ChasNote

In this week’s New Yorker, financial-page writer James Surowieki offers a pessimistic outlook on the CNET-CBS marriage.

First, he argues that a good partnership strategy is often better than an owned and operated (O&O) approach:

“Merger mania also rests on what you might call the fallacy of ownership — the assumption that you have to own a company to make money from its properties. In fact, much of what mergers are supposed to accomplish can be achieved through partnerships and alliances. Google has made deals to handle searches and advertising for companies like A.O.L. and I.A.C., giving it access to their customers without the hassle of an acquisition. And I.B.M. has, in recent years, marketed the products of its competitors Sun Microsystems and Novell, enabling it to expand its offerings and its potential customer base. If CBS and CNET had simply agreed to cross-promote each other’s brands and distribute each other’s content, CBS would have had many of the benefits of merging without the costs.”

Second, he suggests that the merger makes the most sense if the gameplay is layoffs and cost-savings:

“There are, of course, situations in which acquisitions do make sense. According to a recent meta-analysis of a number of merger studies, mergers that rely more on cost-cutting — combining back-office operations, eliminating redundancies, and so on — than on promises of vast growth are more likely to be successful. (The merger of J. P. Morgan and Bank One, for instance, led to more than three billion dollars in annual cost savings.)”

I hope that’s not the plan.