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Nine Entertainment sparks hopes of start-up spending spree

Tuesday, 24 May 2011 | By Michelle Hammond
Nine Entertainment says it plans to buy into more start-ups following its investment in online shoe retailer StyleTread, fuelling hopes that “traditional” media companies will increasingly look to snap up emerging online businesses.

 

Over the past year, Nine has invested in group buying site Cudo and financial management group Yellow Brick Road, and has flagged the launch of an online travel retailing business.

 

Nine chief executive David Gyngell says the company will continue to invest in new businesses and “use our media assets to build them”.

 

“There are lots of opportunities to invest in new companies, use Nine and ACP to help build them up, and then trade them. We’re not looking to be long-term holders of most of these companies,” Gyngell says.

 

Media analyst Mark McDonnell says Nine’s plan represents a “very belated entrance” when compared to the activities of other media companies such as Fairfax Media.

 

For example, Fairfax recently acquired online accommodation booking company Occupancy for an estimated $29.1 million. Occupancy operates Rentahome.com.au and Takeabreak.com.au, both of which list holiday rental properties.

 

Fairfax has said it is keen on transaction sites acquisitions, viewing them as the replacement for its old media classifieds strategy.

 

Meanwhile, Ten Network has run TV advertising for Oasis Active, a dating website it invested in several years ago, and OurDeal, a group-buying site it bought into last year.

 

One media executive told The Australian Financial Review that it makes sense for old-media companies to use their assets to build awareness of new-media companies.

 

“The problem the old-media companies are running into is that the prices of online businesses are starting to soar,” the executive said.

 

“The owners of any online businesses that appears to have a half decent business model are starting to put silly multiples on their companies.”

 

McDonnell says while it is obvious that media companies are attempting to diversify their revenue sources, acquiring or buying into small online businesses carries a degree of risk.

 

“For advertising-supported media, companies can start to look like competitors to some of their key customers,” he says.

 

“With TV advertising for example, a lot of retailers make up [a media company’s] customer base for their existing revenue. So if you’re Nine, how do you all of a sudden justify selling shoes?”

 

For start-ups hoping to attract the attention of media companies, McDonnell says they need to be the best in the class.

 

“Part of what an entrepreneur will need to look at is what they’ve actually got on their site, their product range and their audience in order to form a cohesive package,” he says.

 

“That may be around having a compelling concept – [product or service offerings for] someone getting married or having a baby, for example.”