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Merger rumors streaming
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March 15, 1999: 11:15 p.m. ET
Broadcast.com chief says rival RealNetworks is in play
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AUSTIN, Texas (The Red Herring) - In a keynote speech opening the South by Southwest Interactive Festival on Sunday, Broadcast.com Chairman Mark Cuban made a number of bold predictions about the streaming video industry.
One attention-getting sound bite -- much talked about by attendees Sunday morning even before Cuban delivered his speech -- was his claim that "MP3 is going to die." The popular music download format would fade into the background as yet another codec, or compression-decompression format, he said.
Boldest of all, though, was Cuban's claim that streaming video content rival RealNetworks (RNWK) would be acquired in a year's time.
"Streaming media will become so important that RealNetworks will be bought within a year or so," he said. "It could be a telco, it could be AOL (AOL), it could be Broadcast.com (BCST) -- in 12 months, who knows?"
The latter scenario isn't entirely implausible. RealNetworks arguably has a stronger technology position -- it makes streaming video player software on which Broadcast.com depends, while both companies compete in aggregating video content and maintaining facilities for delivering Internet broadcasts. But Broadcast.com's market capitalization has surged to $3 billion, neck-and-neck with RealNetworks.
In 1998, Broadcast had revenues of $19 million and a loss of $15.6 million. RealNetworks's revenues for the same period were $64.8 million, with a loss of $24.7 million, due largely to a $17.9 million acquisition of Vivo Software in February 1998.
RealNetworks' "valuation is too low not to be acquired by the vendors who are dependent on it," Cuban said.
Projection
Video content providers like Broadcast.com and RealNetworks have two valuable assets: large audiences and bandwidth-hungry content. Portals like America Online and Yahoo (YHOO) are eager to keep their share of the online audience as broadband access grows, while new-wave telecommunications companies like Qwest (QWST) and Level Three Communications (LVLT) are building immense fiber networks that will need to be profitably filled with data traffic.
"I don't believe that we're in play," said Jay Wampold, a RealNetworks spokesperson. "Rob (Glaser, RealNetworks chief executive) takes a long-term view of what the company is trying to do. He's not considering anything besides building a company long-term."
But Cuban stood by his claims after the keynote, saying he had discussed industry consolidation scenarios with Glaser.
"Rob and I have talked," said Broadcast.com's chairman. "He knows he's in play." Glaser said, through a spokesperson, that such a conversation had never taken place.
Cuban's claims may also have been aimed at boosting his own company's merger prospects.
"Think about it," said one Yahoo insider. "What doesn't Yahoo have right now?"
The portal has a breadth of content offerings, but doesn't currently broadcast streaming audio or video directly. Yahoo has been stepping up its acquisition activities, announcing a $3.6 billion acquisition of GeoCities (GCTY), a community-oriented home page hoster, in January.
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