Friday, May 16, 2008

According to today's Wall Street Journal CBS has made a $1.8 billion dollar offer for CNET Networks Inc., which is 22 times earnings! CBS apparently has issued this offer as a way to boost its own sagging earnings by generating Internet buzz.

This is very sad on multiple levels. First, while many may like CNET it is a generic site on technology news. It doesn't really have anything terribly unique about it. There are plenty of other sites that offer similar information and news. While there is value in the domain name, traffic, and current content I don't think that it is worth 22 times earnings.

The only reason the domain name is worth anything and it gets any traffic is because of the content. Unfortunately because most of the content is about technology it has a very short shelf life and quickly becomes outdated. If you did nothing to update it the domain and traffic would quickly lose any value. Therefore it is up to CBS to continually add to content and remove outdated stuff.

Why do I point out the obvious? Because CBS is a news organization! They find and develop information everyday. Why in the world don't they simply start a new site on this topic, create their own content and build it up into a high traffic site with some brand value?

Instead they will pay 22 times earnings for something that is deteriorating in value as they are signing the contract. I work with new businesses all the time that start new web based businesses and build up the content from scratch and eventually have the traffic, value, and earnings they want. Sure, this approach takes a little longer, but it also doesn't cost 1.8 billion dollars!

This just looks like a dumb business decision with too many people not questioning the "why" of the decision before they plunge headlong into actually executing it. I would never advise my clients to do this. I wonder if the story of what a dumb decision this will turn out to be is going to appear on their nightly news.

Michael Temple