Darn, here I was thinking I had a great April’s Fool Joke, and Michael Arrington beat me to the punch. I wrote this on the flight here to SF… In the end, Arrington had his own trick up his sleeve… you know what they say: no one remembers the second one to do anything… speed matters.
News Corp.’s FIM to Acquire Michael Arrington’s Tech Crunch Blog Network
There are ordinary flights, and then there are extraordinary ones. Let me tell you folks, that my flight in to San Francisco was nothing short of unbelievable.
First off, I am no journalist, certainly no investigative reporter; I’m a Web entrepreneur, writer and occasional analyst. But on my flight in to SF I ran into a former colleague of mine (indirect albeit), stemming from my three-month tenure within News Corp.’s Fox Interactive Media. The background being that in Sept. 2005 News Corp. bought the company that bought my company in May, 2005.
Anyway, there I was walking on the plane when I ran into a former colleague that shall remain nameless. We chatted a bit, about News Corp., FIM’s breathtaking rise, their M&A strategy – past and present. He mentioned that he read my blog, and that the FIM brass was happy to see that MySpace’s acquisition ranked as #1 in our list. From there the topic switched Michael Arrington’s Web 2.0 uber blog, Tech Crunch.
As we exchanged thoughts, I could not help but see something lurking beneath that smile. I had to pry, and pry I did, and thankful for that I am, for I managed to catch a helluva big cahuna.
Folks, sit down.
News Corp. has essentially come to an agreement with Michael Arrington to acquire his Tech Crunch empire. There remain a few issues to be worked out, some small, some large, but the deal is advanced enough that I can write about it with no chance of it being derailed.
Small issues include Arrington wanting to keep Crunch Notes off the table, but News Corp. is not too happy about that, fearing that Arrington might instead turn his focus more on that personal blog than his flagship network, anchored by TechCrunch, but which also includes GearCrunch, MobileCrunch and others. A larger issue is price, something that has yet to be finalized, though a range has been agreed upon.
Scaling Tech Crunch
The idea of FIM buying TC originated not with News Corp., I was told, but from Arrington and former FIM M&A executive Heather H. – incidentally, Tech Crunch’s current CEO – when they were talking about potential growth options for TC and scaling limitations of his empire while she was still at FIM.
Managing FIM
Once Ross Levinsohn left FIM, it was clear that the day of the $500M+ M&A was over, it was a matter of integrating and managing the digital empire he has put together. Of course, there was a matter of what to do with MySpace in particular, a site whose traffic far overshadowed its revenue.
A Match Made in Heaven?
When Heather met Michael, surprisingly, two major opportunities rose to the surface:
- Tech Crunch could serve as a filter for which startups would add value (ie. revenue) for MySpace.
- FIM could borrow Arrington’s modus operandi and apply it to MySpace’s 100M+ members in order to develop MyCrunchSpace, essentially blogs written by MySpace subscribers over literally thousands, if not millions, of topics, people and places etc. Weblogs Inc. sold for $25M to AOL. The idea was, this would scale far more, far faster, and introduce some kind of order to MySpace’s burgeoning growth.
Monetizing MySpace, Creating a Wikipedia.org Killer
Reluctant to publicize this out of fear of being ridiculed, very few people were privy to the details, but as the idea floated around the organization, from Heather to FIM CEO Levinsohn, onto News Corp. COO Peter Chernin and ultimately Chairman Rupert Murdoch himself, it became clear that Arrington could exert his proverbial Mojo onto MySpacers – the ultimate Web 2.0 audience – and filter out the best widgets and ultimately create a Wikipedia.org killer.
The irony of it all is, all along, Wikipedia.org co-founder Jimmy “Jimbo” Wales is talking about a Google killer whereas News Corp. has been hatching a plan to kill Wikipedia.org and reduce the seedy, dubious, and advertiser-unfriendly user-generated content currently found on MySpace and replace it with more ad-friendly TechCrunch like channels.
Instead of just covering Web 2.0 startups, MySpace users would talk passionately – or hopefully as passionately as Arrington covers his space – about topics that could be bundled or pitched to advertisers more favorably than the current slate of topics covered on MySpace.
Murdoch and Chernin viewed this as a good way to monetize MySpace, which still only generates $30M despite being the largest web property when measured by page views. Looking ahead, the idea was to leverage MySpace videos to get people to do vlogs, thinking that so long as people covered people, places and things in video format in a Wikipedia.org context, it might also have a YouTube killer at hand.
If Every Heather, Michael, Tom and Chris…
Naturally, the more I heard the details, the more questions I had. Of note, I said Chris and Tom of MySpace can’t like this idea, can they?
Turns out that the tradeoff for having considerable autonomy from News Corp. is that MySpace must generate a growing top line, something that despite the $30M figure it is not really doing, when you consider that News Corp. is a $20 billion media empire… and Murdoch is eager to make digital more and more relevant to his bottom line.
Structure
The way it will work is that Heather will remain CEO of TC, and she will report to Peter Levinsohn of FIM; in other words, TC will find itself on par with IGN, MySpace as a form of incubator. This was obviously a major issue, since the MySpace guys and experienced IGN executive Dale Strang (my one time boss, I guess) were interested with brining Arrington on board, but not if that meant any change to the pecking order which now has them each reporting to FIM’s head Peter Levinsohn, who replaced his cousin Ross in late 2006 (Ross is currently on the board of Napster).
MySpace Classifieds
By now, I figured, the deal didn’t sound as crazy as when I initially got wind of it. I asked where Edgieo (the classifieds service that Arrington has invested in) fits in all of this. The folks at FIM and TC have already addressed this, hoping to turn it into MySpace Classifieds, though I was told “this is not seen as a deal breaker, obviously.”
Heather as “TC CEO”
As we chatted about more about the details, a lot of things previously disclosed made sense. When Tech Crunch reported earlier that Heather would join as CEO, it did not make sense, as to why someone with Heather’s experience would join what was ultimately a small but influential blog network. You might recall that Arrington hastily disclosed that on his blog after Om Malik broke the news… the fact of the matter was that Heather was looking at less major, home run-type, $500M+ deals at FIM and the idea was for her to vet M&A opportunities that come in via Tech Crunch. There was a memo that was leaked that announced all that, but missing from the leak was the TC/FIM hookup, apparently.
The FIM Incubator Fund
Another growing source of frustration at MySpace, it turns out, is the wild wild west nature of the widgets that have grown in popularity on MySpace, I was told. While everyone thinks of YouTube, my erstwhile colleague told me that literally dozens of new widgets creep up every day, and keeping on top of these is a big time waster at FIM. It’s also not something that anyone internally has shown a real acumen for, because it’s a full time job, as demonstrated by Arrington.
TC presents a good opportunity for News Corp. in that Arrington and co. will be able to identify which widgets should be referred to the business development unit at FIM and which ones need to get a letter from legal, basically. A select few will get something more.
The most promising ones, and the reason why Heather was set to transition to FIM, will get an investment ranging from as little as $25,000 to $250,000… News Corp.’s FIM is not a company that “likes to lease,” in the words of former CEO Ross Levinsohn, they usually buy a company. But given the mass, untapped goldmine that is MySpace, Arrington has apparently convinced FIM that they will have to trust entrepreneurs and remain independent while they try different things against the MySpace community… realistically, I presume, MySpace cannot also buy every single widget that pops up on MySpace, but not doing anything means that the can grow on MySpace – a la Youtube – or worse, grow elsewhere which will cause a risk of flight to MySpace.
Price Tag
I tried my best to get an answer for the amount of the transaction. I could not get an answer, and my reading of the words and body language is that this item (an important one, admittedly) has yet to be finalized, but we’re talking about something in the $25M range. It’s a very steep price, but Murdoch can afford anything, and that is what the Time Warner / Weblogs Inc. deal turned out to be.
Similarly, this was pitched like an acq-hire, and there’s not much upside for Arrington by selling, so they had to sweeten it by going with a cash-rich offer in that range. MySpace’s Chris and Tom, turns out, only made $5M or so in Intermix’s $580M sale to News Corp., after all.
As well, missing from the major headlines is the exodus of talent from FIM’s IGN unit since the deal, Mark Jung, former IGN CEO left and recently joined widget maker (there’s that word again) Clearspring as Chairman of the Board, Richard Jalichandra (IGN’s former VP of Corporate Development who orchestrated the deal with my old company, in fact) joined Exponential – parent company of the Tribal Fusion ad network. In Arrington, it seems, Rupert Murdoch views someone with the imagination to identify what will – and won’t – work on the Web, particularly on his “$6B baby,” MySpace.
Timeline
Obviously, this entire discussion was initially set to be off the record, but in the end, I did get an ok that everything was fine to go to print, apart from one major fact, so long as the source remained anonymous.
I just got into the hotel and rushed to the first hot spot. I can imagine that the usual suspects (Valleywag, Rafat Ali’s Paid Content or Om Malik) will be all over this by now… News Corp. is set to make an announcement in the first days of April, I was told, or this upcoming week, so you can add the NYT and other notable media to the list…
But, I am pretty certain that I can quote Rafat by saying: “you read it here first.”
Enjoy his. Apparently, more than one person bought it…
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WatchMojo NewsletterSeven years ago, I was out of B-School working in the search engine industry at one of the early meta search engines online. Google had a fraction of our traffic, but we knew it was in a league of its own. Another company that was in a league of its own, but for an entirely different set of reasons, was Napster. Napster changed music and the industry at large. I got into Napster at that first job, and knew that the Web would change everything. It was a matter of time, and a question of velocity.
Don Dodge, currently a MSFT exec. in their emerging team unit, quit the Google of that era - AltaVista - to join Napster seven years ago today.
The rest, as they say, is history. I read every word twice, and the lessons at the end are absolutely priceless… sit back and enjoy.
When services like Digg came around - along with others such as Reddit, Megite - people thought the news industry had changed forever. It did, but I think editorial is not all that bad.
Then services like Techmeme took it one step further. I actually covered both companies growth strategies and potential exit recently here.
Over time, both Digg and Techmeme remained great tools, but the more I think about it, the more I think those fall victim to crowd noise, like everything else.
When I now think of what is really the future of information, I ask, can it be anything other than Google Alerts? I have been meaning to write about this every time a PR agency sends me info on their client minutes after I write about them. I’d like to think that they read this blog, and many say they do (most say that someone sent them the link), but I think they are being polite, my gut says it’s Google Alerts… though they do email me a bit too quickly for me to think it’s only Google Alerts, still…
How does Google Alerts work?
I open my inbox, and every mention of a keyword I ask Google to track pops into my email account.
I want to keep an eye on a stock I own - Google alerts let me know the scoop.
I want to keep tabs on an executive - Google alerts let me know the scoop.
Whether it’s online on Websites, news sources or on blogs, I cannot see anything more useful than that. I cannot for the life of me imagine “old school” folks spending hours proactively looking for information, but giving them the option to enter a work in a box and get emails… that could work.
Of course, like all good things, that is at the mercy of information overload as well…
Is there a more likely candidate for what the future dissemination of information will look like than Google Alerts?
Very interesting denouement going on stemming from comments made by IDG chief pertaining to the blocked sale (3 times, apparently) of Web 1.0 bible The Industry Standard.
On the one side, you have former CEO John Battelle, former minority investor Fred Wilson; in the other, you have Pat McGovern, founder and CEO of IDG.
What’s fascinating, frankly, is the real-time debate, something that we only are privy to thanks to everyone having a blog, something that someone’s already pointed out today, mind you.
I know, for the record, not everyone blogs, in fact, a tiny percentage of the world does, and we should not all get a big head and think that blogging is more important than it is, but that being said… I am sure that before “everyone” openly addressed such things, the same kind of exchange would take place, probably, but behind closed doors, via phone and what not. Today, it’s out there in public, so you have to be careful what you say, cause the truth comes out… that’s something I abide that…
I don’t know the players well enough to judge who is right, but what is fascinating, as an entrepreneur and advisor to companies, is that Fred Wilson said he regretted investing as a minority investor along with a corporate backer. Up to now, the conventional wisdom has been that VCs and angels oftentimes welcome investing on a small scale along with corporate backers because the corporate backer presents an obvious exit. With that upside, comes the downside that they will block sales to competitors, no?
While I do not know the players enough to judge, I do wonder this, if the VC and CEO wanted to cash out, why didn’t IDG simply make them an offer to buy them out and replace the CEO with new blood?
I still think that in hindsight, there’s three sides to every story: in his mind, McGovern is probably right, as are Battelle and Wilson. No one is ever 100% right because everyone is biased and has something to gain or lose from the facts being fully unveiled… but people have a tendency to buy their own PR and McGovern probably really believes his version of the facts.
All I know is that beneath the “he said, she said” saga is a great lesson for all entrepreneurs currently riding the wave, and to avoid making this post any longer, I’ll let Valleywag tell you what that is: funny money doesn’t last.
History repeats itself, after all… I’m not saying we’re in funny money times, but…
We use Wordpress on our blogs.
When you load up one of our blogs in IE, it seems to load up fine. But in Firefox, the upper-right area where ads, latest posts, contests display are seems to override the text in the actual post. Obviously that is not intended. When we had set it up, I was told that we could adjust the area in the config file, but no matter how often I do this, nothing seems to work.
If anyone can help me isolate this, they get, well, I owe them a favor… and I have always delivered and kept my word.
Email me at ash@mojosupreme.com if you know what we are doing wrong. Images below:
Yet…
Michael Arrington over at Tech Crunch asks: how much is Photobucket worth?
Lehman Bros., who has been hired to sell the Colorado-based photo sharing service, says the answer is $300-400M. We could say it makes sense because MySpace parent Intermix sold for $580M, and then it grew 200% (or tripled) the next year as part of News Corp.’s Fox Interactive Media. YouTube, the next explosive startup, went on to sell to Google for $1.65B. See our Top 10 Most Explosive Web Startups of All Time here.
We get the trend: eyeballs are valuable. Social networking scales. Images are cool. But does that mean Photobucket is worth $300-400M.
Let’s see.
As a photo-sharing service, Photobucket is both less and more vulnerable to the vagaries of social networking advertising, pegged to reach $2.5B by 2010. While Photobucket is less of a legal liability than YouTube, and less chaotic than MySpace, it is a much smaller site: with 36M registered members and 17M unique users per month, the site is 1/3 the size of MySpace when measured by members and 1/3.5 when measured by unique users. It also boasts 1/2 of YouTube’s unique users, according to Compete.com’s February 2007 numbers. Photobucket is in an enviable position, a lot of people use it as their photo bucket of choice, but images, compared to video, are not as valuable a media.
It’s important to note MySpace, because advertisers like to anchor, or juxtapose, media properties to justify ad spend. Indeed, Photobucket has seen a sharp rise in revenues, from $4.35M in 2005 to $9.34M in 2006. On the surface, this seems great, but in 2005, in my last year of VP of ad sales for an online publisher with 5M unique users, my team of three (including me) did $3-4M in revenue.
I am not saying this make myself look important or to put Photobucket down, I am just reminding everyone to put things in perspective. Photobucket was then and now much larger, granted, but it only scraped $4.35M in revenue. Social networking, while great for growth, is not a winner in revenue generation.
If it were, the investment bank would have an IPO mandate, and not an M&A one. Oh, my old company fetched 12 times EBITDA and sold for $13.5M, or a puny 3.5 times revenue (can you tell I was not in charge of the sales process of the company?).
What I have a major problem with, is the anticipated growth of the company’s revenues. Let’s dive in.
Judging by the numbers, the company grew 116% in revenue from 2005 to 2006, but now expects to grow 255% from 2006 to 2007. Is this normal, reasonable?
Let’s see, judging by this Barron’s post:
Pali Research analyst Richard Greenfield today raised his earnings estimates and price target for News Corp. Greenfield writes that MySpace is now generating “in excess of $30 million” a month in revenue, with about $24 million in domestic revenue and $6 million internationally. He adds that monthly revenues should more than double over the next 12 months, and “at very high incremental revenue margins.” So in 12 months, he’s saying, MySpace should be doing more than $60 million a month in revenue, for an annual run rate in the neighborhood of $750 million a year.
Great. MySpace, the largest social networking site, will double in revenue over the next 12 months. That means 100% growth. Usually the outliers experience above average growth. Can someone explain to me why Photobucket will experience 2.55 times, or 255%, growth in the same period?
Lehman Bros. is good, darn good. But do they believe this or do they think we lost our calculators?
Let’s consider one more thing:
Throughout 2005, from Q1 to Q4, sales tripled, from $356K to $994K, for a growth of 179%.
Throughout 2006, from Q1 to Q4, sales doubled, from $1.086M to $2.159M, for a growth of 98%.
Why on earth should we believe that sales will now triple from Q1 to Q4 in 2007 from $3.114M to $9.486M, for a growth of 204%?
I know what you’re thinking: social networking is accelerating. Ad dollars are rising. Sure, that’s why MySpace will see revenue rise by 100% over 12 months, that does not, in any shape form or fashion justify these numbers that call for a 255% rise in revenue from 2006 to 2007, or a rise of 204% from Q1 to Q4 2007…
The most suspicious growth number, frankly, is the 339% year over year growth from Q4 2006 to Q4 2007, after it grew 117% from Q4 2005 to Q4 2006.
Oh, may I add one last thing: MySpace has FIM and News Corp.’s sales machine, the same machine that pushed me out after it bought the company that bought my company where I served as VP of Ad Sales… Photobucket? Not quite.
So what is Photobucket worth? We’ll disregard the 2007 figures because we do not think it’s realistic, and if it were, the company is better off remaining independent and selling next year.
Looking at 2006 numbers, where the company made $10M in revenues and breaking even, then the company is probably worth, at the most aggressive range, $100M, which is 10 times Revenue. Google trades at 13 times sales, Yahoo! at 7 times sales (though Yahoo! has a richer p/e), so take the average there, which is 10.
Clearly, there’s more than revenue here, it’s a growth story, but the growth in revenue won’t be what it outlined here, trust me. And, sure, the eyeballs are worth it, but there is nothing all that defensible. Even if you want to value the company in terms of eyeballs, then it can be worth $125M or $200M if you really buy into this space, but even then, find me someone who will pay $200M - let alone $300M - and more for this company, cause I want to short their stock. MySpace and YouTube are in the social fiber now, they’re referenced at the Oscar’s; Photobucket, not quite. The article in Fortune that got things and people excited, after all, bills it as the largest site you’ve never heard of. Nice.
Social networking won’t go away, neither will user generated content, but let’s not kid one another, monetizing it is much harder than anyone can imagine. Mainly, there is nothing all that defensive about any of them.
If Photobucket thought differently, they would not be up for sale… Had they not hired Lehman Bros., Photobucket could have continued to chart its own course and grow nice and steady, but by hiring an investment bank which whispered some pretty lofty numbers, I expect a repeat of Metacafe, which had to shelf its sale plans when no buyers emerged. And Valleywag is right, since when do investment bankers do their road show via Tech Crunch?
History always repeats itself. This time won’t be any different. Distribution has become a commodity; Content wins in the end, when you actually own it.
When online ad serving platforms are a sought after asset, you know good times are back. Thankfully, instead of adding fuel to the fire, there seem to be a lot of voices of reason calling for pause.
What are we talking about? Let’s roll:
Doubleclick, the iconic, poster child of Web advertising Phase 1, was taken private for $1.1B last year by private equity firm Hellman & Friedman. The company sold off two assets, including the much ballyhooed Abacus division, for some $535M. In other words, the company that is up for sale or an IPO is not the same one that fetched $1.1B last year. We do not doubt that DCLK (basically, an ad serving suite employed by publishers, agencies and advertisers) is worth more than it was last year, but how much it’s worth is less than $2B, the amount Hellman & Friedman is asking for, supposedly.
Clearly, this is an example of Hellman & Friedman throwing out a figure and seeing if it sticks against the wall as it explores option, having hired an investment bank to sort through the options.
Should be noted that the company made $150M in 2006, of which $100M came from the ad serving suite, MSFT’s own Don Dodge asserts that the remaining $50M came from the divested businesses.
Clearly the different divisions had different multiples, but if DCLK’s three units had $150M in revenues and got $1.1B last year (about 7.3 times Revenue), and this year the company sold off two units for $535M - for a net asset value of 565M of which the remaining unit generated $100M, that means a multiple of 5.65 times for the ad serving suite.
Admittedly, we’re somewhat mixing apples with oranges because the 7.3 times Revenue figure is current year’s multiple, whereas the 5.65 is trailing twelve months’s revenue multiple, but any way you dice it, you get a range of the multiple that is fair.
As such, if Hellman & Friedman wants $2B for the one unit, they are probably not going to get it. Moreover, while there was a lot of talk about MSFT stepping in and buying DCLK, I just don’t buy it. Sure, MSFT needs help, but it does not seem like a $2B deal makes sense, Don Dodge - who is a MSFT executive - does a far better job explaining this than I would here, and Clickz beat me to the punch to point out the fact that AOL, one of DCLK’s largest clients, would probably bolt, making the intrinsic value of DCLK’s suite far less. Of course, AOL could step in and buy it, as it bought Advertising.com for $435M, which today drives a lot of revenue for Time Warner’s online unit (ranking it on our Top 10 Web Acquisitions of All Time here). But, the fact remains, it’s one thing to buy an asset for $435M, it’s another to buy an asset for $2B.
Of course, Paid Content reports states that WSJ had a follow up story stating DCLK is on pace to generate $300M this year, so if the $100M figure for the suite’s 2006 revenue is correct, that implies a tripling of revenues, at which point, sure, you could see a lot of demand for this, but I am not sure where the usually reliable PC got that figure… I also doubt that DCLK could triple the revenue base because this is a very competitive, commoditized market. As VP of Ad Sales, we got calls from DCLK, aQuantive, and others for their services, and trust me, it takes a tremendous amount of added volume to get a triple of revenues.
There are many better ways for MSFT to charge ahead in online ads, and I am just not sure a $1-2B acquisition for an asset like DCLK makes sense. I have always fancied aQuantive (disclosure: I own shares). aQuantive is also Seattle-based. It’s also a diversified digital advertising play, with Atlas (similar to DCLK’s ad serving suite), but also with an ad agency and email advertising products. It’s a more bold play, and with a market cap of $2.14B, it is far more expensive than a purchase of DCLK would be, but when you consider the risk of DCLK losing clients if it were in the hands of MSFT, there are almost no good options here.
Realistically, I think DCLK should simply file for an IPO. IPOs will be once again in demand, and we’re seeing that already in 2007. More on this here. I have written about digital media seeing large acquisitions be replaced by IPOs in 2007 onwards. Small and mid-sized acquisitions will gain steam. But the days of $1B+ acquisitions are over. Facebook will IPO probably, as should DCLK.
That does not mean that DCLK cannot be acquired down the line, but let public shareholders determine its price, not private equity investors.
There are many other options, private firms like Tribal Fusion, and Blue Lithium, whom I pegged at $400M valuation in this post based on the limited information I had.
What would be monumental, but unlikely, would be for MSFT to spin off its MSN.com/Live unit into Yahoo!, and then own 40% of Yahoo!, like I outlined here. Of course, that won’t happen, but between a) buying DCLK, or z) what I suggest, there are at least 24 different, better things Redmond-based MSFT can do.
Disclosure: own shares in YHOO, AQNT.
Is Cell TV “a fool’s odyssey in an industry hungry for new growth? Perhaps not,” argues this article from the AP, via FOX:
“I don’t know if people will want to watch it, but every time I say one of these `I don’t know’s,’ it goes beyond my wildest imagination,” said Randall Stephenson, AT&T’s chief operating officer.
He pointed to the explosive growth of text messaging despite the lack of a full keyboard on cell phones, as well as the surprising demand for ringtones, an $800 million a year revenue stream for AT&T.
Outside the United States, 400,000 people in Italy are using a cell TV service launched less than a year ago by the mobile carrier 3, a unit of Hutchison Whampoa Ltd. Those customers, representing nearly 6 percent of the carrier’s 7 million users, are paying as much as 29.99 euros ($40) extra per month to get TV on the go. In Korea, several million have signed up for mobile TV services from TU Media Corp. and others since 2005.
Such a swift customer embrace would likely thrill Verizon, which is charging $15 to $25 a month for V Cast Mobile TV. The company, its revenue per subscriber stuck in the $50 range, won’t say how many customers have signed up for TV since the launch in roughly 20 markets, but there are some encouraging signs.
Related posts:
:: Disney’s Wireless Chinese Adventure
:: Lifestyle video content provider WatchMojo.com moves into wireless with partnership with Sprint.
:: Size and market of wireless entertainment and mobile advertising.
:: Mobile Entertainment’s Problem: Lack of Clarity
Would have, could have, should have… but I wonder how different things would be if newspape companies would have embraced the Web, instead of trying to hide their heads in the sand over it.
Newspaper circulation nationally reached its peak in 1984, when there were 1,600 morning and afternoon paid dailies with a circulation of 63 million. With the rise of cable television and, later, the Internet, newspaper circulation began to decline. Today there are 1,450 paid dailies with a circulation of 53 million. The losses have accelerated over the last two years.
While many newspapers still have healthy profit margins, their costs are up and ad revenue is down.
On the bright side, says the Newspaper Association of America, ad spending on newspaper Web sites jumped 31.5 percent last year compared with the year before, to $2.7 billion.
The bad news is that online spending accounted for only 5.4 percent of all newspaper ad expenditures in 2006, the association reported. And print revenue fell 3.7 percent for the fourth quarter of 2006, to $13.2 billion, compared with the same period in 2005.
Online spending is projected to continue to grow, and many newspapers are investing more and more in their Web sites. But so far, the online revenue is too small to begin to compensate for the losses from print advertising.
Via NYT.
Came across a nice rundown of MSFT’s revenues across units:
In 2006, Yahoo! had net income of $751M on revenues of $6.4B, for a margin of 11% (in 2005 it boasted margins of 36% though) with a P/E of 60. Google, meanwhile, did $3B in net income on $10.6B in revenues, for a margin of 29%, with a P/E of 46.
So say on average, a top tier US portal boasts margins of 25% and a P/E of 50 (quite rich, I know), that implies that MSN.com / Live Search
- generates profits of 0.25 x $2.3B = $575M
- is worth $28.75B
At today’s close, Yahoo! was worth $43B and Google a stunning $144B.
At a valuation of $28.75B, MSN.com / Live Search would be worth 67% of Yahoo! and 20% of Google.
Of course, Google owns 5% of AOL.com… and while many have talked about AOL.com being bought by Yahoo!, and many are calling for MSFT to outright buy Yahoo!, I am thinking, why not spin off MSN.com / Live Search into Yahoo!
Yahoo! has a stronger brand than MSN.com / Live Search (and which one is it, anyway: MSN.com or Live.com?), and frankly, Google’s 50% market share in search implies that it cannot buy a search player without raising the ire of the antitrust cops…
But MSN and Yahoo! combined outside of MSFT, now that could work. Of course, there is nothing stopping MSFT in being a major shareholder of Yahoo! If Yahoo! is worth $42B and MSN.com / Live Search would be worth $28.75B, and assume the new entity would be simply worth the sum, which is $71.75B, then technically MSFT could/would own 40% of Yahoo! which is, well, not as crazy as MSFT owning all of Yahoo!
In fact, while 2007 has seen tides turn and the Web gods smile down upon Yahoo! while Google has tripped up with lawsuits and what not, MSN.com / Live Search is not as fortunate as Yahoo!, meaning that it might have an incentive to divest directly in Web ventures to invest indirectly via a spin-off of MSN.com / Live Search into Yahoo!, who has the Web at its DNA core.
The combined entity would be powerful in many ways: its share of searches (according to comScore) would be Yahoo!’s 28.1% + MSFT’s 10.5% = 38.6%, compared to Google’s 48.1%. More importantly, the combined entity would be far and away the largest media property online, eclipsing everyone else by a mile and reach practically every single Web user in the world.
The likelihood of this is close to zero, and if we could dole out negative percentages, we would here. MSFT and Bill Gates were slow to recognize the Web’s importance. They were then slow to embrace search. With $44B in revenues and 70,000 employees, there is a much higher likelihood for them to double up on search and the Web… but that being said, owning 40% of the world’s largest and arguably greatest media empire would not necessarily be a poor alternative either, and it just might unleash MSN.com/Live’s value.
More strategically, it would also put Google on the defensive, something that MSFT might welcome more than you and I can imagine.
Disclosure: I own shares in YHOO!
