About.com didn’t live up to promise of expanded reach, revenue

All Things D | The New York Times Co. | The New York Times
All Things D’s Peter Kafka reports that The New York Times Co. may sell About.com to Answers.com. (Suggested name: AboutAnswers.com. Drat, someone beat me to it!) The Times confirmed that it’s in talks to sell the site, but wouldn’t name the suitor.

With a reported price of $270 million, this is a good time to review the Times’ seven-year ownership of About.com. The Times bought the site, which offers advice and commodity information, for $410 million in 2005.

That was down from the $690 million in stock that Primedia had paid in October 2000, but ”there were whispers that it overpaid,” Kafka wrote in 2008, in a story about how the Times wanted to unload the site. At the time, Dealbook shot down the rumor.

An analyst noted in 2005 that About.com’s annual revenue of $40 million was tiny compared to the Times’ overall revenue. But in the next few years About.com grew its revenue, surpassing $100 million in 2007. In February 2009, the company reported that About.com’s revenues had grown 30 percent each year and its operating profit was 41 percent.

The cash helped absorb the decline in the Times’ newspaper revenues starting in 2007 and 2008. But that was short-lived.

The Times had been attracted to About.com’s click-based advertising revenue, those text ads placed in the midst of content, but those ads became less lucrative when Google changed its algorithm to penalize “content farms.” And About.com’s display ads made less money as the supply of such ads on the Web approached infinity.

The Times wrote down the value of the About group by $195 million in the second quarter of this year. Kafka reports:

“While About is gaining momentum in its turnaround efforts, and we expect to build on that progress in the second half of the year, we have reduced our long-term display growth and profitability assumptions for the group,” Times CFO James Follo told investors.

About.com’s audience didn’t match up with that of nytimes.com, but that was pitched as a good thing when the Times bought the site in 2005. “It adds a huge new base to our mix,” said Martin Nisenholtz in 2005, who with the acquisition became senior vice president for digital operations.

Then-CEO Janet Robinson said the site offered opportunities for cross-promotion. For instance, some of the Times’ crossword puzzles were free to About.com users.

JPMorgan media analyst Alexia S. Quadrani told the Times’ Christine Haughney that it was time to cut ties:

“It didn’t really make sense strategically when it was originally purchased,” Ms. Quadrani said. “We let it go because it was doing so well. Now that it’s not doing well, you sort of say a) this has been a drag on their financial results and b) strategically how does it fit anyway. There were not a lot of synergies that the investment community really saw.”

Rex Hammock’s reaction to the potential sale: I told you so.

The Times recently sold its regional newspaper group and its remaining share in the Boston Red Sox.

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