CNET Networks, Inc

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CNET Networks, Inc

150 Chestnut Street
San Francisco, California 94111
U.S.A.
Telephone: (415) 364-8000
Fax: (415) 395-9207
Web site: http://www.cnetcom

Public Company
Incorporated: 1992 as CNET, Inc.
Employees: 1,900
Sales: $285.8 million (2001)
Stock Exchanges: NASDAQ
Ticker Symbol: CNET
NAIC: 514191 On-Line Information Services

Founded in 1992 as an online source of technology-related news and information, CNET Networks, Inc. has expanded through acquisitions and alliances, as well as internally, to become a multimedia technology and e-commerce information source. Technology-minded professionals and consumers alike can access CNET’s informative content on the Internet, through broadcast and streaming media, and in print. CNET Networks owns two of the top Internet portals for technology news, information, and e-commerce services: CNET.com and ZDNet.com. It also owns TechRepublic, an online destination for IT professionals, and the online comparison-shopping site mySimon.com. Other online brands falling under the CNET Networks umbrella include Gamespot, an online source of computer games and gaming information; Download.com, a source for computer software; and News.com, an online source of technology news.

CNET’s ventures in broadcast media include streaming and broadcast radio programming as well as streaming broadband interviews and video product reviews. CNET Radio, which was formed in January 2000 in partnership with radio station owner AMFM Inc., was the first all-tech radio format in the United States. The company exited long-form television production in September 2001 when it ceased production of its “News.com” television show, which was shown every week on CNBC since 1999. The company’s video production unit, CNET Media Productions, planned to produce broadband product demonstrations and webcasts for business clients. The company also would continue producing streaming broadband interviews with technology executives for CNET Networks’ News.com web site and video product reviews for CNET.com.

CNET acquired the print magazine, Computer Shopper, as part of its acquisition of Ziff Davis Media Inc. and ZDNet in 2000. With a circulation of more than 500,000, Computer Shopper contains about 75 product reviews in each monthly issue, along with feature articles on buying technology products.

CNET Networks also is active in technology e-commerce, creating marketplaces that bring together buyers and sellers of technology products and services. Its Swiss affiliate, CNET Data Services (CDS), licenses access to its multilingual product database of more than 600,000 items to online computer retailers, resellers, distributors, wholesalers, and other sales channels. CNET Networks also operates CNET ChannelOnline, an online marketplace that is marketed as a subscription-based application service provider (ASP) platform. It is powered by the company’s CDS product catalog and provides access to detailed product descriptions and real-time pricing and availability from suppliers.

Developing Online Web Site and Cable TV Programs: 1992–95

CNET, Inc. was founded in 1992 in San Francisco by 27-year-old Halsey Minor, who was previously involved in investment banking and publishing. Minor obtained financial backing for the company from venture capital firm Tiger Management and its managing director, Shelby Bonnie. In 1993 Bonnie became CNET’s chief financial officer and chief operating officer. Minor was the firm’s chairman and CEO until March 2000, when Vice-Chairman Bonnie succeeded him as CEO, with Minor remaining as chairman. In 2001 Bonnie became CNET’s chairman and CEO, and Minor became chairman emeritus.

By 1994 CNET was in the process of launching a new cable network, CET: The Computer Network. Its first production was a show called “CET Central,” which ran for several hours each weekend. The start-up cable network received a significant investment from Microsoft cofounder Paul Allen in 1994, and in 1995 USA Networks became a minority investor. USA Networks subsequently agreed to show CET programming on its USA and Sci-Fi cable channels.

Kevin Wendle, an original member of the Fox Broadcasting team and an Emmy Award-winning producer, was hired as president of CET Networks. In 1995 the network was developing two shows in addition to “CET Central.” One was called “The Web” and focused on the Internet, and the other consisted of multimedia software and product reviews. CNET also launched a web site that was designed to be a leading source of information about computer technology and digital media. By mid-1995 CET Online had more than 43,000 registered users. Hewlett-Packard, IBM, and MCI were among the advertisers on CET Online, and the company had to create a separate department to support advertisers. After four months the number of CNET employees working on the web site grew from 6 to more than 85.

Creating More Online Resources: 1996–98

In 1996 CNET entered into a joint venture with E!Entertainment Television to create E!Online. At first E!Online was a web site that provided entertainment news. In 1997 E!Entertainment Television bought out CNET’s 50 percent interest in E!Online for $10 million.

Meanwhile, traffic at CNET’s web sites was increasing, due in part to the weekly airing of “CET Central” on the USA and Sci-Fi channels. CNET Online (www.cnet.com) was the company’s flagship site and was receiving nine million hits a day in mid-1996. It offered technology news, game reviews, technical support, bulletin boards, and product reviews. It also delivered streaming audio reviews and offered an online look at CET Central’s studio. Other web sites operated by CNET included Shareware.com, an archive with more than 170,000 free software titles, and Search.com, a portal that collected Internet search engine programs.

After CNET went public in 1996, the company decided to focus on the Internet as its principal media platform. It cut back on plans to operate a 24-hour cable TV channel, while developing three new cable TV programs. One was “TV.com,” which featured presidential son Ron Reagan as a correspondent. Another was “The Web,” in which young hosts discussed cool web sites. The third was called “The New Edge” and examined how technology was affecting our daily lives.

Newly launched web sites in 1996 included News.com, a source of technology news; Download.com, a library of software demo titles; and BuyDirect.com, a site that let users register, purchase, and download software. In 1997 CNET launched Snap! Online, an Internet portal designed to compete with America Online, which then had 12 million subscribers. Targeting novice Internet users, Snap! Online included a free CD-ROM tutorial. It also organized Internet content into channels for news, sports, entertainment, and other topics. In 1998 Snap! obtained a $5.9 million investment from NBC, which also gained an option to acquire a 60 percent interest in the web portal for an additional $38 million. Snap! subsequently became a component of NBCi, the network’s interactive business venture.

In mid-1998 CNET launched Shopper.com, a comparison-shopping site for computer and technology products. More than 60 participating computer retailers listed their products on Shopper.com. CNET then collected a fee from the retailers based on the “pay-per-click” advertising model. Shopper.com offered users a database of 100,000 products and one million prices.

CNET’s revenue in 1998 was $56.4 million, an increase of 69 percent over 1997 revenue of $33.6 million. Net income for 1998 was $2.6 million (later reclassified to $3 million), compared with a net loss of $24.7 million in 1997. At the end of 1998 CNET’s web sites were generating 8.2 million page views a day. The company’s multiple revenue sources led analysts to predict that CNET would remain profitable for the next several years.

Developing Brand Identity and E-Commerce: 1999

Throughout 1999 CNET added e-commerce capabilities through acquisitions. Following the acquisition of NetVentures Inc. and its ShopBuilder (www.shopbuilder.com) online store creation system for $12 million, CNET launched a store-hosting service for small and mid-sized merchants at www.store.com. The service helped resellers of unbranded computer systems build their own online stores and benefit from CNET’s marketing clout.

CNET also acquired KillerApp Corp. in March 1999 for $46 million. The company owned and operated KillerApp.com, an e-commerce web site that provided online comparison shopping services for computers and consumer electronics products.

Other acquisitions in 1999 included Sumo Inc., an Internet service directory that listed Internet service providers (ISPs) and web hosting services, for $29 million in stock, and Internet search firm SavvySearch Ltd. for $22 million. Both acquisitions improved CNET’s search engine capabilities.

Company Perspectives:

The Internet is the number-one source of technology information for IS/IT [information systems/information technology] professionals and business decision makers as they research and compare products, and make brand and purchase decisions. With its award-winning, world-class staff of technology editors, journalists and product reviewers, CNET Networks is the leading online provider of original technology content and services, including free, qualified and paid services that leverage the power of the Internet.

During 1999 CNET formed an alliance with America Online to provide it with online computer buying guides. As part of the alliance CNET paid $14.5 million for the exclusive right to provide co-branded computer buying guides on America Online and CompuServe for two and one-half years and to be the exclusive provider of free-to-download software on AOL.com. An agreement with RealNetworks resulted in Snap.com being used as a search tool to locate audio and video files by users of RealPlayer G2 and on all of RealNetworks’ sites.

CNET also increased its advertising and branding efforts in 1999. After beginning the year with an advertising budget for a national branding campaign estimated at $45 million, the company announced that it would spend $100 million on advertising to build CNET’s brand and make it synonymous with technology. Such a commitment meant that the company was putting growth before profits. The ensuing campaign featured the tagline: “CNET: The source for computers and technology.”

More Acquisitions, Mergers, and Alliances: 2000-2001

In March 2000 CNET, Inc. changed its name to CNET Networks, Inc. The company continued to be active in broadcast media, launching the weekly television program “News.com” on CNBC in the fall of 1999 as well as the CNET Investor Channel. In January 2000 CNET formed an alliance with radio station owner AMFM Inc. to create CNET Radio, the first all-tech radio format in the United States.

CNET made its largest acquisition to date in January 2000 when it acquired comparison-shopping site mySimon.com for $736 million in stock. MySimon.com was founded in April 1998 by Michael Yang and Yeogirl Yun and launched later in the year as a comparison shopping engine. After attempting to license its virtual learning agent (VLA) technology to web portals, mySimon.com refocused in 1999 to become a shopping destination. In mid-1999 the company launched a multimillion-dollar advertising campaign that featured a humorous character named Simon and the tagline, “The future of shopping is here.” Following the acquisition, mySimon.com added product reviews and recommendations as well as more product categories. In the fourth quarter of 2000 mySimon.com generated more than half of CNET Networks’ total leads to merchants, with more than half of those leads representing nontechnology products.

CNET Networks made an even larger acquisition in the second half of 2000 when it acquired Ziff Davis Media Inc. in a transaction valued at approximately $1.6 billion. The acquisition featured the merger of two leading technology portals, CNET and ZDNet. Following the acquisition CNET Networks became the eighth largest Internet property with 16.6 million unduplicated users, according to Media Metrix. In addition to gaining the web portal ZDNet.com, CNET also got Computer Shopper magazine, the SmartPlanet online service, and part ownership of Red Herring Communications. Japanese computer giant Softbank Corp., which owned half of Ziff Davis, owned 17 percent of the new company.

With an international presence in 25 countries, CNET Networks ranked among the top five international networks in terms of global footprint. In the fourth quarter of 2000 the company acquired the remaining interest in its joint venture with AsiaContent.com for $6 million to gain full ownership of seven CNET web sites in Asia. The company also formed a European sales network to improve cross-border marketing opportunities in nine European countries.

CNET’s acquisitions boosted its revenue in 2000 to $264 million, compared with $112.3 million for 1999. Acquisition costs and interest expense resulted in a net loss of $484 million for the year, compared with net income of $416.9 million in 1999.

Noting that an economic slowdown was affecting the technology market, CNET lowered its revenue forecast for 2001 as early as February and announced that it would lay off 190 employees, or about 10 percent of its workforce. In April the company announced that it would acquire TechRepublic, an online destination for IT professionals, from technology research firm Gartner, Inc. for $23 million. The acquisition of TechRepublic added 1.5 million registered IT professionals to CNET Networks’ base of 3.4 million professionals, which represented 66 percent of the IT professional market, according to Nielsen/NetRatings.

Reaching a broader audience of technology minded consumers, CNET teamed with Fortune magazine to co-produce two special issues of the magazine in 2001. Dubbed the Fortune/ CNET Technology Review, the June and November 2001 issues of Fortune and a related web site (www.fortune.cnet.com) provided a comprehensive technology resource that combined product reviews and information with articles about business trends and technology applications.

Key Dates:

1992:: CNET, Inc. is founded by 27-year-old Halsey Minor as a source of technology information.
1994:: The company’s fledgling cable channel receives a significant investment from Microsoft cofounder Paul Allen.
1995:: USA Networks becomes a minority investor in CNET and shows its program, “CET Central,” on its USA and Sci-Fi cable channels.
1996:: CNET becomes a public company.
1997:: CNET introduces Snap! Online, an Internet portal and search service.
1999:: CNET launches a $100 million national brand-building campaign.
2000:: CNET debuts CNET Radio, acquires comparative shopper mySimon.com, and changes its name to CNET Networks, Inc.; CNET acquires Ziff Davis Media Inc. for $1.6 billion—the acquisition includes ZDNet, Computer Shopper magazine, the SmartPlanet online service, and part ownership of Red Herring Communications.
2001:: CNET acquires TechRepublic Inc., an online destination for information technology (IT) professionals, from Gartner, Inc.

CNET altered its broadcast and broadband media strategy in the second half of 2001. The company ceased production of its weekly broadcast television show, “News.com,” in September and announced that it would increase its emphasis on broadband and radio. CNET was a leading provider of broadband content on the Web, with some five million streams per month. The company broadcasted interviews with technology executives and opinion leaders on a daily basis at its CNET News.com site (www.news.com). It also posted video product reviews online at www.cnet.com. In addition, the company’s corporate production unit, CNET Media Productions, produced broadband product demonstrations and webcasts for corporate clients. Although CNET exited long-form television programming and discontinued the “News.com” television program, it continued to provide technology coverage for CNBC s other business programs.

Meanwhile, 2001 was proving to be a difficult year financially. The company reported a pro forma loss of $218.1 million for the second quarter and announced that it would lay off an additional 285 employees, or about 15 percent of its staff. Losses in the third quarter were even greater, reaching $1.4 billion. In spite of the loss, company Chairman and CEO Shelby Bonnie appeared confident about the future, stating, “Our business performed very well in a challenging business climate. We stabilized our revenues while significantly reducing our long-term cost structure, and we have more than sufficient financial resources to meet our capital needs for the foreseeable future.”

For all of 2001 CNET Networks reported net revenue of $285.8 million, down from 2000 pro forma net revenue of $427.7 million. The company’s adjusted loss, excluding special and noncash items, was $77 million, compared with pro forma adjusted income of $22.4 million in 2000. In January 2002 the company predicted that its first quarter revenue would be 10 to 15 percent below that of the previous quarter, indicating that 2002 would be another difficult year for CNET Networks. The lowered revenue forecast was due in general to the economic slowdown and more specifically to a depressed market for technology advertising.