Terra to Sell Lycos to S. Korean Media Group

Spanish Internet media giant Terra Networks S.A. announced Monday that it will sell its U.S.-based Lycos portal business to South Korean Internet media group Daum Communication Corp. for $105 million.

“The operation is set within the strategy of Terra of strengthening its presence in geographical areas in which the Telefonica Group has significant operations and in the Spanish and Portuguese speaking market,” Terra said in a statement.

Daum is South Korea’s leading Internet portal with businesses in communications, online shopping, entertainment, and finance with over 35 million registered members. Daum began its international expansion last month when it announced plans to acquire a 65 percent stake in Japanese Internet company Taon Corp. for $7.5 million.

In addition to the Lycos.com portal, other properties included in the deal are news site Wired.com, community sites Tripod and Angelfire, and a few other sites in the Lycos Network. Terra will keep key parts of its Internet business, including Terra Networks USA, its Spanish-speaking portal in the United States, as well as a minority stake in Lycos Europe. Terra will retain these and other financial assets, valued at $435 million, which Lycos will be transferring prior to the sale, making the total transaction worth $545 million.

The purchase price is a stark contrast to the $12.5 billion purchase price Lycos fetched just four years ago. Terra bought the American portal Lycos in May 2000. Terra Lycos was in turn bought out by Spanish telecom Telefonica, which paid $2 billion cash in May 2003 for the 62 percent of Terra Lycos it did not already own, believing the Internet unit would perform better in-house than as an independent company.

Lycos has had a tough time competing in a crowded search market. In two dramatic announcements made in February 2004, Lycos U.S. planned to shed its portal strategy to become a vast social network, and inked a 5-year deal with 24/7 Real Media to outsource display ad sales, ad serving and analytics for its Internet properties.

The questionable strategy revolved around the company’s hopes to convert users into paid subscribers of premium sites or to bundled packages of sites and services, or of building cores of audiences around various niche sites to attract advertisers. Lycos recorded revenues of $98 million and net losses of $24 million last year.

While Lycos is still ranked in the top 10 Internet portals, there is a big gap, in terms of usage and revenues between the top three — AOL, Yahoo and MSN — and anybody else, according to Jupiter Research VP and senior analyst David Card.

“It’s very tough to be a general-purpose portal. They’re better off if they have a differentiation strategy of some kind,” Card said. “It’s extremely competitive. Even huge media companies like Viacom, Disney, and Fox haven’t challenged the big three.”

Daum has invested heavily in community and communications for its Korean properties, and also has a travel site, financial properties and entertainment/media holdings. These types of properties would not give Daum an advantage in the U.S. market, however, due to language and cultural barriers.

“It’s true that with broadband and to a lesser extent wireless growing in the U.S., there is a chance for market share shifts in the portal business, but I think some kind of vertical differentiation is necessary,” Card said.

Terra expects the sale of Lycos, whose income represented around 16 percent of the total for the Terra Group in 2003, to lower the expected earnings for the current year, but will not prevent the company from generating positive adjusted earnings in 2004.

Last week, Daum reported record first half 2004 revenues of $78.0 million, up 47.2 percent year over year; record operating income of $19.8 million, up 29.4 percent year over year; and EBITDA of $28.2 million, up 25.9 percent year over year. Among its portal revenues, Daum reported first half 2004 online advertising revenues of $40.9 million, up 46.9 percent year over year; first half 2004 transactional services revenues of $16.4 million, up 23.6 percent year over year. Online shopping revenues in first half 2004 were $20.8 million, up 74.2 percent year over year. In addition, gross merchandise sales in first half 2004 were $161.5 million, up 58.2 percent year over year.

Related reading

pokemon go