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Couch Potatoes Shun Quokka

by Hal Plotkin
Silicon Valley Correspondent

Fears that couch potatoes aren’t ready to follow sports on the Internet have contributed to a steep post-IPO slide for Quokka Sports’ {QKKA} stock.

The company, based in San Francisco, portrays itself as the leader in “digital sports immersion.” Recently, the stock has been trading at about $7 a share, well below its July 29 IPO price of $12.

“It looks like the company may be a few years ahead of its opportunity,” says Andrew Bartels, an Internet analyst with the Giga Information Group.

Quokka, named after an Australian marsupial, got off the block fast earlier this year. Upside Magazine named CEO Al Ramadan one of its “Elite 100.” The company was also nominated for a prestigious 1999 Webby Award for Best Sports Site.

“What got them going was they had a phenomenal Web site,” says Mark Hardie, a senior analyst with Forrester Research. “They use image, text, and graphics better than any other site I’ve seen.”

The problem, analysts say, is turning the site’s way-cool look and feel into a profitable business.

Quokka’s revenue for the three months ended June 30 grew to $2.6 million, compared with $2.5 million for the year-earlier period. But losses swelled to $18.2 million for the June quarter, up from $1.6 million for the same quarter last year.

According to the company, losses are expected to continue for at least two more years.

While Quokka’s stock is getting drubbed, the company’s backers say SEC-IPO “quiet period” regulations prevent them from getting their side of the story heard.

In a press release issued last week, though, which announced several new executive hires, Quokka’s CEO steadfastly maintained that Quokka has “an innovative digital sports entertainment business model.”

The company is pinning its hopes on what it calls “digital sports immersion.” The idea is to let viewers choose from a variety of perspectives, information, and action sequences.

Quokka’s site incorporates video, audio, text, e-mails, and other features to give sports enthusiasts more control over what they watch.

Although all the site’s anticipated features aren’t yet fully operational, plans calls for allowing viewers to custom-tailor broadcasts by picking from a variety of camera angles rather than watching a single camera angle chosen for them.

Viewers are also able to call up statistics and other related data and information on command.

“The problem is, when are people going to watch?” asks John Hannon, an analyst with Security Capital Trading in New York.

“You’re not going to be able to watch it during the day; people have to work. And at night, the picture on television is much better. I don’t think many people are going to want to watch sports on their computers. It’s a very narrow market right now.”

Forrester’s Mark Hardie agrees.

At present, the relatively poor quality of streaming video over the Web “is a real issue when you’re competing with an event that’s on television,” he says.

To get around the problem, Quokka has been focusing, at least in part, on sports that are usually ignored by the major broadcast networks.

Last year, for example, Quokka covered the Whitbread Round the World Sailing race, bringing an estimated 1.8 million unique viewers to its Web site.

Even the skeptics agree that concentrating on niche sports like sailing and rock climbing gives the company a chance to establish itself.

“They’re not really competing with anyone in some of those areas. The alternative is no coverage at all,” Hardie says. “But remember: That’s because the major broadcasters don’t see any real opportunities there.”

Quokka is also moving forward with an ambitious package of more mainstream sports coverage.

However, in that area, the company will be going head-to-head with televised broadcasts. The contracts Quokka recently won, for example, to produce the International Olympic Committee’s Web site and to help NBC produce Internet coverage of the 2000 Summer Olympics, are cases in point.

“In a few years, when the T.V. becomes the interface with the Internet, and more people use cable modems, that might really mean something,” Bartels says.

“But by that time, Quokka will be facing much more competition, especially from the broadcasters and agents who already control rights to major sports telecasts.”

A major part of Quokka’s business plan involves tying up and brokering digital rights to popular sports events. But Forrester’s Mark Hardie agrees that won’t be a slam dunk.

Broadcast rights for most major sports events are already locked up by a number of well-established companies, including the International Management Group Inc., based in Boston, which represents Wimbledon, among other events.

“It will be easier for companies like that to move into the digital portion [selling digital rights] when the market is ready,” Hardie says.

“Right now, it’s so minuscule its not worth their trouble. It’s hard for me to see how Quokka will compete against those companies.”

Meanwhile, Quokka is already facing stiff competition online from a number of other sports-oriented Web sites, including NFL.com, ESPN.com, Sportsline.com.

“There’s been a noticeable change in market psychology,” says John Hannon of Security Capital Trading.

“Even the strong Internet bulls are now saying a lot of the Internet start-ups won’t make it. You’re dealing with half a glass of water here. A few weeks ago, it was half-full. Now, it’s half empty.”

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