5 February, 2001

Webcasts boosted by SEC disclosure rule

Author/s: Michelle Donegan

Video streaming developers are now looking for the best way to deliver the goods: over private networks, via satellite or across the Internet?

Regulators are not usually known for bringing business to service providers. But a new disclosure rule from the Securities and Exchange Commission in the United States could provide a much needed boost for lagging webcast services, and has already spawned niche service providers that target the financial services sector.

The regulation, which mandates that all financial information must be made widely available to the investment community, went into effect in October of last year, and is prompting publicly held companies to use Internet-based media streaming services to deliver critical financial results to institutions and individual investors.

The SEC's Regulation Fair Disclosure (Reg FD) aims to prevent "selective disclosure," whereby companies convey financial performance data to only a select few in the investment community. The rule covers all kinds of communications, from typically closed analyst briefings, attended by analysts from powerful investment banks, to telephone conversations and office visits.

The SEC now mandates that all financial information must be made widely available to the investment community, which also includes private, individual investors, a group that has grown with the rise in online trading.

A U.S.-based organization representing investor relations professionals, the National Investor Relations Institute (NIRI), based in Vienna, Virginia, has published guidelines for complying with Reg FD and recommended the use of webcasting and conference calls.

"Reg FD has had a significant impact on the increase in companies doing webcasting and conference calls," said Louis M. Thompson, president and chief executive of NIRI. He added that 98% of NIRI's members have an investor relations section on their websites, indicating an already existing reliance on the Internet.

But some experts argue capacity constraints in the public Internet and difficulty of access to broadband connections in the local loop mean streamed services will be limited to the private networks of bigger investors.

"Talking generally about the streaming marker, you hear people with lots of ideas, but so far nothing has made it through, partly because the network can't sustain it and partly because of the lack of broadband connections." said Dario Betti, an analyst at Ovum Ltd., an independent consulting and research firm in London. "The only applications that have made it for video streaming are those for users who have plenty of time and money to pay for a service; generally, this means private networks," said Betti.

Reg FD applies to U.S. companies that are listed on domestic stock exchanges and international companies that have American depository receipts (ADRs). Because these international companies compete for the same capital as U.S. companies, they try to comply with American regulatory standards.

"A lot of international companies have been looking at Reg FD, because they ought to comply with it for best practice," said Donald Nordberg, director of strategy at London-based Raw Communications Ltd., a service provider that delivers streaming media to fund management firms in Europe, the U.S. and soon Asia.

"For fair disclosure, you need to tell the whole market [about financial results]," said Nordberg. "This makes for private investors to be treated in the same way as institutional investors. Private investors have always gotten the short end of the stick on information flow."


Bypassing Internet constraints

Nordberg recommends that companies webcast audio or video presentations of financial results over the public Internet.

Raw Communications' primary business is delivering information directly to fund managers, so the company overcomes the capacity constraints of the public Internet and local networks by streaming video over private networks. The company installs a server bypassing the firewall on its customers' premises. Then, using Internet protocol multicasting, video and audio presentations are streamed from leased satellite connections.

Other pundits advise that webcast service providers--such as CCBN.com, NextVenue, On24 and Investor Broadcast Network Inc.--will have to set up hosting arrangements with ISPs to control the local network in order to guarantee service quality.

"The last mile gateway owners are the only ones who can guarantee the last mile broadband connection," said Jay Marathe, head of consulting at Durlacher Ltd. of London. "The reality for webcasting is that the performance can still not be guaranteed."

Ovum's Betti believes that media streaming companies that take the private network route may not be able to maintain a niche market position in the long run because aggregators of webcast Internet content will threaten their business. "The ones that will reach economies of scale will be aggregators of all of [the webcasters]," said Betti.


End user statistics

Viewer numbers in the U.S. for streamed broadcasts of financial information suggest a potentially large market. A report released last month by Media Metrix estimates that most of American home computer users have streaming-media players installed. Already, viewers are watching for more than entertainment value. Last year, one of the most talked-about streaming events was Bill Gates's presentation of Microsoft's Windows 2000 release. Dan Rayburn, product manager of streaming media for New York-based Globix Corp., one of the three broadcasters of the Microsoft event, believes that the future of streaming lies in its utility as a business and education tool. "There's more interest where people have something important at stake," he observed.


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