December 28, 2007, 12:00 AM

American Greetings outlines its future plans for PhotoWorks

American Greetings Corp. expects to close its acquisition of PhotoWorks Inc. by the end of January. When the deal is complete, PhotoWorks will become a part of AG Interactive. American Greetings will acquire PhotoWorks for approximately $26.5 million.

American Greetings Corp. expects to close its acquisition of PhotoWorks Inc. by the end of January.

American Greetings, No. 150 in the Internet Retailer Top 500 Guide, announced plans on Nov. 28 to acquire PhotoWorks, an Internet-based personal publishing company and photography community, for approximately $26.5 million. PhotoWorks is No. 491 in the Internet Retailer Top 500 Guide.

When the deal is complete, PhotoWorks will become a part of AG Interactive, American Greetings’ e-commerce business unit, and round out the company’s strategy to merge digital and paper-based social expression products into a single business model. “PhotoWorks offers production capabilities that position us for a comprehensive photo strategy bringing together both digital and physical products,” American Greetings CEO Zev Weiss told Wall Street analysts on the company’s recent third quarter earnings call. “Further into the future we will explore ways to leverage our own retail stores and bring the conversions of digital photos and physical products to our retail partners.”

The acquisition of PhotoWorks, an online photo sharing and personal publishing company that allows consumers to use their digital images to create quality photo-personalized products such as greeting cards, calendars, online photo albums and photo books, is the second major purchase for American Greetings in recent months. In October American Greetings also acquired the photo-sharing and shopping site Webshots from CNET Networks Inc. for approximately $45 million. “The acquisition of Webshots has given us access to many more potential online customers,” Weiss told Wall Street analysts.

American Greetings is investing heavily in new digital properties at the same time the company is looking to improve its financial performance. In the third quarter of fiscal 2008, American Greetings reported net income of $29 million on revenue of $475 million, compared with net income of $49 million on sales of $510 million in Q3 of 2007. In the third quarter revenue for AG Interactive declined by 13% to $18.9 million from $21.7 million in Q3 of fiscal 2007. American Greetings says the decline in revenue for AG Interactive is partially the result of the phasing out of its ring tones business.

“The decline in revenue is the result of exiting our mobile ring tone product line last year,” Weiss told Wall Street analysts. “While we realized some savings from exiting the ring tone business last year, it was offset by investment in the traditional online business.”

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