A Wild Ride - Industry Trend or Event

"The report of my death is an exaggeration."

Mark Twain said that in 1897 after seeing his obituary in a local paper. The same thing could've been said of the stock market last week amid 500-point plunges and recoveries that left investors relieved, yet exhausted.

Without question, the pressure for a correction has been mounting for some time. It was Microsoft Corp.'s legal tussles with antitrust regulators, (see story on page 12) that tipped the scales and sent investors into a selling frenzy April 4.

Although things calmed down by week's end, there was little consensus whether the market would plunge into bear territory.

Despite the chaos, media executives see several new trends developing. First, old economy stocks are more elastic than experts previously thought. The Dow Jones Industrial Average remains down for the year, but investors are revisiting the bricks-and-mortar securities after ditching them for more glamorous Internet and high-tech sector stocks.

Second, there is a growing realization among media companies that the largely downward gyrations of the NASDAQ are making it more difficult for Internet start-ups to access capital, which could help established players.

"We're in the middle of great correction," said George Bell, president/CEO of Excite@ Home at Schroders/Variety Big Picture conference last week in New York. "It's acceptable and probably overdue."

Here's how traditional media companies may benefit. First, investors are increasingly looking to plow money back into safer traditional businesses like Procter & Gamble and GE. P&G is a huge advertiser and the stronger it is, the more media advertising it buys. GE is heavily enmeshed in various old and new media companies. The stronger it is, the higher the value of its media assets.

Second, cable operators are facing a myriad of potential competitors from the Internet, many of whom may not now make it. Some analysts expect Internet companies will experience difficulty in attracting financing as they go back to the market.

If upstarts have trouble attracting investors' attention, that may open the door to more traditional -- and generally more financially secure -- companies to enter the market. CDNow, the online music site, is facing tough financial times, which could make it easier for Time Warner or Viacom to solidify their position in that space.

Operators also are trying to determine which e-marketers should command valuable shelf space on cable TV portal screens. The marketplace is now weeding out weaker entrants.

The downside is that media companies own stakes in some financially tenuous Internet firms. Should those companies go belly up, media companies will end up with write-offs.

The gloom and doom of last week's volatile market extended to an e-commerce conference held in Las Vegas last week, where attendees echoed comments made at The Big Picture conference held across the country: The market correction will leave standing only companies with sustainable business models. In many cases, that means strong links to traditional media companies.

"As you see the market crunch, money has rotated out of the hot stocks and into the bricks-and-mortar companies," said Chris Kitze, vice chairman of NBCi. "Having a backstop like GE is great. People are looking for companies with long-term business models."

"There have been about 250 Internet IPOs in the last 18 months," said Janco Partners Inc. analyst Ted Henderson. "Clearly, they all can't make it, especially if they have to go back to the market for more money to operate."

Priceline.com vice chairman Jay Walker believes the Internet stock slide will cause a restructuring of the economy as companies consolidate and create partnerships and spin-offs.

"It makes it harder for smaller, nascent IPO companies," Bell said. "It will make it tougher to make a pure start."

Doubleclick CEO Kevin O'Connor doesn't think IPOs will stall for long. "IPOs will shut down for 30 days but then it will come back." If anything, the slide may knock out the ability of companies with $300,000 in revenue to go public, O'Connor said, which would be a beneficial reduction in the Internet herd.

The question, said Amazon. com CEO Jeff Bezos, "is how much time to do want to give to Internet companies?" The answer is probably not as long as last year.

Some 30 Internet-related dot.coms will run out of money within the next six months, according to a study from Barron's. Many are trying to entice investors with new rounds of public offerings. In 2000, 38 publicly traded Internet companies raised 816 billion in capital though secondary offerings, Barron's reports. That's a five-fold increase in the number of secondary offerings at this time last year.

"An Internet firm that's blown through all its initial money and has no real business plan will not be received well by investors," Henderson says.

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