What is the scope of media activity? What all does it include? How do the businesses differ from one sector to the next? These are some of the questions we address in this second part of our 4-part series on “The Curse of the Mogul.”
Defining media is no easy task. We are all familiar with the common mass media of our everyday consumption: television, radio, newspapers, magazines and now the Internet. Then there are the numerous databases that provide professional information for sectors such as finance or medicine or the law. Add then advertising-driven ‘media’ such as billboards or freesheets. And then there are entertainment activities that have no connection to advertising at all: movies, books, theme parks, video games (some advertising there now), and others.
Where is the order in this media jungle? For the authors (for bios click here), one of the key distinctions is whether the media provides entertainment, or information. Those are the two crucial motivations for which people will consume the media, or advertisers will seek to place their messages. This distinction also then has an impact on whether the media is B-to-B or B-to-C.
This is turn has an impact on whether the media is financed by advertising revenues (as is the case for television or radio, for example), or by revenues from users and buyers (as is the case for books, movies or theme parks), or even a combination of both.
Add chart of ad spending per segment
As the chart shows, media spending is almost equally divided between direct spending on content (books, movies, etc.) and advertising monies flowing into mass media. In 2007, each accounted for just below $450 billion.
Wheat and chaff
One of the issues that the authors grapple with is the notion of media conglomerates, and whether such a concept makes sense and adds value for shareholders. Their analysis shows that many of the justifications for building media conglomerates do not hold water. Foremost is the notion that content can bring synergies across different platforms.
This is where the author’s analysis of competitive analysis by type of media business is most relevant. But beware of any generalization, since it is often possible to find an exception that confirms the rule.
In the chart below, the authors provide a framework for understanding the structure of competitive advantage.
Add chart on competitive advantage by sector
Rather than provide a tedious exposé of what the chart means (see chapter 3 of the book if you have the time and appetite), let us illustrate with examples cited in the book. For content, continuous content can refer to a magazine such as National Geographic: monthly fare that passionate subscribers devour and advertisers wish to capture. Discrete content includes movies, where a Star Wars epic may mean fortunes for producer and actors alike, whereas flops such as Ishtar or Heaven’s Gate can mean heads rolling. In the realm of discrete content, each venture is a roll of the dice, and the stakes can be high.
As for packaging – requiring the physical infrastructure to distribute and market the content – the authors point out that the lowering of cost barriers in the realm of electronic distribution implies lower competitive advantage also. Even so, companies in the packaging/distribution/marketing part of the value chain do not need to bet the business on a new piece of content every week or month or year; their investment in infrastructure ensures some peace of mind.
Lastly, the retail end of the value chain (referred to as the ‘last mile’ in the cable business) offers the highest safety and profitability. This is the end of the business that handles sale to the final customer. Here we find the wealthy cable companies (MSO multiple system operators) such as Comcast and Time Warner Cable, or the chains of cinema houses that add butter to the popcorn of content.
Who does what?
Although most media companies have chosen a strong focus on one of the links of the value chain, the authors enjoy turning the blade in the wound of spread-too-wide conglomerates that have wasted value by covering too many of the links and sub-links of the value chain. For every well-managed local newspaper company such as Gannett, Lee or McClatchy, there is a Vivendi Universal that has divisions helter-skelter, and often beyond their board’s control…
These media companies that do have activities in different areas often succeed by keeping management well-segregated ad avoiding over reliance on synergies between the divisions. Everyman for himself, and the media gods for all.
Published September 2010.
The next installment will appear on October 13 and will examine the causes of poor mogul performance.