IP Democracy: Strange Deals by CBS, Comcast: Should We Worry?

I overslept this morning only to awaken to the news that CBS is buying CNET for $1.8 billion. I had to rub the sleep out of my eyes twice before I realized that I wasn't dreaming.

What possible synergies could these two companies generate and why would CBS pay a 44% premium ($11.50/share when CNET closed yesterday at $7.95)? The once-mighty online powerhouse is under intense pressure from hot online start-ups including TechCrunch, Engadget and other more nimble tech information companies.

It's been for sale and been on the run for a long time. CNET announced in March it would lay off 120 employees as it lowered revenue forecasts for 2008. Plus, CBS is primarily a video entertainment company, with deep roots in the broadcast television (CBS, CW), cable (Showtime) and DVD (CBS Home Video) businesses. How does CBS benefit by buying a primarily text-based, aging online service?

I missed the conference call but fortunately Silicon Alley Insider has the live blog coverage of it.

Apparently CBS CEO Les Moonves thinks that CNET's revenue can be more than doubled to $1 billion by 2010 (CNET's 2007 revenues were $406 million) by using CBS' sales relationships and increased international expansion. And there was some talk about adding video entertainment to News.com, TV.com and generally expanding CBS' online footprint. It's "a great new distribution system," Moonves said.

This strange deal follows yesterday's announcement by Comcast that it will buy business-oriented online social networking service Plaxo for a reported $150 million to $170 million. Although Comcast is one of the top broadband service providers in the nation and the company is trying to rev up its online business through its Comcast Interactive Media arm, the deal seems like an unlikely alliance.

Plaxo is best known for its LinkedIn-like social networking platform for folks in the business world, which uses address book software to update and recruit new contacts. Comcast is aimed squarely at the mass consumer market (although it is increasingly trying to pitch its Internet and voice products to the enterprise market).

So why the Plaxo buy? Samuel Schwartz, EVP for strategy and development at Comcast says that "Comcast’s ambition is to make more and more content available to consumers across all platforms" and the social networking technology developed by Plaxo will help it boost content sharing across the web.

In other words, to paraphrase Les Moonves, Plaxo is "a great distribution system" for Comcast.

The most interesting thing about these two deals is that no one would have predicted them. Both CNET and Plaxo seem odd fits indeed for their respective entertainment giant acquirers. And the motivation behind both deals is to deliver unlikely online distribution outlets for video content.

Should we be worried about these odd deals? Is this a sign that CBS and Comcast don't know, exactly, how to build online businesses and are casting about to buy anything that might help, however unrelated to their core businesses?

It's true that neither acquisition makes much sense on the surface and might be dealmaking for dealmaking's sake. But it's also true that if CBS or Comcast want to continue to thrive and grow, they have to take radical steps to build up their Internet businesses and sometimes they might make missteps. These deals might not yield much for either company in the end, but at least CBS and Comcast are experimenting with new ways to survive as their old business models are threatened.

In the case of Comcast it's a cheap experiment. It's harder to say that for CBS's CNET deal. But both companies will learn something beyond their traditional comfort zones even if the acquisitions make no financial or strategic sense.

Update: An even stranger aspect to the CBS-CNET deal -- neither company gave the scoop to a CNET journalist. Larry Dignan found out by scanning the headlines. And Moonves' first interview was not with News.com but with...paidcontent.org? The CNET people have to be p*ssed, frightened and very busy polishing their resumes.

Posted by Cynthia Brumfield on May 15, 2008 9:48 AM to IP Democracy