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Why Time Warner and Comcast Have the Right Idea

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This is how I will live my investment life. Pick them while they're hot.

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It's the same old story,
Same old song and dance,
My friend

-Aerosmith

Before I get to Time Warner (TWX) and Comcast (CMCSA), a brief history lesson:

It's January 1998 and things are out of control. No really. They are truly out of control. Two companies in particular are running off the charts on IPOs and market place Buzz.

TGLO and GCTY were HOT! But don't try to look them up today. Community is all the rage and giving the consumer control is the foundation for a new "virtual economy" where data and information is the new currency.

Wow, this sounds familiar and with a lot riding on it today. It seems we're seeing the same cycle, but by all accounts, the pricing is a bargain compared to what happened in 1997-1999.

January 28, 1999; Yahoo! (YHOO) acquires GeoCities for $3.56 billion. All I have to say is WOW! Well, if that's the case, then MySpace got ripped off. But wait?!? Where is GeoCities now? It's a byline!

"Yahoo!'s acquisition of GeoCities proved extremely unpopular and users soon began to leave en masse in protest at the new Terms of Service put out by Yahoo! for GeoCities. The terms stated that the company owned all rights and content, including media such as pictures. Yahoo! quickly reversed its decision. In July of 1999, Yahoo! eliminated neighborhoods and street addresses from homesteader URLs. These were replaced by "vanity" URLs consisting of . Soon, after a lawsuit was filed against AOL by its volunteer group of community managers, GeoCities' volunteer program (Community Leaders) was terminated.

In 2001, amidst speculation by analysts that GeoCities was not yet profitable (it having declared an $8 million loss for the final quarter of 1998), Yahoo! introduced a for-fee premium hosting service at GeoCities." -WIKIPEDIA


Wait…a company that made $10 million in 10 months in 1998 sold for $3.56 billion three months later?

Oh, but wait, this story gets better…Anyone recall "The Globe!?"

It's sort of a sad story. After all, as the company says, "theglobe.com is a vibrant online community where millions of people around the world interact with each other around common interests and passions. That's the promise of the Internet, and how can you argue with that? But the problem, as we've seen time and time again in this post-bubble era, is turning a profit on those collective passions and interests." -Motley Fool 1998

This is a company that was worth $127 million in 1999 off revenues of $29 million and today the company is not more than a byline.

Now you ask: "So what's the point Kevin?"

This weekend an article ran in the New York Times on MySpace and the management team's efforts to monetize the business. The company is making some money and by old standards, it would be a great investment as an independent IPO of a company that could become a new network. The model is radically different - create an audience - find content to keep them interested and then figure out a way to monetize it. It's the exact inverse of the old media guard, yet the same as another old media guard.

I spent the 1990's scratching my head. Some would say I was an idiot. Actually, I would say I was an idiot. I could be retired today, sitting on a beach somewhere while my G5 idled at the airport waiting to whisk me to the next local – but NOOOOOOOO. I had to live by my moral compass and ask "where's the business?" I asked this of Geocities and The Globe's main sales guys back in 1999 as they pitched for my clients' ad dollars. I simply couldn't see the mirage.

Here's the secret, mass audience does not necessarily equal revenue. A focused group of people with a common mission and purpose is called "community." Community without a purpose or mission is simply called…"people." The age of the mass audience is dead. The age of the niche audience is well and alive. It's vibrant and growing. Companies like Yahoo! get this. Companies like Google (GOOG), get this. Companies like NewsCorp (NWS), well…you have to give them an A for effort so far.

New strategy: This is how I will live my investment life. Pick them while they're hot. Take Google for example. Heck, there's a boat that I missed – hmm maybe call it a Yacht. Ship?!? But there will be other boats and a few yachts along the way. I like the cable model. I like Comcast (CMCSA) and Time Warner (TWX), because these are businesses predicated on niche audiences. Cable is the closest model to the internet that we have.

Companies focusing on building vertical networks – they're starting to grow again like Revenue Science and Tacoda and Tribal Fusion. 24/7 (TFSM) and Value Click to name a few could become hot properties. The only publicly traded group that I've looked at is TFSM. Yahoo! and Google are going to continue to do well because they're easy. They essentially are their own networks. And when a TWX or CMCSA can harness the broad spectrum of internet properties to create their own networks, they too will yield some nice ad revenue results.

Positions in TWX, YHOO
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