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CNET's CEO: "We Can Be Switzerland"

Shelby Bonnie is a man with a brand plan. The CEO of CNET Networks (CNET) is betting heavily that the brand he's building in tech news and information will turn to gold as advertisers realize that the Net offers more than search-engine ads. But first he has to make the company consistently profitable to soothe Wall Street nabobs (see BW Online, 6/29/04, "The Scoop on CNET"). That's a tough sell, as Google prepares to go public, and Yahoo! (YHOO) is still looking good to investors. Bonnie recently spoke about these issues with BusinessWeek Online Technology editor Alex Salkever. Here are edited excerpts of that conversation:

Q: How will you take CNET to the next level?

A: We have seen dollars going into direct marketing through click-through advertising or search-based advertising. But we're early on in the investment of marketers spending to do online brand development. We see that as a 10-year trend of dollars moving into the industry. And it will be a lot more than what's spent on direct marketing.

Q: Really? How do you figure that?

A: When you look at offline media generating demand - companies spending money to get people excited about a product or brand -- those dollars dwarf what is spent taking that demand and converting it into a sale. The Yellow Pages are about people knowing what they want and using the [information directory] to find where they can buy it. To me, that is very much what search engines are about.

It shouldn't surprise anyone that the return on investment for search advertising is incredible. Billions of dollars have been spent building that demand around the brands. But if a chief marketing office came to you and said he would only advertise in the Yellow Pages, you have to scratch your head.

Q: O.K., so how do you cash in on the coming burst of brand spending?

A: Our job is to position and grow our properties to get ahead of those dollars so we're in a position to capture them over time. We have been growing our visitors and usage. We have a model that is very leveraged to translate revenue growth to the bottom line.

I'm a big believer in content and having journalists, editors, and testing labs, and brands, because in the long run, you have built defendable franchises. What people have tended to like about content over time is that you produce your own intellectual property as a part of what you do. You build brands and franchises around stuff that you already own. Those margins have lasted over time.

Q: So why hasn't CNET been more profitable? It has had only two profitable quarters in the last year.

A: If you look at the improvements we've seen in our business over the last two years, it shows the leverage in the model. Look at our EBITDA [earnings before interest, taxes, depreciation, and amortization] -- we have guided to $30 million to $32 million for the year. We had positive EBITDA the first quarter of this year already as well as in the last quarter of last year.

As we're able to grow the top line, we're able to translate that into wins on the bottom line. The content we produce represents fixed costs that award a company an enormous amount of leverage over time. If more people consume our news stories or read our reviews, that doesn't require us to provide a lot of additional resources.

Q: What are you going to do with I had heard ad sales are not as strong as at your other properties.

A: is one of the great assets we have. The team led by Jai Singh has done a great job of demonstrating high-quality content online. It has been one of the great additive properties for us.

But sites like are very dependent on branding and trends. Not a lot of people are going to read a news story about Oracle 9i, then rush out and buy it. Advertisers are going to rely on the quality of the audience that we get at to build their brand. So the more CNET advertisers spend on branding, the more you'll see us benefit from these shifts. As advertisers benefit, we'll invest in properties like News.

Q: You're now moving into the online-music business with the relaunch of Why music? It's crowded out there.

A: It is, but only with people who are trying to sell music. We aren't trying to sell music. We're trying to be an interactive content company focused on the needs of music fans.

Traditional music media have spent a lot of time on the album. Digital music has moved that focus to the song. It used to be you wanted to build a collection around [say] the blues genre, and you needed the 20 most significant albums. Today, it's the 20 most significant songs. If you throw a party, it's about how do you come up with a significant playlist.

People coming to can download songs from any of the major music sites. We want to help them find those songs. And the online music demographic, which is young and relatively affluent, is very attractive to advertisers. It's a great example of us being able to get a lot of leverage out of an existing model. Yes, we launched a new site. It had a great brand. But we launched on our platform with our existing ad servers and our existing sales force. So it had an enormous amount of leverage out of the rest of our infrastructure.

Q: You have made a number of small acquisitions this year. You still have a lot of cash on the books for a company your size and $1.5 billion in market cap. What types of acquisitions might you attempt?

A: It's not something we talk about. We're always looking, but it has to be just right. We do want to maintain our very nice position. We can be Switzerland, with an ability to work with lots of different portals and have lots of different relationships and still keep our customers happy. If you wake up every day and do that, you can build a great business.

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