By spending $188 million to take control of the Jamba mobile entertainment business, media giant News Corp. (NWS) continues a pattern of investing in risky but promising new technologies.
News Corp. has been an early adopter in an array of emerging platforms, from satellite TV to social networking. Last year, it acquired social networking leader MySpace for $580 million at a time when skepticism about the prospects for developing a business model around the platform were high. So far, that deal has been a success (see Businessweek.com, 8/11/06, "Will Viacom Remain a Wallflower?").
CLOUDY OUTLOOK. On Sept. 12, News Corp. said it would acquire 51% of Jamba from Internet security company VeriSign (VRSN). Like News Corp.'s earlier bets, this one offers both ample opportunity and risk. Jamba is best known for marketing the Crazy Frog ringtone for wireless phones. Crazy Frog was wildly popular in 2005, but Jamba's revenues crashed as customers and regulators in Europe balked at subscription fees that confused many users. (see Businessweek.com, 9/30/05, "VeriSign: Down, but Not Ready to Croak,"). Jamba revenue soared from about $180 million in 2004 to $500 million in 2005. It's expected to generate about $300 million in sales this year. VeriSign said the revenue outlook for Jamba is stable now.
News Corp. also is assuming risk by delving into mobile entertainment at an early stage, when the outlook is hardly clear. "With the exception of MobiTV, others have not had great success with wireless video," said Albert Lin, an analyst with American Technology Research (see Businessweek.com, 7/13/06, "MobiTV Lands a Cool $70 Million").
Companies such as Disney (DIS) have struggled to find their footing with mobile video, according to Lin. That may start to change next year, as wireless companies deploy new technology for broadcasting video to handsets. "But I see that as a risk for News Corp., because it could turn out to be that using the new mobile broadcast technology would make more sense," Lin said.
MYSPACE POWER. News Corp., with a market cap of $74 billion, can well afford the risk. If it can make the deal work, the payoff could be huge. Fox Mobile Entertainment President Lucy Hood said she thinks that placing Fox content from shows such as The Simpsons on a new global distribution platform is a very strong combination. "It will be the first vertically integrated mobile entertainment company, combining content, marketing, distribution, and technology," Hood said in an interview. She will become CEO of the joint venture.
While Fox's Mobizzo mobile entertainment brand has yet to rack up much revenue, Hood has had some successes. She launched a highly successful text messaging campaign for American Idol, allowing viewers of the show to use their phones to vote for their favorite contestants. Messages soared from a paltry 12,000 to a stunning 65 million. Hood also developed Fox's Modisodes, made-for-mobile programming, geared around the hit show 24.
Fox also can use Jamba to tap the power of MySpace. The social networking unit is part of a separate division called Fox Interactive Media. But Fox Mobile Entertainment will be able to use MySpace to sell music.
MORE CRAZY FROGS NEEDED. VeriSign was more than willing to end its rocky stewardship of Jamba. The News Corp. deal will allow VeriSign to make money on its Jamba investment and give up control to News Corp. "News Corp. has the right attributes for running this joint venture," VeriSign CEO Stratton Sclavos said in an interview. The one risk is that any legal liabilities that emerge from Jamba's regulatory issues will remain with VeriSign, Sclavos said.
VeriSign acquired Jamba, which is based in Germany, in 2004. It uses its own technology to distribute content to wireless carriers in 30 markets around the globe.
The greatest unknown may be consumer demand for mobile entertainment. So far, 70% of wireless data revenue comes from text messaging, a relatively low tech but simple and ubiquitous technology, according to Lin. With margins of 90%, it's a huge profit maker for wireless carriers, too. The ringtone business has been successful, but hasn't lived up to the hype, Lin says.
Consumers have balked at Jamba's subscription fees. The ringtone business doesn't produce a hit like Crazy Frog every month, so consumers tire of regular charges. But Lin says News Corp. may have a better shot at getting consumers to pay monthly fees for recurring shows such as 24, which generate a steady supply of content.
There are plenty of risks in this deal. But for News Corp., that's nothing new.
Rosenbush is a senior writer for BusinessWeek.com in New York
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