HolidayBuyer's Guide

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 Last.fm 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."

Few would disagree that big media companies need online properties, and it's often cheaper and more efficient to acquire than to try and build something in-house. If a company didn't have the foresight to create similar online brands in the Web's earlier days, purchasing existing online properties can vastly speed up the pace of "going digital."

According to Alan Mutter, had Dow Jones started generating more online financial data a decade ago, it wouldn't have had to acquire MarketWatch for $520 million in 2005. "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," Mutter explained. "They are trying at a late date to acquire."

"There's a magic in creating that social community, and that magic is not easy to replicate."
--Manish Chandra, founder of Kaboodle

In fairness, Dow Jones online properties like MarketWatch and The Wall Street Journal Online are hardly flops. In the second quarter of 2007, the pay site WSJ.com boasted 983,000 subscribers and currently claims 7 million monthly unique visitors, according to the company; MarketWatch claims 6 million.

Then there's the built-in audience factor. By purchasing TreeHugger, Discovery Communications did a whole lot more than just acquiring a blog for its new Planet Green channel, said Neal Ungerleider, who writes for Mediabistro's FishbowlNY blog. (Last month, Mediabistro.com was acquired by Jupitermedia.)

"TreeHugger already has a large readership, and they already have a well-developed internal staff," he said. "You're already acquiring a stable of talent and a readership that can't be created simply by creating blogs for your newspaper or magazine." Consider it akin to a news network shelling out the cash for a big-name anchor rather than saving money on an unknown face.

Unfortunately, it doesn't always go over so well with the user base--just think of all the fake Rupert Murdoch profiles that turned up on MySpace after the social-networking site was acquired. TreeHugger's left-leaning visitors who posted comments, for example, were split about the prospect of big-media ownership. "The risk is that even if Discovery is a great partner now, it will be bought out by Rupert Murdoch or some other ultra-conservative," one said, adding that "you just never know what will happen when you transfer control to a large corporate entity." Another said, "I do understand that Discovery will help the message grow, but does it have a heart?"

There's one good piece of advice for acquisition-happy media companies: keep the newly purchased properties intact.

"I think everyone has (learned). Even the tech companies have, and certainly the big media companies have," said Kaboodle's Chandra. "Everyone we talked to, the first thing they all told me was, 'Don't worry, we're going to leave you completely intact.' That was the first assertion."

If all goes as planned, that kind of hands-off approach can give a new acquisition access to the advertising and infrastructure resources that a big parent company can provide without ticking off its audience.

"Particularly for social media sites, where there is a huge community involved in developing the site and really powering the site, in our case, we owe it all to our users and it's really important to leave that community intact," Chandra said. "There's a magic in creating that social community, and that magic is not easy to replicate."

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