CNET Networks (NDAQ: CNET) may have a valuable portfolio of domain names, but many investors just aren't seeing the value. Shares in the company have been trending down for the past three years and investors are ready for change. Recently, activist shareholders put pressure on the company to stop the destruction of shareholder value by making a series of fundamental strategic and operational changes. The question is: Will these changes work?

CNET's shareholder list now reads like a "who's who" of activist hedge funds, including JANA Partners and Sandell Asset Management. These activists released a whitepaper today detailing their disappointment in the company and recommending changes to solve the problems. Altogether, the group controls approximately 14.9 percent of the voting power in the stock, which means they have a significant say.

The whitepaper beings by pointing out the destruction of shareholder value. CNET shares hav declined (21)%, (52)% and (25)% in the one, two and three year periods ended March 28th 2008. This compares to (1)%, 6% and 39% returns for its stated benchmark peer index. Meanwhile, the company has also consistently underperformed numerous peers in profitability and growth, ranking last among these peers in key metrics.

The activist investors then blasted new plans by existing management to reverse coarse and begin creating shareholder value. JANA Partners also rejected CNET's offer of a single board seat today, vowing to continue its proxy battle to gain control of the board. The activists believe that current management has failed to act in the past and lacks the experience and expertise to stop value destruction.

So, what is the new plan for CNET? The activist shareholders proposed that CNET undergo a transition to strengthen its core assets and transition from "Web 1.0" to the modern internet. These efforts would include:

1. Improving CNET's Monetization Infrastructure - The changes to this infrastructure would include improving ad unit optimization and inventory utilization, enhancing the user experience, increasing advertiser ROI, improving navigation, and acquiring additional traffic.
   
   
2. Building a Vertical Ad Network - It is common for large companies like Google, Yahoo, and AOL to create vertical ad networks by syndicating out their sales and technology infrastructure to third party websites. This generates significant increased revenue by allowing a sales force to sell inventory on non-owned partner vertical sites.
   
   
3. Using a Third Party Ad Network to Monetize Unsold Inventory - Revenues and profitability can be significantly enhanced by allowing a third party to monetize unsold or undermonetized inventory. The company has rejected such ideas in the past and only recently agreed to explore it.
   
   
4. Reaccelerating Growth Through Intent-Driven Media Techniques - Internet users today are increasingly intent-driven, meaning they are driven to websites through search engines, social media and web reference links rather than seeking out specific brands. Therefore, syndication and SEO should be areas of focus.
   
   
5. Integration of Social Media and Enhanced Content - The move from "Web 1.0" to "Web 2.0" involves installing social media enhancements to boost growth and enhance the user experience. Social media relies on real user identities, widgets and very sophisticated communications platforms to drive relevant valuable content.
   
   
6. Improve CNET's Technology Platform for Publishing - An improved platform for publishing and managing content could reduce costs and lift efficiency by enabling editors to easily update content and automatically generate related information. More, other improvements could be made to improve SEO.
   
   
7. Bring CNET's Cost Structure In-Line with Peers - CNET is clearly under-earning its customer base when you look at peer revenue per average monthly unique user. And despite having greater scale, the company's margins are still well below that of their peers. Changes should be made to reduce costs and increase revenues.
   

CNET's response to these ideas has been rather negative. The board adopted a poison pill in the form of a shareholder rights agreement as well as several severance packages. Meanwhile, the company offered a meager one board seat to JANA Partners if they dropped the proxy contest. Now investors just have to wait and see if shareholders are more open to the idea of change.

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