encompassing, numbers-crunching leadership of its longtime chief financial officer, Susan Decker. As has been the case with private equity's growing media backing, bottom-line considerations most likely will prevail at Yahoo! over the innovation and risk investments that are necessary catalysts for above-average economic and intellectual growth in the new-media age.

Certainly traditional and Internet-related media concerns have not become so copacetic that their executives and processes are interchangeable. Still, NBC Universal veteran Randy Falco recently was named to succeed Miller as CEO of Time Warner's chronically restructuring AOL unit with the intent of bolstering the search engine's reliance on advertising revenue. But the sale processes, metrics, values and other considerations of online advertising are nothing like those of conventional television, where Falco has spent his entire career. Some on Wall Street surmise that AOL is being prepared for a spinoff or sale, which would leave Time Warner with publicly traded cable systems as well as publishing, film and television content operations.

As with so many media companies striving to balance the loss of traditional ad revenue and the growth of new-media ad revenue, corporate fortunes will hinge on their ability to redefine the value, creativity and pricing of advertising, content and services across all media outlets. Until then, there is no sure, safe media haven.

"Safe is a mistake. You cannot grow without taking some risks," said Levinsohn, who is exploring opportunities in private equity, capital ventures and other media companies. "Program hits make television networks sedate, and they lose their edge and boldness. The minute broadcast and cable networks get conservative, You-Tube pops up as a competitor. The minute AOL and Yahoo! get conservative, Google pops up.

"We all were bold risk-takers two years ago, and now we're getting safe again ... and in the Internet business, getting safe spells disaster," said Levinsohn, whose background includes time at CBS SportsLine and Alta Vista. "A year from now, all bets are off."

The reasons for that are many. A number of executives now overseeing new-media and Internet ventures are still on a steep learning curve, having spent most of their careers in traditional media. Not surprisingly, the industry has been dangerously slow to develop new, more accurate and appropriate expectations and metrics for the interactive broadcast digital fare that are needed to solidify the corresponding economics.

While CBS has hired former Allen & Co. executive Quincy Smith to spearhead its new-media acquisitions -- the significance of which lies in how they interface with its core, challenged broadcast and cable TV businesses -- Viacom has made a slew of secondary Internet acquisitions, many of which remain a mystery. NBC Universal appears to be gearing up for a major relaunch of iVillage as a new-media/old-media hybrid across multiple content and commerce platforms.

Whether News Corp. executes any of the remaining, smaller new-media incremental revenue deals Levinsohn cued up before leaving will signal the company's short-term entrepreneurial intentions. Some insiders contend that once News Corp. completes the buyback of its shares held by Liberty Media, Rupert Murdoch will pursue one of his long-contemplated moves: to acquire Dow Jones and its Wall Street Journal in a throwback to his newspaper beginnings.

Other deals could emerge next year given the abundance of marketplace deal financing, consolidation and technology-driven competition. For instance:

--_Yahoo! chief Terry Semel likely will retire as part of a merger between Yahoo! and most likely eBay, which would be a commercial boon to the Internet. Comcast, Yahoo! and Google are among the media companies that can make big-ticket acquisitions at will.

--_Flush with free cash flow and recently acquired wireless spectrum, Comcast Corp. could heighten its local-service orientation by acquiring the likes of Barry Diller's InterActiveCorp's portfolio of high-profile Web sites such as CitySearch.com, Expedia.com and the soon-to-relaunch Ask.com.

--_Well-funded private equity firms could acquire such stellar media as Time Warner's magazine and publishing assets while continuing to ravage the industry with cost cuts and restructuring.

--_CBS Corp. and other tightly focused media concerns may seek to go private.

--_Microsoft could buy AOL to fortify its MSN platform and provide additional content in its emerging home hub wars with the likes of Apple, Sony and Intel.

--_In keeping with its mandated role as a purveyor and manager of the world's information, cash-rich Google could bid for the New York Times Co. as it strives to become the universal gatekeeper for all forms of advertising.

The operative words for global media will continue to be search, personalization, portability and storage across still more new platforms and devices, highlighted by the long-anticipated launch of the Apple iPod phone early next year and the continued world dominance of digital cell phones as the definitive third screen.

With so much in flux, it is impossible to conceive of anyone in media hoping to maintain the so-called status quo. That said, the biggest risk might be media companies talking a better story than they actually deliver, or opting to do too little to reinvent themselves and their business for a future that has already arrived.
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