NEWS REVIEW: 2000

The UK new media industry began 2000 with a stark reminder that it was kid brother to that of the US, with the announcement of AOL's $100bn (66bn) merger with Time Warner on 10 January. It still seemed the US new economy was nearly grown-up at a time when the UK 's was still no more than a toddler. But the UK's new media hopefuls were not short of precocious ambition, which certainly gave some old stagers a heightened sense of their own mortality.

No one could afford to ignore the likes of eleventh hour retailer Lastminute.com that famously raised 115m at the peak of the markets in March. Nor could they easily dismiss the claims of e-auctioneer QXL that merged with Germany's Ricardo in May and seemed to be shaping up to be a European eBay. Only news that profligate spending had spelt doom for Boo.com and precipitate coverage of the demise of netimperative.com helped moderated the hysteria.

The newcomers were taken seriously, largely because they had access to capital. The likes of Durlacher, 3i and NewMedia SPARK were joined by a new breed of technology focused investment outfits, many of which raised funding by listing on London's junior market, AIM. This class of listed investment companies, which often provide practical assistance as well as cash, had no exact parallel in the US, where rules prevent such companies from raising finance from the markets.

Another peculiarly British aspect of the UK's attempts to harness the commercial opportunities offered by the internet was the adoption of reverse takeovers as a cheap and quick way for new media companies to step into the shoes of the old. As the year draws to an end, with many of these new media companies facing hard times, it is far from inconceivable that an 'old economy' business will soon find a home in the shell that remains after one operating in the 'new economy' fails. It may be difficult to tell, however, because the distinction between 'new' and 'old' economy is one that has blurred over the last twelve months.

Between February and May old media groups tried to show they were still ‘with it', making a flurry of commitments to internet development, only for some to rethink later in the year. Industrialists too began to pull internet plans out of the hat: blue-chip retail stalwarts Sainsbury and Tesco joined rival online trading consortiums, GlobalNet Exchange and WorldWide Retail Exchange respectively, in March; BA joined other airline heavyweights to create a ticket exchange in May; and even cement giant Blue Circle got involved in e-trading when it partnered Just2Clicks in March.

Two old media company's original new media plans remained largely unchanged; those of veteran news service Reuters and professional publishing company Reed Elsevier. On 9 February Reuters said it would put up a cool 500m to put “e” into its business model and around the same time Reed Elsevier said it would create a network of b2b portals. Later in the year Reed sought credibility as corporate venturer as well by setting up a 70m venture fund on 10 November.

Newly shorn of its ITV licences United News and Media (UNM) came up with 300m to cover b2b expenses at the end of September. But in mid-December it thought better of it, saying it would halve the amount it would spend in 2001 to 60m. Pearson too had a dose of cold feet in December, saying its internet expenditure would drop in 2001.

BSkyB, a relative youngster in the UK media scene, already deeply committed to introducing digital pay-TV, set aside 250m for internet investment in February. To Sky's relief online competition in the video on demand arena came and went when filmgroup, a Redbus company, and Yes! both failed to drum-up sufficient interest for their IPOs in June amid concerns about achieving the necessary broadband penetration rates.

Cable operator Telewest, newly merged with content company Flextech, stepped into the broadband breach in March with a broadband portal called Blueyonder, but its rollout, like that of its digital TV package, was hit in August by the short supply of digital set-top boxes.

After nearly 12-months of wrangling it appears the AOL-Time Warner deal will get the nod from all the appropriate regulatory guardians. Having had the consent of the EU on 11 October, the deal was waved through by the Federal Trade Commission on December 15. Assuming the mood of the Federal Communications Commission has not been badly misjudged, the AOL Time Warner marriage will be formally approved in the next few weeks.

A European counterpart to AOL has yet to take shape, but consolidation had been the watchword all year among ISPs. In the UK, the longevity of the existing pricing models became the centre of some bitter controversy after search engine AltaVista inspired many to offer unmetered access only to change its mind. Despite uncertainty about its pricing model, Freeserve, the UK ISP 80% owned by high street electronics retailer Dixons was finally sold on 6 December to Wanadoo of France for 1.6bn.

Like AOL, LSE-listed Vodafone got bigger, merging with Germany's Mannesman in February. The combination created an integrated European mobile network, unrivalled by anything in the US. The deal confirmed to many that mobile technology is Europe's big chance to surpass North America, where the continent is divided by network incompatibility. Adding to mobile enthusiast's glee is that the mobile model has already shown it can pay, unlike many internet companies. Investors and VCs duly fell in love with the idea, making WAP becoming “must have” initials in any high growth business plan.

On 5 July the UK's second-string mobile phone operator Orange, bought by France Telecom two months before, equipped itself for the WAP revolution with the 95m purchase of the Ananova content management technology from the Press Association. Also with half an eye to beefing-up its WAP capabilities, Orange launched a 300m Cyber Fund on 13 July.

But it has not all been roses for the devotees of WAP, as they sought to raise cash from the markets on the precipitous down slope of the peak in internet. On 26 of March United News & Media was forced to half the offer price of wireless services arm iTouch to 200m. As the year drew to a close, disappointing uptake had added to investors' skittishness, with some beginning to seriously question the income predictions. However, many investors still pin their hopes for profitability on the introduction of GPRS and Bluetooth services in 2001 and the start of super-fast third generation (3G) services in 2002.

The extent of the riches that will arise from 3G is a concern to some, who wonder if operators paid governments so much for 3G mobile licences that they will be unable to make a profit from them. 22bn was spent in the UK, a welcome boost for the Treasury's coffers, but a considerable burden for the ‘successful' consortium to bear. Vodafone, the dominant player in the mobile market, forked out a good deal of the cash, having been involved in nearly every other European bid. BT too took on a good deal of debt to finance its share of the 3G action, which it plans to repay in part by a partial sell off of it operating units.

In both its pre-Budget report in March and in the Budget itself on 8 November, the UK government displayed a healthy concern for the financial needs of the internet industry with a number of tax breaks aimed at e-entrepreneurs and their financiers. While perhaps not helping a great deal, the government at least did not hinder. Gordon Brown may have felt he owed a little to the tech sector, having been on the receiving end of the 22bn 3G windfall.

To the dismay of most investors, new economy and old, a pan-European equity market remains a pipe dream. A merger between Deutsche Brse and the London Stock Exchange (LSE) proposed in May, shortly after the LSE freed itself from the constraints of mutual status, came to nothing. Then, in October, a hostile bid by Swedish technology company OM also fell on stony ground, having been voted down by the LSE's disparate group of shareholders.

While the LSE ruminates on what to do next, the Deutsche Brse's more technically advanced Neuer Markt exchange is becoming home to an increasing number of technology companies. Nasdaq, once again, is seen as the only likely candidate to unite Europe's partisan bourses.

We end the year, as it began, with a reminder of the most important player in the UK's new economy: Uncle Sam.