The New York Times Co is stumping up $410m cash for Primedia's About.com. It says the combination of About.com's 22 million monthly users and its 13 million users will make it the world's 12th biggest company on the internet. It will cross-promote NYTimes products to About.com and intends to improve the content and visibility of its new baby.
Google, Times Warner, Yahoo! and Jeeves also reportedly expressed interest in buying About.com, which goes to show how paid-for search advertising has transformed the dotcom landscape.
While About.com is a net heavyweight in terms of readers, it is lightweight when it comes to advertising. The Street.com has truffled up some analysis from Bear Stearns which estimates that Primedia's online properties "amount to five per cent to six per cent of the company's revenue in its Enthusiast Media segment". Revenues in this category were $533m for the first nine months of the year.
So let's make a rough stab at full year revenues (which are announced at the end of February). For the purposes of this exercise we'll pencil in $730m sales for Primedia's Enthusiast Media division. Now let's assume that online revenues accounted for six per cent of turnover. That comes in at $43.8m. But don't forget that Primedia has other online properties as well as About.com - websites which accompany its many print publications. So it looks like NYTimes is paying as much as 10x revenues for About.com.
According to analysts polled by Reuters, Primedia is getting 30 times About.com's 2004 earnings before interest, taxes, depreciation and amortization. The financial industry calls this EBITDA: We prefer to call it EBS, or Earnings before Bad Stuff. The New York Times told the newswire that the multiple falls to 23 based on 2005 projections of financial results. This is pretty meaningless: without a handle on the bad stuff, there is no way of knowing how profitable About.com really is.
But let's take the NY Times Co at its word when says that About.com is highly profitable. The paid-for search advertising boom means that About.com is not exactly ex-growth: but it is a mature website, around since 1997, and seems very expensive every which way you cut it. In October 2000, About.com claimed 60 million readers a month for its compendium of guides supplying advice on everything from pregnancy and astrology to satellite communications and woodworking. If this figure was correct and the reader figures announced today are accurate, then About.com has lost 38 million readers a month in four and-a-bit years. Spectacular.
Worse, the 22 million readers currently claimed do not stick around too long. As the TheStreet.com's George Mannes says: "About.com's combination of high reach with low user involvement - a site that visitors might like to visit, but not for long - will pose a challenge to buyers interested in maximizing loyalty to the site." Quoting comScore, he notes that visitors to About.com "spent an average of 6.8 minutes on the site in January, compared with 25.2 minutes for Ask Jeeves visitors and 24.9 minutes for Viacom users. Visitors to Yahoo! spent 287 minutes on the site, while Time Warner visitors spent 331 minutes on related properties."
Readers staying around longer means more advertising inventory to sell. Which is why the NYT will need to invest in content. And if it is going to get a decent return on its $410m the NYT will also need to work About.com's existing page impressions harder than Primedia seemed to do.
Primedia appears to be scaling back its involvement in the internet. In October 2003, the magazines giant sold its Sprinks ad brokerage - a mini-Overture - to Google.
Primedia may be booking a paper loss on the NYTimes deal: it bought About.com for around $500m in shares in 2000. But $410m cash will ease any pain nicely. ®