Broadcast.com

What did it do?

Broadcast.com was one of the first companies to stream radio and live broadcasts over the internet. It carried 448 radio and 65 television stations online, along with the 24-hour feeds of the BBC and CNN, and held licensing agreements with 450 college and professional sports teams. Its catalogue included 1,500 films, 1,600 audiobooks and more than 3,000 music albums.

Why did it shut down?

The company lost its independence with Yahoo's decision to acquire it on 1 April 1999; the deal closed in July 1999 for Yahoo shares worth around USD 5 billion. The service became part of Yahoo Broadcast Services, and its future was tied to the buyer's priorities. In 2002 Yahoo shut down its broadcasting services, including Broadcast.com. The acquisition later came to be remembered as one of the worst internet acquisitions of all time.

The story

When the Victoria's Secret fashion show was streamed live online in February 1999, 1.5 million people tuned in. Glitches in picture and sound sent engineers into a panic, but history's first big webcast was judged a success. The company behind it was Broadcast.com, and two months later it would become the subject of one of the most expensive acquisitions in internet history.

The story began in 1989 with Cameron Audio Networks, founded by Cameron Christopher Jaeb. Jaeb wanted people to be able to listen to out-of-town sports games. In 1994, through the lawyer Todd Wagner, he met Mark Cuban; Cuban invested USD 10,000 in return for a 2 per cent stake. In September 1995 Cuban and Wagner took control of the company, Jaeb was left with a 10 per cent stake and the company was renamed AudioNet. Cuban started out streaming a local radio station's broadcast onto the internet from his bedroom.

AudioNet was renamed Broadcast.com in 1998 and went public in July 1998. Its shares rose 250 per cent on the first day, setting a record; after the IPO the company's value rose to USD 1 billion. The platform carried 448 radio and 65 television stations, had licensing agreements with 450 sports teams and offered thousands of films, audiobooks and albums.

On 1 April 1999 Yahoo! announced it would acquire Broadcast.com, which had 570,000 users. In the deal, completed in July, 28.6 million Yahoo! shares worth around USD 5 billion changed hands. Cuban sold most of his shares the same year, making a return of more than USD 1 billion; Jaeb, whose stake had fallen below 1 per cent, received around USD 50 million. Broadcast.com became part of Yahoo! Broadcast Services. But in 2002 Yahoo! shut down its broadcasting services, including Broadcast.com, and the acquisition is now remembered as one of the worst internet acquisitions of all time.

The Broadcast.com story has two faces. For the founders the timing was perfect; Cuban has said many times that he was very lucky to sell the company before the bubble burst. For the buyer, the enormous price it paid turned into a service that was shut down within three years.

Lessons for founders

• When weighing an acquisition offer, ask how your product will connect to the buyer's revenue model; if there is no connection, the product may soon be shut down.
• In an all-share sale, factor in the risk that the shares you receive will lose value; Mark Cuban cashed in most of his shares the same year.
• Agree from the outset how far early shareholders' stakes will be diluted in later rounds; the founder Jaeb's stake fell below 1 per cent.

Sources

1. Broadcast.com (Wikipedia)
2. Yahoo Plans to Shut Down Some Broadcast Services (The Wall Street Journal, 2002-06-26)
3. Yahoo completes Broadcast.com acquisition (CNET, 1999-07-20)

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