RealTime IT News

Big Fish, Little Fish

With CNET's announcement Wednesday to acquire ZDNet and Ziff-Davis , it lays to rest a Ziff-Davis saga that began over a year ago. What once boasted status as the world's second largest technology-focused media firm has now ended its journey, but what a road to have traveled.

Once the publisher of over 80 magazines, including Yahoo! Internet Life, PC Magazine, and PC Week, brick-and-mortar Ziff-Davis got bit by the Internet bug. Eyeing dot-com riches and suffering from staggering debts, the media firm decided to sell off its offline assets in an effort to fold itself entirely into its online sibling, ZDNet.com. Trouble was, Ziff-Davis' new-fangled re-organization plan came about a year too late.

Listed on the NYSE in April 1998, Ziff-Davis' stock hit one peak, just shy of $30 per share, in conjunction with the IPO of its tracking stock, ZDNet.com. With a balance sheet more red than a sunburned tourist, the parent company hired on Morgan Stanley to explore strategic alternatives just two months after ZDNet's debut. Burning through nearly a billion dollars in 1999 after posting revenues of $700 million, ZD needed to change its modus operandi, fast.

What started out as a slow trickle of divestitures quickly mushroomed into a rampant selling off of assets. First to go was its ZD Market Intelligence unit last October, which was bought by Harte-Hanks for $106 million. In November, Ziff-Davis parted with two more of its smaller divisions, its 64% interest in ZDTV and its ZD Education unit. Paul Allen's Vulcan Ventures snatched up ZDTV for $205 million, while U.S. Equity Partners ponied up $172 million for its education division. But that was only the beginning.

Despite maintaining ownership of the two divisions that accounted for 90% of its revenues, its magazine publishing and trade show units, Ziff-Davis showed no qualms in throwing both onto the auction block. It sold its publishing division just last December to investment firm, Willis Stein & Partners, for $780 million in cash. That's one billion dollars less than ZD's largest shareholder, Tokyo-based Softbank, initially acquired it for back in 1996.

Plans were also hatched to spin off its conference division, which stages over 50 events annually, including the Vegas juggernaut, COMDEX, as Key3Media Group, in a $30 million IPO of its own sometime in the near future.

What ZD shell remained would be rolled into ZDNet, finalizing the painful reorganization plan once and for all; and, enable ZD to finally bear the dot-com fruit it had coveted for so long. Except for the fact that its carefully crafted restructuring wrapped up just as tech stocks took a kamikaze nosedive. While ZDNet had been trading steadily around the $30 range with ZD close to turning the corner, shares in April plummeted to $12 and never managed to recover. And that's where CNET comes in with its $1.6 billion land-grab.

Combined, the two online media outfits expect to garner an audience of 16.5 million users each month. Despite similar technology themed content, CNET officials claim the two Web networks have an audience overlap of a mere 25%. Considering the two run head-to-head in capturing tech-savvy eyeballs on the Net, with software reviews and IT-focused content, the boost in unique visitors for CNET is still difficult to nail down.

Regardless, ZDNet does sport a more widely recognized brand worldwide, which CNET will be able to tap into for its own branding purposes. While CNET is big in the U.S., it has only a limited presence in Asia and Europe. ZDNet, on the other hand, claims its global operations account for some 10% of revenue - a sizeable boost that's expected to bump the combined entity into the top 10 most trafficked Web properti