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Summary:

Well JANA Partners may not have been happy with the direction being taken over at CNet Networks, but CBS has given the company its $1.8 billion stamp of approval. Taken at face value, it might seem like a crazy deal, but in fact it’s a calculated, smart and well thought-out move. Continue Reading

What’s that saying? One man’s meat is another man’s poison? JANA Partners didn’t think highly of CNet’s scattershot approach to diversifying into non-tech segments (amongst many other issues). CBS, on the other hand, found the very same TV.com, Chowhound, GameSpot, UrbanBaby, MP3.com and other properties valuable enough to pony up $1.8 billion, a 45 percent premium to CNet’s closing price yesterday. That works out to about $11.50 a share. As you might remember, JANA Partners had acquired enough shares to launch a campaign to replace the management and the board. Now it might finally get its wish.

Nevertheless, no one saw this coming; Yahoo was thought to be a likely buyer. But we should have. Why? One man: Quincy Smith, CBS Interactive’s president. He used to be the banker who was quite intimate with CNet when he worked at Allen & Co., the New York boutique investment house. He understood their business, strategy and of course, their problems. He said as much today: “[I]t’s going to be great to work with Neil and his team, many of whom I have known for many years.”

What I think CBS needs to do is come to San Francisco with an industrial-sized equivalent of a corporate vacuum cleaner. First, it need to cut the sales and marketing head count by almost 15 percent. Second, it needs to cozy up to Google, Yahoo or Microsoft and get them to commit to an advertising deal. (The New York Times has one such deal with Yahoo, for instance.) And most importantly, it needs to clean up the site and make it SEO-friendly. I know Smith knows how to do this. And this might mean kicking out some of the people with which he has worked very closely.

This deal could go wrong quite quickly, due to the bureaucratic nature of the San Francisco shop. But still, I like the big, bold bet. Hell, with $405 million in sales and $176 million in profits, CNet seems a whole heck of a lot cheaper than Last.fm, which cost CBS $280 million. CBS’s current line-up of properties includes CBSSports.com, CBSCollegeSports.com, last.fm, Wallstrip and MobLogic, along with several other news-related properties.

Taken at face value, it might seem like a crazy deal, but in fact it’s a calculated, smart and well thought-out move.

Why this deal makes sense:

* CBS is buying media page views, not social networking page views, which are to tough to monetize, as indicated by recent research reports.
* CBS gets not just a footprint in technology — a growing mainstream opportunity — it also gets non-tech sites that can get some great push from CBS’s non-Internet properties.
* CBS is making a strong effort to give a proper facelift to all its operations and it needs a dot-com property with sizable traffic.
* Quincy Smith is a big believer in communities on the web, and one thing that CNet has not been able to do is build big communities, even despite sizable audiences. I expect this is going to be one of the top priorities for the newly combined company.
* CNet is easily fixable and had a great brand.
* Most importantly, this puts CBS ahead of NBC, ABC and others that have what I think are bumbling Internet/web strategies mired in legacy self-interests of individuals.

What its long-term implications are:

A combined CBS-CNet is basically going to push other networks and old media into action. Don’t be surprised if it sparks an irrational frenzy of buyouts. From Digg to Sugar Publishing, anything media could be in play soon enough.

Update: NewTeeVee’s take: CNET Won’t Be Net Media Kick in the Pants for CBS.

  1. [...] Why the deal makes sense for CBS, and conversely, why it’s the “worst M&A deal of the [...]

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  2. Your Logic is very convincing , Don’t you think this will start a mad scrambling for such properties paidcontent,Gigaomni media,Techcrunch . who knows who will be next ?

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  3. Prashant,

    There will be a consolidation of mid-tier properties first before they get to smaller sites like ours.

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  4. Om, a good analysis but you are wrong in what CNET need to do. They do well in SEO, they already have an ad deal with Google that is hugely in CNET’s favour (10% of revenues, remember?), and people will tell you CNET’s client and agency sells team are among the best around.

    CNET have kicked out a lot of people over the last twelve months so I disagree with that point too. In fact, CNET has almost everything it neds except a real zest within the workforce. They’ve been through a lot of change and they need to be helped back up. If CBS can give them that and motivate them further, THEN CNET will super-perform.

    What CNET need to do is address their publishing infrastructure: unite the disparate pub-tech elements within the business, scale it internationally and simplify business process.

    That will make it easier for their great people to do good work, which is what they need.

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  5. steamboat willie Thursday, May 15, 2008

    Wow – did Quincy pay you for that review ;)? Kidding.

    “Ahead” of ABC? ABC is raking in the dough on their site – they have the number 1 video player and rank #1 with women watching TV (not youtube stuff) on the web.

    NBC, if you forgot, owns ivillage; has a strategic deal with PopSugar, owns TVwithoutpity, etc. Kind of got that covered as well.

    This deal makes much more sense with Viacom – Gamtrailers, and all that.

    CNET is barely – and often not – profitable. As the WSJ put it this AM: this deal seems like it’s out of 1999 – all about traffic and eyeballs and not about making money.

    I’m really disappointed in you Om – you are usually much more on top of these things. It’s a Quincy / Les vanity play that will reduce CBS shareholder value.

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  6. @ Steamboat Willie… (Nice name by the way)

    This is hardly a vanity play. It makes CBS a legit player, and bolsters their digital operation. I think in last 12-18 months they have put together a strategy to build a business that didn’t exist. I think you are being harsh in judging them. What do you expect them to do – not do anything. This is a great move.

    Secondly, you bring up NBC and iVillage. There have been some challenges NBC/GE have faced their and have owned it for a while. Little skepticism is actually valid here.

    ABC: how much dough is it raking? Since you seem to be in the known (Steamboat = Steamboat ventures = Disney) care to elaborate :-)

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  7. @ Ex-CNETter

    Good points. As both of us said: SEO & Community should be top priority. Rest of the suggestions come on numbers based on their recent 10-Q. I think they can do much better in terms of their long term deal with one of the three. I’m looking at the Facebook/Digg deals and CNet clearly has better page views with higher click through potential.

    Look at the Sales & Marketing expenses. They are so out of whack with industry average and the amount the company spends on editorial.

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  8. The question I have is: will they keep the CNet brand name or change it to something generic like CBS Internet News & Reviews?

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  9. @ josh … that’s a $1.8 billion question.

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  10. Kevin Kelleher Thursday, May 15, 2008

    @josh

    CBSNet?

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  11. …@ kevin C|BSnet ! we added BS to C|net !

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  12. Interesting and slightly off-topic thought:

    CBS will now own the domain “news.com”. CBS would be foolish not to steal that domain away from C|Net’s tech news site and use it for CBS News instead.

    C|Net also owns tons of other very valuable domain names such as “search.com”. It’s a shame they never did much with them.

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  13. On paper, I love this deal for the reasons that you assert. This is a broken brand with a bruised culture but good and varied media properties. It needs a new heart but not necessarily a new brain.

    As is the challenge in deals like this, it is all about integration and figuring out what the hell synergy means relative to CBS’ digital media/broadcast media universe.

    I like what I have seen of CBS’ approach between baby steps in bleeding edge and bigger steps like this. What I have less of a sense of is CBS’ uber vision and how they plan to orchestrate in a more than the sum of the parts fashion.

    Cheers,

    Mark

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  14. ancestraltraveler Thursday, May 15, 2008

    While CBS has acquired some valuable Internet real estate (News.com, Radio.com, Search.com to name a few)for Quincy Smith to develop, they will not have control of The Whole Damn Net.com Not for the time being. Sorry CBS, but as much as I know you’d love to lay claim and lord over The Whole Damn Net through CBS Interactive, Mark Cuban currently has the inside track to claim it.

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  15. [...] Smith Q&A: CNET, EQAL, Embeds Everyone’s weighed in on CBS’ $1.8 billion acquisition of CNET, but no one’s really talking about how the deal impacts their web video efforts. Liz thinks [...]

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  16. [...] Smith Q&A: CNET, EQAL, Embeds Everyone’s weighed in on CBS’ $1.8 billion acquisition of CNET, but no one’s really talking about how the deal impacts their web video efforts. Liz thinks [...]

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  17. Om-

    Do you think this will make one of the other large media companies like Disney/ABC or NBC Universal suddenly interested in buying Yahoo?

    Despite the AOL-Time Warner disaster, I see one of those companies being a better fit for Yahoo than Microsoft.

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  18. [...] 2008 at 3:45 PM PT Comments (0) Don’t blame me for getting caught up in the whole hoopla around media-buying-media…we media types are known for being narcissists. Blame me for not being able to blog about the [...]

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  19. Buying a broken brand at 45% premium is somewhat dodgy. CBS would be foolish not to steal that domain away from C|Net’s tech news site and use it for CBS News instead.

    http://www.gofrostfire.com

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  20. [...] the integration of CBS Sports with CNET and GameSport, the male-oriented sites…” Plus Why the deal makes sense for CBS, and conversely, why it’s the “worst M&A deal of the year.” Pro20.com’s View: [...]

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  21. [...] | Techcrunch Más información | Gigaom trackback ¿Recomendarías este post? Más noticias sobre: Empresas, Protagonistas Tags: [...]

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  22. [...] Networks is a publicly held media company with a focus on technology.  TechCrunch | Mashable   GigaOm  [...]

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  23. It was also rumored that Jana Partners, Google and Yahoo wants to buy CNET before CBS came in. And you are right, it might be a good acquisition. This site was part of the acquisition right? And hope alot of improvement will be observed.

    Thanks
    Charles
    resourcesandmoney.blogspot.com

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  24. [...] the time of their merger, I wrote buying C/Net made a lot of sense for CBS. Now, looking back in the rear view mirror it doesn’t seem like [...]

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  25. [...] the time of their merger, I wrote that buying CNET made a lot of sense for CBS. Now, looking back in the rear-view mirror, it doesn’t seem like [...]

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  26. [...] video content. CBS is the network in question, who must’ve gotten tech savvy when they acquired CNET a little while ago. They’re offering content, including full episodes, via the recently [...]

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  27. [...] video content. CBS is the network in question, which must’ve gotten tech savvy when they acquired CNET a little while ago. They’re offering content, including full episodes, via the recently [...]

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