Alborz Fallah

ALBORZ Fallah, who recently hit paydirt when Nine Entertainment agreed to buy his 10-year old bedroom start-up for a reputed $35 million, has been hailed as the latest dot.com millionaire in a rags to riches media focus that has pictured the CarAdvice founder in front of a Bugatti, one of the most expensive cars in world.

We all love a winner and Alborz and his team certainly deserve credit for what they have achieved in the past decade. And they deserve even more credit for convincing the owners of the Nine network to embrace a motoring website.

But a close look at the meagre details available suggests that, in terms of cash in the pockets of the CarAdvice shareholders, there is not as much bounty to share around than it would seem.

It is clear that $35 million is just not going to change hands, now or ever.

First of all $35 million would be far too much to pay at this point in the life of the company. From various reports the company has revenue of $15 million and about 40 employees with offices in Brisbane, Sydney, Melbourne and Perth. Earnings before interest, taxation, depreciation and amortisation are said to be about $1 million.

So, by any measure, the multiple of $35 million is a big stretch.

The key factor here is that the deal is over three years. CarAdvice management have to stay in place for that time AND meet a series of targets along the way for total cash allocated in the deal to flow to the CarAdvice shareholders.

Online publishing insiders are saying that the way these things work is that the CarAdvice shareholders will most likely receive some money up front. At various points in the next three years further payments will be made to the shareholders providing the company is meeting its various performance targets at each stage.

GoAutoNews Premium has been told that, based on how these deals are commonly done, it would be unsurprising that if further performance targets were missed, no further payments will be made by Nine and Nine would immediately assume 100 per cent of the shares.

More importantly, there is a sleeper contained in the announcement. The $35 million number is not made up totally of cash. It includes “media contra across Nine’s assets”.

Presumably this means that the Nine Network will promote the CarAdvice website on free-to-air TV to generate online traffic for the website.

In fact the CEO and managing director of CarAdvice, Andrew Beecher says in the announcement the contra was designed for CarAdvice to “extend its audience significantly through the Nine network”.

You can expect on the basis of how these deals get done that the contra element is going to be at least $15 million to $20 million of the $35 million number. Not a lot of cash left for the shareholders to share in after three years.

The question then arises about the quality of the advertising to promote the site with Nine’s viewers. Will the promotion be in prime time where it would displace paying advertising clients or get dropped into unsold gaps in slots across secondary channels like Gem and Go?

And is TV the best medium?

Andrew Beecher CEO and managing director of CarAdvice (left) and Alex Parsons, Nine’s chief digital officer

Long experience tells us that TV advertising for websites has always vacuumed up huge amounts of advertising budgets and Nine might be surprised to find that very expensive TV campaigns for auto websites over the years have produced little, if any, long-lasting gains in building traffic.

What tends to happen is that the traffic rises for as long as the cash tap is turned on. But as soon as the tap is turned off the traffic returns to close to where it started.

The CarAdvice owners might also care to reflect of the disappointment experienced under the deal between Australia’s top dealer groups and News Corp when they joined together to rev up the CarsGuide website which had been owned by News.

Under the deal, the dealers put in $15 million in cash and News Corp promised $15 million in contra newspaper advertising. It was not long before the dealers’ cash was depleted by TV campaigns and the dealers were grumbling that they did not get the lift from the contra advertising across News Corp’s national portfolio of newspapers that they expected.

More recently, of course, News Corp is selling out its share of CarsGuide to the dealers and then CarsGuide will be merged with the Australian assets of giant US-based Cox Automotive services company. Ironically, News Corp is bowing out just as CarsGuide appears to have achieved some critical mass through relentless search engine optimisation with the company claiming one million unique visitors a month to its car-buying website.

Meanwhile, it is thought that aside from promoting the website across Nine’s TV stations, additional benefits to the CarAdvice bottom line can flow from having the Nine advertising sales team take responsibility for selling the display advertising across CarAdvice’s pages.

This is always appealing to publishers who balk at what they see as unnecessary duplication of cost. It will be tempting for the new management to think that one advertising team can cover the ad sales for both Nine and CarAdvice rather than two.

Perhaps they could have a look at News Limited in the 1990s when the company created a single national advertising team, NewsNet, to sell space in ALL of News Limited’s publications.

This was catastrophic for the lesser-read titles. The tabloid dailies got the bulk of the sales orders while the other publications just languished.

At the time it nearly bought The Australian, which had previously gone to bat with the advertising agencies in its own right, to its knees. Which is why The Australian’s editor-in-chief, Chris Mitchell, a couple of years ago put his job on the line when News Limited’s then chief, Kim Williams, wanted to repeat the NewsNet disaster.

Cautionary tales, indeed.

(Mr Beecher did not return calls from GoAutoNews Premium).

Comment by John Mellor