Donna Block
SHARE WORLD
Media shares have been one of the most volatile sectors of financial markets, as multimedia corporations fought to gain and retain market share.
Last week three major news organisations -NBC, The Washington Post and Newsweek – announced they would be forming a
“content-sharing” partnership.
What is different about this media partnership is that independence is the key. Unlike other recent media mega-mergers each of these organisations will remain independent but will work together to get their work out on as many platforms as possible.
Media mergers are on the rise. However, the reality is that many of the latest media tie-ups have created great headlines but haven’t been able to actually do that much.
ABC, a major United States television network who merged some of its interests with Disney, is having trouble turning Disney’s television shows into hits, and joint ventures between Time Warner’s magazines and Ted Turner’s cable empire haven’t fared too well.
These types of media conglomerates have three basic businesses: content production, from sitcoms to magazines to movies; broadcast TV networks; and other conduits for distribution, from cable to radio to the Internet.
The major television networks are the most crucial conduit because they reach more Americans than other media – they’re the big guns that generate monstrous advertising revenues. But declining ratings, changes in government policy and rising production costs mean networks now function best as centrepieces for companies that can plough money into production and alternative distribution channels. What matters isn’t how well those businesses work together; it’s how well each one works, period.
“In a world of increasing fragmentation, unless you control several pieces of the pie, you’re not going to be viable,” says one media analyst in New York.
Here’s how the players stack up. Shares in most of these companies are pricy but may provide substantial growth opportunities as they spread their wings further afield. Keep a watchful eye on those getting a large piece of the Internet pie.
n Time Warner: The biggest company is the most diversified – it produces content through Warner Bros. (ER, Friends) and Time Incorporated publishing.
Its TV assets include Turner Broadcasting’s CNN and TNT (cash flow up almost 20% from last year), HBO (up 15%) and the hot start-up WB network. (Analysts often use cash flow, or earnings plus depreciation expense, to evaluate media firms.)
It also owns Time Warner Cable, the country’s second-largest operator, which has upgraded its systems for broadband and is readying cable telephony with AT&T.
Poor results in the music division knocked the share price last year, but it has rebounded since. Time Warner has the best assets of the lot.
n Viacom/CBS: After the much publicised merger between these two stalwarts, Viacom/CBS is number two behind Time Warner.
Viacom’s Paramount Pictures produces movies and TV shows, and its MTV, Nickelodeon and VH1 are increasing audiences and ad sales at a double-digit pace.
CBS is not only the number-one TV network, it also owns 63% of Infinity Radio, the number-two radio station owner, with cash- flow growth close to 20%. And CBS seems to have the best Internet strategy among the titans through interests with MarketWatch. com and SportsLine.com. It also has an exclusive news deal with America Online and owns television syndication giant King World Productions.
“CBS not only has a number of Web outlets, it has avoided paying absurd amounts of money by trading ad time for ownership stakes,” says Chris Ensley, an analyst at Lazard Freres & Company.
Of course, big mergers present big questions, like what will Viacom do in markets where it owns both CBS and UPN (Viacom’s fledgling TV network) stations, for example?
n Disney/ABC: With five straight quarters of flat or declining earnings, Disney is a growth stock that isn’t growing. The company, which has seen its stock price slump 13% this year compared with a 14% rise in the Dow Jones Industrial Average, ended a rough fiscal year on September 30: earnings were down, its stock price at new lows and management was under pressure to bring back the glory days when 20% annual earnings growth was as easy as a stroll down Disneyland’s Main Street.
Its core businesses of producing family movies, distributing home videos and running theme parks are sound. And its ESPN.com sports site is a success.
Disney will be spinning off its Internet assets into a separately traded online company called Go.com. But its partner, ABC, has sunk to third in television network ratings, and CEO Michael Eisner has taken to shortening shows to make more room for ads – not exactly an exciting, high- growth strategy.
n Washington Post/NBC/Newsweek: Not just a newspaper, The Washington Post Company has operations in newspaper and magazine publishing, TV broadcasting, and cable TV. It presides over The Washington Post newspaper and Newsweek weekly newsmagazine (number two after Time). The publisher’s portfolio also includes more than 30 Maryland community newspapers and half of the International Herald Tribune.
It owns six TV stations and a regional cable system. The company also owns Kaplan Educational Centres, a test-preparation company, and a number of other smaller publishing and communications technology operations.
NBC is owned by financial giant General Electric, which is the fifth-largest corporation in the US. NBC is second to CBS in the US television ratings and also owns the MSNBC cable television network. This alliance will be a valuable tool for all the partners as they will have access to reporters and content from all aspects of the organisation and still remain independent of each other.