traded stock

Venture Capital Besides publicly traded stock, media companies can raise money from venture

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capitalists who buy a stake in a company to help position it for success and to gain market position. This was the route that Mark Zuckerberg took with Facebook. Entrepreneur Sean Parker, whom Zuckerberg installed as president, stirred up investor interest and brought in an investment in 2004 from Peter Thiel, the cash-rich co- founder of PayPal. Other investors followed, driving up the value of the company. Their purchase of shares provided the cash needed to relieve the pressure for the company to generate more profits. Not until five years later, in fact, did Facebook replace red ink with black.

Mass media used to be an area that venture capitalists avoided, but the Internet, and, in particular, social networking and social media are attracting venture capitalists in droves. BuzzFeed’s founder Jonah Peretti addressed this very issue when he referenced the increasing popularity of media products among previously gun-shy venture capitalists, stating “five years ago, no venture capital investors thought media was a great business” but interest is now piqued, particularly when a company has scale and leverage on the Internet.

Dot-Com Bust Upstart Internet-based enterprises were hot among investors in the 1980s. In fact, overspeculation drove the value of upstarts to unrealistic levels in the 1990s, and the result was a bursting of what eventually was called the Dot-Com Bubble in March of 2000. While Amazon and Google eventually paid off handsomely for those who invested toward the end of the Dot-Com Bubble, some truly dubious concepts flopped. The mass of failures from 1999 to 2002, the Dot-Com Bust, also called the Dotcom Crash, saw billions of dollars in investments wiped out, causing the Nasdaq Composite to lose 78% of its value in less than two years.

Among hundreds of enterprises littering the dot-com bust landscape:

The Broadband Sports network raised more than $60 million before going bust.

CyberRebate promised customers a 100% rebate on products priced 10 times the retail cost.

Kibu.com was an online community for teenage girls that burned through $22 million in venture capital before collapsing.

DigiScent tried to transmit smells over the Internet.

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Some failing dot-com companies were scooped up by conglomerates, allowing some aspects of the original company to survive:

Webvan was an online grocery delivery service start-up that was before its time. Despite $800 million in venture capital funding, it closed its doors in 2001. Twelve years later, it was purchased by Amazon, and its remade version is now called the “Amazon Pantry.”

Picasa, a failing online photo management start-up, was purchased by Google in July 2004.

Other companies experienced significant losses, but eventually recovered, including:

Cisco stock, which lost 86% of its value

Amazon.com stock went from $107 to $7 per share, but was over $661 per share at the end of 2015

Writing Prompt Applying Your Media Literacy – Financial Foundations

What drives investors to risk money in unproven media ventures, such as the various dot-com frenzy?

The response entered here will appear in the performance dashboard and can be viewed by your instructor.

Submit

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3.2 Ownership Structures

Study Preview Corporate structures of media companies, including conglomerates, are important, particularly because they have changed so much in the last few decades. Knowing about the various entities that comprise a news corporation, for instance, may explain a lot about the content it disseminates. This is true for both traditional media conglomerates, such as Fox News Channel, and digital media organizations, such as Google and Facebook. For instance, does the fact that politically conservative and wealthy media mogul Rupert Murdoch who owns Fox News Channel, and hired former Republican Party media consultant Roger Ailes, influence the news channel’s content? Some believe that it may.

Learning Objectives By the end of this module you will be able to:

  1. 3.2.1 Evaluate the trend in media consolidation
  2. 3.2.2 Describe typical media company management
  3. 3.2.3 Summarize the trend in divestiture since 2007
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