Some time ago I published a post called Financial Engineering: How to Triple Your Market Cap. I was referring to Marchex, a publicly traded company now worth less than $500M and founded by Russ Horowitz, founder of Go2Net, which merged with Infospace back in the day. But the strategy would apply to Marchex, as well as Name Media and any other owner of large domain name portfolio.
Anyway, the gist of that post was that Marchex - who was sitting on countless URLs and using them mainly for search marketing purposes - should bring those URLs to life by actually creating businesses, you know, websites with actual content and a purpose, instead of the kind with no content but only links to paid ads. Don’t get me wrong, the domain navigation business is lucrative, something I covered in Domain Parking Ecosystem here.
Marchex has not done that to date, neither has Name Media. One company that has, of course, is Demand Media. Demand was founded by Richard Rosenblatt, funded by big name investors, including Gordon Crawford (who is a major owner in Yahoo!) as well as Goldman Sachs. If Rosenblatt’s name is familiar, it’s because he was the executive that Intermix’ board brought in after Brad Greenspan was booted from the MySpace parent. It was Rosenblatt who struck the massive $580M deal with News Corp., creating Fox Interactive Media. Previous to that, Rosenblatt started iMall, which sold for an eye-popping $565M to Excite @ Home. You have to give a lot of credit to Rosenblatt who got into this particular space later than Marchex, Name Media et al., but has managed to build a company that in 2 short years has gotten interest from players like Yahoo! to the tune of $1.5B - $2B, according to Tech Crunch, who pegs Demand’s revenues at a healthy $250M and suggests that Rosenblatt is gunning for a $3B exit.
For the record: I am not arguing the merits of Demand Media’s business plan on a stand alone basis. The company is too complex, diverse and fluid for me to do that. I am, however, saying that relative to the Marchex or Name Media strategy, I prefer Demand Media’s. Then again, I am a content/sales guy, though I did work in the search industry back in the day.
I’d be surprised if Yahoo! acquires Demand Media, mainly because it is undergoing turbulent times and Yahoo! does not have that kind of cash on its books (as of its most recent quarter, it had $2.61B) and its stock is fairly volatile. Moreover, I see Demand actually as a buyer more than a seller. I can think of 3-5 more acquisition targets for the company.
With $250M in revenues a paltry two years after launching (though in all fairness, technically Rosenblatt’s crew has bought many businesses that pre-existed Demand Media’s incorporation), then the company’s path seems to be an IPO, though those are as rare as companies with revenues these days (oh, wait, see a connection)? In fact, while Rosenblatt has long been a proponent of social networking, he’s attacked the market in a very smart, methodical and wise way.
In other words: sure, social networking tools and applications are powerful, but devoid of any high quality, premium content, packaged and editorialized in a way that consumers and advertisers can digest, social networking can kill a brand and property, too.
It does go to show, however, that it takes money to make money: Demand Media has raised a dizzying $355M… and while that seems like a breakneck amount, Rosenblatt is on pace to create enough value, fast enough, to make the numbers add up. After all, few companies will be able to step up to the plate and pay $1B - let alone $3B - for the company. So for investors to get back their money, then an IPO seems like the likely route.
But enough from me, here’s an interview Kara Swisher did with Richard:
The Four Horsemen
Some of you might recall that after eUniverse - renamed Intermix - launched MySpace, it got into some problems with the SEC and its board forced CEO Brad Greenspan to resign. Greenspan remained a big shareholder, but the Board brought in Richard Rosenblatt to run the company. Rosenblatt is the executive (with an impressive track record in social media dating back to the late 1990s) who ended up selling Intermix to News Corp. for $580M. Rosenblatt orchestrated the deal with his counterpart over at News Corp, Ross Levinsohn, who was responsible for building up News Corp.’s digital strategy for Chairman Rupert Murdoch.
The Crown Jewel: MySpace
While the MySpace founders Chris DeWolfe and Tom Anderson made about $5M in the sale, Greenspan made about $40M-$50M while its VCs Redpoint and Vantage Point Partners walked away with the bulk (shocking, I know).
Let The Litigation Begin
After the sale, Greenspan lost it an proceeded to sue everyone in sight, arguing that the Intermix Board conspired with News Corp. to sell the company on the cheap. News Corp.’s former CEO of Fox Interactive Media Ross Levinsohn even went as far as telling Greenspan to go get a life. I believe the actual words were “he’s a loser”.
Value is in the Eye of the Beholder
Greenspan felt somewhat vindicated (not really, but you know what I mean) when RBC analyst Jordan Rohan came out and pegged MySpace’s value at $15B. Obviously that did not change much, in some ways, but then when News Corp. Chairman Rupert Murdoch himself tried to swap MySpace for 25% of Yahoo! (implying that MySpace was worth some $10B), Greenspan felt even more vindicated in his claim. Maybe he wasn’t winning in the court of law, but at least in the court of public opinion some felt that his case was not meritless, either (all cases are frivolous, if you ask me, because if you actually have a case you should be able debate it in a civil fashion, but who am I to tell all of these distinguishes gentlemen how to act).
Battle Spills Over Onto Print
Things escalated quite a bit when Greenspan took the offensive to Murdoch by offering Dow Jones shareholders a competing offer to what Mr. Murdoch was offering ($5B) to acquire the publisher of Barron’s, Wall Street Journal, etc. Ultimately, News Corp.’s offer was too rich and Greenspan had to back down.
Adding Velocity to the Fight
Levinsohn himself left News Corp. to pursue greener pastures. He partnered with ousted AOL CEO Jon Miller and merged their operations with VC ComVentures. Mind you, how that took place is a recipe for its own soap opera… Regardless, undeterred, Velocity has made a series of investments in a wide array of digital media firms. They are also getting competition from other VCs, strategic investors and talent agencies who are starting to get it: the brass ring in video will be professional content and not one more platform or ad network… I covered this in 2008: Rise of Digital Media Content Funds. In fact, I’d argue that it is not a coincidence that VCs herd mentality caused this rise: once VCs saw what former media executives were lining up to invest in, they got in the back of the line themselves and started to cut some checks. It also helps that many of their previous investments were bombing… which takes us to:
Video is the Killer App
While Greenspan was voicing his objections to the MySpace deal, he was also building a video empire. It’s worth noting that Greenspan’s first stab at online video came via Vidilife.
Content is King
I first read about Vidilife in the December 25, 2005 issue of Business Week. As a side note, I had literally just been pushed out of IGN - the other company that Mr. Levinsohn also got Rupert Murdoch to buy, at $650M, earlier in 2005. I was sitting in my “war room” thinking of what to do next after my run as vice-president of ad sales had come to an end.
Throughout 2005, as I integrated my old company into IGN (from May to September) and then into News Corp. (from September to December), I had built a search engine, developed a community for contest seekers… I was eager to get a blog network going… but I could not help but realize that the future would belong to video.
Never one to really buy into the social media myth, I did not really understand MySpace’s appeal, let alone’s Vidilife’s. Regardless, before long, YouTube - which had been registered as a URL in May 2005 and well on its way to become a cultural phenomenon - was capturing everyone’s attention: namely investors and big media firms who saw it with both envy and fear.
From Vidilife, Greenspan has pushed the envelope, launching LiveVideo.com and aggregating a number of other properties under the Live Universe moniker.
Buy Low…
How he’s done it has been interesting, insofar he’s using his resources to scoop up distressed assets. Today I learned that he bought Pageflakes, a company that was allegedly running out of money.
Pageflakes had raised $3.1M from a few VCs, but with strong competition from French-based Netvibes and competing offers from Google, Yahoo! et al., I am not sure how big this market is (with regards to upside).
This acquisition came on the heels of that of Revver, another distressed asset (that in a crazy way I myself considered making a run for, but then wised up when I realized I should stick to my plan and focus on professional content and not the promise of merging Revver’s network into WatchMojo.com’s content).
The Mother of All Roll Ups?
Not to be outdone, Rosenblatt has not been sitting idle sipping on martinis. Rosenblatt, of course, has raised nearly $400M (yes, four hundred million dollars) and rolling up assets of his own: eHow, ExpertVillage, etc. in his company Demand Media.
What Does the Future Hold?
Just a few minutes ago Om Malik asked if we will see a Vulture 2.0 Fund?
I do not know any of these men personally, but I’ve worked with all in one capacity or another, directly or indirectly. I do wonder how much of their decisions are based on a rationale of doing what they believe is best to create value; and how much is done to one-up one another.
It will be very, very interesting to see what the end game will be between these men who are clearly making decisions both rationally and emotionally.
Greenspan and Levinsohn can’t be all that chummy… I presume Levinsohn and Rosenblatt are cordial.
Greenspan and Murdoch probably can’t stand one another; and given some of the rumors surrounding Levinsohn’s departure from News Corp., I do wonder how much friction a conversation between Messers Levinsohn and Murdoch would be, for that matter.
Why is this important?
Well, both Greenspan and Rosenblatt are taking a roll-up strategy while another, Levinsohn, is making small investments (not sure if a $15M bet is small, but I digress) across many companies.
Mind you: Greenspan is taking a low-risk approach whereas Rosenblatt is financed galore in a more risky, high-octane fashion.
The most ironic part of it all, frankly, is that the one figure who looms stall in all of this is is none other than Rupert Murdoch, whose News Corp. empire is a natural acquirer of many of these assets: LiveUniverse, Velocity portfolio companies, Demand Media, etc.
2008 is really sizing up to be an eventful year that will make 2005 look quite tame…
If you thought financing rounds were raising eyebrows, here’s a prediction, it’s about to get a lot more interesting, and competitive, starting… now. Part of the reason why is that exits are about to get more competitive.
Tech Crunch points to a press release that $15 billion hedge fund General Atlantic is backing Jon Miller - former CEO of Time Warner’s AOL - and Ross Levinsohn - former CEO of News Corp.’s Fox Interactive Media’s roll-up fund. We’d heard a lot about these roll-up funds, and now we’re seeing that move from concept to reality. The challenge, now, is the execution.
Michael Arrington raises a good point: the fund will be competing with Demand Media, what makes that interesting, is that Levinsohn and Demand Media Chairman and CEO Richard Rosenblatt teamed up on Intermix Media’s sale to FOX: the Intermix board brought in Richard Rosenblatt to replace founder Brad Greenspan… and eventually, FIM’s CEO Levinsohn got News Corp. head honcho Rupert Murdoch to sign the big check $580M to Rosenblatt and other Intermix shareholders.
Of course, Intermix’s Myspace was the crown jewel, but the MySpace guys only got $5M in the sale, and Greenspan to this day thinks he and other shareholders were short-changed. Afterwards, Levinsohn basically told Greenspan off, read more on Valleywag’s post, called “Fox interactive head: Brad Greenspan is a loser“.
Not to be outdone, Brad Greenspan, founder of Intermix, has since started LiveVideo.com and been busy buying up assets, he bought video search (Flurl.com) and probably, safe to say, hates both men (Levinsohn and Rosenblatt). He also tried to derail Murdoch’s planned acquisition of Dow Jones, which was beyond ballsy, and ineffective. Expect to see Murdoch try to derail at least some of Greenspan’s plans in the future.
Back to this new fund, by the sounds of the press release, Miller and Levinsohn are:
“to Serve as Advisors to General Atlantic’s Media and Consumer Sector,” but I think by next week you will see news that the gentlemen are launching a new fund and leveraging GA’s far-flung assets and know-how.
According to Anton Levy, Managing Director and head of GA’s Media & Consumer sector, said, “We are excited to be bringing Jon and Ross on board to work with our media and consumer team as we continue to partner with the leading companies in this high growth sector.”
Paid Content adds:
The new fund is called Velocity Investment Group, and among the companies we have heard it is looking at is online video distribution firm Broadband Enterprises. The two have also been talking to numerous other companies, at least a dozen of them according to our sources. The focus initially is platform/distribution companies.
Also, the two have been talking to various investors for while, and among them were Texas Pacific Group. The fund came very close to doing a deal with Warburg Pincus, but Warburg was putting in too many restrictive clauses which the two didn’t agree to, and General Atlantic came in at the last second, our sources tell us.
What’s more noteworthy, in fact, is that to some extent, Levinsohn got shown the exit door by News Corp. and AOL sheepishly fired Miller and replaced him with NBC’s Randy Falco. Guess who this fund will also be competing with?
Media companies like NBC and News Corp.
I am not sure if I should be saying this, but this week I held talks with a couple of media firms who wanted to buy us. Both fantastic businesses, but on my way back, I could not help but think that it was too early to sell and that the demand vs. supply mechanism was in our favor and we should hold out. I might very well never cross any of these men (well, Mr. Levinsohn certainly knows about WatchMojo.com, but I digress), but you are just starting to see the flow of things towards digital, mark my words.
I love this business.
PLAY
