Yahoo! in talks to buy Broadcast.com

Summary:A deal would help Yahoo! meet the growing demand for media-rich services.

Yahoo! Inc. has been in talks for a week to acquire Broadcast.com Inc., raising the possibility of a stock swap that could quicken the pace of audio and video usage on the Web.

Shares of Broadcast.com (Nasdaq:BCST), a Dallas-based Internet broadcaster, surged 37 percent Monday amid speculation about just such a deal. The online edition of Business Week magazine reported Friday that the two companies were negotiating. Broadcast.com's stock closed up $31.50, at $116.50, on the Nasdaq Stock Market, while Yahoo! (Nasdaq:YHOO) shares declined $5 to $165.

The stock jump boosted Broadcast.com's market value to about $4 billion. Even before that rise, people familiar with the matter said that Yahoo! had internally discussed offering between $110 and $120 a share for Broadcast.com. They added, however, that Yahoo! might not be willing to pay much more, noting that the deal faces other hurdles and could take as long as two weeks to negotiate in any event.

Both companies declined to comment Monday. But Yahoo!, which has grown from an Internet directory into a broad portal for information and commerce, has become increasingly eager to solidify its position on the Internet as powerful competitors begin to consolidate and launch challenges. People close to the situation said Yahoo!, based in Santa Clara, Calif., is "serious" about a deal -- which is being spearheaded by Yahoo! co-founder Jerry Yang and President Jeff Mallett -- in order to further extend its network of branded media sites.

A need for partners
Another motivation is the need to line up partners as high-speed interactive services -- which include audio, video and other multimedia data -- become a reality. Internet, telephone and cable-TV companies are all racing to offer such services to a wider audience. Yahoo!'s marketing muscle could accelerate acceptance of services pioneered by Broadcast.com, which uses the Internet to relay audio and video programming from radio stations, sporting events and corporate meetings.

"They [Yahoo!] are seeing the world line up and they don't want to be standing in place with their hands at their sides," said one person familiar with their thinking. "This is the time to move for them."

But the people familiar with the talks said stumbling blocks include worry by Yahoo! -- which has largely been profitable -- that the money-losing Broadcast.com would dilute earnings, high costs of expanding the Internet broadcast business and the potential for competing bids that could drive the price too high.

Yahoo! executives also have to complete a pending acquisition of GeoCities Inc., a community of Internet sites that Yahoo! agreed to buy this year in a stock swap currently valued at about $4.5 billion. Yahoo! executives want to close that transaction before the end of its current fiscal quarter, in late May, so it can consolidate financials with GeoCities.

Until the GeoCities deal, Yahoo! has been regarded as being a cautious deal maker, and had considered some acquisition opportunities that ultimately went to other companies. Recently, longtime rival Excite Inc. (Nasdaq:XCIT) agreed to be purchased by high-speed cable access service At Home Corp. (Nasdaq:ATHM) and America Online Inc. (NYSE:AOL) bought Netscape Communications Corp. (Nasdaq:NSCP).

Because of them and the broader industry trends toward consolidation, Yahoo! has begun to be more aggressive, including making a high-priced bid for GeoCities to freeze other suitors out. Yahoo! has also been striking distribution deals with computer makers and is in talks with cable and other communications companies about partnerships. In addition, Yahoo! is attempting to improve its service, developing a "Yahoo! Turbo" service for high-speed users, as well as broadening programming in other ways in order to keep users on its site longer. Yahoo! then leverages that audience into higher advertising and transactional revenues.

Rival bids possible
Adding features from Broadcast.com could help it further, though larger companies like Microsoft Corp. and AOL are considered possible alternative bidders for the company. But some industry executives think Yahoo might have an edge, because it has an existing relationship with Broadcast.com similar to one it had with GeoCities. More than a year ago, Yahoo! signed a distribution deal with Broadcast.com and took a minority position in the company, then called AudioNet, for $1,350,000.

Broadcast.com went public in July and its shares have tripled since then. They rose again last week on comments by Broadcast.com President Mark Cuban at an industry conference in Austin, Texas, predicting bullish future growth of streaming audio and video.

But the company has sustained only losses in its efforts so far, including a 1998 loss of $14.9 million on revenue of $22.4 million. It derives about two-thirds of its revenue from business services, such as hosting a video conference of a company's sales meeting over the Internet.

The company started in 1995 when Todd Wagner, an attorney, and Cuban, a computer-networking executive, learned about RealNetworks Inc.'s software for transmitting audio signals over the Internet. They decided they would help radio stations put their broadcasts online, initially trading their service to radio stations for the right to sell a few minutes of on-air advertising a day. Web banner ads later supplemented their revenue.

By the time the company went public in July, it had signed up more than 300 radio stations and locked in exclusive contracts to transmit most major college athletic events along with several pro sports. Even then, however, Broadcast.com's business services were beginning to surge as corporations recognized they could save thousands of dollars by holding a meeting via an Internet audio conference rather than a phone-company conference call.

Broadcast.com continued to explore new services, including the transmission of movies straight from a Hollywood studio through an agreement last month with Trimark Holdings Inc., a Santa Monica, Calif., film producer. Broadcast.com also recently garnered a lot of media attention from its Web broadcast of lingerie retailer Victoria's Secret's fashion show. Broadcast.com is currently ranked 14th by Media Metrix of all Web networks, with 8.9 million visitors, while the Yahoo! network ranks No. 2, with 31.1 million.

Nick Wingfield of The Wall Street Journal Interactive Edition contributed to this article.

Yahoo! Inc. has been in talks for a week to acquire Broadcast.com Inc., raising the possibility of a stock swap that could quicken the pace of audio and video usage on the Web.

Shares of Broadcast.com (Nasdaq:BCST), a Dallas-based Internet broadcaster, surged 37 percent Monday amid speculation about just such a deal. The online edition of Business Week magazine reported Friday that the two companies were negotiating. Broadcast.com's stock closed up $31.50, at $116.50, on the Nasdaq Stock Market, while Yahoo! (Nasdaq:YHOO) shares declined $5 to $165.

The stock jump boosted Broadcast.com's market value to about $4 billion. Even before that rise, people familiar with the matter said that Yahoo! had internally discussed offering between $110 and $120 a share for Broadcast.com. They added, however, that Yahoo! might not be willing to pay much more, noting that the deal faces other hurdles and could take as long as two weeks to negotiate in any event.

Both companies declined to comment Monday. But Yahoo!, which has grown from an Internet directory into a broad portal for information and commerce, has become increasingly eager to solidify its position on the Internet as powerful competitors begin to consolidate and launch challenges. People close to the situation said Yahoo!, based in Santa Clara, Calif., is "serious" about a deal -- which is being spearheaded by Yahoo! co-founder Jerry Yang and President Jeff Mallett -- in order to further extend its network of branded media sites.

A need for partners
Another motivation is the need to line up partners as high-speed interactive services -- which include audio, video and other multimedia data -- become a reality. Internet, telephone and cable-TV companies are all racing to offer such services to a wider audience. Yahoo!'s marketing muscle could accelerate acceptance of services pioneered by Broadcast.com, which uses the Internet to relay audio and video programming from radio stations, sporting events and corporate meetings.

"They [Yahoo!] are seeing the world line up and they don't want to be standing in place with their hands at their sides," said one person familiar with their thinking. "This is the time to move for them."

But the people familiar with the talks said stumbling blocks include worry by Yahoo! -- which has largely been profitable -- that the money-losing Broadcast.com would dilute earnings, high costs of expanding the Internet broadcast business and the potential for competing bids that could drive the price too high.

Yahoo! executives also have to complete a pending acquisition of GeoCities Inc., a community of Internet sites that Yahoo! agreed to buy this year in a stock swap currently valued at about $4.5 billion. Yahoo! executives want to close that transaction before the end of its current fiscal quarter, in late May, so it can consolidate financials with GeoCities.

Until the GeoCities deal, Yahoo! has been regarded as being a cautious deal maker, and had considered some acquisition opportunities that ultimately went to other companies. Recently, longtime rival Excite Inc. (Nasdaq:XCIT) agreed to be purchased by high-speed cable access service At Home Corp. (Nasdaq:ATHM) and America Online Inc. (NYSE:AOL) bought Netscape Communications Corp. (Nasdaq:NSCP).

Because of them and the broader industry trends toward consolidation, Yahoo! has begun to be more aggressive, including making a high-priced bid for GeoCities to freeze other suitors out. Yahoo! has also been striking distribution deals with computer makers and is in talks with cable and other communications companies about partnerships. In addition, Yahoo! is attempting to improve its service, developing a "Yahoo! Turbo" service for high-speed users, as well as broadening programming in other ways in order to keep users on its site longer. Yahoo! then leverages that audience into higher advertising and transactional revenues.

Rival bids possible
Adding features from Broadcast.com could help it further, though larger companies like Microsoft Corp. and AOL are considered possible alternative bidders for the company. But some industry executives think Yahoo might have an edge, because it has an existing relationship with Broadcast.com similar to one it had with GeoCities. More than a year ago, Yahoo! signed a distribution deal with Broadcast.com and took a minority position in the company, then called AudioNet, for $1,350,000.

Broadcast.com went public in July and its shares have tripled since then. They rose again last week on comments by Broadcast.com President Mark Cuban at an industry conference in Austin, Texas, predicting bullish future growth of streaming audio and video.

But the company has sustained only losses in its efforts so far, including a 1998 loss of $14.9 million on revenue of $22.4 million. It derives about two-thirds of its revenue from business services, such as hosting a video conference of a company's sales meeting over the Internet.

The company started in 1995 when Todd Wagner, an attorney, and Cuban, a computer-networking executive, learned about RealNetworks Inc.'s software for transmitting audio signals over the Internet. They decided they would help radio stations put their broadcasts online, initially trading their service to radio stations for the right to sell a few minutes of on-air advertising a day. Web banner ads later supplemented their revenue.

By the time the company went public in July, it had signed up more than 300 radio stations and locked in exclusive contracts to transmit most major college athletic events along with several pro sports. Even then, however, Broadcast.com's business services were beginning to surge as corporations recognized they could save thousands of dollars by holding a meeting via an Internet audio conference rather than a phone-company conference call.

Broadcast.com continued to explore new services, including the transmission of movies straight from a Hollywood studio through an agreement last month with Trimark Holdings Inc., a Santa Monica, Calif., film producer. Broadcast.com also recently garnered a lot of media attention from its Web broadcast of lingerie retailer Victoria's Secret's fashion show. Broadcast.com is currently ranked 14th by Media Metrix of all Web networks, with 8.9 million visitors, while the Yahoo! network ranks No. 2, with 31.1 million.

Nick Wingfield of The Wall Street Journal Interactive Edition contributed to this article.

Topics: Tech Industry

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