With his 101,000-mile undersea fiber optic network nearly complete, local telecom billionaire Gary Winnick is launching an all-out offensive to become the global digital pipeline for Hollywood. The outcome of his ambitious effort could well determine whether his battered company, Global Crossing Ltd., revives or continues to languish.
“Up until now, we’ve been in incubator mode. We’re now in execution mode,” said Donna Reeves, president of Global Crossing’s media and entertainment division.
What Global Crossing has been incubating is a global fiber-optic network that reaches some 200 cities and a strategy to cast a net over the entire entertainment industry. The goal is no less than being the sole digital platform that content owners eventually use for all of their communications needs including storage, production and distribution.
“For the last year, we’ve had a team focused on learning, talking and listening to senior executives from the media and entertainment industry,” Reeves said. “All of the executives are saying the same things about security and maximizing value. They’re also struggling to go with a provider that can pull it off and survive market conditions.”
It is not clear if digitally frustrated Hollywood is ready to let its content ride on anyone’s fiber. The industry has been moving cautiously and in fits and starts towards digitization, which is why Winnick has been quietly strategizing for at least a year before knocking on any doors.
There is no question that all of the media giants want their digital content to flow seamlessly across the globe, but they won’t do it until their property is protected and profitable.
Winnick was unavailable for comment last week, but Reeves said he is likely to become a more visible figure on the local scene in the months ahead.
“You’ll see more of Gary over time,” she said. “He’s very committed to media and entertainment.”
According to Reeves, Winnick and other Global Crossing executives expect media and entertainment companies to become Global Crossing’s top corporate customers, surpassing even financial services in the revenues that they generate for Global Crossing. That’s a considerably ambitious goal, considering Global Crossing already has an estimated 7,000 financial firms on board.
Strategic shift
The move into Hollywood is part of Global Crossing’s overall push to sell services to corporate customers, as opposed to the company’s current position as a wholesaler to telecom carriers.
With profits depressed in all sectors of the telecom business and valuations falling, Global Crossing may be counting on Winnick’s deal-making skills to nab Hollywood powerbrokers and to revive Global Crossing’s once-high-flying stock.
The stock was trading in the $14-a-share range last week after sinking to a 52-week low of $8.77 last month.
But analysts are unsure about Global Crossing’s push into Hollywood.
“They’re really starting to target business customers, like media and entertainment companies, but those efforts are still nascent and the success hasn’t been fantastic,” said Morningstar Inc. analyst Michael Hodel.
But Winnick is not one to be counted out.
Summoning the sales skills he learned while working alongside Michael Milken and while selling bonds for Drexel Burnham Lambert, Winnick raised $21 billion in 1997 to start Global Crossing. Despite knowing little about the fiber-optic business, Winnick and the four Global Crossing CEOs he has cycled through grew the company into the telecom giant that it is today. Global Crossing’s market capitalization once reached $47 billion, and it made millions for some very powerful people, including former president George Bush.
“Anyone who can build a company like Global Crossing gets the respect of the media business,” said Dennis Miller, partner with Constellation Ventures, a VC firm that Global Crossing partnered with as part of its strategy to win over the media industry.
Constellation, a Bear Stearns & Co. company with offices in L.A. and New York, is committed to allocating $100 million of its $450 million fund to companies providing software applications that mesh with Global Crossing’s network.
“Global Crossing has significant pipe and bandwidth provided on a global scale and was looking to aggressively market that to clients that had rich media needs,” Miller said. “To do that, they were also looking at value-added services that would sit alongside the bandwidth and that would be of interest to its customers.”
Pursuing deals
Miller and Constellation partner Clifford Friedman bring a wealth of media contacts. Friedman ran Universal Studios New Media Group and was also at NBC, where he helped form the venture with Microsoft Corp. that would become MSNBC. Miller, who was a college roommate of Global Crossing co-founder Barry Porter, was an executive at both Lions Gate Entertainment and Sony Pictures Entertainment.
“Working side by side with Global Crossing, we thought we would see very attractive deal flow and that one plus one would equal three,” Miller said. “We’re already meeting and seeing a significant amount of deal flow.”
Constellation has a keen interest in seeing Global Crossing succeed, because the more successful Global Crossing is, the more successful Constellation’s portfolio companies will be.
Global Crossing declined to break out revenues for its separate divisions.
Overall, the company’s revenues increased in the first quarter ended March 31, but its net loss widened. The company reported a net loss of $675 million (76 cents per share) for the first quarter, compared with a net loss of $348 million (45 cents per share) in the like year-earlier quarter. Its first-quarter revenues were $1.1 billion, up from $900 million in the like year-earlier quarter.
“Serving an end user like the media industry could generate recurring revenue streams, and the company keeps promising that growth will happen,” Hodel said. “But it’s hard to say how successful they will be.”
Other broadband companies are vying with Winnick for Hollywood’s attention. Competitors at the forefront include Minnesota-based Wamnet Inc., TRW Inc. spin-off PicturePipeline and NeTune Communications Inc., which is backed by Hughes Electronics Corp. and IBM Corp.
