Sarah Lacy: Carl Icahn and Yahoo aren't the only thing happening in tech news today. CBS has bought CNET for $1.8 billion. Here to talk to me about it is my colleague, Aaron Tast at the NASDAQ. Aaron, what's the buzz on Wall Street about this? Is it - could they have overpaid?
Aaron Tast: Well, they're paying a hefty premium. I mean, CNET stock has not traded over $10 a share for over two years. They're in the midst of a proxy fight with Jana Partners, and Les Moonves and CBS are coming in and dropping a 44% premium where the stock was trading and $1.8 billion. It seems - and this is a quote from Les Moonves' interview with PaidContent.org. He says, "We like their assets. We like the combination of them and CBS, the ability with these premium-branded sites on both sides to be working together and form this terrific group." So my question for you is from a content perspective; what is CBS getting here?
Sarah Lacy: Well, you know, content is the one thing that's pretty good at CNET. You know, they really have the go-to gadget site. They've got news.com, which is also a news site. They've got GameSpot. They've got several really nice assets in their portfolio. And beyond that, one thing not a lot of people have pointed out - they own a lot of really potentially lucrative domain names. They have kids.com, which you can see CBS doing something with. They have search.com; they have mp3.com. So, maybe that's part of this deal, too. But, you know, the problem with CNET has never been content. The problem with CNET has been financials. I mean, they're trapped in the middle, where blogs are more nimble and are really starting to eat into them and can do a better job and subsist on a much lower revenue basis. So, you have advertisers who can pay less to reach about the same base. And then, you have papers and magazines, and CNET doesn't have hard printing costs, but has a lot of high tech costs and a lot of high staff costs. So --
Aaron Tast: Right, they've got huge overhead and they've started to lay off people. But, Jana Partners, who is the activist shareholder and owns about 10% of CNET stock has been agitating that they just don't get Web 2.0; that they're stuck in sort of the Web 1.0 mentality. And the thing that concerned me was Quincy Smith, who is head of CBS's online division, had some quotes in their press release talking about the verticals that they're going to generate out of this. And it seems like CBS is also stuck in that Web 1.0 mentality that premium content is great and the brands are great, but as we've seen in recent years with Facebook and many other Web 2.0 sites is that you can start from nothing in the Web 2.0 and become very big, very quickly.
Sarah Lacy: Right. I think the concern is Quincy's been really aggressive and he's been going out and making a lot of deals and actually trying to do something, so give him credit for that over some other old media companies. But, is he assembling some sort of Frankenstein-like Web 1.0/2.0 hybrid between Last.fm, Wallstrip, CNET - all properties that some people would argue he's overpaid for - does this eventually look like an IAC of content that doesn't really have a lot of cynergy or make sense?
Aaron Tast: Well, obviously the folks at CBS will tell you that they're going to have tremendous cynergies out of this. They're talking about generating revenues of $1 billion and above starting in 2010 and if they can pull that off, then I think ultimately people will say, no they didn't overpay, but you're right, I mean, Quincy Smith, they've done a lot of deals and to date it hasn't really paid off in giving CBS that huge footprint on the web, and I think Les Moonves and Quincy Smith think this is their deal that's going to get them to that next level.
Sarah Lacy: I mean, they do get size with this, you know, versus some of the other more fledgling, more innovative companies that they have acquired. This is going to make them the 10th most popular site on the internet. They're going to have 54 million uniques, 200 million users worldwide, combined. So, it does make them a player, which, if you're CBS and you're looking at what's happening with TiVo and TV advertising, there's an argument to be made that size does matter and you just need to have enough inventory to be a player in this market.
Aaron Tast: That's very true. And when you start looking at those numbers, you might think maybe CBS is getting a good deal at $1.8 billion.
Sarah Lacy: I wouldn't go that far.
Aaron Tast: If they can execute - if they can execute - if everything - if all the cynergies line up just as well as the say they are. And, to your point, I think it's going to be very difficult for them to maximize all these sites as they think they can, but they have an opportunity here, and I think that's something they didn't have yesterday.
Sarah Lacy: Do you think they're going to take a hatchet to this company, though? I mean, what Jana really wanted was for some of these assets to be spun off, and they made the argument there was much more value in doing that. Obviously, CBS is going to have to cut some staff at the very least, I think.
Aaron Tast: Right. Well, I think that's been clear to a lot of people for a long time at CNET. They're staffing level is at 1,000 plus, which is just really too fat for the internet. There's no doubt about that. And, I think obviously CBS - that's one of the first things they're most likely to do. As to terms of spinning off the properties themselves, I think they think that's what they want; they want the properties - the URL's you just described - and they think they can make a go at it. And they're also talking about CNET's, you know, got a leg up in China and that obviously is the great new frontier.
Sarah Lacy: You know, I think looking at this - people always talk about Microsoft, Yahoo - should Microsoft just be buying a new player, like Facebook? I think you can make the same argument for buying something like TechCrunch. Should CBS have put this money towards buying some hotter, more profitable blogs, instead of this sort of old dinosaur?
Aaron Tast: That's a great question, and obviously I think the folks at Jana Partners might might have argued that yesterday, but not with a 44% premium, they're probably going to say, I think it's a great deal - we love this deal.
Sarah Lacy: Right. Not exactly what they were asking for in a breakup, but I'm sure they'll take it.
Aaron Tast: I think they're getting what they wanted.