Kate Bulkley, Media Analyst.

Babelgum in studio talks over content

By Kate Bulkley

Broadcast News

For Broadcast, March 2, 2007

Web TV provider Babelgum will offer users 100s of hours of programming when it launches later this year and is in talks with major studios about a flagship deal to secure high profile content.

Programming already secured includes sports and fashion shows from IMG and news from Reuters and Associated Press.

"We are talking to some of the big companies but at the moment I cannot name anyone," Babelgum chief executive Eric Lumer told Broadcast.

The company is being backed financially by Silvia Scaglia, the founder and former chief executive of Italian IPTV company Fastweb, and is a direct competitor to Joost in the nascent peer-to-peer TV on PC market. Babelgum has already spent some 10 million to get its web streaming technology up and running.

Joost, formerly known as The Venice Project, is the brainchild of Janus Friis and Niklas Zennstrom, the duo that brought the world internet calling company Skype and music sharing site Kazaa.

Both Joost and Babelgum are currently running technical trials and both ventures have plans to launch to consumers later this year. They both use peer-to-peer technology, which will allow the video to be delivered much more quickly to consumer's PCs than if it was all coming from a few dedicated servers.

Joost raised its profile substantially in February, signing up Viacom as a "key content partner" to offer a range of brands and TV and film programming, from MTV Networks, BET Networks and Paramount Pictures.

Both services will offer their content free to consumers, supported by advertising, but Lumer believes Babelgum's model will be more attractive to content owners. It will offer minimum guaranteed revenues at least until there are enough advertisers on the service to make revenue-share deals worthwhile. Babelgum will also do straight licensing deals in the range of 300 to 2,000 per hour, depending on the content, but is not expecting to do many exclusive deals.

Lumer believes attracting smaller, niche content is very important because of the long-tail theory of the web, which says there are meaningful audiences for niche content.

The real cost of the dot com boom and bust on the media Big Boys, like AOL Time Warner and Vivendi Universal, has made headlines recently as they, and others, have reported whopping big, one-time charges called goodwill write downs. Although this may sound like fuzzy balance sheet speak, the crisis surrounding the collapse of U.S. energy trading giant Enron has put a spotlight on accountants and how books are kept. Add to that a new accounting rule from the U.S. Securities & Exchange commission that eliminates goodwill amortisation, and you get a series of companies who bought assets during the dot com boom, now writing down the value of these acquisitions in the dot com bust.

Certainly AOL Time Warner has borne the brunt of the good will reckoning. A recent anaemic earnings statement was accompanied by a huge charge: $54 billion in goodwill. This is the amount that AOL has been carrying on its books to represent the value of the intangible assets it purchased when it acquired Time Warner for a mind-boggling $147 billion in January 2001. In writing off $54 billion, AOL Time Warner is effectively saying that the company has lost nearly $60 billion in value since the deal was done. Of course shareholders have been the worst hit by this decline, with AOL's stock price falling from around $65 at the end of 2000 to around $20 today.

AOL Time Warner is by no means alone in having to recalculate what its assets are now worth. In the UK, Telewest reported a 1.1 billion goodwill write off in 2001 to reflect the fall in value of Flextech, its content division purchased in 2000. "Prices were out of line across the sector," explained Charles Burdick, Telewest CFO. "Did we overpay for Flextech? No, given the relative prices we were trading at then, no." However, the fact remains that the company now says Flextech's value has plummeted to the tune of more than 1 billion!

One to watch closely is Vivendi Universal. Despite a spate of deal-making that has pumped up recent cash-flow, Vivendi Universal posted a $16 billion goodwill write off in 2001, which greatly contributed to an ignominious honour of recording the biggest loss in French corporate history, or 8.3 billion into the red in 2001. Vivendi's share price has dropped nearly 42% since January. Vivendi CEO Jean-Marie Messier says the goodwill write-down has nothing to do with the value of the company because the acquisitions they represent -- the purchases in 2000 of Seagram's, the owner of Universal Studios and Universal Records and Canal Plus, the French pay TV operator -- were made with shares. This has angered investors and analysts already dubious about Mr. Messier's ability to wring new synergies and growth out of the group. Credit Lyonnais bank has even suggested that Vivendi Universal's share price could rise by 40% if Mr. Messier were to leave, a stunning turn of events for a man who only a few months ago was being heralded as a "master of the universe" having transformed a French water and waste utility into a global media powerhouse.Which brings us back to AOL Time Warner. The man leading Time Warner when AOL acquired the company was Gerry Levin, who quietly handed the reins to a new CEO Richard Parsons earlier this year. The problem for AOL now is finding ways to grow its business as the ad downturn persists and high debt means it has less firepower to grow in crucial areas like broadband. Movies such as Harry Potter and the Sorcerer's Stone and Lord of the Rings prove that AOL can deliver box office bonanzas, but investors will be watching closely to see if the company's bottom line performance can match up to expectations. Scepticism is understandable especially in the wake of AOL taking the biggest single goodwill write down in U.S. corporate history.

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