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CMGI dips into old media with Primedia investment

Internet incubator CMGI Inc. (Nasdaq: CMGI) is dipping into the old media world with an investment in publishing company Primedia (NYSE: PRM).

Primedia, which is refocusing to grow its new media strategy, announced an alliance with CMGI and Liberty Media Thursday.

Shares in Primedia, which publishes more than 250 magazine titles, 232 business and consumer information products, and more than 200 Web sites, were up 2 1/4 to 29 3/8 Thursday. The company's announcement included the news it expects its first quarter will be flat compared with last year's first quarter.

Under the deal, the CMGI and Primedia will target vertical areas, spanning both business-to-consumer (B2C) and business-to-business (B2B) categories, such as agribusiness, digital entertainment, electrical/construction and telecommunications.

As part of the alliance, CMGI will acquire about 5 percent of Primedia, or 8 million shares, in exchange for 1.53 million shares of CMGI. The companies will create joint ventures in key verticals in the B2B and B2C spaces.

The move represents a divergence for CMGI, which usually invests in Internet companies including Lycos (Nasdaq: LCOS), Engage (Nasdaq: ENGA) and SilkNet (Nasdaq: SILK). CMGI shares were down 3/4to 111 1/16 Thursday.

The new online companies, jointly created and funded by CMGI and Primedia, are expected to get funding from CMGI @Ventures, CMGI's venture capital arm. Each new vertical venture will have access to content from Primedia and services from CMGI holdings such as, Engage, and NaviSite (Nasdaq: NAVI).

Liberty Media, part of the Liberty Media Group, a subsidiary of AT&T (NYSE: T), will also invest $200 million in cash in Primedia in exchange for a 5 percent stake and 1.5 million warrants in the company. Liberty Media shares were down 3/4 to 59.

Liberty Media, or its interactive television and Internet affiliate, Liberty Digital, will receive an option to acquire a 12 1/2 percent stake in the company's broadband video unit in exchange for cash, Liberty Digital Series A common stock or Liberty Media Group tracking stock. Primedia will also purchase $25 million of Liberty Digital stock. The companies will work together to develop consumer broadband video and other interactive video applications for Primedia.

Primedia's new strategy includes plans to divide itself up into two new categories -- a consumer group consisting of magazines, consumer guides, channel one and films for the humanities & sciences, and B2B group consisting of technical and trade magazines, IndustryClick and Bacon's Information.

The company will also make 20 divestitures, which are expected to bring it between $125 and $150 million.

Primedia said it is hoping to double new media revenue in 2000 to at least $50 million, and doubling it again in 2001 to $100 million. This will require investment in new media of between $100 million to $120 million in 2000.

The company has said it also intends to take public of at least one of its B2B Internet units, either IndustryClick or specific verticals it oversees, between now and end of the first quarter of 2001.

Primedia also has a venture capital arm that is currently invested in such companies as, (Nasdaq: MYPT) and SocialNet. Primedia Ventures has a portfolio worth more than $128 million on an initial investment of $21 million.

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