By and large, for traditional media companies to penetrate the Top 10 Rankings of Largest Media Properties, the cost of entry seems to be $2B, give or take a few hundred millions of dollars.
We already covered this for News Corp., who spent just under $2.5B to get to where Fox Interactive Media is now:
- MySpace parent Intermix: $580M
- IGN (my former employer): $650M
- Scout: $60M
- Strategic Data: $?M
- Photobucket: $250-300M (reported, but unofficial)
- Flektor: $15-20M (reported, but unofficial)
and by the looks of it, the tally is the same for CBS.
SAI has more on CBS’ rise to become a Top 10 media property, powered by the CNET $1.8B deal, as well as the $240M Last.fm deal. Any more up CBS’ sleeve? Time will tell. Interestingly both companies lack search - though I am not search if search is something traditional media wants to own. One other area where they could use some strengthening is online video… but I am biased there.
CBS is broken up into
- Technology
- Entertainment
- Sports
- News
- Business
Again, pardon my bias as a lifestyle publisher, but CBS also seems light in Lifestyle which is arguably bigger in terms of sheer client interest. Connecting the dots: when IGN bought my former company AskMen, it was to complete the 18-24 and 18-34 demographic amongst men, but it was mainly to complement its categories (IGN was strong in games, movies and technology but non-existent in lifestyle). I could be dreaming, but I am sure when IGN repackaged itself and sold to News Corp., it leveraged AskMen to convey its strength in lifestyle.
Interestingly, CNET has a few cooking and food properties and if my memory serves me right, they lured a former Maxim executive, so time will tell if they bolster that category as well.
Of course, this does not include the $5B News Corp. shelled out for Dow Jones, whose WSJ.com is indeed a crown jewel online and off.
A number of otherwise smart people suggest that Napster should be worth “at least as much as Last.fm”, whom CBS bought for $280M.
Napster? They’re worth $70M, and if you look at their net value, it’s trading at, hum, $0.
Last.fm was private when CBS bought it; Napster is publicly traded. What does that say? Well, for one, Last.fm was hip in 2007 when CBS bought it (see our story here). Napster hasn’t been cool since 2000, then Bertelsmann invested in the company and the other media companies killed it.
Napster was one of the coolest and disruptive forces, but today’s Napster has very little to do with that Napster, other than in name, which Roxio bought. I’d like to a story but I’m lazy now. Ok, not cool, here you go.
We’re not trying to compare Last.fm’s cool factor with that of Napster, which ever Napster you refer to. The point is: being private is the new public. If you want to buy Napster (2008’s Napster) all you need to do is buy up shares in the public market, or approach the company and make a tender offer adding a premium to the most recent share price. With Last.fm, there was no market for the shares.
That’s ironic.
Historically, startups traded at a discount specifically due to that liquidity discount. Today, being public is a nightmare, you find yourself knocked over, lying on your back, legs up in the air. Not a nice position to find yourself in.
Alternatively, if you wish to buy a private company, you have to act cool… anything else is a sure-fire way to walk away empty-handed.
One by one, they pick up the baton and run with it.
News Corp. Chairman and Rupert Murdoch had mentioned how he had become enamored with the Web because with very little investment, he got abnormally positive returns. So off he went.
After remaining largely quiet for a decade, News Corp. got serious about the Web in 2005 and spent nearly $2B buying up Intermix (parent of MySpace), IGN Entertainment (that’s how they inherited me for a few months), Scout Inc., and then capped off 2007 with purchases of Strategic Data Corp., Photobucket, Flektor.
But, by 2007 the buying spree was over. His Chief Buying Officer Ross Levinsohn left for greener pastures, launching his own investment fund with former AOL Chief Jon Miller, merging with ComVentures.
Then last year, CBS picked up the mantle of Chief Acquisitor by buying Last.fm and Wallstrip. While relatively small, you could see there was more in store, especially with former Allen & Co. Quincy Smith being brought in as CEO of CBSI, reporting directly to CBS CEO Leslie Moonves, and Yahoo!’s former corporate development executive Michael Marquez rounding up the team.
We then commented: is CBS the new News Corp. in that regard?
Perhaps. Today they made it official: CBS spends $1.8B to buy CNET. There will be those who say this was a lot of money for an old Web company, but CNET is a proven business with $400M in annual revenues and over 100M global users, propelling CBS to become a Top 10 Media Property in the US.
Of course, we always liked this idea, even prompting CBS to do so just back on April 14th.
The point is: TV-based media companies need to buy and buy big time, otherwise the future looks awfully like print’s past: downwards and smaller.
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.
The following is a perpetual-work-in-progress. Once you start to compile a list of mergers and acquisitions, you realize why it’s nearly impossible to have a complete list. We are quite confident that the following is a very good, comprehensive list of the largest, more notable deals… but it is not - and no list will be - fully complete because there are too many countries around the world and too many industries to report (it is highly possible that the Wall Street Journal or Financial Post, for example, has such a list… but it would be thick and unwieldy).
We have included:
- many industries
- have not adjusted for inflation
- mergers (be it all cash, cash/stock, or all stock)
- acquisitions (we have excluded partial acquisitions)
- private equity deals.
It is certainly not complete, send me any ones you think I am missing or industries you want us to add next to ash@mojosupreme.com or leave in the comments.
Trivia:
- In 1981, when DuPont acquired Conoco for $7.8B, it was the biggest deal of all time. But adjusted for inflation, that remains a $20B deal by 2008 standards.
- KKR’s private equity deal for KKR remains the biggest buyout when adjusted for inflation, but in actual dollars it has been long surpassed.
Related on HipMojo.com:
Editor’s note: I knew we were speaking too soon. One more deal to add to the list: Time Warner to buy Quigo. Added to the bottom of the list, under ad networks.
According to The Jordan Edmiston Group Inc.’s October 2007 Client Briefing report, the number of deals through the first three quarters of 2007 exceeded full year 2006 figures: 637 transactions with $95B in value thus far. Do the math and that is $150M per deal, quite rich.
As such, publishing our list in November 2007 is a bold and potentially premature thing to do. Regardless, why wait?
What started off as a Top 10 list turned into a Top 27 list: then it got out of hand because we were comparing apples with oranges. We’re at over 30 M&A deals in web-oriented sectors that stood out.
The deals are not listed by size or order of magnitude, just a combination of value, strategic fits and long term potential. Others made the list due to the storylines, frankly, or because they took a while and garnered the media’s attention.
At least one, you’ll see which one, has yet to be finalized, but we expect that it will.
Enjoy, feel free to add, criticize, re-order etc. Surely we’re missing some major ones… some time in December, using emails, comments, suggestions and votes I’ll probably publish a top 10 list of 2007 acquisitions…
ONLINE/OFFLINE PRODUCTIVITY SUITES & COLLABORATION TOOLS
- Yahoo! acquires Zimbra for $350M
Yahoo!’s email service remains the most popular in the world, but when it comes to online meets offline office suites, it was sorely lacking, in particular due to Google’s encroachment onto Microsoft’s terrain against the backdrop of Yahoo!’s dead silence on the front. But, in one move, Yahoo! staked its claim to the party.
- Google acquires Postini for $625M
Google is trying to dethrone Microsoft’s grip on productivity suites while Microsoft is trying to encroach on online advertising. Google has bought Writely, launched a spreadsheet program and while these initiatives and acquisitions have gotten the vocal minority excited, they have failed to win the hearts and minds of corporate IT decision makers.
While we doubt one decision alone will make a change, the acquisition of Postini - makers of corporate email security tools and anti-spam software - could technically make a difference over time. Let’s face it, Gmail is indeed pretty cool, but corporations won’t be caught dead using it. Maybe by meshing Postini with Gmail, offices worldwide will stand up and take notice.
- Facebook acquires Parakey
In 2007, Facebook grew synonymous with hype. Anything the company touched, or sought to touch, quickly turned to gold. Mind you, the company’s torrid growth rate was nothing short of breath taking. But when Facebook announced that it had acq-hired Parakey, a yet-to-launch web operating system developed by Firefox co-founders Blake Ross and Joe Hewitt for an undisclosed price, people noticed because this meant that Facebook had MSFT in its cross hairs. Over time, MSFT made a $240M investment in Facebook, creating an alliance between the two firms, and suggesting that Google, and not Microsoft, was Facebook’s true nemesis.
See HipMojo.com’s post on the deal here.
- Cisco buys Webex for $3.2B
Webex was the first stock I bought, and the reason was simple: companies spend so much money on travel and phone calls are not always easy. Webex was a simple way to bridge the gap between people who needed to at least be on the same page when it came to sales calls and phone meetings etc. Webex who for the large part of the 21st centuy traded slightly above $1B in market cap ended up fetching quite a premium from Webex, selling for a whopping $3.2B.
See HipMojo.com’s post on the deal here.
PUBLISHING
- Answers.com acquires Lexico for $100M
Answers.com, whose parent GuruNet Corporation paid $57,000 for the URL moniker, turned around and paid $100M for the parent corporation of Dictionary.com and Thesarus.com, fitting for a company who bills its Answers.com site as the world’s largest Encyclodictionalmanacapedia.
Of course, Answers.com got far more than two sexy URLs, Lexico did decent revenue and earnings, too. But any way you dice it, the deal was rich, translating to:
- 35 times earnings
- 15 times revenues
- $9 per unique
See HipMojo.com’s post on the deal here.
- Discovery Holdings acquires How Stuff Works for $250M
How Stuff Works has been around for what seems to be forever. It raised $50M for expansion this year and many expected the company to be the one signing the checks, but by year’s end, the company’s interest in all things video led to its sale to Discovery Holdings for a whopping $250M.
See HipMojo.com’s post on the deal here and here.
- CBS acquires Wallstrip
On the one hand, as a fellow video producer at WatchMojo.com myself, I was happy to see Howard Lindzon’s Wallstrip exit successfully to CBS: it showed that one can create something of value in video content and, in all honesty, it created a floor price and a comparable… But, by the same token, I think Wallstrip sold too soon and for too little (nothing against CBS).
Ultimately, in the year when marketers spoke loudly against user generated content, it created a first example that professional made video could represent a valuable business if done right. If I dare say so, we’re now going to show just how much a video content creation and syndication business can scale and grow if you stick to your guns… but that’s for a separate post.
- Hearst acquires UGO for $100M
Men don’t read magazines. They’re watching less and less TV. Where are they? Apparently, online and playing video games. If that hypothesis and premise is true, then Hearst made a much needed investment to get into a video game publishing network targeting men, that of UGO. Incidentally, when Viacom and News Corp. vied for IGN Entertainment [disclaimer: my one-time employer after it bought the company where I was a partner], Hearst balked at the price tag, which hit $650M. But two years after that deal, the trend lines were clear: Hearst needed to get serious about reaching men online and the $100M acquisition of UGO was to serve as the spring board. UGO had raised $90M since its inception.
See HipMojo.com’s post on the deal here.
- CBS acquires Max Preps for $43M
High school athletics is a hot sector. High school sports are a key part of local content and local advertising has always been a huge market, and one that is up for grabs, particularly as newspapers see ad dollars flow to the Web. More importantly, high schoolers don’t spend as much time watching TV (not suggesting that all high school sports fans are actually high schoolers, of course). Combine these trends and you see why CBS’ acquisition of Max Preps was a smart one. After the deal, Max Preps was rolled into CBS’ College Sports Television (CSTV) and its network of websites. It’s always very important to hook consumers early on, and there ain’t a better time frankly than before the college years.
- Yahoo! acquires Rivals.com for $100M
$100M for a sports site geared towards college sports seems like a lot, for sure, especially when the previous year, News Corp. bought Scout for $60M and CBS bought Max Preps for $43M.
But when you consider that said company has raised $75M in venture funding and run by CEO Shannon Terry who made the list of SBJ’s Top 20 in Online Sports, you know the deal’s final price will get high.
Ultimately, by making the deal, Yahoo! leveraged its massive audience to become a main player in sports, rivaling FOXSports.com, SI.com and ESPN.com. Mainly, by holding out and seeing CBS and News Corp. buy Max Preps and Scout respectively, Yahoo! not only saw a floor being created for Rivals.com but also had to pay a premium to ensure that the company not fall in another media company’s hands.
See HipMojo.com’s post on the deal here.
- News Corp. acquires Dow Jones for $5B
I know what you’re thinking, did he fire six shots or only five, “Dow Jones is not online. I mean, it’s flagship product, the Wall Street Journal is not even free!”
My friends, Wall Street Journal has the single most successful subscription business and gets 10m unique users per month. For decades, lest centuries, media moguls and tycoons have pushed the mantra of synergies. Rupert Murdoch in one single transaction:
- acquires one of the two assets he’s always fancied (WSJ, other being the Financial Times),
- he gets the best springboard for his new Fox Business Channel,
- acquires 10M uniques on WSJ.com, or 17M in all if you include Marketwatch and Barron’s,
- has the right, but not the obligation, to open up WSJ.com and make it into the most valuable place advertisers can reach the world’s wealthiest and most influential readers.
If you consider all of the variables, that’s one helluva deal.
SOCIAL MEDIA
- American Greetings acquires Webshots for $45M
Forget the fact that Webshots remains a strong brand that just a few years ago was bought by CNET for $70M, but Webshots is actually very complementary with American Greetings’ business. Photosharing has become a huge market, and while in CNET’s hands Webshots needed to be a leader in its space, under a company like American Greetings, it need not be. Moreover, while in the hands of CNET Webshots needed to generate sizable ad revenues (given how many pageviews it generates), in American Greetings’ hands, it need not. In other words, American Greetings is buying a large online property that is very strategic to its core business at a discount. That’s a great deal.
- CBS acquires Last.fm for $280M
Extra! Extra! Read all about it: CBS’ (and traditional media in general) core businesses are shrinking. CBS is the world’s largest TV company in terms of ratings, the largest outdoor company and second largest radio company. But like TV (and print), traditional radio is shrinking, so CBS made the prescient move to buy Last.fm. Similar to Pandora, Last.fm allows users to find new music based on their tastes and the overall community’s listening patterns. Was Last.fm the absolute best and biggest site out there? Probably not, but when you are CBS, you cannot pull a Bertelsmann and invest in a Napster-esque company that has burned more bridges than [won’t go there but insert anything you wish here].
See HipMojo.com’s post on the deal here.
- Cisco acquires Tribe
Cisco is no stranger to acquisitions, of course, but it usually acq-hires teams of engineers or technology. But by buying Tribe, one of the earlier social networking sites, did Cisco signal a shift away from Sun Microsystems’ mantra that “the network is the computer” to social networking is the Web? Perhaps, time will tell.
Ultimately, it’s a tacit admission that the web will become central to, well, everything.
See HipMojo.com’s post on the deal here.
- Nokia acquires Twango for $96.8M
Twango combines online storage with social networking, allowing users to organize and share photos, videos and other personal media.
Twango was founded in 2004 by former Microsoft employees and has around 10 employees. The deal is estimated to be just under $100 million, $96.8 to be precise. That’s right, it weighed in at $10M/employee. Twango is a small step in the seamless transferring of files from handsets to PCs. The fact that Nokia made the acquisition suggests that Finland’s most valuable company should not be seen as a telecommunications hardware company alone.
- News Corp.’s Fox Interactive Media/MySpace acquires Photobucket for $250M
Photobucket’s acquisition by MySpace makes the list mainly because the storyline behind it was pretty soap opera-ish. Photobucket builds business - according to MySpace and FIM executives - a la YouTube by leveraging MySpace’s audience and community, then adds insult to injury by trying to run ads in their slides.
Then Photobucket’s M&A advisors Lehman Bros. whisper their asking price: $300-400M. A lot of people scratch their heads. Of course, fearing a repeat of YouTube, where a company grew thanks to MySpace but sold to someone else, News Corp. blows a gasket and its MySpace site blocks Photobucket.
Suddenly, value of widget-driven businesses and Photobucket in particular plummets. Back channel diplomacy ensues, coup de theatre follows in the shape, form and fashion of a $250M buyout by News Corp.
In fact, the rumor of an impending deal broke out in early May, and the deal was formally announced on May 30th.
See HipMojo.com’s post on the deal here.
- Hi-Media acquires Fotolog for $90M
When European online marketing juggernaut Hi-Media announced its acquisition of Fotolog, eyebrows were raised. On the WTF? side of the argument were those who said: “using Fotolog’s forecasted 2007 revenue of$2.3M, a net-of-transaction fee sale of $90M implies a pretty rich 39 prices-to-earnings ratio. That’s rich. But, the counter-argument was that Hi-Media was acquiring a community of image-crazed users for 1/3 of what News Corp. paid for Photobucket; yes, call it the reverse fool theory. With $15M in financing, a $90M payout was part of the lure, turned out that the institutional shareholders of Fotolog decided to hold on to their stock holdings of Hi-Media. It should be noted, that just before the acquisition, Fotolog had signed a $75M advertising deal with Google, over 36 months, or roughly $2M per month.
See HipMojo.com’s post on the deal here.
- MSNBC.com buys NewsVine
What does this mean for Digg? We don’t know, but last year, the leader in social bookmarking and news, Digg, supposedly asked for $150M from News Corp. Rupert Murdoch balked, launched MySpace News. I’m not sure how well MySpace News is doing, I suspect Digg is doing quite well, but the fact remains, I doubt Digg will get $150M (then again, a sucker is born every second) because Stumble Upon’s $75M price tag and NewsVine’s price tag imply a lower value for Digg.
Of course, this is a post on NewsVine, not Digg. I can’t understand really the logic and prevailing wisdom to sell NewsVine, a company who had raised less than $2M in financing and who was riding high as America is about to enter an election season and NewsVine’s core focus seems to be political… but, I digress. On MSNBC.com’s part, this marked the NBC/MSFT joint venture’s first acquisition, ever.
E-COMMERCE
- Hearst acquires Kaboodle for $40M
Hearst bought a handful of companies this year: UGO for $100M, which was pricey but not very expensive for a company that raised $90M of funding since inception. But given Hearst’s traditional business focus in magazine, the deal for Kaboodle is intriguing because it allows fashion and retail advertisers - two of Hearst’s main clients - to tippy-toe online and connect branding with purchasing. If Hearst can pull this off, the combination can become powerful, and valuable. Will they? Big old media doesn’t have the best track record, admittedly, so time will tell.
See HipMojo.com’s post on the deal here.
- eBay acquires Stubhub for $310M
eBay = auctions, Stubhub = scalping. It didn’t take the MBAs very long to see fits. Speaking of graduate degrees, founders Jeff Fluhr and Eric Baker owned roughly 35% of the company and with $15M in funding over the years, they managed to build a controversial but successful company that did $100M in sales and $10M in EBITDA. The company’s backers included Allen & Co, Blue Water Capital, Pequot Ventures and Staenberg Venture Partners.
SEARCH, NAVIGATION & DIRECTORIES
- R.H. Donnelly acquires Business.com for $345M
When word got out that Business.com might be selling for over $300M, the natural reaction was to think “the bubble is back”. After all, just a few years ago, founders Sky Dayton and Jake Winebaum acquired the URL for $7.5M from Marc Ostrovsky. At the time, even I thought “will they ever generate $7.5M in revenues off the site, over the course of its lifetime”? Of course, when Dayton and Winebaum bought the URL, Google had yet to create the keyword ecosystem that today underwrites much of online advertising. While critics maintained that by 2007, Business.com was little more than a directory of resold Google text ads, R.H. Donnelly saw salvation for their shrinking print directories and agreed to acquire the firm for $345M.
See HipMojo.com’s posts on the deal before it happened here and afterwards here.
- eBay acquires Stumble Upon for $75M
Stumble Upon’s 2.3 million users and 5 million daily recommendations caught the attention of AOL, Google and eBay, and ultimately, after valuations ranged from $40-75M for a few months, eBay walked away the winner. When the rumor popped up and few understood the logic, though technically, like eBay’s Skype acquisition, the prevailing wisdom of the leading auction community to acquire a leader in “stumbling navigation” makes sense. Of course, that’s what was said about Skype too, and this year eBay wrote down a chunk of that acquisition, even though the fit was even stronger there. Stumble Upon raised less than $2M, which means that founders Garrett Camp, Geoff Smith, Justin LaFrance and Eric Boyd walked away with a nice payday each. Lesson for entrepreneurs: success did not come over night, the site was founded in 2000!
See HipMojo.com’s post on the deal here and here.
- Microsoft acquires Medstory
For all of the talk about vertical search engines being the next great thing, very few case studies proved to be profitable exits. Then came along Medstory and the battle for health information, which led Microsoft to acquire vertical search player Medstory as Google, Yahoo! and Microsoft all vied for search market share and to become the gateway to users’ health information online.
COMMUNICATIONS, WIRELESS VOICE SERVICES
- Google acquires Grand Central for $45M
Let’s face it, financially, Google remains a on-trick pony with 99.9% of its revenues coming from paid search ads and the two related products: Ad Sense and Ad Words. But Google’s product assortment has grown very attractive, from GMail, to Maps, Google Earth, YouTube and soon Doubleclick, Google is certainly laying down the foundation to become a diversified new media and technology company. In that vein, the acquisition of Grand Central to arm users with one number on any platform is consistent with Google’s global and multi-platform ambitions. In fact, at $45M, the deal was cheap and provided good value to Mountain View.
- Microsoft acquires TellMe for $800M
TellMe is “a leading provider of voice services for everyday life, including nationwide directory assistance, enterprise customer service and voice-enabled mobile search.” If the price tag weren’t so darn high, it would surely be higher on this list. Regardless, this catapults MSFT into voice services and voice-enabled mobile search, which a few short years from now will actually help it quite a bit against the #1 and #2 in search, Google and Yahoo!, respectively. While $800M is a large price, if it can execute on that alone, the deal can be a enormous coup for Redmond.
MOBILE AD NETWORKS
- AOL acquires Third Screen Media
Indeed, to quote the Wall Street Journal’s Kara Swisher, new CEO Randy Falco has been busy torching AOL’s Dulles, Virginia’s HQ, but while he’s been doing that, he’s also been making some bets on the next growth area: wireless. In 2007, AOL bought Third Screen Media, a mobile advertising network and ad-serving management platform provider. Will this be a repeat of Advertising.com’s $435M which today drives most of AOL’s top line? Who knows. I doubt it, wireless is way too embryonic, today. But one day, when cars fly and everyone has a pony, wireless entertainment and mobile advertising shall inherit the earth. Time will tell if Randy Falco will be ruling the fiefdom when that happens.
- Nokia acquires Enpocket
In the emerging mobile content and advertising market, Nokia hopes to expand its footprint beyond hardware. To achieve its goal the handset manufacturer agreed to acquire Enpocket to build its advertising platform.
Though Nokia has a content and advertising presence in Europe, its wanted to expand there and elsewhere, including the U.S., through internal development and acquisition. The Enpocket acquisition follows Nokia’s buy of social media sharing service Twango, as well as internal moves toward content publishing.
Enpocket has customers in the US, Asia, and Europe, including Vodafone, Telefonica, British Telecom, and Sprint. It delivers advertising across a variety of mobile formats, including SMS, MMS, mobile Internet, and video. Its customers include both carriers and the companies with which they do business, most notably Pepsico.
In some ways, this deal was in the same vein as Microsoft’s acquisition of European mobile ad firm ScreenTonic with the intention of integrating its capabilities into adCenter: “We want to deliver a platform that helps advertisers buy across all digital mediums,” said Joe Doran, GM of Microsoft’s digital advertising solutions. “As we build out the breadth of our platform, we are continuing to invest against that vision.”
- Nokia acquires Navteq for $8.1 Billion
Nokia is the world’s largest manufacturer of cell phones. Nokia owns this market, basically, and any acquisition it makes is bound to have ripple effects. NAVTEQ is a leading provider of comprehensive digital map information for automotive navigation systems, mobile navigation devices, Internet-based mapping applications, and government and business solutions. NAVTEQ also owns Traffic.com, a web and interactive service that provides traffic information and content to consumers. The Chicago-based company was founded in 1985, generated 2006 revenues of $582 million and has approximately 3,000 employees located in 168 offices in 30 countries. Incidentally, “Internet and wireless” make up only 5% of Navteq’s revenues, compared with 25% from mobile devices and a whopping 62% from in-dash navigation systems.
Translation? Lots of upside in Web and mobile revenues and the creation of a very powerful wireless and local ad network, perhaps?
AD NETWORKS
- AOL acquires Tacoda for $275M
One of the bigger and hyped phenomenon (fairly or unfairly) of web advertising remains is behavioral targeting (BT). Rightfully, to better optimize inventory and users, and to make the promise of web advertising a reality, BT has a role to play. But AOL’s acquisition of BT also demonstrated BT’s inherent limitations: few sites want to partner with BT firms, they want to own the data and underlying IP. Will it be an Advertising.com type of payoff? Time will tell, but Tacoda within AOL is worth far more than outside, in that sense, this deal made sense…
See HipMojo.com’s post on the deal here.
- Google acquires Feedburner for $100M
Google paid $100M for a company with $10M in revenue. Regardless of the financial merits of the deal, the fact is that had Google sought to emulate Feedburner (even had Feedburner not existed), the media companies that partner with Feedburner would not have allowed Google to access such private and valuable data. In other words, Google bought something that was worth many times more to Mountain View as in a year where it had become more and more enemy than friend.
See HipMojo.com’s post on the deal here, Google Buys Feedburner and Encroaches on Organic Ad Results.
- Yahoo! acquires Blue Lithium for $300M
Blue Lithium’s focus on introducing large, sexy brands to the virtues of advertising networks is legendary. Before more and more larg, Fortune 500-type marketers embraced running online ads - let alone using ad networks - Blue Lithium stood out of the clutter with a product and service that appealed to both sides of the online advertising ecosystem. Once upon a time, Blue Lithium’s management even talked of its advantages and strengths over online ad champion Google, but then lo and behold, Yahoo! acquires Blue Lithium for $300M to maximize the monetization of its ad inventory and to bolster its online advertising network both outside Yahoo!’s burgeoning media properties.
Given that the next wave of growth in online advertising will be display / banner ads (after video) and that will come from Fortune 500 marketers, this is a move that can pay off considerable dividends to Yahoo!
See HipMojo.com’s post on the deal here and here.
- Google acquires Doubleclick for $3.1B
Technically, this deal has yet to go through. But we added it onto this list because it shows that Google is completing its arsenal of web tools. Starting off with search, then video (YouTube), then email/newsletter (Feedburner) and now display/banners (Doubleclick), Google has the potential to circle the loop of online advertising.
We’ve covered this deal ad nauseum, so we’ll simply link back and leave you with this quote from one of our posts:
“When a lot of people said Google just hit a home run in online advertising by buying DCLK, they were wrong because saying DCLK is an online advertising play is akin to saying MSFT is strong with ad agencies because ad agencies use powerpoint in their client pitches. DCLK sold all of its media assets to L90/MaxOnline when ad rates were low and no one really paid CPM rates, and got into software only”
But, that notwithstanding, Google buying Doubleclick is a key deal because it bolsters Google’s online advertising software suite, which in itself helps it attack MSFT on many more fronts.
See HipMojo.com’s post on the deal here:
- Google Buys Doubleclick for $3.1 Billion; Blocks MSFT Acquisition
- Questions in Wake of DCLK/GOOG Deal; MSFT/YHOO Repercussions?
- Two Variables in DCLK/GOOG Deal: Dart for Publishers/Advertisers; All Cash Deal
- Why GOOG’s DCLK Makes Little Sense (To Me)
- DCLK Winners: Hellman & Friedman; Losers? DCLK’s Shareholders?
- aQuantive Under Spotlight
- Yahoo! acquires Right Media for $750M
Technically, Yahoo! paid $45M for 20% of Right Media first, then less than a year later, it paid $680M for the 80% it did not own. Right Media was unique in that it worked with other ad networks to allow publishers to create an auction process for a publisher’s long tail inventory. On a property like Yahoo! alone, with billions upon billions of remnant, unsold ad inventory, such a platform can be worth billions each year.
And, as Yahoo! develops its network online (away from Yahoo!-owned sites), Yahoo! liked what it saw enough to justify pushing up the price of the asset four times in less than a year.
See HipMojo.com’s post on the deal here.
- WPP acquires 24/7 Realmedia for $649M
WPP is one of the largest agencies in the world, a marketing behemoth with huge ambitions in digital advertising. It got one step closer to that when it bought 24/7 Realmedia, getting an advertising network, an email newsletter business, search marketing tools and much more. With its extensive advertiser relationships, WPP is sure to get enough bang out of its $649M bucks.
See HipMojo.com’s post on the deal here.
- Microsoft acquires aQuantive for $6 Billion
Microsoft generates very little from advertising. In the future, all advertising will be planned, bought and managed on digital platforms. And digital advertising will be larger than all offline advertising. Furthermore, targeted/tracked (web) advertising will command a considerable premium to non-targeted and untracked advertising. As such, for MSFT to win aQuantive - the crown jewel in the sector - it had to pay a commanding premium.
Like it or not, the market determines how much an asset is worth, which in turn is a function of demand and supply. aQuantive had a range of suitors, and the company that wanted it most ended up paying for it. MSFT’s acquisition of aQuantive can be a game-changer for MSFT if it does not botch it up.
See HipMojo.com’s post on the deal here.
- Time Warner acquires Quigo for $340M
Quigo, which signed a deal with Time Warner’s magazine division, Time Inc, and has more than 500 publisher relationships, is an Internet ad-targeting company that lets advertisers buy sponsored listings, much like Google’s AdSense, based on keywords or subjects.
AOL in September restructured its advertising business, consolidating ad network Advertising.com; Tacoda, which targets users based on their habits; wireless ad network Third Screen Media; video ads company Lightningcast; and ADTECH, a global ad-serving company, into one division.
What did you think of the list? Corrections, suggestions, comments etc., add to comments or email me at ash@mojosupreme.com.
Clearly there were many reasons, some of which I listed here, but it is very interesting to see the rationale provided by angel investor here:
Stefan Glaenzer is looking for his third hit, although the German angel investor, now based in London, cannot complain so far. He made several million selling his share in Ricardo, the internet auctioneer, to QXL in the first dot-com boom and later used some of that cash to invest “a few hundred thousand” in 2004 into the internet radio service Last.fm, which turned into £22 million on its £140 million sale to CBS this month.
Mr. Glaenzer concedes though, that the decision to sell out was not his own – a reminder perhaps that angel investors, however engaged, ultimately have to take a back seat when the crucial decisions are taken. There was “an approach about once a month for the last 12 months” as Last.fm began to generate a buzz in the press, and the number of registered users climbed to 20 million.
“All of them were US companies; it reflects the fact that Europe is two and a half years behind the US,” Mr Glaenzer says, although he is coy on names, other than confirming that there were some half-baked discussions with CBS’s sister company, Viacom, which never got anywhere despite rumours of a $450 million bid.
Mr. Glaenzer wanted to raise another £10 million and carry on, but was outvoted. “CBS just wanted to carry on doing what they were doing, and they came up with a great price,” he says. “I’m not saying News Corporation [parent company of The Times] approached us, but if they did, they would want to make us a part of MySpace – CBS didn’t have a big digital business.” With CBS in charge, it is time for the money man to get out because the broadcaster can provide the commercial expertise now. “
I certainly can appreciate the independence some acquirors provide is a key selling point, but there is merit to folding operations in a larger grid, sometimes the strategic value supercedes everything else. In the case of the Last.fm guys, hearing Quincy Smith coming across like the anti-Ross Levinsohn (not meant in a bad way at all, just matter of factly about Levinsohn pushing News Corp.’s mantra, which given its enormous push into all things digital makes sense to craft everything around MySpace) must have been too good to pass up.
Oh, the $280M probably helped too.
Related:
For the past couple of years, News Corp. amassed considerable real estate online with the acquisitions of Scout, IGN and MySpace. The company’s fortunes grew as a result: MySpace today boasts the most amount of pageviews amongst any site. While the company continues to make specific acquisitions to bolster its portfolio - namely Strategic Data and Photobucket - the company is not spending anywhere near as much as it was last year.
This year’s M&A media leader seems to the CBS, so far at least. This is all that more interesting because CBS was supposed to be the value vehicle in the Viacom spinoff, with Viacom being the growth opportunity. But, ever since CBS CEO Les Moonves lured dealmaker Quincy Smith from Allen & Co., it looks like ’tis CBS - and not Viacom - who’s shopping for growth and strategic fits.
The company has hitherto launched the CBS Interactive Network, made an undisclosed investment in Joost, acquired Wallstrip for a figure in the vicinity of $5M and today will announce that it bought Last.fm, the UK-based social network music site launched five years ago for $280M.
With Last.fm, users tell the website what music they are listening to. The site recommends other music they might like and links to buy the songs. For music it doesn’t have licenses to play, it offers 30-second samples.
Despite Last.fm’s 15 million monthly users (including more than 4 million in the U.S.), the price tag is far less than others in the social network space have fetched, even though multiples are higher today than they have ever been:
The initial payout is well beneath that paid by rivals in the last two years for video-sharing site YouTube Inc., now owned by Google Inc., and for MySpace, the top social destination on the Web, bought by News Corp. The final price for closely held Last.fm could rise substantially if performance targets are met.
Of course, while music is a red hot space online, it’s not an obvious one:
Last.fm offers Internet radio — the steady streaming of songs to computers. But it’s a tough business now because of a recent ruling by the Copyright Royalty Board that would significantly increase the royalties Internet broadcasters pay for streaming digital songs.
And while Last.fm has had minimal advertising thus far, things will change once CBS’ sales machine pumps into high gear:
CBS is also trying to fill out an advertising portfolio that already includes conventional radio, broadcast and cable TV and outdoor services.
(…)
Music sales aren’t a big part of the financial picture so far, and they might not be even when CBS takes control. The minimal advertising on the site, however, will be beefed up. CBS envisions channels for music backed by corporate sponsors that will pay for the privilege every month.
These are small, incremental deals that are beginning to help CBS catch up in the online real estate land grab; don’t get us wrong, CBS can be as strong as they’d like online, but next to their offline prowess, they’ll always have room to grow. Offline, CBS commands the largest billboard and second larget radio network, oh, they also have a rather popular TV network and a couple movie entities you might have heard of…
In other words, while some might wake up and say “what the?” - truth is that as one of the strongest offline players, CBS has a lot to lose by standing still:
The purchase is emblematic of the sharp change in direction at CBS, which owns the oldest U.S. broadcast television network and one of the country’s largest radio networks.
Instead of focusing solely on creating programming, the long-staid company now sees its mission as reaching the broadest possible audience in any medium, including the Internet and cellphones.
That last sentence says it all: old media will never disappear, but there is a massive shift of consumer’s attention, marketers budget and decision-making online, no one knows where the balance will wind up, but CBS - along with other media companies - don’t want to be caught off balance when the music stops.
Related:
:: Who is the king of digital media?
:: What is NBCU worth if it were spun out?
:: CBS Buys Wallstrip Part 3 | Part 2 | Part 1
:: Quincy Smith Hints at M&A Targets at EconSM Panel
:: Irony of CBS Hiring Quincy Smith
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