Monday, June 21, 2010
Although the legacy media companies are "no longer the almighty players that they were when the ownership rules were first enacted, only modest changes are likely to be enacted because "the agency is also under pressure from public interest groups that support strong limits."
On the one hand, says the article "Newspaper readers and advertisers have migrated to the Internet, where a lot of content is free and advertising costs less. As a result, newsrooms have shrunk and newspapers have sought bankruptcy protection or shut down. Television broadcasters are suffering. too as cable, satellite TV and the Internet splinter audiences and siphon ad dollars - forcing stations to seek new revenue streams and even raising questions about the future of free, over-the-air TV."
On the other hand, there is the position of groups such as the Free Press and the Media Access Project that is summarized by Georgetown Law professor Angela Campbell, who represents several public interest groups defending strong ownership limits. She "fears more consolidation would lead to newsroom layoffs as media companies combine operations and feed the same content to different outlets."
The FCC has still not resolved the objections of the Third Circuit Court of Appeals, which threw out the FCC's rules loosening cross ownership rules that followed its 2002 review. The landscape of the media industry has changed dramatically since then, with large newspaper chains disaggregating (e.g., Knight-Ridder), cable networks eating into the old broadcast networks, printing less than daily (e.g., Detroit Free Press and News), or going through bankruptcy (e.g., Philadelphia Inquirer, Tribune Co.). The trend of falling advertising revenue, seen in the accompanying chart, preceded the recession and falling circulation of newspapers has been a decades-long process. TV evening viewership not only declined in 2009 from 2008 but is about half of its peak even though there are more households today.
Saturday, January 10, 2009
Google Trends suggests that interest in media ownership on decline, especially compared to the economy
Google not only answers our questions, such as “Who owns the media?”, but thanks to its scale of use, can also tell us what users are concerned about. Google keeps track of the more than 31 billion searches made through it facility each month. And thanks to a wonderful tool it has provided with Google Trends, anyone can search on the terms used in those searches.
As seen in Figure 1, the first finding from this line of inquiry is that “media ownership” has been steadily declining as a topic of interest. With 1.0 being the average for the number of searches for this term over the last four years, the trend is clearly down.
Figure 1, however, is for all searches, worldwide. Figure 2 is just for searches for “media ownership” from the United States. In this instance, Google does not register enough searches to register until 2006. It seems to show brief spikes, interspersed by little interest until the end of 2007 and the start of 2008, a period that coincided with a decision by Federal Communications Commission on media ownership rules which would have permitted a newspaper to own one television station or one radio station in the 20 largest markets, subject to strict criteria and limitations. It’s full report was completed in December 2007 and released in February 2008. Interest peaked again in May 2008, about the time that the Senate adopted a resolution of disapproval of the FCC’s decision.
Following a lull during the summer, the number of searches spiked in the last quarter of the year, though there is no single event or issue that seems to be associated with it, other than ongoing interest in whether the FCC would try to implement new rules before a new administration takes office.
In addition to the peaks and valleys on interest in media ownership as captured by number of searches, Google Trends can also display the number of news articles in its archives with the phrase “media ownership.” I have added this as Figure 3. This suggests that the salience of the issue was highest in 2003, coinciding with the previous FCC review and attempt to liberalize ownership rules. I suppose with media reformistas might use this as “proof” that media companies were more effective in trying to suppress information about the FCC’s plans in 2008. But it is far more likely that the media had much bigger stories—like the economy and the election—to be devoting resources.
Indeed, look at the volume of searches for “home foreclosure” in 2008 relative to “media ownership” in Figure 4. With 1.0 being the average number of searches for the year for "home foreclosure," "media ownership" is barely a blip. When push comes to shove, apparently it’s still the economy that trumps who owns the media in the hierarchy of public concerns.
Friday, August 08, 2008
But, Welch continues, they have dissed Zell as well. That’s because, as I add in a comment to Welsh’s piece, it is increasingly clear that the leaders of the movement have a real agenda that can be gleaned from the writings of Robert McChesney, the academic who mixes their Kool Aide. In his book Rich Media, Poor Democracy McChesney holds that you cannot have a democratic society so long as the media—no matter how many firms—are privately owned, profit-seeking and supported by American commercialism. So long as the choice is from privately run media companies no number of providers is acceptable.
Media reform, McChesney contends, is prevented because the people think there is diversity and that the media “give people what they want.” That’s a far more condescending attitude than even Newton Minow might have pinned on the mass audience. The reformistas, of course, are smart enough to see behind this illusion—-but not the rest of us constituting the great unwashed. How imperious!
Friday, March 28, 2008
As we continued on to the next stop I ask her why she apparently was not subscribing to the service that came with the car. She explained that it really wasn’t worth the expense to her. She listened to some programming during the initial three month trial and liked some if it. “But I have plenty to listen to from the local stations. And I like to listen to books on tape [actually CDs these days] I get from the library.”
And that, at the very micro level, is why the Justice Department was on target in its ruling that XM and its perceived rival, Sirius, could merge without damage to the competitive landscape.
When the $13 billion merger was first announced last February, I wrote here that “such a merger reduces competition less than it first seems." A few days later I referenced a letter to the editor of The Wall Street Journal from a former XM user who had his own personal take on how broad the competition for subscription radio was at ground level.
With 96% of Americans listening to free, local radio once a week and three-quarters tuning in daily – and satellite radio, at $12.95/month, occupying less than 1% of the market—it’s hard to argue that the “public interest” is ill-served by the demise of one of two players in that space.
The Justice Department took much too long to get to their end point, longer than ruling on the $80 billion merger between Exxon and Mobil in 1999, but it was, in the end, quite succinct with its findings:
- The key conclusion was that “the [Antitrust] Division found that the evidence did not support defining a market limited to the two satellite radio firms that would exclude various alternative sources for audio entertainment.” That is, the relevant market is not satellite-delivered radio signals, but the full range of delivery mechanisms for audio. These include the well-established legacy radio stations, of which there are 20 to 40 available to most Americans; the CDs players that are in most autos and homes; the iPods and MP3 players that are ubiquitous, so much so that new autos include
USBor docking mechanisms for them; Internet radio, giving consumers access to thousands of programming choices globally, and budding technologies such as HD radio and wireless Internet that can provide mobile access to “radio” programs, Podcasts, and the like. For example, Figure 1 shows specifically that in the youth market, radio is a declining medium, at the expence of MP3.
- There is little likelihood of future competition between XM and Sirius. Although the two initially vied for differentiation by signing up big name exclusives (e.g., Howard Stern for Sirius, Oprah Winfrey for XM), the two have found the larger challenge was to convince consumers that they should be willing to pay for any sort of “radio” service. Both services get the bulk of their subscribers through car radio use. Each has exclusive contracts with auto manufacturers, running through 2012. As the two services are technologically incompatible, Justice’s analysis is that few users of one service go to the expense of ripping out one services radio to install the other, even if the subscription price of one would a few dollars lowers.
As I wrote in my analysis last February, one of the most significant pieces of evidence that the satellite radio providers were correctly viewed in a broader competitive landscape than just satellite was the loud and well-funded opposition of the National Association of Broadcasters, representing terrestrial radio stations. They understood that XM and Sirius were direct competitors. They would prefer two weak competitors over one strong one. The
House Telecommunications & Internet Subcommittee chairman Ed Markey issued a statement that said in part, “The Bush administration has apparently never seen a telecommunications merger it doesn’t like." Having followed Mr. Markey’s congressional career for 25 years, I could easily turn this around: It seems that he has never seen and such merger that he did like.
Ultimately, subscriber radio needs to convince consumers to pay for something for which there are near-substitutes for free. Howard Stern may be unique, but there many other radio voices—think Imus—who are free. A station of all Mozart all the time may be unique, but it can be replaced by a half dozen CDs in the car’s player. Or maybe 200 Frank Sinatra tunes on the MP3 player that can be carried around as well as plugged into the car audio system.
Satellite radio has to overcome the Penny Gap hurdle I wrote about recently here. I’d say my sister-in-law saw the market just about right. Justice could have just spoken to her and made the same ruling.
Friday, March 21, 2008
The print media can do the same to a point. They can reduce the news hole (ratio of editorial content to advertising), even reduce the number of pages, while keeping price the same. It may take time before consumers realize they are getting less. But as long as out-of-pocket prices don’t increase, the pain seems minimal.
The cable business has a different model and consumers have different expectations. Since towns, then cities, started being wired for cable, the providers have been giving us more—like a bigger bar, fatter publication—and been increasing prices commensurately. At first the increases in programming were very visible. In the 1970s and especially in the 1980s, cable subscribers went from having four or five channels to 10 or 20. Starting from such a small base, it was simple to have 100% and 200% increases in channels. First it was the “superstations,” such as WTBS and WGN. These were FCC licensed broadcast stations serving Atlanta and Chicago, respectively. They were among the first to use satellite to get national distribution. Then came cable-only networks, such as CNN and ESPN. It was explicit that there was far more choice even as the price went up.
To continue the junk food analogy, it was as if a candy bar went from 2 ounces to 4 ounces and from $.50 to $1.00. On a per ounce basis it is the same price. Just as crucial, it felt heftier in the hand. Now, consider further small increments in the candy bar, adding an additional quarter ounce each year. The larger the bar, the less physically obvious the change appears. Customers might not realize that it went from four to four and a quarter ounces. A 6% price increase would seem to be just that—-more money, though the cost per ounce stayed the same. Indeed, when the candy bar got to a certain point, many buyers might yell, “Enough. I don’t need so much chocolate.”
Much the same in the cable biz: Despite the apparent hikes in the cost of cable, the cost per ounce- er, ah-- the cost per channel has actually slightly trailed the cost of living index for the industry as a whole, as seen in the accompany chart, from the FCC’s report on cable prices released 15 months ago.
Still, adding a channel to the 40 or 50 that populate the more prevalent basic tiers is less obvious than it was in 1985 when there were far fewer. And, though many subscribers may see not benefit in adding, say, the Fine Living Network it may be quite welcome in a few hundred thousand households.
So, like the consumer pleading for no more increases in candy bar size, even at the same per ounce price, some consumers might prefer to see a halt in adding channels if that could moderate price increases. Here is where my analogy breaks down. Whereas more candy may not be so healthy, having access to more choice on cable could be. Or at least not unhealthy. Just as having access to the seemingly limitless diversity of material available now via the Internet, the availability of so many channels on cable provides opportunity for access even if, as individuals, we rarely take advantage of all that’s there. Even within a household, the bundle of channels each member uses may have little overlap (if my family is close to typical). While a la carte selection—unbundling—may seem attractive, there are many good social, cultural, not to mention economic, reasons while there is less there than may seem obvious. I’ve taken on the bundled/unbundled issue previously.
Like many of you, I’m a bit resentful when, like clockwork, Comcast notifies me of another 6% price hike. But unlike the folks who scream about the greed of media conglomerates, I checked out Comcast’s latest financials. Last year it had an 8.3% profit on revenue—good but certainly not obscene monopoly profits. It has $30 billion in long term debt. The few shares of Comcast stock I own (a legacy of some old AT&T stock, which spun off its cable holdings, which were acquired by Comcast) are worth today less than five years ago. So much for big fat greedy media companies. I’ve already looked at switching to satellite, but I’ll wait for Verizon’s FiOS to come to my neighborhood and decide who will get my business.
Either way, it will be a big candy bar at the same old price per ounce.
Thursday, January 31, 2008
Though a bit off-topic from the usual subject matter of this Blog, I couldn’t resist highlighting the following statement from Martha K. Levin, executive vice president and publisher of the Free Press, which published James Risen’s 2006 book, State of War.
The Times reported that Ms. Levin’s statement said that “the ability to publish confidentially sourced information about our government’s practices and policies is one of the bedrock principles of a free and open society.”
I wonder if she is aware of the juxtaposition of “confidentially sourced information” with “free and open society.”
Thursday, January 03, 2008
Last Saturday the Journal published his valedictory on the front page under the headline “Read All About It: How newspapers got into such a fix, and where they go from here.” (Sub. still required)
It is a marvelous recap of where we've been and a forthright how-we-got-here, a no-tears tree-top look at the newspaper industry. Having been writing about the industry and its love-hate relationship with technology and consolidation since 1973, I have found that journalists are often the least objective when writing about their own industry. He smartly captured the ebb and flow in a way that the vast majority of Journal readers-- who have not followed every wrinkle and trend -- would understand.
But in the midst of this guided tour guided, Steiger makes an observation that would surprise many media reformistas. First he describes what journalism was like when he started out:
As a kid reporter in the '60s, I heard tales from newsmen and photographers about how, just a few years earlier, they had sat in cars, engines running and radios tuned to police bands, trying to get an edge in covering the next murder. The national and international news would be handled by the wire services. Lurid local photographs on page one were what sold newspapers in that era. A certain fast-and-loose, devil-may-care attitude often prevailed. I remember walking past a photographer's open car trunk and noticing that he carried a well-preserved but very dead bird among his cameras and lenses. The bird, he explained, was for feature shots on holidays like Memorial Day. He'd perch it on a gravestone or tree limb in a veterans' cemetery to get the right mood. Nowadays such a trick would get him fired, but in the 1950s, this guy said, there was no time to wait for a live bird to flutter into the frame.
But then, he says, something happened. Starting in the 1960s the industry “morphed into a series of mini-monopolies. This came about first as “mounting costs forced a shakeout -- mergers and newspaper closings that typically left one city paper preeminent in the morning market and another in the evening.’ Then the evening papers ran into troubles, “crushed by a phenomenon that can be summed up in two words: Walter Cronkite. More and more families gathered in front of the tube at the dinner hour.”
This is how Steiger characterizes the results of a newly prosperous newspaper industry:
Many of these information behemoths invested heavily in quality, expanding their reporting locally, nationally and internationally. This was good business as well as a boon to readers, because it raised barriers to entry for would-be competitors. The result was a golden age of American journalism. In New York, Washington, Chicago and Los Angeles, of course, yet also in Boston, Philadelphia, Miami, Milwaukee, Atlanta, St. Louis, Des Moines, Louisville, St. Petersburg and more, daily papers were willing to send reporters far afield in pursuit of stories exposing corruption or explaining the world. Newspapers opened or expanded Washington bureaus and added reporters abroad. Some stationed them not just in
, London and Moscow but in places like Tokyo and Sydney . As their financial strength and staff size increased, they became fearless in pursuing corruption. São Paulo
The “golden age of journalism.” Profitable newspapers had the resources to invest more into their product. Intuitive? Or counterintuitive?
Isn't competition what we seek as the mechanism to ensure that the juices flow? Shouldn’t more competition – not less—be associated with the golden age of journalism?
Although he is not writing about competition per se, in his chronology Steiger provides some answers:
- “The news operations of the three main television networks in those days followed a similar pattern. As profits grew, they added to staff and launched foreign bureaus and investigative projects. The Sunday-night magazine program CBS launched in 1968, "60 Minutes," set a new standard for expensively produced and deeply reported video journalism.”
- “Cable TV added a new worry, because here was a medium that could target smaller, exclusive audiences and thus pose a greater challenge to print.”“Then in the 1990s came the digital networks and the Internet, unleashing forces that would ultimately undermine newspaper business models that had been so supportive of journalism.”
- Finally: “The decisive blow may have been Google's, with its powerful search engine that would either give you a quick answer to a question you had or steer you to sites that could. The irony, of course, was that some of the most useful of those sites were newspapers’.”
More could be added to Mr. Steiger’s description of the forces and trends. But the basic pieces are there. So, what are the lessons learned?
First, that profitable organizations have the wherewithal to spend to maintain and improve their products or services. I've written about this before. Some may take the money and run—a short term maximization philosophy. But many—probably most judging by Steiger’s list of newspaper cities—will look for longer term profit “optimizing” strategies. And for two or three decades that worked well for the newspaper publishers and their millions of stockholders.
Second, competition works. But critics and regulators must recognize the shifting boundaries of the market. Competition for newspapers was coming not necessarily from other newspapers, but from media that were partial substitutes: broadcast television, then cable networks, then online providers. They were and are competing for advertiser revenue, consumer personal consumption expenditures—and consumers’ time. Cumulatively they have taken a toll.
(Paul Steiger is now editor in chief of Pro Publica, “an independent, non-profit newsroom that will produce investigative journalism in the public interest.”)
Friday, November 09, 2007
Senators Dorgan and Lott, Inouye and Obama, Feinstein and Snow—Democrats and Republicans-- insist on the quaint notion of “locally-owned” media, when there is no sustained body of research that demonstrates that locally owned newspapers, radio or a TV stations provide more, better or more diverse information than corporately owned media entities. The press release from Sen. Dorgan asserts that “’locally-owned' means they're invested in their communities and care about their well-being,” when reputable research does not sustain that.
The Senators applauded the position of Seattle Times owner Frank Blethen, who argued against lifting the newspaper/TV cross-ownership ban, just at the time that newspapers are fighting for their survival and TV stations are facing declining viewership.
The policy they are pursuing is populist to be sure: Thanks to the efforts of the advocacy group the Free Press and the unexamined assumptions of many journalists there is an overwhelming misperception that the mass media are becoming more concentrated, when the numbers show they are not. And there is no denying that if one asked 1000 adults at any mall “Should we allow for greater concentration of media ownership” their response would be an overwhelming “No.” And do you still beat your wife?
A few years ago the Project for Excellence in Journalism, overseen by Tom Rosenstiel, a respected former journalist, conducted a major empirical study that looked at the relationship between local TV station ownership and quality in the news. I have mentioned this study often, including in my last study of media ownership. The Project’s own conclusion was that “overall the data strongly suggest regulatory changes that encourage heavy concentration of ownership in local television by a few large corporations will erode the quality of news Americans receive.” And given the expectations of the constituency of the ongoing Project, that is presumably what it expected to find on initiating the study.
But the authors felt compelled to add some caveats (to me they sounded grudgingly added, but give credit for admitting to this). “Taken together, the findings of the study suggest the question of media ownership [as it affects local television news] is more complex than some advocates of both sides of the deregulatory debate imagine.”
Among the study’s findings:
•Stations with cross-ownership—in which the parent company also owns a newspaper in the same market—tended to produce higher quality newscasts.
• Ownership type made no measurable difference in terms of the diversity of people depicted in the news and little difference in the range of topics a station covered. In general, there is striking uniformity across the country in what local television stations define as news.
• Stations owned by the largest groups produced higher quality early evening newscasts than those owned by the smaller groups. Smaller station groups tended to produce higher quality late evening newscasts than stations owned by larger companies.
• Network affiliated stations tended to produce higher quality newscasts than network owned and operated stations.
• Local ownership offered little protection against newscasts being very poor and did not produce superior quality.
• Stations of privately-owned companies and publicly-owned companies did not perform significantly differently from each other.
Even within these overall conclusions there is something for everyone. For example, the notion of “quality” is highly dependent on the criteria used and how they are weighed. Although small company stations were found overall to have higher quality than those owned by the largest companies, those owned by this latter group rated highest on the criteria of “offering communities a variety of viewpoints in their newscasts.” And medium-sized owners were better than smaller owners when it came to enterprise reporting and the greatest localism.
I noticed that Rosenstiel was not included on the Senate’s panel. It would have been logical, as his group has some useful insights and research. Perhaps he was busy. But although the Project for Excellence in Journalism is likely in sympathy with the goals of the Senate committee, he might also have felt obligated to report findings that fly in the face of the biases of the Senators.
I have explored this territory extensively in my Media Myths study. Adam Thierer has a book with a similar theme. We have both noted that there is at least as much anecdotal evidence that local owners can be far more one sided and biased than corporate owners who tend to be more willing to be responsive to the market than to pet causes and ideologies. The latter has been well documented from publishers such as Walter Annenberg when he owned The Philadelphia Inquirer, William Loeb, owner of the Manchester (NH) Union-Leader, Col. McCormick’s Chicago Tribune and, of course the legendary William Randolph Hearst.
Nor is there convincing evidence that minority or women owned media – particularly broadcast television--are any more likely to program much differently than majority or male-controlled media. The economics and the incentives are the same for all and the research I have seen on this confirms this.
None of this is to say that media combinations are to be encouraged by regulation. What it does say is that any laws or regulation that substantially prevent market forces from operating at this time would have few, if any, known effects in promoting the goals of these legislators. And the unintended consequences—such as speeding the demise of some newspapers or blocking the introduction of local TV news where there is none now—could seriously impede the very objectives sought by the Senators and those egging them on.
This is a movement driven by emotion and populism. It is a stand that politicians like because it has no budget consequences but panders to the electorate as a bipolar issue. It is far more complicated, infected by finer shades of gray than have been presented to the mass audience. The motivation behind the Media Ownership Act of 2007 and the pressure being put on the FCC is based on misconstrued perceptions at best, a conscious avoidance of solid research at worst. It would be terrible policy, untimely law.
Thursday, November 01, 2007
Shafer reminds Copps—and the rest of his readership:
Copps—or the blockhead on his staff who wrote the letter—neglects to acknowledge Murdoch's never-ending role in increasing media competition and media diversity. For example, the main reason there are four big broadcast networks for Copps to complain about is somebody staked billions to establish and build the fourth network, Fox. That somebody would be Rupert Murdoch.
Shafer picks apart Copps' knee jerk and tired litany of presumed horrors of the combined News Corporation and Dow Jones. He concludes:
In the most laughable passage in his letter, Copps bemoans the damage to "localism" Murdoch poses. The last time I checked, the Wall Street Journal didn't have a metro section, so what the hell is he talking about?
I’m pleased to see a mainstream media critic demonstrating the hypocrisy, naiveté and frequent elitism in the media reformista (Shafer’s term) movement. I have been making many of the same points in articles and in this Blog here and here about the constructive role News Corp. has played in creating the very diversity of content that the self-styled reformers have called for. He risked his and his stockholder’s capital to start that fourth broadcast network in 1986—a challenge no other media company, union, cooperative, foundation or entrepreneur had been willing to try in over three decades. The Fox Network was not to everyone’s liking—but that’s exactly why it was important. It provided something different than other networks. The cable-based Fox News Network was the same: a competitor to the “monopoly” CNN that has succeeded by being different. We all benefit from the greater choice.
It’s not really about defending Murdoch. He’s a big boy and does not need my help or Shafer’s help. But News Corporation is a case study for how market forces and self interest—if given some space-- can create the variety of content that Copps and the self-styled reformistas think they can accomplish from tighter controls. It's a message that the elites don't understand-- the reality that the content is not culturally or ideologically to their liking is exactly the point. That's the essence of differentiation.
Murdoch has maintained an entrepreneur's mentality-- while having the resources of an enterprise that can supply the venture capital in-house.
Wednesday, October 03, 2007
WOTM FAQ #4: Is the debate about media concentration you are having with other scholars fun and stimulating?
It’s been awhile since I last added to my FAQ. The above is based on the opening line of a recent email I received from a graduate student. Following is my response.
I can assure you that the subject of media competition and its effects is not a simple academic debate among scholars. This is a high stakes issue. The measurement of media competition-- indeed the definition of what this means-- has policy implications for a wide range of players as well as for society at large. The folks who style themselves as media reformers I believe are more interested in creating a media environment that would be LESS diverse, more beholden to small time moguls with ideological agendas and more ridden with bias than anything we have now. Today the many large companies are most publicly held (the public being the pension funds that teachers, union members, and the rest of us invest our savings in), that are far more transparent than mom and pop entities are, and, by and large, are interested in profitability rather than steering the political or cultural content in any specific direction. I prefer to have the owners as merchants, not missionaries.
News Corp. is often held at the bogey-man by the reformistas. Yet News Corp. has been one of the major providers of choice and diversity in the media business.
-- In the 1980s, it was Murdoch's company that created the fourth broadcast network that media critics had been pleading for over decades.
--In the 1990s, News Corp. risked more of its money to start a second competitive all-news and information network.
-- In the current decade News Corp. continues to subsidize a money losing New York Post newspaper, when other publishers are cutting and running.
One reason this does not impress the so-call media reformers is that the content of these outlets is not what they think "the people" should have ready access to. What they all have in common is that they present us consumers with real choices, with media diversity in the most pragmatic sense.The Fox Network initially went down market, when the reformers assumed a new network would be more elitist. Fox News may or may not be conservative, but it is certainly different than CNN or MSNBC: that's diversity. The New York Post is not my idea of a great newspaper-- but New Yorkers already have the Times and Newsday and the Daily News. The Post is a real choice. Not mine, but for hundreds of thousands of readers. If owning Dow Jones will help News Corporation launch-- again with its own money at risk-- a competitive financial news network to compete with CNBC, then how do we lose?
I don't know if these comments fit into your research, which apparently is looking at a global context. I am merely reinforcing what I hope you have leaned from these "debates": that there is more to media competition than a string of percentages of audience share, who has how much revenue and lists of who owns what.
Friday, July 13, 2007
Of the 20 largest media deals between 1981 and 2002, News Corporation was involved in exactly---one. That was its purchase of Gemstar-TV Guide for $6.5 billion, number 14 on that list. It also bought a controlling interest in DirecTV. In that period, however, the company started the broadcast Fox Network, with some smaller purchases of 20th Century Fox and some local TV stations; it started a satellite TV system for the UK (now BSkyB) and invested in a very early stage another for Asia (Star); it started from scratch the cable Fox News Network.
News Corporation’s recent high profile acquisition of MySpace for $580 million was impressive only because it was for a company less than three years old with maybe $20 million in revenue and no profit. But that price is small in media terms. When compared to McClatchy's acquisition of the Knight Ridder newspaper and broadcast group for $4.5 billion, the $5 billion offered for Dow Jones is modest. And it doesn't come within shouting distance of the $36 billion value of Viacom’s merger with CBS in 1999 (and since divested) or the Time Warner-AOL merger debacle.
News Corporation’s penchant for growing organically—as the strategic planners put it—is partly a reflection of its leader, Rupert Murdoch. It is also an outcome of the corporate structure and priorities that Mr. Murdoch has maintained throughout his career. News Corporation is a public company, which means that its ownership is shared among thousands of individuals, mutual funds and trust funds. The Murdoch family, however, controls about 30% of the voting stock, which gives it effective control over the company. This is essential to understanding its growth strategy.
But first some background. (MBAs can skip the next few paragraphs). There are two basic models for one firm to acquire another. One is by using cash. The other is by providing stock of an equivalent value.
A cash acquisition is easy to understand. The owners of the acquired company get a check when they send in their stock. The value of the deal rarely changes between the time it was announced and when it is completed.
However, the most common structure that acquisitions take with large public companies is through stock swap. That is, the acquiring company issues shares of its stock in exchange for the stock in the company being acquired. So, if the acquiring firm, Company A, has stock currently trading for about $10 per share and has agreed to acquire Company D for $500 million, it would need to issue 50 million of its shares and parcel those out to the stockholders of Company D, who would trade them for their own shares in Company D. Thus, Company A now has all the stock – hence ownership--of Company D.
The stock swap has some advantages and disadvantages, but the former tend to win out. The advantage for many stockholders of the acquired company is that the transaction does not typically involve any capital gains tax liability. The sellers are simply swapping ownership shares. They have not realized any gain (or loss) until and if they sell that stock. In a cash transaction, owners are simply selling their shares, so there are immediate tax consequences.
One disadvantage of a stock acquisition is that the values of the transaction can change if the value of the stock of the acquiring company fluctuates substantially before the deal is completed. For example, in the above example the parties had agreed on a $500 million value. Should the stock market in its collective opinion feel that this is not a good deal for Company A, the price of the stock may be driven down, let’s say to $9 per share. If the stockholders of Company D still get 50 million shares, then the value of that stock is down to $450 million. Depending on what was negotiated, the acquiring company may have to pony up more shares, in this example 5.5 million more shares, to keep the value the same.
What does all this have to do with News Corporation? It’s crucial. When a company issues stock, it may dilute the ownership of current stockholders. For example, say there are 100 million shares outstanding and one stockholder owns 30 million of those. It then has 30% control. If the company issues 50 million shares to make an acquisition, that stockholder still has 30 million shares, but now only 20% of the total.
Why would such a stockholder approve a deal that would dilute their ownership interest? In making the acquisition, the company becomes larger, hopefully more profitable. So 20% (or .02% or whatever for a smaller stockholder) ) of a bigger pie may be better in the long term than 30% (or .03%) of a smaller company.
But if maintaining control is paramount, then dilution by issuing stock is off the table. This has been the case with News Corporation, where the Murdoch family places a high priority on maintaining control. The result is that it must make the bulk of its acquisition by cash or grow by reinvesting profits in organic development. When it makes an acquisition for cash, it may need to offer a higher price than a stock alternative, as it must accommodate the tax liability of those stockholders who had not planned on selling. This is a problem in the Dow Jones offer that has not received much attention. The tax consequences could be substantial, especially for long term owners, such as the Bancroft and Ottaway families that have had their Dow Jones stock for many years.
This self imposed constraint on News Corporation has kept the company out of the major acquisition business. When it does make a large acquisition, such as the bid for Dow Jones, it must pick its spots. If it succeeds with this bid, it will likely be out of the major acquisition business for awhile, especially given its cash-gobbling plan for starting a financial news network for cable. At the end of March, News Corporation had about $7 billion in cash, more than enough to cover its $5 billion bid for Dow Jones, but not much left over when working capital needs are considered. And, given its near death experience in the early 1990s when it took on too much debt to finance its growth into television and satellite, it is not likely to want to load up much further on its current $15 billion in debt.
Although News Corporation has made media acquisitions over the years, they have tended to be relatively small by big media standards. They have been made with the intent on growing them by further investment and good management. To a far greater extent than most of its major media company competitors, it has added to media competition by its new ventures and added resources provided for smaller acquired ventures. And it has pursued this strategy in large measure due to its priority to maintain the company as a family run enterprise.
(Full disclosure: As a result of some divestitures and spins offs I find myself with ownership of some News Corporation shares with current value of under $400.)
Friday, April 06, 2007
I posted an entry today at the Rebuilding Media site which was primarily focused on media strategy.
Figure 1However, I can use much the same data to further bolster the point that the media industry today is far more open and competitive than ever. Although Figures 1 and 2, originally created by Winnipeg-based Ken Goldstein of Communications Management, repurposed here, illustrate how the television business has opened up and fragmented, similar charts for other legacy media industries would be quite similar.
The number of players has proliferated exponentially. Indeed, considering peer-to-peer and aggregators such as YouTube that provide easy access to materials from content creators that range from the highly professionals to the rank duffer, the close circle of content providers is blown apart. And this is possible because the gate keeping function of the broadcasters and then cable providers has been undermined by satellite and the Internet, not to mention offline conduits such as DVDs.
Meanwhile, advertising expenditures, the primary funding sources of our subsidized media, are quickly being transferred to Internet-based outlets. I graphed that trend last month here. The latest data on this front shows that 65% of online advertising is accounted for by four providers: Google accounts for 25%, Yahoo, 15%, AOL, 8% and MSN, 7%. Note that only one of these, AOL—-part of Time Warner--is associated with a traditional media company.
(There may be some legitimate difference of opinion whether all these companies should be classified as “media” in the sense of newspapers, magazines, radio, etc. But I have never seen a widely accepted definition of who can be included within the media rubric. I would argue that Yahoo certainly qualifies, with its original content in finance, news and sports. Google, on the other hand, may be the weakest candidate, though I could make the case that Google News performs a legitimate media function (Reader’s Digest qualified as a condenser of articles from other magazines and the original Time magazine was a compilation as well.)
Whatever the case, these players, along with Apple’s iTunes, Netflix, Wal-Mart, among the literally countless others, are playing a critical role in providing outlets for content, much of which continues to come from traditional players. But central to my theme of media competition is that the avenues illustrated in Figure 2 are providing all of us with more options than ever to be creators of content, with an option of finding an audience (Exhibit 1: you are reading this post. How large an audience could I have reached—and how—before the Internet?) And for anyone who so desires we have the tools to cheaply and readily find this content.
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Friday, March 02, 2007
The media debate du jour is whether a merger of two satellite radio providers, Sirius and XM, would create a monopoly. Regulators will need to determine the relevant product market. Is it the means of distribution—satellite—or the product: music and talk coming from speakers or earphone?
Weighing in on this debate is one Scott Stolz of Tarpon Springs, Fla (and therefore probably not the same Scott Stolz who is a sound mixer in Hollywood). This Mr. Stolz had the following letter published in yesterday’s Wall Street Journal. (sub required). I repurpose it without further comment.
XM and Sirius
March 1, 2007; Page B7
The thought that a merger between XM and Sirius could create a monopoly is absurd ("Making Radio Waves," Review & Outlook, Feb. 21). They would offer only one of many content options for consumers. It's a moot point anyway. By the time the merger is completed, satellite radio will have won the battle with radio but lost the war. When I subscribed to XM three years ago, I immediately quit listening to traditional radio. Satellite radio is simply a superior choice. However, now that my 927 favorite songs reside on my iPod, I have little need for radio of any kind. Why scan the dial in hopes of finding a song that I like when my iPod contains only songs that I like?
Tarpon Springs, Fla.
Tuesday, February 20, 2007
What’s reasonable here? On the one hand, aside from the statutory license restrictions (no small matter), the merger would on the face eliminate competition that had been very fierce in this alternative to traditional terrestrial radio. On the other hand, despite signing up millions of subscribers each, both are losing prodigious sums of money. But that is in part due to the profligate spending on programming, such as Sirius’$500 million commitment to Howard Stern or $107 million for NASCAR, while XM with more subscribers, committed $55 million for Oprah Winfrey. If they had spent less on expensive programming perhaps they would be profitable.
On the other hand (whoops, is that the third hand?) if they hadn’t spent big on high visibility programming, then they might not have aggregated 14 million subscribers paying $12.95/month.
By one important measure, such a merger reduces competition less than it first seems: Subscribers to one service cannot listen to the other. Although the two services compete for subscribers, the radio sets sold for each service works only for that service. Thus, once a consumer chooses which service they want (or buy a car outfitted with one radio), the barrier for switching services is high, as the costs of the receivers is relatively steep compared to AM/FM receivers. To the extent that a merged service would provide the best of both, many subscribers would benefit. (Losers may be the higher profile talent that has sometimes been able to bid one service against the other).
Another reason why perhaps it should go through is that it is already being bad mouthed by the National Association of Broadcasters (NAB). Predictably the NAB must oppose it, as satellite radio is competition for its traditional radio membership. It quickly issued a statement that included: "In coming weeks, policymakers will have to weigh whether an industry that makes Howard Stern its poster child should be rewarded with a monopoly platform for offensive programming. We’re hopeful that this anti-consumer proposal will be rejected."
This, of course, is the same Howard Stern that until a year ago was the pride and joy of an NAB member. (or if not exactly “pride”, at least a profitable “joy.”). And the same NAB that has lobbied for freedom of mergers in local television and radio.
But there is a point here: Satellite radio is not a medium to itself. Its competition is free terrestrial radio, including the expanded—but still under utilized—HD radio. The NAB must see a merged XM/Sirius as a more formidable competitor than two money losing entities.
Bottom line: This should be a tough sell for approval, but it's not a one way argument. One approach: Let the two merge, but sell one of their licenses. The surviving firm can carry what they have room for on their one license frequencies and let a new compeitor in the sky. Perhaps the model for a new competitor would be for less expensive programming at a less costly subscription fee.
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Friday, February 09, 2007
The mini-symposium at
The usual suspects made the usual speeches. Keynoter Walter Cronkite, looking a tad unsteady in gait but at 90 years old was nonetheless sharp on his message, delivered in that familiar deep and smooth voice. He lamented the cuts in newsrooms and repeated that good journalism was important for democracy. It occurred to me that it is not likely we will ever again have a news personality on the order of Cronkite. He was the CBS Evening News anchor when we had only three choices for television news—and because the three newscasts were usually broadcast at the same time, we had to make a choice of which one to watch. Uncle Walter was the top dog of the three in the 1970s. There were no replays (and, note for those under 25, there were no VCRs or PVRs). Disaggregation (read "lots of alternatives to choose from") means fragmentation.
Given the short time and the many panelists (nine of us had a shot in two groups over about two hours), it was hard to get much more than a flavor for how rich a true debate could get. I contributed some of the points I made in a recenty entry here asking what is even meant by "ownership consolidation" or "quality journalism." Moderator Dick Wald, summing up my panel, concluded that what was missing was data. True, there was little in this session. I tried to bring in a few specific points— only one person in the audience (
Indeed, probably the most useful take away from the afternoon was a comment by Tom Rosenstiel, the director of the Project for Excellence in Journalism. Local ownership, the Center’s research has found, does not translate into high quality content. And large chain ownership does not default to lower quality. There are better and worse local owners, better and worse large corporate owners. Based on the Center’s own empirical research over the years on the quality of television journalism, Rosenstiel reminded the audience that good journalism or poor journalism was not a function of the ownership structure per se but of the values of those who controlled whatever entity.
Case in point: Sitting next to me was Frank Blethen, publisher and part of the family that owns the Seattle Times. His family’s stewardship of that paper over decades makes a strong case for local ownership. But two of us, myself and later Norman Pearlstine, most recently editor-in-chief at Time Inc., referred to the gross abuse of power of Walter Annenberg, a
Rosenstiel also was on point when he observed that the publicly owned chains have a tendency to add people and resources to improve the weak properties they buy, recognizing that there is some correlation between bigger audiences (and therefore profit) and higher quality. Yet the same chains are known to cut back expenses at acquisitions where they feel that there is too much being spent for too little return, therefore being open to the charge they bring down some measure of quality. (You can find an example of just this phenomenon on pages 16-17 of the 3rd edition of Who Owns the Media?, referring to two newspapers acquired by Gannett). On the one hand. On the other hand.
Jack Shafer, editor-at-large for Slate, was his usual voice of reason. He reiterated his point from a recent Slate column that the media reform movement should be viewed as a media regulation agenda. He reminded us of the (failed) attempt of the Nixon Administration to use the license renewal process for two television stations owned by the Washington Post Co. to blackmail the newspaper into easing up on its Watergate reporting. Although Commissioner Copps later said that reinforces his call for a ban on cross ownership, he misses the point: Whenever anyone is beholden to the subjective whims of a government entity for its survival it may feel constrained in being critical of that government. The media reform folks have it backward: If they regulated broadcasting in this way they are more likely to stifle voices than to unleash them.
All in all, the audience of about 300 listened respectfully, asked a few questions and filed out. I doubt if many minds were changed. Hopefully at least a few left with a better sense of the complexity of the issue. Dean Nicholas Lemann has got the ball rolling. But is there an encore?
Wednesday, February 07, 2007
Our major focus is how consolidation affects journalism. Is quality journalism declining, morphing, getting better? Does it have any affect at all?My response follows:
Well, I remain a bit hesitant. I'm perplexed by your question of whether, as the result of consolidation, quality journalism is declining, morphing or getting better.
First, I'm not sure what consolidation you refer to. The one that has liberated me from the hegemony of the 1960s three national TV networks that were the airwaves in the time of the FCC 's Newton Minow's "Vast Wasteland" speech? Or is it the 2007 television landscape in which those three networks have half the audience ratings they had then and indeed the now five companies that own broadcast networks, combined with all their owned cable networks, have a smaller prime time market share than in the 1970s? Maybe the 1970s when each of those three networks each carried 30 minutes of evening news (at the same hour so I could only watch one-- there were no VCRs or PVRs) or 2007, when I can not only watch them but three others that go on 24/7 with news and info, not to mention services such as New York 1 or New England Cable News that keep me apprised on the local developments?
Second, I'm not sure if the range of "diversity" fits into your notion of quality. I do recall that the media critics of the 1950s and 60s and 70s and into the 80s complained that there was little diversity in television. So I guess they would have been celebrating the arrival in 1986 (concurrent with the FCC loosening ownership limits from 7 to 12 TV stations) of the Fox Network, which brought a noticeably different brand of programming (e.g. "Married with Children"). And I was sure they would cheer cable’s Fox News Network, which, rather than duplicating what we already had brought a noticeably diverse approach. But I think neither brought cheers from the critics-- just from the viewers. I suppose critics meant the kind of diversity they liked, not the taste of the great unwashed. Be careful what you wish for I always say.
Was the quality journalism standard the period of Hearst's Yellow Journalism? Or when Tammany Hall ran
Or maybe you were referring to the quality journalism on the 7000 radio stations-- mostly AM-- that existed in 1970, when the leading pop stations in Philadelphia, New York, Chicago, LA, Denver, Seattle, etc. were all using the same top 40 play list they bought from national syndication services. Then again, maybe the Golden Age of radio journalism dates back to 1937, when four radio networks and their owned local stations accounted for 50% of industry revenues, much more than the four largest radio groups have today. Or was it 1947, when 94% of all radio stations were part of only four networks?
Probably any quality radio journalism is the product of the 20% of all 14,000 radio stations we have today that are non-commercial, getting most of their identical programming created for them from two national networks in Washington (NPR) or Minneapolis (APM).
And, you may notice, I haven't even mentioned the Internet, YouTube, Yahoo's Kevin Sites in the Hot Zone series , Huffington Post, Buzz Machine, BuffaloRising.com, Pegasus News, Backfence.com, Al Jazeera's streaming TV and the BBC, too, for a start.
So in the end, what I need to know is, what is your benchmark for "consolidation" and what is your standard for "quality?"
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Friday, February 02, 2007
I will be a participant at Columbia University’s School of Journalism mini-conference next Thursday, Feb 8 it’s labeling “Media Reform: Is It Good for Journalism?” The keynote speaker is Walter Cronkite. (See Slate’s Jack Shafer on “media reform.”)
The latest information is that there will be two panels. I will be part of one, on Media Competition (they call it media concentration), which will be moderated by Dick Wald, a member of the J-school faculty and a former NBC News and ABC News executive. In addition it will include Ed Baker,
A second panel will cover a variety of other topics of concern to journalists, including network neutrality. It will be moderated by Dean Nicholas Lemann and include Michael J. Copps, FCC Commissioner; Kathleen Carroll, executive editor and senior vice president, the Associated Press; Jack Shafer, editor-at-large, Slate.com; Hodding Carter III, professor of leadership and public policy, University of North Carolina at Chapel Hill; Norman Pearlstine, former editor-in-chief, Time Incorporated, and Michael Fancher, editor-at-large, Seattle Time.
The sessions are scheduled from to in the 3rd Floor Lecture Hall, which is at
If you’re in
Thursday, January 11, 2007
Back in June 2005 I wrote about the Urban Legend that was growing up about the events surrounding a toxic gas spill in the area of
In his column in Slate yesterday, editor at large Jack Shafer, who often writes about media topics, takes to task sociologist Eric Klinenberg for opening his new book, Fighting for Air: The Battle to Control America's Media with the Minot story, despite some critical inaccuracies—or at least omissions.
Having already covered this territory, I won’t repeat them. You can read my earlier piece. But Shafer makes two other points that are worth elaboration.
First, Shafer reminds us of the increasing validity of the hypothesis advanced by economist Peter Steiner in his now-classic dissertation. As a reminder, Steiner proposed that a broadcast monopolist would be more likely to provide a diversity of radio formats than the same number of individually owned stations. Shafer states Steiner’s observation concisely:
Wherever a broadcaster consolidates ownership in a region, it will tend to diversify programming for economic reasons. Consider: If six companies own six stations in a small market, all six will tend to gun for the highest ratings possible and put the other stations out of business. Such a strategy will almost always result in duplication of formats, as was the original case in
And, indeed, prior to Clear Channel’s purchase of the stations in
But the bigger point Shafer makes, albeit in passing, that is “spot on” as my very British friends say, is that those who are highly critical of today's media ownership have no recall of what media content was like 20 or 50 years ago. Shafer simply says: “Now, you might be right that six of
That is, when was the supposed Golden Age when broadcast entertainment or local news was better than today? In the 1960s, when Newton Minow was moved to proclaim it a “vast wasteland?” In print, was the Kansas City Star “better” before it was acquired by
Finally, Shafer also takes Klinenberg to task for failing to note that there was another station broadcasting locally in
Wednesday, November 15, 2006
So, for example, if you want to see the media outlets and their owners in Philadelphia, you might enter 19104. A map shows the location of broadcast towers and a summary identifies the five largest television licensees in the area. Links for many of the largest firms drill down further into the data base.
Media Tracker is a helpful tool, but is only a starting point for many of the needs of identifying media owners. The geographic region that is used seems to follow the FCC’s Grade B contour territory, which encompasses far more licensees than viewers can receive. For example, Philadelphia shows 17 full power stations, but those included in Reading, Trenton, Bethlehem and Allentown don’t reach most of the Philadelphia market area. And, of course, the 90% of households that receive TV by satellite or cable would not likely find their providers offering duplicate network stations in any event.
Similarly, the data base kicks out 55 daily newspapers within 100 miles of Philadelphia—which includes New York City and Asbury Park, NJ. But looking at the list recalled the Umbrella Model for newspaper circulation. This model, first described by Stanford economist James Rose in the mid-1970s, noticed that the newspaper market consists of four tiers, with the lower tiers competing with those above it. The top tier consists of metropolitan dailies having regional market coverage. In Philadelphia, that would be the Inquirer and the Daily News, late of Knight Ridder. The second tier consists of satellite city dailies, which differ from the first tier in that they have more confined markets. This could include the Courier-Post, based across the river in Cherry Hill, NJ or the News Journal, out of Wilmington, DE. A third tier is made up of suburban dailies around the metropolis and cities., such as the Burlington County (NJ) Times. The fourth tier includes weeklies and “shoppers.”
In looking at the newspapers in Media Tracker, this hierarchy of markets becomes more evident. While the residents and advertisers of Philadelphia can choose from the Inquirer or Daily News, both from the same owners, residents of Camden NJ might want (and many do) buy the Philadelphia papers—OR the Courier Post—OR both. Burlington residents will have ready access to either of those papers—ad well as the County Times. Region-wide advertisers have their choice as well.
Being able to pull out this type of data is a strength of Media Tracker. But it is still a work in progress. The ultimate service would take a given ZIP code and provide a list of what media are available in that ZIP: the outlets offered by the local cable company or other broadband provider, those available from the satellite services beamed to that area, only the newspapers that circulate there, the radio stations that can be received with any AM/FM radio. (Of course, the entire notion of local media availability is undermined to the extent that anything is available to anyone via the Internet).
But even as it is configured today, Media Tracker is a helpful resource. Whether it tells us there is more or less competition in media availability in any geographic area is in the hands of the researchers who will use it.
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Thursday, November 09, 2006
Whether it’s at the FCC hearings on ownership rules or at stacked conferences, such as National Conference for Media Reform, the rhetoric behind media ownership has been one of diversity and the implication—supported primarily by anecdotal stories—that large media companies stifle diversity. There is the subtext that the owners of the large media companies could -- if not actually do—promote their personal, political and/or cultural agendas.
This is despite the preponderance of evidence from sources that are not stakeholders or don’t have ideological axes to grind, that ownership matters, but not in the direction these advocates promote. As I have pointed out here before, describing a study undertaken at Harvard’s Kennedy School that finds the US has the most diverse and competitive media environment in the world, or the British-lead “Trust in Media” study that had a similar finding. The very well conceived content analysis study, “Does Ownership Matter in Local Television News?” from the Project for Excellence in Journalism reported very mixed, sometimes counter-intuitive results, such as that local TV stations with cross-ownership—in which the parent company also owns a newspaper in the same market—tended to produce higher quality newscasts.
The “What Drives Media Slant?” study is unique in several ways. Key is the method for determining slant: instead of researchers constructing a basket of content criteria and setting a handful of graduate students to laboriously try to categorize thousands of newspaper articles over a manageable period of time—often as few as two weeks-- Matthew Gentzkow and Jesse M. Shapiro draw their definition of slant directly from the words of ideologues—members of Congress. They started with a computer-driven analysis that examined the set of all two and three word phrases used by representatives in the 2005 Congressional Record, and identified those that were used much more frequently by one party than by the other.
For example, they discovered that when referring to estate tax legislation, Republicans tended to use the term “death tax,” while Democrats were partial to calling it the “estate tax.” Republicans were biased toward “tax relief,” Democrats liked to call it a “tax break.” And so it went: “personal account” for Social Security change and “war on terror” (strongly Republican) vs. “private account,” and “war in Iraq” (strongly Democratic).
The researchers were then able to take the 1000 most strongly identified terms and use computers to compare them to the full content of 400 newspapers accounting for 70% of daily circulation—far more than is possible using conventional content analysis. The key finding: “Using zip code-level data on newspaper circulation, we show that right-wing newspapers circulate relatively more in zip codes with high fractions of Republicans, even within a narrowly defined geographic market.” And by implication, these papers circulate less strongly in areas of a left leaning constituency.
The study further found that newspaper companies with publications in multiple markets followed the same principal: their papers published in “red” markets showed more of a Republican slant than those published in Democrat “blue” markets.
The political composition of the market did not account for all the explanation for slant, the study found, but it was the largest identifiable variable. The study was robust in that it controlled for many possibilities that could account for slant, but none undermined the central finding: bias is driven more from the readers, less from the editors or owners. In economist language, newspaper content is largely demand driven.
Advocates who claim to “know” that owners—often large media companies—set an editorial agenda that is their own invariably use anecdotal stories or a narrow, limited study to “prove” their point. Or they advance their position simply on faith. The empirical evidence keeps piling up that overall ownership does matter—but not in a single nor predictable direction.
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Thursday, September 28, 2006
In a post I made today at Rebuilding Media I talk about the inevitability of downsizing at newspapers. I suggest you read that before continuing here, though it’s not necessary.
There is no doubt that newspapers need to downsize to reflect both their shrinking circulation and their stagnant advertising. Investing in a better newspaper will not substantially change the forces pressuring the paper product.
There is one point that the critics of downsizing do hold that is legitimate. That is the profit margins that the publishers are trying to maintain. The usual number thrown out is 20%, which is well beyond the profit margin of a well-run manufacturing company—which is how newspapers are classified.
The level of profitability has eluded many of the big city newspapers, such as the beleaguered Philadelphia Inquirer, which reportedly (sub req.) had an operating margin of about 9%-- not too shabby by industrial standards, but well below the industry target.
So there is some element of reality to the perception that owners—primarily the large pension and mutual funds, but large individual holders as well—based their investment on expectations of now unrealistically high earnings ratios. Privately held newspapers-- such as Morris, Landmark, Freedom, Scripps—do not face the same degree of pressure, but even then there can be behind the scenes forces.
A closely held company may be satisfied to look at cash flow rather than profit margins. But once the stock gets split up among second and third generations of siblings, some of whom have no involvement with the publications, similar pressures evolve – opportunity costs. The value of the newspapers would be much higher in the hands of a publicly-owned company that would run them for industry- standard profit instead of being managed for cash flow or because the older generation was rewarded with the prestige or influence possible in running newspapers. Publicly owned media companies are rarely run to maximize political influence—they are run to provide a comfortable profit. It’s the privately owned, family run, smaller operations where influence or power is more likely to be salient. (See pages 19-21 of Who Owns the Media). It is the pressure to “unlock” the financial value that resulted in many family chains selling out in the 1970s and 1980s and has affected even the polices of some publicly owned companies where control has resided with the family, such as the Bancrofts of Dows Jones and now the Chandlers at Tribune Co. (sub. req.)
However owned, accepting lower profit margin, while perhaps realistic, does not fundamentally change the outlook for the future of newspapers nor its employees. It would only delay the inevitable. If a newspaper that was earning 20% decides to accept a more reasonable 10% margin, for a few years it could maintain its current level of operations, watching expenses climb faster than revenue. Margins would fall, but in two, three, maybe four years hit 10%. Then what?
Of course, we would hope that management is also looking for ways to rejuvenate the business, recasting it as the source of local news and information of all sorts and in whatever format. There are some models for this. Among others, Buffalorising.com, Bluffington Today.com and Pegasusnews.com are searching for locally based and branded sites that are more than just newspapers online.
Accepting lower profit margin may be needed to free up investment capital as news-papers transition to profitable news-gathers, but it still may require cutting in areas of the old (read press rooms, circulation departments, some newsroom functions) and diverting those savings to building the future.
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