CBS and CNET: A $1.8 Billion Folly?

This pig in a poke may prove to be a poke in the CBS eye.

As I write this, the news is rolling across the wires that venerable old CBS has agreed to buy the CNET Networks (which is what C/Net's been called since it scarfed up ZDNet) for $1.8 billion.

I assume they are clinking champagne glasses back at Black Rock, but here in Silicon Valley the news has been met with jaw-dropping disbelief, cheers and chagrin.

The disbelief came with the price tag: Does CBS really believe that CNET is worth more than YouTube? Is there anything in the CNET business model that can justify half-again the current stock price? Most of all: Just exactly how did CNET doll itself up so well to get that kind of offer, and how can the rest of us copy it?

The cheers, of course, were at CNET. This CBS bid is so impossible that the CNET folks must have grabbed their desks to keep from slipping to the floor in a dead faint. And one can only hope that, as they revived themselves and headed off for a good three-day drink they at least stopped off at the nearest church and tossed a couple grand into the offering plate, because they had truly just witnessed a miracle.

There were other cheers as well, all across Silicon Valley. Every time some Web content or social networking site finds some big East Coast corporate sugar daddy to throw a bag of money at them, it gooses all of the other sites to do the same thing.

If I were Gawker Media I'd be smearing on the lipstick right now and trolling in front of ABC headquarters and 30 Rockefeller Center (NBC). A crazy deal like CNET/CBS is just the latest reminder that the best exit strategy for a startup company nowadays is not to go public, or even to sell to Google, but to sell at a massively inflated price to some media company that's afraid of Google.

Finally, the chagrin: CNET, because it was essentially an on-line trade magazine-meets-Consumer Reports, has never been a site that induced fanatical viewer loyalty. On the other hand, it is one of the most consistently useful tech sites on the Web.

Over the last few years I've found myself dipping into it every few days to find out the latest product announcements, tech news and reviews. So apparently did enough other people to give the site an impressive traffic rate of 160 million visits per month.

Furthermore, with the ZDNet purchase, CNET essentially became the only game in town for this kind of coverage. (There are some who will say that CNET lost its edge once it didn't have to compete with Ziff anymore.) And so the fear is that the Tiffany Network, the land of Katie Couric, and the network that loses its viewers not to cable but to the graveyard, will slowly smother CNET to death -- and kill off the one encyclopedia new product site we have.

Why did CBS want CNET so badly as to pay such a wacky price for it?

One obvious answer is that it will make CBS the 10th most visited U.S. site on the Web. Though that hasn't exactly helped Yahoo.

The formal explanation came from CBS CEO Les Moonves, who told The Wall Street Journal, "There are very few opportunities to acquire a profitable, growing, well-managed Internet company like CNET Networks."

There are so many things wrong with that sentence that it's hard to know where to start. Suffice it to say that if you've followed the company at all over the last two years, you know that it has shuffled its management and been under assault by a small army of activist shareholders, including hedge fund Jana Partners. "Well-managed" indeed. The CBS acquisition not only gave CNET a payday beyond its wildest dreams, but delivered it from shareholder hell.

A more likely explanation for the CBS move is just sheer obsession. The notion comes from ValleyWag, the gossip site, which notes that CBS's online chief, the acquisition hungry Quincy Smith, has been eyeing CNET for years.

Even back when he was a banker at Allen & Company, CNET was Smith's client. Valleywag notes that a fellow Allen banker remembers that when Smith gave a big presentation on the value of online content, the only example he used was CNET.

So this has been a long time coming. If CBS was smart, it would now leave CNET mostly alone, letting it continue to grow its traffic and influence, while using it as part of its advertising portfolio; or better yet, do all that plus begin to use CNET talent to provide tech product content (reviews, news commentary, etc.) in CBS news programming. But then, if CBS was smart, it would have spent $100 million to set up its own CNET-style site and hire away the best talent from CNET, Gizmodo, Popular Science, et al.

Instead, here's what's likely to happen, based on my 30 years' watching these May-December corporate marriages: CNET will go on about the way it has, slowly losing its edge and its best talent (many of whom will walk away with their new riches).

It won't be anything shocking, mind you, just a slow slide into irrelevance. You and I will just notice one day that we haven't stopped by CNET for weeks, then months. Meanwhile, a host of exciting new product sites will have popped up, clamoring for your attention.

Meanwhile, CBS will try to integrate CNET talent and content into its broadcast operations, but beyond one or two reporters who manage to cross over, it will be a largely fruitless endeavor. The CNET segments on CBS Evening News and 60 Minutes will fade away without anybody really noticing.

Then, sometime around 2011, CBS will quietly sell-off or abandon CNET, taking a quarterly hit to its balance sheet (and stock) and move on after using platitudes about how proud it was to work with those brilliant tech folks, and how much CNET content improved CBS's own productions, yadda yadda.

But that will be then. Right now, there's knowing nods in the hallways at CBS in New York and screams of joy and high-fives in San Francisco. And all I can say to the folks at CNET is: God bless you folks. You landed a Big One … and you've given the rest of us in Silicon Valley and the entire tech world a good reason again to get up in the morning and go to work.

This is the opinion of the columnist, and in no way reflects the opinion of ABC News.

Michael S. Malone is one of the nation's best-known technology writers. He has covered Silicon Valley and high-tech for more than 25 years, beginning with the San Jose Mercury News, as the nation's first daily high-tech reporter. His articles and editorials have appeared in such publications as The Wall Street Journal, the Economist and Fortune, and for two years he was a columnist for The New York Times. He was editor of Forbes ASAP, the world's largest-circulation business-tech magazine, at the height of the dot-com boom. Malone is the author or co-author of a dozen books, notably the best-selling "Virtual Corporation." Malone has also hosted three public television interview series, and most recently co-produced the celebrated PBS miniseries on social entrepreneurs, "The New Heroes." He has been the "Silicon Insider" columnist since 2000.