Kate Bulkley, Media Analyst.

What exactly is Bebo's business model?

By Kate Bulkley

Broadcast News

For Broadcast November 21st, 2007

Kate Bulkley considers whether or not repurposed television will be attractive to the youth market.

What is Bebo's business model - and is there a catch?

Social networking site Bebo jumped into the land of traditional telly last week, announcing that big broadcasting beasts including the BBC, Channel 4, MTV, CBS and Turner will put parts of their content on the UK's biggest social network for 13 to 24 year olds.

For the broadcasters the deal looks a no-brainer: they pay no access charge to be on Bebo, they bring their own video players and they also get to keep all the ad revenue they attract. The downside? I can't think of one. For Bebo, it's all about eyeballs, or what Web 2.0 calls audience reach. It may be giving away the ad money directly connected to the new content, but Bebo believes an increased number of engaged users will raise the amount and the value of the ads it can sell elsewhere on the site.

Bebo president of international Joanna Shields reckons the kids on Bebo want to be entertained. She may be right: Bebo's first online drama, KateModern, attracted 25 million views in three months from Bebo's 40 million users. Given that an average Bebo visit lasts 40 minutes, Shields' idea is to bring the content to where the kids are, rather than hoping they will check the Radio Times for a programme and turn on the telly.

Rivals Facebook and MySpace have their own new initiatives for monetising audiences, with an emphasis on widgets and applications that allow more targeted advertising to users' personal pages. Facebook is even allowing brands like Coca-Cola, Sony and its newest shareholder, Microsoft, to create Facebook pages and join "friends networks" - a not so subtle form of product endorsement that is asking for a user backlash.

The Bebo approach of trying to socialise professional media content seems a better first step, although the crucial factor will be how appealing repurposed TV proves to be to the youth market.

SMG: how bad can it get?

Business transformation is never easy but for SMG chief executive Rob Woodward punching the TV-to-cinema advertising-to-radio group into shape has been particularly difficult. Plans to clean up the balance sheet by focusing on TV and programme-making ran into trouble when the planned IPO of Virgin Radio had to be shelved due to inhospitable equity markets and the sudden departure of its chief executive in August.

SMG managed to sell its Primesight outside advertising unit last month, but the Pearl & Dean cinema advertising business is still looking for a buyer. With profit estimates already severely cut in June and the weight of its bank debt dragging down the balance sheet, Woodward announced a rights issue of new shares to raise £95m. The issue is heavy Đ a two-for-one at 15p for each new share (SMG's share price was 28.5p the day before the rights issue was announced) Đ but it is underwritten and expected to be approved by shareholders. The money will be used to reduce debt, which should cut bank borrowing costs by £20m a year.

The new money buys Woodward time to get the operational side of the TV business back on track. It also gives him some manoeuvrability: Virgin Radio is still for sale, but the pressure is now off to make a quick sale at a fraction of its value.

However, the clock is still ticking. When Woodward joined SMG in February the share price was at 60p.

It hit a 52-week low of 22.75p on 6 November and has inched up a bit since. One recent believer seems to be Sir David Murray, the Scottish businessman and chairman of Rangers Football Club, who raised his stake in the company to 3% late last month. At the moment Murray is reportedly along for the ride but, as in sport, things could change if Woodward doesn't start scoring.

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