Big media hunts for Web cred, again

Print and TV giants have been forking over the cash in a flurry of Web acquisitions, but skeptics wonder if it'll be wasted money.

This summer has been an unusual hunting season for the start-up world, with nascent Internet companies firmly in the crosshairs of major media conglomerates.

This month alone, Hearst Publications purchased social-shopping site Kaboodle, The New York Times "absorbed" the Freakonomics blog, and bookmarking start-up Clipmarks was rumored to be in the midst of a deal with Forbes.

In July, cable conglomerate Discovery Communications snapped up eco-blog TreeHugger. And this spring, CBS Interactive acquired both music community and finance video blog Wallstrip.

"Surprisingly, we were in discussions with multiple media companies and not really that much with tech companies for some reason," said Manish Chandra, the founder of Kaboodle.

Sometimes, the motives behind the purchases are ambiguous, but one thing's clear--media companies are forking over amounts of cash in the tens of millions to hundreds of millions of dollars for Web start-ups that would seem more appropriate targets for a Yahoo or Google.

The big media rush to buy into the Web brings a remarkable sense of deja vu--and skepticism. The common wisdom (based on more than a little evidence, like Time Warner's hugely disappointing acquisition of AOL), ever since the first wave of tech acquisitions in the dot-com boom of the late 1990s, has been that big media doesn't know what to do with its pricey Web acquisitions.

"They have the money available to them today to get deeply involved in the dynamics of this, but they don't for the most part natively understand. They don't understand how Web publishing works," said Alan Mutter, a former newspaper editor and current partner in the Tapit Partners venture capital firm who blogs about the evolution (and often, devolution) of the news media at Reflections of a Newsosaur.

"It's a classic example of how the old media companies have been extremely slow to adapt to the new opportunities posed by (new) technologies. They are trying at a late date to acquire."
--Alan Mutter, blogger, "Reflections of a Newsosaur"

More than a few of the recent acquisitions have so far been letdowns. Conde Nast purchased Reddit last year, only to see the social news site increasingly eclipsed by competitor Digg, which remains independent. According to figures from Internet traffic firm ComScore, Digg pulled in 4,611,000 unique visitors in July while Reddit racked up only 311,000. Both sites are growing rapidly--Digg's unique visitors rose 118 percent from January to July of this year, and Reddit's rose 127 percent--but it's clear that when it comes to size, the two are in different leagues.

Likewise, NBC Universal's purchase of online women's community iVillage, also in 2006, has been rockier than either company would have liked--as was documented by The New York Times in August. The site lost a lucrative contract with Hearst, tie-in television efforts proved fruitless, and in June, fast-growing rival Glam Media surpassed it as the top online women's property for the first time. iVillage has shown signs of progress, as advertising revenues are rising, but it'll be an uphill climb.

Even Fox Interactive Media's $580 million buy of MySpace, which looked like a rock-solid move back in 2005, is showing signs of uncertainty. As rival Facebook continues its meteoric rise, some critics are wondering whether MySpace will turn out to be such a wise investment for News Corp. after all. "I figured the minute Rupert Murdoch bought it it was over, and now all eyes are on, guess what, Facebook," Mutter observed.

But digital media czars like Hearst Interactive Media Group President Kenneth Bronfin argue they know what they're doing this time around. "Within Hearst Interactive Media Group, we have spent the last 10-years-plus investing in venture-backed companies," Bronfin said. "We've invested in over 50 venture-backed companies from way back when, like Netscape, to companies today from Sling Media to Brightcove, so we have a long list of successful businesses that we've invested in where we've been on the board of directors and we've done a lot."

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