CBS and CNET: Vision, or desperation?

by Mathew on May 15, 2008 · 7 comments

So CBS — an “old” media giant that hasn’t been doing so well lately — plunks down $1.8-billion for CNET, a “new” media giant that hasn’t been doing so well lately. Does this sound like something to get excited about? Not to me. In fact, it sounds a little like desperation on both sides — CNET to get a deal done that would get it out of the clutches of some disgruntled shareholders, and CBS to get some kind of coherent online strategy going in the ninth inning. Some others seem to disagree, however. In fact, it’s interesting to see the polarized opinion on the deal when you look at some of the opinion out there.

Fred Wilson of A VC probably came closest to my thoughts on it when he sent a Twitter message right after the news broke, and said that he didn’t really care about the deal because it was “all about yesterday, not tomorrow.” Mike Arrington, who has been a relentless critic of CNET — and even wrote a post about how some of the top blogs should get together and destroy it — says that:

“CNET failed to disrupt the old guard, and will find itself to be a footnote in Internet history rather than the headline it should have been.”

Others seem to think the deal makes tremendous sense: Marshall Kirkpatrick at Read/Write Web says that CNET is “as stable an online collection of brands as anyone out there” and that:

“What gets validated here is this: great online ad sales, high production value, serious talent, company maturity and breadth in both content and distribution.”

Paul Kafka at Silicon Alley Insider is another fan, saying that while “there’s almost no synergy, operationally or brand-wise” between the two companies, and CBS doesn’t have much of a digital platform:

“That’s as good an argument for making the deal as any — rather than trying to build your way on to the Web, why not buy it? And if the JANA guys are right, CNET isn’t a dying asset — it’s just one that needs to be revitalized.”

In a comment on Kafka’s post, Henry Blodget says:

“I actually think it’s smart. CBS is a dying business with strong cash flow–it’s about time they used it to make some big bets. More importantly, there ought to be a lot of ways these companies can work together. The size is far more manageable than AOL – Time Warner, the cultures are more compatible, etc. Strikes me as a bold but sound bet.”

So why would I say it feels like desperation? As Megan Barnett at Portfolio mag points out, CNET hardly fits the profile of what CBS said it was after when Les Moonves said that it was looking for “the next YouTube.” CNET isn’t even the last YouTube. It’s a pile of underwhelming assets that mostly make money because they aggregate eyeballs and have some good domain names. To me it feels like CBS just decided to buy something big and to hell with whether it made any sense or not.

I think Doug Macintyre at 24/7 Wall St does a good job of laying out why this is a bad deal, one that he says could be “the worst M&A deal of the year.” He says that “the high price CBS is paying borders on being irresponsible” given the kind of condition CNET is in, and that when it comes to financial performance, CBS “is almost as bad off as CNET, but on a larger scale.” Bingo. Nice job, Quincy.

  • http://www.centernetworks.com centernetworks

    nice recap mathew

  • http://www.howardlindzon.com howardlindzon

    oy. harsh.

  • http://www.mathewingram.com/work mathewi

    Thanks, Allen.

  • http://www.technovia.co.uk ianbetteridge

    I can understand it from CBS' perspective: there's a lot of talent at CNet, as Marshall points out, on both editorial and ad sales sides, and it's about as solid a business as you can get online. I'm less certain what CBS brings to the party. Better management? More investment?

    Regarding your “next YouTube” note, don't forget CBS' other buy: Last.fm.

  • http://www.mathewingram.com/work mathewi

    That's true, Ian — I had forgotten about Last.fm. That purchase at
    least made some sense to me, given that Last.fm has some real growth
    potential that CBS could theoretically help with, and some synergies
    as well. The benefits of buying CNET don't seem nearly as obvious.

  • http://www.technovia.co.uk ianbetteridge

    I can understand it from CBS' perspective: there's a lot of talent at CNet, as Marshall points out, on both editorial and ad sales sides, and it's about as solid a business as you can get online. I'm less certain what CBS brings to the party. Better management? More investment?

    Regarding your “next YouTube” note, don't forget CBS' other buy: Last.fm.

  • http://www.mathewingram.com/work mathewi

    That's true, Ian — I had forgotten about Last.fm. That purchase at
    least made some sense to me, given that Last.fm has some real growth
    potential that CBS could theoretically help with, and some synergies
    as well. The benefits of buying CNET don't seem nearly as obvious.

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