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Old media goes in pursuit of Bebo youth

Viacom's approach to buy Bebo is the latest expression of interest from a big, traditional media company desperate to reconnect with a young audience. Michael and Xochi Birch, the founders of the San Francisco-based social networking site, said they received approaches at the rate of about one a fortnight, but they stressed they were in no rush to sell. Traditional media companies are struggling to remain in touch with audiences in the internet era and are looking to emulate Rupert Murdoch's News Corporation, which bought MySpace, a rival social networking site, for $580m last year. Viacom, a US group, has been keen to enter the market for user-generated content with products such as MTV Flux – a version of its music television channel that allows viewers to choose and upload content. But Mr Birch, the chief executive of Bebo, emphasised it was traditional media companies "like Viacom" looking to acquire a social networking site, rather than internet-based businesses such as Yahoo, that were the most persistent inquirers.

Mr Birch declined to comment on potential bidders. The only large company before now to be firmly linked with Bebo was BT, the telecommunications group. A report on the TechCrunch blog recently said BT had offered £300m to buy Bebo, while the site had demanded "north of $1bn". "That one rumour raised our profile in the US more than anything else," said Mr Birch. "It is a ridiculous amount of money." Whether the sum is ridiculous is hard for analysts to judge. Bebo, which is backed to the tune of $15m (£7.8m) by the London branch of Benchmark Capital, the private equity firm, has yet to file any accounts. "Our aim is to grow in such a way that we cover operating costs," said Mr Birch. "We've not spent any of the venture capital money yet. I've been trying to spend it but we made a lot more money the following month." The only pointers to Bebo's success are audience figures. According to Niel-sen/NetRatings it has 2.7m unique users a month in the UK, 490,000 behind MySpace but ahead of Google's Blogger site and Friends Reunited, the site bought by ITV, which has lost traffic in the past six months.

Such measures of traffic are vital for attracting advertising to Bebo. Mr Birch claimed advertising agencies were still stuck in the pattern of traditional media-buying and were sometimes resistant to the new media opportunities provided by Bebo and its peers. Overall, though, there is a strong expansion in web advertising. Zenith-Optimedia, the media buyer, predicted it would account for 7 per cent of all global advertising by 2008. And many agency strategists believe the drive to embrace use-generated content will sustain the trend.

One recent example was Disney's decision to market its Cars film via Bebo in Ireland, where the site dominates social networking. The decision to put a trailer for the film on "Bebo television" was a test for future advertising projects. "When you can get those really cool and fun brands and get the company to pay you to put it there, it's a very sound business model," said Mr Birch. "When you get fun content like that it disseminates very quickly." Questions over the potential profitability of sites such as Bebo have been replaced recently by questions over their potential danger to young users. Politicians in the US and UK have expressed worries over paedophiles using the sites to groom victims. "Government do tend to buckle under the pressure of communities driven by the media," said Mr Birch of the regulatory threat. "We haven't had one known case of grooming on Bebo, yet we have 25m users." He has hired Rachel O'Connell, a former government adviser on internet paedophilia, to make the site safer and head off any regulatory threat to his business.

Mr Birch said he spent 10 per cent of turnover on safety measures. Mrs Birch, who manages the company's finances, claimed MySpace might have put itself in a strait-jacket by selling to News Corp. "We can do the same kind of business development deals as MySpace. They have two parties with different interests [the old media world of News Corp and the new media My-Space] being forced to work together." Mr Birch added: "They can't do something with Viacom and ITV, as those channels are competitors to other News Corp businesses. "It could be quite a disadvantage." Copyright The Financial Times Ltd. All rights reserved.