Reading Up on (News) December 16, 1999 Reading Up on

By Dave Marino-Nachison (TMF Braden)
December 16, 1999

Online books and music retailer (Nasdaq: BNBN) tried to spur some interest in its stagnant stock today with the announcement that it will take an equity stake in magazine subscription website will buy about 32% of for cash and stock, as well as warrants to purchase another 8% over four years in connection with a joint service agreement of similar length. Publisher Hachette Filipachhi -- which brings us such titles as Mirabella, Woman's Day, and Premiere -- will also take a stake in A Salomon Smith Barney research report said's total investment will be $40 million, implying a total value of $100 million for all of

The official line is what you'd expect from executives, mostly flowery talk of strategic fit and complementary product lines.

" is a perfect strategic fit," said CEO Jonathan Bulkeley in a statement. "Our complementary product lines offer outstanding cross-merchandising opportunities, and we believe an equity relationship permits broader integration and enhancement of the magazine section of the site, which in turn will generate stronger commission revenues through magazine sales."

The last line bears attention for the simple reason that most any time a company can come up with new, high-margin revenue streams, it's good news. As a subscription fulfillment hub, doesn't have to carry inventory or do the order fulfillment, instead collecting a commission per subscription committed. Can't get much higher-margin than that.

Of course, still has to market and staff itself; the former endeavor will prove extremely costly as tries to land space on the Web's top properties.

The bet for is that's high-margin revenue streams will help bolster its results and drive traffic siteward. The company also hopes it can drive sales to and from different areas on its site as a byproduct of the association. Like Horse & Rider magazine? Than you might want to read Cormac McCarty's "All the Pretty Horses." OK, we know that's a stretch -- but you get the idea.

The most important question for investors, though, might be whether had to pay $40 million for an operation that it very likely could have set up on its own for considerably less. What it suggests is that is paying for's installed user base and whatever its brand amounts to, and gauging the effect of such sometimes-abstract concepts on concrete bottom lines can be rough going for careful investors.

On paper, the deal sounds nice. To quantify its eventual financial effect on's business without more information on and the way it operates is difficult, though; it hasn't made an S-1 pre-IPO filing with the SEC, and its online press and investor relations areas are spare. That's probably why shares didn't move much between the bells today.

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