TMZ.com Valuation Tops $100 Million

TMZ.com’s audience growth over the last six months and its expansion into content delivery through TV as well as the internet has increased the value of the company to more than $100 million. TMZ is owned by a division of Time Warner (NYSE:TWX).

24/7 Wall St. has published valuations for content sites for almost three years. The most recent edition of the annual “Twenty-Five Most Valuable Blogs”, which is cited frequently in the media and banking industries, was published last November. The Gawker Properties were at the top of the list with a valuation of $300 million followed by The Huffington Post at $112 million.

The method used to establish a value for TMZ was based on the same one used in all 24/7 Wall St. web property valuations. Revenue is calculated based on audience size, page views, and estimated advertising CPMs. Income from other businesses related to the web property are added along with the costs of running the entire operation. Value is based on a multiple of operating income and annual revenue. These P&L numbers are estimated to form a projection for 2010.

The New York Times recently reported that the TMZ website was likely to have revenue of $15 million down from $25 million in 2008. This drop is more severe than most internet sites which are part of an industry that struggles with advertising CPMs during the recession. The Times also wrote that TMZ has 110 employees and “draws 21 million people worldwide each month.” The 21 million figure is not a reasonable basis for a TMZ valuation. Audience measurement firm Quantcast says TMZ.com has over 20 million visitors, but it almost certainly has over 100 million page views. TMZ runs four or five ads on most pages, so it has approximately 500 million advertising impressions per month.

TMZ is likely to earn a CPM between $25 and $30 per ad based on the quality of the ads the site now runs. That would drive total revenue for the website this year to over $17 million.

TMZ’s TV operation has distribution arrangements that allow its programs to reach 97% of US households. The Fox Television Stations account for the largest share of those. Nielsen reports that last year TMZ’s penetration of the adult audience 18 to 24 years old was at the high end of syndicated TV programs. TMZ TV posted a 1.3 to 1.4 rating among young and middle aged women.

TMZ TV costs about $600,000 a week to produce according to industry insiders. Television advertising revenue is just under $800,000 per week, so profits for the TV part of TMZ are about $1o million a year.

TMZ.com’s costs of operating including personnel, freelancers, office operations, travel & entertainment, and management should be about $17 million per year. The web operations will probably break even in 2010. This does not include the start-up costs of the TMZ sports website, which could easily be $4 million to $5 million if the operation is staffed at the level that TMZ.com is.

TMZ as a company will have revenue of about $58 million, but operating profits will probably be only $5 million. At 10x operating income TMZ would be valued at $50 million.  However, the potential for success of its sports site and the overall growth of TMZ over the last three years would put the total value of TMZ at nearly double that–more than $100 million.

Douglas A. McIntyre