Yahoo! is demanding $4.8 million back from Tsavo Media, a sister company to CX Digital within the Cyberplex Inc. group of companies. Yahoo! claims the money is due as a result of “low quality traffic, ranging back over many months during 2011.” Cyberplex Inc., the Canadian company that owns the Tsavo Media and CX Digital brands, announced that the demand has come “notwithstanding the good quality score reports that had been provided” from Yahoo! through much of last year. Just to put the candle on the cake, Ted Hastings, the President of Cyberplex and formerly CEO of Tsavo Media, has left the company with immediate effect, and the representative of Tsavo’s credit provider, American Capital, is resigning from the Cyberplex Board of Directors.
This all comes soon after Cyberplex announced Q3-2011 revenues of $16.6 million and a restructuring of the Credit Agreement between Tsavo Media and its syndicate of lenders. Clearly they were hoping that the new arrangement would give them time to turn the company around but now Yahoo! has pulled the plug. What’s interesting is that back in May, 2010 when Cyberplex bought Tsavo Media for a reported $75 million, commentators immediately pointed to possible problems with the deal:
The Tsavo business model is great for a company run lean-and-mean from the ground up. But the addition of such a company to Cyberplex doesn’t make much sense at a glance as the model is not very sustainable or reliable when you solely rely on one limited revenue source. In this case, Tsavo relies too heavily on Yahoo’s ad feed. The combination of Tsavo’s heavy reliance on Yahoo, typically lower quality sites within their network, and a portion of their business coming from traffic arbitrage makes for high volatility on this deal.
We can be sure that there is going to be more to come out in this story. Yahoo! has pretty good reporting. For it to provide good traffic quality reports for months at a time and then to suddenly demand almost $5 million back might indicate that something odd was going on.
If only Ted Hastings was still at Cyberplex, we could ask him.