June 3, 2010 8:00 pm

Hearst buys iCrossing in internet drive

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Hearst Corporation, the US publisher of Cosmopolitan, Marie Claire and the San Francisco Chronicle, has acquired iCrossing, a digital marketing group, in a move to embrace the power of search engines at the same time as rival News Corp tries to shut them out.

iCrossing, best known for running search-engine advertising campaigns for clients such as Coca-Cola, Travelocity and Toyota, courted bidders from traditional advertising agencies before selling to Hearst for a reported $325m before earn-out bonuses.

It was one of the few large specialist digital agencies that remained independent, after Publicis’ purchase of Razorfish from Microsoft last year for $530m.

The deal could put Hearst in competition with media agencies, upon whom print publishers traditionally rely for much of their revenue, as well as offering agencies and their clients a wider range of advertising options.

Matthew Petersen, senior vice-president of Hearst Magazines, said iCrossing would be “adjacent to a number of our businesses ... but it is also a diversification”.

“Increasingly, agency partners of ours and clients are asking for very comprehensive programmes to engage their target audiences, which include offline and online opportunities,” said Mr Petersen, who will lead Hearst Marketing Services, a new unit incorporating iCrossing.

“We also see across Hearst opportunities to use iCrossing as a catalyst to advance our overall digital innovation here at the company … and making sure teams across Hearst are sufficiently educated and immersed in this whole area.”

Embracing search engines more deeply within Hearst comes in marked contrast to the approach taken by Rupert Murdoch’s News Corp, which views Google as a rival, taking content and advertising revenue away from newspapers.

New websites for the Times and Sunday Times, which will charge visitors £2 a week later this month, will disappear from Google’s index altogether.

Mr Petersen said Hearst “absolutely” valued readers arriving via Google. “We believe search is here to stay and we are going to work with whatever partners make sense to elevate and build our audiences here at Hearst,” he said. Further acquisitions and investment to support iCrossing were likely, he added.

Newspapers and magazines have suffered the most from the move of advertising budgets into search. Moody’s, the credit rating agency, said on Thursday it expected US newspaper advertising revenues to fall another 5-10 per cent in 2010, after a 22 per cent drop last year.

That has forced groups such as Hearst to look for alternative sources of revenue. After ending printing of the Seattle Post-Intelligencer newspaper last year, Hearst unveiled the Skiff, an e-reading device, in January.

Don Scales, who is staying on as chief executive at iCrossing after the deal, said: “I believe with our digital marketing abilities and their content development expertise, we ought to be able to offer some innovative and new services to clients that neither one of us has been able to do in the past.”

He said that search advertising was still experiencing “strong growth”, albeit at a slower level than four or five years ago. “We are still seeing a lot of media dollars coming into search because [its payback] is so quantifiable,” he said.

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