Fishing 4 survival - media forced online
Under pressure from falling ad sales, media companies are buying websites to defend core markets, writes Heather Connon for the Observer.
At the end of the 1990s, media companies were falling over themselves to buy into the internet boom. Now the race is on again, with ITV poised to acquire Friends Reunited, joining companies such as BSkyB, Emap, Trinity Mirror and the Daily Mail, which have added Internet businesses to their portfolios.
Last time round, the attraction was the promise of spectacular growth; in fact, virtually the only things that grew were losses and dotcom bankruptcies. It is hard to think of a media company which can boast that its new technology investments were an unqualified success.
This time, the spending spree is fuelled as much by the need to protect their core as to break into fast-growing markets. While there is much talk of multi-platforms, synergies and serving the needs of customers, the reality is that the Internet is tapping into the growth and customer bases of traditional media, and if the companies do not react they could find their businesses shrinking sharply.
Consider some random statistics. The Advertising Association predicts that advertising on the net will grow by nearly 40 per cent this year compared with last. Recruitment advertising in the national press has fallen steadily for the past 12 months, despite a buoyant job market, according to the Recruitment and Employment Confederation, and is now half the level it was six years ago.
ZenithOptimedia predicts that the Internet's share of the total advertising market will rise to 6.9 per cent in 2007, compared with 1.2 per cent in 2000, while TV, radio and newspapers will all suffer. Procter & Gamble in the US has cut its television budget by a quarter, redirecting some of that spending online.
Small wonder that there is a bit of panic-buying of Internet sites. ITV's interest in Friends Reunited - for a price which could be as high as £170 million - looks like a typical example. One analyst, who preferred not to be named, likened it to 'buying the last loaf on the shelf simply because it is there rather than because you like walnut and olive bread'. Another said that whatever it did with Friends, it would remain a sideshow compared with whether it can address its core problem of spreading its programming budget across a growing number of channels - ITV4 launched last month - and maintaining its share of advertising revenues.
ITV is saying nothing before a deal is concluded, which could be some weeks away. But industry experts say it will be attracted by Friends' strong internet presence - it has 12 million paying users and is the sixth-biggest site in Britain, behind international giants such as Google and E-Bay - and its proven ability to extend its brand; it has already moved into jobs, dating and genealogy.
ITV is working hard at doing the same, with products such as its ITV Mobile service, which will get yet more interactive features with next week's launch of extra streaming services for Who Wants to be a Millionaire? - and its ITV Local broadband service which is being tested in Brighton and Hastings.
ITV's interest in Friends has echoes of Emap's purchase of Worth Global Style Network. While we may never have heard of it, Emap says it is the must-have net accessory for fashionistas, giving them essential information on the season's colours, patterns and other trends.
Emap is more aware than most of the need to replace revenues migrating to the Internet: its Nursing Times publication is expecting a 30 per cent fall in revenue after the cash-strapped NHS decreed that all nursing jobs should be advertised solely on its own website, something other government departments could easily follow. But the City remains to be convinced that WGSN will plug that gap and is unconvinced by Emap's talk of integrating it into its mix of consumer publications, conferences and radio stations.
The company talks about leveraging it through its conference business or its retail and fashion publications. Once again, however, the City will need some convincing that it can justify the £140 million cost of the acquisition.
The strategies of other media companies, such as Trinity Mirror or Daily Mail & General Trust, look rather more defensive. Trinity has spent around £80m buying up Internet advertising networks such as smartnewhomes.com and recruitment sites hotgroup and GAAPweb, while DMGT paid £36m for jobsite and has since added a few smaller recruitment sites.
Nick Fullagar, director of corporate communications at Trinity Mirror, admits that the acquisitions are partly defensive: 'You would clearly expect any company to have an element of that. But we do see a much bigger opportunity to grow revenues in new markets.'
He points to the experience of Fish4, the homes and jobs website in which Observer parent Guardian Media Group also owns a stake where, he says, Internet adverts represent extra revenue on top of the print revenue, rather than a diversion from other sources.
'Hotgroup gives us national coverage. In Leeds, for example, where we have no regional papers, we can now reasonably attack the jobs market there.'
He thinks that the spate of Internet acquisitions is different to that of the 1990s partly because the targets are now real businesses with - occasionally - real profits and real subscribers rather than just a good idea and some whizz kids.
Like other media groups, Trinity has been building its own web operations for its newspapers, so has already developed the infrastructure and technology.
'When we buy a company, we are not worrying about the technology which is driving it, we are very much looking at how it fits into the portfolio as an integrated piece,' Fullagar says. 'We look at what the important sectors are for us and question how we can extend it and reach new markets. It is not that the race is on and we have to win it.'
He does, however, take some pleasure from the fact that Trinity set out its net strategy before Rupert Murdoch, whose conversion from Internet sceptic to slavish follower could be described as Damascene. He has spent more than £700m in the US buying up websites such as Myspace, a social networking website, a series of entertainment websites under the IGN umbrella and the Scout Media college site. Here, his BSkyB satellite business has reacted to the encroachment of Freeview's free channels by buying broadband business Easynet.
It is already clear who has won the Internet land grab - companies such as Google, Yahoo and EBay dominate their respective spaces and search alone accounts for more than a third of the time we spend online. The real challenge for the media companies is to make sure they can make the most of what space is left and somehow maintain their advertising revenues.
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