Magazine article Newsweek

Media's Week of Wampum: Racing to Cash in on the Internet Frenzy, Entertainment Companies Are Minting Their Own Supercharged Dot.com Issues

Magazine article Newsweek

Media's Week of Wampum: Racing to Cash in on the Internet Frenzy, Entertainment Companies Are Minting Their Own Supercharged Dot.com Issues

Article excerpt

Making wampum is turning into one of corporate America's fastest-growing businesses. No, companies like General Electric, Disney and Time Warner haven't taken to carving beads out of seashells, the way East Coast American Indians once did. Rather, they're creating their own Internet currencies, known as "wampum" in the Net biz. Last week was Wampum World's biggest ever, involving no fewer than four of the world's best-known companies. Disney announced plans to create a new "tracking stock" called Go.com based on Infoseek and various Disney Internet assets; Time Warner and Sony agreed to trade their jointly owned Columbia House business for 74 percent of struggling CDNow, on which they will bestow promotional services and a spiffy new, yet-to-be-chosen name, and GE filed plans to create a new, 49.9 percent-owned Net company called NBCi, whose assets will include Xoom.com, Snap.com and a 10 percent stake in CNBC.com. Meanwhile, Microsoft stock soared Friday on speculation that the company will soon announce plans to create a stock based on its Internet businesses. Some big newspaper chains will probably get into the wampum business soon, too, by issuing stock based on their Web sites.

Why create an Internet currency when your company already has access to tons of cash and can print new shares of its own stock to buy whatever it wants? In a word: price. Regular companies' stock prices are based on things like profits, assets and cash flow. But Internet stocks are about potential, hype and, in many cases, moonbeams. To the extent that numbers matter, they're numbers like revenues or site visits. Profits? What are those? But big, mainline companies are hot to get onto the Internet, both to expand and to protect what they have now. It's lots easier and quicker to buy than to build. But buying into the Internet means paying Internet prices. Which will slaughter your per-share profits, regardless of whether you use cash or your own stock. Hence, the need for the type of Internet currency that Disney et al. are trying to create. That way, if things work out, you can trade your Net stock for someone else's Net stock--not to mention being able to offer Net stock options to Netniks you want to hire.

"If you use your earnings-based stock to acquire a revenue-based property [like an Internet company], they say your earnings are suffering, and they mark your shares down," Tom Staggs, Disney's chief financial officer, said in an interview last week. …

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