• Liberty Media Bets on Fun Technologies PLC

By SIMON AVERY November 22, 2005 - How does an international cable giant stem the defection of television viewers to the Internet? Liberty Media Corp. believes it may have an answer in Toronto-based Fun Technologies PLC, an on-line gaming company also incorporated in Britain, that was started just three years ago with a $5-million investment. Liberty, controlled by U.S. billionaire John Malone, has agreed to pay about $194-million (U.S.) for a 51-per-cent stake in the company, giving it a market value of approximately $480-million. Fun Technologies has yet to make a profit, and posted sales of only £8.1-million ($13.4-million U.S.) during the first nine months of the year. What Fun Technologies does have is one of the largest on-line communities of people playing skilled games, with some nine million registered users. That is a critical asset in an industry that needs a sufficiently large pool of players at any one time to keep the games going. Skilled games are defined as contests in which the outcome is not based entirely on luck, and, unlike on-line gambling, they are legal in most of North America. Fun Technologies' games include everything from Bejeweled and solitaire to checkers and spelling quizzes, and are played on popular web sites that include AOL, Disney, Virgin Games, MSN, eBay, and NASCAR.com. While these corporate customers put their own brand on the games, Fun Technologies retains control of the broad community. Englewood, Colo.-based Liberty Media is hoping to entice millions in that community into what it calls “participation TV.” Eighteen months ago, Fun Technologies created an on-line version of a spelling game, called Lingo, on Liberty's Game Show Network. As the TV game show proceeds, viewers can participate in real time over the Internet. Interest in the show “exploded,” says Lorne Abony, co-founder and chief executive officer of Fun Technologies. Within six months of launching Lingo on-line for Liberty, the cable company approached his company about taking an equity stake, he said. “Liberty Media is as blue chip as you get, and it's the first time anyone in on-line gaming has been able to be associated with a company like this,” he said. The interactive formula which blurs the lines between TV and the Internet will be expanded to some of Liberty Media's more popular networks, including The Discovery Channel and The Shopping Network, Mr. Abony said. Fun Technologies' gaming assets “create a new level of interest in TV,” said John Orr, vice president of investor relations at Liberty Media. “They've got interesting properties that lend themselves to skill games and participation TV.” Robert Winslow, an analyst with Wellington West Capital Markets Inc., described the deal as a venture investment for Liberty Media to see whether it could make watching television an interactive experience. The transaction will leave Fun Technologies “in great, great shape.” He speculated that the company might use its fattened balance sheet to acquire one or two of its main competitors, WorldWinner or GameAccount, which each focus on skill gaming. As part of the deal, Fun Technologies will become a wholly owned subsidiary of a newly-formed company, of which Liberty Media will hold 51 per cent. Liberty will pay $50-million in cash to Fun Technologies and another $144-million to purchase shares of the new company. Shares of Fun Technologies increased 12 per cent or 67 cents (Canadian) to close at $6.22 yesterday on the Toronto Stock Exchange.

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