Billions made with Internet business exit strategies

This month the future arrived. There were many internet mergers and acquisitions (M&As). There were also internet venture IPOs and old media company reconstructions repositioning to take advantage from new media.

This article is a radar reading of internet deal making developments in this remarkable month, May 2007. Seismic shifts in advertising trigger a great deal of the change.

To get your bearings look at the accompanying mobile phone map of the world. The developments this month fall in the green zones on the map. Credit for the map goes to Big Mouth Media. It illustrate “mobile phone usage”, the darker the green the higher the use.

10 online media developments

Here’s 10 developments this month.

In a sign that things are getting tougher for traditional print media, the Victorian newsagent (and retailing software vendor) behind Australian Newsagency Blog, one of the most popular blogs in Australia, wrote in a post this month that he is considering removing erotica magazines from his stock. He writes, “… my concern is that adult magazines like Penthouse, Playboy and Hustler are no longer paying their way. Take Penthouse for example, sales of Penthouse in my newsagency are poor – the sell through rate is 30% at best for the last year. Given the cover price, at this rate I’m not making money.”
Locally the biggest blip in media this month has been the announcement of a reconstruction or split of Publishing & Broadcasting Ltd (PBL) into two businesses – Crown (which will own casinos and gaming interests) and Consolidated Media Holdings (to own the group’s interests in PBL Media). Nick Tabakoff, writing in The Australian on 23 May 2007, reported (More to come in PBL restructure): “Consolidated Media Holdings, the listed media vehicle to be created out of the Publishing and Broadcasting split, aims to present itself as a new-media company. … At the time of the split, PBL sources stressed that CMH – with assets including 25% of Foxtel, 50% of Fox Sports and 27% of online recruitment firm Seek – would be heavily weighted in favour of new media assets.”
As BusinessWeek noted at the beginning of this month, “The Internet factored into News Corp’s surprising US$5 billion bid for Dow Jones & Co, which owns The Wall Street Journal as well as the Dow Jones Newswires and Barron’s. While the print version of The Wall Street Journal has been the leading U.S. business paper for years, the online edition’s ability to attract subscribers may be even more compelling. In an era where most news content on the Web remains free, The Wall Street Journal boasts 931,000 subscribers who pay between US$79 to US$99 annually to read the paper. WSJ.com’s large audience of paying customers is a powerful advertising magnet.”
North of the US border, this month Thomson Corporation of Canada has bought news and financial data provider, Reuters. A Sydney Morning Herald report on 16 May 2007 states: “The cash and stock transaction values Reuters at £8.7 billion (A$20.75 billion). Holders of each Reuters share will be paid 352.5p (A$8.40) in cash and 0.16 Thomson-Reuters PLC shares.” It creates what has been described as the world’s biggest financial news and data group. Thomson-Reuters will have annual revenues of about £12 billion and employ nearly 49,000 people worldwide. Thomson-Reuters competes directly with Dow Jones & Co and Bloomberg in supplying financial terminals or market data.
Looking no doubt at increasing online music distribution resulting in declining offline sales as one influencing factor, the British company, EMI, agreed on 21 May to a US$4.74 billion buyout by private equity firm Terra Firma Capital Partners. Warner Music may make a counter-bid.
In a development that should delight elevator boys in these boom times, as well as proprietors of start-up blogs and websites, it was indicated yesterday that in the United States, CBS bought Wallstrip, an online video news show. Jossip estimates the purchase price at US$5 million, for a site that has operated for less than a year and has no known revenue stream.
Locally good news arrived last month for shareholders in Hitwise, which include private investors, management, staff and US and Australian venture capital firms. It was sold for A$286 million to Experian. Writing in The Australian Financial Review, Emma Connors’ report (“Venture role looms after Hitwise exit”) on 23 April 2007 indicates that “Venture capital firms account for 51%…” of Hitwise, including US firm Insight Venture Partners (estimated to receive US$55.2 million) and local firm, Allen & Buckeridge (estimated to receive US$67.2 million). Andrew Barlow, the Hitwise co-founder (estimated to share US$36 million with co-founder Adrian Giles) made some interesting comments in the report. They include: “The reason the VCs ended up with such large chunk of Hitwise was because of those terms [sheet] … When Adrian and I founded Hitwise nine years ago, we were both 24 years old. At that age you think you know everything but in fact you don’t know anything. Now we have learnt the hard way about venture capital.”
In yet another widely-reported step ahead for online video, IPTV, Internet Television and whatever alternative label that pleases you (moving digital pictures anyone?), Joost received $45 million in a recent round of venture capital funding. Investors in Joost include Sequoia Capital, Index Ventures, CBS Corporation, Viacom and Chinese billionaire Li Ka-shing. This week Joost announced it has inked a deal with a Hollywood blue chip, Creative Artists Agency (CAA), a talent agency representing talent and brands in the film, television, music, theatre, video games, and sports businesses.
Still on digital moving pictures, Blinkx, the San Francisco video search engine, went public on the London Alternative Investment Market (AIM), valued at US$355 million. It raised about US$50 million.
The lingua franca of the Internet, TCP/IP, is format-agnostic. As it eats all before it, in time expect terms like “video”, “photo”, “music recording” and “print” to fall into disuse. In the meantime note Google this week made a huge move further linking our eyeball movements to Google’s advertising revenue stream. Do a few searches and you’ll see Google is already combining online search results into a “Universal Search”. You used to get just webpages. Now you’ll additionally get (or should that be – “be distracted by”?) the occasional display of news, graphics and video on the same page as lines of text results.

Seismic shifts caused by online advertising

A key cause for the above seismic activity is of course the movement of the tectonic plate of online advertising over the tectonic plate of offline advertising. Their friction points resulted this month in the biggest dollar deals.

- Beginning locally, last week Fairfax Digital (a division of Fairfax Media) announced certain publications will run Google’s AdWords ads, as well as team up with Google further on things like using Google Maps and Video. Fairfax Digital’s existing graphical ads are served through DoubleClick.
- Which brings us to some more big blips on our radar screen. In April, Google bought DoubleClick for US$3.1 billion. DoubleClick specialises in display ads, a field largely ignored so far by Google.
- Yahoo! chimed in late April by paying US$680 million for the remaining 80% of Right Media that it didn’t already own. Based in New York, Right Media is a Net ad services company. Variety’s report states Right Media “is expected to book $70 million in revenue this year, collecting 7% commission on sales.”
- Then this month, in a “great minds (and pockets) think alike” move, Microsoft announced it won the bidding war for aQuantive by agreeing to pay US$6 billion. BusinessWeek reports it offered US$66.50 a share in cash, an 85% premium over aQuantive’s 17 May 2007 closing price and that as at 31 March 2007 Microsoft had US$28.2 billion in cash reserves. The report adds: Recently, Microsoft has made morsel-sized purchases of ad businesses, including video-game advertising firm Massive, and mobile-phone advertising companies ScreenTonic and MotionBridge. … In aQuantive, Microsoft gets a company that generated $442.2 million in sales last year, registering 43% growth. Profit grew 53%, to $54 million. Its business comprises three key brands: Atlas, which provides tools for advertisers to generate better returns on ad campaigns; DRIVEpm, a service to match ads with Web-page inventory; and Avenue A|Razorfish, one of the largest online ad agencies in the world.”
- It’s not been all quiet on the western front of Europe either. While the numbers are less jaw dropping the trends are similar. Relevant to non-English language groups, Axel Springer AG (based in Berlin) and PubliGroupe AG (based in Lausanne) have agreed to a joint acquisition of Berlin-based online marketing/ad tech firm Zanox.de AG for EUR214.9 million (US$289 million).
- One consequence of all these deals is a blurring of the frontier between software and Web services companies (eg Google, Yahoo!, Microsoft) and new (ad) media and traditional (ad) agencies. This adds to the pressures bubbling under on the offerings and operations of traditional advertising companies (eg Omnicom Group, WPP Group and Publicis Groupe). In an “if you can’t beat them, join them” move, this month London-based traditional ad agency player, WPP Group, agreed to buy New York based 24/7 Real Media for US$649 million. The New York Times reports on 18 May 2007 that “WPP is paying US$11.75 a share for 24/7 Real Media, which manages a search optimization business, a network of Web sites that display ads and a business that delivers ads online. WPP will now move beyond creating ads into the technology business that underlies the invisible infrastructure on the Web and delivers ads to Web surfers based on their interests and demographics.

Finally, this week Profy.com succinctly summarised the position and potential future movements on our radar:

The last few weeks were filled with news of buyouts followed by, oh yes, more buyouts. Google nabbed DoubleClick; MySpace purchased Photobucket; Microsoft bought… well, lots of companies, really, not the least of which was aQuantive, which was dubbed a historic US$6 billion (historic because it’s the most Microsoft has every paid for an established entity) buyout for the software giant. The list goes on.

Now there’s lots and lots of talk about Yahoo!’s suspected/possible/probably purchase of Bebo, the world’s third-largest social network, for US$1 billion. And Google supposed interest in having Feedburner for itself. And speculation on Facebook’s purchase.

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Noric Dilanchian

Noric Dilanchian is a lawyer, author and educator practising in areas of business law for almost four decades, with a focus on contract drafting and review, and the commercialisation of content, technology, digital assets and intellectual property. Linked In |YouTube

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