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Thursday, November 2, 2006 - Page updated at 12:00 AM

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InfoSpace cuts back on mobile content

Seattle Times technology reporter

In September, InfoSpace made a big splash at a wireless event by having legendary boarder Tony Hawk skate a 50-foot ramp.

The demonstration hyped a new InfoSpace brand, called "Tony Hawk's Mobile Dissent," a platform selling ringtones and other cellphone content to extreme-sports enthusiasts.

But Wednesday, in reporting its third-quarter financial results, Bellevue-based InfoSpace said it was pulling a 180 of sorts — it would no longer make substantial investments in mobile content.

The announcement follows a chain of events that ignited about a week after the high-flying event, when the company discovered it was losing one of its largest customers. Since then, it also said it would lay off 250 of its 670 employees worldwide.

Chief Executive Jim Voelker said the decisions were made as part of a broader trend affecting the industry. Over the past few years, the company has acted as a middleman, aggregating content and helping wireless carriers sell it on mobile phones. But now, carriers are bypassing companies like InfoSpace and working directly with content owners.

In this case, the loss of the customer — widely believed to be Cingular Wireless — will significantly affect InfoSpace's sales of "label tones," or ringtones using snippets of original songs. In the first six months of 2006, label tones made up $55 million of InfoSpace's nearly $90 million in mobile revenues.

While the sales impact of the loss won't be felt until 2007, the company Wednesday reported a net loss of $46.7 million, or $1.49 a share, in the third quarter. Most of it can be attributed to restructuring costs, including severance, related to the layoffs.

The company's revenue for the three months ended in September were $96.3 million, or a 15.7 percent increase over the year-ago period. Of those revenues, half came from mobile, the other half from online properties, such as Dogpile and WebCrawler search engines.

In after-hours trading Wednesday, the stock fell 88 cents to close at $18.92.

InfoSpace provided some details on how it will pare back mobile investments.

"It's not zero, but we will not be supporting large content investment going forward in mobile-media content," said Stacy Ybarra, a company spokeswoman. For instance, while the Tony Hawk's Mobile Dissent deal will continue, the company won't seek similar deals that target other demographics.

Voelker also said InfoSpace will also trim back on investing in Moviso.com, a Web site that sold ringtones and other mobile content directly to the consumer. The site was intended to protect the company from cutbacks in business from the carriers, but without the volume discounts it gets on content now across the board, the business model is not as feasible.

Ybarra said the cutbacks won't affect mobile search and advertising, and the company's mobile infrastructure business.

Still, Wall Street analysts asked on Wednesday's earnings conference call: How will InfoSpace spend the more than $400 million in cash on its balance sheet? If not on mobile content, on what?

"That's the question in front of us," Voelker said. "We are in a good cash position here, and we will be looking to see what kinds of things we could add on to generate growth."

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com

InfoSpace's results
Dollar figures in thousands, except per share; parentheses denote losses.
Sept. 30 %
3rd QTR 2006 2005 CHG
Profit $(46,729) $11,261
Per share (1.49) 0.35
Revenue 96,298 83,225 15.7
9 MO. 2006 2005 CHG
Profit $(42,705) $121,446
Per share (1.37) 3.71
Revenue 282,418 253,428 11.4

Copyright © 2006 The Seattle Times Company

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