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3 Signs of the Future of Media


...all information will come from databases and servers and the companies with the most robust infrastructure to manage this information, make it personal and relevant and do it fast will be the leaders of all forms of media from this point forward.


We're seeing the new convergence model – the combination of social networks, gaming, entertainment and advertising is right around the corner.

Every once in a while I get an email asking about the media space. I came to Minyanville in 2005 because of the changing media landscape and the belief that we will make the 'Ville the leader of a new media revolution. Today, Minyanville is a place that entertains and educates and we're well down the road to being an incredible community for all generations.

Most recently I received emails from Minyans asking about the changing media landscape and what's next.

"I am very interested in your thoughts on the recent online media action with Google (GOOG)/DoubleClick, Microsoft (MSFT)/Aquantive (AQNT), and yesterday with WPP Group (WPPGY) and 24/7 Real Media (TFSM) and what might be the next logical action by Yahoo (YHOO) or others in response.

All the best,

Minyan Triple M, Gerry & Mike

With the acquisitions of Doubleclick by Google, 24/7 by WPP and Aquantive by Microsoft the landscape is changing dramatically and the ability to control the flow of information – data, video, audio, advertising, etc. - is being controlled by a few select companies. In April of 2005 I wrote about the notion that the new media revolution will be centrally served, and again in September of 2006. The general premise is that all information will come from databases and servers and the companies with the most robust infrastructure to manage this information, make it personal and relevant and do it fast will be the leaders of all forms of media from this point forward.

Here are the three core tenets of what's happening in the media marketplace:

1) There is no TV or PC, only input devices (remote controls, keyboards, cell phone touch pads) and output devices (Plasma and LCD screens).

2) Everything will be centrally served. All video, audio, text (essentially data) will be served from a central server system – call it the "media central nervous system." If Google has its way, it will be the brain!

3) Convergence is not about the TV and PC, it's about the convergence of social networks, gaming, entertainment and advertising.

How does this all translate into investment opportunities? At the moment, it's making it very difficult to invest in new media. There are great opportunities in infrastructure and network providers with companies like EMC Corp. (EMC), Akamai (AKAM), Qwest (Q), Level 3 (LVLT), AT&T (T), and Verizon (VZ), but beyond that, investing in new media has become a difficult task and private equity is reigning supreme – think about what Sequoia made on the YouTube acquisition by Google! The mid tier acquisition targets have been taken, what's left are the bigger content companies and a host of potential mergers.

Big Deal!?

We're going to see a few very big deals in the months ahead (although the definition of "big" has certainly changed in the past few years). These deals will be for content providers both big and small. The obvious choice is Yahoo and I think the buyer will be surprising - Newscorp (NWS) or General Electric (GE) maybe? The networks need a platform like Yahoo to expand and they certainly have not found the magic sauce. This week, CBS (CBS) bought a startup called WallStrip. Our friends at WallStrip did a great job building equity in one program and it paid off. There are a lot of smaller content providers out there, but unfortunately none of them are public.

I could also see companies like Electronic Arts (ERTS) and Activision (ATVI) as targets. Online gaming will take off in the years ahead as bandwidth constraints decrease. This is probably a few years out though. Think about it: you're watching the latest episode of 24 and and as Jack Bauer walks off the beach you pick up your wireless game controller, Jack steps into a Second Life virtual world and hops into his Ford pick-up truck. You're controlling the car and the story and you outrace the helicopters and earn points that are redeemable at McDonald's (MCD). You get the idea. In the next five years we will see a new convergence model.

Right now we're in an exciting time, but a bit of a lull. You have to ask "Where are the opportunities" We need to take a closer look at why more new companies aren't going public. Facebook is a great example. If it were 2000 we would have seen incredible IPOs of Facebook, Myspace, YouTube and a host of other content players. But we're not and it's frustrating to say the least.

Someone should have snapped up Doubleclick years ago. I told WPP to buy Doubleclick in 2000, '01, '02, '03. I met with Kevin O'Connor, the CEO and Kevin Ryan, President at the time to talk about a deal. Instead WPP waited and bought 24/7.

The short answer is we are sitting in the eye of a hurricane and this is simply the calm before the storm! We will see a spree of acquisitions as new companies in content and media build momentum to potentially go public and create a new crop of great investment opportunities.

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Positions in LVLT, T, VZ, YHOO
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