Trends Report – Following the Money, an Investment Recap, Part One

It’s hard to say when it happened, but it did. Our industry, once the unwanted offspring of the media world, operates in obscurity no longer; investors and members of the “real” world look upon it and those of us in the trenches with admiration. We now receive more attention and praise than we know how to handle. We have survived spam, adware, click fraud, and even ourselves to face, no longer questions surrounding our industry’s legitimacy but, a deal flow comparable to no other period. Last week’s newsletter covered why the companies behind the deal flow might last. Past issues have also looked at several of the bigger acquisitions in depth. Today, in a special two part Trends Report, we’re using a wide brush and painting a picture of the past year and the billions of dollars pumped into our space through some of the lesser and better known purchases and investments. When these acts of outside validation started to occur is hard to say, but right before and ever since the multi-billion dollar Google IPO, the deal flow that started out a trickle is now wide open.

ValueClick, after an almost two year hiatus, stepped back into the game with their purchase last Fall of PriceRunner, the comparison shopping engine with a dominant position in Sweden and a leading positions in the UK. The amount was $30 million, a significant number but one that was sufficiently trumped when United Online put Internet companies back on the map with its acquisition of Classmates.com. The low-cost ISP agreed to pay $100 million for the paid subscription service that at the time of sale had 38 million registered users and 10.3 million paying ones. United picked up a sizeable database of people paying money and some serious media expertise with Classmates, although the social networking craze and other acquisitions has kept the spotlight off of both companies for the past year.

Not long after United Online picked up Classmates in October 2004, a deal that showed the old guard still had an interest in the online space took place. Dow Jones & Co., publishers of the Wall Street Journal and WSJ Online among other things decided to purchase MarketWatch from CBS for the rather astronomical sum of $538 million, or $463 million net of cash. It was a move that the Dow Jones reported would help reduce their “reliance over time on B2B financial and technology advertising.” The deal netted the purchaser seven million monthly uniques and an audience that certainly complimented its well-known WSJ brand. Not to be outdone, WSJ competitor The New York Times stepped into the acquisition arena when it agreed to purchase About.com for more than $400 million in cash, or roughly 10 times earnings. The transaction, which took place about four months after the MartketWatch announcement, gave the parent of the NYTimes.com an additional 22 million unique viewers and a company whose network of individually run sites can be considered a precursor to blogging. If it wasn’t, the About.com deal at the very least put content back on the map.

Regarding content, MarketWatch and About.com weren’t the only ones to cash in on a content driven user base craze. Three other high profile content sites, totaling more than $1.3 billion in combined sale prices took place not only this year but within the past five months. The first of the three major content acquisitions, Neopets, had a user base larger than About.com’s but one that skewed heavily towards the SpongeBob Squarepants demographic. For direct marketers, that made for a pretty unattractive audience, but for MTV whose parent company owns the rights to not just SpongeBob but also RugRats and other Nickelodeon properties, Neopets made for a logical extension to its youth brand portfolio.

While Neopets went from 90,000 users to almost 30 times that amount within five years, it remained, as Jupiter Analyst and parent of an avid user, Joe Wilcox pointed out, still somewhat “cobbled together.” Neopets looks and interacts like none of the other corporate properties owned by MTV Networks and its parent company Viacom. That unpolished and engaging charm seems to have, if not helped, certainly not hindered its growth. It will be worth watching to see whether that changes once the “suits” take over and what impact turning Neopets into an over the top corporate flash site might have on the audience. It’s a scenario that could also play itself out for another of the major content / user base acquisitions. Neopets, which fetched (no pun intended) $160 million, was out done when another of the major media companies, in this case Rupert Murdoch’s News Corp, purchased the Neopets equivalent for the teen and young adult audience. Mr. Murdoch’s Fox Interactive Marketing picked up Intermix, the parent to MySpace.com, for $580 million in July of 2005. It’s an amazing story, and one almost everybody with access to a computer has heard about. For those who might not have read the Intermix/MySpace.com saga, it’s worth reading.

Deciding that one youth oriented site wasn’t enough, Rupert Murdoch outdid himself less than two months after plunking down $580 million for Intermix/MySpace.com. Two weeks into September and three weeks after our feature article on gaming network IGN and News Corp’s rumored interest in them, the $650 million purchase became official. Technically, though, the purchase of the largest aggregator of young males online was not the second of News Corp’s purchases, but the third. A month earlier in August, the company behind Fox Sports picked up Scout.com, whose parent company also is the largest publisher of team specific offline publications. Scout’s loyal and sizable audience company will compliment and bolster not just Fox Sports but IGN as well. Mr. Murdoch’s desire to spend more than $2 billion this year in online acquisitions only underscores the frenzy surrounding our space. It’s a frenzy we pick up in Part Two of Trends Report where we highlight other major investments and predict consolidations. Join us for the conclusion.