Old 05-15-2008, 09:50 AM Offline   #1 (permalink)



 
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Default CNET: CBS' YouTube, or Its Waterloo?

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When CBS appointed Quincy Smith as its new interactive chief in November 2006, CBS chief executive Leslie Moonves said the network didn't plan to make big acquisitions. "We are not going to spend $1.6 billion on YouTube," he said.
No, as it turns out, he's going to spend $1.8 billion on CNET Networks.
CBS agreed to pay $11.50 per share for CNET, an online technology information network that also owns properties such as TV.com, Urbandaddy, Chow, and Search.com. The offer represents a 44 percent premium above CNET's closing price yesterday.
With the deal, CBS says it will triple its interactive footprint and will become one of the top 10 biggest internet properties. By combining CNET with its CBS Interactive unit, Moonves predicts that CBS can generate as much as $1 billion in online revenue by 2010.
While that all sounds very promising, CBS is acquiring a very troubled business. When Moonves said in 2006 that he expected Smith to find "the next YouTube" for CBS to acquire, no one could have guessed that he meant CNET.
CNET, which was one of the first internet content companies to go public during the mid-1990s, has experienced slowing growth in recent years as competition for advertising dollars has increased. More recently, the company has been fighting dissident shareholders led by the hedge fund Jana Partners, which owns 10 percent of the outstanding shares.
Jana has criticized CNET's management for failing to capitalize on its potential, and it proposed sweeping changes to its board and senior executives. CNET laid off 120 employees in an attempt to appease Jana, to no avail.
Moonves did not speak to anyone at Jana before making the offer to buy CNET, according to PaidContent. So far, Jana has not commented on the deal.
It's hard to imagine how any CNET shareholder could quibble with such an offer. For his part, Moonves isn't too worried about revolt. "I would think that Jana thatís in at $7 and something will be pleased with us. Iím hoping thatís the case,Ē he told PaidContent.
It's clear that CBS has its work cut out for it with this acquisition. It's acquiring traffic and reach, and a new set of advertisers and users. But it's also acquiring a mess.
"CNET is a complex company that needs some work because it's a mix of smaller businesses, many acquired, so there are management challenges," says Larry Kramer, who was president of CBS Digital Media until 2006 and is now senior adviser to Polaris Ventures and also a consultant to Conde Nast. "But there is huge opportunity. And the relationship with CBS can be huge for CNET's ad business and in other ways."
CBS shareholders are going to need a little convincing that CNET is the next YouTube, even if it is a more complex, challenging, and expensive one. Its shares fell more than 4 percent this morning.

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