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Scripps to buy Shopzilla for $525 million

Media conglomerate looks to sweeten profits by participating in the lucrative search-engine marketing business.

Media conglomerate E.W. Scripps plans to buy comparison shopping engine Shopzilla for $525 million in cash, further consolidating the e-commerce search market.

Under the deal, Cincinnati-based Scripps will acquire privately held Shopzilla, one of the top search engines for comparing the prices and attributes of retail products sold across the Web. Shopzilla's results are used by America Online, Lycos and others. The deal will also add Shopzilla-owned BizRate.com, a consumer review site.

According to Scripps, the acquisition will sweeten profits by allowing it to participate in the lucrative search-engine marketing business, Shopzilla's primary revenue source. Total industry sales from search-related ads are expected to reach $5.7 billion this year and an estimated $7 billion in 2006, according to research firm Forrester Research.

"Shopzilla is a significant Internet play for Scripps," Scripps CEO Kenneth Lowe said in a statement. "We're betting that Shopzilla will become the way that people shop online."

The acquisition follows a similar deal announced last week, when auction giant eBay bought Shopping.com for $620 million in cash. Financial analysts predict that consolidation in the shopping search market will continue in the next couple of years, as companies increasingly see specialty search as a way to drive e-commerce.

According to Forrester, people will spend as much as 12 percent of their shopping budgets online by 2009, up from 7 percent this year. And a rising number of people are using the Internet to research products first, whether they actually buy them offline or online.

Safa Rashtchy, a financial analyst with Piper Jaffray, said one reason why shopping search has become a hot property is because the comparison-shopping engines can create a trusted network around online merchants so that people know where to shop.

"Shopping search has become an easy way to emulate what eBay (did well), which was to create a trust network. They not only give you a wide network of merchants, but they also rate them and offer some advantages over that of basic search," he said.

Rashtchy added: "E-commerce is growing, but the best way in the business is to be an intermediary because people need more and more help to find what they're looking for."

The deal, which is subject to regulatory approval, is expected to be finalized in the third quarter. Shopzilla will become a standalone operating unit of Scripps. Shopzilla shareholders will receive the amount of Shopzilla's net working capital at the time of closing, which is expected to be about $35 million. The deal will be slightly dilutive to earnings per share in 2005 and accretive to earnings in 2006, according to the companies.

Shopzilla competes heavily with Yahoo, Google's Froogle, PriceGrabber.com and Shopping.com, among others. It makes money by collecting referral fees each time it drives a new customer to a Web store. The company draws as many has 14 million unique visitors per month.

Scripps owns national TV networks, newspapers and interactive media companies including FoodNetwork.com, HGTV.com and United Media's Comics.com.