Kate Bulkley, Media Analyst.

Is that a bear I see?

By Kate Bulkley

Cable & Satellite Europe

www.informamedia.com

01 Nov 2000

And so you have it: the dot "con" revolution is officially bust, burned out, defunct. If you haven't made your squillions yet, you are SOL (technical abbreviation for Surely Out of Luck). No more assured 600% price jump in your stock on its first trading day. The stock market's hot pursuit of new tech and media companies is lying prone in intensive care. No cover of Newsweek for being the bright young thing who had a geeky idea and whammo! companies are lining up to buy you out before you e-mailed them the business plan, if you had one. Now the big bricks and mortar companies are doing it for themselves. As fast as you can say e-exchange, they move into your space, eating your lunch. So if you aren't one of the lucky ones who conjured up and sold out early, you had better get used to your current lifestyle.

I know, I know. The internet is dead, long live the internet. Of course, there is still a revolution going on. A big one. Lifestyle transforming.

Business transforming. But just as B-to-C (business to consumer) gave way to B-to-B (business to business) there is now B-to-BM (back to business models). If the burn-out of Boo.com's chic e-tailing concept taught us that cool technology alone cannot win, then the demise of online CD retailer Boxman has shown us that big is beautiful as long as you aren't paying for it all at once. There are more lessons to come.

The thing is that the pendulum swing is taking out some not-so-dot.com companies as well. Look at the general tanking of the NASDAQ. The biggies like Lucent, Intel and Compaq are also under fire. Is the PC computer dead, to be replaced by the networked and mobile device? And hey, if your company doesn't understand the power of optics in powering the new networks to carry all this net traffic, then you really are in the dark. Telecom companies that are spending big money for next-generation wireless phone licences in Europe are also being beaten up. Have they overpaid? Of course they have. The only question is by how much?

But it gets worse: Granada Media, a content company as well as a broadcaster, has seen its stock hammered. You'd think that Vivendi's deal to tie up the music and movie assets of Seagram would be gobbled up like sugar candy on Wall Street. Instead the market is pummelling the French company.

Cable operators from UPC to Telewest to NTL are all down. The whisper is that the phone companies' secret weapon DSL, which makes plain vanilla phone lines fatter and faster, is gaining on the cable modem. Of course the fact that UPC and its internet portal unit Chello have a customer service problem from hell in The Netherlands, UPC's biggest market, isn't helping.

It seems this market malaise is catching. Spanish cabler ONO cancelled its plans to float on the Madrid bourse at the last moment, saying that even though the new issue was "heavily oversubscribed" it was worried about the recent 30% to 50% share price drops in similar companies. Cableuropa decided it would be prudent to wait until market conditions improve.

Meanwhile, NTL scrapped its plans to buy the pay-per-view rights to the UK's Premier League football. It seems the company couldn't make the sums add up. At a price of roughly $4m per game, NTL would have had to sign up 1.2m subscribers paying £4 each just to break even, although Sky was going to carry the games on its platform, which would help NTL increase the audience. Now ironically it will likely be On Digital, the digital terrestrial rival to Sky and cable, that will pick up the rights and probably pay less money for them. Oh, and by the way, unconfirmed plans by On Digital for an IPO this year have been pushed back to 2001, when it should reach 1m subscribers, up from 878,000 at the end of September, and hopefully the market will be more receptive.

The hype about the net has certainly been countered by a dose of reality, and that was necessary. The problem now is that the backlash is still taking place. Whereas the euphoria was driven by the new economics, the new ideas, the new possibilities, there is now a general uncertainty over what ideas will work and who the winners will be. Even the net giants like Yahoo! and Amazon are being questioned.

And as the heavies from the old economy like BT barrel into the new economy with offerings like BT's multi-access net portal BT Openworld, another source of competition and worry for the new economy players is building up. Telewest's net portal Blue Yonder was delayed due to technical problems but by the mid-October 2,000 high-speed internet subscribers had been signed up. A much bigger rollout is planned for 2001 and the company remains sceptical about BT's ability to deliver. I agree with Telewest's CEO Adam Singer, who says that "eventually speed and content will win". The problem is who will hook the customer in. BT has learned a fair bit about marketing in the years since its privatisation.

BT itself has of course been under more fire than most lately because it is heavily indebted (those 3G licences) and it has not articulated a clear plan to reduce its £30bn debt pile. It could sell some things, from stakes in Asian telcos to a stake in France's Cegetel, a fixed and mobile operator. It could also IPO several of its businesses, including mobile, internet and its Yell directory businesses, but this again could be scuppered by market conditions. No one wants to IPO, get a low valuation and then face a rollercoaster ride of the stock price. And in this market it's not just the dot.coms that need to worry about that possibility.

The market is nervous enough that all tech, media and telecom stocks seem to be in the same dot boat.

Columns Menu

Home