All Things Digital

So what other Web media company facing a hostile investor does CNET remind you of?

Disgruntled investors, a troubled Web 1.0 company whose management is recalcitrant to give in, an obviously powerful, but underutilized, set of assets.

The acquisition of CNET (CNET) by CBS (CBS) for $1.8 billion in cash is the happy ending of this scenario and, on first blush, I like it.

It is a fair price, but not excessive for CBS, which gets one of the highly trafficked sites in the tech news sector.

And it gives CNET–which was too big and yet not big enough to really move its own needle–cover from its shareholder attacks to make the kinds of changes to its business and products that it should have been making for a long time now.

Yahoo (YHOO), a much bigger deal, needs exactly this kind of resolution and soon, as its continued turmoil is hurting its prospects of returning to power.

Why? Most of all, key employees continue to eye the door or cannot help but be distracted from the business at hand with all the uncertainty swirling.

The problem for Yahoo, though, is that it is simply too large and too pricey to really have any real options other than a big purchase by, well, Microsoft (MSFT).

Unfortunately, after playing a lugubrious game of chicken for far too long in its acquisition battle with the software giant, Yahoo has truly lost any leverage it might have had in making decisions about what it wants to do next.

Instead, it is now caught up in the maelstrom of Carl Icahn and all he represents, which is to say a story less about what is right for Yahoo and its products, employees and prospects and much more about its stock and how the vultures of Wall Street can make hay off Yahoo’s shares.

These investors have no tolerance for the who’s-zooming-who games Yahoo was playing with Google (GOOG), AOL (TWX) and others, in a vain search for alternatives to a Microsoft takeover.

So if I were Yahoo’s Jerry Yang, I might be making my way to Redmond right now with hat in hand, in an attempt to control these talks instead of Icahn, because at least Microsoft is a company that is in and understands Yahoo’s business and would have the most respect for its business.

It’s also the one and only move Yang can make to ensure the future of the amazing company that he has built lives on in the way it deserves.

The sky is indeed falling, Jerry, so get to the king of Microsoft before the Icahn fox–as it did the guileless Chicken Little–eats you up.

Walt Mossberg interviewed CBS CEO Les Moonves at the fifth edition of our D: All Things Digital conference last May, where he talked about the media giant’s Internet aims.

The 53-minute video is highly pertinent to today’s acquisition of CNET by CBS for $1.8 billion in cash.

As I previously wrote, Les Moonves is getting into the Internet in a big way, it seems, if you watch this onstage interview with the CBS CEO.

While it used to be that big old-media companies, including the powerful television networks, always seemed to display disdain for the online space, these days they are talking it up like they invented it.

At the conference, in fact, Moonves unveiled CBS’s acquisition of Last.fm, the Internet social music platform, and spoke a lot about getting the company’s content everywhere.

Here is Moonves:

In another micro-move in the fight between activist shareholders and CNET, the Delaware Supreme Court has given the thumbs-up to a lower court ruling that the Jana Partners group can nominate a slate of directors to the board of the San Francisco-based tech news and reviews site.

CNET (CNET) has been fighting these efforts by Jana–along with Sandell Asset Management, Alex Interactive Media, Spark Capital and Velocity Interactive Group–to nominate two directors and expand the board and add more of their own nominees–claiming it was contrary to its bylaws.

Apparently not!

What does this mean? Of course, that’s not clear at all, since Jana cannot force other shareholders to help them get what they want.

In fact, some other CNET shareholders I have queried recently seem nonplussed by either side in the fight over the future direction of CNET.

But while the mano-a-mano between the pair is certainly not as fast-moving as the Yahoo-Microsoft-and-now-Carl Icahn! mess, it has had some action.

On April 1, for example, Jana issued a testy report about the company, noting:

“CNET’s current leadership now claims it can reverse course and begin creating shareholder value, but we believe they have offered no evidence that they can do so. Despite years of shareholder value destruction, CNET’s leadership during this time failed to act on the urgent need to make fundamental strategic and operational change, instead pursuing a failed expansion strategy even as CNET fell further behind. CNET’s leadership did not even start examining the basics of improving performance until we called for change, both publicly and directly with CNET’s Board of Directors.”

CNET, natch, disagreed: “CNET Networks added that while it welcomes the views of its stockholders, after a preliminary review, the white paper contains numerous misstatements and is misleading in many respects. The Company will respond in due course.”

Of course, BoomTown is poised to head over to CNET’s Second Street HQ to video-query CEO Neil Ashe tout de suite.

Neil, we’re waiting by the phone!

Project Granola?

Apparently, that’s the jokey nickname that’s been given by some in the company to Microsoft’s (MSFT) new online strategy, in the wake of its failed efforts to acquire Yahoo (YHOO) that ended in a big heap of mess this past weekend.

Now, sources tell BoomTown, it is all about “organic”–hence the image of a healthy handful of granola (except for the fact that, in my experience, nobody really likes granola after eating it as much as they think will before).

In any case, it is a word Microsoft folks have been slipping into the conversations with BoomTown over the past few days, so much so that I have started to feel like I was talking to execs from Whole Foods.

Now Microsoft’s greenness has gone public.

Case in point: Brian Hall, Windows Live General Manager, who trotted out the organic word in front of Merrill Lynch analysts yesterday, as reported by CNET’s Ina Fried, saying: “We’ve withdrawn the offer and moved on, and now are focused on how we grow as fast as possible organically.”

But what does organic mean exactly?

Two things, it seems.

First, stepping up spending on marketing, technology and research to try to find ways to differentiate from Google (GOOG) and get into the No. 2 spot now held by Yahoo.

Of course, that plan has not worked out so well as yet for the software giant, with Microsoft spending billions of dollars with no profits and little gain in online search or ad market share, while its archrival Google keeps growing stronger.

Even so, while in Korea today, Microsoft Chairman Bill Gates backed Microsoft CEO Steve Ballmer’s do-it-yourself path and his move to walk away from Yahoo.

“The key decisions on that will be made by Microsoft CEO Steve Ballmer, who took a look at Yahoo and decided that, on our own, he likes the stuff that we’re doing,” said Gates.

Gates also added what amounts to the second option for Microsoft. “I wouldn’t rule out some partnerships, but we don’t have anything imminent there,” he said.

While a return to Yahoo is a possibility, in fact, buying up Web 2.0 stars is likely to be a bigger focus of the company.

“Yahoo can twist,” said one source. “Microsoft has lots and lots of other options.”

According to sources close to the company, for example, Microsoft’s bankers had been putting out subtle signals to Facebook to see if it would be open to a full buyout.

Microsoft already invested $240 million in the hot social-networking site, an investment that gave Facebook its kooky $15 billion valuation.

And its execs have long told Facebook execs they wouldn’t mind a bigger bite–um, like all of it.

“We just wanted to gauge their interest, more than any real effort,” said another source, who expects Facebook to stick to its longish path to an eventual IPO.

But, as is no secret, Microsoft has selections all over Silicon Valley to help it improve its Internet chances.

Those would include buying bigger vertical sites in strong categories like autos or jobs or finance, and also scooping up smaller but fast-growing socially oriented sites like Digg, Meebo, Yelp or focusing on ad plays like Spot Runner (which just got another big dollop of funding).

There might even be some sense in spinning some of these and all Microsoft Web units off into a separate Internet company, which would be another way of integrating even bigger deals for properties like Time Warner’s (TWX) AOL or News Corp.’s (NWS) MySpace (which are longer shots, I think).

In a post I did in February right after Yahoo rebuffed Microsoft for the first time, I suggested such a course for the company.

As I wrote:

Here’s a list: LinkedIn. Digg. Flixster. Slide or RockYou. Veoh. WordPress. Sphere. Sugar. Some international stuff. And more.

Then, some noted, Microsoft would have to give massive financial incentives to those entrepreneurs to stay and thrive. Most importantly, it would have to keep its Redmond hands from interfering.

Now that would send shivers up the spine of Larry and Sergey.”

And that, most of all, would be more like icing on the cake for Microsoft and be much more tasty than a bowl full of granola.

And, as Martha Stewart says: It’s a good thing.

“Demo needs to die,” said TechCrunch Editor Michael Arrington yesterday.

Oh, my. Oh, dear. Not more bloody tangoing!?!

The pugnacious tech blogger–who was last seen slapping around other tech bloggers who deigned to also raise money for their ventures, much as he has been doing–made this classy statement in an interview with Daniel Terdiman of CNET’s Geek Gestalt yesterday, about scheduling his TechCrunch 50 conference at the same time as the fall conference of the longtime leader in the start-up conference space, Demo, run by Chris Shipley.

(Shipley’s response is here.)

DemoFall is September 7th to the 9th, while TC 50 is September 8th through 10th.

“It’s just an old-school model,” continued Arrington to Terdiman. “It clearly involves pay to play, and what we’re offering is better.”

Not satisfied to just schedule his event at the same time as Demo–which is fine, I guess, given this is America and we all have the right to be aggressively, and even pointlessly, competitive–the second shot is at the $18,500 fee that Demo demonstrators pay, once they get invited to that conference.

TC 50 does not charge, which, to be fair, would be my choice too.

Still, given his inaugural TC 40 conference sold out and was, said Arrington to Geek Gestalt, profitable, the channeling of the Corleone Family in the online tech space seems a bit much to me.

After all, despite the fact that Arrington recently characterized tech blog sites as competing gangs (”You can do just about anything you want, but the politically savvy folks tend to arm themselves to the teeth and gang together to protect their property. Everyone else is in the middle of chaos, either fighting blindly for attention or politely asking–by linking early and linking often–if they can join the big Gang.”), let’s be honest.

The whole group of us together would lose badly in a fair fight with my son’s kindergarten class.

Of course, they bite. We should know better.

(Full disclosure: Walt Mossberg and I have been running a conference, called D: All Things Digital, for many years. D6 is in late May and is sold out. Nonetheless, full coverage of the event and also full video of the interviews with tech and media players on stage–including Bill Gates, Steve Ballmer, Jeff Bezos, Jeff Bewkes, Howard Stringer, Mark Zuckerberg and many others–will be on this site. We also do a few demos, so until then, we fervently hope to find no horse heads in our beds.)

After dissident shareholders, led by Jana Partners, landed one right in the kisser to the board and management of CNET Networks yesterday–releasing a 38-page report that essentially called the company’s leadership incompetent, the tech news and review site gave the literary effort a kiss-off of its own.

First, rather politely, CNET said that Jana’s proposed strategies, which called for a major overhaul of all aspects of CNET’s operation, “will be carefully reviewed. To the extent there are any new strategies that would create stockholder value, they will be implemented.”

But wait for it!

The statement continued: “CNET Networks added that while it welcomes the views of its stockholders, after a preliminary review, the white paper contains numerous misstatements and is misleading in many respects. The Company will respond in due course.”

BoomTown looks forward to that response, especially since the Jana group pulled no punches in its initial parry, writing in the report:

“The current leadership of CNET Networks Inc. (”CNET” or the “Company”) has presided over massive value destruction…CNET’s current leadership now claims it can reverse course and begin creating shareholder value, but we believe they have offered no evidence that they can do so. Despite years of shareholder value destruction, CNET’s leadership during this time failed to act on the urgent need to make fundamental strategic and operational change, instead pursuing a failed expansion strategy even as CNET fell further behind…In addition, we believe CNET’s Board and senior management lack the industry-specific experience and expertise to stop this shareholder value destruction.”

And did they mention “value destruction”?

Unfortunately, for CNET (CNET) Networks, it’s not an April Fool’s joke, but more lump of coal to the tech news and review site’s management and board.

Today, a group of very obviously stubborn activist investors, who have been seeking to gain CNET board seats and make other major changes at the company to boost its moribund stock price, will release their own assessment of the situation at the company called, “CNET: Value-Unlocking Change For All Shareholders.”

And their conclusion is no surprise: CNET has failed to deliver for shareholders and its whole operation, along with the board and executive suite, need a complete overhaul.

Since CNET’s major shareholders have been relatively passive and complacent, despite recent declines in the company’s stock price, it is not clear exactly how effective such tactics will be.

And last week, CNET kind of beat the disgruntled group to the punch by throttling itself and announcing that it was conducting layoffs and also making a variety of key changes, as part of a task force to improve the company’s performance.

As BoomTown wrote in a post about the situation:

Thus, to assuage Wall Street, the courts and, well, to look like it was getting busy, CNET laid off 10 percent of its U.S. workforce, or 120 employees, as well as saying it would be fixing a range of other things gone wrong at the company.

That included cutting costs, upgrading technology, rejiggering content offerings, fixing the sales process and “implementing business unit changes to realign resources to support the company’s strategic priorities and promote efficiencies.”

Well, at least the bathrooms are in good working order! But otherwise, that would be everything, right?

Interestingly, the 38-page report–prepared by an activist group led by Jana Partners, and includes Alex Interactive Media, Sandell Asset Management, Spark Capital Management and Velocity Interactive Management–agrees, except that it wants to shove aside the current crew at CNET and be the ones to make the needed changes.

As the group notes in the report’s executive summary not-so-subtly titled “CNET’s Destruction of Shareholder Value”:

The current leadership of CNET Networks Inc. (”CNET” or the “Company”) has presided over massive value destruction, with CNET’s shares declining (25)%, (52)% and (21)% in the one, two and three year periods ended March 28, 2008, respectively, compared to 39%, 6% and (1)% changes, respectively, for its stated benchmark peer index, as set forth herein. Also as set forth herein, CNET has also consistently underperformed peers in profitability and growth, ranking last among these peers in key metrics. This underperformance comes despite CNET’s premiere assets, including the tenth largest collection of Internet sites in the world and strong brands and content.

CNET’s current leadership now claims it can reverse course and begin creating shareholder value, but we believe they have offered no evidence that they can do so. Despite years of shareholder value destruction, CNET’s leadership during this time failed to act on the urgent need to make fundamental strategic and operational change, instead pursuing a failed expansion strategy even as CNET fell further behind. CNET’s leadership did not even start examining the basics of improving performance until we called for change, both publicly and directly with CNET’s Board of Directors.

In addition, we believe CNET’s Board and senior management lack the industry-specific experience and expertise to stop this shareholder value destruction. CNET’s Board of Directors’ backgrounds in our opinion are primarily in traditional media or early-stage technology rather than today’s digital media landscape, while its senior management team consists primarily of first time senior public company executives without significant operational experience at large Internet companies other than CNET.

Also, they take candy from babies!

Okay, maybe not that, but the group, which admits in the report that it is only an external review, posits that CNET needs a new board, made up–natch!–of its selected members.

That includes former AOL head Jon Miller, CAA exec Brian Weinstein and other Web execs from IAC and Overture, as well as reps from Spark and Jana.

The report also insults CNET’s expansion into verticals, such as shopping service MySimon, and calls its transition to Web 2.0 technology cloddish.

As for recommendations, the report says CNET must improve things like its monetization infrastructure, build a vertical ad network, make third-party ad deals, turbocharge its SEO techniques, add in more social media doodads, fix its publishing and content management system and, of course, cut costs.

The report also denies that the activist group is seeking to control the company, in order to essentially buy it without paying a premium, as CNET has contended.

And, finally, it outlines the grim road to the current tensions between CNET and the Jana group, including failed settlement talks, corporate moves and countermoves and, inevitably, the legal action.

For now, CNET’s board and management do not seem inclined to change their stance on its mano-a-mano with Jana, which recently won in court over being allowed to nominate directors to the board of the company. CNET has said it would appeal that ruling.

Clearly, CNET is taking a hard line, despite the fact that it has a somewhat weak position in regards to its glaringly obvious performance issues.

Thus the report from Jana, which is, basically, a we’ll-see-about-that! response.

In fact, as the report notes at the end:

CEO Neil Ashe has referred to this contest as a ‘chess game,’ which we believe perfectly encapsulates CNET’s misunderstanding of the situation. This should not be a game of legal tactics but a debate about the future of CNET and who is best qualified to guide the strategic direction of the Company and create maximum shareholder value.

No checkmate yet, of course, but now it is clearly CNET’s move.

While BoomTown has not paid enough attention to the ongoing, well, debacle at CNET, its announcement that it was conducting layoffs and also making a variety of changes was a major moment for the company.

Using the term “workforce realignment,” an ominous-sounding phrase that calls to mind how job shifts were once made in the former Soviet Union, the San Francisco-based tech news and reviews site was clearly prompted to make these changes due to the ongoing pressure from activist investor Jana Partners, although it denied that was the case (which meant it was the case, of course).

Thus, to assuage Wall Street, the courts and, well, to look like it was getting busy, CNET (CNET) laid off 10% of its U.S. workforce, or 120 employees, as well as saying it would be fixing a range of other things gone wrong at the company.

That included cutting costs, upgrading technology, rejiggering content offerings, fixing the sales process and “implementing business unit changes to realign resources to support the company’s strategic priorities and promote efficiencies.”

Well, at least the bathrooms are in good working order! But otherwise, that would be everything, right?

As much as I have been an admirer in the past of CNET’s work, it’s clear that it has lost a step in significant ways, from not being quick in changing its technology to being too slow to respond to the emergence of sassy tech bloggers to not paying enough attention to the massive shifts in how ads are sold online.

Being tone deaf to this kind of paradigm-shift problem is no surprise to us old media folks, who have been getting pummeled for years now. But it is interesting to note that Web 1.0 companies like CNET and, yes, Yahoo (YHOO) have also fallen victim to the same kind of inexorable trend.

Still, what CNET’s board and management will not do is change their stance on its mano-a-mano with Jana, which recently won in court over being allowed to nominate directors to the board of the company. CNET has said it would appeal that ruling.

Jana, of course, mocked CNET’s efforts in a letter today, noting the changes were too little, too late and too insider:

“Although CNET has belatedly said it will examine these fundamental issues, shareholders should ask themselves whether there is any reason to believe that the current leadership will do so successfully. The current board of directors has presided over an almost 50% stock price decline in the last two years through yesterday, yet they failed to demonstrate any sense of urgency to address these basic issues until publicly called on to do so. CNET’s board of directors and much of its senior management team, including its CEO and the head of its ‘task force,’ also lack the necessary sector experience and expertise to address these issues and future challenges effectively.”

In other words, step aside, as we know best.

Actually, I am not sure, with the sands shifting so quickly every day in the online content game, if anyone does.

In a new BoomTown occasional feature that I am calling “Meet the Geeky Press,” here’s a video interview I did with Dan Farber, who was just appointed new editor-in-chief of CNet’s News.com, while I was at the Graphing Social Patterns West conference in San Diego earlier this week.

Farber, a longtime tech reporter and columnist, as well as a blogger, replaces Jai Singh. Farber was previously editor-in-chief of CNet’s ZDNet.

The tech news-and-reviews online media company has been under a lot of pressure lately, with challenges from some aggressive investors who are trying to take control of CNet, as well as increased competition from all over the Web that is impacting its traffic.

In any case, in Farber, who also ran ZDnet’s blogging network, CNet has a solid journalist in charge.

In the video, Farber and I talk about a wide range of issues, from Web consolidation to the trends in social networking to future tech trends, including his thoughts on Google and Apple: