365 Media Group plc

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365 Media Group plc

14 Waterloo Place, 3rd Floor
London, SW1 4AR
United Kingdom
Telephone: (+44-20) 7004-2805
Web site: http://www.365media.co.uk

Wholly Owned Subsidiary of British Sky Broadcasting Group Plc
Incorporated: 2001 as Ukbetting Plc
Employees: 276
Sales: £118.8 million ($232.8 million) (2005)
NAIC: 713990 All Other Amusement and Recreation Industries; 518111 Internet Service Providers

U.K. INTERNET CRASH

SCAVENGING THE WRECKAGE

EXPANSION IN THE BROADBAND ERA

PRINCIPAL SUBSIDIARIES

PRINCIPAL COMPETITORS

U.K. INTERNET CRASH

The passionate devotion of the typical British sports enthusiast to “their” team, and to sports in general appeared a natural foundation for a number of Internet-related business start-ups during the dot-com boom in the United Kingdom of the late 1990s. By the end of the 1990s, the United Kingdom boasted literally dozens of sports-related sites. While many of these sites focused on content provision, others sought to generate revenues by developing online betting and gaming services. Two of the more active start-ups during this period were ukbetting.com and 365. The former, owned by sports and leisure investment group ENIC, focused on developing the online gaming market, competing head to head with a number of established British gambling firms, such as William Hill and Ladbrokes, both of which went online in the late 1990s, as well as fellow start-ups, including Victor Chandler International and Sportingbet.com, among others. 365, meanwhile, began developing a number of sports-related content sites based on its “365” brand, such as its flagship site Football365, while also adding e-commerce and text messaging services, as well as sales of its content to third parties. As one of the earliest of the sports enthusiast sites, created in the mid-1990s by Dan Thompson, 365 appeared to have an early mover’s advantage. The Football365 site in particular, which boasted an irreverent sense of humor, attracted a strong following.

By the end of the decade, the rush to cash in on the promise of the Internet had vastly inflated the value of many of these start-ups, despite the fact that a large number of the new breed of company lacked any real basis for generating revenues. For many start-ups, the lack of revenues appeared a question of timing, as the Internet, especially in the days before broadband access, had not sufficiently matured to support their business. The promise of future gold enabled many start-ups to generate huge war chests, both through venture capitalists and through public offerings.

Others went on buying sprees, rapidly building up a portfolio of operations. 365, for example, attempted to develop its own operations through acquisition into the early 2000s. The company purchased a number of businesses, including rival sports web site developer Datanet; telecoms business Fenfone Communications; and sports site formula-1.co.uk, which focused on Formula 1 racing. These acquisitions, which cost the company more than £30 million, soon came to haunt the group. Despite building its revenues to more than £50 million, 365 headed for collapse. 365 was caught by surprise when founder and CEO Dan Thompson announced that he was leaving the company in April 2001. Soon after, the company revealed that it had been forced to write off more than £31 million in goodwill stemming from its acquisitions. The write-off pushed the company’s losses to more than £45 million for the year.

365 was just one of many businesses that found itself struggling as the Internet market, and the telecommunications market in general, crashed in 2001. Suddenly, companies that had been valued in the hundreds of millions of dollars just several months earlier were valued in the hundreds of thousands.

SCAVENGING THE WRECKAGE

The dot-com crash had begun to attract the attention of the so-called second wave of Internet entrepreneurs. Among these was Peter Dubens, who had made a fortune by acquiring the exclusive rights to sell heat-sensitive T-shirts in the United Kingdom. The shirts became a popular novelty item, and netted Dubens several million pounds after selling the business to Coats Viyella. Dubens, dubbed a “serial entrepreneur” by New Media Age, then set up his own hedge fund management firm, Oakley Capital. Later, Dubens entered the Internet access market with the purchase of Pipex, which, having been founded in 1991, laid claim to being the oldest independent Internet service provider in the United Kingdom.

Despite the difficulties of the online market at the beginning of the 2000s, Dubens recognized the continued potential of the sports-related and gaming sites. The latter market had become all the more attractive after the British government, which had maintained stiff duties on gambling in the United Kingdom, finally abolished betting-related duties and taxes. In 2001, Dubens joined with Eric Semel, who had worked as an executive in the gaming industry in Las Vegas, Nevada, and who was also the son of then Yahoo! CEO Terry Semel, to form a shell company for a new investment plan.

Dubens and Semel’s first act was to buy Ukbetting. com from ENIC, in a deal worth up to £6 million. The partners then renamed their own company Ukbetting, raising some £6 million in additional investments, and set out to list the company on the London Stock Exchange’s Alternative Investment Market (AIM) in order to generate still more investment capital. While Dubens and Semel had not yet revealed their business strategy, Ukbetting.com provided them with a strong inroad into the online sports betting market. Although Ukbetting.com remained fairly modest in size, it boasted a stable customer base. Following the Ukbetting acquisition, the company placed its shares on the AIM in 2001.

COMPANY PERSPECTIVES

365 Media Group was founded in 2001 and quickly developed through strong growth and acquisitions to run a portfolio of highly popular brands and employ over 250 people in offices all around the world. We operate in the fields of audio, video and mobile content provision—with particular emphasis on sport; betting and gaming; sponsorship and advertising; affiliate marketing; retail audio-visual broadcasting and maritime communications.

Dubens and Semel then completed their first acquisition, of Sportscard, a company specialized in sports-related credit card services. The purchase, completed in September 2001 for £4 million, appeared

unrelated to the company’s main online betting business. Sportscard boasted two prominent features: the first was a cash pile of more than £4 million. The second was an extensive database of dedicated sports enthusiasts.

Ukbetting went in search of content. As Semel told New Media Age: “The timing was key. We deliberately chose a time to complete a number of deals when the market was bottoming out around us.” The company’s first opportunity came in 2001, when Trinity Mirror and the Press Association put up for sale their jointly held sports content site Sportinglife, named after the famed British newspaper, which had stopped printing in 1998, together with their own online gaming venture, Totalbet. While Trinity and the Press Association had poured millions of pounds into developing the two sites since the late 1990s, Ukbetting acquired both for just £2 million.

Importantly, the Sportinglife and Totalbet acquisition helped crystallize Ukbetting’s own business strategy. Dubens and Semel proposed adopting the business model pioneered to some extent by Sportinglife. With a dual focus of online betting and gaming on the one hand, and the operation of sports-related content sites on the other, the company hoped to generate gambling revenues by luring potential gamblers through from its content sites. While Sportinglife had put this model in place, it had done little to market the concept, relying only on its main Sportinglife site. Under Ukbetting, the click-through strategy became an important part of the company’s marketing effort.

Dubens and Semel quickly located their next acquisition target. In November 2001, Ukbetting bought the rights to the Sportal brand name for just £190,000. That business had at one point been one of the bright lights of the Internet sports market, attracting investments of more than £40 million from such groups as BskyB, 3I, and Nomura. Set up at the height of the dot-com boom by entrepreneur Rob Hersov, Sportal had nearly struck gold, when it received an offer of £245 million from Vivendi Universal’s Canal+ network. The deal failed to go through, however, and soon after Sportal itself had collapsed under its debt load, despite receiving a new cash injection several months earlier. Under the acquisition, Ukbetting acquired the Sportal brand, including its sportal.com and sportal.co.uk sites and technology.

By the beginning of 2002, Ukbetting’s control of Sportinglife appeared to be working, as Sportinglife registered more than 50 million visits, and Totalbet’s customer base rose to more than 60,000 gamblers. The company also streamlined the Sportal operations, turning it into a profit generator in its own right. In the meantime, Ukbetting continued to seek out acquisition opportunities.

The company struck again in July 2002, when it acquired SCG Enterprises and its Sports.co.uk web-betting business, owned by pan-European sports site Sports.com. That company had at one point been valued in the hundreds of millions at the height of the dot-com boom. Ukbetting paid just the £670,000 for the Sports.co.uk site and its 24,000 customers. As Dubens told Revolution: “The acquisition strengthens our digital sports betting operation and takes our customer base to more than 100,000. We announced the cost because we thought it significant that we paid a small amount for the business in terms of what it means to our operation.”

KEY DATES

1997:: ENIC’s online gambling site Ukbetting plc debuts.
2001:: Peter Dubens and Eric Semel form shell company and then acquire Ukbetting, adopting that company name, and listing the company on the AIM; Ukbetting begins acquisition drive, acquiring Sportscard, then Sportinglife and Totalbet.
2004:: Company acquires Rivals Digital Media Group and the 365 brand of online sports sites.
2006:: Company changes name to 365 Media Group and launches Sports365 portal.
2007:: BskyB acquires 365 Media Group for £96 million.

EXPANSION IN THE BROADBAND ERA

Ukbetting continued to add to its portfolio of sports-related sites in 2002. In July of that year, the company succeeded in wooing majority control of Teamtalk. That company, which operated a popular sports site, had gone public in 2000, with a public offering that had raised £46 million. Again, Ukbetting picked up Teamtalk relatively inexpensively, with a share offering valued at less than £14 million. Also in that year, Uk-betting boosted its technology, reaching an agreement to integrate the live, real-time betting platform developed by Global Interactive Gaming (GIG), formerly part of the KirchMedia group.

In the meantime, the arrival of broadband Internet access had begun to herald a new era in the online market. If initially the company had focused its revenue generation through its gambling sites, it saw new opportunities from its content sites. Broadband access not only encouraged people to remain online longer, it also enabled the addition of new forms of media and content offerings, further captivating Internet users. This in turn stimulated the online advertising market, and by the middle of the decade, advertising revenues had grown to rival ukbetting’s gambling revenues. At the same time, the company’s mass of content permitted it to develop new revenue streams, such as content syndication and the creation of affiliate sites. The development appeared to catch even Dubens off guard, as he explained to New Media Age: “We suddenly found ourselves with this huge wealth of content where there were four revenue streams rather than one.”

Ukbetting’s revenues began to take off, topping £85 million by the end of 2004. The company’s customer base had also begun to grow strongly, topping 225,000 gamblers, with an average of 200 new players signing up each day.

The company continued to seek new expansion opportunities as well. In 2004, the company paid £2 million to acquire Rivals Digital Media group, which owned a number of sites targeting the continental Europe market, as well as the 365.com network in the United Kingdom. The latter included such popular sites as Football365, Planet F1, and Golf365. At the time, Dubens suggested that the acquisition signaled the culmination of its U.K. expansion and the start of a new period as a European operator. As he told Leisure Report: “We’re looking to Europe now for marketing and customer acquisition.”

The group’s European ambitions remained on the back burner as the company’s U.K. business, boosted by the strong 365 brand family, continued its rapid expansion. By 2005, the company’s sales had surged ahead again, to £118 million. At the same time, the company came closer and closer to posting its first profits, cutting back its losses to less than £1 million that year.

The addition of the 365 brand helped crystallize Ukbetting’s online offering. In October 2006, the company decided to change its name, becoming 365 Media Group, in order to underscore its expansion beyond its original gambling focus. By November 2006, the company had decided to create a new portal in order to provide a single point of entry to all of its online content, and to its gambling sites. The new site went live as Sports365, serving as a gateway to the company’s 13 content sites, five online betting and gambling sites, and three online gaming support sites.

Having played a major role in the rebirth of the U.K. online sector, 365 Media Group had itself become an attractive acquisition target. In December 2006, 365 announced that it had agreed to be acquired by British Sky Broadcasting Group (BskyB) for £96 million. The deal, completed in February 2007, netted Peter Dubens more than £10 million. With the backing of BskyB, 365 Media Group turned toward a future as one of the major players in the United Kingdom’s online sports and betting market.

M. L. Cohen

PRINCIPAL SUBSIDIARIES

365 Digital Media; Football365.com; Sport365.com; Sportal.com; Sportinglife.com; Teamtalk Media Group; Totalbet.com; Ukbetting.com.

PRINCIPAL COMPETITORS

William Hill PLC; Merlin Entertainments Group Ltd.; Ladbrokes PLC; Gala Coral Group Ltd.; Littlewoods Shop Direct Group Ltd.; Horserace Totalisator Board; Victor Chandeler International Plc; Sportingbet PLC.