The deal values CNet at $11.50 per share, a 45% premium over its closing price yesterday, and unites two content companies -- one trying to figure out how it can make its broadcast-TV business model relevant in the digital space and the other a web pioneer facing a swath of new online competition from companies small and independent as well as big and established.
CNet is primarily known as a tech-news company, and its acquisition comes at a time when TV networks are trying to figure out the future of network news. It is also one of the few large-scale internet companies that have been in play recently. CBS said that with CNet, it can generate as much as $1 billion in online revenue by 2010.
CBS said the deal will make it a top-10 internet property with 54 million unduplicated unique visitors per month, between its web properties and CNet's. On its own, CNet ranked No. 16, with 34.5 million unique visitors in March, and CBS was No. 24, with 28.6 million, according to ComScore.
In an interview, CNet CEO Neil Ashe called out a specific strength: "We will have the most attractive men's and probably the largest men's network online and anywhere," he said.
CNet's assets include its flagship technology-news site, News.com; digital-music and technology-news site MP3.com; foodie news and message-board site Chowhound; business-news site BNet; news forum ZDNet; gaming-news site GameSpot; TV-news site TV.com; and a host of other potentially valuable URLs including Radio.com, Marketplace.com, Kids.com and Search.com.
"I happen to believe a vertical approach to news online is the only way to get things done," said Quincy Smith, president of CBS Interactive. He said content would definitely "flow both ways" between CNet and CBS. He also said CBS would get better at aggregating its assets across celebrity news, including "Entertainment Tonight," "Insider" and DotSpotter. "TMZ can't be the only game in town," he said.
Mr. Ashe was quick to say CNet wouldn't forsake tech news, the category for which it is known. Neither executive would share how much CNet content may be integrated into CBS's on-air news programming, but they said there are definitely opportunities, and they will work to take advantage of the "massive amount of eyeballs that both companies have," Mr. Smith said. However, the deal is not expected to yield dramatic changes.
"This isn't the revolution in the future of network news that everyone's been waiting for but a logical efficient extension of CBS's online ad reach," said Sarah Rotman Epps, an analyst with Forrester Research.
The two companies will aim to expand their ad revenue by maximizing categories in which one may be strong and the other poor. CBS, for example, touted its strength in the automotive, retail, financial-services and pharmaceutical ad categories. CNet, meanwhile, has many consumer-electronics and gaming advertisers. "We've got great nonoverlap there," Mr. Smith said.
This is the biggest internet deal CBS has made; the company brought on former investment banker Quincy Smith to help lead its charge into digital a year and a half ago as president of CBS Interactive. At the time, the company's message was that Mr. Smith would work to identify companies in their early stages; he would find the next YouTube before it blew up into a company that was worth $1.6 billion. CNet, however, is a decidedly older Silicon Valley company, founded in 1993, and is worth more than YouTube was at the time Google snapped it up.
"My charter is to make sure we're involved in all conversations of any size," Mr. Smith said. "In CNet you've got a massive opportunity of a platform from which to buy more." When asked if that means he's interested in smaller tuck-in acquisitions to add to what CBS is acquiring with CNet, he said: "More so than ever."
There are natural synergies to the deal -- CBS can bulk up the video and entertainment content on TV.com; integrate MP3.com with an earlier acquisition, Last.fm; and find better use for Radio.com with its CBS Radio assets. But several financial and industry analysts suggest the company may have overpaid for CNet's assets.
Citi analyst Jason Bazinet hailed the deal as a bid for traffic but with high pricing risk. "We suspect CBS is trying to build a more formidable presence on the web," he wrote. "But a key CBS challenge will be sustaining premium CPMs. We estimate CNET generated about $12 per thousand page views in 2007, well above rivals."