Back in the nineties, it made for a powerful story a new breed of media company with assets across the platform spectrum, international reach, and operations integrated all the way from content to delivery.
The sales pitch went something like this:
In an increasingly fragmented and decreasingly regulated media environment, where audiences have more choice than ever before, what better strategy than to have a finger in every pie? That way, whether consumers choose television, radio, print or online, you get a piece of the action. You can even cross-sell advertising across different platforms, providing a one-stop shop for marketers.
And it gets better, because as an integrated media company, you get to ‘repurpose’ the same content across multiple delivery platforms at minimal extra cost. So the animated film you just produced can feed your satellite broadcast network and your DVD rental outlets not to mention the awesome product marketing opportunities branded fluffy toys with every Big Mac.
But wait, there’s more.
If you diversify now, you also get ‘convergence’ the promise that as content goes digital, you’ll be able to beam anything you like across the world with a single click, using a nifty technology called the Internet. Well, okay, it’s a little slow right now. But the broadband revolution is just around the corner.
Yeah, right.
A few years and one hell of a market crash later, the front-runners in the integrated media race appear decidedly worn out, and the choicest fruits of cross-platform mergers and acquisitions are looking more like soggy fruit-salads.
A few years and one hell of a market crash later, the front-runners in the integrated media race appear decidedly worn out, and the choicest fruits of cross-platform mergers and acquisitions are looking more like soggy fruit-salads.
Vivendi Universal, the Franco-American behemoth, is a recent case in point. In the space of just over ten years, Vivendi transformed itself from a hundred year old water company into one of the world’s largest media conglomerates, incorporating, amongst other assets, Universal Music (the world’s largest record company), Universal Studios, USA Networks (a major US cable network), Canal+ (continental Europe’s biggest pay-TV company), a transatlantic publishing empire and Internet portal Vizzavi.
In the process, however, it racked up debts of almost US$30 billion and last year earned the unenviable distinction of posting the largest loss in French corporate history.
As a result, the group is now in the process of unravelling even faster than it grew. It has already disposed of a bunch of magazine interests, put its publishing unit up for sale, flogged its half-interest in Vizzavi, and announced plans to divest from all Canal+ networks outside of France. A similar fate is probably in store for Universal Studios, Universal Music and USA Networks.
So what went wrong?
Aside from a tendency to overpay for acquisitions, one of Vivendi’s problems was the character of recently-axed CEO, Jean-Marie Messier. No doubt the company would never have existed if not for his vision, but critics within the company called him arrogant and cagey. As one female employee eloquently put it, shortly after Messier’s ousting in June, “they just hated him, basically.”
Aside from a tendency to overpay for acquisitions, one of Vivendi’s problems was the character of recently-axed CEO, Jean-Marie Messier. No doubt the company would never have existed if not for his vision, but critics within the company called him arrogant and cagey.
Then there is the difficulty of running a company in two countries that, culturally, could not be further apart.
But the most straightforward account of Vivendi’s failure is that Messier could never get the synergies between his disparate operating companies to work the way they were supposed to. His vision of an integrated conglomerate produced nothing more than a bloated affiliation of independently-run companies, each looking after its own interests interests which, more often than not, were poorly aligned with those of the Vivendi empire.
Messier can take some solace in the fact that he’s in distinguished company. There’s Bertelsmann’s former CEO, Thomas Middelhoff, for one. Another charismatic character, Middelhoff bet the farm on Bertelsmann’s online ventures, and lost.
If ever there was a case for synergy, Middelhoff seemed to have made it. He recognised that the Internet would become an increasingly important distribution channel for the group’s publishing and music output, and wasn’t afraid to do something about it. In addition to purchasing music website CDNow and online bookseller barnesandnoble.com, one of Middelhoff’s more maverick ideas was to acquire the now-bankrupt Internet file-swapping company, Napster.
But Middelhoff miscalculated the risk of going against the grain in an old and established company. He was ousted in July, a month after Messier’s sacking from Vivendi. His seat was taken by Gunter Thielen, an old-guard veteran intent on flogging off cash-draining Internet assets, banishing talk of new media synergies and refocusing on traditional broadcasting, publishing and music competencies.
Drowning his sorrows at the bar next to Middelhoff and Messier is none other than Gerald Levin, architect of the biggest merger of them all: AOL Time Warner.
Levin, now (prematurely) retired, was piloting Time Warner, owner of CNN, Warner Bros, HBO and Time Magazine, when it merged with AOL.
When the merger was first announced two and a half years ago, the combined value of the firms was US$290 billion. Since then, more than US$200 billion of investors’ money has evaporated. Earlier this year, the merged group announced a record ‘write-down’ of US$54 billion essentially an admission that the company’s assets were worth that much less than was previously claimed.
The dot-bomb fallout is partly to blame, but problems have been exacerbated by the group’s inability to deliver on promised synergies between its media assets and those of the upstart Internet access provider that swallowed them up. Once again, the worth of the whole has proved less than the sum of the parts.
But we need look no further than our own market to witness the remarkable boom and bust of the integrated media dream.
Primedia was perhaps the first South African company to tout itself as an integrated media play. In the late nineties, with assets in virtually every platform other than television, along with film and music production units, Primedia was well on its way to becoming the consummate modern media conglomerate.
The company even went international, buying up and developing cinema, Internet and direct marketing interests in Europe.
Nevertheless, Primedia was also the first local company to learn that owning assets is one thing, operating them effectively is another, and realising synergies between them is another still.
Like Vivendi and Bertelsmann, Primedia learned its lesson the hard way. Rampant debt and a dwindling share price forced CEO William Kirsh to shrink the company to a more manageable size and scope, closing down a large chunk of its Internet interests, divesting from music and film production, and selling virtually all offshore assets.
Like Vivendi and Bertelsmann, Primedia learned its lesson the hard way. Rampant debt and a dwindling share price forced CEO William Kirsh to shrink the company to a more manageable size and scope, closing down a large chunk of its Internet interests, divesting from music and film production, and selling virtually all offshore assets.
Naspers was a little luckier. Its investment in US-based OpenTV, which produces software for satellite television decoders, was a brave attempt to forge a niche in the North American and European markets. But convergence-babble aside, OpenTV was always more of a technology business than a media business. It was also an expensive investment that counted Microsoft and Oracle among its competitors not the sort of adversaries a South African media company wants to take on, especially not on their own turf. Naspers was undoubtedly relieved when it managed to realise some value by selling the company earlier this year.
Yet analysts are still questioning whether some of Naspers’s assets actually belong in a media group. These include M-Web, which, aside from a small Internet portal business, looks suspiciously like a technology company. Naspers has yet to demonstrate how an Internet service provider can add value to the group’s media assets, particularly as M-Web’s losses, albeit shrinking, are still hovering around haemorrhage levels. And with AOL Time Warner’s woes just beginning, MD Koos Bekker can no longer turn towards his American role model for proof that the M-Web strategy works.
The markets are sending out a strong message that media companies need to stick to their knitting and forget the blue-sky puffery of the late nineties. So has the age of the integrated media company come and gone?
There are other possibilities.
Perhaps all the recent gloom and doom is simply the result of trying market conditions, combined with the difficulty of identifying viable business models for new media platforms like the Internet. Or perhaps media companies in this time of flux are simply struggling to find the right leaders.
What is certain is that tomorrow’s top media executives will be managers first and foremost, not simply clever visionaries or shrewd corporate financiers. They will have to do more than simply acquire companies or structure mergers. They will have to earn the trust of the people who come with those mergers and acquisitions, uniting them behind clearly articulated goals that serve the individual, the company and the conglomerate. Only then will the word synergy begin to signify something other than a whole lot of tired hype.