01 Jan 2000

As 2000 begins, European media stocks are on an upswing, boosted by merger mania and better-than-expected advertising revenues, both for 1999 and projected into the millennium. Add to this the lustre of the Internet, and it's no wonder that securities analysts are rushing out higher ratings on many traditional media players.

The Internet phenomenon is having a profound effect on old media. Traditional media's coffers are being beefed up with dot.com ads. Keen to stand out in an increasingly crowded Web space, the Web-miesters are using off-line billboards, radio and TV to promote their online businesses. Channel 4 in the UK says that its biggest advertiser group is now made up of dot.com firms.

The Internet is also spurring new modes of distribution - from interactive TV services like BSkyB-sponsored Open... to Web-enabled mobile phones.

These outlets give new legs to (old) content. And, it's not just the re-purposing of content, but the creation of something new and different - just look at NBC Giga TV in Germany (www.giga.de). It's a cable channel that tries to meld on-line chat rooms with off-line TV. At any one time there are four or five simultaneous chats going on, co-ordinated by 'Netzreporters', who pop onto the TV screen for five to seven minute round-ups of the best of the chats, but who stay online for a five-hour shift.

So, the Netzreporter may suggest a topic on-screen and the 'viewers' are encouraged to surf the Web and contribute real-time to the discussion via the chat room. The Netzreporter can then choose to feature what these viewers find, having them talk on the air or showing the site they want.

This sounds like a magnet for teen viewers - which it is - but the idea of melding the mediums has some interesting possibilities for other audiences.

And, as the technology improves, say with Web cams, these viewers will be able to appear on the TV screen as well.

The TV world has mostly scoffed at the Net, painting it as an imperfect channel not worthy of their attention. But, as younger audiences shift their leisure time to the Net and mobile phones - they have made mobile phone manufacturer Nokia one of Europe's largest companies - the TV guys are recognising the power of this new media. They would be nuts not to follow their audiences and look for new ones online. For example, the merger of UK media companies Carlton and United News & Media is about scale, both to tap more traditional TV ad revenues and to capitalise on Net synergies, like more content to exploit and more off-line outlets to promote what they do on-line.

A TV company who "got it" rather early on is Flextech. The UK-based purveyor of niche TV channels has had an interactive department for several years. One of its first jobs was to design an alternative electronic programme guide (EPG) so that the new digital TV services launched by BSkyB could be surfed through using something other than a News Corp.-controlled EPG.

More recently, Flextech has hired a heavy hitter in the TV business - Jane Lighting - who will focus on the TV side of the business, freeing up chief executive Brent Harmon and chairman Adam Singer to focus on better positioning the company on and for the Web.

So, it is perhaps not surprising to see Flextech nuzzling up to UK cable operator Telewest. They already have two powerful shareholders in common - Microsoft and John Malone's Liberty Media each own stakes in both companies.

A combination of the two companies will make them both bigger and help each to leverage interactive services. Telewest with its new digital cables plans to launch them and Flextech has the savvy and the content to fill the cables up. And, both Flextech and Telewest shareholders will likely benefit from being part of a bigger company. At the least it will make more expensive any acquisitive advances by rival cabler NTL.

And, of course, for traditional media firms the pull to the Net is also the lure of Internet multiples. As a Web valuation commentator, I have found myself baffled more than once by the soaring valuations and seemingly endless demand for buying into the Net space. It may be a bubble and there are many clear over-valuations of Net firms, but the numbers continue to (mostly) soar, forcing traditional earnings per share firms like UK media group Pearson and French pay-TV operator Canal+ to Web assess.

In the last weeks of 1999 both Pearson and Canal+ announced their intentions to create separate stock market listings for their Net assets. More like them will follow, if for no other reason than to hold onto their human talent.

These Net heads see the overnight million- and billion-aires of the Internet economy and want some of it too, thank you very much. Last year saw record deals among telecoms firms, all jostling for scale and scope in increasingly competitive markets. There's no doubt that it's likely to be more of the same this year and beyond. And, furthermore, it's going to increasingly infect media companies.

In the telecoms industry we've already seen cross-border mergers and a concern by governments for local companies selling out to "invading" foreign firms. However, fasten your seat belt, because xenophobia will likely run wild when it concerns media assets.

Phone lines are important, but control of the local news station or the TV rights to local sports teams cut much closer to the cultural and political bone.