Primedia's value crashed after it paid too much for the Web site in 2000. And when Primedia decided to rid itself of About, The New York Times Co. agreed to pony up a hefty $410 million. The reward: Its already-depressed stock drooped to a four-year low.
Which raises the question of why the Times, under pressure to grow its revenue and market value, would pay so much for so little.
About is a second-tier property and an unlikely strategic fit for the high-brow Times. About runs a hodgepodge of sites hosted by experts who expound on topics from sex to stocks to UFOs and aliens.
"This is a major `show me' story," said Credit Suisse First Boston's William B. Drewry.
There is a chance the Times will do just that. About is a scaled-back but rebounding business in a surging Internet market. Its revenue doubled last year to $40 million, with more than half the total coming from the booming area of paid search. Advertisers buy keywords on About sites through Google under a revenue-sharing arrangement.
Martin Nisenholtz, newly promoted to the Times Co.'s senior VP-digital operations, acknowledged the mixed quality of About's enthusiast sites. But he said About brings Internet expertise and new revenue streams.
"It significantly diversifies our revenue base," he said.
With revenue just 1% of the Times Co. total, About won't turn the ship. Deutsche Bank Securities' Paul Ginocchio noted the deal only brings online revenue to about 4% of Times Co.'s overall revenue. "While that's a good move, paying $400 million to go from 3% to 4% means you've got to spend a lot more to get where they need to be."
With the opportunity for long-term growth in newspapers limited, the Internet is the hope. Mr. Drewry said it's "mission critical" for newspapers to get bigger on the Net. But there aren't many Internet ad plays up for grabs. It's not as if the Times, with a market cap of $5.4 billion, is in any position to buy Yahoo, valued at $43 billion.
Dow Jones & Co. beat the Times on a $528 million deal to buy financial site MarketWatch. So the Times Co. bought what was left and what it could afford, paying a hefty 30 times 2004 earnings before interest, taxes, depreciation and amortization for About. "At the end of the day they bought a decent business at a relatively high price," said SC Cowen analyst James Marsh.
About has broad reach, and can target niches, said Jeff Lanctot, VP-media at Avenue A/ Razorfish. At Aegis' Carat Interactive, Director of Planning Greg Smith said his 42 clients "may not all be appropriate for the Times, but they are all in some way appropriate for About.com."
The sale is good news for Primedia. It struck a stock deal to buy About in October 2000 as the Internet and ad market hit the wall. The stock value fell from $686 million when the deal was announced to $427 million when it closed four years ago today. That stock was worth $182 million the day Primedia sold About to the Times-for $410 million cash.
contributing: jon fine, kris oser