Chip-maker Broadcom Corp. is counting on snow, surf and
skaters to help seed the market for advanced set-top boxes and modems powered by its
silicon.
The Irvine, Calif.-based company's investment and
ongoing collaboration with Broadband Interactive Group Inc. (B.I.G.) represents an effort
to boost demand for its platforms and services by expanding the limited availability of
compelling, broadband-oriented content.
"They have the hardware solutions, but the
market's not ready for it because there's not the content," Dataquest Inc.
chip analyst Jay Srivatsa said of Broadcom. "It looks like they've looked at the
content market as the one that needs to drive their silicon market."
B.I.G. comes out of the gate having acquired the portfolio
of outdoor-sports-oriented broadcast, Internet and publishing properties created by
surfwear and media enterprise Gotcha International, aimed at a demographic that Gotcha
said accounts for more than 23.5 million people spending some $91 billion annually.
Executives said the Gotcha properties are the cornerstone
of plans to buy more Internet-related businesses and to develop others that may include
the media rights to big-league sports teams and content from cable programmers.
"Now it's about solidifying our existing position
and expanding our product offering," said Matt Jacobson, the former News Corp.
executive who is B.I.G.'s CEO.
At launch last week, B.I.G.'s backers included
Broadcom, the dominant maker of integrated circuits for standards-based cable modems and
digital set-top boxes, and surfwear and media enterprise Gotcha, with properties including
the Gotcha.com Web site, magazines, trademarks generating $100 million in annual revenue
and the Gotcha Pro surfing events.
Individual investors include Broadcom CEO Henry Nicholas
III, Broadcom cofounder Henry Samueli and Gotcha CEO Marvin Winkler, who is now
B.I.G.'s chairman. The companies did not disclose the amount of its financing or the
respective investments, although Broadcom does not have a controlling stake.
Jacobson came over two months ago from News Corp.'s
News America Digital Publishing electronic-publishing division, where he headed its global
Internet ventures.
Gotcha's content portfolio targets the age 10 through
24 "Generation Y" demographic with text, streaming video and programming
covering such events as skateboarding, snowboarding, surfing, motocross and BMX cycling.
Those are so-called lifestyle sports that Jacobson said
carry a powerful community aspect, translating to a high "stickiness" or
commitment among the high-spending young consumers who visit or view Gotcha's events
and Web sites.
By connecting through the new B.I.G. enterprise, Jacobson
believes his content creators and aggregators can have a more open, collaborative
relationship with Broadcom's technology developers than they might as a simple
element of Broadcom's wide-ranging investment portfolio.
The content wizards at Gotcha and other properties want to
give Broadcom specific ideas for how they want viewers and Web surfers to experience their
programs, events and data.
Then, Broadcom's engineers would determine how to
support those wants technically and in a cost-effective way that appeals to
original-equipment manufacturers developing faster, more capable broadband-access devices.
"The real advantage Broadcom brings is the technical
knowledge of what the next-generation set-top box will look like," Jacobson said.
B.I.G. is already working on a couple of major new content
deals. One is with a cable programmer it would not identify at press time. Another could
be the media and interactive rights to Major League Baseball's Anaheim Angels and the
National Hockey League's Anaheim Mighty Ducks.
Nicholas -- who was recently rumored to be a potential
buyer of the teams from The Walt Disney Co. -- said he is only interested in helping
Disney to find a buyer from which he can acquire the media rights.
Broadcom's move reflects how hardware and component
providers have been spreading into new service- and content-oriented businesses to help
foster the market for their core products.
Microsoft Corp. two weeks ago said more than 35
corporations had joined in launching the "Microsoft Windows Media Broadband
Jumpstart" initiative.
The effort is aimed at doubling consumer broadband adoption
in the coming year by fostering the growth of broadband content and access services such
as digital subscriber lines and cable modems -- all areas Microsoft and the others have
targeted as key businesses.
Other recent forays into content and services have been
announced by chip-maker Intel Corp., which launched a Web-hosting service for customers
such as Excite@Home Corp., and by digital-TV-set maker Mitsubishi Digital Electronics
America Inc., which is underwriting CBS Corp.'s costs to produce its fall
primetime-program lineup in high-definition form.
Besides seeding the market for broadband interactive
services, component makers are eyeing a future in which prices for their gear or software
programs continue dropping and business growth slows.
"If you look out 10 years from now, hardware
manufacturers all have to participate in the recurring revenue because selling the
hardware becomes a meaningless commodity business," said Gerry Kaufhold, analyst for
Cahners In-Stat Group (a sister company to Multichannel News).
Kaufhold said component-makers such as Broadcom were also
likely to fare better in promoting content development than providers of end-user
solutions like Microsoft or set-top box manufacturers, which might raise worries about
dominating any market they try to enter.
"The component-level guy has a tougher unit/margin
proposition that he needs to fight through," Kaufhold added. "He needs the
recurring revenue, and he's viewed in the market as being more benign because
he's a step removed from the set-top-box company."
Some observers said it was unclear how well Broadcom would
work with content developers, given the fact that the area is outside of its core
expertise.
"I have my reservations on how focused Broadcom's
going to be going forward," Srivatsa said. "If they were to work with the
Disneys, the NBCs of the world and somehow try to develop content in association with
them, I think that would be just as effective as opposed to starting your own
company."
He added, "They don't need to get into content to
add value for their OEMs and customers. They're just looking around and saying,
'There's no point in coming up with the next generation of silicon yet
because the market isn't providing content for it.'"
