A kind of madness infects Old Media companies when they encounter new media. Web sites are easy and cheap to set up, and it’s hard to copyright an idea. The simplest solution to a good internet idea is to copy it, but old media companies get crazy and instead pay silly money to own an existing brand – not understanding that today’s “hot” internet brand is tomorrow’s forgotten one.
If we know one sure thing about internet users, it’s that they chase novelty. The growth of social networking, online video, and lolcats, among other things, is entirely driven by bored office workers (I speak from experience). Anyone considering the purchase of such a site now should think again.
In credit crunch times, as companies look to cost saving, they’ll be watching the internet use of their employees very closely indeed. It seems you’ve been spending 6 hours out of every 8 that you should have been working looking at cat pictures with funny captions. A monkey would be more efficient. You’re fired.
When Time-Warner “merged” with AOL in 2001, the joint company was valued at $164 billion. Around $60 billion of that value was wiped off within 12 months, when people started to realise just how badly Time-Warner had overpaid for the “merger”. What did they think they were buying? AOL was basically an Internet Service Provider with some of its own content. The chief characteristic of an AOL user, back in the day, was that they were generally technophobic, couldn’t cope with the idea of configuring their own computer, so plumped for AOL because it seemed easy in comparison to a traditional ISP.
All it took was for the ISPs to produce a foolproof way of setting up and getting online – which they did, and it didn’t cost $60 billion. At the time of the merger, AOL had somewhere over 20 million users; they now have 6.9 million (even that is remarkable!). Earlier this month, AOL announced an operating loss of $1.9 billion, while the larger company (AOL-Time-Warner) posted a loss of $16 billion.
Why did AOL lose so much money? Because they overpaid for Bebo, the social networking site favoured by younger teenagers in some parts of the world. Do they never learn?
Rival media conglomerate News Corp paid $580 million for MySpace, at about the time that its users were deserting it in droves for FaceBook. At the time, Rupert Murdoch claimed that traffic from MySpace would be driven to his Fox TV network web sites. Really? Did he really think that? What kind of flawed logic is that? He wants traffic from MySpace to go to Fox so that he can sell advertising on Fox? Why wouldn’t advertisers just buy ads on MySpace instead?
Our own beloved ITV paid something like £175 for FriendsReunited, which seems like small change in comparison to the above, but it was still a questionable move, because (again) the site (one of the first of the social networking sites) was already past its peak, no longer a novelty, and has since lost about two thirds of its “unique monthly users”. Analyists are now saying that Friends Reunited could be worth as little as £20m.
An even bigger question is, how many people were inspired to switch on ITV after seeing FriendsReunited? How many were inspired to use the web site after seeing it sponsor a programme on ITV? I bet they were talking about “synergy” when they paid £175 million for it. What are they talking about now? Is there a flashy made up word that means “record losses”? (The opposite of synergy is antagonism, but I think the word we’re searching for here is “agony”.)
FaceBook, ironically, hasn’t yet been purchased, and a lot of analysts are claiming that the guys who founded it have missed out on a big pay day by now, because nobody will be crazy enough to pay that kind of money again. If there’s a pattern here, though, it’s that users start to leave a service as soon as it is purchased by an old media company. Perhaps there’s a noticeable increase in obtrusive advertising whenever that happens; or perhaps people just don’t like old media companies. Whatever, they soon find somewhere else to gather.