By Kenneth Li and Kate Holton
NEW YORK/LONDON (Reuters) -
Time Warner Inc's AOL Internet
division will buy social network Bebo for $850 million in cash,
bolstering its consumer Web offerings even as the media
conglomerate mulls splitting off the business.
Privately-owned Bebo claims about 40 million global
members, and the deal promises to significantly expand AOL's
growing business of selling advertising on the Internet outside
of the United States.
The site is one of the top social networks in Britain and
the market leader in Ireland and New Zealand but it is yet to
create the same buzz in the United States. Bebo is number No.
3in the U.S., according to AOL, after News Corp's MySpace, and
Facebook. According to independent Web traffic measurement firm
comScore, Bebo was ranked eighth most popular in the United
States in January.
It is generally aimed at a younger audience than the
college-favorite Facebook and it boasts that its users spend an
average of 40 minutes on the site each day contacting friends,
sharing photos and discovering new music.
"AOL, at its core, is a way for people to connect," AOL
President Ron Grant told Reuters in a phone interview. "We need
to get back to our roots."
Grant said Bebo's heavy focus on media and international
interest had made it particularly attractive as it already has
a service in Poland and is set to launch in France, Germany,
Italy, Spain and the Netherlands in the next five or six
months.
"It's a smart move for (Time Warner CEO Jeff) Bewkes," Herb
Granath, Chief Executive of Media & Entertainment Holdings Inc,
said on a panel at the McGraw-Hill Media Summit in New York,
responding to a question about the AOL Bebo deal. "This may be
a first shot across the bow: They're going to be a player."
Asked whether the panel believed Time Warner was in the
process of dismantling itself following Bewkes' comments on
Monday that were interpreted by the press as a signal of the
media conglomerate's willingness to sell AOL, another panel
member, Spark Capital founder Santo Politi, said Time Warner is
"definitely in the business of building."
On Monday, Time Warner CEO Bewkes told investors at a
conference he would not rule out a transaction combining AOL
with another company. Time Warner has discussed a tie-up
between AOL and Yahoo, a person briefed on the discussions said
last week.
The Bebo deal comes amid a wholesale transformation of AOL
from a dial-up Internet provider to an online ad seller.
The transition has been rocky as it replaced Curtis
Viebranz, the head of its advertising operations for about
seven months, with Advertising chief Lynda Clarizio.
It has spent nearly $1 billion to create one of the biggest
third-party display ad units, Platform-A, as it aims to gird
against the prospect of bigger rivals. Microsoft Corp is
currently pursuing a deal to buy Yahoo Inc and Google Inc has
just purchased DoubleClick.
NETWORKING
"Bebo will be the cornerstone of our strategy to transform
online experiences for advertisers, media companies and
consumers," AOL Chairman and CEO Randy Falco said.
AOL said Bebo would also help round out its personal
communications offerings, now comprised of AOL Instant
Messenger and ICQ, two popular services that let users send
quick text, video and audio correspondence.
But despite its global popularity AOL has not had much
success turning that into a business.
"The acquisition demonstrates again how important the
social networking sites are to major media and Internet brands,
who are looking for new means to advertising growth," said
Paolo Pescatore, an analyst with UK-based CCS Insight.
"They represent a powerful opportunity, with their access
to demographic data and ability to target specific audiences."
The site was founded by husband and wife Michael and Xochi
Birch, who own an undisclosed stake. Shields declined to say
whether they would stay after the deal closes.
Bebo is a product of the curious migratory patterns of
online social networks. Like many of the world's top social
networks, Bebo is based in San Francisco. And like many of
these companies, its operations have taken root in distant
lands.
Bebo first grew in Britain. Rivals such as hi5 are powerful
in Latin America. Google's Orkut first became popular in
Brazil, then India and LiveJournal dominates in Russia.
Social network pioneer Friendster now finds the bulk of its
users in Southeast Asia, meanwhile the two major U.S. players,
MySpace and Facebook, have focused on expanding over the past
year into international markets.
MySpace has local operations in 20 countries and has
translated the site into languages ranging from Spanish to
German to Japanese. Roughly 60 percent of Facebook's 67 million
active users now live outside the United States.
Banc of America Securities LLC and Deutsche Bank Securities
Inc. advised AOL. Allen & Co advised Bebo.
(Additional reporting by Georgina Prodhan in Frankfurt,
Eric Auchard in San Francisco; Editing by Dave Zimmerman and
Quentin Bryar)
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