On TV’s “30 Rock,” the fictional version of NBC was once a subsidiary of the Sheinhardt Wig Co. In the real world, one of the Web’s most popular gaming communities is now an arm of a fax company.
In fact, that local online faxing giant is transforming into something of a media conglomerate.
In the past few months, Hollywood’s J2 Global Inc. has surprised the technology and media industries by acquiring a pair of high-profile digital properties.
In November, it picked up Ziff Davis Inc., a San Francisco online publisher with a handful of Web properties, including flagship PCMag.com.
This month, J2 won the frenzied bidding for IGN Entertainment Inc., a collection of news and review sites focused on video games that its previous owner, New York’s News Corp., had been shopping around. IGN.com, the biggest of IGN Entertainment’s holdings, is consistently among the most visited video game websites.
Suddenly, with two major purchases in less than 90 days, the media industry was given notice of a new player whose emergence is as rapid as it is unlikely.
“When they first took Ziff Davis, it was out of left field; no one was expecting it,” said Greg Burns, an analyst with Sidoti & Co. in Yonkers, N.Y. “The company has a good track record of mergers and acquisitions, but this isn’t your grandfather’s J2.”
In truth, J2 has been hinting at an oncoming shopping spree since its last earnings call in early November. The company reported it had nearly $300 million in cash and executives at the time said that the money would be used for acquisitions, which are integral part of J2’s history. Since 2000, J2 has purchased more than 40 companies.
Until recently, all its acquisitions were made to bolster its existing online fax and cloud services business. There were no indications of J2’s nascent interest in becoming a major digital content owner like News Corp. or AOL Inc.
J2’s president, Scott Turicchi, who heads the firm’s mergers and acquisitions, freely admits his company is a digital media ingenue. Buying Ziff Davis, then, was a strategy to bring the online faxer two skills the company would need as it entered this new market: experience and legitimacy.
“We needed a team with properties in the media world that had demonstrated success,” Turicchi said. “Buying IGN was not a transaction we could have done without Ziff Davis. News Corp. would have said, ‘Who are you? You have the money, but we’ve never heard of you.’”
Fax checking
J2 was able to branch out from its core business as an online fax provider because that service has been so consistently profitable. The company’s most lucrative segment is Efax, which itself came to J2 through a 2000 acquisition.
Online faxing lets customers – many of them small businesses – send and receive documents using a digital, Web-based system. That means the customer doesn’t need a fax machine and a dedicated auxiliary phone line. Faxing is still considered a more secure way of sending documents than email and is popular in the health care and insurance industries, as well as other enterprise markets that deal with sensitive materials.
The online faxing business has favorable margins for J2, and in the quarter ended Sept. 30, the company reported net income of $32 million on revenue of $93 million. When it releases its year-end earnings Feb. 13, J2 is expected to surpass its 2011 sales record of $330 million.
Turicchi is quick to point out that the company has already expanded beyond faxing; it also offers cloud-based phone and data backup services. Still, prior to the media acquisitions, the fax business made up 76 percent of J2’s overall revenue. That’s soon to change.
Ziff Davis was fresh out of bankruptcy when J2 swooped in. The publisher, whose roots reach back to the 1920s as a printer of hobbyist magazines, had a difficult time transitioning to the online world. PC Mag, once a top source for computer shoppers, lost some value as consumers began hunting for computer reviews and bargains online. Ziff Davis also owns computer and gadget review sites Geek.com and ComputerShopper.com.
J2 purchased Ziff Davis, which company executives said will add $60 million to its 2012 revenue, for $167 million in an all-cash deal.
Although J2 executives hailed the acquisition as the grand unveiling of the firm’s new ambitions as a media owner, buying up another marquee digital media company in IGN so quickly was a bit of a surprise. It was like a couple getting married and finding out a few days later they were expecting.
“I was hoping for an IGN-type deal a few months down the road,” Turicchi said. “Instead it literally started happening in the following weeks.”
IGN’s network of Web properties includes IGN.com; AskMen.com, a male-oriented lifestyle site; and 1UP.com, also a video game reviews site. News Corp. purchased IGN Entertainment in 2005 for $650 million; the sale to J2 was reportedly about $100 million.
There are some echoes of Beverly Hills’ Myspace Inc. in the deal – another online media company that News Corp. bought at premium then unloaded to a Southern California company for a fraction of the price.
While Myspace is still searching for relevance after its heyday, IGN seems to have plenty of juice. IGN.com is within the top 200 visited sites in the United States, according to Web analytics firm Alexa.com. And although J2 executives declined to disclose IGN Entertainment’s revenue in advance of its earning report, the network of sites is expected to generate even more than Ziff Davis’ $60 million.
Tyler Goldman, a co-founder of Hollywood digital media owner Buzzmedia, said J2 was smart to make its entry into digital media by acquiring these well-recognized and popular sites.
“Gaming is a big category and one that brings in a lot of traffic,” said Goldman, whose firm also made a play for IGN. “One of the challenges with digital media is bringing it to scale, and taking in popular sites like IGN helps with that.”
Similar audience
Turicchi maintains that J2’s sudden and attention-grabbing foray into digital media is not an attempt to steel the company against a coming decline in the online fax market. Even as companies continue to phase out faxing, the number of people moving from physical to digital faxing remains strong for the near future, he said.
Instead, J2 executives are hoping to use the sites to promote some of their services to an overlapping audience. Turicchi said many of the online fax and cloud service customers are within the demographic of 18- to 34-year-olds that are the biggest readers of J2’s newly acquired news sites. J2 is also planning on leveraging the data it gathers from its customers to offer targeted advertising on its Web properties.
The company has not yet outlined any new editorial directions or changes for the sites. J2’s new head of digital content, Vivek Shah, who was brought over from Ziff Davis, was not made available for comment.
Although the online fax company still has plenty of cash for other acquisitions, there are no plans to swallow up any more digital media companies in the immediate future.
“This is just phase one for the media team,” Turicchi said. “There will come a time when that’s done and we’ll continue to look for more properties. But I wouldn’t want the next IGN tomorrow.”
Goldman said it shouldn’t come as a surprise that a company like J2 is entering the digital media game. Many legacy media companies, like News Corp., have had mixed track records at best in buying up Web properties. J2 might herald a new era of media ownership, where the right parent companies are ones with a history not in media but in technology. It’s a shorter leap than a wig company owning a TV network.
“Someone will use the digital medium to build a new media company,” Goldman said. “J2 has very quickly put themselves in that category and I give them a lot of credit.”
