Markets & Finance

Blogs: The Next Takeover Target?


They reach large, loyal audiences, they're fairly cheap to run, and they can be lucrative. Media companies have their checkbooks ready

From Standard & Poor's Equity ResearchFrom Standard & Poor's investing newsletter The Outlook

First came social networks. Then virtual worlds. Now blogs are dazzling the eyes of major media publishers as the next takeover targets.

Blogs—especially the big-name brands such as TechCrunch, Gawker, GigaOm, Boing Boing, and the Huffington Post—appear to have attractive business models. This is good news for traditional media companies that are being marginalized online and off, and are hoping to catch up to—and cash in on—a rapidly evolving Web 2.0 world.

That blogs—which generally provide continuously updated commentary on a particular subject, such as politics, economics, local news, or entertainment—are gaining acceptance by old media companies reflects their acknowledgement that Internet users would rather participate in the news than simply consume it. In addition, blogs are typically aimed at a niche audience; and each, with its own particular voice and point of view, develops a "community" of readers, and increases the potential for targeted advertising.

So it's not surprising that blogs are growing at breakneck speed. As of September, 2007, blog tracker Technorati indexed more than 106 million blogs, 12 million more than in the previous month. Technology blog Boing Boing has become one of the five most visited blogs on the Web with monthly traffic of about 7.5 million page views, according to comScore (SCOR), an Internet marketing research firm. Technorati ranked Boing Boing as its No. 1 blog, as measured by the number of people who have made it their favorite. In comparison, the total audience of the print version of Wired, a technology magazine, was 1.9 million as of June, 2007.

Traditional Media on the Bandwagon

What does this mean for the big media companies? Any new information source is considered a competitor, and old media is increasingly in cahoots with bloggers to share readership and ad revenues. Newspapers, for example, have recently looked to the blogosphere for a larger audience. In early August, 2007, The New York Times joined with the authors of the Freakonomics blog, which comments on economic thinking in everyday situations, and moved it under the Times brand's online and editorial umbrellas. The blog's co-author, Stephen Dubner, saw the partnership as an opportunity to work with a renowned newspaper and garner "the readership and support that comes along with it."

Other traditional media companies are also taking part in the blogosphere. The Houston Chronicle recruited 50 reader-bloggers whose commentary appears on its site. The Washington Post provides a blog roll to its site which includes a directory of links to blogs that specialize in technology, health, and entertainment, among other things. And in 2006, Conde Nast, owner of Wired and other magazines and Web sites, acquired Boston's Reddit, a social news site.

Standard & Poor's equity analyst Jim Peters believes that although newspaper publishers already have a significant Web presence, incorporating blogs makes their overall media offerings more encompassing and attractive. This is particularly true for younger generations, who are less likely than their parents to use traditional media for their information needs.

Big Traffic Drivers

"I see this as part of an overall trend toward complementing the way news is formally reported, not as a replacement," says Peters. "It fits right in with the goal of establishing a closer connection with the reader regardless of how, and in what tone of voice, they wish to be engaged."

S&P equity analyst Tuna Amobi agrees that traditional media companies seem to be recognizing the potential usefulness of blogs in driving increased traffic and engagement to their sites, but he notes there are risks, including brand dilution and negative publicity. Though he expects larger media companies to consider relatively small acquisitions of blogging sites that could potentially leverage their core media and entertainment brands, he thinks more effort will be devoted to the launch of internal offerings at minimal incremental costs.

Companies across the Internet segment—CNET (CNET), Google (GOOG), IAC/InterActiveCorp (IACI), and Yahoo! (YHOO)—are also likely to be interested in pursuing blog-related opportunities via content, advertising, and tools, says Scott Kessler, an S&P equity analyst. In June, the Huffington Post, an online news and commentary site and aggregated blog, announced a strategic advertising alliance with IAC Advertising Solutions, which will be the exclusive national sales force for the site's online advertising inventory.

Corporate-Branding the Blogs?

On Oct. 7, MSNBC Interactive News, a Microsoft (MSFT) and NBC Universal (GE) joint venture, announced that it purchased Newsvine, a small Seattle startup that focuses on citizen journalism. Newsvine, which attracts about 1 million people, allows visitors to read and comment on news stories from mainstream media outlets. MSNBC Interactive News, with 27.3 million Web visitors as of August, 2007, hopes the acquisition will attract an audience of highly engaged news readers.

With traditional media companies generally wrestling with the issues of making money from new media initiatives, Amobi views the blogging phenomenon as more of a longer-term proposition for them, perhaps with a more near-term focus on social networking. One other long-term trend that Amobi sees is the increasing association of mainstream advertisers with popular blogs, which could help to create potential brand affinity with consumers. Amobi thinks this means more resources are being devoted to new media advertising spending.


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