Ads To Drive Internet

Internet conference began sounding like ad conference as new media companies tried to convince analysts at PaineWebber gathering in N.Y.C. that ad money would make them lucrative -- and soon. Most companies gave deadlines (usually 1-2 years down road) to start showing positive cash flow, and ad revenue from increasingly targeted spots accounted for lion's share of optimism. Women.com CEO Marleen McDaniel said her site now projects mature balance sheet will show 80% of revenue from ads.

Excite@Home CEO George Bell demonstrated new ad customization program that doesn't just target ads to customers, it creates new ones for them, changing images, colors and ad copy. Technology will appear in company's new broadband portal, which Bell said will launch this month. Within 3-4 years, he said, high-speed services will face same price wars as dial-up services, so broadband must have ad revenue lined up to replace monthly fees.

New ad delivery technologies created for Internet will have applications across media and telecom worlds, several speakers said. David Moore, CEO of ad network 24/7 Media, said cable and especially video-on-demand will be ideal platforms for targeted ads.

Internet holding company CMGI is "getting focused on wireless and broadband," and wireless is pulling away to become leading market for new Internet ventures, said Exec. Vp-Corp. Strategy Hans Hawrysz. Whereas last year most business plans presented to him dealt with broadband content, "wireless has clearly taken over," he said. Hawrysz said his company's MyWay subsidiary will launch wireless content venture with BellSouth, which owns 10% of MyWay, in "middle of this month." He said CMGI is talking to all major wireless manufacturers and carriers and "you can expect in the next 3 months a number of announcements."

He said ad-supported media "will be true global phenomenon" in next few years, repeating predictions other companies made day before. Internet now has "11% of eyeball time and 2% of the ad dollars," he said. "That's an arbitrage opportunity." Hawrysz said CMGI "will be taking a stronger position in the next couple of months" on why privacy regulations shouldn't be allowed to kill targeted ads, although he said CMGI has better record than many other companies, with most of its information-gathering on opt-in basis. So far, company has been working behind scenes on issue, talking with privacy advocates and industry councils working on standards, Hawrsyz said.

Tribune Co. said it will be lead investor in iBlast Networks, which will aggregate broadcasters' DTV spectrum for use nationwide. L.A.-based iBlast plans to use portion of stations' DTV spectrum to deliver broadband video, data and other services to consumer PCs. iBlast said it already has spectrum agreements with 143 local TV stations in 102 markets, covering more than 80% of U.S. households. Service is to launch in early 2001. Other iBlast investors include Cox, Gannett, Lee Enterprises, Media General, Meredith, McGraw-Hill, N.Y. Times, Northwest, Post- Newsweek, E.W. Scripps, Smith Bcstg. Post Newsweek Stations Pres. Alan Frank said iBlast is "a very significant, significant development... [It's] one specific answer about what to do with the digital spectrum. A number of companies worked very hard to make it happen." iBlast said even "aggressive" estimates indicate only 1/6 of Internet users will have broadband access by 2002, leaving opportunity for its broadcast broadband service.

In wake of Tex. Gov. George W. Bush's overwhelming victory in Republican Super Tues. primaries, speculation about who Bush might put on FCC next year has centered on Tex. PUC Chmn. Pat Wood. Wood, at last week's NARUC meetings, had no comment about possibility of his appointment as FCC chmn., saying Nov. is long way off and first priority for Republicans is getting Bush elected. Wood, whom Bush appointed to PUC, has been enthusiastic backer of Bush's presidential bid. He is strong believer in market solutions and is highly regarded in regulatory community.

FCC Chmn. Kennard has been away from office since March 6, "taking time for a family matter," FCC spokeswoman said. He canceled several scheduled appearances, including speech in Boston on March 6 and NARUC keynote speech March 8. Spokeswoman said there may be rumors as result, but it's family matter, he's not ill and was in N.Y.C. March 10 participating in financial conference.

Senate Banking Committee approved S-2097 by Chmn. Gramm (R- Tex.) March 8, helping Gramm keep his promise to deliver to floor by March 30 $1.25-billion loan program to provide local broadcast signals to rural areas. House Agriculture Committee already has passed similar legislation (HR-3615) by Rep. Goodlatte (R-Va.), and Senate Agriculture Committee has bill pending (S-1980) by Sen. Baucus (D-Mont.). While Goodlatte bill backs 100% of loan, Gramm capped backing at 70% to provide additional incentives to pay it off. He said measure is "aimed at maximizing the chances that we will have access to local television signals in our more rural areas and doing it in a way in which we preserve the taxpayers' money that will be invested." All bills are technology-neutral, meaning DBS is not only possible method that could receive loan guarantees.

PanAmSat said Galaxy XR satellite is delivering cable and telecom service to N. America from 123 degrees W. following 4 weeks of in-orbit testing. Satellite eventually will migrate to 127 degrees W. Galaxy XR has 24 C-band and 24 Ku-band transponders.

TV ad revenues grew 8.6% in 4th quarter 1999, TvB said, including 6.8% growth in local spots, with 0.3% decline in national spot. TvB said syndicated TV ad revenue grew 12.1%, network TV 14.7%.

After 2 years in limbo, Child's Online Protection Act (COPA) Commission met March 7 at Commerce Dept. to develop proposals for govt. funding and to issue report on solutions to protect children from adult-oriented Internet sites by Nov. 30 deadline. Commission, appointed by Congress and made up of 16 representatives from Internet companies, advocacy groups and others, also elected Network Solutions Consultant Donald Telage chmn. There currently is no funding for Commission staffing or activities, which many members said should come from Congress. "We need to take a look at cost" and structure, global commerce issues, law enforcement in addition to filtering technology, said Arthur DeRosier, pres.-Rocky Mountain College. Commission formed subcommittee headed by Robert Flores of National Law Center for Children & Families, to draft letter to Congress outlining Commission's financial needs. Commission members include 3 govt. officials who don't have vote: NTIA Dir. Gregory Rohde, Justice Dept. Chief of Staff Michael Horowitz, FTC Div. of Ad Practices Assoc. Dir. Lee Peeler. Commission plans 4 meetings before issuing final report, with next meeting being April 14 at yet to be determined location.

AOL's merger with Time Warner (TW) could be justified by "tactical synergies" alone, meaning marketing and distribution savings, but that's not why deal got done, AOL Pres. Robert Pittman told PaineWebber conference in N.Y. last week. He said companies will be able to create new businesses that neither could begin alone, with online music distribution and AOLTV first examples. Combined companies' financial, intellectual property and technological resources are enough "to create whatever our imaginations can devise," Pittman said. Past attempts at interactive TV have been hampered by necessity of partnering companies with differing agendas, he said, but AOL/TW will have all elements under its own control. Companies aren't "waiting for the merger to close" to meld businesses, he said: "We're working on it everyday." Pittman projected combined company will see revenue growth of 12-15% annually, with cash flow growing even faster as TW's investment in cable infrastructure starts to pay off. On cable open access, he said TW's cable executives are "looking forward to choice," which they expect to increase cable modem subscribers. AOL isn't afraid to compete, Pittman said: "We love choice. We do very well." He said AOL hasn't offered wide scale DSL service yet because it doesn't want to let down customers by promoting service not available to them. Company is working on program with Bell companies that will individually pitch DSL to those subscribers with upgraded homes, Pittman said. AOL hopes to turn Internet into equivalent of electricity, element necessary for every other segment of economy, he said, with company targeting every major appliance in home, including computer, TV, stereo and phone. As ISP adds new services, it's becoming harder for subscribers to leave, reducing churn rate, Pittman said. Customers with calendars, pictures and stock portfolios online find "if you want to give up AOL, you have to give up a whole lot of stuff," he said. PaineWebber released bullish report on merged companies at conference, valuing AOL (which has traded around $60 per share) at $92. One analyst told us AOL is "nobrainer" buy right now, since if merger goes through its benefits will be apparent, while if deal fails stock will shoot back to its preannouncement price.

Tenth annual media conference "The Big picture: The Business of Entertainment" April 4 has outgrown its former hotel in N.Y.C. and it will feature 3 keynote speakers -- Steve Case of America Online, Michael Eisner of Disney, FCC Chmn. Kennard. CBS's Mel Karmazin and Viacom's Sumner Redstone, who are awaiting govt. approval of Viacom takeover of CBS, will be interviewed by David Frost. Participating on TV, cable and new media panel: News Corp. Pres. Peter Chernin, ABC TV Network Pres. Patricia Fili- Krushel, DirecTV Pres. Eddy Hartenstein, CBS TV Pres. Leslie Moonves, NBC Pres. Robert Wright, Comcast Pres. Brian Roberts. "Movie Business" panel includes International Creative Chmn. Jeffrey Berg, Arnon Milchan, founder of New Regency Productions, New Line Cinema Chmn. Robert Shaye, Miramax Films Co-Chmn. Harvey Weinstein and Alex Yemenidjian, chmn. of MGM Studios. Internet panel, to be moderated by NBC's Tom Brokaw, will include Excite @Home Pres. George Bell, Amazon.com CEO Jeffrey Bezos, NBCi CEO Chris Kitz, DoubleClick CEO Kevin O'Connor and Jay Walker, vice chmn.-founder of Priceline.com. One-day conference, co-sponsored by Schroeder & Co. and Variety magazine, will shift from Pierre Hotel to Grand Hyatt.

Disney's Go.com is preparing for enhanced TV with its online offerings that seek to complement TV programs on ABC and other networks, executives said. Exec. Vp Dick Glover pointed to Super Bowl telecast, during which 650,000 people logged on to Go.com site for at least half hour, along with Drew Carey Webcast. TV programs with such integrated Web elements see their ratings go up, not down, he said. When platform convergence arrives and Internet elements are available on same TV as broadcast, accessing both simultaneously "will be natural for our users," Glover said. Meanwhile, Go.com sought to reposition itself as portal that focuses on entertainment, sports and leisure. "The Internet is growing too fast for a portal to be all things for all people," executive said, and different portals "will become known for different things." He said new focus will "provide a more compelling, differentiated experience." Senior Vp-Ad Sales Scot Schiller said Disney for first time this year will offer Internet ad sales as it sells upfront for ABC TV Network. ABC sells $3.5 billion worth of ads during that time, he said, and it would be "significant" if Go.com could capture just 1% of that. TV ad industry "has been resistant to change," he said, but this isn't "new model we're selling -- it's simply a new medium."

Extending its global reach, Discovery Communications intends to unveil regional versions of its health and travel networks in Europe, Latin America, India and Asia this year. Plans call for launching Discovery Health as 24-hour channel in U.K. and Latin America this summer, placing it in at least 8 million digital broadcast and cable homes by year-end. At same time, health network will supply weekly, 2-hour programming blocks for Discovery Channel viewers in India and Asia, reaching another 58 million households. Similarly, Discovery Travel & Adventure, already available in U.K., Scandinavia and parts of Eastern Europe, will roll out as 24-hour channel in rest of Europe and Latin America, as well as weekly 2-hour programming block in India, during 3rd quarter. In conference call with reporters, Discovery executives said $100-million effort is part of cable programmer's drive to develop its "15 entertainment brands" worldwide. Discovery Kids and People & Arts joint venture with BBC seem likely to follow as full-time international networks. "There really is no end point," said Dawn McCall, pres., Discovery Networks International. "We're always looking at which ones make sense to roll out globally."

Basic cable network viewership climbed to record levels first week in march, according to Cable Ad Bureau. In its latest analysis of Nielsen research data, CAB said advertiser-supported cable's primetime delivery rose to 23.9 million homes for week, up 1 million homes, or 4.2%, from year ago. Similarly, ad-supported cable's prime time rating rose 0.6 points, or 2.6%, to 23.7, and cable's prime time audience share increased 1.6 points, or 4.3%, to 38.7. In contrast, CAB said, 7 broadcast networks saw their collective prime time delivery drop to 34 million households, down 1.1 million (3.2%), from year ago. Likewise, CAB said, collective prime time rating for 7 broadcast networks fell 1.6 points, or 4.5%, to 33.8, and their prime time audience share slipped 1.9 points, or 3.3%, to 54.8.

Excite@Home isn't worried about losing cable affiliations when exclusive deals start ending, CEO George Bell said, because as "practical matter" company's infrastructure is embedded so deeply into 600 cable headends around country. "Who would want to rip that out" to switch cable ISP, he asked: "We're literally married to the headend." Even if company must share platform with other ISPs, Bell said, they won't have same cacheing ability as Excite@Home, which he said by end of year hopes to be able to store 65-70% of accessed content on local servers for faster downloads. He said Excite@Home's future is "platform agnostic," seeking partnerships on DSL as well as cable, although so far it has had "no incentive to go outside cable" since it already struggles to meet rising demand. That will change, he said, especially as company with its new Work.com partnership with Dow Jones increasingly targets commercial customers. Bell said Excite@Home is increasing its backbone capability this summer to 13 Gbps from current 2 Gbps to meet what it expects to be surge of cable modem users. He said current average penetration in ready markets is 5%, but in "mature" markets where service has been available 3 years, it's often 25-30%. This is "not a time to be harvesting profits," he told analysts who wondered when company would show one. "This is 'customer capture' time." We're "sharply undervalued" as result of fears about open access regulation and speculation that MSOs won't renew, Bell said, but "value of our franchise is much larger than the cable partnerships."

In long-awaited decision, FCC created new class of commercial license called "Guard Band Manager license" and voted to prohibit cellular-like services in 6 MHz of guard band spectrum reserved in Ch. 60-69 band. Use of guard bands became contentious issue because private wireless users were urging FCC to give them exclusive use of spectrum, while others were lobbying Commission to put up all spectrum for auction without setting restrictions on types of services that could be offered in band. Comrs. Furchtgott-Roth and Powell partially dissented from decision. FCC said new rules are designed to ensure that public safety licensees, which will use 24 MHz of spectrum in Ch. 60-69 band, will operate "free of interference from any new commercial users in that band." Agency said auctions will be used to assign guard band spectrum to band managers, who will be responsible for leasing spectrum to 3rd parties, which agency said could include "both commercial service providers and private parties." Entities operating in guard bands will be required to comply with specified "out-of-band" emission criteria, and with certain prescribed frequency coordination procedures. Licenses will be auctioned for 2 MHz and 4 MHz guard bands on basis of 52 major economic areas (MEAs), which FCC said will provide opportunity for both "aggregation and partitioning of geographic areas to suit a wide variety of possible business plans."

Despite their reputation as financial quagmires, cable overbuilds may actually start making economic sense because of potential for new services, according to Strategis Group. In new study, it found that overbuilds might work in medium and large markets once alternative cable systems begin offering digital programming, high-speed Internet access and telephony in addition to traditional cable services. Under best-case scenario, municipally owned utility with cable system passing 150,000 homes could enjoy $22 million increase in net present value if it offered digital video, high-speed data and telephony, report said. Consulting group also found that adding voice services alone could boost overbuilder's operating cash flow by 26-37%. "While the numbers are far from making a compelling case in favor of overbuilds, they clearly demonstrate the potential represented by offering a full slate of voice, video and data services in bigger, densely populated markets," said Robert Jones, exec. vp, Strategis Group.

Forging 2nd joint marketing agreement in 2 weeks, AT&T will pitch cable and telephone services in 2 upstate N.Y. cities with Time Warner (TW) systems, companies announced. Starting next month, they said they will market combined packages of local telephone, long distance, cable and Internet access to consumers in Albany and Syracuse, where TW has combined customer base of 600,000. Although companies won't hand out price discounts, they will offer such incentives as AT&T prepaid calling cards, free AT&T long-distance minutes and free pay-per-view coupons from TW. Companies said they will explore expanding joint marketing drive to other N.Y. markets if pilot is successful. They dismissed notion that marketing deal is prelude to larger, now stalled, agreement between 2 to offer AT&T telephone services over TW's cable lines. "The 2 things are not linked," said TW Cable spokesman. But, he added, "this is a good first step in the relationship." AT&T, which boasts 175,000 customers for its new "all-distance calling plan" in N.Y., struck similar marketing accord with Cablevision Systems in N.Y.C. metropolitan area Feb. 23.

Full House joined Senate last week in approving conference report for S-376, satellite privatization legislation, in voice vote. Bill now goes to President Clinton. While Administration hasn't voiced position on bill, feeling on Hill is that S-376 has more than sufficient support to override veto. House Commerce Committee Chmn. Bliley (R-Va.), sponsor of House version of bill, said bill "breaks up a cartel. It ends a monopoly," referring to Intelsat. Commerce Committee Ranking Democrat Dingell (Mich.) noted Inmarsat already has privatized and Intelsat has been working toward that without legislation, and added "more onerous provisions" of House bill were removed in conference and report is worthy of passage. House Telecom Subcommittee Chmn. Tauzin (R- La.), Vice Chmn. Oxley (R-O.), Ranking Democrat Markey (Mass.) and Rep. Deutsch (D-Fla.) also backed bill. Comsat CEO Betty Alewine said legislation "clears the way toward closing the Comsat- Lockheed Martin merger."

FCC is seeking more information from AOL and Time Warner about how their proposed merger would affect multichannel video and high-speed data markets and benefit consumers. In 3-page letter to lawyers representing 2 merger partners March 9, FCC Gen. Counsel Christopher Wright said neither public nor Commission staff "can provide an informed evaluation of the application" without additional information. Specifically, Wright wants companies to provide explicit details of AOL's investment in DirecTV owner General Motors and substantiate their claim that AOL's stakes in rival cable and DBS providers won't hurt consumers. Wright also wants companies to back up their contention that AOL ownership of Road Runner will not harm Internet users because Road Runner has only 550,000 subscribers.

Electronic "watermarking" system for digital broadcasting is being sought by European Bcstg. Union (EBU), which called on TV industry in other parts of world to help with search. Watermarking would place identifier on digital programming, making it easier to protect copyright of digital broadcasts. EBU said digital makes need for watermarking more urgent, since digital allows perfect copies of original program. EBU issued "call for systems," asking manufacturers to suggest relevant technologies, with goal of agreeing to worldwide system. It plans audio watermarking system later.

ABC backed down from its threat to pull its Houston affiliate, KTRK-TV (Ch. 13), from Time Warner system and instead offered MSO yet another extension until March 31.

CBS's Infinity Bcstg. is by far largest purchaser of radio stations being spun off Clear Channel (CC) in its $65 billion purchase of AMFM Inc. (TVD Oct 11 p9). CC March 6 announced sale of 72 stations in 27 markets -- all dependent on closing of CC- AMFM deal, which still is awaiting spin-off of approximately 50 additional stations and FCC and Justice Dept. approval. Infinity is buying total of 18 stations -- some currently owned by CC, some by AMFM -- in Cleveland, Cincinnati, Denver, Greensboro, Orlando, Phoenix and San Diego. Other buyers of multiple stations from CC- AMFM include Chase Radio Partners (11), Cumulus Media (11), Salem Communications (8), Cox Radio (7) and El Dorado Communications (5, all in Houston). Remaining divestitures are to be announced "in the near future," CC said. CC continued its spin-off of radio stations last week, announcing sale of 16 more as it prepares to take over AMFM Inc. Sega Communications said it's paying CC $12 million for WHMP-AM-FM Northhampton, Mass. Inner City Bcstg. is buying 9 stations in South from CC (prices not announced), Barnstable Bcstg. 2 stations in Des Moines, 2 in Greenville, S.C., and Rodriquez Communications is buying KXJO(FM) San Francisco.

Asked if he views AT&T as potential partner or competitor, AOL Chmn. Steve Case told Credit Suisse First Boston conference that it's "unclear." Company "certainly is a potential partner in some markets and a potential competitor in some," he said, noting lines are no longer drawn between "list of friends and a list of enemies." That is "a little naive. I think it's going to be more subtle than that." Without elaborating, he said AOL is holding discussions with AT&T and others: "We recognize people would love some clarity on a number of things." Referring to "framework" that AOL and Time Warner signed last week to offer TW cable subscribers choice of multiple ISPs once merger of 2 is completed (TVD March 6 p1), Case expressed assurance that other cable companies would follow suit. He said, "we believe it's in cable companies' financial interest to provide access" to their network: "We are confident other cable companies will be doing so as well." He emphasized that "we want to support all the major [access] platforms in the future," citing cable, digital subscriber line, wireless as examples.

N. American cable operators will end year with more than 4 million cable-modem subscribers, double current total of 1.5 million in U.S. plus 560,000 in Canada, according to latest projections by Kinetic Strategies. Consulting group estimates U.S. and Canadian MSOs are adding more than 5,000 high-speed data customers per day and offering service to 43 million households, or 40% of cable homes passed. Time Warner continues to lead in U.S., adding 75,000 cable-modem customers in 4th quarter to close last year with 320,000. But AT&T, 3rd in overall total with 207,000 subscribers, enjoyed fastest growth in 4th quarter with addition of 93,400 customers. MediaOne Group, which added 47,000 customers in 4th quarter, ended 1999 in 2nd place with 220,000 subscribers. Cox, which gained 46,444 subscribers in 4th quarter, finished year in 4th with 186,918 customers. In Canada, Rogers Communications overtook Shaw Communications in 4th quarter to end 1999 with 185,700 high-speed subscribers. Shaw closed year with 185,000 customers.

Mallard Cablevision will buy Blackstone Cable's systems in southeastern and western U.S., giving Mallard another 43,000 subscribers for its partnership with SunTel Communications. No terms were disclosed. With purchase, Mallard and SunTel will jointly own cable systems with total of more than 65,000 subscribers.

As was case in coverage of N.H. Presidential primary (TVD Feb 28 p5), 85% of voters polled in 5 Super Tues. primary states said local TV and radio stations devoted either "right amount" or "too much" time to coverage of campaign. Only 7% of 827 voters surveyed said not enough time was devoted to campaigns, according to survey taken by Wirthlin Worldwide for NAB and RTNDA. Voters were against mandatory free time for candidates with 54% expressing opposition, 34% favoring proposal, and 12% "not sure." TV-radio was credited by 43% of voters with providing "most helpful" information in helping them decide for whom to vote, while 17% said print media, 9% information provided by candidates.

Broadcasters should have 3-year period to choose between must-carry and retransmission consent for local-into-local DBS service, according to joint filing at FCC by network affiliate TV stations. Three-year cycle should begin Jan. 1, 2002, stations said, and cycle should be staggered on different years from cycle for decision on wired carriage. NCTA, in contrast, said there should be single timetable for decisions on both cable and DBS carriage, saying broadcast proposal would give broadcasters "heads-I-win, tails-you-lose" game.

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