A friend of mine, coincidentally a former employee of Auntie, refers to the days of the Internet bubble, when the prevailing wisdom was that anything with a dot-com connection should be floated separately as it could generate ludicrous amounts of cash, as “BBC” – “Before Boo Collapsed”.
I’ve unburdened myself here before about how nauseating it was that a former Swedish model could sufficiently charm financial editors into believing that the wasting of other people’s millions made her in some way the object of sympathy. So let us not revisit the collapse of Boo.com and the dreadful hubris and naivety it represented.
But it is undeniable that Boo.com was a watershed in the commercial history of the Net. Not only did it the degree to which the corporate finance and venture capital community had conspired during the inflation of the Net bubble, but it led proper business people to ask what the Net really represented in terms of future commercial opportunity.
As another friend, who runs a listed Net business, told me the other day, he is fed up with people telling him that “the Net is not going to go away”. He has, as he fragrantly puts it, had “the arse shot off his share price”, but he does appreciate that the Net is not some passing failed product, such as the Sinclair C5, but a new economic paradigm shift, like the telephone or the steam engine.
It follows that we have to decide how we are to manage it. I make the point because it is germane to the way in which we view the valuation of a company such as United News & Media, which last week abandoned its &£8bn merger with Carlton Communications. Attention has centred, not without some justification, on the carve-up between United, Carlton and Granada of British independent television franchises.
I leave the analysis and debate of that issue to others better qualified in the media industries. But United is a fascinating business in the Net markets too. And it represents exactly that syndrome to which I refer – how an established British business integrates its Net businesses and values itself as a consequence.
I do believe that coverage of United has focused unduly on the TV issue. United has about half its people in the US, but from recent reporting you might assume that its whole asset-base is UK-placed and consists entirely of TV franchises and Express Newspapers. The reality is that United has some hot Net properties, such as Dotmusic.com, though after recent insurrections in dot-com markets they dare not breathe their own names in polite company.
Attention will start to turn to these Net properties just as soon as United has disposed of those TV interests (to Granada, presumably). The debate will be about how to value the likes of Dotmusic – an online pop-news and music portal – precisely because it will be assets such as these that constitute United’s value in any capital markets in which it is valued. All that will be left otherwise is Express Newspapers – and there are plenty that say that this asset is on the sale list.
There is something of a debate going on within United not only with regard to how these assets should be valued, but also where they should be valued. By that I mean that there are those within United – and I understand that United’s chairman, Lord Hollick, has some sympathy with this view – who feel that the Net interests should be separately floated, while others believe that they should remain integrated.
The faction that would go for separate flotation are, as my friend would put it, adopting a commercial psychology that is very BBC. Before Boo collapsed, this was the way to raise cash – and absurd amounts of it, too. In wiser and more chastened times, it is thought that Net businesses should be integrated into the fabric of business life. There are those who would go further – Net businesses do not have a life of their own, but depend on the expertise and marketing models of the “old economy” (for which please read “core economy”).
And it is precisely in this kind of arena that a business such as Dotmusic can prosper. It currently resides in the United empire alongside its trade-magazine interests in Miller Freeman. That means that it has the access to and cross-fertilisation with its old-economy counterpart, Music Week.
If Miller Freeman is worth more than the sum of its parts by keeping ownership of Dotmusic alongside Music Week in this way, then there are any number of trade and technical enhancements that can be made through linkage with Net assets at Miller Freeman. It might even represent the way of the future for Net businesses – not as separately valued entities, but as an integral part of industrial development.
This will come as bad news, however, to corporate financiers and vulture capitalists. The whole joy of Net development for them has been the cash that they swallow and the cash that consequently has to be raised in the capital markets on their behalf.
But that bonanza may be over and, if it is, the economy will be better for it. What United chooses to do with Miller Freeman and Net interests such as Dotmusic could well be a signal that this market has grown up.
George Pitcher is a partner of issue management consultancy Luther Pendragon