Commentary

Yahoo!'s Purchase of Overture Reveals Rot

Surely, many will consider Yahoo!'s purchase of Overture a sign of great success - that Overture's management went out in a $1.6 billion blaze of glory. But most others - especially those waking up this morning still holding stock in Overture - will wonder why a one-and-a-half billion dollar company would want to, well, sell itself for a mere one-and-a-half billion dollars. Worse still, the vast majority of that price will be paid in Yahoo! stock, which if it were to return to its 52-week average, would go down by about 50 percent.

Perhaps Overture didn't have much of a choice. Business might not have been quite as good as we've been led to believe. Perhaps Yahoo!, which along with Microsoft accounts for the vast brunt of its revenues, made it a deal "it couldn't refuse," letting it be known that if they declined the offer, Yahoo! would cut its vendor off to sleep with the fishes. Something still rings hollow underneath all that Overture online marketing success chest pounding that still echoes in the industry.

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Yahoo!'s choice to buy the company seems equally strange. With new ownership, the other major Overture client, Microsoft, will likely flee to another option or try to create its own paid listings service. Yahoo!, then seems to have paid a sum roughly twice the annual Canadian defense budget for the right to have, for the most part, itself as a customer. It's a deal only the arbitrage community could love.

So what does this have to do with media? Tons. This shows that even in the face of fiscal rationality, media companies have a bias to merge, to pick up sort-of-related businesses. The only way they can make these deals financially work out is to constrict the media supply or the supply of media options to the extent that they can command greater price discipline.

Combine the consolidation across media with the newly-allowed consolidation in regional broadcast media, and we have the potential for some serious supply problems in the world of marketing. Today the best deals we seen in media are in those areas where there is great competition among independent companies. Some forms of consumer print, many forms of syndicated media and several online categories provide the best GRP bang for the buck. When companies buy up vertical and horizontal monopolies, presenting an oligopoly of big media concerns, the buyers will find themselves with few options, high prices and clients wondering why the heck they should hire them in the first place.

Our future could be choosing between Disney, Yahoo! and AOL to see which vendor to beg to please, please return our phone calls. Those witness to the Time Warner-AOL merger fun of the last few years will know what I'm talking about. We've spent the last two years answering the riddle "what do you get when you cross a couple TV executives with a multi-media empire?" The answer, it turns out, was a negative 85 percent ROI, and despite that, marketers with fewer and more expensive choices.

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