They decided not to merge...Now What?
The termination of the merger agreement between NetRatings and Jupiter Media Metrix has left the Internet media measurement industry in a flux. Will JMM be acquired by someone else? Will it go out of business? Will NetRatings acquire ERatings and become the dominant player? These are some of the questions being asked as the situation plays out.
The acquisition agreement, reached in October, was scuttled in February due to opposition from the Federal Trade Commission. In a brief interview with Media the FTC wouldn’t explain its actions and its behavior has perplexed at least one analyst, who wonders why large scale mergers like AOL TimeWarner and Compaq/Hewlett Packard can proceed, while much smaller deals like this one are squelched. Susan Hickey, VP of investor relations at JMM, says the FTC “was going to recommend to block it because of the competitive impact on the marketplace. They also indicated they’d block the loan agreement that was part of the transaction.”
The loan agreement was the sticking point. Unable to secure a $25 million loan from NetRatings, JMM couldn’t to challenge the FTC and was forced to abandon the agreement, although it was announced as a mutual decision.
Interestingly, JMM had a lawsuit pending against NetRatings for infringement on a patent, which was put on hold during the acquisition efforts. “We are pursuing it now,” Hickey says, which indicates JMM and NetRatings are once again adversaries. An Oct. 28 trial date has been set.
JMM was the leader in Internet media measurement until NetRatings came along two and a half years ago, developing similar forms of measurement to track website audience size and demographics and advertising click rates. NetRatings succeeded because of its financial might - it is owned by Nielsen Media Research and AC Nielsen, which are owned by VNU, the Dutch publishing giant.
Now, JMM is hurting, its stock price down to 23 cents in early March and its cash nearly depleted, with $15.9 million on hand at the end of last year with plans to spend $11 million to $12 million this quarter. The termination of the acquisition agreement puts JMM in dire straits, with questions about how to proceed. The company formed a special committee of the board of directors in late February to explore options and retained Robertson Stephens, a San Francisco based investment-banking firm, to act as an advisor.
“We’re getting indications back from other parties to acquire parts of the business or invest in it,” Hickey says. “We may buy or sell off assets or have investors come in and take over an equity stake.”
Amidst its problems, JMM continues to introduce innovations, such as the Advertising Planning System for media planners and buyers that was launched in March, and Hickey remains hopeful. “JMM and Ad Relevance are great brands and the technology is great, so our goal is to keep the assets in place.”
Jack Lazar, CFO of NetRatings, is also confident about his company’s position in the marketplace. “We’re much better capitalized, so we’re in position to be the primary provider of measurement services for the Net,” he told Media. “The acquisition of JMM would have accelerated the process, but we’re in a position of strength with or without them and we’ll still win.”
NetRatings had planned to acquire ERatings, which measures Internet usage outside the U.S., at the same time it would acquire JMM. “We saw synergies to combine the international business with JMM and NetRatings so we chose to announce the close on it,” Lazar says. “But it was predicated on closing the JMM deal so now we’re evaluating it to see if it still makes sense. It’s in limbo.”
John Corcoran, Internet digital new media analyst at CIBC World Markets, sees the situation this way: “JMM won’t survive on its own. Its best option was to do the deal with NetRatings, so now they need to do something else. JMM expanded too fast and cut back too late, so they got stuck with different properties. They’re trying to unhook a big cash drain so anyone who picks them up will have to deal with that.”
As for the future of Internet media measurement, Corcoran says, “All major drivers are trending up, so the medium will always need to be measured like TV, radio and print.” NetRatings will be the dominant player because “it’s more stable than JMM,” he says. “It will take market share from its rival and become the authoritative voice in Internet measurement. JMM will be hurt.”
Geoff Ramsey, CEO of eMarketer, claims the failed acquisition is a major set back for online media measurement because it leaves the status quo of two separate sources of data. “If the merger had happened it would be like TV with one set of Nielsen numbers,” he says. “We were moving toward a more consolidated set of numbers, but now it’s back to square one.”
He says third party data from JMM and NetRatings already conflicts with publishers’ log files. But they also conflict with each other, since Net Ratings does a better job of reporting at-work web usage, for instance, while JMM’s data has other strengths. “The data conflicts with each other,” he says, “and it makes it more expensive, since companies often buy both to pick the best data.”
The biggest problem with online advertising is a lack of standard measurement, he says, with over 4,000 different ad sizes and confusion over what’s an impression and a page view. Now that JMM and NetRatings won’t merge, the confusion will linger.