It’s Official: Ontela Bought Photobucket from News Corp.

2/5/10Follow @gthuang

Back in December, we reported that Seattle mobile imaging startup Ontela merged with Photobucket, the Denver-based photo sharing site previously owned by News Corporation. Financial terms of the deal weren’t released, but News Corp. ceded some control of Photobucket to Ontela’s investors while retaining an equity stake in the merged company, which retains the Photobucket name.

Yet the full story, and its significance, never really came out. Before the companies announced the merger, rumors were swirling that Ontela was buying Photobucket. Well, I’ve done a little sleuthing, and can now confirm those rumors were accurate. Ontela did in fact acquire Photobucket, according to a Form 10-Q that News Corp. (NASDAQ: NWS) filed with the SEC yesterday.

The statement in the form (on page 9) reads: “In December 2009, the Company [News Corp.] entered into an agreement to sell its Photobucket subsidiary, a web-based provider of photo- and video-sharing services, to a mobile photo uploading platform in exchange for an equity interest in the acquirer. A loss of approximately $29 million on this transaction was included in other, net in the unaudited consolidated statements of operations for the three and six months ended December 31, 2009. As a result of this transaction, the Company’s interest in the acquirer, which is not material, was recorded at fair value and is now accounted for under the equity method of accounting.”

In any merger, of course, one company holds more cards than the other. In this case, it was Ontela, which is a bit surprising. The significance here is that a small Seattle startup has acquired a top-50 website (according to comScore) at what sounds like a pretty good price. TechCrunch reported the sale would be worth $60 million; News Corp. originally acquired Photobucket in 2007 for $250 million plus a $50 million earnout. Whatever the price for Ontela’s investors—which include Steamboat Ventures, Oak Investment Partners, Covera Ventures, and Voyager Capital—it was apparently $29 million less than what News Corp. had valued the subsidiary at. So maybe it’s time to call Photobucket a Seattle company.

As of December, Ontela had 23 employees. The company was formed in 2005 and was backed by about $15 million in venture funding. Earlier this week, Ontela co-founder and former CEO Dan Shapiro said he is leaving his role as chief technology officer of Photobucket in the next month, but will remain an advisor to the company. Photobucket went through a round of layoffs last June, leaving it with about 85 employees at that time.

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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