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Broadcast.com: The Roar of the Crowd

There's no question that the buzz is loud for

Broadcast.com

. Its initial public offering, expected to be priced Thursday evening, is shaping up as one of the hottest Internet offerings around -- for this month, at least.

But despite market demand and talk of a bump-up in the offering price, Broadcast.com's growth prospects are less than meets the eye, says one knowledgeable industry participant.

The company bills itself as the largest provider of what's known as "streaming" audio and video programs on the Web. ("Streaming" is an industry term that means you don't have to wait for the whole program to be deposited on your computer before you listen to it or watch in on your computer; you can start listening to an hour-long radio show, for example, seconds after you select it.) The Dallas-based company, which changed its name from AudioNet in May, broadcasts both prerecorded and live programming to Web surfers -- material like Super Bowl XXXII, college football games, live feeds from 345 radio stations and

Bell & Howell's

(BHW)

annual shareholder meeting.

Like most of the Internet companies that have already gone public, Broadcast.com has growing revenues, but also widening losses. In the first three months of the year, for example, Broadcast.com posted an operating loss of $3 million on revenue of $3.2 million, compared to an operating loss of $1.1 million on revenue of $1.1 million a year earlier.

That's not necessarily a crime in the IPO market, of course. When the Internet advertising company

DoubleClick

(DCLK)

went public in February, it was reporting operating losses, and those losses have continued. But investors haven't minded; its stock, though down 30% from its high earlier this month, is still triple its offering price.

Demand is growing already for Broadcast.com, which is scheduled to trade on Nasdaq under the symbol BCST. In its IPO filings, the Web site operator says it hopes to raise at least $30 million in its stock sale, valuing the company at more than $202 million. But a source at lead underwriter

Morgan Stanley Dean Witter

confirms that the company has raised its expected offering price to between $14 and $16 from $11-$13, adding more than $50 million to Broadcast.com's market value.

Sounds great. But, in the words of Josh Harris, "I don't see the big upside."

If there was a strong Internet play here, Harris would be the one to recognize it. The founder of the high-tech market research firm

Jupiter Communications

, Harris now runs

Pseudo Programs

, a New York-based company that broadcasts original audio and video programming from its Pseudo Web site (http://www.pseudo.com).

Calling the Broadcast.com management team "good businesspeople," Harris says the company has a few things going for it. "What they're getting is capitalization and critical mass and first in the market, which is why they'll do OK," Harris says. But they won't work wonders like

Yahoo!

(YHOO)

or

America Online

(AOL)

TheStreet Recommends

, he says.

Though Broadcast.com is the first and biggest aggregator of streaming media, it'll soon have plenty of company, Harris says. The sports teams and radio stations that supply material to Broadcast.com will set up their own sites, diluting the value of Broadcast.com's site, he says. "People are going to roll their own streams," he says. "It's not brain surgery."

Soon, Harris adds, sophisticated competitors with plenty of experience in sports programming will be able to break into Broadcast.com's business, stealing away events as Broadcast.com's current agreements to netcast them expire.

"Two years from now, the smart, smart sports people are going to come in," Harris says. "When

ESPN

figures this out, and they will, they'll just be trailing

Broadcast.com around, finding those contracts."

For now, it appears, Broadcast.com has a little bit of time.

CBS SportsLine

, which already broadcasts original sports talk shows on the Web, doesn't expect to make live sporting-event broadcasts a major part of its business, says Michael Levy, president and CEO of

SportsLine USA

(SPLN)

, which operates the site. "There's just not enough demand for it right now," he says. "For us to come in as a me-too on that and have a big fight we think would be counterproductive."

The situation facing Broadcast.com is similar to that of

Amazon.com

(AMZN) - Get Report

, another Internet pioneer that skeptics have said is vulnerable to well-established brick-and-mortar competitors that can set up their own Web sites.

But Harris says Amazon.com has a key strength Broadcast.com lacks: a brand. "Amazon.com, before it went public, you knew what Amazon.com was and what it was all about ... finding the right book for you and servicing you as a book buyer," he says. "They're a brand. And you know what the brand means. And it performs certain services that you're familiar with."

By broadcasting only original programming on Pseudo -- such as an urban music channel called 88 Hip-Hop -- Harris says he's building brands Web surfers are loyal to. But by just repackaging other people's programming, he says, Broadcast.com isn't. "What is the brand? It's like a faceless kind of company. ... If they're not your loyal audiences, and you don't have a brand, you're sort of in the commodity business, because everything they do is copyable and duplicatable."

Harris's point is a valid one, says Nick Moore, senior technology analyst with the money management firm

Jurika & Voyles

. But Moore, who says he's not sure whether his company will be buying into the IPO, disagrees with Harris's point that Broadcast.com is an easy mark for a bigger company. "'Oh, ESPN will kill them.' Well, what if

News Corp.

(NWS) - Get Report

should have buried AOL a long time ago."

It's possible to dismiss Harris' concerns as envy: Broadcast.com claims an average of 400,000 unique visitors to its site each day; Pseudo has about 1/20th of that traffic, Harris says. While Broadcast.com is poised to raise $37.5 million, Harris is looking for venture capital money and is in the process of hiring a new advertising chief. Referring to Broadcast.com's President and Chairman Mark Cuban, Harris says, "I'm jealous for his capital, but I'm not jealous for his model."

Assuming an offering price of $15 a share, Broadcast.com is a high-growth bet, going out at a price of 28 times its last 12 months' revenue (AOL trades at 11 times 12-months revenue).

But in Harris' eyes, that's a bad bet. "The stock will make it," Harris says. "You'll make your money. It just won't be a wild, 10-to-1-splitting-every-six-months kind of stock."