MARKET STRENGTH OF 'NET STOCKS IS PUZZLING, TROUBLING

Media companies are shortchanged in latest burst of techno-enthusiasm

Last Monday I got two magazines in the mail – Forbes and Time.

What they had in common was a cover subject – both featured Jerry Chih-Yuan Yang, the 29-year-old co-founder of Yahoo, the web site that offers a variety of services, including directories and categorization.

Certainly part of the reason both magazines picked Yang as cover boy is that Yahoo Inc.'s stock price went above $200 a couple of weeks ago, thereby making Yang a billionaire (on paper, anyway). But with Forbes' lead time, the article supporting the cover picture (which is a group shot also featuring Jeffrey Bezos of Amazon.com, Sky Dylan Dayton of Earthlink, Halsey Minor of CNET and Kevin O'Connor of DoubleClick) didn't talk about Yang's wealth (he was worth but a mere $900 million at the time) so much as it celebrated the "Internet icons" – young technology entrepreneurs who have in part driven the stock market as well as the computer market.

Nonetheless, Yahoo has had a great deal of success in the Internet world, whether its market capitalization of more than $7 billion is an accurate reflection of its real worth or not.

Right now, web portals are hot. A portal is an entry-point to the World-Wide Web – Yahoo is one, as are Excite, InfoSeek and Lycos. For many people, America Online is a portal as well.

The combined market capitalization of these five companies is almost $35 billion. Interestingly, the market capitalization of the 19 publicly traded newspaper companies that NewsInc. tracks is almost exactly twice that. A further comparison could be made in that the stock market values America Online at almost $23 billion, while the leading newspaper company, Gannett Co. Inc., is valued at a mere $20 billion.

To give you a clearer picture of why the market is all out of whack on Internet businesses, let's compare and contrast: Gannett had sales last year of $4.85 billion, while AOL had sales of $2.28 billion; Gannett's net income was $905 million while AOL's was $72.9 million. And yet, AOL is valued $3 billion more than Gannett.

Back in ancient times – say, 1995 – the newspaper business was hot to get into the web business. The industry, in the form of nine newspaper companies, decided to invest some money – ultimately more than $30 million – in what became New Century Network.

We all know what happened with NCN – a troubled start, a troubled life (see NewsInc., March 16, 1998). In the last waning hours of the on-line partnership, the organization decided that it could become a portal to all the U.S. newspaper web sites.

What if that money had all gone into, say, Yahoo? What would the market capitalization of the newspaper business be today? (Unfortunately, knowing Wall Street, it would be much the same – the sexiness of the Web wouldn't rub off on newspapers.)

My colleague Christopher J. Feola returns to columnizing this issue with his thoughts on portals; I don't necessarily agree with what he's saying, but between the market's irrational pricing of these web companies and the newspaper industry's incompetence in winning web mindshare, something has to be done.

Our friends at the Newspaper Association of America have tried: Last week they unveiled NewspaperLinks.com, a web site that lists all the on-line newspapers in the United States.

A portal, if you will.

Though lacking many of the bells and whistles that the proposed NCN site was to have had (including a search engine that processed all the newspaper industry web sites on a daily basis), NewspaperLinks.com is a noble effort that should not be criticized. But my overall sense is that it's beginning to be clear that the newspaper business bobbled the Internet ball.

Whereas newspapers could have done Yahoo, a couple of Stanford kids did it instead. Whether newspapers can recover and come from behind is unclear. But it's clear that Wall Street doesn't think so.

– David M. Cole

Inside ...

• Pace of newspaper acquisitions shows no sign of letting up
• Newspaper marketers get growth religion
• Mixed bag holds first earnings results
• Corporate rangers hit trail to help papers
• Old press gets new exposure in bid to find a buyer
• Portals may be nothing more than a door opening to nowhere
• Persons

From NEWSINC., July 20, 1998, Copyright © 1998, The Cole Group. All Rights Reserved.