John Battelle is looking for an executive to run Federated Media. A few years ago, he wrote:
I’ve learned what I am good at - starting things, getting them to a certain size. I don’t do so well at running ongoing businesses where the expectation is that lots and lots of money should be made. I find that a bit uninteresting (though others of course find it fascinating), and should the company get to that stage, it’s best to let the professional managers take over, whether that means selling … or bringing in someone who lives to manage media properties. I want to be upfront about that with everyone I might work with, so there you have it.
A couple of years ago, I wrote:
Say you were an entrepreneur and someone came to you and:- offered you $10M in funding but asked that you had to stay on for 3 years as a condition. Three years isn’t long, but it is an eternity online. YouTube went from URL registration to $1.65B in about 18 months…
- alternatively, what if someone else came to you and offered you $10M in funding but insisted you had to step aside and make room for their new hand-picked CEO.
Would you accept either offer? I think I would. Truth is, I think which offer you prefer has a lot to do with your state of mind.
(…)
Interestingly, if you wake up wanting to get the hell out of your company and do something else, I think because life is funny, then you are bound to stumble upon an investor who will tie you down forever as a condition of investing.
Alternatively, if remaining the captain was all you ever wanted and all that was important to you, I am pretty sure that someone would come along and insist that you make room for a new leader…
Trust me, life is odd that way.
(…)
In life, you usually want what you can’t have and when you have something, you want something else. Trust me, it’s just the way life works…
So true.
They say the best time to start a company is in a downturn, it might very well be true. But I think that if you are going to start a company, start one that does not require any/much outside capital. What ever happened to “through thick and thin”? I thought the purpose of selling a minority piece of the company was not having to kowtow to investors?
Federated Media Publishing (FM) today announced that it has received a $50 million minority investment from Oak Investment Partners, a multi-stage venture capital firm based in Palo Alto, CA. Founded in 2005, FM represents more than 125 conversational media entrepreneurs who run more than 150 of the world’s most respected websites, blogs, and social networking applications. The company became profitable in the third quarter of 2007
Challenging economic times force all of us to focus. At FM, our focus, now more than ever, is on what we do best - create media experiences that are valuable to our publishers, their audiences, and our brand marketing partners.
Given our journalistic heritage, we don’t want to bury the lede: Today FM is restructuring parts of our business, and as a result, we are saying goodbye to a small number of our employees. Also as a result, we are adding several positions in strategic areas where we see growth in the coming year (more on that in a minute).
(…)Change is often difficult, but whenever possible we hope to be the instigators of that change. Armed with extraordinarily talented staff, investors, and partners, we pledge to keep our focus, and get back to the work ahead.
What do I think? Who cares. Read what one of their client thinks.
But since you’re on my blog, I’ll tell you anyway:
- This proves once again that ad networks and ad reps are not the solution for publishers, and in a downturn, you see that they might not even be a solution for investors.
- Specifically regarding Federated Media, I think the notion of moving away from display ads to conversational marketing (whatever that is) is fine given the softness in display that is expected in 2009, but if I were to move into something, I’d pick this instead.
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.
2007 marked a euphoric climate for valuations and fundings in the digital space.
- Facebook kicked off the festivities with a $240M investment on a $15B valuation [our coverage].
- Slide finished off 2007 with an insane $50M investment on a $500M pre-money valuation [our coverage].
When Google tumbled from $747 to $430, I presumed that valuations for digital assets would follow suit (not that they should, but valuations are tricky, it’s a function of demand and supply for a given deal, admittedly, but the landscape and climate affects it, too).
But, they haven’t. It’s also not like we are seeing a flight to quality.
Yes, Federated Media has great sites and authors in its roster, but it’s a company with abysmal margins, paying out 50% off the top to partner sites. Federated Media is looking at raising $30M on a $200M valuation. This after supposedly turning down a $100M buyout offer. Is Federated Media worth $100M?
Then Meebo comes out raising $25-30M at a $200-250M valuation, too. Meebo streamlines IM, I see the value, granted… but would a company really pay $500M to acquire it? Maybe. Don’t know.
Then today, Slide competitor RockYou hints at raising money at a $400M range, as well. We know about the challenges and obstacles to monetizing social media… and even those who fueled the social media boom are unsure of the merits today.
I know that digital provides a sanctuary in a slowing economy… but I am nonetheless surprised at some of the torrid valuations these days.
Yesterday, BubbleGeneration’s Umair Haque set off a storm by suggesting that tech blog networks are peaking. I agree that the signal-to-noise ratio in the technology blog network space has gone down considerably. While many of these blogs are hiring from traditional media, established publications are firing back with their own blogs and blog networks. CNET for one has been very aggressive, even appointing blogger Dan Farber to become editor in chief at News.com (of course, Farber is so much more than a mere blogger).
In fact, in the past year, many of these technology blogs have gone from being a one-site, one-man operation to a multi-site property hiring large operational and editorial teams. In a few instances, companies have even raised considerable funding. The quest to build an audience and generate ad revenues has pitted many of these sites in a competitive and cooperative dynamic that might indeed suggest that most of these sites have peaked.
Due to the entrepreneurial nature of the people involved, I doubt that these sites will disappear. Given the shift of ad dollars and audiences online, I am sure they won’t.
However, clearly many of them will have to reinvent themselves and adopt new strategies to remain relevant. Let’s face it, particularly since Gabe Rivera unleashed Techmeme.com, a lot of the content being published on many of these sites has become a carbon copy of one another.
This is commonplace: at the beginning of the 20th century, America had hundreds of car companies; by the end of the century, there were three major ones. The point is, expect considerable competition to give way to consolidation, transformation and inevitably, extinction.
Before we get death threats, bear in mind that there are are hundreds of blogs networks and millions of blogs. No human being or team can go through all worthy networks. By all means suggest blogs and networks that you read, recommend and respect in the comments.
In this first post, we look at technology-oriented blog networks OR funded blog sites on the cusp of launching networks. We run them down and assess their strengths, weaknesses and long term prospects.
8 - Silicon Alley Insider
It’s hard to compile such a list and not give Silicon Alley Insider its fair share of credit. Self-proclaimed “disgraced stock analyst” Henry Blodget came out of his hibernation on Internet Outsider. Proving that everyone was into open sourcing everything these days, Blodget took his signature research and sensationalist style and unleashed a free blog with a lot of potential.
But it wasn’t until he teamed up with former Doubleclick CEO Kevin Ryan and former DoubleClick CTO Dwight Merriman to launch Silicon Alley Insider that Blodget was back with a vengeance.
In less than a year, Blodget has leveraged the name and skills that made him the world’s highest profile - and arguably highest paid - analyst into a site that has injected a much-needed dose of strategy, analysis and East Coast perspective to the landscape.
- Tale of the tape:
According to Federated Media, John Battelle’s company that represents advertising inventory on many of these sites, SAI does 1,160,000 pageviews.
- From being a one-man shop to an actual company:
Blodget remains the star of the show, for sure, but he deserves credit for lining up some interesting writers, including Forbes technology writers Peter Kafka and Dan Frommer, as well as .
We have personally been very bullish on SAI from the beginning for no other reason that its mission of “serving as the voice and resource for the wider digital business community, SAI covers the intersection of the technology, media and communications industries” is awfully akin to our own desire to go beyond covering the latest widget launch and instead offer readers analysis that sits on the crossroads of Main Street, Madison Avenue, Wall Street and Silicon Valley (pardon our shameless plug and delusional sense of grandeur, by the way, but the similarity is considerable, no?).
Judging by the second part of its mandate: “with a particular focus on companies and people making waves in New York,” SAI has joined Allen Stern’s Center Networks with excellent NY-focused coverage. In fact, the two sites are very complementary in that Center Networks has more of a technology skew while SAI covers finance and advertising a bit more. Combine the two and there’s a reason the city was named twice.
- From property to network:
While SAI remains a one-site media company, make no mistake about it, SAI is ambitious and planning much more, as evidenced by its hiring page. We are thus including SAI on this list, because very much like Venture Beat that has raised funding, despite being a one-site pony, this dark horse has a lot of upside and the wherewithal to give existing blog networks a run for its money.
- Focus: mass vs. niche:
Time will tell just how much SAI will evolve. But being based in NYC, the opportunities are endless. We presume the company’s focus will remain on business, but the applications therein remain interesting.
- Long term business opportunities:
Blodget has already lined up online video via regular appearances on Yahoo!’s Tech Ticker. This might explain Blodget’s cheerleader role for the troubled media company, but the fact remains, of all of these companies, this affiliation does give Blodget and by extension SAI an edge in online video even though SAI does not own any of the IP of the Tech Ticket video library. Whether or not Yahoo!’s Tech Ticker will go anywhere, time will tell… but Blodget’s double-edged star status and brand name will open up doors for the company.
- Revenue potential:
While SAI’s revenue potential remains interesting by virtue of being based in NYC (capital of advertising world), we see SAI far more as a play for influence and authority than a pure money grab.
We must say, given that SAI is based in NYC, we’re somewhat baffled by their choice to go with Federated Media, though we presume that the arrangement is for West Coast representation, mainly.
- The traditional publisher it reminds me most of is…:
Forbes (SAI 100, SA 25 etc.).
- Exits:
Business Week, Forbes, CNET, TheStreet.com. I do see SAI as a consolidator of some of the other blogs out there, for sure.
7- Read Write Web
- From being a one-man shop to an actual company:
To his credit, McManus gets top grades for bringing in new writers who all are knowledgeable in the space, Marshall Kirkpatrick, Josh Katone and Alex Iskold are all extremely insightful in their own right, and network writers Steve O’Hear and company all know their categories. O’Hear produced the documentary In Search of the Valley which chronicles Silicon Valley’s origins and provides a fantastic overview into what makes the Valley so unique and legendary. Kirkpatrick built a loyal following on Tech Crunch before venturing into a PR role at Splash Cast before being lured by McManus.
- From property to network:
- Focus: mass vs. niche
- Long term business opportunities:
Clearly it is smarter to have publications covering video and search, but I wonder how popular those will ever become relative to RRW. Regardless, he has developed a good base of writers, a stellar reputation and been around long enough to be able to survive any ups and downs. I do not think that McManus should over extend himself and reach dozens of blogs, however, he needs to ensure that online video and search are as strong as the weakest links in competing tech blogs spin-offs (which compete with RRW, basically).
As an intangible, the company should be able to create conferences in South Asia and the Pacific and be able to generate enough interest from Europeans and North Americans looking for an opening in the market, sort of like a bridge between East and West.
In fact, McManus’ home base gives him a leg up on the other blogs (when news comes out late at night or overnight in North Ameirca, it’s the middle of the day down under).
- Revenue potential:
Due to the proximity to Asia, pretty decent. But as a tech blog network, it needs to articulate what advertisers get over the competition. That remains a challenge given its size.
- The traditional publisher it reminds me most is…:
6- Venture Beat
- About the Founder:
Venture Beat is not a blog network (at least to the best of our knowledge) but having raised $320,000 in angel funding from a powerhouse roster of investors that includes ex-Googlers Georges Harik and Aydin Senkut, Mike Brown (Foundation Capital), MHS Capital, Amidzad and the White Sand Group, it certainly should be included in the landscape of professional blog networks, regardless of whether it goes from being one site to a network of sites.
VB was founded by Matt Marshall, who covered venture capital for the San Jose Mercury News until he left in September 2006 to launch VentureBeat as an independent company. The site was initially called SiliconBeat but has expanded to cover more financing news, hence the change in moniker.
A PhD in Government and an MA in German and European Studies from Georgetown University, Matt was a correspondent for the Wall Street Journal in Bonn, Germany from 1995 through 1998. In 1999 he wrote a book while in Germany, “The Bank: the Birth of Europe’s Central Bank and the Rebirth of European Power” (published by Random House, 1999). He has also written for the Washington Post and several other publications.
- From being a one-man shop to an actual company:
Marshall bootstrapped the company early on and remained the site’s voice, but he did hire interesting writers such as Eric Eldon and recently lured Dean Takahashi of the Mercury News (along with his $120,000 annual salary) thanks in part to that $320,000 funding round.
- From property to network:
Unlike the other networks, VB has focused on financings and we think this razor sharp focus will help Marshall remain differentiated. Yes, in the short term he might not get the kind of advertisers that might land on other networks, but the truth is that most of those deals are coming from Federated Media (so they are being sliced up considerably as is) and he is better off becoming the “must-buy” site for professional services firms (law, accounting, VC firms) and select companies instead of fighting for the pieces in technology like the others do.
- Focus: mass vs. niche:
It should be noted that VB is also adding a lot of features (Venture Board and Job Board) that other sites like Tech Crunch launch as separate destinations. Frankly, given VB’s smaller traffic and niche nature relative to Tech Crunch’s massive audience and reach, the different strategies are actually each correct for each site.
- Tale of the tape:
According to Federated Media, Venture Beat generates 470,000 pageviews per month.
- Long term business opportunities:
Naturally, VB can plan a few conferences and charge a bundle.
A decision the company will have to make is to launch subscription-based services to generate more revenue and diversify or it can seize the opportunity to shrink many of the markets in which VB’s traditional competitors compete in, it can do so by taking advantage of its lower cost base to offer for free what competitors need to charge for.
In fact, it can even undercut its online competitors / complimentary services such as TheFunded.com or Dealipedia by leveraging its audience. Over time, I can actually see VB raising money and acquiring some of these services.
- Revenue potential:
The revenue will be recurring and stable because professional services will line up to advertise, but it won’t be exponential. Like everyone else, there will be considerable conference opportunities for VB, that is for sure. Eventually, I see VB favoring subscription services because its readership will consist of many businesses who don’t mind forking over recurring fees for accurate information on the market.
- The traditional publisher it reminds me most is…:
Crain or Thomson Financial, actually, units thereof.
- Exits:
It won’t be long before VB is acquired. After all, the instant outside money came in, an exit is required. That exit won’t be an IPO, but we see an acquisition by someone interested in the professional services market. We even see News Corp. potentially making a run to compliment WSJ as it looks for more financial real estate (especially since it now plans to wisely keep WSJ behind a paid wall).
Acquisition by Thomson, Crain, Pearson, TheStreet.com, CNBC or News Corp. for either WSJ or FOX Business.
5 - Mashable
In the summer of 2005, Pete Cashmore bet on black, and he struck gold.
A few months before launching Mashable as a blog covering social networking, News Corp. acquired MySpace’s parent for $580M. That deal created Fox Interactive Media, but more importantly, it ushered an era of unprecedented investment in so-called social networking concepts and companies. While Michael Arrington was covering it all from Silicon Valley, Pete Cashmore was returning the favor from London.
Over the next three years, both sites have grown to become synonymous with Web 2.0 and social networking respectively.
- From being a one-man shop to an actual company:
Admittedly, nowadays you have to look hard to find a new post penned by Pete Cashmore; indeed, much of the posts come from contributors Mark Hopkins, Kristen Nicole, Adam Ostrow, Tamar Weinberg and company, but this has allowed Cashmore to build a comprehensive company around Mashable.com.
- From property to networks:
Admittedly, Cashmore is a new media maven who has proven his chops by maniacally focusing on one site, Mashable, while many of his counterparts have taken a multi-site approach to brand and company building.
By leveraging the popularity of the site and goodwill he has generated, Cashmore complements Mashable.com with consulting services as well as bells and whistles services that turn the site covering social networking into a social network of its own.
- Focus: mass vs. niche:
Admittedly, Mashable is a big play on social networking. While a lot of companies, products and services focusing on social networking have come and gone, Mashable remains the shovel and helmet supplier equivalent of the space. While 99% of social networking sites will bomb, all 100% of services in the space (including the 1% that succeed) have to go through Mashable. For that reason, Cashmore’s razor sharp focus on social networking is actually genius.
- Tale of the tape:
Federated Media’s site gives Mashable 5,170,000 pageviews. Clearly Mashable is a large blog and bills itself as the largest one covering social networking.
- Long term business opportunities:
Cashmore already seems to have diversified away from a pure-publishing and advertising model to one that includes consulting and what not. I am frankly not sure how meaningful those businesses are, but the mere suggestion that they are additional product lines is important as it gives Mashable a greater sense of value.
Despite its sole focus on social networking, the fact is that social networking itself is not a fad, media has gone social so Mashable has a chance to galvanize the coverage thereof. In light of Tech Crunch’s increasing reach and scope, Mashable has the opportunity to become the leading brand in the specific space, in fact.
- Revenue potential:
Given Mashable’s audience and size, it can generate decent revenues from advertising alone but clearly, if Cashmore can build up a real consulting business around the brand, the advertising business can look pretty small next to the services business… especially if he finds as many consultants to match his roster of writers.
- The traditional publisher it reminds me most is…:
Any publication that is issued by a professional services organization.
- Exits:
Depending on how meaningful Cashmore can make the consulting business, Mashable has various growth opportunities, and as such, numerous exit routes, too.
4- GigaOm
- About the Founder:
I’ve personally met Giga Om founder Om Malik a few times and certainly consider him a friend and mentor. The man knows publishing, technology, new media… and common sense. With that being said, Malik came to NYC in 1993 to write for venerable Forbes. He’s also written for Red Herring, Business 2.0 along with occasional writings for the Wall Street Journal and Crain’s NY Business. Incidentally, not many people know this: but he was, briefly, a venture capitalist.
I think this gives Malik an interesting appeal as a writer, because he surely does not regurgitate press releases and spew the company pitch. Malik will tell you what’s on his mind. He’ll tell you if something seems off or fishy.
- From being a one-man shop to an actual company:Malik has managed to use his network of writers - and True Ventures’ funding - to lure many talented writers. Liz Gannes and Chris Albrecht are very good writers, but I am biased because I read some of Malik’s blogs more than others. He has an impressive roster of full-time and part-time writers that certainly give Malik a lot of points in this category.
In fact, in December 2007, Malik suffered a heart attack, he has recovered but the fact that his company did not miss a beat speaks volumes about the team he has put in place. In addition to the staff of writers, it should be noted, GigaOmMedia’s operational bench is also second to none.
- From property to network:
Malik’s blogging empire includes
- GigaOm: broadband and telco news,
- WebWorkerDaily: productivity at the office
- NewTeeVee: online video
- Earth2Tech: admittedly a play on the burgeoning Green herd mentality (hey, he was a VC at one time)
- FoundRead: a sort of editorially curated bookmarking site, I presume.
- Focus: mass vs. niche
Clearly the sites in Giga Om Media’s network have a penchant for broadband, which is what Malik’s background lies in. I do not see Malik ever branching out to lifestyle, for example, and I’m not sure anyone wants them to, either.
- Tale of the tape:
According to Federated Media, GigaOm (the site) generates 1,250,000 pageviews/month, round it up to 1.5M-2M for the entire network.
- Long term business opportunities:
Clearly an actual publishing business already, I see Malik emulating Rafat Ali and adding country-specific sites as well to go deeper into the sectors they cover.
- Revenue potential:
Limited to technology and consumer electronics, but by virtue of these being big enough categories and his readership being extremely valuable, GigaOmMedia will do fine. The CPM he can charge are probably considerable. As a wise man once said, The Economist does not need to publish a 200-page magazine to generate boatloads of money. Neither does GigaOm.
- The traditional publisher it reminds me most of is…:
Fast Company, Industry Standard, Ziff Davis
- Exit:
Despite all of the talk that one day CNET might buy Tech Crunch, I see some considerable personality conflicts before the lawyers are even called in. However, I certainly see CNET making a run at Giga Om. I could be wrong because CNET has a lot of writers and GigaOm has a lot of writers…
3- Tech Crunch
- About the Founder:
Michael Arrington launched Tech Crunch in 2005 to cover Web 2.0 startups. A former corporate attorney, Arrington has an interesting career that spans law firms and jobs in business development/counsel roles in the domain name industry in the US and Canada.
According to Google, over 14,000 other sites link to TechCrunch, and Technorati says TechCrunch is the 16th most influential blog in the world. Named ‘Best of the Web 2006′ by BusinessWeek.
- From being a one-man shop to an actual company:
Tech Crunch is synonymous with Michael Arrington, no doubt. Of all of the networks, Tech Crunch faces the biggest risk of not being able to go from a one-man show to a cohesive unit because TC’s coverage was never objective nor abstract, it was always subjective and personal, coming straight from the gut.
As such, striking the same balance with new writers will always remain a challenge.
To his credit, Arrington has surrounded himself with a cornucopia of talented writers over the years, including Marshall Kirkpatrick in the early going. Today he employs blogging pioneer Duncan Riley and has even managed to lure Erick Schonfeld to the cause; Schonfeld is a gifted and experienced writer who has become his Co-Editor. Yes, I know, that title will have to change over time if Schonfeld is to remain part of the team in the long-run. I think Arrington realizes that, but also recognized that he could not set Schonfeld up for failure by bringing him on and appointing him Editor from the get-go.
- From property to network:
Tech Crunch remains the 800-pound gorilla in the industry, let alone within Arrington’s empire… but he has nonetheless churned out TC UK (who itself has had an interesting history, especially in the backdrop of the TechNation debacle), along with CrunchGear and MobileCrunch. Personally, I’ve visited the other sites all of 5 times, but that’s my shortcoming and not a result of the writers. In fact, it makes total sense for Arrington to have carved out those two sites.
I must say that his CrunchBase database listing companies’ has potential to be something interesting, though given the state of flux of most of the “companies” TC reviews, I find that it might turn out to be a perennial distraction too. Certainly give his team props for trying to do something out of the box. All in all, I like it and hope it survives and develops; it sure beats its inital incarnation (TC readers will know what I am referring to).
- Focus: mass vs. niche
Tech Crunch is actually somewhat focused but it has no doubt gone from covering startups to covering startups and established companies, no doubt. Tech Crunch’s massive success dwarfs the other sites: there’s a UK version, along with spinoffs in mobile and consumer electronics, there’s also Crunch Notes which gives a glimpse into the sojourn of launching a publication online and the challenges of startup life… In all fairness, Crunch Notes occasionally provide good fodder but is usually a big echo chamber with details I am unaware of, but that, once again, is not a knock, just an observation.
While many have pointed out that TC does not represent consumer trends and is in fact very niche, the simple fact is that it’s grown to be the largest “niche” site, with over 500,000 RSS subscribers.
- Tale of the tape:
Tech Crunch is the king of pageviews amongst this peer group, with 5,510,000 pageviews per month, according once again to Battelle’s Federated Media.
- Long term business opportunities:
Some days, I think TC founder Michael Arrington will burn out, others I think he is on his way to becoming a cross between Bob Guccione Jr. meets Roger Penske. Puh-lease let me explain.
He reminds me of Guccione Jr. simply due to the Axl Rose affair where he was willing to step into the ring and actually fight Rose after the Guns ‘n’ Roses front man called him out in Use Your Illusion’s Get in the Ring. Bear in mind, while Rose had the tough guy persona, Guccione Jr. had been taking karate for a decade. That’s right, Rose backed down. In some ways, Arrington does not back down from anyone, regardless of the merit of the debate and independent of whether he’s right or not.
Why Penske? Penske was a great driver who risked his life every week at races. Eventually, someone made him realized that his time - and life - was better spent making deals and what not. So Penske gave up the driver’s seat for the business duties. I am not sure if Arrington is Penske or the anti-Penske because as a lawyer and entrepreneur, Arrington’s track record is not as impressive as his track record as a writer and publisher is, so maybe, he should hang the legal briefs and business plan and simply write his heart out. Legend has it that he would blog away at his desk until he literally passed out.
That’s something I went through when I wrote my second book (on Alexander the Great) in 6 days in 2004, the difference was, I did that for 6 days and realized I did not want to do it 24/7/365… Arrington seems to have done it for two years so he deserves a lot of credit for his stamina, persistence and determination.
All to say, Arrington’s legacy remains to be seen: time will tell if he is Priceline or Pets.com, but like both Penske and Guccione Jr. the man is a fighter and takes no crap. Agree or disagree with him, I like that about him and despite the warts estimate that he will be around in one form or another for years and decades to come.
- Revenue potential:
One word: considerable.
Tech Crunch not only has a solid readership in terms of quality of its audience, but it has racked up considerable media mentions, something that sways media buyers looking to spend ad dollars. Lastly, Tech Crunch’s relative high audience ensures that it can actually earn ad dollars, too. Admittedly, 5M pageviews is tiny by maistream publishing standards, but for a blog that was largely a one-man operation for its first year of operations, it’s pretty impressive.
Tech Crunch has already branched off into events and conferences.
- The traditional publisher it reminds me most is…:
Industry Standard meets Red Herring with a dash of Penthouse (if we are to continue the Guccione example, after all).
- Exit Strategy:
Well, Henry Blodget has already pointed out the inevitable CNET possibility. I’d also throw in News Corp. for no reason other than Tech Crunch’s CEO Heather Harde was a dealmaking maven at Fox Interactive Media…
2- Content Next (Paid Content)
- About the Founder:
Rafat Ali launched Paid Content over five years ago so that he could showcase his writing skills in the hope of getting a job. At a time when companies were laying off writers and new media was the butt of the joke, Ali hustled and beat everyone to the story. Today, he sits arguably at the top of the echelon in the industry’s leading publication covering media.
- From being a one-man shop to an actual company:
Gradually, and we mean gradually, Ali has hired a wide array of writers. Today he is backed by Staci Kramer as Co-Editor (Ali remains Publisher and Co-Editor). CNM employs numerous writers that include David Kaplan, Joseph Weisenthal and company.
- From property to network:
After launching a site devoted to wireless news, MocoNews.net, Ali proceeded to scale his network by going against the grain: instead of slicing up the topics by segment, Ali seems to be focusing more on geography now, with sites in the UK and India, dubbed ContentSutra.com. Both sites have strong writers under the leadership of Robert Andrews and Nikhil Pahwa respectively.
- Focus: mass vs. niche:
Context Next Media’s focus remains media, and with the line between old and new media becoming blurrier and blurrier, we think that the B2B and B2C topics up for grabs for Ali across the numerous geographies should represent considerable upside over time. When the dust settles, Ali will have built a mainstream brand.
- Tale of the tape:
One of the few sites not repped by Federated Media, I suspect CNM does about 4M pageviews per month, though the company’s mailing list is the real gem and crown jewel. The number of media executives, bankers, investors and entrepreneurs who start their day with Paid Content remains very high, even since Gabe Rivera launched his genius TechMeme product.
- Long term business opportunities:
Considerable.
Ali has built the top brand in the space, the WSJ or Fortune of online media. The hustle, determination and can-do attitude at a time (when he launched) when few took him seriously (by virtue of the industry’s mood) are sources of motivation for any entrepreneur, writer and aspiring publisher. What Ali has been able to do, out of LA (so much of what he covers is NY-centric, which is three hours ahead of LA!) is simply amazing. Today, of course, Content Next Media is fairly global.
The company has also brought in an impressive operational team and is backed by the dean of venture capital, Alan Patricof, whose Greycroft Partners invested in CNM in 2006.
- Revenue potential:
You don’t need to be an advertising guru to realize that Paid Content is printing money. The site boasts about sponsorship packages which shun CPM-pricing models, signaling that business is booming at CNM. The company’s conferences and mixers are adding velocity to the company’s top line, and with a lean structure (the company only last year got an actual office), we’re sure that the bottom line is healthy, too. Lastly, the site has in the past tinkered with reports and studies, but seeing Ali give some of these away suggests that the company is - like most publishers - looking for more ad-supported inventory and not seeing the kinds of return in subscriptions as it is in advertising.
- The traditional publisher it reminds me most is…:
Variety and Fortune meets Playboy. Let me explain.
Variety is quite simple: what Variety is/was to entertainment news, Paid Content is to media news, which is always related to entertainment.
Why Playboy? Well, Hugh Hefner worked at Esquire, asked for a $5 raise and didn’t get it. When Esquire moved from Chicago to NYC Hef stayed behind and launched Playboy. Today, the rest is history. In the same vein, Rafat could not land a job five years ago yet today he is the first to report on job changes, industry news and mergers and acquisitions that change the landscape.
Why Fortune? Well, Fortune is the Cadillac of publications in the space, and online, Paid Content remains the gold standard.
We’re not saying that Paid Content will never be dethroned, in fact, it’s close on any given day. But much the same way that people like Henry Luce revolutionized the print industry, Rafat Ali deserves just as much credit for changing the online space… so there’s a hint of Fortune, too. I’d also toss in Dow Jones, for a few reasons: seeing Ali hold court at the Waldorf=Astoria, interviewing Gordon Crovitz (the publisher of The Wall Street Journal) at the recent Future of Business Media conference, I could not help but think of the common lineage between Dow Jones - once a humble newsletter - and Paid Content, whose newsletter wakes up hundreds of thousands of readers every day from Mumbai to Madison Avenue.
- Exits:
WSJ, Time Warner, CBS (Marketwatch founder Larry Cramer sits on his board, he was formerly President of CBS Digital before Quincy Smith came on board. Read our “meritless post” on this last rumor here).
1- Valleywag, part of Gawker Media
- About the Founder:
Frankly, it’s hard to talk solely about Valleywag and not put it in the context of the Gawker Media network, since that’s the point of the post. As such, it’s worth noting that as a blog network, Gawker Media is the GE, MSFT, Google, Facebook, etc., of its space.
Founder Nick Denton was always a step ahead: an Oxford educated former journalist for The Financial Times, Denton did the whole business networking thing before it became common place (First Tuesday), content syndication (Moreover) and then blogs before Movable Type conjured anything other than Johannes Gutenberg’s printing press.
Denton’s net worth has been estimated at over $250M, fueled by the sale of First Tuesday and Moreover, as well as his holdings in Gawker Media, which he funded with his own personal money.
- From being a one-man shop to an actual company:
While Gawker Media is synonymous with Nick Denton to those in the industry, to its readers, I doubt that it is, and this is key. Since its inception, Gawker Media has lured and developed more writers than most established publications.
- From property to network:
If we’re going to ask how well Gawker has gone from a property to a network, we need to start not with Valleywag, but with Gawker, the flagship property. As of January 2008, Gawker’s sister sites include 15 different weblogs, including Defamer, Fleshbot, Deadspin, Wonkette, Lifehacker, Gizmodo, Consumerist and Kotaku… oh, and Valleywag.
- Focus: mass vs. niche:
We might be repeating ourselves, but Denton has cornered the market. No other blog network can match the brand equity Denton’s blogs command, offer the audiences he can offer across as many verticals that Gawker can. Especially once Time Warner bought Weblogs Inc. for $25M, Denton’s Gawker Media became one, if not the most valuable and sought after privately held publishing company in the world, which just happened to be powered on blogging software.
- Tale of the tape:
Denton is notorious for publicly announcing the traffic on his sites. Gawker Media’s traffic is heads and shoulders above all other blog networks.
- Long term business opportunities:
Gawker can - if it has not already - enter merchandising, movies, and even, dare we say it, print (though we doubt it will).
It can also have a sizable and interesting mobile business. Of course, to do that, it needs a better grasp of video opportunities, which all of these companies generally fare poorly in.
- Revenue potential:
The estimates are all over the place, but in my opinion, the company currently does $20M in annual revenues (or just under $2M per month on average, I suspect its strongest month is November when it does about $3-4M in revenue). That figure is very feasible given its traffic, brand equity across all sites, demographics and the proximity to Madison Avenue…
It is conceivable for Gawker Media to become a $100M in annual revenue company within 10 years, if not sooner. With 20 blogs, that’s only $5M each per year, a rather attainable figure. Flesh out the more seedy sites like Fleshbot and adjust accordingly upwards for premium categories like Gizmodo and you will see that it’s not very hard to command a revenue figure that impressive.
- The traditional publisher it reminds me most is…:
Hearst or Conde Nast.
- Exits:
While founder Nick Denton says otherwise, this is a no-brainer: News Corp., Time Warner, Hearst or Conde Nast. Though Time Warner did buy competitor Weblogs Inc., and is looking at unloading all non-network AOL properties and content sites.
Ultimately, however, I see Denton refusing to sell and becoming the Hearst or Conde Nast himself. Mind you, the revenues might not come close, but in terms of mindshare and relevance - particularly online - he’s almost surpassed them.
CONCLUSION
We hope you enjoyed this list of tech-focused blog networks. All right, now like any self-respecting blogger, bash away.
Upcoming posts to come include:
- Top VC blogs (ex: AVC, Paul Kedrosky, etc.)
- Stand-alone blogs to watch out for in 2008 (ex: TechDirt, Alarm:Clock, Center Networks, Daily Tech, Laughing Squid, Gaping Void, Lost Remote, etc.)
- Big company blogs (ex: Boomtown, Tech Trader Daily, Business Week, CNET, Betc.)
- Entrepreneur blogs (ex: Jason Calacanis, John Battelle’s Searchblog, Max Levchin, etc).
Suggestions are welcome for all as we formulate those lists.
Editor’s notes:1 - Weblogs Inc., whom Time Warner acquired was excluded from the list by virtue of not being a privately held company, but surely deserves consideration on this list but will probably pop up in Big Company Blogs.
2 - Moreover, I suppose it is worth mentioning that HipMojo.com and the Blogger Mojo network are directly / indirectly competitive to some / many of the sites mentioned above.
Pardon the over-simplifying in the first paragraph, bear with me… you will see why.
Assets, liabilities and shareholder equity. Any financial transaction boils down to that: Leverage assets to obtain resources (which usually creates a liability of some kind) in order to create value.
Assets can be:
- Talent/People
- Content
- Audience
- Rights
- Technology
These are usually reflected on a company’s balance sheet, and help generate Sales and Profits, after Costs are subtracted, which are captured on a company’s income statement.
Revisionist History
This week I heard that John Battelle had turned down a $100M buyout offer for Federated Media to instead consider raising money. He hired Savvian, an investment bank with ties to old media buyers and sellers. As many noted, recently, Battelle came out and criticized his former boss for not selling the Industry Standard at the height of the boom. From Battelle’s own site (which offers some great insights into the industry):
I tried for all of 2000 to get Mr. McGovern to let us sell the company to a stronger buyer, one who believed in our vision of the Internet Economy. He refused, and pushed us to go public instead. It was this very conflict that led to our differences and, partially, to our demise. I had three very real offers on the table that I took to McGovern, and three times he refused them, telling me that instead, we’d make more taking the company public or, at the very least, telling the potential buyer to double the price. Given that the price was between $250mm and $750mm, such a response was, to my mind, nonsensical. But he owned the majority of the shares, and his word was what mattered.
It was thus odd that Battelle was turning down a cool $100,000,000.00 offer (just thought I should spell out all the zeros in case Battelle was reading this), especially with the start of 2008 thrashing securities’ value. Mind you, just last week, former Paypal co-founder Max Levchin raised $50M on a pre-money $500M deal… that was important, for Levchin spins Slide’s story as a glorified ad network for social networking sites. I am not sure that is a fair assessment, but that is for another post. The point is: in one week, the mood of the markets had changed.
This does not mean that this change is permanent, in fact, it was a needed dose of reality given the steady climb of asset prices throughout 2007.
But if Battelle passed on a $100M buyout offer, you have to ask: is he crazy for passing on the deal or was he crazy to consider it.
Battelle is smart and accomplished. But it’s one thing to chronicle the history of the search engine industry (as he did in his book The Search) and it’s another thing to have predicted. I, for example, am man enough to admit that I left the search engine market just before it took off (in 2000). I did that because I found a great job in online publishing… but if I were driven by money alone, then let’s face it: I misjudged the opportunity. In all fairness, I knew search would explode, but I found search boring. So all things being equal, if the decision were to be based on money alone (and with me it’s not, has not been and never will be alone) I should have stayed in search until about 2003 or 2004 and then gone into publishing then. But as I said, revisionist history is not good for the mind, body and soul. Why is this important? Because if Battelle is refusing to sell his ad network for $100M, it is because he considers the opportunity to be far greater than people are giving him credit for.
Let’s face it: online ads will be enormous in years to come (surpass TV ads by 2021). The question is: to whom shall the spoils go to?
Plenty of Foreplay, No Action
So, much the same way that Battelle questioning the non-sale of the Industry Standard is moot, for anyone to ask whether he should have accepted the $100M buyout offer for Federated Media is a bit foolish and a waste of time.
- Was there really an offer?
- Who was the buyer?
- What were the terms (cash vs. stock, earn-outs, non-compete’s, etc.)
I’ve had interested parties inquiring about Mojo Supreme and WatchMojo.com in particular, but without an actual offer, in black and white, I discount such “offers” and write them off as mere flirting.
But, we’re not talking about me and our company, we’re talking about John Battelle’s Federated Media, which is essentially an ad representation firm. I’ll spare the 1,000 words on my thoughts on that, if you want more, click to read The curse of ad representation which I posted when Fark.com left… you guessed it, Federated Media.
Is Federated Media worth $100M? Well, let’s see where Federated Media ranks in the ecosystem. To do that, we need some comparables.
We defined assets as:
- Talent/People:
John Battelle is the figurehead of the company but you will see that the company seems to have a lot of talented people. My first reaction was “lots of overhead” but I think you need to cater to advertiser and authors’ needs.
- Content:
FM does not own any of the blogs and sites it represents.
The sites he represents are all very solid ones, for sure, they include:
- tech publications: Tech Crunch, GigaOm, Mashable, VentureBeat, Silicon Alley Insider, ReadWriteWeb, BoingBoing, Ars Technica
- leading blogs: Paul Kedrosky’s blog, Fred Wilson’s blog
- social media sites: Sphere, Digg
But, the fact that he does not own any of those sites means that he should trade at a discount. But, a discount to what? It is said that Gawker Media is worth $100M. So if Gawker Media is a blog network that owns all of the underlying blogs, which include Gizmodo, Wonkette, DealSpin, Valleywag, Gawker, etc., then by logic Federated Media is worth less.
- Audience:
This one is tricky. Via partnerships with these underlying sites, FM reaches the audience and is exposed to the readers’ therein, but it does not own the audience. In other words, while FM gets a lot of props for building a network (we know buyers love network effects) it is not quite an owner of said network. Again, FM would trade at a discount for this reason. Using an example: WatchMojo.com owns the audience on the WatchMojo.com URL, but 99% of our streams now come on our syndication network, on sites like YouTube, MySpace, Veoh, and 100 others… so while we reach audiences on those massive sites, we do not own those audiences. I am candid enough to realize that that is less valuable that if we owned those audiences (we make up for it by diversifying our distribution access points, so I would argue that at least the sum of the parts of those audiences make up for not owning it, but that’s another post).
- Rights/Contracts/Relationships:
Rights are valuable. We own rights to our content (because we produced it) and via 1,001 contracts, to many other things. FM has rights to represent and sell advertising on all of those sites, but they are all probably about 60 to 90 days away from cancellation via an out-clause (the reason why it’s 60-90 days is because FM might have submitted RFPs - or request for proposals - to advertisers and that time span ensures that the underlying sites will honor the deals). But the fact remains, sites like GigaOm, Tech Crunch etc. (I presume) will over time want to develop their own sales channels, if they have not already. This means that the rights that FM have are an asset, for sure, but not fool-proof by any stretch of the imagination. Think of how Fark swapped out FM for Maxim’s sales force (in all fairness, Fark is a far better fit with Maxim than FM, which is tech-oriented).
- Technology:
This is the key. Above, I alluded to network and you might have noticed it was italicized. Networks were the bread and butter of the investment banking M&A business last year (see all 2007 M&As here). But most if not all of those networks’ drive up value thanks to their technology.
- Right Media (Yahoo! / $725M) has an auction mechanism technology platform that made it worth a lot to the buyer.
- BlueLithium’s (Yahoo! / $300M) clickstream technology made it a leader in the ad network insdustry.
- aQuantive (Microsoft / $6B) was a very diversified play in the online ad market, but Razorfish and SBI were leaders in technology; AtlasDMT was a very strong ad serving platform, etc.
- Doubleclick (Google / $3.1B) was all about technology and is in fact the world’s largest software in the cloud operation in the online ad sector, and thus, all about technology.
- Quigo (AOL / $340M) was a great challenger in the text ad sector, building an impressive client list while competing with industry behemoth Google.
The list goes on, and on.
Tale of the Tape
So, if Battelle wants to push the enevlope and benchmark FM to these comparables, he can. But any sophisticated buyer would ultimately benchmark him more to Gawker Media, or rather, Gorilla Nation Media. Gorilla Nation bills itself as the world’s largest ad representation firm. I know its two founders, Aaron Broder and Brian Fitzgerald. I first interacted with them as a VP of Sales at a mid-size publisher. One of America’s Top 500 Fastest Growing Companies (according to Entrepreneur Magazine), GN’s sales have soared from $1.6M in 2002 to $28.3M in 2006. Unlike FM, Gorilla Nation actually has owned some of the sites, for example, it sold Quizilla to Viacom. Gorilla Nation is not an incidental comparable. It raised $50M in private equity from Great Hill Partners last year. The valuation was not disclosed, but I presume that is the deal that Battelle is eyeing as a comparable these days.
What about Investors?
Battelle needs no advice or counseling. The man is smart, connected and has the backing of a seemingly unlimited amount of investors with even more unlimited funds. They include JPMorgan Partners, The Omidyar Network, The New York Times, Mitchell Kapor, Andrew Anker, Mike Homer, and Tim O’Reilly.
He’s only raised $4.5 million in a Series A round two years ago. Tech Crunc’s Erick Schonfeld mentioned that Battelle is a controlling shareholder, so assume at the very low end he owns 51% of the company, though I presume he owns much more. As it stands now, he can make his investors very happy but if he does go ahead and raise $50M (or anything that maddening) on a $125M pre-money valuation, then he would have to build a $500M or $1B company to add to his already very impressive reputation and track record.
Seller Beware
Battelle needs to be careful, however. If the sites he represents put a lot of weight on the $100M rumor, sooner or later, they’ll ask, why use Federated Media… why not go direct (to marketers and agencies). This is what I talked about in The curse of ad representation.
M&A vs. Funding - So, what is FM Worth?
According to MergerMarket, via TechCrunch in a March 2007 article, FM’s revenues were $4.5M in 2006, with forecasts of $30M in 2007. FM probably pays out 30-80% out to sites he represents.
COO Jason Weisberger said “If Federated Media keeps performing the way we’ve predicted in 2007, it would be a really ripe time for a media player who understands this space to buy us now rather than having to buy us for a whole lot more later.” The article also said “While he was unsure how much Federated might sell for, Weisberger said similar companies have gotten 8x to 10x gross revenue…Another possible valuation for a sale of the company is a multiple of 25x EBITDA.”
If FM owned the content, audience and technology, this is all plausible and feasible. But 25x EBITDA is too rich for an ad network that lacks technology. The article continued:
There was a laundry list of possible acquirers mentioned by Weisberger, including media companies (AOL, CBS, Google, IAC/Interactive, Fox, Yahoo were mentioned) and advertising agencies (Universal McCann, Ogilvy & Mathers, aQuantive, Saatchi & Saatchi, and TBWA/Chiat/Day).
While media companies such as AOL, CBS, IAC, News Corp. and Yahoo! are potential homes, advertising agencies are not at all going to be buying FM, or any content site. The reason is simple: there needs to be a Chinese Wall between media planning/buying (what ad agencies do) and owning the sites that they place ads on (FM’s sites). This is why today ad agencies do not own TV stations, radio stations, magazines or billboards. The conflict of interest would be immeasurable.
But the fact remains, a company like CNET might be interested, because it gives them access (rights) to a lot of great blogs without having to worry about the overhead etc.
In light of this, I think I understand why Battelle does not want to sell (presuming the $100M offer is actually legitimate).
Since talent poses a flight risk in any M&A but is usually invigorated by a funding round (change in ownership vs. more resources) and he lacks technology, I suspect he plans on raising more money to develop some technology. That would change the complexion of his company and jack up the price to revenue and price to sales multiples he could command.
But, the flip side is that by raising $50M on a $125M value, he might make his company unsellable because he would:
- in the process lose majority control and
- getting a 5x or 10x - let alone a 100x - return will make it very hard for Battelle to pull off.
Of course, because:
- Battelle won’t be running out of money any time soon
- His moneymen are richer than God
- Online advertising is booming
- FM diversify and move into non-tech verticals
- FM can build technology first
- FM can buy some sites to own the content,
then I suspect he won’t sell. Is he right to do that? Only Battelle knows the answer. But bear in mind that once he starts to invest in all of those areas, his costs will shoot up, his margins will suffer and his profitability will take a hit. In turn, that affects his P/E and P/S and all this work might not sufficiently raise the value of his company (when you take into account the time value of money).
If I were Battelle, I could think of 3-5 creative ways to considerably drive up revenues and create value. But it’s not my place to suggest those, frankly… and this post is getting long enough as it is.
History Repeats Itself?
In the end, Battelle seems to want to make up for the fact that he did not strike vast riches with the Industry Standard… which is fine and respectable. But you know the saying: Those who do not learn from history are bound to repeat it.
Here’s hoping that Battelle is as familiar with The Industry Standard’s history as he is with The Search’s.
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