Federated Media Gets $50 Million, But Isn't Buying Blogs Anytime Soon

After turning down a $100 million buyout offer, Federated Media Publishing has opted instead to raise $50 million in a C round led by Oak Investment Partners. As was reported two weeks ago, the rumored valuation is $200 million. While the company is not confirming that number, publisher Chas Edwards quips, “We have to be worth at least $101 million.”

Federated Media acts as the advertising salesforce for about 150 blogs and dozens of online media properties with a collective audience of 50 million people a month. Its blog partners include Boing Boing, GigaOm, Ars Technica, Silicon Alley Insider, and TechCrunch. It even sells ads for video blogs like AskANinja and on some Facebook apps, such as Graffiti and Watercooler.

A Tidy Advertising Business . . .
In 2007, according to Edwards, Federated Media sold $22 million worth of ads across its network, up from $4 million in 2006. It generally splits the ad revenues with publishers, taking 40 percent for itself. Edwards says that Federated Media is able to command between $10 and $25 per 1,000 impressions (CPMs) for the ads it places on the blogs it works with (and $6 to $12 CPMs on its Facebook apps, which is very high for social-network inventory). Edwards says Federated Media has been cash-flow positive for more than a year and EBITDA-positive since September, 2007. The blog advertising network previously raised a total of $7.5 million.

. . . or a Blog-By-Night Network?
The issue, though, is that unlike a traditional media company where content and publishing are under the same roof, FM does not control the sites for which it sells ads. And there is no lack of ad networks that big blogs can work with. Even Technorati is hoping to turn itself into an ad network for blogs. In order to tie its partner sites closer to Federated Media, we’ve suggested before that the company could use this new cash to buy guaranteed ad inventory on the blogs in its network, or buy some of those blogs outright. But Edwards tells me Federated Media will not guarantee advertising under any circumstances, and is unlikely to buy any partner blogs:

Let’s say we bought all the sites that are part of FM. If we don’t deliver value they can walk away. The stability of our relationship with content creators will come from the value we create every day, not from our contracts.

He goes on to qualify this statement this way:

I wouldn’t rule out any scenario. If an author needs $100K. Is there a way FM could help them with that? Absolutely, and it can be structured a thousand different ways. But I don’t suspect that FM’s path is to acquire the blogs we work with.

He also argues that even when blogs get big enough to hire their own ad sales team, they will never be able to cover as many ad agencies and clients as the 25 sales people at Federated Media. That’s true, but it doesn’t take 25 people to sell ads for one blog, and blogs that sell their own ads have a better chance of getting higher ad rates. The type of bundled selling that Federated Media can do will have a place in any given blog’s advertising mix as long as Federated Media can do a better job selling ads to the big brands (which generally require the type of scale and vetting that Federated Media offers).

So what is Federated Media going to do with that $50 million? Expand beyond blogs, expand internationally, help existing media partners expand to new sites (and thus more ad inventory), and help them expand beyond the Web (by selling sponsorships for conferences and other events, for instance). Federated Media is going to have to keep finding new ways to keep the money flowing to its blog and media partners if it wants to keep them from bolting.

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