'); //--> E-Mail | Print | Comments | Request Reprints | E-Mail Newsletters | RSS
Everything Ventured
There UGO
Erika Brown,
Burlingame, Calif. - On Tuesday morning, Hearst was expected to announce the acquisition of UGO Networks, a collection of Web sites targeting young men interested in video games, sports and pictures of hot girls. UGO claims 11 million unique visitors a month. Terms of the deal, which took two years to come to fruition, were not disclosed. Forbes estimates the acquisition to be in the neighborhood of $100 million.
New York City-based UGO is one of the last Web 1.0 holdouts to have a successful outcome. Sites with video and user-generated content, commonly referred to as Web 2.0, have been taking over. Most startups from the Web 1.0 era either went on to great success (Amazon, eBay, Yahoo) or were decimated at the turn of the century (Pets.com, Etoys, Webvan). And the few companies that survived raised such ridiculous amounts of money that just about any exit is sure to be an unprofitable one.
Take TellMe, which makes voice recognition software. A few months ago, the company sold itself to Microsoft for an estimated $800 million. Sounds great, right? However, TellMe, which was founded in 1999, raised $240 million in venture capital. If you assume the VCs got something like half the company for their money, TellMe would have had a $500 million valuation. An $800 million payout does not look like much of a profit, considering it took eight years and multiple reorgs to get there.
UGOs story is even more extreme. Chief Executive J. Moses and President Michael McCracken spent nine years and $82 million trying to build the ultimate online destination for young men. They burned through multiple business plans. They had to execute multiple rounds of layoffs and multiple fire sales. In order to get out of a lease on a space they could no longer afford, they had to give away millions of dollars worth of data center equipment. Their friends and family told them to quit. It was total depression. Total freak out, recalls Moses.
All but one of their venture backers gave up on them. And that firm, Los Angeles-based GRP Partners, gave them a cram down. GRP inserted an onerous term called a 5-X liquidation preference, something financiers only dare suggest to the most desperate companies. It means if UGO sold itself, GRP would be guaranteed to reap five times its investment before anyone else got paid.
UGO is up against some pretty tough competitors, including ESPN, Maxim, MTV and IGN. Moses and McCracken knew they would be unable to survive against such heavily financed media outlets. The media business is all about size and leverage, said Moses in an interview a few months ago. We cant make it on our own. When the Web was about words and statistics, we were able to compete. But now its about video. And for video, you need more money.
Moses has been trying to sell his company for more than two years. Just about every media giant out there has taken a look at the deal, and then taken a pass. The nine-year-old company has 82 employees and brings in some $30 million in revenue and an estimated $6 million in EBITDA. A nice little company, to be sure, but lets put that into context. MySpace, which aims for a similar audience, is expected to bring in $1 billion in revenue this year. And its three-and-a-half years old.
For a company like Hearst, which has multiple media properties including Lifetime Television, The Houston Chronicle, Esquire and Cosmopolitan, UGO brings nine years worth of Internet experience.
Kenneth Bronfin, president of Hearst Interactive Media, said he plans to retain both Moses and McCracken, and allow them to run the company as a separate entity. Bronfin will also consider more acquisitions to help build out the UGO property. Areas for growth include user-generated content (UGO still gets all its content from full-time employees and paid freelancers) and video.
I first met the folks from UGO six months ago. We spent hours talking about what they had been through and how difficult their future looked in this time of mega-media. I have to admit: I didnt think they would make it. I even considered writing a column about how sometimes the best thing to do is give up, start anew. Moses, however, remained hopeful: In the valley of death, we always found a way out.
More On This Topic Companies: EBAY | YHOO | MSFT
Article Controls
E-Mail | Print | Comments | Request Reprints | E-Mail Newsletters
del.icio.us | Digg It! | My Yahoo! | Share | RSS
Related Sections Home > Technology
'); //--> News Headlines | More From Forbes.com | Special Reports Advertisement: Related Business Topics >
Computer Furniture Time and Attendance Systems Subscriptions >
EGM was to be closed after sale of 1UP to Hearst Corporation (Hearst Tower, New York).
Electronic Gaming Monthly is now dead. EGM was one issue away from its 20th anniversary in February 2009. An internal email leaked to industry website Gamasutra on Tuesday revealed that EGM was to be closed following the acquisition of the online element of the 1UP network by competitor Hearst Corporation's UGO Entertainment and that the January 2009 issue (with Wolverine on the cover) would be the final printed issue of the iconic magazine. Ziff Davis's sale, brokered by GCA Savvian Advisors also includes Mycheats.com, Gametab.com, and GameVideos.com. Hearst Interactive is the owner and operator of UGO Entertainment. 

According to CEO Jason Young, the court proceedings help Ziff Davis “pay down debt and shift our full focus to our core PCMag Digital Network Business.” Davis had been focusing on PCMag Digital Network. As a result, around 30 employees of Ziff Davis' Game Group, including EGM Magazine's staff, 1UP Network's web staff, podcast and video producers lost their jobs. A UGO spokesman explained that "the reality is that UGO Entertainment is saving over 25 jobs, the company is retaining a core group of editorial all-star performers." Ziff Davis Holdings Inc (ZFDH.PK), which publishes EGM and about 15 Web sites, obtained Manhattan, New York Court Judge Burton Lifland's approval of a reorganization plan under Chapter 11, Title 11, United States Code. It was able, therefore, to emerge from its duly filed March bankruptcy protection petition.

Fabio Lanzoni on the cover for the game Ironsword: Wizards & Warriors II.
UGO Entertainment CEO J Moses left a note on EGM's gaming legacy, saying, "since we started UGO 11 years ago, we have served the gamer community and built a world-class online publishing platform." Ziff Davis Media CEO Jason Young further noted: "We believe this is a smart transaction for Ziff Davis Media that places these market leading assets and teams in a great environment poised for further success. The transaction allows us to pay down debt and shift our full focus to our core PCMag Digital Network business. We thank our 1UP team members for their contributions and wish them the best of success into the future." In July 2007, Hearst acquired the 11-year-old UGO Networks (Hearst Interactive) for an estimated price of $100 million. Established in 1998 by CEO J Moses, UGO is an online site targeting men aged 18 to 34. 

J Moses stated categorically that his company just saved 1UP and UGO never tried to acquire EGM. “Closing EGM has absolutely nothing to do with UGO. We have just hired 24 people and have expanded UGO by 33 percent, because our business is robust and growing. We only wanted to buy 1UP and related sites. That was our interest as a dot-com company and that’s all we’ve ever been for 11 years." Sam Kennedy, editorial director of 1UP, further explained that Ziff Davis was insolvent and 1UP was not financially healthy. "The reality of the market was that no company, including UGO, was willing to sustain 1UP as it was so the cuts were very painful but necessary to the survival of 1UP," he added.

Electronic Gaming Monthly, which has been synonymous to video games for generations of gamers, was an American consumer video game magazine mainstay. It was published by Ziff Davis as part of the 1UP Network and released 12 issues a year (and an occasional extra "13th" issue for the Christmas season, also known as the "Smarch" issue, a reference to an episode of The Simpsons). As ZD's sole print magazine, EGM, a stalwart of the videogame industry and dubbed the New York Times of games journalism, has been losing money. The 20-year-old publication had 236 issues total, since its debut in 1989. 

In 2008, the company closed 27-year Games for Windows Magazine, or Computer Gaming World. In late 2006, Ziff-Davis also shuttered its Official U.S. PlayStation Magazine, while its  Xbox-focused XBN and Electronics Boutique in-store mag GMR were terminated in 2004. EGM's February issue, which is completed, will only be available digitally. Print publications have been suffering for years now, due to the global economic meltdown.