By Martha Graybow
NEW YORK (Reuters) - Newspaper publishers, often seen as stodgy and
slow-growing, will pay whatever it takes to grab a bigger piece of the
fast-growing online advertising market -- if two recent deals are any
The New York Times Co.'s purchase of About.com, announced on Thursday,
and Dow Jones & Co. Inc.'s Inc. have raised eyebrows because the deals
are much more richly valued than traditional newspaper acquisitions.
But analysts say the prices may be what newspaper companies must pay
if they want to bulk up their Internet operations. Because few
Internet content companies are for sale, they say, publishers are
jumping on what they can find.
"Internet valuations are back in a big way," said Morgan Stanley
analyst Douglas Arthur. "There are not that many properties out there
that have survived through the bubble still intact, with a reasonable
business model and good share of traffic on the Web, and apparently,
they are going to go for a big price."
Analysts say The New York Times, which is buying About.com from
magazine publisher Primedia Inc., is paying a hefty price for the
consumer-focused Web site by virtually any measure.
Primedia is getting 30 times About.com's 2004 earnings before
interest, taxes, depreciation and amortization, a key industry measure
known as EBITDA. The New York Times said that multiple falls to 23
based on 2005 projections of financial results.
In contrast, newspaper chain Lee Enterprises Inc. recently agreed to
pay about 13.5 times EBITDA in its $1.4 billion buyout of Pulitzer
Inc., one of the biggest newspaper deals in recent years.
But the Internet also is growing much more quickly than newspapers,
which have been mired in an ad slump over the last several years and
are struggling with declines in readership.
The Internet is the fastest-growing advertising outlet, even though
the dollars are minuscule compared with other big media like
television and newspapers.
In other recent deals, The Washington Post Co. recently bought Web
magazine Slate from Microsoft Corp. to get more online readers and
ads. The company did not disclose the purchase price, which some have
estimated at less than $20 million.
More deals are expected. Possible targets include financial news site
TheStreet.com which recently hired bankers to consider options that
include a sale.
Ryan Jacob, portfolio manager of the $70 million Jacob Internet Fund,
said other attractive companies that could be eyed as acquisitions
include CNET Networks Inc. which operates a technology news site, and
women-oriented iVillage Inc.
CNET and iVillage appeal to advertisers because they target very
specific audiences, said Jacob, whose fund owns small stakes in both.
Analysts say that while premium Internet companies may be commanding
high prices, newspaper chains also must prove to investors that these
deals pay off.
The About.com agreement is "a major 'show me story'" for The New York
Times, Credit Suisse First Boston analyst William Drewry said in a
research report to clients.
Debt rating service Standard & Poor's on Friday changed its outlook on
The New York Times to negative from stable, citing the About.com
deal. A negative outlook indicates there is a greater chance of a
rating downgrade over the next two years, which could raise borrowing
New York Times stock closed down $1.05 at $37.20, while
Primedia shares gained 15 cents to $4.20, both on the New York
Copyright 2005 Reuters Limited.
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