• by Mark Walsh  @markfwal, October 3, 2008

Seeking to dethrone WebMD as the top online health property, Revolution Health Network and Waterfront Media, which owns the Everyday Health Network, have agreed to merge in a deal valued at $300 million.

The move, which was announced Friday, would give the combined companies traffic of more than 20 million unique visitors--surpassing the current audience of longtime category leader WebMD. Revolution Health--started in 2007 by former AOL Chairman Steve Case--and Waterfront now operate the No. 2 and No. 3 most popular health sites.

"Both Revolution Health and Waterfront have the same ambition to be No. 1 in the category--and when we looked at the landscape and saw what it would take, we realized this was the quickest and best way to do it," said Waterfront co-founder and CEO Ben Wolin.

Under the deal, Wolin will remain as chief executive of the merged company that will operate as Waterfront Media, and Case will join the Waterfront board. RevolutionHealth.com and its related properties will become part of the Everyday Health Network, encompassing a total of 24 sites.

Financial terms of the deal were not disclosed, but Wolin expects the merged company to be profitable on revenues of more than $100 million in 2009, while Waterfront alone will make a profit on sales of about $70 million this year.

Rumored for months, the merger highlights the dynamic landscape of the online health category, where new players are emerging and others are getting snapped up in the quest for wider audience reach. WebMD, for instance, said last month it would acquire QualityHealth.com for $50 million and pay another $50 million based on performance.

Health sites overall have grown rapidly. According to comScore, traffic in the segment increased 21% in the last year--four times the growth rate of the U.S. Internet audience.

Revolution Health has grown even faster, tripling its audience in the last year to 12 million--partly by acquiring sites such as CarePages.com and HealthTalk.com as well as affiliating with properties such as Drugstore.com and Sparkpeople.com.

Still, it wasn't enough to directly challenge WebMD. In a statement, Case said the merger would allow the companies "to accelerate our efforts to reach the largest, most engaged audience and help people stay healthy, manage chronic disease and deal with serious illness."

The AOL co-founder will continue to run Revolution LLC, the parent of Revolution Health Network, and will remain involved in health properties outside those in the network. Revolution will also be a major investor in Waterfront Media.

Wolin said he estimated the combined properties would have an unduplicated audience of 22.5 million, easily exceeding the 17.7 million that WebMD had in August. But comScore figures that reflect the merger will not appear until the October reporting period.

With expanded reach, the company expects to increase advertisers and ad dollars. Wolin said the merger would roughly double Everyday Health's number of advertisers to between 250 and 300. The network gets about half its ad revenue from pharmaceutical companies, and the balance mainly from consumer packaged goods companies.

Wolin also views the sector as fairly well-insulated against the broader economic upheaval, which has already led to reduced projections for online and other types of advertising. Traditionally, health care has been viewed as less vulnerable to economic downturns.

Even so, "one of the rationales for the deal was that 'bigger is better,' and I think in this economic environment it's hard to disagree with that sentiment," he said.

Not everyone necessarily agrees. Wayne Gattinella, CEO of WebMD, expressed confidence that the company would remain the top brand in the category regardless of the merger. He described the deal as a "bailout" for Revolution Health--which he said had boosted traffic in part through alliances with sites such as Drugstore.com, which is principally an e-commerce rather than an ad-supported business.

"We're not interested in trying to bulk up our comScore metrics as benchmark of success," he said. Nevertheless, he said WebMD would continue to consider potential acquisitions that would help "grow our brand and business proposition."

WebMD is simply defensive "about becoming a number-two player in a category they've dominated for years," said a Revolution Health spokesman. "But this merger is great for consumers and great for advertisers."

Looking ahead, Gattinella reiterated that he expects the company to see continued growth in 2009 as a result of more ad dollars from Big Pharma shifting online. Despite the deteriorating economy, he said, "I see more online marketing spend coming in 2009 than we saw in the first half of 2008," he said.