CBS buys CNET: Hail Mary time?
CBS this week announced it would buy Web site company CNET Networks in a deal worth $1.8 billion. CNET is best known for its technology news site, cmet.com. CNET also owns web sites ZDNet, GameSpot.com, TV.com, Chow and Search.com.
Cnet.com is the 17th-busiest Web site in the US, and one of the biggest independent Web companies still on the market. This is the largest Internet acquisition by CBS. A year ago, CBS CEO Les Moonves announced to the New York Times that "We are not going to spend $1.6 billion on YouTube," referring to Google's then-recent acquisition of the video site. But CBS has paid even more for less?
CNET's revenue comes mostly from online advertising, and it has income of around $405 million last year, along with sales growth of 10%. It has a solid Internet sales force that CBS can use with some of its other properties. On the other hand, its stock value has sunk by 50% since 2006.
Is this a sensible move? As a Fortune article skeptically noted ("Does purchasing CNET really help CBS?" 5/15/2008): "CBS management touted various "synergies" that the acquisition will unlock, but on the conference call with investors Thursday, executives offered few specifics."
CBS has a spotty history with the Web. An internetnews.com article ("Is CNET The Right Fit For CBS?" 5/15/08) quotes another analyst as saying "We do not see a strategic fit in this combination other than CBS is trying to increase its exposure to the Internet,"
But as the Fortune article points out, CBS is more dependent than its rivals on advertising, and buying CNET only extends that vulnerability, albeit in a different medium. If, as seems likely, the current recession brings a prolonged decline in ad spending, the move may prove to be a bad one. The article quotes on analyst as saying "One of our concerns about CBS has been that management might pursue expensive acquisitions to offset concerns about secular trends in the company's core broadcast television and radio businesses…The CNET deal underlines this concern."
So, is this just a "do something" move by a company whose stock price is down by over a third over the past year, and whose prospects, especially for its flagship TV network look dim?
