If You Can't Beat 'Em: Why Hearst Wants to Buy Ad Agency iCrossing

Last Updated Apr 19, 2010 12:44 PM EDT

We know that print has been uniquely challenged as digital media has grown, but it still seems a little peculiar that Hearst, best known for publications like Cosmo, has decided it should go buy an ad agency.

Here's one reason why it's not crazy at all that Hearst is apparently set to purchase iCrossing (subscription required), perhaps the largest independent agency specializing in search strategies. Publishers are increasingly called upon by advertisers to build custom advertising solutions that don't fit into the neat confines of regular online display ads.

Looking at it from another perspective, even if advertisers weren't asking for more customized programs, publishers would be trying to provide these services anyway to protect their own revenue streams. Their premium online ad inventory has been under attack from the very technology that helped spawn it.

As ad networks and ad exchanges pool inventory across thousands of sites, selling the power of aggregate audiences -- and therefore not selling advertisers adjacencies to premium content -- what should be high-value online ad inventory doesn't always get the price it might otherwise deserve. But if a publisher works with an advertiser on a custom marketing program, especially one that has the possibility of taking customers all the way through to the sale (something that search advertising excels that), that's value.

If this deal comes through, it certainly won't make Hearst the first major publisher to go into the advertising business. That crown belongs to Meredith (MDP), which owns or has stakes in a bevy of interactive marketing companies ranging from BIG Communications, which specializes in healthcare marketing, to The Hyper Factory, which specializes in mobile.

As a closing thought, if you want to know how much Hearst wants in on the marketing services game, ponder the following: when the WSJ first reported that Hearst had made an unsolicited offer for iCrossing in December, the bid was $250 million. Now, after iCrossing hired Bank of America to handle potential bids, and also had talks with several of the major ad agency holding companies, Hearst is reportedly going to buy it for $375 million. (Note: Yes, Hearst owns TV stations, too, but this is primarily about preserving revenue in the print-to-digital conversion.)