Primedia Jumps on The Online Bandwagon

In an old media/new media convergence play, magazine publisher Primedia Inc. plunked down about $690 million in stock to buy web portal About.com. The marriage of Primedia’s print properties and About.com is touted as likely to unleash synergies on both the new and the old media sides of the combined operation. “This deal creates the leading model for the integration of traditional and new media niche content and the resulting delivery of targeted marketing vehicles,” said Tom Rogers, CEO of Primedia. Primedia, which publishes titles that range from Soybean Digest to New York, is a company stitched together and controlled by buyout firm Kohlberg, Kravis, Roberts & Co. About a year ago, KKR installed former NBC executive Rogers to light a fire under the stock price of the publisher, and in the long-term, the About.com deal might do that. Short-term, however, the deal got a rocky reception from the stock market. On announcement day late last October, Primedia’s stock price dropped to a 52-week low before improving somewhat to close on the New York Stock Exchange at $11.41, down $3.81 from the previous day. About.com’s stock on Nasdaq was down after the announcement, hitting a 52-week low of $16. “Right now, the market doesn’t seem to respond well to non-Internet companies buying Internet properties,” says Robert Thornton, head of West Coast m&a at Deutsche Bank. Nevertheless, Rogers remains upbeat. “We’ll take some down days, now. But we’re convinced we did the right thing.” Comparisons to the America Online Inc./Time Warner Inc. deal are natural but misleading, one analyst notes. “Primedia and About.com are much more focused, they are both information providers to niche audiences, and their businesses are complementary,” says Michael Cibula, an Internet stock analyst at Robertson Stevens Inc. in San Francisco. The breadth and scope of AOL/Time Warner make it unique and not useful as a yardstick for smaller deals, he explains. Cibula says that content providers need to be multi-channel, and that Primedia “found a gem” in its acquisition of About.com. Merrill Lynch & Co. magazine industry analyst Ken Choi says he supports the rationale behind the deal. He adds that it may well be a prelude to platform-dependent media companies doing deals to transform themselves into platform-neutral ones, basically a variation on Cibula’s emphasis on the multi-channel nature of media companies as they seek to capture convergence. About.com, which is among the 10-most-visited web sites, aggregates content from partners to offer information to users. It attempts to stand out from competing web sites by giving its site a personal touch. Each section of the site is maintained by a human “guide.” Cibula even sees a silver lining in the weak advertising climate that has plagued Internet firms for the past two quarters. “It’s true that the soft ad market is affecting every Internet company. But because the Primedia/About.com deal creates a company that can deliver highly targeted customers in vertical categories, we think they are slightly less vulnerable to the current weakness in the flow of ad dollars.” The Robertson analyst thinks that the most visited sites, perhaps the top five or 10, will fare better in the competition for ad dollars than smaller competitors, a situation that should help About.com.