Wednesday, March 29, 2006

Mergers, acquisitions and alliances for a "triple play" world

The last twelve months has seen a spate or mergers and acquisitions in Internet related industries. Examples include the acquisition of Macromedia by Adobe in April 2005, the purchase of Skype by eBay in September 2005, the takeover of WebCT by Blackboard in October 2005 and the purchase of Friends Reunited by ITV in December 2005.

Rupert Murdoch's News Corp has been involved in several acquisitions, buying up Intermix Media (to get hold of MySpace), Scout Media (an online sports company) and IGN entertainment (an Internet games company) in the space of a few months last year. BSkyB (in which News Corp has a major stake) also acquired the broadband ISP EasyNet. Right now the telecoms equipment companies Lucent technologies (of the US) and Alcatel (of France) are in merger talks, Ericsson (of Sweden) having already acquired Marconi (of the UK) last October.

And if you add into the mix companies buying just a stake in other companies (Google bought a stake in AOL last December), or entering into partnerships or joint ventures to pursue specific projects (Virgin Mobile is going to work with BT on plans for delivering digital TV and radio to mobile phones) you can find even more interesting activity. What is this all about?

Mergers and acquisitions can take place for a variety of reasons of course. Horizontal mergers or acquisitions (involving two firms in the same type of activity) are often motivated by the drive to pool costs and derive economies of scale. In an increasingly global market this could explain some of the cross-border mergers. More cynically you might think that horizontal integration sometimes occurs because it will give the new company greater market power (over consumers in output markets or over suppliers in input markets).

Vertical mergers or acquisitions relate to the backward or forward links in the production and distribution process. In this way companies internalise the procurement of inputs and gain direct control over their design and production. Of course there have been moves in the opposite direction too, with companies outsourcing activities that have traditionally been in-house.

Mergers and acquisitions might also occur as a means of diversification into markets outside the usual area of business. This could just be a case of risk spreading (particularly if the traditional core business area is going through a bad patch or in decline) or as part of a strategy designed to move the company into a completely new market. On the other hand a takeover might be organised by a group of investors who believe that a company's stock is currently undervalued due poor management of the available resources. The plan would be to put in a new management team that could realise the full value of the assets. This might result in the break up of a conglomerate company into several parts, each refocusing on its core business.

Probably each of these factors has played some part in the recent merger and acquisition activity, but the strongest factor that underlies recent trends is technological convergence and the need to bring together elements that, while they might once have been separate, in a digital word are now inextricably interconnected. The term "triple play" is usually used and it relates to a one-stop purchase of telephone, television (broadband) Internet connection subscriptions - or as Microsoft terms it "voice, video and data services over IP networks" or "services over IP" for short.

Whereas once Internet access was typically via a dial-up link on a telephone line, now this has been turned on its head with the development of the Voice over the Internet Protocol (enabling telephone calls via the Internet). Cable TV companies can of course offer broadband Internet connections and broadcasters are working on downloadable TV programmes. You can already buy a card to slot into your PC ti enable you to pick up free satellite TV channels (see Tony Smith's article earlier this month on the
RegHardware site
. And Microsoft has developed a software platform called IPTV "to deliver broadcast-quality video and new, integrated TV services over broadband networks".

Now an interesting question to ask is whether content should also be created by triple play companies, or whether it is better to leave that to partner organisations. TimeWarner famously purchased AOL in January 2000 to create what was described then as the world's first integated media and communications company. (Or was it a merger - see some comments made at the time.) Was this tie-up just a bit ahead of its time, or a warning that huge conglomerates like this are not the best way forward and that partnerships, where each partner focuses on what they are good at, provide a better way forward?

What do you think?


[1] Murdoch ties News future to Internet. Meredith Booth.
The Advertiser, 17th November 2005.
[2] Internet a careful strategy: Murdoch
Herald Sun, 25th November 2005
[3]BSkyB buying its way into broadband future. Dan Milmo and Richard Wray.
The Guardian, 18th October 2005
[4] NewsCorp throws everything but kitchen sink at 'digital home'.
The Register, 13th January 2006 .
[5] Murdoch buys into online lads' mags.
The Register, 8th September 2005.
[6] Rupert Murdoch seeks dysfunctional search engine.
The Register, 16th August 2005
[7] Murdoch buys blogs
The Register, 19th July 2005.
[8] Murdoch tumes into iPod generation.
The Register, 14th March 2006.
[9] Murdoch to bring MySpace to UK
The Register, 24th January 2006.
[10] Murdoch gets EasyNet
The Register, 21st Ocotober 2005.
[11] Sky plans broadband assault
The Register, 13th October, 2005.
[12] Don't be scared of Sky. Alex Cameron
The Register, 17th February, 2006.
[13] Branson to challenge Murdoch's dominance. Jane Martinson.
The Guardian, 5th December 2005.
[14] Europe to embrace triple play
The Register, 25th January 2006.
[15] Virgin Mobile takeover talks with NTL 'ongoing'.
The Register, 1st February 2006.
[16] NTL tipped to up bid for Virgin Mobile.
The Register, 3rd January 2006.

Other links

[1] Microsoft turns triple play for telecommunications providers
Microsoft Presspass 6th June 2005.
[2] The Future Role of Cable in Shaping the Digital Home in Europe. Booz Allen Hamilton. See the press release.


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