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Hold the Froth: MarketWatch, Slate Sales Signal Online Rebound

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MarketWatch, Slate, DoubleClick and (possibly) Wired News are all for sale. The fact that there's interest in these old-line new media outfits is a sign that online advertising has staying power. But don't call it another dot-com boom.

By all accounts, Internet advertising is finally clicking on all cylinders with total sales in the second quarter reaching a record $2.37 billion, according to the Interactive Advertising Bureau. That financial quarter marks the seventh consecutive quarter for growth in online ads.

But then we hear that pioneering sites and services such as MarketWatch, Slate, DoubleClick and possibly Wired News -- who are all reaping the benefits of the online ad rebound -- are all on the sales block. What gives? If everything's peachy in the online media business, why sell now?

Right as these startups were gaining maturity, traditional media companies realized the time was right to add more online media to their mix. Or put another way: the sellers finally had something solid to sell, and the buyers were finally confident their money wasn't going down an online pit.

Vin Crosbie, gadfly consultant and president of Digital Deliverance, has seen the ups and downs of online publishing and notes how these pioneers have toned down their dot-com hopes and dreams.

"When CBS MarketWatch, Slate, and DoubleClick were founded, the respective founders believed that those companies would be the new AOLs, Googles, and Amazons of their respective fields," he told me via e-mail. "That didn't happen. They proved themselves superior to many other competing companies, but only by surviving the dot-com meltdown (and CBS and Microsoft were significant life-saviors to MarketWatch and Slate). The three firms now have some potential value, but not the hyperbolic potentials previously hoped -- not even now with online advertising on the rise."

Of course each of these properties has its own unique situation. MarketWatch runs a top financial news site with pay newsletters and its own upcoming wire service with Thomson Financial. Slate is a culture and politics zine owned by Microsoft and is a part of the software giant's MSN portal. DoubleClick was the premier online ad-serving company until it morphed into more of a technology company. And Wired News is part of the Lycos portal, which was recently bought by South Korean company Daum Communications.

So is this really a trend that they're all for sale now, or is it just a convenient theme for this week's column? Tolman Geffs confirms that these types of sales do come in bunches. Geffs is the former CEO of Internet Broadcasting Systems, a leading provider of local TV news sites, and is currently managing director of Jordan, Edmiston Group, a boutique media investment banking firm that deals with media buyouts and spinoffs.

"It's normal to see transactions come in waves, and we're coming off a two-year period where folks were afraid to both buy and sell," Geffs told me. "Buyers were once bitten, twice shy, and sellers were afraid of doing something in a down market. And now it's the opposite, with buyers refocused on the imperative of growth -- and it's very difficult to get the double-digit growth that Wall Street desires without doing acquisitions."

MarketWatch going, Slate gone

CBS MarketWatch has been aggressive in courting advertisers with full-page rich media advertisements that greet visitors on their first visit each day. That helped the company see huge growth in revenues in the third quarter, rising 71 percent to $19.8 million. The free site caters to more downscale investors, which brought some ridicule from rival Dow Jones when it ran ads for Wall Street Journal Online that mocked CBS MarketWatch as "Biz-O-Rama."

Now, wouldn't you know, Dow Jones is one of the leading bidders to buy MarketWatch, because Dow is looking for a downscale addition (read: free) to its flagship pay site, WSJ.com. Also in the hunt: The New York Times Co., Viacom -- which already owns 22 percent of MarketWatch -- and Yahoo.

Due to non-disclosure agreements, the usually gregarious MarketWatch founder and CEO Larry Kramer was at a loss for publishable words when I queried him for the story, only noting that "there is an important trend here, which has to do with the maturing of existing media companies."

While The New York Times' Andrew Ross Sorkin broke the story about MarketWatch's possible sale, Sorkin framed the sale as being initiated by MarketWatch so that Kramer would get "another rich payday." While Kramer couldn't confirm anything about the sale process, he did hint that it was an outside bid that started the ball rolling.

"What I did tell our staff was that we didn't, and don't, have to sell the company," Kramer said via e-mail. "We are in terrific shape with lots of cash and two years of positive cash flow. And, I told them I didn't start anything by shopping the company. On the other hand, when anyone serious expresses serious interest, as a public company we have to pay attention."

No matter the goings-on behind the scenes, Geffs thinks that -- while MarketWatch's value is on the rise -- the time is right to sell.

"MarketWatch is a fabulous franchise, very good bundle of services, very good management," Geffs said. "They are looking forward and seeing a situation where competition is going to get tougher and growth is going to get harder -- and that's a good time to sell ... Larry Kramer is a very smart guy. The time to sell a business is when you still have growth for 18 months. The time you don't want to sell is if your growth is stalled."

Slate, meanwhile, has said in the past that it was near profitability, though Microsoft doesn't break out its results. Microsoft management decided to explore a possible sale but only if it could find the right buyer who would invest in the online magazine. New York magazine reported that the Washington Post Co. was close to buying Slate and the Seattle Times confirmed that possibility.

Scott Moore, general manager of the MSN network experience, couldn't talk about a specific buyer, but as for the deal, he told me, "We're there ... things have progressed quite a good ways." He said a deal would likely be announced by the end of the year.

So why did Bill Gates and Co. stick by Slate for so many money-losing years -- eight -- only to bounce it out right when things were going well? Microsoft long ago gave up its boom-era idea of becoming a major player in original journalism. The realization hit that MSN would be better off focusing on different types of content, according to Moore.

"When it comes down to it, owning and operating a magazine about culture and politics is not necessarily core to MSN's strategy going forward," Moore said. "At MSN we came to the conclusion that it wasn't necessary to own Slate, and we would be just as happy to have somebody else own it who might have more of an affinity for the product."

One thing that won't change is the promotional relationship between MSN and Slate, which has helped build the latter's audience with the portal's firehose of traffic. Moore says the new buyer must continue Slate's tradition of journalistic excellence and will retain some ties with MSN -- while perhaps sharing more of its content (e.g. MSN might get more Washington Post content, if the Post is indeed the buyer).

Losing independents?

So perhaps it's a bit of a bull market for Web-only content, but not everyone is thrilled with the coming buyouts. David Talbot, founder and CEO of Salon.com, has battled for 10 hard years to keep his independent news site afloat. As a refugee from the world of traditional journalism, Talbot is saddened that competing sites will lose some of their independence from the herd.

"My goal and the goal of the hundreds of other publishers who jumped on Internet publishing in its pioneering days was that we were doing something different and building a new medium that was going to be more freewheeling and more democratic and more spirited than the traditional media business," Talbot said. "Unfortunately most of those visionaries crashed and burned. And Salon is one of the only national independent news sites left ... I'm a little bit dismayed that independent news companies have such a hard time on their own."

Talbot does admit that in its darkest days, Salon did consider a couple buyout bids from media companies, though he is happy they didn't work out. As a public company, Salon has to consider buyouts as its responsibility to shareholders. Of course, now that the light is finally shining from the end of the tunnel, Talbot says that Salon might well hear from interested media companies in the months ahead.

"We're on the verge of announcing our best quarter ever," said Talbot. "Our subscriptions are soaring, for the obvious reasons: [Liberals are] fired up from the elections and they want a stronger voice in the news." Talbot says Salon has surpassed 90,000 paid subscribers, and it also has brought in ad revenues with an innovative "Day Pass" program where non-subscribers get access by watching a long, multi-screen ad.

User-generated revolution

So with the old guard getting picked off, what's next for independent outlets online? A raft of citizen media sites and bloggers might well fit the bill. Talbot says that Salon is looking hard at bloggers as the next great talent pool of writers.

"Salon and any enterprising company has to look where all the voices are coming from to drive you in the future," he said. "We need to find a way to incorporate the best of them. Like everything, there's the good, bad and ugly, and we want to discriminate when picking them."

MSN's Moore also noted that user-generated content was the most interesting area for the future. He floated some ideas of ways that MSN might work closer with bloggers in the future without necessarily buying them out.

"If you're a blogger, MSN might come to you and say, 'We want to distribute you. We'll send you traffic and we want you to run these ads on your site, and you'll get a share of revenues on that,'" Moore said. "That's probably an offer that many bloggers are going to be interested in because they don't want to have to invest in creating that kind of infrastructure, and they would value the traffic."

So while Microsoft is selling Slate, it might also be looking to improve upon the blogging business model of BlogAds (serving ads into blogs) and Weblogs Inc. (sharing revenues with hosted blogs).

For these new outlets, there's still a long way to broad maturity, advertiser acceptance, profitability and the possibility that they, too, will be takeover targets. And for the older outlets, it's not exactly a flashback to dot-com boom days but a sign of belated financial stability.

As Vin Crosbie put it: "It's not so much a trend as merely the dawn after a long, hard night."

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Vin Crosbie: president of Digital Deliverance and consultant

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Tolman Geffs: former CEO of Internet Broadcasting Systems; currently managing director of Jordan, Edmiston Group

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Larry Kramer: MarketWatch founder and CEO

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Scott Moore: general manager of the MSN network

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