ITV's dilemma - how long can they hold onto a rising balloon?

ITV faces a dilemma over its continued ownership of Friends Reunited, very similar to the dilemma so ably articulated by Danny in Withnail and I - 'how long you can you hold onto a rising balloon?' ITV's main problem is that their rising balloon cost £175 million and the price of letting go could be as much as £150 million.

ITV bought Friends Reunited in 2005 (then an exciting and fresh brand) for £175 million. The broadcaster announced results last week showing a loss of £2.73 billion for 2008 (including a £2.7 billion write down of online assets) and analysts now speculate that they would accept £20 - £50 million for Friends Reunited.

The Guardian reports that Friends Reunited's revenues fell year on year to £18 million, mainly due to the scrapping of their paid for subscription model and now account for half of the online division's total revenue of £36 million. Interestingly ITV's full results report says that "Whilst online advertising revenues continued to increase over 2008, supply of online advertising inventory - in particular "white space" banner advertising - has grown very rapidly, putting downward pressure on prices" This sounds flimsy at best to me, especially taking into account that ITV's X-Factor website offered advertisers 70 million ad impressions in 2008, compared to 1 million in 2007 (as reported by ITV at the IAB's 2008 conference) - surely a 70 fold increase in available inventory more than compensates for the downward pressure on prices? ITV's report goes on to say that online revenues were limited because of the blocking of the Kangaroo project and that overall, online losses grew to £20 million for 2008.

In terms of metrics, itv.com averaged 6.5 million monthly Unique Users in 2008 and reached a peak of 9.4 million users in November. ITV.com also delivered 86 million online video views over the year, though this is still dwarfed by YouTube's metrics of 72 million users worldwide watching 4 billion videos each month.

I think the central problem with Friends Reunited is that it's so obviously stood still in terms of functionality and relevance and been overtaken (from a standing start) by more relevant sites like Facebook, MySpace and bebo that were able to develop quickly without the legacy of a paid for subscription model - as Dom says, do you know anyone that's visited Friends Reunited recently, probably not, while most people are all over Facebook most of the time.

ITV bought at exactly the wrong time, at the top of the market and before the advent of web 2.0 social networking sites. But I don't think they should compound this error by selling at exactly the wrong time too.

Funnily enough, Friends Reunited is now run by Andy Baker (my old boss from Workthing and more recently MD of Trinity Mirror Digital Recruitment) and my advice to Andy, in as much as he can influence these decisions, would be to keep holding onto the rising balloon - there's no point selling at the bottom of the market. There's also still a chance that new functionality or revenue streams can be generated that could transform Friends Reunited back into a relevant brand in the web 2.0 space. The biggest issue here though is whether ITV have got the stomach stay in this space in the light of such big losses and regrettably, for Friends Reunited, the answer is probably not.

Comments

[online recruitment]

I always thought that ITV paid too much for Friends Reunited when the appeal of the site was always going to be be limited and the renewal rates low. Once you had been on a couple of times the temptation to go back soon went. Web 2.0 could save FRU but I struggle to see how its going to make up lost ground to Facebook without a complete re-design and re-branding, I don't think ITV have either the wit or the steel to stay in the game.

[Jo Jordan]

Tried to join up to see what is what - defunct - validation email doesn't arrive.

Pity it has a high page rank. Location location location - could be useful!

[Al Cartwright]

Nice post mate - getting Withnail and I AND Andy Baker in the same post, some achievement!

I don't think ITV will have much choice with FRU. Who the hell is going to buy it??

[Alex Hens]

"before the advent of web2.0 social networking sites"? Surely that's exactly what FriendsReunited is. I hesitate before saying the first, but it was certainly a Web2.0 pioneer & definitely not web1.0.

One thing's for sure though - the only way to get the site anywhere now is doing the thing it's clearly lacked since being bought at an inflated price: some significant investment. And that's the one thing ITV aren't going to/in a position to do.

So hate to say it - but best of luck to Andy and all who sail with him. The only question is whether this latest news is the actual iceberg or just a floater as they drift into yet chillier waters.

[TimElkington]

I disagree Alex, I think Friends Reunited is more 1.0 than 2.0, an early iteration of social networking sites that didn't use the very features that went on to make them so compelling and (until recently) stuck to an old fashioned subs system. It's all semantics though, it sounds like we're agreed that in order to succeed Friends Reunited needs an injection of development / cash and unfortunately it's unlikely to receive it.