<PAGE>
Filed by Ziff-Davis Inc.
Pursuant to Rule 425 Under the Securities Act of 1933
Subject Company: Ziff-Davis Inc.
Commission File No.: 001-14055
FOLLOWING IS THE COMPLETE TRANSCRIPT OF A CALL WITH ANALYSTS, REPLAYS OF WHICH
HAVE BEEN MADE AVAILABLE VIA TELEPHONE AND INTERNET.
ZDNET
Moderator: Robert Borchert
August 2, 2000
5:00 pm CT
Operator: Good day. My name is Stephanie and I will be your
conference facilitator today. At this time, I
would like to welcome everyone to the ZDNet Second
Quarter Announcement for your earnings release
conference call. All lines have been placed on
mute to prevent any background noise.
After the speaker's remarks, there will be a
question and answer period. If you would like to
ask a question during this time, simply press the
number 1 on your keypad and questions will be
taken in the order that they are received. If you
would like to withdraw your question, press the
pound key.
The leaders (sic) of today's call is Mr. Dan
Rosensweig, President and CEO of ZDNet. At this
time I would like to introduce Robert Borchert,
Vice President
<PAGE>
of Investor Relations at ZDNet. Thank you,
gentlemen. You may begin your conference.
Robert Borchert: Thank you, Stephanie. This afternoon, before we
start the formal comments, I'd like to introduce
the participants on our conference call, Dan
Rosensweig, CEO of ZDNet, Art Fatum, our Chief
Financial Officer, as well as Massimo De Nadai,
our VP of Finance.
Before handing the call off to our management team
to review ZDNet's financial results and operating
highlights, I'd like to read a brief Safe Harbor
disclosure. During this conference call, ZDNet may
make forward-looking statements that are subject
to risks and uncertainties. Although we believe
that the expectations reflected in our
forward-looking statements are reasonable, actual
results could differ materially from those
expectations. Important cautionary statements and
risk factors that would affect actual results are
discussed in materials filed by Ziff-Davis with
the Securities and Exchange Commission including
under the caption Risk Factors in the Ziff-Davis,
Inc. proxy statement dated February 7, 2000 and
any other subsequent filings with the SEC. Holders
of ZD Group stock and ZDNet stock are common
stockholders of Ziff-Davis, Inc. and are subject
to risks associated with an investment in
Ziff-Davis, Inc. and all of its businesses assets
and liabilities.
Ziff-Davis and CNET will be filing with the SEC a
proxy statement and other relevant documents
concerning their planned merger. We urge you to
read the proxy statement prospectus and any other
relevant documents to be filed with the SEC
because they contain important information. You
will be able to obtain these documents free of
charge at the SEC's Web site, www.sec.gov. You may
also inspect documents filed with the SEC by
Ziff-Davis at the Office of the New York Stock
Exchange, 20 Broad Street, New York, New
<PAGE>
York, 10005. The joint news announcement released
on July 19, 2000 relating to the merger contains
information regarding the participants in the
proxy solicitation and their ownership of
Ziff-Davis and CNET stock.
Dan Rosensweig: Thanks, Robert, and good afternoon everybody.
It's always a pleasure to talk about a great
quarter. And we feel excited about our numbers and
our metrics and how we've been fulfilling on our
promise to be the world's leading destination for
people who want to buy, learn about or use
technology.
Most of you probably already know and have read
the announcement that ZDNet expects to merge with
the CNET Networks before the end of the year. And
the proposed merger has been extremely well
received by employees, as well as our business
partners, marketers, analysts and investors.
In fact, Shelby Bonnie and I spent the last week
and a half or so on the road speaking to many of
the top investors in both ZDNet and CNET. And the
story is being extremely well received, mostly
because the story really is highlighted by some of
the following statistics that we think are very
exciting.
First, together, the two companies would become
the eighth largest Web site in the US with over 16
million unique monthly visitors.
We'll also be a global leader in providing
technology information and related services to
businesses and individuals across multiple
platforms.
We'll be a worldwide company with operations in
over 23 countries and 16 languages.
<PAGE>
And we will leverage two of the most trusted
Internet brands in providing information, guidance
and pricing as part of the purchase decision for
technology products and services all around the
world and throughout the supply chain.
The merger of these two leading new media
companies, both of which are profitable, will
allow us to focus on creating informed
marketplaces within the most important category
driving today's global business.
Together, we expect to create interactive
information platforms that connect and serve
corporate customers and end-users as well as
manufacturers, distributors and resellers through
the development of efficient marketplaces all down
the IT supply chain.
I'll explain more of that in detail later in the
call. Now though, I just want to briefly review
some of the highlights of ZDNet's second quarter,
which I think will reinforce ZDNet's growth
patterns and the vitality of the technology new
media marketplace. Our results and those of CNET
really highlight just how big and vital this
market truly is.
For Q2, this marks ZDNet's eighth consecutive
quarter of operating profitability. Art Fatum,
ZDNet's CFO, will run through the numbers and the
specific metrics. But let me preface that by
saying that during the quarter ZDNet realized
significant growth in average daily page views,
revenue yield per 1000 pages and the number of
marketing partners doing business with ZDNet
around the world.
<PAGE>
Let me turn it over to Art, who will take you
through a detailed review of the financial
performance and operating metrics for the quarter.
Afterwards, I'll go through the business
highlights and get into a further discussion about
the pending ZDNet/CNET merger before taking any of
your questions.
Arthur Fatum: Thanks, Dan, and good afternoon to those of you
joining us on the call.
As Dan just indicated, our second quarter results
underscore the vibrancy of ZDNet's business model
as we delivered another quarter of record revenue
and profitability.
Our results also highlight the key strengths of
the combination of ZDNet and CNET -- things like
growth, profitability, reach, critical mass and
global presence -- and sets the stage for a new
business model to be developed in the months and
years to come.
Quarterly net revenue for ZDNet was $39.2 million,
some 71% greater than the second quarter of last
year. Revenues from business segments other than
ad banners and buttons comprised approximately 30%
of total revenue, similar to our Q1 revenue
percentage and up substantially from about 10% a
year ago.
On a sequential basis, second quarter revenue
increased 9%, providing a tremendous base for us
as we move into the seasonally strong latter part
of the year.
ZDNet continues to experience growth and success
similar to other top tier specialized and focused
Internet properties that receive the attention and
lion's share of dollars spent by marketers on the
Web.
<PAGE>
Other critical business metrics also demonstrated
our strong performance. In the second quarter we
had a record 603 advertisers, up 40% from Q2 of
last year. The average spending for advertiser in
the quarter grew 31% over the prior year to
$65,000.
We continue to derive the great majority of our
revenues from traditional technology and consumer
companies, names like Dell and Gateway, Oracle,
CDW, Semantic, Network Associates, MasterCard,
Fidelity Investments. Our dependence on spending
by smaller dot-com companies remains low at about
20% or so of our total revenue.
With respect to net yield, our revenue per 1000
pages grew 10% to $28.81 compared with the same
quarter last year. This is, of course, in addition
to traffic growth that reached an average of 14.4
million daily pages, 63% more than the second
quarter of last year.
Our operating efficiency is reflected by our gross
margin of 62.4%, ahead of the 60% margin attained
in Q2 of 1999. As we've noted before in calls, we
do not report a separate development expense, but
rather our cost of goods sold includes development
costs as well.
On a profitability side, we reported operating
income before amortization and stock-based
compensation of $5.9 million as compared with $4
million in the second quarter of last year. As Dan
said, this represents the eighth consecutive
quarter of operating profitability for ZDNet.
Our overall operating margin of 15.2% continues to
reflect the significant strides made by both our
domestic and international operations. This margin
percentage is up sharply from the 10% reported in
Q1 of this year.
<PAGE>
We continue to manage our cost base tightly as we
balance needed investments across the globe with
the important goal of profitable growth.
The US operations have contributed a little more
than 90% of total revenues with an operating
margin of almost 18% in the second quarter.
Our international business, while still in the
investment mode, continues to evolve rapidly.
Indeed, its revenue has grown almost 150% in the
same quarter of last year and has grown about 40%
from the first quarter of this year. We remain
confident that we're on track to realize our goal
of achieving 20% of revenue from businesses
outside of the US by the end of next year.
Now, these results clearly demonstrate the
strength and scalability of our business model to
achieve accelerated profitability as revenue
grows, along with our ability to execute on and
replicate our successful formula in multiple
segments around the world.
But other things have been going on. And there
have been some important changes that were
initiated in the second quarter as we took steps
to integrate the operations of Computer Shopper
and SmartPlanet within the rest of ZDNet.
The performance of these business units will be
included in ZDNet's reported results beginning in
Q3 2000. We are, however, very excited about the
future prospects of these businesses and thought
you might appreciate some background. I'd like
Massimo to cover this area of interest for you.
<PAGE>
Massimo De Nadai: Thank you, Art. As many of you may know, over the
past several years, Computer Shopper has been
impacted by the erosion of margins in the direct
channel. In no small part as the result of the
financial difficulties that many advertisers in
this segment experienced. Although this had a
negative impact on Computer Shopper's historical
results, we also believe that we have now reached
a plateau with a stable set of advertisers, a
stable circulation base of about 500,000
subscribers and single-copy buyers, and a stable
revenue expectation of more than $40 million on an
annual basis.
Against this baseline, certainly Computer Shopper
has exceeded our expectations in the quarter by
reaching $11.8 million in revenues while
generating some $2 million in operating income.
In parallel to Computer Shopper, here is some
additional background and developments at
SmartPlanet. SmartPlanet is an online education
and training service originally pioneered by ZDNet
in 1997 as a technology-specific site. The service
was then turned over to Ziff-Davis Education and
transformed into a consumer learning property.
Upon ZDNet taking responsibility for SmartPlanet
in the second quarter of this year, we quickly
took steps to refocus the service around
technology, finance and some business-related
subjects, and to re-scale the size of the
operations in areas including staffing and
promotional programs.
Thus, SmartPlanet is now on a revenue run rate of
about $500,000 quarterly, and the cumulative loss
in the second quarter reflected a $5.5 million
one-time restructuring charge for a total loss in
the quarter of $7.9 million. We believe that
SmartPlanet is now on a path to become profitable
in the second half of next year as we had
originally announced previously.
<PAGE>
Of course, we will continue to improve the
efficiency of SmartPlanet in its operations and
promotional efforts. And in the second half of the
year, we expect continued strong performance by
Computer Shopper to generate income at least
sufficient to cover the additional investments
that we will be making in growing SmartPlanet into
a strong technology education service.
Art Fatum: Thanks Massimo. We're very pleased with the
results of the second quarter. And as we move into
the second half of the year, ZDNet remains well
positioned as the preeminent choice worldwide for
marketers who need to reach the key buyers and
influencers in the technology arena. With the
planned merger with CNET, our combined companies
will be in an even greater position to set the
standard for information platforms all along the
technology supply chain
With that, let me turn it back to Dan to comment
further on business highlights and our proposed
merger with CNET. Thanks.
Dan Rosensweig: Thanks, Art and Massimo. As you can see from the
numbers and the highlights that we had another
great quarter. What I'd like to do now is actually
give you some information to summarize the key
initiatives that highlight the core opportunities
once the merger with CNET Networks is complete.
First, let me give you some statistics on just how
large this opportunity is. Its combined companies
for the second quarter would have been 30 million
average daily page views, a revenue yield per 1000
pages of approximately $31, over 20 million
subscriptions to various email lists and
newsletters, coverage of over 300,000 products
with information, pricing and availability,
<PAGE>
20,000 expert reviews on technology products, over
80 daily news stories between the two companies
and a combined revenue of approximately $91
million with an EBITDA of nearly $12 million in
the second quarter alone. This will make us the
clear leader in the most important category on the
Web, which is technology.
Even more exciting for us, though, is the fact
that each company actually approached the market
from a different perspective with different
strengths and builds different brands. ZDNet's
initial focus was on the IT professional, leading
with authoritative technology information and
building out tech content portals around the
world, while CNET focused on early Internet savvy
and new economy enthusiasts with content and
services on the Web, on TV and more recently on
radio in the US.
CNET also was an innovator in creating search and
compare capability and technical databases to
create early-stage e-marketplaces. Most recently,
their aggressive move further down the IT supply
channels through data services and the acquisition
of Apollo have positioned us, as a combined
company, to play more prominent role through the
$1.4 trillion IT supply chain.
When you overlay our assets, there's actually
significantly less duplication than most people
generally perceive. This will enable us to
maintain our key brands and sub-brands and focus
on pursuing new revenue opportunities that will
result from these synergies by building new
business models to leverage our critical mass and
to expand our relationships with resellers, direct
vendors, distributors and manufacturers.
While we obviously need to wait a few weeks to
bring together the two veteran management teams to
get into true integration discussions, we have
<PAGE>
identified and highlighted four key initiatives
that we think will maximize the products and
services offerings and allow us to build new
revenue opportunities going into the future.
The first initiative is a continued focus on the
IT supply chain, and our ability to create and
develop efficient e-marketplaces for tens of
millions of technology buyers and tens of
thousands of sellers, including value-added
resellers, direct vendors, distributors and
manufacturers. We'll be able to position the data
services group as a standardized product database
and operating language to power these
e-marketplaces throughout the channel.
The second initiative is a continued focus on
growing the information and services for business
users. We'll tap into ZDNet's established online
resources and also leverage CNET's enterprise
offerings. Our combined reach into the workplace
is also a number 8 overall with 4.7 million unique
visitors in June, according to Media Metrics.
In addition, the most recent IntelliQuest
e-branding B2B study found that ZDNet was the most
mentioned technology property among business
influencers who were asked to name online sources
for obtaining information about computer hardware.
So we're extremely well positioned to take
advantage of the B2B marketplace.
This will allow us to sign more deals like the new
one we recently announced with Opus 360. This
alliance will enable us to provide users access to
comprehensive, project focused, consultative
marketplaces and services, bringing together
companies that need professional talent with
database of skilled independent contractors and
consultants. This will also create a new
transaction-fee revenue stream for us in the year
2001.
<PAGE>
The third initiative between the combined
companies is to expand our reach by building on
our global footprint and introducing our
information and services to broader audiences
throughout new platforms such as wireless.
ZDNet's global footprint, as I mentioned earlier,
is extremely significant already in over 22
countries. We have full ownership of sites in
Asia, China, France, Germany and the UK as well as
equity interests in joint venture sites such as
Australia, Japan, and soon-to-be-announced India.
CNET Data Services has operations in 23 countries
and 16 languages.
Our combined leadership in Western Europe is
unmatched in the online technology space. In fact,
in terms of traffic, ZDNet is number 1 in France,
Germany and the UK versus local competitors. And
when you add in ZDNet's US site and CNET's US
site, we have actually a substantial lead over
everybody in the space in each of those countries
as users like to use all three sites.
Traffic growth outside the US, and our ability to
begin to monetize page views, to us, looks a lot
like what ZDNet looked like two years ago in the
US which is a fast ramp on page views and a
growing revenue base.
The combination of ZDNet and CNET's international
capabilities, we will be able to build out
world-class search and compare offerings to add to
our current offerings. And then we will use this
base to move further down the supply chain around
the globe as we're doing already in the US. This
will also leverage ZDNet's and CNET's core
synergies through new technology platforms such as
wireless.
<PAGE>
ZDNet made significant strides in its "ZDNet
Everywhere" and wireless initiatives Q2. In May,
we became the preferred news provider in AT&T's
wireless digital pocket net service with
above-the-fold placement and services on the news
channel. We also signed wireless agreements with
AnyDevice, OmniSky and Internet Telecom.
We also created a new service called ZDNet Price
It!, which is a real-time price comparison and
buying service for wireless device users. The
Price It! service delivers anytime, anywhere
shopping convenience, leveraging the strength of
print, the Web and the wireless devices to achieve
a new level of e-commerce functionality.
Our last initiative is the ad delivery innovation
and direct marketing, an area that ZDNet excels
in. Our in-house targeting technologies enable us
to more effectively deliver our advertiser
messages to our combined audiences into
contextually relevant formats.
Based on our own internal profiling and database
capabilities, we already today have over 8 million
visitors profiled that have visited ZDNet at least
twice in the last 30 days. So we're able to work
with advertisers to design highly targeted
programs that improve click-throughs and develop
superior lead generation capabilities on behalf of
our partners, and allow us to capture higher CPMs.
ZDNet is also one of the largest purveyors in
direct email marketing with over 50 content-driven
newsletters today. And, in Q2, we had over 5.3
million registered users and nearly 12 million
subscribers or subscriptions to our emails that
allowed us to send out over 100 million outbound
messages per month.
<PAGE>
We clearly expect to leverage the targeting and
direct marketing capabilities across the entire
CNET Networks once the companies merge. Working
with CNET, we are also planning to extend our
reach and global footprint through innovative
broadband applications.
With over 65% of ZDNet's users having access to T1
lines or greater than 56K modem lines, we already
have a large initiated and interested broadband
audience. We are already in the process of
creating interactive content and marketing
messages through streaming videos. And we think
this will be a very important platform going
forward.
Most important to us is that the proposed merger
with CNET, who already have the TV production and
facilities, will allow us to build this platform
very cost effectively while others will have to
invest heavily in order to create this kind of
content and service. So we're extremely excited
about these as well as other initiatives.
Let me stop now and turn it over to Art to take
you through the acquisition update for CNET and
any information on the ZD / Key 3 Media spinout.
Art Fatum: Thanks, Dan. Now most of you have heard or seen a
lot about the merger at this point. So I'll just
cover some of these things at a high level.
Mechanics of the transaction are as follows: A
CNET subsidiary will merge into Ziff-Davis Inc.
CNET Networks will then issue 50 million shares,
roughly, to acquire all the outstanding shares of
Ziff-Davis Inc., which includes two series of
common stock, ZD and ZDZ.
<PAGE>
ZDNet or ZDZ shareholders will receive about 59%
of a CNET share for each ZDNet share owned. And ZD
shareholders will receive approximately 34% of a
CNET share for each ZD share owned.
As a result of the merger, CNET will acquire
ZDNet's worldwide Web properties, Computer Shopper
Magazine, SmartPlanet, a 10% Interest in Red
Herring and other investments in public and
private companies.
Prior to closing the transaction, Ziff-Davis's
events business -- Key3Media -- will be spun off.
We're expecting this to happen around mid-August,
once they have their financing commitments fully
in place.
The proceeds are expected to fund a $2.50 cash
dividend for Ziff-Davis or ZD shareholders. ZDNet
shareholders to not receive the cash dividend or
shares in Key3Media.
The following steps are being taken to complete
the CNET transaction. First, as part of gaining
Hard-Scott-Rodino approval, we made our required
filings with the government earlier this week. We
expect that no issues will arise, and, therefore
we hope that we'll receive early HSR termination
within 30 days or so.
Second, we're in the process of drafting our proxy
and registration statement for filing with the
SEC. We also need to have approval for the merger
from both CNET and ZD shareholders. Softbank, the
Ziff-Davis majority shareholder, has already
agreed to vote for the merger.
In addition, CNET insiders have also agreed to
vote their 22% of CNET shares outstanding in favor
of the transaction. Again, we expect smooth
<PAGE>
sailing and that the transaction will be wrapped
up in the fourth quarter of this year.
I'll pass the baton back to Dan for some closing
remarks.
Dan Rosensweig: Okay. I want to just thank everybody for joining
the call. ZDNet had another fantastic quarter.
We're very excited about the innovations and the
directions that we've taken the company over the
last year and a half. And we're very much looking
forward to the proposed merger with the CNET
Networks to create a world-class new media company
with huge opportunities and one of the most
important categories on the Web and continued
profitable growth.
So I thank everybody again. And if you have any
questions, we'll be happy to take them.
Operator: At this time, I would like to remind everyone, in
order to ask a question, please press the number 1
on your telephone keypad.
Your first question comes from Mandona Hormozi.
Andrea Mitchell,
Lazard Freres: Hey guys, great quarter. Actually this is
Andrea Mitchell for Mandana.
Couple of questions. First, the 30% of revenues
coming outside of the banners/buttons, can you
talk a little bit about what those revenue streams
are like and also average term of advertising
contacts, if you saw that change at all over the
last quarter? Thank you.
<PAGE>
Dan Rosensweig: Thank you. On the revenue that is non-advertising
banners and buttons, as we talked about on last
quarter's conference call, ZDNet has had a
diversified revenue stream for quite some time
which includes integration fees, lead generation
fees, direct marketing fees, licensing fees and
service fees.
So we are continuing to look for ways to increase
our total revenue and diversify our revenue stream
because we've never been dependent on just
"historical advertising" as an example. In terms
of your second question...
Massimo De Nadai: From quarter to quarter, we experienced about 60%
of advertisers from the prior quarter continue to
advertise in the subsequent quarter as well. And
that is indeed what happened in the second
quarter. And in fact, out of our 600 advertisers,
about 300 of them were new to ZDNet as compared to
the roster of advertisers that were with us in the
first quarter.
Andrea Mitchell: Thank you.
Dan Rosensweig: Thank you.
Operator: Your next question comes from Tonia Pankopf.
Tonia Pankopf,
Goldman Sachs: Dan, you mentioned that the transaction was
favorably received among shareholders. Could you
comment upon the reaction among your advertising
base to the merger with CNET? Thanks.
Dan Rosensweig: Thank you. Shelby and I spent about a week and a
half on the road with investors. And we had our
key personnel, Barry Briggs, Ken Evans of ZDNet,
Rich Marino and others at CNET Networks in
conversation with our largest
<PAGE>
advertisers. And then the staffs, of course, have
been fielding phone calls and making outbound
phone calls, which is the way we sell, to most of
our advertisers.
And interestingly enough, I think, to all of us
was there was real genuine enthusiasm for it. The
Web is a very complicated place to figure out how
best to create messages, both branding and direct
marketing. And the putting together of these two
companies will actually give, particularly for the
larger vendors, an opportunity to go over
multi-platforms and with a very large unduplicated
audience on the Web to get tremendous messaging.
So we've had a series of phone calls from some of
our largest advertisers who have already asked us
to come in, explain to them what the opportunities
will be so that they can look towards, you know,
Q4 of this year and 2001 to sign a contract.
So, we've not actually had any negative feedback
that we've been able to garner from our
advertisers because, when you think about it,
being able to reach 16.6 million on the Web
through one company and for larger companies
working globally now -- and many more of them are
particularly with borders coming down -- that this
is a great opportunity for them to have a great
partner to help them be successful. So the
response has been quite positive.
Operator: Your next question comes from Barton Crockett.
Barton Crockett,
Chase H&Q: Hi. I was wondering if you could talk a little bit
about what things look like going forward. I mean,
everyone is still obviously wondering when we sort
of see bottom in terms of, you know, budget cuts
from Internet dot-com companies and, you know,
what kind of strength we might see coming out of
<PAGE>
Q3 into Q4. I was wondering if you could talk a
little bit about how things are looking for Q3 and
also whether you think there might be something of
a turnaround in the shopping season into Q4?
Dan Rosensweig: Obviously it's a good question, and one that a lot
of people are asking because a lot of consumer
dot-com companies, which we never really had a
relationship with who had big budgets, are
obviously growing up.
We are, obviously, centered in the technology
marketplace. And so we usually have seasonally
good Q2s that we had and seasonally great Q4s that
we continue to anticipate having. As we go into
Q3, our visibility is much like it was into Q2. So
we continue to feel comfortable with expectations
that we put out at the beginning of the year.
You know, I do believe - I mean, one of the things
that I think will actually be a positive byproduct
going into the year 2001 is that a lot of the
advertisers who will be long term advertisers on
the Internet were actually blocked by a lot of the
sort of gratuitous dot-com advertising. So it was
very difficult for them to understand what worked
on the Web or even find places to advertise on the
Web because of the money being spent.
And so we anticipate going into fourth quarter and
2001 that not only the technology vendors will
continue to put increasing percentages of their
budget onto the Web and onto the combined networks
and onto the ZDNet site, but we also expect that
more consumer advertisers we're beginning to
develop relationships with, like Fidelity and some
of the financial services companies, are actually
beginning to leverage the platform even greater.
Barton Crockett: Okay, great. Thank you.
<PAGE>
Dan Rosensweig: Thank you.
Operator: Your next question comes from Allison Brown.
Allison Brown,
First Union Sec.: Hi, couple quick questions. You talked briefly
about the 30% of revenue that comes outside of
banners and buttons and I was wondering if you
could talk more specifically on some of the direct
marketing initiatives with the newsletters and how
you're able to monetize those newsletters, how
advertisers look at that and maybe what kind of
rates you're getting in the newsletters versus
what you get on the site?
And secondly, I was wondering what the breakdown
in revenue was between advertising and content
that you've broken out in the past, if you're
going to still be breaking that out in the future?
Thanks.
Dan Rosensweig: Sure, thank you. Let me focus a little bit on the
direct marketing. The Holy Grail of the Web has
always been one to one marketing. One to one
marketing is, of course, very difficult to
achieve. And you can't make a lot of money selling
to one person. And nobody sells a lot of products
only to one person. But the concept makes a lot of
sense.
And with ZDNet's profiling capabilities and being
able to marry that data with data from our
targeting product and then being able to overlay
that on our targeted email lists, we expect the
direct marketing will actually come in much bigger
component of the business over the next two to
three years.
<PAGE>
Today, we actually sell on content-based, outbound
emails. We sell ad units onto those emails. We
recently have added a second ad unit that is based
on profiling data that allows not only just a
general ad to be placed on the entire distribution
of the list but a second unit could be created
with a actual horizontal or vertical cut across
multiple lists or within a list.
So as an example, if you're Compaq and you would
like to reach small business customers and you
want to do it through a direct marketing effort,
we can actually identify, through profiling,
subscribers to our list that have either read
small business content on the site or who have
identified themselves as being companies, as
example, for 1 to 49. And so we can now overlay
that across lists with second ad units.
So we think we've been an innovator in this area.
And we think it's a very exciting growth
opportunity for the company and the combined
companies going forward as we sort of put these
things together.
In the short-term, our CPMs continue to increase
on direct marketing, having gone from $15 to about
$65 CPM on average. So we've seen quite good
growth there. And actually we sort of feel as we
can cut these lists smaller we can actually get
higher CPMs because the out of pocket for each
vendor will be lower and the results are generally
higher when you can do targeting and profiling.
Hopefully that answers your question.
Allison Brown: That was great, thanks.
Dan Rosensweig: Thank you. Oh, the second part of your question,
which is the content revenue. I'm not sure that
we'll continue to break it out. It's really a
series of licensing agreements and content
revenues that equal about 4% of our total
<PAGE>
revenues. You know, we have always anticipated
that revenues other than that would be the real
growth opportunity.
Operator: Your next question comes from Bill Lerner.
Bill Lerner,
Prudential Sec.: Dan, a quick one for you here. I guess, given all
the recent noise on online privacy initiatives,
whether it happens via self-regulation or
legislation or both, Number 1, what's your take on
how that whole issue might shake out and your
sense for when? And secondly, how might you guys
specifically be impacted, especially given your
huge database of profiled users?
Dan Rosensweig: Let me answer the second one first and I
appreciate you asking the question. We, obviously,
have a very clear privacy policy that's posted on
every page. And our emails are opt-in email
selections as well as every single email that we
send out has a very easy unsubscribe mechanism on
each one.
In addition to that, you can actually go on now to
ZDNet and go to our customer service area, put in
your email address and immediately find out every
list that you're on and either add lists or
unsubscribe to lists.
Because we're a content vertical and because
there's value-add with what we provide, we have
found no slowdown in registration from our users.
We continue to get approximately 130,000 new
registrants a month onto ZDNet and a very small
unsubscribe base.
So because we're clear, we don't sell the
information off the site to anybody else, we
actually utilize it through messaging that we
serve through our network with messages based on
content sites that we've actually had no
<PAGE>
complaints. And we don't anticipate any challenges
or issues going forward as it relates to privacy
because we're extremely careful with that.
I mean, the thing that we always remember is that
our users are our critical assets. So we would
never do anything that would disturb the users.
And we have a great dialogue back and forth with
them.
So from our standpoint, we've been very clear with
opt-in and information and unsubscribe so we're
not concerned plus we don't sell their data to
anybody, nor will we.
And so I think how the whole issue shakes out,
it's obviously a very complicated issue. There's a
lot of confusion around what the privacy issues
are. And we have always held that there's a
difference between a content site whose brand and
name is at risk versus some of the ad networks who
do different things with information and
demographic profiling.
And so I think we have a long way to go. I think
the government needs to focus on issues of
privacy, particularly relating to children, from
our perspective. But I think the majority of
self-regulation and a user's ability to be able to
quickly and instantly provide information about
sites that are doing the wrong things with their
information will be very helpful in the
short-term.
Operator: Your next question comes from Bob Hiler.
Bob Hiler,
First Boston: Hi. I have two questions for you guys. The first
is, looking at the United States, obviously ZDNet
and CNET target different demographics and have
different brands. They mean different things to
different consumers ... Right?
<PAGE>
As you guys move internationally - this might be
too early in terms of integration to talk about,
but I'm curious about it anyway. As you move
internationally, do you know how you're going to
handle the brands on kind of a global basis in
terms of managing the CNET versus the ZDNet brand
internationally?
Dan Rosensweig: Well, I appreciate you giving me the caveat of
"it's still early" because it is. And obviously
until we can get a chance to sit down after
Hart-Scott and all the rest of that, we'll be able
to find out further. But initially, ZDNet is
actually the portal site outside the US. So if you
look at Germany, France, the UK, there are no CNET
sites as an example. Where they actually have
branded CNET names, they're joint ventures through
AsiaContent, which allows them to have CNET India
and CNET Korea and CNET Asia.
In those countries we do have joint ventures
ourselves or wholly-owned. So in Asia, we have
ZDNet Asia that is a wholly-owned. In Korea, we
have a joint venture. And we will be announcing
our India joint venture shortly. In those
countries we anticipate, you know, being able to
leverage the multi-brand strategy, much as we did
here. But the real synergies of international come
from leveraging today the ZDNet brand in the
portal sites in the countries like Japan and China
and Germany, France and the UK and then leveraging
what CNET has actually built from a technological
platform of search and compare and price
comparison capabilities. So that's non-branded
stuff plus CNET data services, which actually
solves the data problem up and down the supply
chain.
So I anticipate initially that the ZDNet brand
will be the brand in at least Western countries. I
don't know whether or not we'll have multiple
brands in
<PAGE>
those countries, but we anticipate for the time
being building out those as being giant platforms
in each of those countries.
Bob Hiler: That answers my first question. Can I ask my
second one?
Dan Rosensweig: Yes.
Bob Hiler: Okay, thanks, that was a good answer. Okay,
looking at the number of advertisers, you picked
up about 100 new advertisers this quarter. And it
also looks like your kind of advertising revenue
per advertiser went down slightly. So I was
wondering, where did those new advertisers come
from? Is that part of the international story?
Because that would explain where the growth came
from and also the falling of the average contract
value.
Dan Rosensweig: That's exactly where it came from. I mean,
obviously, we continue to pick up vendors in the
US. But really our strategy of being a global
player is beginning to pay off in terms of the
number of advertisers that we have.
So our international revenue, I think, as we
pointed to was up 40% quarter-over-quarter as an
example. And so what you'll actually see, my guess
is for a time period is, if you look domestically,
the contracts will get longer and deeper and
richer. And if you look overall, the contracts
will look like they'll be a little bit shorter and
a little bit less revenue because we'll be
building new relationships with new vendors around
the world.
As I said earlier, you know, we're seeing outside
the US what we saw two years ago inside the US,
which is lots of small vendors putting their toe
in the water, leveraging the leading platforms.
And we expect to be able to take the success that
we've had here and replicate it there and
particularly because
<PAGE>
we're already number 1 with the local site in each
of those countries and actually either number 2 or
number 3 or number 4 with either the ZDNet US or
the CNET US site. So you hit the nose on the head.
Bob Hiler: Okay and I don't know if I just missed this or you
didn't say. International revenues were up 40%
from the last quarter. You said that, but did you
break out what percent of revenues from
international?
Dan Rosensweig: No, not at this point. What we said is that
slightly less than 10% of our revenues come from
outside the US at this point.
Bob Hiler: Okay, great. Thanks a lot, Dan.
Dan Rosensweig: Thank you, Bob.
Operator: Your next question comes from Mark Mahaney.
Mark Mahaney,
Morgan Stanley: I actually had a couple of international
questions, two of which were just asked so let me
ask the third, which is that you and Shelby on
your road show have talked about the overlap
amongst the top 25, top 20 advertisers for each
network, that it's roughly 25%. If you did that
just looking at the internationally based, non-US
based advertisers, I assume the overlap would be
lower and maybe significantly lower than that.
Could you comment on that, please?
Dan Rosensweig: Yeah, it's a good question. By the way, we're
having trouble hearing the questions, so if we ask
you to repeat them, that's why.
<PAGE>
The largest advertisers in the US, what we said
was amongst, I think, the top 15 advertisers in
both sites that - or the top 25 advertisers on
both sites that it was less than 25% duplication
which was, I guess, a surprise to us as well as to
people in the marketplace.
Our international revenue is not significant
enough at this point for many of those vendors to
be in the top 25. So it really doesn't change the
equation too much at this point.
Mark Mahaney: Okay, great, thank you.
Dan Rosensweig: Thank you.
Operator: And your next question comes from Barton Crockett.
Dan Rosensweig: Hi, Barton, again.
Barton Crockett: Yeah, hi. I wanted to follow up on one other
question if I could. Could you comment a little
bit more on the relationship with Willis Stein?
And there have been some questions out there and I
know you've addressed it before in terms of saying
that you expect a license agreement to continue
and that maybe about 10% of the initial page views
come to basically magazine Web sites. But I was
wondering if you could go maybe a little bit
further and give us some sense of what, if any,
kind of revenues, you know, could reasonably be
seen as coming from that relationship, from the
content that you get and, also just comment on how
comfortable you are currently with that
continuing?
Dan Rosensweig: I'm extremely comfortable with it continuing, as
we've said. And so we don't actually break out the
revenues that way because we have very few people
that
<PAGE>
just choose to buy a specific magazine Web site.
So it's just part of the revenue that goes across
the overall network.
So from our standpoint, we don't break it out that
way and plus we don't anticipate any changes going
forward unless, you know, we believe that it's a
good opportunity to change something. So I'm not
sure what else we can say on the matter.
Barton Crockett: Okay, so at this point, we basically should be
safe in assuming that the license agreement
continues as it stands?
Dan Rosensweig: Yep.
Barton Crockett: Okay, great, thank you.
Operator: Once again, I would like to remind everyone in
order to ask a question, please press the number 1
on your telephone keypads.
There are no further questions at this time. Do
you have any closing remarks?
Man: Yes I do. We are clearly excited about this
merger. And we feel that the lack of duplication,
the lack of overlap, the way these companies have
been built differently and the enormity of the
technology marketplace, the fact that the combined
companies will have the number 8 position, 22%
reach on the Web, have a global footprint and
abilities to leverage our platforms throughout the
supply chain and build revenue models, not just to
the end-user or the consumer through the
advertising model which remains robust, but to be
able to build direct marketing revenue,
integration fee revenue, service revenue and
revenue further down the supply chain through
business-to-business revenue
<PAGE>
and exchange revenue puts the combined companies
in a wonderful position to be a significant player
going forward in the years 2001, 2002 and beyond.
So it's great that two great companies from a
position of strength and a position of profits and
a position of growth are coming together to take
on new challenges and new opportunities. So we
very much look forward to the completion of that
process, hopefully by early Q4.
From the ZDNet perspective, we're obviously
extremely proud of the results that we had this
quarter. We view them as being fantastic and eight
consecutive quarters of profitability, continued
growth, new innovations, new platforms, we really
are excited about our future going forward.
So I want to thank everybody for joining the call.
And we look forward to talking with you in the
future. Thank you.
Operator: Thank you for participating in today's ZDNet
conference call. This call will be available for
replay beginning at 8:30 pm Eastern Daylight Time
through 11:59 pm Eastern Daylight Time on August
8, 2000. The conference ID number for the replay
is 813421. That number again is 813421. The number
to dial for the replay is 1-800-642-1687 or
706-645-9291.
Thank you...you may now disconnect.
