Lonely free ISPs agree to marriage
Published: 08 Jun 2001 14:36 BST
Free Internet service providers NetZero and Juno Online Services said on Thursday that they have agreed to merge, combining the last big independent players still operating in the once-hot free Net access market.
The two survivors will become a single company called United Online, which will continue to offer free services under the NetZero brand and move its paid services under the Juno name.
Together the two will reach 7 million active subscribers -- people who have logged onto the service at least once in the last month -- giving them a larger base than any other ISP outside of America Online. Only about a million of those people represent paid subscribers.
"This merger brings together two leaders in the rapidly growing value segment of the Internet access market," Mark Goldston, NetZero's chief executive, said in a statement. "As the second-largest ISP in the United States, United Online should represent a very attractive audience for the nation's largest marketers and advertisers."
The two companies, along with Kmart's BlueLight.com, represent the last of the big free ISPs that swept onto the Net beginning in 1999. All have struggled with financial difficulties over the last six months, as advertising revenues have made it more difficult to shoulder the costs of their subscribers' connections.
All three have pushed subscribers toward paid services or sharply limited the amount of time people can spend online.
Goldston will be president and chief executive of the newly merged entity, and NetZero chief financial officer Charles Hilliard will be United's chief financial officer. The new company will trade under the symbol UNTD on the Nasdaq Stock Market.
NetZero shareholders will receive 0.2 shares of United Online stock for each NetZero share they own. Juno shareholders will receive 0.357 shares of United Online for each Juno share. The companies said that NetZero shareholders will own approximately 61.5 percent of the new company.
The two companies are betting they can save money on infrastructure and operations costs in a business that is tough to make profits in even charging subscribers $20 a month.
NetZero spent more than $26m on basic operations last quarter to make revenue of just $12.7m. It lost far more because of one-time charges. The company started charging for some service only toward the end of that quarter, however. Juno reported a net loss of $9.8m on revenue of $28.7m.
Analysts say the merger will help position the pair in the market as they go to strike deals with potential distribution partners. But they're less certain of the financial benefits.
"The major thing that the merger can do is to increase the total amount of ad inventory, and that's not readily a weakness of either company," said Jupiter Research analyst Dylan Brooks.
The biggest task facing the newest company was to prove that it can turn the 85 percent of its subscribers who are getting free service into paying customers, Brooks said -- and then proving that it can make a profit at whatever discounted price it charges for the service.
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