I just learned that Weblogs Inc. is being acquired by Time Warner. I’m happy for Jason and every one of their bloggers because I know that they will all have an exciting journey ahead of them.

I do, however, have some thoughts– mostly because I had personally considered trying to invest in Weblogs Inc. Time Warner beat me to the punch, and I think they are making a very very smart decision by buying Weblogs Inc. right now.

Why It’s Good For Time Warner

Every company has to grow– they must keep demonstrating earnings growth to satisfy stockholders. When the cost per subscriber is an expensive one, the easiest way to do this is to buy another company.

Specifically, buy a tiny tiny company that you could snatch up like a tiny little ant– but one that could generate millions of dollars in cash for you, even if you hardly changed a thing.

Cash is king.

Look at Weblogs Inc. They are making a few grand a day– somewhere around $3,000.

It would take Jason 25 years at his current earnings rate to earn $25 million. But to Time Warner, $25 million is a bargain.

Here’s why:

1. Even at a zero growth rate, AOL gets infinite cash. Over 10 years they can earn $10.95 million. And that’s if they don’t do a thing.
2. They have control of the online content. This is worth a nearly infinite amount in itself. They can slice it, dice it, perhaps sell e-Books, index it, and incorporate it to help grow the traffic to their own company. They can also consider charging for access to the content (which AOL does now, but Weblogs Inc. does not).
3. It’s a drop in the bucket for Time Warner. When you are an eighty-four billion dollar company, paying a few million to enter a market with explosive potential is a bargain. In this case, the $25 million is just one three thousandth of Time Warner’s market value.
4. They’re not paying the bloggers a dime, so the price is a bargain. They just had to find the point at which Jason would sell.
5. The Weblogs Inc. bloggers will continue to write their content for literally pennies per word, but Time Warner can earn a nearly infinite amount from that content– through subscription fees, e-books, pay per click ads, etc.
6. The amount means each blogger is worth $250,000 to Time Warner. But that is not a lot of money for the value it adds to Time Warner’s online content library– and they don’t have to pay the bloggers any more. If anyone had stood up for the bloggers and insisted on paying them each a “bonus” of $1,000, it would add nearly $100,000 to the offer. Why should Time Warner pay when no one forced their hand?

Why It’s Good For Jason

1. $25 million to be split amongst the equity holders in Weblogs Inc. Enough said.
2. Based on his background, and since TheStreet.com is reporting that Jason wanted to sell out– he talked to Rupert Murdoch, Bill Gates, and the guys at Yahoo– my guess is that eventually Jason will want to spread his entrepreneurial wings and move on to something else. Even if nothing changes right now.

Why It’s Bad For Jason

1. I think Weblogs Inc. could grow exponentially if he just grew the business himself. He’s generating cash right now, and he can use that cash to grow the company.
2. Once you’ve had a hundred people working for you, it’s hard to become an employee again.

What It Means For The Blogosphere

I think that this acquisition, while huge for the guys that own the company, is actually a bad thing for the blogosphere as a whole– specifically for anyone that blogs about similar topics.

Here’s why:

1. It puts a price on the head of every blogger. By purchasing Weblogs Inc. and not paying the bloggers any more, Weblogs Inc. and Time Warner have set the market value/worth of a blogger at a few hundred dollars per month. Just pennies per word.
2. But the rights to each blogger’s content– the one thing Time Warner is really buying– is worth $250,000 per blogger. And the bloggers aren’t getting anything out of the deal.
3. This sets a bad precedent for the value of bloggers vs. their content in future deals– and Yahoo, MSN, and News Corp will want a piece of this industry eventually.
4. Time Warner has effectively taken corporate control of the blogosphere. 100 topics are basically off the market.
   Their huge content network and millions of AOL subscribers means that each of the 100 Weblogs Inc. blogs will have more readers, more advertisers, and, therefore, will instantly have a more sustainable competitive advantage. This creates an economic moat that new bloggers may not be able to penetrate.

If I was in Jason’s shoes, I might have done the same thing. Although a million dollars is nothing to Time Warner, most people can’t turn money down.

The real question is: who will sell next?