By Frank Ahrens
Washington Post Staff Writer
Friday, May 16, 2008
CBS will buy CNet Networks, one of the Internet's most-viewed family of tech-oriented sites, for $1.8 billion in cash, the two companies said yesterday, substantially expanding the online footprint of the Eye network and creating another May-December media marriage.
CNet, based in San Francisco, operates a number of sites focusing on gaming, music, entertainment, food and parenting. It might best be known for its software-download service and its well-regarded reviews of technology products. It has a substantial presence in China, which made it attractive to CBS.
With the purchase, CBS becomes the last major television network to own a big digital-content property, though it has picked up smaller ones in recent years, such as Lastfm.com, a music and social-network site. ABC parent Walt Disney has a large digital and Internet group, NBC bought women's site iVillage in 2006 for $600 million and Rupert Murdoch's News Corp. paid $580 million for top social-network site MySpace in 2005.
Quincy Smith, president of CBS Interactive and one of the executives behind the deal, said CNet would help CBS expand its presence in online search and social-networking and provide premium content that is becoming ever more popular.
"The time spent with online content has increased" in recent years, Smith said in an interview yesterday, "and we think it's undermonetized."
Smith said he believes CNet will fit well with CBS's mobile and outdoor-advertising divisions.
"We're thrilled to join CBS and combine our interactive media experience with CBS's world-class content," CNet chief executive Neil Ashe said in a statement.
The CNet purchase price of $11.50 a share represents a 45 premium on the stock's closing price Wednesday. The transaction has been approved by the CNet board and is expected to close in the third quarter, the companies said. Standard & Poor's analysts wrote yesterday they do not believe CBS overpaid for CNet.
Shares of CNet closed up $3.46 per share yesterday at $11.41. Shares of CBS closed down 59 cents per share at $24.23.
Citi Investment Research analysts noted yesterday that CNet generates about $12 per thousand page views in advertising revenue, outpacing its rivals. However, Citi analysts noted that CNet's free cash flow was flat from 2006 to 2007.
"We see the acquisition as broadly complementary to CBS's existing online business, but believe online acquisitions bring certain challenges different from those of traditional media bolt-on acquisitions. [Those include] technology, strategy, culture and back-office integration," Standard & Poor's wrote.
Hedge fund Jana Partners, which owns about 11 percent of CNet shares, has criticized CNet for its stock price and urged the ouster of its board. During the tech boom in late 1999, CNet traded for nearly $80 per share.
In a call with analysts yesterday morning, CBS chief executive Leslie Moonves said he had not spoken with Jana representatives.
Asked if the Jana insurrection could be an obstacle to the deal, Smith said: "I think whenever you announce an offer like this in this kind of space, with a [deal] close this far away, of course I see obstacles."
By acquiring CNet, Moonves has landed a big digital fish, and -- unlike many -- one that has been profitable.
For the first quarter of 2008, CNet reported a net loss of $6.1 million. But for full-year 2007, the company reported a profit of $177 million.
Also, unlike many digital content companies, CNet's price-to-earnings ratio is under 10, making it a relative value in the industry. WebMD Health's p/e ratio, for instance, is about 42. Sina, a CNet rival based in China, has a p/e ratio of about 58.
"We love the international opportunities as well, especially having a profitable footprint in China," Moonves said in the analysts' call.
With the purchase, Moonves also may be hoping to avoid the fate of Tom Freston, former chief executive of Viacom. Freston did not buy MySpace in 2005, letting it fall into the hands Murdoch, who has watched its value skyrocket.
In September 2006, Freston was ousted by Viacom Chairman Sumner M. Redstone, who is so enamored of digital content that he is the major owner of video game developer Midway Games.
Even though Viacom and CBS split in 2005, with Freston taking Viacom and Moonves taking CBS, Redstone remains executive chairman of CBS.
View all comments that have been posted about this article.