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"In a way, the Net is full of nice toys," says Karey Barker, portfolio manager of Wasatch Funds Inc.  "But with virtual road shows, I have found something that makes my job much easier."

A big part of Barker's job is to invest in IPOs (initial public offerings).  Unfortunately, because of complex regulations, it is not easy to get information on IPOs.  According to securities laws, a company must file a prospectus with the Securities and Exchange Commission (SEC).  This document requires that certain types of information be disclosed - such as the financials, risk factors, strategies, management background and so on. But these documents tend to be very conservative and focus on worst-case scenarios - because the company wants to reduce the chances of being sued. But there is another method of getting information on an IPO:  the road show.  This is where the senior executives of a company give a presentation to institutional investors, brokers and analysts, so as to generate demand for the IPO.  Typically, the presentation lasts two hours and is usually part of a breakfast or lunch.  These road shows take place in the major financial centers, such as New York, Chicago, San Francisco and LA. As for Barker, she is located in Salt Lake City, Utah - a place that only a few companies visit for road shows.  "Because of where we are located," says Barker, "we often do not have the time to take a day flight to see a road show.  This means we might miss out on important IPOs." However, one way around this is to have a conference call with management. But even this has its own problems.  First of all, it is not always easy to arrange a conference call with management.  Next, a road show will often have a slide-show presentation.  There will also be a question-and-answer session, which says Barker, "You can see the interaction of investors and management.  This can really give you insight into the company." Well, there is a better solution:  the Internet.  On November 24, 1997, MSNBC Desktop Video premiered its first "Virtual Road Show."  The IPO was N2K (www.n2k.com), an online music entertainment company and the underwriter was PaineWebber.  To accomplish this, MSNBC needed to deal with a variety of regulations. For example, in order to view a road show, a potential investor needs to have a prospectus.  Also, it is uncertain if the securities laws allow for video transmission of road shows.

On March 12, 1997, MSNBC received a no-action letter from the SEC to have virtual road shows. What is a no-action letter?  According to Robert Ming, a securities attorney with the Los Angeles office of Morgan, Lewis & Bockius LLP, a major international law firm, this is a letter from the SEC to an  organization or member of the public that answers certain legal issues.  If the SEC agrees with the request, it agrees to take a "no action position" and will not bring an enforcement action against the requesting party -- assuming the facts are as stated in the letter.    "Although they are technically limited to the specific facts of each letter, no-action letters become guidelines for everyone else to follow," says Ming. Here are the guidelines for virtual road shows:

1. Restricted Audience:  There will be a password required to view the virtual road show.  What's more, each participant must agree not to videotape, copy or distribute the transmissions.
2. Prospectus:  Before a virtual show is transmitted, a prospectus will be provided to the investor. 
3. Consistency:  The information in the virtual road show must be reasonably consistent with the information in the prospectus.
4. Warnings:  Posted on the site will be messages highlighting the importance of reading the prospectus and not copying the virtual road show for distribution.

Here's how MSNBC follows the guidelines:  MSNBC signs an agreement with an underwriter to videotape the road show, as well as incorporate the slide show (in other words, the virtual road show  viewers will see the same thing as the live audience).  MSNBC will then convert the video into NetShow technology.  In fact, NetShow can be adjusted to prevent the copying of video.  Then MSNBC issues passwords to the underwriters.  Before giving these passwords to brokers, analysts and institutional investors, the underwriters will issue prospectuses to all viewers of the virtual road shows.  Furthermore, MSNBC keeps a record of those passwords that have logged onto the site.  This information is given to the underwriter.

Unlike other Web sites, a virtual road show is not based on getting lots of traffic.  "We had one underwriter who wanted to show the virtual road show to only five people," says Mike Wheeler, president of MSNBC Desktop Video. 

So how does MSNBC make money?  There is a two-part revenue model. Although not required, the viewer might be a subscriber to MSNBC Business Video (www.businessvideo.msnbc.com), a service that provides unedited live coverage of a myriad news events - such as a Greenspan speech, interviews of major CEOs, and so on.  This service costs $29.95 per month or $300 per year. The second part of the revenue model is the production of the video.  For this, MSNBC charges $15,000.  Compared to live road shows, this is relatively cheap.  "The cost of a road show, per city," says Wheeler, "can range from $30,000 to $150,000."

Benefits of Virtual Road Shows

Barker used MSNBC's virtual road show technology when considering the N2K IPO.  "It really  helped me out," says Barker.  While she thinks that virtual road shows will not replace the live road shows, she thinks this technology is here to stay and will eventually become the norm for IPOs. "I really like the fact that I can view it any time," says Barker.  "I can also use this to do research on other industries, as well as get information on competitors to the companies I already own." Because of these advantages, she believes that virtual road shows will help to increase the demand for IPOs.  In fact, because the Net is global, overseas underwriters will be able to participate in IPOs - thus furthering the demand.

Competition

On November 24, 1997, Bloomberg L.P. announced that it would also provide virtual road shows.  Although, its virtual road shows will not appear on the Web, but on Bloomberg terminals.  Over 300,000 financial professionals in 95 countries use Bloomberg terminals.  Integrated with the road shows will be the extensive analytical services of Bloomberg. Like MSNBC, Bloomberg will deal directly with the underwriter, who will then provide virtual road show distribution to those who have received a prospectus.  What's more, Bloomberg also received a no-action letter. But so far, MSNBC is the only organization to broadcast virtual road shows.

The Future

"The next obvious step in virtual road shows," says Ming, "is for the general public to have access to them."  But the SEC has been slow to open the door this wide.  "We are seeing baby steps right now," says Ming. "But I think eventually it will happen."