Buying Channel One Comes Back To Haunt Alloy

October 31, 2008
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From Jim Metrock:

I am pretty awful at picking stocks. If you think you are in bad shape with your investments, you should see my brokerage statements. Actually, even I am not looking at my own brokerage (now I know why “broke” is in the word) statements because I don’t have the nerve.

However, back in 2007 I did give Matt Diamond, CEO of Alloy Media and Marketing, some investment advice that he should have taken. I told him not – NOT – to buy Channel One News from Primedia. Primedia couldn’t find any buyers for this “walking dead” company and Primedia was about to bury it, when Alloy came along and saw value where many, much-better-managed companies found none.

For the record here is Alloy’s stock history since 1999:

Alloy as far as we can tell from their SEC filings and annual reports has never made an annual profit. Keep in mind this chart reflects the “good ole days” of the stock market as well as the current dismal period. This is a graph of a company in going the wrong way. [The graph looks like it goes to zero, but that is just the way Yahoo presents this graph. The company still has some value.]

Mr. Diamond didn’t listen to me. He probably thought he was smarter than me, and most people are, but not when it comes to Channel One. I know this company.

Actually by the spring of 2007 Channel One News had become so worthless and so irrelevant to teachers and students that Alloy really didn’t “buy” Channel One. Primedia basically paid Alloy to take this stink bomb off their hands.

True, Alloy agreed to spend around $12 million on equipment upgrades which were mainly intended for enhancing ad revenue rather than for providing a better picture for the kids or upgrading the content.

Mr. Diamond hoped he could turn around Channel One. “Hope” of course is a lousy business strategy as Mr. Diamond is finding out.

On April 23, 2007, the day Alloy announced its “purchase” of Channel One, Alloy stock was at $12.63. The stock was down from its $90 share price, so things could only be looking up, right?

Wrong.

Yesterday, October 30, Alloy’s stock was at a new low of $4.76. As most stocks were going up yesterday, Alloy lost over 11% of its value in one day. Since taking over Channel One, Alloy’s stock has dropped 62%.

Channel One is not the only reason Alloy is going downhill. It is just one, but Mr. Diamond has stated that he is placing much of Alloy’s future on their Media segment, of which Channel One News is a big part.

I don’t think Alloy did their “due diligence” very well when they agreed to bring Channel One into their family of marketing companies. I bet none of their executives flew out to Ohio middle schools and Texas high schools to witness the reality of Channel One News in a classroom.

If they had done so, they would have discovered that many schools consider Channel One News a joke, that teachers turn the sound off when it comes on automatically in their rooms, that the equipment is in disrepair in many schools, that the program is shown before school starts often to empty or nearly empty classrooms. They would have discovered that schools have cut down the time to show the program. Some allow only five minutes in homeroom to show the 12-minute show. Some schools don’t show the program at all. Instead many schools show their own student-produced newscast reporting on school events. They often call this student newscast “Channel One News” because it uses the old Channel One equipment but students don’t see any of the real Channel One News show and the students see none of the commercials.

There is little chance for any significant increase in advertising revenue being generated by Channel One News. The brand is dead.

Mr. Diamond didn’t take my advice, but even after bringing the sick Channel One News into his Alloy household, he made another bad and probably fatal decision. Instead of hiring new managers who had no connection with the failed Primedia-Channel One, he hired former Channel One executives like Kent Haehl and Paul Folkemer. Diamond kept Kathy Goodman who had been at the company since the Whittle days. Instead of changing the name [if any company calls out for being renamed it is Channel One News], Diamond kept the name and all the baggage that came with it.

Obligation has reported that NBC which produces the Channel One News program for Alloy is going to be cutting their budget next year. This is added bad news for Alloy. For those teachers, parents, and students who look forward to a day when movie commercials will no longer be shown in American classrooms and schools get back to maximizing school time, your wait may be over within the next few months.

 

October 31, 2000 Halloween Comes A Day Early For Primedia

April 23, 2007 Humiliating Deal Lands Channel One In AlloyLand

April 24, 2007 If You Like Losing Money, You’re Going To Love Channel One

May 3 2007 “de minimis”

 

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