Live coverage of ad:tech San Francisco by David Shabelman.
A few more thoughts from Digg founder Kevin Rose at ad:tech San Francisco.
- On whether he was enticed to accept millions of dollars in a buyout, Rose admitted, “who wouldn’t want to have a shit ton of money,” but said he wasn’t too worried about his personal wealth. “I’ve never been one to need much to live on.”
- But Rose also said he’s not interested in selling out to a large company, then have the site losing its cache, not innovate and fizzles out in a few years.
- Rose said the company could use some of its funds to acquire a digg-like company in another country. He said digg monitors numbers of other sites and if they are gaining traction digg could acquire them.
- He said the dead tree media “is dead” and he doesn’t know why people keep talking about it. In terms of the media’s role as a watchdog, he said that won’t go away, it will just be stripped down. Rose said he doesn’t know if Digg can save newspapers, but it can provide newspapers with reams of information about their users and what other types of stories they’re reading.
- Along the same lines, he said popular journalists, such as the Wall Street Journal’s Walt Mossberg, will always have a following and will actually be more powerful when they are not affiliated with a newspaper.
- He does not believe Twitter competes with digg.
- He said digg has gone about as far as it can with its current format, but said there were drastic changes for the site in the works.
- He was shocked by the amount of hatred its users expressed after the introduction of chocolate Skittles.
For more coverage ad:tech SF, visit our overview page here.
Live coverage of ad:tech San Francisco by David Shabelman.
For many content providers, a large number of people who view their content see it somewhere else from where it’s originally produced. The challenge, then becomes, how to best syndicate content and also find ways to monetize it. It turns out, there’s a whole industry that has cropped up designed to help content providers with distribution.
A number of those companies were on display at the ad:tech conference in San Francisco on Wednesday. Among them are auditude, which manages and monetizes online video; Redbricks Media, an interactive advertising agency; digg, a Web site that aggregates popular content; Associated Content, a platform that allows publishers to publish their content in any format — such as text or video –and distributes that content to users; and Digitalsmiths, a provider of video indexing and content publishing technology.
Rather than fighting where their content ends up, executives from the companies said publishers must embrace getting the content to as many people as possible, but identify and manage those areas so they can be better monetized. Publishers need to look at log data and target the areas that are generating traffic for them and work with those sites to enhance usage. By getting a better understanding of where their users are, publishers should be able to better engage them and create new revenue streams.
For more coverage ad:tech SF, visit our overview page here.
Indeed, with YouTube “becoming a top choice for music discovery, the labels need YouTube more than YouTube needs them,” but then one has to ask: why do some content owners - such as Warner Music - shun YouTube?
When it comes to content, you have creation, aggregation and distribution. Oftentimes the aggregation and distribution are bundled into one, as is the case with YouTube - who is not only one of the distribution partners in WatchMojo.com’s syndication network but the web’s largest aggregator of video content, period. Of the 40M streams we’ve done since launching, just under 50%, or 20M, have come on YouTube.
The largest news aggregator happens to be Digg, whose financials Business Week managed to get its hands on. Considering the site’s traffic, the figures aren’t pretty. Digg greets over 20M unique users per month, has an advertising deal with web sugar daddy Microsoft in placebut can only muster about $1-2M in quarterly sales, operating in the red to the tune of $5M per year.
Why? Basically, the site is a “link dump” and aggregates content headlines and titles and drives out traffic - lots of it - to underlying sites. By virtue of not having any content, it cannot really sell targeted and premium display ads; by virtue of its nature, no one is there to click on ads (unlike Google’s search, where even a small proportion clicks on paid links versus organic results generates billions in revenue).
Digg is one of the poster childs of social media, it has thrown news and publishing in a loop, but as an ad-supported business, like other social media companies (Facebook, notably), it is failing to gain any traction.
In good times when VCs are willing to underwrite losses, this is not a problem. In bad times, VCs are less willing. In the end of days-kind of times, VCs are seeing their own investors bail and as a result really can’t fund companies like Digg. True, Digg recently raised $28M (I think that was basically Kevin Rose cashing out in some kind of founder’s liquidity deal), but that was in the works before the “econalypse” hit. Today, no way would that deal get done.
As a result, it’s fair game to ask, as does VC Jeremy Liew: Will the recession kill “social media”? I hope so, personally. As a content producer, I think the whole web 2.0 / social media fad is just that: a fad… much like the B2B craze of 2000 was the frothy exclamation point on an excessive period that was due for a crash. This time around mind you: social media has been the sundae, icing and cherry of the bubble… and the time is nigh to nuke the whole social media as a business rhetoric. Don’t get me wrong: all media companies need to be aware how social media changes the rules… but to build a business based solely on social media? That’s suicide.
The problem - and stop now if this sounds familiar - is the utter lack of respect that the Web 2.0 crowd (and the financiers who inflated the bubble) have for content.
If you think about it, there is something deeply disturbing about companies that aggregate or scraping content to get mammoth valuations from VCs yet content creating companies are generally not favored for investment. That is a morally bankrupt position and the recession is now showing that it is also an economically hollow position as well. So to answer Jeremy Liew’s question: the recession is not the cause of social media’s death but simply the accelerator.
I was telling a friend this week that 2008 was a good year because Web entrepreneurs and employees began to finally get some perspective on expectations, valuations, and common sense (let’s hope this time it sinks in and lasts, because clearly, we did not learn from the 1998-2000 era). But the truth is, I think the writers and journalists that cover these companies are partly to blame, too.
Judging from this article in Business Week, I don’t think it will last, though.
A year ago there were reports that Digg had hired investment bank Allen & Co. to put the popular news aggregation Web site on the block with an asking price of $300 million. Bloggers predicted that buyers could “easily justify” the price given Digg’s popularity, although no deal was ever consummated. Now that number looks like a relic from a bygone era. On Sept. 24, Highland Capital Partners and three other venture capital firms invested $28.7 million in Digg. The specific terms were not disclosed, but that investment implied a valuation of $167 million for the startup, according to one person who has seen the terms of the agreement. Digg executives declined to comment on the company’s valuation.
(…)
Digg’s public profile is much larger than its financial might. Last year the company lost $2.8 million on $4.8 million in revenue, according to Digg financial statements reviewed by BusinessWeek. In the first three quarters of 2008, Digg lost $4 million on $6.4 million in revenue. Adelson declined to comment on the figures.
NO TURNAROUND IN SIGHT
The valuations of tech startups are apt to keep falling, say some investors and lawyers. In September 18% of the financing rounds for venture-backed startups were for a lower value than the previous round, according to a survey from law firm Fenwick & West. In the fourth quarter that figure “could easily double,” says Fenwick & West attorney Barry Kramer.
In one extreme case, the software startup BitTorrent recently tore up an agreement signed earlier this year that would have given it $17 million in venture money. Instead, the company took $7 million, laid off two-thirds of its 60 employees, and slashed its valuation from $177 million to just $35 million.
Call me old fashioned, but I think that while Digg is an amazing property and service, a valuation of “even” $100M is quite good if it has financials in the order of magnitude that listed above, no? I mean, why should Kevin Rose and Jay Adelson feel bad about boasting such a valuation? Who says that$300M was realistic, let alone possible (or sane). I had previously harshly pointed out: would you buy Digg for $8.5M (when it had in fact raised $8.5M in financing on what was possibly an unreaslitic and unsustainable valuation round). For the record, yes, I would buy Digg for $8.5M. $85M? Not sure, even though Digg is definitely one of the most explosive web startups, ever. The problem has to do with social media, which is as monetizable via advertising as a Girls Gone Wild-themed video site would be… not that there is anything wrong with that, of course.
Sure, the earlier VC rounds that Digg did pushed the paper value to unsustainable and unrealistic levels - as did that Business Week cover (hmm… odd to see this story in BW, as well) - but I think it would be good for the people covering Silicon Valley to have a piece of humble pie, too… and get with the program: running a business is hard work, and building a $10M company is the exception, not the rule… let alone a $100M company.
$75M is a lot of money any day, but while a few years ago it seemed like a small exit, today it’s actually a very high figure, especially for the Web 2.0 variety of startups that are built on low funding, such as Stumble Upon.
eBay bought SU a couple of years ago for $75M, and if you believe the rumors, the company is looking to unload it, but is seeking the same amount.
Few companies will fetch $75M these days, especially a social media one, which does not really have the DNA makeup advertisers want.
There are way too many social bookmarking / social news services out there. Even the so-called Cadillac of them all, Digg, has been unable to find a buyey: not at $150M (News Corp.), not at $200-300M (Google). It recently raised nearly $30M, allowing founder Kevin Rose to cash out a bit. Ultimately, I think Digg is a cool site, but with MSFT providing the bulk of its revenues, the company is stuck between a rock and a hard place.
Initially I thought someone like CBS might like these social media sites, but CBS can simply take Last.fm’s underlying music recommendation technology and duplicate it for websites as a recommendation engine, which is essentially what SU is and does. The thing is: I think we are seeing the floor fall from under these social media sites anyway, look at CNN’s iReport false report that Steve Jobs had a heart attack; then look at this image of a threeway lesbian orgy in the middle of a street, uploaded to CBS’ citizen journalism venture and you start to get the idea: marketers don’t touch this with a ten foot pole… speaking of poles, did I mention the three lesbians getting it on here?
Separately, this also raises another point: lightning does not strike twice, let alone thrice. Sure, eBay’s $1.5B acquisition of Paypal was brilliant, but its acquisitions of both Skype and SU have been anything but.
Question: “As far as your business goes, which is proving the bigger challenge monetising existing content or increasing views?”
Answer:
One year after launching our syndication network, we’ve become one of the largest syndicators of video content online (for more on this, read a press release we issued or check out one of many sources backing this up). The focus now is on monetizing it, either via advertising or licensing deals… frankly, due to the lack of traction in the former (advertising) we’re now focusing on the latter (licensing).
As a result, on our end, we’ve stopped giving away our content for free (in the hope of speculative revenue share deals) and now demand minimum revenue commitments (so basically, ask for licensing fees). If I had plenty of money in the bank, I might be more willing to give it away… but even then, to be very honest with you, with YouTube commanding such a large market share, just because you sign a distribution deal with a new company does not mean it translates into incremental views, let alone revenues… I won’t name any names… but I do wonder how most of the other sites competing with YouTube (be it directly or indirectly) will stick around and be relevant - let alone competitive.
So since we are financing the company with debt (money I am fronting the company, basically, since we launched) and revenue from operations, we demand minimum revenue commitments to keep the lights on, so to speak, though we’ve kept the costs low by being smart about things, ie. not raising VC so having to spend it on expensive fax machines and cutting edge coffee machines, along with the latest deflingers.
What does this mean practically?
For purposes of illustration, out of 10 leads for syndication partners that we talk to:
- probably 5 balk when I demand for minimum commitments because “it’s not in their budgets”, but with all due respect to them, they’re the ones who made a mistake not to allocate any funds for content acquisition and instead prefer to burn money on non-differentiating things like servers etc. More f’n power to them… honestly. If I could get content for free, I would too…
- 3 consider it but balk, saying the timing is not right… it’s their loss… because their sites remain hollow ghost towns while YouTube continues to gather audiences and content… to see why these companies make a mistake, see this.
- yet 2 agree. But guess what, content is king and those 2 sites have something that differentiates them… unlike the 8 that sit on the sidelines with oodles of servers waiting to handle the load but have little to serve other than UGC or not-frequently-published video libraries of yesteryear, or content from our peers who publish a clip a week, maybe. I won’t name any names… but you be the judge.
Honestly, I don’t mind losing out on the 8 because there is so little good content being produced that invariably they come back at one point or another… and the 2 that do pay make it worthwhile. I can add up some of the revenue share checks from the smaller players and honestly, I can use some of those checks as coasters because the cost of coasters is greater than the amounts on those checks. Yes, the initial analogy I was going to use was R-rated… I cleaned it up.
The reason why advertisers are staying on the sidelines with online video is not a lack of streams, but a lack of trustworthy content… what has not helped is the backwards investing targets of VCs who have plunked down $2-5B in more platforms, file sharing sites, CDNs etc., all things that become commoditized and don’t differentiate anything that advertisers look for. Coca-Cola does not care about your back end, they care about the content, demographics, reach etc. That all starts with content…
We’re living in a very faddish, hype-driven world… and thanks to the souring US economy and abysmal VC investing in video (quick: name me a successful exit in video other than YouTube) the noise is going down, fast. Digg was fetching $300M last month… now it’s $200M. Honestly, in 3 months, it will be $100M and in 1 year, $50M.
Why? The US economy will make things change very quickly: growth will be less sexy because non-monetized growth will mean more costs and costs alone… and VCs will become more fickle about financing clunkers. Companies will have to compete for every inch (especially with a US Greenback that is puny relative to global currencies) so money losing ventures become losers, quickly.
Of course, this weakening economy also means that companies won’t want to foot the bill for content creation…
But what won’t change is the rush of users and audiences online… with voracious appetites for content, particularly video content.
So day in and day out, our content is worth more and we have more pricing power and leverage… but the fact remains, until we’re breaking even and laughing all the way to the bank… yes, it’s a constant struggle because the Web has trained us that content does not pay, apparently, aggregation pays… frankly, I think that is nonsense and as the Web develops and matures, this will come back down to reflect the real world.
Distribution is easier to come by than good content, largely because aggregators and distributors have been over-funded, but content has been under-funded, but additional distribution is not valuable because it dilutes your product. We’re awfully idealistic with online media… but ask yourself, if the Olympics really were on all networks (CBS, ABC and FOX in addition to NBC), the Olympics would win, but NBC would not. But the reason why NBC agrees to foot the licensing fee is because the scarcity forces advertisers to pony up. Right now, we don’t have any of that online.
So instead of following the institutional imperative, we’re going against the grain and now protect our greatest asset to make it worth something.
But distribution is meaningless if people are on YouTube and “the latest aggregation site that will reinvent everything” isn’t even being visited. Look at the latest stats: it’s brutal if your URL is not YouTube.com, and if your URL is YouTube.com, you are monetizing 3% of your content because only 4% of it is monetizable to begin with - yikes.
Bottom line: if you give something away for free, it’s impossible to come back and price it at something other than zero.
This past week eMarketer slashed advertising revenue forecasts for social networking sites. Facebook’s projections for this year tumbled in steadfast.
While some might “credit” that to the softening economy, the fact remains, online advertising is growing as robustly as ever - surpassing radio, print and broadcast TV - suggesting that social networking revenue woes has something to do with its own shortcomings.
Today I see a story on Digg, one of the cooler sites to spawn from the Web 2.0 / social networking scene but one with very limited advertising upside. The article talks about all of the shortcomings of user-submitted content.
While user-submitted content creates its own problems, user-generated content or user-appropriated content is a whole other bag of problems. My theory, frankly, is that media planners and buyers just can’t be bothered right now.
Take this screen capture for example: it’s CNN’s main page and two of the headlines cast social media sites in awfully precarious light:
- Rape, YouTube;
- MySpace, Suicide…
I don’t even know what the stories are there, but if you’re a media buyer, you run for the hills. Social media has indeed changed communications and media… but when it comes to advertising and marketing, it’s not all that it’s billed up to be.
If you are a media buyer, you don’t lose your job for buying established and safe places… but you do lose your job if your ads appear next to either one of those two land mines.
Yes, the number of people who leave companies to join Facebook grabs the headlines, but more than ever, I am seeing a good number of media professionals turn their backs on the social media hype train and head back to properties that advertisers embrace.
If you have time and patience to sit through this 45-slide comic, you get a laymen’s explanation of why the sub prime mess turned into a debacle.
More interestingly, this slide is the top link on Digg… it sort of speaks volumes about the intricacy and challenge of monetizing Digg, but I digress. If you want another good laugh, here’s a recent skit we did on subprime loans, enjoy:
Paid Content refers to a NYT article on CBS which calls for the company that Bill Paley built to make digital acquisitions, which begs the question: should they go for a big purchase or make small moves?
Of course, answering that question alone without addressing the backdrop to that question yields an incomplete picture.
CBS has hit some rough patches, according to Paid Content:
The parent company is under a mini-siege of sorts about
a) its performance,
b) Leslie Mooves’ salary,
c) Katie Couric’s disastrous tenure at the company,
d) layoffs (even on the digital side, as others are ramping up) and other issues (…)
e) CBS’s need for an acquisition is becoming apparent. Some CBS executives privately agree.
All right. I want to dive in and comment on e) but let’s run through this list quickly.
a) Its Performance
We’re not sure if they are referring to its financial performance or its stock’s, either way:
As per the NYT:
“Without the cushion of Viacom’s other properties, CBS has been more exposed to the struggles of the advertising market. In 2007, it earned $1.25 billion, down from $1.66 billion the year before. CBS stock closed at $21.40 on Friday, compared with $30.99 a year earlier.”
While no company or manager can control what happens to the stock price, I think big media will see a lot of revenue loss over the next few years. Print-centric media companies shrank, why would TV or radio-centric media companies be any different in the next wave of the Web’s growth?
After all, 1994-2003 saw text-based media explode online, 2003 is about audio/video-heavy media.
CBS is seeing this sooner and faster due to its exposure to TV and radio. However, they are strong in outdoors, the challenge there is the upside there won’t account for the downside in more traditional media.
So all hope signals point to online… which explains why:
“On Monday, the company’s interactive unit will officially open a fully staffed office in Menlo Park, Calif., in Silicon Valley, to stir innovation and content development.”
Ironically, the CBS Interactive brass gets the Web quite a bit, but it’s true that they have been overly cautious, too. Being cautious is a bad thing in booming times and a great thing in corrections. The problem for CBS is that the correction is coming offline and online continues to charge ahead… so indeed, CBS does need to make some bold moves. But what are those moves?
Last year, we suggested an outright merger with Yahoo! With MSFT’s $45B gamble, those bets are off (hmm… are they?).
b) Leslie Moonves’ Salary
Last week Henry Blodget wrote: “CBS CEO Moonves Gets 29% Raise, Just Reward For Job Well Done“.
Clicking through, I realized he was being sarcastic by pointing to the seemingly inverse relationship between Mr. Moonves salary and CBS’ performance. While I appreciate Henry’s position, the truth is that CEO pay is determined on a number of things, frankly.
It’s also about the demand and supply for talent. As the CEO of CBS, Mr. Moonves could probably command a much larger salary elsewhere, if CBS’s Board wants to pay him $100M because that is what it takes to retain him, I am not sure CBS or Moonves should be blamed. For the record, he did not make $100M but rather $37M. Is that a lot of money? Yes. But the company made well over a billion dollars in profit and $14B in revenues. Of course, I’m an executive so my perspective is going to be different than that of an analyst or journalist.
But my point is: running a shrinking business in a mature market is not something most executives would embrace, to lure the best (or retain them), guess what? It takes a generous compensation program.
c) Katie Couric
Don’t care personally, but indeed, this is becoming an albatross and if indeed she is that horrific (I don’t watch TV), it’s time to try something else. I recognize she might not be best suited for news, but surely there is plenty of things she can be doing for CBS in other capacties (infotainment, mainly).
d) Layoffs
Layoffs are always demoralizing, especially when a company is making over $14B in revenue and remains profitable. But what about a case - like this one - when the company is shrinking? This is a tough question.
My gut says Jack Welch’s “the lowest 10% should leave” is not a bad thing… so while I don’t want to dehumanize the layoff dynamics and their effect, I think it’s unfair to question the layoffs.
Of course, I do wonder why layoffs are taking place in online areas… which is what both Paid Content and NYT refer to. But just bear one thing in mind: many traditional media companies are not necessarily well structured in new media; divisions and structures are sometimes borne out of legacy organizational systems and sooner or later a correction or adjustment is called for. If this is the case, then I don’t think it’s fair to bash CBS on this point.
e) Acquisitions
The question remains: should CBS make one big hairy and ambition acquisition or should it buy a number of smallish companies and roll them up and/or foster their growth?
For the record, CBS has done both. In fact, it’s done everything including investments in Spotrunner, Joost and many others. In terms of acquisitions: Last.fm was a mid-sized / big one; Wallstrip was a small one.
What would you do if you were Quincy Smith and company? Buy? Merge? Sell?
ACQUISITIONS:
You know what, I admit a small acquisition won’t move the needle, but a major acquisition won’t either. Who would they have bought?
- Bebo? Is a company that marketers love really well-served by serving advertisers social networking inventory? Nope.
- Facebook? Too expensive to buy. Nothing to see, here (perhaps a merger? See below).
- Gawker Media? That might be an interesting addition. But I think Gawker Media founder Nick Denton wants to become CBS, and not sell to CBS. Anywa, Gawker Media lags in video, CBS needs to look ahead and not look back.
- Speaking of video, one company that might position it for future growth is Blip.tv, but Blip.tv does not own any content… so that is a risky move because CBS might buy a great video platform with amazing bells and whistles but then lose all of the content therein. [Disclaimer: Blip.tv is a partner of WatchMojo.com]. In the same broad category as Blip.tv are Brightcove and Video Egg. Bright Cove also does not own any content and is way too expensive, having raised $80M in funding. Video Egg ain’t cheap either, with $40M of funding in the tilt.
- Then there’s all of the YouTube/MySpaceTV competitors: Revver, Veoh, Metacafe, DailyMotion, Break, etc. Mind you, CBS invested in Joost… so what message would that send? As well, Revver was on the auction block and I presume CBS looked at it and then balked. Again, none of those companies own any content, CBS needs to be stronger in web content. That would be the hedge for CBS going forward, of course, it also needs better distribution. I see CBS works closely with Veoh… but is Veoh big enough as a distribution source? [Disclaimer: WatchMojo.com syndicates video to all of the sites listed here]
- Craigslist.org? Not sure Craig Newmark would sell, no matter how progressive Quincy’s team might be. This is Big Media after all… but Craigslist.org would not unleash CBS’ digital revenues.
- Glam Media? That would be a shot in the arm with regards to bolstering its female audience online… but here’s the problem: female audiences still watch TV… what CBS might be better suited for is getting access to a men’s audience. [Disclaimer: Glam Media is one of WatchMojo.com’s syndication partners, too]
- Digg? Not a fan of this one, frankly. Maybe a combo Revision3 / Digg? Even less of a fan of that. Revision 3 is way too niche: it’s too tech-oriented and relies on two hosts, largely. Given how Kevin Rose’s interest waned from Digg to Revision3, then to Pownce, I am not sure he’s buyable because he’s the main asset of Revision 3. [Disclaimer: if you look very broadly at all video content, then WatchMojo.com is more or less competitive to Revision 3, though I view them as rather complementary to our programming].
- Federated Media? Too tech-focused and they don’t own any of the content on the blogs they rep. Big media needs to own content to make it worth their while. Sorry, but that’s just the way media works.
- Gorilla Nation Media’s audience might be a better fit, but as an advertising representation firm, it faces the same challenges: You are buying a stack of contracts that at any point could be severed. Unless you own the underlying content, those contracts are not worth the paper they are printed on.
- Heavy.com? They have a men’s audience, for sure. But if CBS is to buy a destination, it needs to be an enormous destination, I am not sure Heavy.com would move the proverbial needle. In fact, in 2005, News Corp. bought IGN Entertainment, but IGN was doing over $70M in revenues on the strength of its Media Properties (IGN.com, RottenTomatoes.com, etc.), had a lot of technology (in-game advertising + digital distribution of movies, music and games). Moreover, IGN Entertainment was far and away the leader in terms of men’s 18-34 audiences.
However, if Fox Interactive Media has become a new media behemoth, it has more to do with MySpace’s burgenoning audience than with IGN’s properties. That being said: IGN Entertainment does give a lot of content and audiences that marketers look for. The challenge for IGN is that a major chunk of their inventory comes from their message boards, which are notoriously hard to sell and monetize.
This being said, when one looks at how instrumental MySpace and IGN’s acquisitions were, it’s fair to say that the ROI has hitherto been higher on the MySpace deal. I am surprised at this, I won’t lie. But this lesson would encourage CBS to look for a MySpace and not an IGN.
I am not that familiar with Heavy.com’s business, frankly, but I am not even sure if Heavy is an IGN.
- IAC is way too e-commerce oriented. Its search engine Ask.com does not really fit with CBS, either. So pass.
- There’s Meebo, but at $250M or more in value… I am not sure if CBS would even know what to do with it. And, who are we kidding: do marketers really even want to advertise in instant messaging communications? That one makes sense in theory but in practice? Not sure.
- There’s the barrage of search video tools: Blinkx, Pixcy, etc., but CBS remains a media company; it should be technology-centric, I think. What I mean by that is that its content should be compatible with all tech platforms to make it was widely available as possible.
- There are a number of ad networks: Tribal Fusion, Specific Media, Casale Media, Adconion etc. I think the obsession over ad networks will pass. Moreover, a lot of media companies will build and launch their own, which is a mistake as well. I am not sure if CBS should plunk down $100-$500M on an ad network. Advertising.com rescued AOL’s butt because AOL was transitioning from a walled garden to a normal website but the fact remains, that says more about how poorly AOL was doing than how great Advertising.com has done (for the record: it has done great).
Valueclick is publicly traded, but expensive.
If it was interested in ad networks, it might as well skip over display ad-based ones and dive into video networks such as Tremor Media or Broadband Enterprises. Again, I am not sure being in the ad network business is the best capital allocation move.
- It could - much like how NYT invested $29.5M in Wordpress - make a bid for Six Apart (makers of Movable Type) or even Wordpress. But, again, I am not convinced it makes sense for a media company to own a platform without the underlying content. News Corp. buying MySpace made sense because the content on those sites become News Corp. property, or at the very least, MySpace gets a license to profit from it…
- Slide? At the company’s last $500M pre-money valuation, I think CBS would gain street cred in one block on SF by buying Slide but see Wall Street punish it. Hey, just being honest here folks: that is one expensive widget company with moutain-fulls of unsellable inventory!
- There’s TheStreet.com, though I am not sure if it’s big enough or whether CBS really wants to get that deep into finance and investments. Bear in mind Wallstrip was all about investing… so this would be a doubling down on one category. Moreover, at a market cap of $250M, it would eat a lot of money the company could spend elsewhere.
- CNET remains very tech-oriented but it has embraced a lot of lifestyle properties, too. In fact, CNET would be a good fit with 100M uniques, $400M in revenues etc. In fact, trading at $1.2B, it’s not that expensive. CNET would give CBS some web DNA and CBS would open up swarms of traditional advertisers to CNET. This could be the best move yet: unlike most other options, CNET owns a lot of content. It also owns a lot of URLs such as TV.com that with CBS’ help could come to life.
Updated: Oh, wow, they listened to me: it’s official.
MERGERS
- CBS could in fact merge with Yahoo! I wrote about this and frankly, this remains an option.
- It could merge with Facebook; won’t happen. At a market cap of $14B technically Facebook is worth roughly the same as CBS. This would be a bizzarro world deal where Facebook trades in growth for CBS’ $14B in revenue… but this one is so loopy.
- As crazy as it sounds, it could undo the merger with Viacom; won’t happen.
SALE
What about a sale to News Corp.? News Corp. owns FOX, it would love to own CBS. But for this to happen, it would mean Sumner Redstone and my old boss Rupert Murdoch would have to come to terms; won’t happen.
Incidentally, last Friday, GE lost 12% of its value, or $40B. It could have bought two CBS’s. By buying CBS, GE’s NBC Universal would own two of the three main networks, making this an impossibility.
That same obstacle is present in a sale to Disney, who owns ABC.
CONCLUSION
As you run down the list… you realize that all CBS is actually a great media company that just needs some tweaking. Yes, indeed: “Nobody likes negative growth, from the guy who shines shoes to the C.E.O. Everybody feels the pain” the truth is no one wants to blow something up either.
My two recommendations for CBS:
- Buy CNET for $1.5B - $2B (that would be a 25% to 66% premium), which would take its digital revenues from “$200M” to $600M. Combining CNET with Last.fm would also yield a lot of upside in digital music and video tie-in’s. But even then: for a company with $14B in annual revenues, does $600M mean much? Many analysts only give credit to a media company’s stock if digital revenues account for 10% of total sales. Even News Corp. or Disney do not claim that.
CNET remains one of biggest acquisition targets that represent meaningful revenue opportunities, and even that won’t move the needle. So what other options are there?
OR
- Merge with Yahoo!
Actually, there’s also one more option:
GO PRIVATE?
One way that no one will care about a) Performance or b) Les Moonves salary is if it were not publicly traded. Moreover, Wall Street is being unreasonable: yes the company is shrinking, but it will take time for digital revenues to grow, anyway. However, if someone came along and took CBS out at $20B, I think a lot of shareholders would buy that (or I guess, sell for that).
It then allows CBS to d) clean house if they so choose to (and will have to). Kate Couric becomes moot in the grand scheme of things… but most importantly, it will allow CBS to roll up a number of smaller web properties, content producers and tech applications to bolster its overall portfolio. In 4 years - when video advertising will be $7.1B in the US (up from $1B) and all online advertising will be nearly $100B in annual expenditure - it can then be go public again…
This might very well be the best course of action. The question remains: does private equity have the stomach for a $20B debt purchase? With $16B in annual revenues… I think so.
All righty, that was a great use of 40 minutes of my time. Back to work.
Digg competitor Mixx raises $2M in funding. This title could be called why social bookmarking sites are bad investments. Let me explain:
Yes, social bookmarking tools like Digg, Reddit, etc., have revolutionized news, publishing and media. Kevin Rose - and Joshua Schachter (founder of Del.icio.us) before him - deserve a lot of credit. But as businesses for investors to invest in, they all fall short.
Valleywag is reporting that Yahoo!’s Digg is launching tomorrow, and its lease on life is an eternal 3 months. Why?
“After [the launch], a tipster tells us, Yahoo VP Tapan Bhat and his Front Page/Front Doors group will have three months to prove the project’s worth. If it’s not driving siginificant traffic to publishers in Yahoo’s ad network by then, EVP Jeff Weiner will shut it down.”
So why does this make them bad investments?
Social bookmarking sites have abysmal click-through rates, so performance-based marketers don’t get any decent returns.
Social bookmarking sites have fickle audiences that are anti-establishment (whatever that means); so any attempt to go beyond the banner for branded advertisers will be greeted by mutiny. Digg’s audience has in the past proven to go berzerk when they want to.
As such combining #1 and 2, this means that the revenue potential of such sites is limited, at best…
Of course, no self-respecting online media company is valued as a function of earning potential alone, right? They are usually valued as a growth play and a function of a potential one-time capital gain sale payoff.
But the problem is that any buyer would want the social bookmark to drive traffic not to any random sites but to the sites that benefit the parent, or acquirer. Much the same way that Yahoo! wants the Digg clone to drive traffic to websites in Yahoo!’s publishing network, a would-be buyer for Digg would want the service to drive traffic back to them.
Have the NYT, News Corp., etc. considered buying Digg?
Of course. But once they realize they cannot force users to link back to proprietary sites, they lose interest.
This is why - I think - Kevin Rose was allowed and encouraged to launch Pownce and Revision 3 (with the same investors as Digg, largely) because Digg is a very challenging case to flip.
I would be very interested to know how Reddit is doing within Conde Nast’s empire. Reddit was acquired on October 31 2006. What happened to traffic since then? Let’s see:
Hmm… no comment.
PLAY
