Markets & Finance

Diller and Murdoch Work the Web


S&P analysts have some ideas about where the media moguls might move next as they expand their presence in the digital world

From Standard & Poor's Equity ResearchThe head honchos of IAC/InterActiveCorp (IACI; S&P investment rank 3 STARS, hold) and News Corp. (NWS; 4 STARS, buy) appear to believe that the ability to deliver content and interact with audiences offers a strategically prescient opportunity. That's probably why we will see luminaries Barry Diller, chairman of IACI, and Rupert Murdoch, chairman of News Corp., each delivering keynote addresses at The McGraw-Hill Companies' (MHP) 2007 Media Summit in New York City Feb. 7 and 8, say Standard & Poor's analysts. (Note: Both BusinessWeek.com and Standard & Poor's are units of The McGraw-Hill Companies.)

Participants and attendees at this year's summit will likely hear more about the technologies and strategic initiatives that the industry continues to adopt. Executives invited to speak during the two-day event will be probing the future of motion pictures, TV, cable, satellite, broadband, wireless, publishing, radio, magazines, news and print media, and advertising and marketing.

Media moguls Diller and Murdoch have traditionally been perceived as dealmakers on the forefront of their fast-paced industry, S&P analysts believe. Because the executives have set the tone during their decades in "old" media, they will likely seek to continue doing so in "new" media, according to S&P analysts.

New Focus on Content

"IAC operates businesses in sectors being transformed by the Internet, and its stated mission is to harness the power of interactivity to make people's daily lives easier and more productive," says Scott Kessler, S&P technology equity analyst. The corporation's primary operations include Ask.com, Citysearch, Home Shopping Network/HSN, LendingTree, Match.com, and Ticketmaster.

Kessler thinks Diller will likely discuss the expansive strategies designed to take his company beyond commerce. Content, Kessler believes, is Diller's new focus, and he expects the executive will provide attendees with a glimpse into the IAC Search & Media business, which is dependent on U.S. ad revenue and search-engine growth that's likely slowing.

Kessler estimates that online video advertising in the U.S., a newer category, will become increasingly important to the industry's growth, especially following the acquisition of video-sharing company YouTube in late 2006 by top search company Google (GOOG; 3 STARS).

Consolidation Is Inevitable

Social networking, another popular Internet activity from which IAC derives traffic and users, should garner significant interest for some time, but it's difficult to generate revenues from social networking alone, Kessler thinks.

"We believe that consolidation in the social-networking and search categories is inevitable, and we expect it to continue," Kessler says, citing fierce competition and opportunistic moves by larger Internet and media players to acquire, partner, or invest in the categories. News Corp. acquired MySpace and its parent company Intermix Media for $580 million in September, 2005. In August, 2006, Google announced an exclusive search relationship with News Corp.'s Internet business operations, Fox Interactive Media/FIM, including a guaranteed minimum payment of $900 million.

NBC Universal, a General Electric (GE; 5 STARS, strong buy) unit, announced a partnership with YouTube in June, 2006. NBC also initiated a promotion with FIM's MySpace in August, 2006. YouTube was acquired for $1.65 billion in Google stock.

Formed in August, 2005, Fox Interactive Media is charged with increasing News Corp.'s presence across broadband and other newer media platforms. In 2005, the company made three key Internet acquisitions: Intermix, including MySpace.com, for about $650 million; IGN Entertainment for $650 million; and Scout Media for $65 million. Content creation, however, really differentiates IAC and News Corp. It's a segment that Kessler believes IAC needs to ramp up. Paid Internet content amounted to $2 billion in 2005, an increase of 15% from 2004, according to a March, 2006, report from the Online Publishers Assn., an industry trade organization.

Expected Topics

As for Murdoch, no one knows yet exactly what news his speech will contain, but investors are hoping for some comments on the competitive landscape and how he plans to develop MySpace.

"I think Murdoch's comments will likely focus on several ongoing initiatives at FIM— including MySpace—which are aimed at ramping up online advertising and broadband-video subscriptions," says Tuna Amobi, S&P's media equity analyst. Amobi believes that anything Murdoch says will be consistent with News Corp.'s previously stated target of about $500 million in revenues for the online unit in fiscal 2007 (ending June). "We're also likely to hear comments about the Google/MySpace relationship, including the potential impact of competition with YouTube," adds Amobi.

According to Amobi, Murdoch may also provide updates on several content initiatives on the wireless/mobile front—including the so-called "Mobizzo" platform. He may provide some updates on MySpace's current international push—focusing on Europe and the Asia/Pacific region, including fast-growing China. He will also likely talk about the digital initiatives at the film studio, Fox Network's ratings rebound (due to hits like American Idol and 24), and new plans for News Corp.'s cable networks (FX, Fox News, etc.).

The two chief executives are clearly embracing online opportunities. The proof that Diller and Murdoch believe in new media's promise is evident in their companies' investments in, partnerships with, and acquisitions of online businesses, according to S&P analysts.

Sender is a reporter for Standard Poor's Global Editorial Operations.

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