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 Business News | January 2005 
Internet News Sites Are Back in Vogue
 Eric Dash - New York Times
 When L. Gordon Crovitz, the president of Dow Jones & Company's electronic publishing division, sat down last spring to assemble a three-year strategic plan, one of the things he foresaw was a potentially costly gap about to open. If the demand for online advertising continued to grow, Dow Jones's Web sites, including The Wall Street Journal Online, would not provide enough page views for all the online ads the company could sell.
"That is a wonderful problem to have," Mr. Crovitz said, "but you don't want to have that problem if you can avoid it."
Last summer, Mr. Crovitz set out to solve part of his problem by acquiring CBS MarketWatch, the financial news Web site found at cbsmarketwatch.com. The only problem: three other media giants apparently reached the same conclusion. The New York Times Company, the Gannett Company and Viacom Inc. all joined in to bid for the site. "I never thought the list of potential bidders was as long as it turned out to be," Mr. Crovitz said.
Dow Jones won the bidding with a deal, expected to be completed today, for $519 million, about six times MarketWatch's 2004 revenue. The four-way frenzy among the companies to own MarketWatch outright may be the strongest sign that news and information sites, long thought to be dot-gone relics of 1999, are making a big comeback in 2005.
Many of the same companies that were badly burned by Internet investments before are aggressively bidding for these sites not just because of the growing online ad business but because, like Dow Jones, they are worried that their current Web sites will not be able to keep up with demand.
"The existing old-line media companies, which have a big stake in where people advertise, have to recognize this medium," said Larry S. Kramer, a founder and chief executive of MarketWatch. "Our audience means more to them now because it's not just revenue they are going to pick up. It's revenue they are going to lose."
Online advertising is expected reach $9.7 billion in 2004, or about 3.7 percent of United States advertising spending, according to a recent Merrill Lynch report. Still, that number is expected to grow 19 percent this year as the nation's largest advertisers shift budgets from print and network television to cable and the Internet, the report said.
As a result, publishers are being forced to confront a potential advertising inventory crunch. There is no physical limitation to the number of Web pages, of course, but advertisers want to be placed on the most popular pages and those which cater to their most profitable audiences. And those kind of pages are in shorter supply.
"You would find publishers across the board being more concerned about inventory," said Cliff Sloan, vice president of business development in The Washington Post Company's Internet division. "As online advertising has taken off, the importance of having inventory to meet the demand has gone along with it." Indeed, old media has been snapping up new. In August, Viacom spent $46 million for the rest of Sportsline.com, in which it owned a minority stake. In December, the Washington Post bought Slate, the online magazine, for a price thought to be between $15 million and $20 million.
There could be more deals on the way. At a media conference earlier this month, Sumner N. Redstone, the chairman of Viacom, said more Internet acquisitions where his company is "underinvested and underrepresented," were coming. TheStreet.com, the investing Web site founded by the trader-turned-talk-show-host James J. Cramer, is currently up for sale. And there is some speculation among industry analysts that The Motley Fool could be next, although the company denies being on the market.
Dow Jones executives say that MarketWatch is a good fit. The Wall Street Journal Online and the company's other consumer news Web services contributed about $80 million in revenue last year, or about 5 percent of the company's total. But just under $30 million came from advertising on the WSJ.com site, Mr. Crovitz said.
The MarketWatch deal will triple Dow Jones' online reach to about nine million unique visitors, while giving it more personal finance content, which is popular with advertisers. More importantly, the mostly free MarketWatch would allow Dow Jones to get a greater share of the booming online ad market beyond its existing WSJ.com Web site, which has been profitable but is constrained from attracting new visitors by the $79 subscription rates it charges online-only readers. While revenue has increased, paid circulation has been leveling off to about 700,000 subscribers this year, Mr. Crovitz said.
Still, some analysts suggested that the price Dow Jones paid for MarketWatch was steep, especially if another downturn in the economy causes an overall advertising decline. But even those analysts concede that the MarketWatch audience was desirable. "Dow Jones definitely paid up, but the attraction of MarketWatch is they survived," said John Tinker, an analyst at ThinkEquity Partners. Not only did they attract a wealthy, large and loyal following, Mr. Tinker added, but it was one that high-paying advertisers like luxury automakers and online brokers want to target.
Mr. Crovitz of Dow Jones said that his company had considered creating its own personal investing site to compete with MarketWatch, but he estimated the company would have burned through "several hundred million dollars" just to start.
"It was very clear to me the costs of creating a new brand were considerable, the risks were pretty significant, and the time to obtain a reasonable audience would be quite long," he said. "Given how we are very optimistic about online advertising, speed-to-market was really important."
Although all of the losing MarketWatch bidders declined to comment about the reasons for their interest, Mr. Kramer said that in each case "it all came down to Internet advertising."
According to people with direct knowledge of the deal, Mr. Crovitz made his first overture to Mr. Kramer last June. In early August, the Times Company, hoping to extend the advertising potential of the business and finance section of its own site, approached MarketWatch to discuss a potential acquisition.
Viacom, which already owned a small stake in the company, was approached by MarketWatch's board. It hesitated at first to make a serious offer but then bid aggressively. By late September, those people said, Gannett wanted to enter the bidding to extend its USA Today.com financial section. Even Yahoo expressed early interest then decided to sit out the auction. Pearson, which also is a MarketWatch minority owner, was also approached by the board, but it turned down a chance to bid. It came down to Viacom and Dow Jones, but in the end, only Dow Jones raised its price. Unlike many dot-coms, MarketWatch has been profitable since 2003. In the first three quarters of 2004, it earned $1.7 million after taking charges related to its sale.
However, integrating MarketWatch could be a challenge. The deal does allow Dow Jones to bundle features like MarketWatch's short-selling tools with its existing news wires and gives it access to Bigcharts.com, a data service popular with sophisticated investors.
Mr. Kramer, who will take home about $10 million from the sale, will remain on until at least April and then will serve as a consultant to Dow Jones' electronic publishing division on new products.
For other companies looking to buy, analysts say the market may be getting that much tighter.
"If you look around, there aren't that many ways to get into the Internet now," said Mr. Tinker, the analyst. "Either companies went out of business or the companies have consolidated."
"There aren't too many left," he added. "You can't buy Yahoo. Who else is there?" |
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