The mad rush to get online

Michael Hedges May 18, 2008

The riotous charge into online, web-based media has broadcasters and publishers falling all over themselves. Actually, they are falling all over the bags of money necessary to change strategies. Those strategies are getting smarter.

Major Polish media house Agora signed a deal (May 14) to buy classified advertising portal Trader.com. Agora’s new CEO Marek Sowa  announced, on taking the job in September 2007, he’d be aggressive in bolstering the company’s online business. For this, Agora agreed to pay €35.3 million (PLN 119.5 million US$ 54.3 million).

Norway’s giant media company Schibsted added (May 16) Belgian classified ad portal Kazapa.be to its subsidiary Schibsted Classified Media (SCM) for €20.25 million (US$ 31.3 million). SCM was formed in 2006 when Schibsted bought Trader Classified Media’s western European and Latin American business, now operating in ten countries with both websites and publications. That deal cost Schibsted €580 million.

Trader Classified Media’s eastern European business became Trader Media East (TME) and was bought by Turkey’s biggest media house Dogan Media Group, which placed it under the arm of publisher Hurriyet. TME sold Trader.com, the Polish business, to Agora, referring to the transaction as a “disposal.”

The other big deal involving online acquisitions by big media companies was last weeks’ purchase by US broadcaster CBS of CNET for €1.15 billion (US$ 1.8 billion). CNET operates several sites including News.com and TV.com.

CNET has 1000 employees. Kazapa.be has 5. Wall Street immediately punished CBS’s shares.

What sets these deals apart from other recent Web business purchases is strategy and fit. These big media houses are buying into ‘old’ new media; content-rich, proven traffic with cash-flow. There is a distinct lack of interest in ‘new’ new media – Web 2.0 – sites characterized by social networking and user-generated content. News Corp’s big deal for MySpace is still in the ‘promising’ stage, like Facebook and a plethora of others.

Agora CEO Marek Sowa’s decision to add Trader.com to the company’s portfolio is in line with a broader and identifiable strategy “…to become a leader in the largest and the fastest growing classified categories.” That means, in Poland, real estate and automotives. Based on Agora’s figures from its statement on the trader.com acquisition the three year compound annual growth rate (CAGR) for online advertising in the real estate sector, display and classifieds, is 33% and automotives 17%. Trader.com offers four classified ad Web portals and six printed classified ad publications in Poland, the Web portals providing more than half the company’s revenue.

All media sectors in Poland showed double-digit ad revenue growth in the first quarter of this year, according to details provided by Agora. Taken in aggregate, the Polish ad market grew about 16%, year on year, in the first quarter 2008. Online advertising, no surprise, grew about 39% to PLN 87 million (€ 26 million) or 5.3% of all ad spending. Outdoor advertising grew by 26%.

Advertising in Poland is in demand. As the gross domestic product (GDP) rate continues to climb advertisers are falling all over themselves to get a message in front of consumers. Television still gets the biggest part of the media buyers’ attention – about 48% in 2007. TV spending growth, however, is at market average. Prime time spot inventory on the four primary television channels was 89% in the first quarter 2008. Newspapers, Agora’s main business so far, benefited from the lack of available television spot inventory, and so did online advertising, and so did outdoor advertising, and so did radio advertising.

Earlier this year Agora released full year projections for 2008 ad spending. They were looking at 10% to 11% growth for the entire Polish media market. And that forecast was generally in line with the ‘too hot not to cool down’ projections for consumer and advertising markets in all of the new EU Member states. HA!

Then came the first quarter 2008 figures showing 16% growth in a quarter that is traditionally the slowest for ad spending and consumer buying.  “Regardless of higher-than-expected growth of total advertising spending in the first quarter of 2008,” said the Agora statement, “as of the date of this report, the company maintains its estimates on total ad spending growth in 2008. Possible verification of those estimates will depend on the company’s analysis of the market trends in the second quarter of 2008.”  

In other words: the Polish media market continues to rock on. Naturally, Polish stock traders punished both Agora’s shares and television broadcaster TVN last week. The rest of us learned years ago that stock traders’ insight and business strategies do not necessarily coincide.

So why, oh why, did TME/Hurriyet/Dogan Media want to ‘dispose’ of Trader.com in Poland when all indications are not just positive but wildly so?

“TME's strategy is to be the leader in every country and every segment it operates,” said TME/Hurriyet spokesperson Suzi Apalaci in an email. “In most the countries that it operates, TME is the market leader, but in countries where we don't have the market leadership, we look for acquisition opportunities. Furthermore, we could also expand to other countries in online and print businesses where there is high growth, high margin potential.”

TME exited Poland with the sale of Trader.com to Agora because it had no good expansion targets there, most already held by the biggest media companies. The 17% to 20% market share wasn’t big enough and expansion through acquisition not possible. Less noted in the transaction details was TME keeping its hold on the technical support company associated with Trader.com.

In a traders note TME said the transaction will allow it to reduce its debt by about half and proceed with organic expansion in Hungary, Croatia, Slovenia, the CIS and “especially Russia.”

The deal works for Agora, providing needed online presence and ad space inventory. The deal works for TME/Hurriyet, focusing its attention on high growth markets. Everybody likes win-win deals.

But the TME/Hurriyet sale of Trader.com to Agora has an even bigger picture on the financial side. Dogan Media Group, TME and Hurriyet’s owner, seems to be stepping into the rarified air of providing all the resources usually found at private equity firms. As the traditional global PEs shun media deals for the higher promised yields of higher speculation, there is enormous value for an experienced multi-media company to leverage its money.