How The Media Moguls Blew It

 

[image url="http://static.businessinsider.com/image/18b9b9146e1f9449cee79d00/image.jpg" link="http://www.businessinsider.com.au/how-the-media-moguls-are-getting-wrong-and-what-they-can-do-to-fix-it-2009-10/content-is-not-king-1" caption="" source="" alt="sumnerredstone tbi" align="left" size="xlarge" nocrop="true" clear="true"]
The moguls in charge of large media companies are responsible for the incineration of $200 billion in the past nine years courtesy of write-downs.

If you’re a shareholder in these companies–News Corp., Viacom, CBS, Disney, Verizon–you should be appalled. How has it happened?

Blame the “Curse of the Mogul” says Jonathan Knee, Bruce Greenwald, and Ava Seave, who wrote a book of the same title.

They say “mogul-fuelled megalomania enabled by star-struck shareholders” has allowed guys like Sumner Redstone and Rupert Murdoch to get away with making bad decisions.

For instance, News Corp acquisitions in the past decade, from the Journal to MySpace, have not gone over well. News Corp wrote down $3 billion on the Journal, and MySpace is pretty much worth zero at this point.

Why did Murdoch buy the Journal, when evidence pointed to the fact that newspapers were in trouble? Or take a chance on social network, when we’ve seen time and time again that internet companies are replaced by competitors with ease? (After all, MySpace replaced Friendster.)

Murdoch did it because he could. Because it’s his company and he’ll run it how he damn well pleases. But he forgot the cardinal rule of old-media moguldom!  The Internet is not your friend!

Some other lessons they need to learn:

  • Content is NOT king
  • It’s OK to be “old” media
  • Not all growth is good
  • Stay local, avoid global
  • Cooperation is a good thing
  • Milk the returns as long as you can
  • Efficient operations are sexy
  • Watch your back
  • Don’t fear the future

Learn more→

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[slide
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title=”Content Is Not King”
content=”The most obvious mogul mistake is believing ‘content is king.’ While great movies, music and books make life wonderful, they don’t make shareholders much richer. Often they have the opposite effect.

Here’s an easy way to think about it. An record label takes a shot on an unknown band, signs them up for a four record deal at a reasonable price. The first album is smashing success.

After its success, the band wants to renegotiate. It wants a bigger deal. If it doesn’t get it, then the next three records will be sub par as the band bides its time. Any value the band could have created for the label is suddenly erased, as it is transferred to the musicians.

This happens across all media businesses that have to invest in talent. Content may be king for the consumer, but it is to be avoided for the investors.”
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[slide
permalink=”the-internet-is-not-your-friend-2″
title=”The Internet Is Not Your Friend”
content=”When the Internet was a new phenomenon, it looked like it would be great news for media businesses. They’d be able to port all their awesome content to a new pipe and get all new customers. We know how that’s gone.

The Internet has torn down the barriers to entry that protected many businesses. The music industry is a shell of itself. Newspapers are gasping for air. The television business is surviving so far, but with YouTube and Hulu providing digital pennies for analogue dollars, it’s not looking good in the long run.

Meanwhile, the forays into the web by traditional media companies have not ended well. We really don’t need to look further than the Time Warner-AOL merger which ended terribly. Since then there’s been more and more marriages of old and new media companies, few of which have gone well.

Time to accept facts. The Internet is no friend of media CEOs!”
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[slide
permalink=”its-okay-to-be-old-media-3″
title=”It’s OK To Be “Old” Media”
content=”If you want to get under the skin of any mogul, call him the head of an ‘old media’ company. Nothing seems to irk them more, writes Knee. That’s silly though.

First, it’s not clear that pursuing ‘new’ media businesses creates shareholder value. Remember the Internet is NOT your friend. Second, the ‘new’ media businesses aren’t all that new. From AOL to Yahoo and on, it’s evident Internet brands are working their way through a tough adolescent period.”
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permalink=”not-all-growth-is-good-4″
title=”Not All Growth Is Good”
content=”Growth is not always a good thing. It’s important to consider the return on capital. If you look at shareholder returns in relation to growth they don’t move one for one.

From 1995 to 2005, New Corp had 10.1% revenue growth, while shareholder returns were just 5%. For Disney it was 9.8% revenue growth with 2.6% shareholder returns. For Viacom it was 7.5% revenue growth and just 3.3% shareholder return. The worst of the worst? Time Warner. Its revenue leapt 17% while shareholder returns we negative .7%.”
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permalink=”stay-local-5″
title=”Stay Local”
content=”This one is so ingrained at this point, it hardly seems necessary to mention it, but we will anyway.

Stay the away from the idea of a global media businesses. The most successful businesses are all local. By local that means anything from the local newspaper that knows the local sports team to the ‘local’ website that hammers into a niche and owns it.”
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[slide
permalink=”cooperation-is-a-good-thing-6″
title=”Cooperation Is A Good Thing”
content=”It’s a good idea to work with your competition, not against your competition. Networks often work together to their benefit. The up-front advertising period is one example. With limited number of advertising minutes for sale during upfronts, advertisers can’t play networks against each other, which helps all the networks.

Another example is sports scheduling. Football games are spread around from Sunday afternoons to evenings to Monday nights so the networks don’t compete too heavily with each other. This helps on ratings, but also limits the bidding wars for rights. Or, it limited, the bidding wars.

When Fox bid on the NFL in the early nineties, it was not being cooperative. The move led to higher prices for all the networks, with the NFL the ultimate winner.”
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[slide
permalink=”milk-the-returns-as-long-as-you-can-7″
title=”Milk The Returns As Long As You Can”
content=”It’s OK to just give money to shareholders sometimes. There’s no dignity lost in running a slow growth company.

For instance, Verizon could be returning money to shareholders. Instead it’s spending $20 billion on its FiOS build out, an expensive undertaking that’s going to have trouble unseating the incumbents, while still producing a decent return.”
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permalink=”efficient-operations-are-sexy-8″
title=”Efficient Operations Are Sexy”
content=”‘Convincing a mogul to focus on efficiency is like selling abstinence-only sex education in high school,’ writes Knee. It’s well meaning intentions, but it’s probably going to be ignored.

Media companies embrace the idea of operating in excess to coddle their talents. The best example of this was EMI spending $400,000 a year on booze, drugs, women, etc. for its talent, but calling it ‘flowers.’

There’s other, less vulgar examples, but the general idea is consistent–you’re in the media business to live the good life! Who would ever want to be labelled a bean counter at a media company? There’s nothing worse.”
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[slide
permalink=”watch-your-back-9″
title=”Watch Your Back”
content=”The biggest, baddest media companies are always going to be under attack. Even the seemingly unbeatable companies could be beaten at some point in the future.

For a media business to protect its turf it needs to be vigilant, and constantly looking at what it does best and where it has competitive advantages. Where ever there are strengths, double down.

Where there are weaknesses, shed assets. There’s no need to divert the attention of executives who could be making strong franchises even stronger.”
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permalink=”dont-fear-the-future-10″
title=”Don’t Fear The Future”
content=”All that said, don’t be afraid of mixing it up and embracing big ideas. Moguls should plot out their futures. Knee suggests imagining a world where there are no egos, regulators unions, or legacy infrastructure.

How would you proceed? Knee tells moguls to figure it out, and pursue those goals without getting distracted by projects on the side that appeal to your vanity, or hurt shareholders.”
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