Is CNET the Right Fit for CBS?

With its $1.8 billion acquisition of CNET Networks (NASDAQ: CNET) announced this morning, venerable broadcaster CBS (NYSE: CBS) took a big step forward in its effort to bulk up its Web presence.

Even though CBS is paying a 44.6 percent premium for CNET, some analysts still think it is a shrewd move for an old-line broadcaster that has been relatively slow in forging an online identity.

“We believe CNET represents a good acquisition for CBS because it stands as the largest independent Internet content network in the world,” Stanford analyst Clayton Moran wrote in a research note. “By acquiring CNET, CBS will more than double Internet revenue and advertising inventory. CNET also brings a dedicated online sales force and online advertising technology to CBS.”

Moran also noted that the acquisition could be an indication of a coming wave of consolidation among Internet advertising players, particularly when viewed in the context of Microsoft’s recently abandoned bid for Yahoo (NASDAQ: YHOO). Other potential acquisition targets include SourceForge (NASDAQ: LNUX), The Knot (NASDAQ: KNOT) and ValueClick (NASDAQ: VCLK).

Advertising, of course, provides the overwhelming share of CNET’s revenue. CNET, which ranked No. 17 on ComScore’s (NASDAQ: SCOR) latest list of the most popular Web sites in the United States with 32.4 million unique monthly visitors, is a profitable company, though its margins are slim. The sour macroeconomic climate — whether it’s officially a recession or not — also casts some doubt on the immediate growth prospects for the company.

It has also been under duress from activist investors led by Jana Partners, the hedge fund that has been agitating for a shakeup in the company’s board. If the deal goes through, that headache will be a memory for CNET. Jana declined to comment for this story.

While the two companies pointed to the advertising opportunities that should follow from creating an expanded content network, some deal watchers are skeptical about how real the synergies are.

“We do not see a strategic fit in this combination other than CBS is trying to increase its exposure to the Internet,” Jefferies & Company analyst Andy Baker wrote in a research note.

CBS, after all, has its biggest footprint on the Web with news and sports content. CNET’s strongest suit is technology news and product reviews.

While CNET has been expanding its content into more mainstream verticals such as the lifestyle sites Chowhead and Urban Baby, the reach of those sites has been limited. From a branding perspective, it is unclear how well CNET’s core competency will mesh with CBS.

CNET has relaunched its TV content, though on a scale that is a faint echo from what the company offered in the dot-com heyday of the late-1990’s. CBS also has a spotty history with its Web strategy.

“As the former co-owner of MarketWatch, which it sold to Dow Jones in 2005, CBS does not have a great track record in exploiting a targeted tech content property,” Gartner (NYSE: IT) analyst Alan Weiner noted in a blog post.

“With much of its recent online efforts focused on streaming TV content via its audience network and social network partners, CBS will need to carefully build out a plan that allows CNET to retain its brand promise yet capitalize on the network’s resources.”

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