Rafat Ali and Staci Kramer joined forces to moderate and tag team a nice panel on dealmaking, Yahoo!’s Toby Coppel and former Fox Interactive Media CEO Ross Levinsohn were no-shows, FIM’s Mike Lang was kind enough to step in and pinch-hit, and he added a lot of good intel.
Anyway, the roll call:
- Quincy Smith, CEO CBS Interactive
- Esther Dyson, Chairman EDVenture
- Jason Hirschhorn, President Sling Media (formerly MTV Chief Digital Media, after MTV bought his company Mischief Media)
- Mike Lang, EVP, Business Development and Strategy, Fox Networks
(disclaimer: I was an IGN employee after it bought my old company in June 2005 and then a News Corp. employee after it bought IGN in October 2005, I left the companies in Dec. 2005 to start WatchMojo.com, they’re big fans of the site and have been known to check it out frequently…)
Ali asks: is there a clash of objectives, the goal of media now is to buy early while startups don’t want to sell early, something that MySpace is to this day criticized with.
Smith: We work with VC and investment bankers… a major plus in deals is acquisition of “startup DNA” that media companies sometimes lack, so not really a clash of objectives…
Ali then asks Lang on the difference and nuance between IGN vs. MySpace intergration
Lang: “Both integrated really nicely in News Corp. environment, but MySpace is so much larger, IGN is strong in vertical of video games with good assets, but MySpace is a lot larger than we expected. Resources gravitate to MySpace. Management: Chris DeWolfe has been a wonderful addition in terms of so-called startup DNA, that DNA was not in News Corp… Chris has become a point man on new ventures,” interesting, since a lot of rumors circulated on the MySpace guys not being happy with their proceeds in the sale.
Hirschhorn: “No blueprint for financing, but old media is into control, control of distribution and brand. Angel community is more forgiving (than media). In some cases, media is good at pitching themselves, while others are not. Fox and CBS are good, others are bad. ” Who is he referring to? His old company Viacom? Disney? You got a sense he’s pitching himself to Fox and CBS, who are sitting next to him. I’m kidding, Hirschborn is a riot… can’t tell when he’s serious or joking…
When it comes to the integration issue:
Lang: “What can we do with our brand… instead of using the acquired entity on a stand alone basis. The successful media companies let it be, they try not to win over control.”
Dyson: There’s no sense in the deal if you don’t give it money. Media can put in too much process, but the smaller firm has a challenge getting buyer to spend more after the paying price tag.”
True be that. At my old employer, for example (which is ironically now a part of FIM), the online publisher sometimes only publishes 1 or 2 new articles when back in the day it would publish 4-7/day… Of course, not my problem now, but that is something you see across the board.
Hirschhorn: Ask the right questions. Look for people on the buying side…
Smith: When we acquire audiences, the seller needs to know that they can’t control their audiences anymore, but sellers become the reps of the audience…” using MySpace’s Tom or Chris as example of people that then become reps of the audience to the parent company.
Kramer brings up the new GE fund, which I wrote about here and how it will affect the landscape.
Smith: CBS has done 4 deals since November, 2006.
Lang: “FOX made small acquisitions, but is not interested or a believer in minority investments… shareholders looking for value, and not returns. Long term value? Minority ownership does not give you any protection, it inadvertantly boosts value of the company you invest in and that runs counter to long term value for your shareholders.” This is consistent with what Ross Levinsohn would say about “we don’t lease, we buy,” by the way.
Hirschhorn: On IT and patents etc., he adds: “don’t need to own it, but do need to have a say in it.”
Smith: Lists Spotrunner as an example: “we tell them, ‘don’t exclusively work with us, be successful out and about, we need to understand what you do. Electric Sheep represents a toe in the world. We have cash, and we need to sprinkle our DNA and we need to be in the board room…”
Lang: “Of course, sometimes we have commercial relationships, but we don’t need to invest.”
Ali shitfs focus and asks what they look for when investing in US companies vs. around the world?
Dyson: ”A lot less ample opportunities outside, be it in India, Russia, Brazil, it’s much tougher… exits are harder.”
The panel gave a lot of good insight on what happens after deals materialize, so I asked them what was the biggest mistake an entrepreneur would make before, during dealmaking?
Just curious, no reason I’m asking, I swear.
Lang: “Mistake #1: Not being realistic about price or competiton, saying ‘we don’t have any competition…’ and mistake #2: just being way too influenced by VC who have a different mindset and push for a theoretical IPO.”
Hirschhorn: “It’s the old ’salary of stars’ problem, so mistake #1 - the entrepreneur want what company A got… it’s tough to have those competitions. Mistake #2 - there are always some management issues in term sheets… sometimes the best man to run after a deal is the chief product officer or a chief strategy officer and not the founder… yet the founder wants to be CEO.”
Smith: ”#1- Sometimes the buyers are great at telling you how to downsize business, not good at managing growth. It sounds funny but you need to have a 3 to 5 years plan… #2 - Truth is we on the buying side will make mistakes too…. speak up. But it’s a weird dynamic, both are in sales process… that song and dance has to stop. You are not doing any side a favor.”
Ali wonders how do you compete with Google who can spend anything on anyone? He lists MSFT’s turned down offer by DCLK who was not at all interested and favored Google, regardless of price.
Someone, I missed who, said: “It’s a bit like dating in high school… she tells you she’s not interested.”
Smith: “I think that had more to do with MSFT than Google…” though he was quick to add both MSFT and Google are great partners.
They were asked what they looked for in new deals:
Smith: “#1: We’re looking for reach/distribution. #2: We don’t compete with FOX, we compete with LonlyGrl, so we need new content, regurgitated content from TV does not work… we need to be in that business, the mentality to know how to do that…”
This was an eye-opener, I always thought that from an M&A perspective, if I wanted to sell WatchMojo.com, it would be more valuable to print companies looking to get more and more into the Web and video in particular, but it’s true that TV companies too need to understand that TV content repackaged online is not ideal… and even if it were, then it would eat away at their offline business, something I wrote here. But Smith was candid and humble to say that “TV networks can’t be close minded about this,” so I doubt all TV firms share this view…
Lang: FOX is looking for a) video applications be it content or platforms do things with video, b) international opportunitues and c) mobile.
Ali at one point asked whether companies can build businesses on top of other companies’ API, naturally Photobucket vs. MySpace came up, Lang deferred to Shawn Gold, who was sitting right behind me, but he did not want to address it (can’t blame the guy) though a Photobucket rep did say that “a) Photobucket is not a widget company and b) we hugged it out.”
Ali then asked about Skype/eBay:
Lang: That was lot of money. What was strategic rationale for eBay? Meg is hoping it becomes a communication tool… what you read is that it’s a whole new vertical business, that is a tough business with a lot of competitors…”
Incidentally, Lang mentioned that the Joost guys “are pitching the same technology… they keep saying ‘it’s the same thing we used on Skype,’ well, you would think that eBay would have protected itself then.”
This raises a couple of points: Mr. Lang is no doubt a smart guy, and I am not privy to the term sheet and contract of sale, but Joost uses P2P - like Kazaa and Skype did - but if eBay bought the Skype business, then using their expertise in P2P to do Joost does not seem, to me, to be a conflict of sorts. That being said, what I do see as a conflict is that the Joost founders are still technically involved at eBay… but then again, when you build and sell two of the most successful applications in the past 5 years, do you really care what anyone says?
Lang concludes “but I would not underestimate Meg and eBay… but it’s a pretty big price.”
Hirschhorn: “What are they gonna do with it… AOL bought Winamp. Yahoo! bought Musicmatch. What are they doing with it… I can see some things, but it’s sitting there.”
I really liked Hirschborn, but eBay viewed it as an entry point in a new business, but one that has hundreds of millions of users. Yes, it’s a big price, but eBay has high margins, spits out cash, is worth $40B and if it sits on his cash pile, that will hurt it more. Of course, $4B for any company with relatively small revenues is worth to be questioned, so I commend Lang and Hirschborn for not blindly sipping the koolaid.
I raised my hand to ask about Facebook, namely: “has Facebook priced itself out of the M&A category and on its way to an IPO? I wrote about this earlier here, and Ali did the honors of asking: “what about Facebook, how much longer before it’s acquired?”
Lang to Smith: “Is that one of your big deals? It’s a CMO’s dream…”
The room laughed, though if Smith’s for billions to buy, it’s not a bad place to park it. I do think that Facebook is on pace to be company of 2007, though it’s premature to say that for sure. See our post and audience poll here.
Smith: “You need to sell and buy from a position to strength… Myspace is a textbook deal: management core is in place… the reason why these so-called next generation networks are important, they do not incorporate traditional media tradition but they talk about it… That is very valuable.”
Dyson: “Should Facebook IPO?” Hmm. Maybe I should send her my post.
Hirschhorn: “I don’t know about IPOs, every public CEO I see is being walked into a courtroom with raincoats over heads, backdating is not a dating theme,” which drew a good share of laughs.
Lang: “Some companies have taken too much money, especially in these later stage financings at these high valuations. When you raise over $200M, it’s too hard to get a huge buyout.”
This was probably my favorite panel because the topic is what most interests me… definitely some good intel, and this panel, along with the entire conference only reiterated my belief in the value we’re creating at WatchMojo.com.
On that note, a couple of big announcements to come this week…
See all posts on EconSM here.
Subscribe: