Signs of the Print Holocaust

Over the last year, the newspaper industry has seen a lot of departures - with major newspaper companies getting rid of a lot of their major properties.  The Washington Post Company sold the Washington Post to media newcomer Jeff Bezos, founder of Amazon.com.  The New York Times Company sold the Boston Globe to John W. Henry, owner of the Boston Red Sox.  And Time Warner basically gave away what had been its' premier product, Time magazine (whose new owner also found itself burdened by an additional $1.3 billion in debt).  The Tribune Company has been trying to sell major papers, like the Los Angeles Times and Chicago Tribune for years (and finding limited interest).  Even Murdoch's News Corp took action last year, splitting its print operations from its broadcast, digital, and entertainment operations.

The notion of spinning off print newspapers from broadcast and digital seems to have caught the interest of other media conglomerates -, particularly those with poorly performing print operations.  Over the last few weeks more splits were announced.  The Tribune Company split off most of its newspapers into a separate company (along with $350 million in debt).  E.W. Scripps Co. announced a merger with Journal Communications, and then quickly followed that by spinning off the combined print newspaper assets into a separate company.  And most recently, Gannett announced it would spin off its broadcast and digital operations from its struggling print newspapers next year.

While these announcements tout the prospects for the new print companies, most analysts see the moves as cynical efforts to dump assets with declining value and limited futures.  The lack of serious potential purchasers for major urban dailies in recent years hasn't helped - leaving conglomerates with few alternatives for dealing with newspaper properties in decline.  Spinning print off may be their best financial option at this point - particularly if they see no profitable future for their print dailies.
  

And if companies whose beginnings were in urban print dailies, whose traditional self-image was as newspaper moguls, are at the point where they see no future in that segment anymore, it's hard to be optimistic about the industry.

“I’m very skeptical that in the long term you are going to have a hard copy daily newspaper in each market,” Mr. Huber, an analyst with Huber Research Partners, said.

Sources -   Print is Down, and Now Out,  New York Times
Gannett, Owner of USA Today, to Split Its Print and Broadcast Businesses, New York Times
Now Scripps Is Splitting, Too,  The Wall Street Journal

Visual history of US Mobile M&A

Now that the Sprint/T-Mobile deal seems to be definitively off, GigaOm took a look back at how the top 4 U.S. mobile operators got to this point.

Source -  How we got here: a visual history of US mobile companies,  GigaOm

Comcast pursues Time Warner

Several suitors have been pursuing Time Warner over the last few months.  It looks like Comcast is the likely winner, offering to purchase the second-largest cable operator for $45 billion.

But the deal is more about broadband than cable.  The addition of Time Warner broadband customers would give Comcast more than 33 million broadband subscribers and what amounted to $18 billion in subscription revenues in 2013.  That's about half of current broadband subscribers.  And broadband revenues are growing faster than cable video, with higher profit margins (around 90 percent).  The cable side, in fact is in trouble, losing customers and facing and increasing profit squeeze.

The deal is also about positioning Comcast for the future and the likely radical transformation of the video signal delivery business.  Local stations and cable networks keep pushing licensing fees higher and higher in search of revenues to replace stagnant (although still quite large) TV advertising dollars.  And then there's the continuing advances in IP video streaming, and changing audience habits.   Comcast is one of the few TV companies doing R&D - in fact, they have the largest R&D presence in the industry - and much of that effort is geared towards positioning the firm for the developing IP streaming, digital broadcast innovations (such as Aereo and multicasting), and mobile video explosions.

Those under 25 are spending less time watching traditional live TV - considerably less.  Delayed viewing and consumption of IP-video streams from an increasing variety of high-quality online video services (i.e. Netflix), as well as gaming, are eating up an increasing share of viewer's attention.  Advances in mobile, in the meantime, are creating new opportunities for TV viewing - although delays in implementing "TV Everywhere" has slowed cable's ability to tap into that new market.  Experts are now expecting a major transformation in TV viewing, even while unsure just what kind of TV market will eventually emerge from the growing chaos.

I'd be remiss, though, if I didn't point out the regulatory roadblocks in the way of the merger.  After all, the deal would combine the two largest cable system operators in the U.S., each of whom also owns a wide range of other media outlets, including broadcast networks, cable networks, film & video production and distribution outlets, publishing, etc.  Both are often listed among the world's 10 largest media conglomerates.  While there's not a lot of direct competition between the two cable and broadband operations (they're more local monopolies, increasingly challenged by telco and broadband operators like AT&T, Verizon, and Google), media is an area where just being large is considered problematic.  More problematic on an anti-competitive basis would be many of the other media components, which are arguably more directly competitive with one another.  And then there's the issue of Comcast's data caps and their interference with (slowing down) of unaffiliated video streaming services - the one glaring anti-competitive behavior fueling Network Neutrality debates. There's lots of reasons the deal might not be approved and consummated.

Even if the FTC doesn't knock the deal down in terms of sheer size and concentration, there will need to be a lot of negotiations and deals to meet the antitrust concerns of all the various markets and media elements in play.

(Let me also point interested readers to Ken Doctor's analysis of the deal and the fundamental issues confronting cable systems like Comcast and Time Warner Cable.  The Newsonomics of Comcast's deal and our digital wallets)

Sources -  If Comcast buys Time Warner, TV could change forever,  GigaOm
The Comcast-Time Warner Cable merger is not a marriage made to last, The Guardian

edited to add last graph and link (2/17/14)

Another Newspaper Fire Sale?

A news report has Johnston Press trying to divest itself of its Irish newspapers.  The 14 papers, acquired in 2005 for £115m, is being offered to Malcolm Denmark, a British advertising executive, for as little as £7m.  Since Denmark's firm, Mediaforce, places advertising and inserts in newspaperss, the deal may also require approval from Ireland's competition regulators. 

In recent years, Johnston has sold off one paper and closed another as part of a continuing effort to reduce the firm's hefty debt load of £300m.  While Johnston Press has confirmed that it is holding discussions about possible sales, it was unclear whether the firm's Northern Ireland newspapers were part of the deal.

Source -  Johnston Press in talks to sell off Irish newspapers,  Greenslade Blog, The Guardian

Forbes for sale; Is digital success fluke or future?

Forbes Media has announced that it is up for sale.  The move was first announced in a memo to employees last Friday.  Forbes CEO and President Mike Perlis said the decision to pursue a sale came after several initial "serious" offers had been made.
Forbes magazine has seen the same downturn in print advertising as its competitors, with a 12.3% decline in the number of ad pages over the first three quarters of 2013.  However, it's been more successful than most of its print competition in growing its digital side. Digital circulation at Forbes.com has more than doubled over the last three years, and digital earnings currently account for about half of total revenues for the parent firm.
One analyst indicated that potential buyers needed to ask 2 basic questions.  First, was the rapid growth in digital revenues driven by its aggressive branded-content emphasis in combination with its unpaid-blogger strategy? Second, if that's the case, why is Forbes up for sale?

Print media has been losing value in recent years, and increasing distribution costs and declining ad print ad sales have imperiled traditional print business models.  Many recent print sales (Washington Post, Boston Globe, Newsweek, Maxim) were at levels 80-90% below peak valuation.  In contrast, some of the early numbers suggest Forbes could go for only 20-25% below peak valuation.  That does suggest that Forbes Media may have been more successful in developing its digital side and business model.  That includes cost savings by ditching professional journalists in favor of unpaid bloggers (the Huffington Post model), and their pioneering "native advertising" Brandvoice program.  Native advertising is a bit controversial for its combination of interactive targeting and using ad content that mimics their editorial content.  The combination makes the Forbes.com more of a bazaar than a traditional journalistic outlet.

One critic suggests that the noise and choice of the bazaar will start to wear on the traditional passive news consumer and thus will be, in the long term, unsustainable.  And knowing that, current Forbes leadership is looking to exploit their short term success.  On the other hand, perhaps the bazaar is a much more comfortable venue for the younger Internet generations - after all, its really not that different from the Wild West of the Web.  Younger Internet users are used to having access to an abundance of content, interactivity and targeting, evaluating the value of content, and even seeking to place their own content for wider access.  If that's the case, Forbes Media may be positioning itself to take advantage of the changing audience interests and behaviors of younger media consumers.


Sources -  'Forbes' Placed On The Auction Block,  MediaDailyNews
Running For The Exit,  Garfield at Large blog, MediaPost.com

FTC clears Nielsen-Arbitron deal

The FTC has approved Nielsen's acquisition of former audience metrics rival Arbitron, after securing an agreement that Nielsen will continue the "Portable People Meter" (PPM) project, and license its use to others (notably competitor comScore).  The PPM project was originally a joint project of Nielsen, Arbitron, and comScore, and there was some concern that Nielsen would try to freeze out comScore.  ComScore and Nielsen are also involved in the competition to develop industry standards for online video metrics.

“In the event that an FTC-approved third-party elects to agree to licensing terms and other requirements, Nielsen would make available for license Arbitron PPM and related data as well as software and technology currently being used in the ESPN project for the sole purpose of cross-platform measurement for up to eight years,” Nielsen said in its statement.

While that wording sounds awfully restrictive, other language from the FTC indicated that comScore would clearly get that initial license.

With the FTC's approval, Nielsen's acquisition of Arbitron is expected to close Sept. 30.

Source -  FTC Clears Nielsen-Arbitron Deal, comScore Retains PPM License,  MediaDailyNews

Microsoft/Nokia deal reveals shifting dynamics of mobile

Microsoft will spend more than $7 billion to buy Nokia's cellphone manufacturing business, smartphone operations, and to license its patents - which press releases touted as "substantially all" of the Nokia business. 
  It wasn't clear in early reports just what would be left of Nokia after the deal (which includes 22.000 employees, including Nokia's CEO and other top executives, moving to Microsoft).  Nokia, which started as a paper and rubber manufacturer, moved into the production of telecommunications cables in the early 1920s, and from there started moving into electronic manufacturing in the 1960s.  Nokia moved into the cellphone business in the 1980s, growing to become the world's largest vendor of cellphones from 1998 to 2012.  Along the way, Nokia also moved into the mobile services business, and divested itself of most non-mobile related businesses in the late 1990s to focus on mobile businesses.  However, Nokia never did well in the smartphone business, and fell from the world's top vendor of mobile devices in 2011 and early 2012, to the tenth largest in 2013.  It's not clear what role Nokia's commitment to Microsoft's mobile OS for its smartphones in 2011 contributed to the decline.  But that may have been a major factor in the deal, and in the speculation that Nokia CEO Stephen Elop is among the contenders for Microsoft CEO (Microsoft's current CEO Steve Ballmer has announced plans to retire once a new CEO is named).
  The deal will provide Microsoft with immediate entry into the mobile handset business, and Nokia's mobile business and patents may help Microsoft improve it's own mobile OS - currently accounting for just 3% of the US smartphone market.  On the other hand, neither company has been very successful in recent years in keeping pace with the rapid pace of innovation in the mobile sector.  Nokia's revenues have fallen by more than half in the last few years, and the sale can be seen as Nokia's attempt to get what it can for a deteriorating business that's unsure whether it can keep up with Apple and Samsung in the smartphone and tablet business that's come to dominate mobile.

Al Hilwa, an analyst at IDC, noted the price was almost too good to pass up for Microsoft, which ended up paying less for Nokia's smartphone business than the $8.5 billion it did for the communications service Skype in 2011.

It's also, perhaps, the last best chance that Microsoft has to become a major player in the mobile market.  As part of the deal, Nokia will abandon its own Symbian OS for its cellphones in favor of Microsoft's Windows Phone 7 OS.  With Nokia's established user base, that will vault Windows into becoming a major competitor with Apple and Android - if it can keep that user base from switching.

"It's an all-or-nothing bet," (said Gartner analyst Van) Baker. "They have to be successful in the marketplace because there won't be anyone else to fall back on."

Given the two once-giant's performance lately - particularly in the mobile market - I'm not sure that the possible efficiencies of integrated mobile hardware and software development in the smartphone business will be enough.  In mobile, you also need to be quick and nimble - something Microsoft and Nokia haven't demonstrated in the last few years.

Source -  Microsoft to Buy Nokia Mobile Business in $7 Billion Deal, The Wall Street Journal
Enterprise Mobility: Microsoft, Nokia Partnership is a Major Blunder: 10 Reasons Why,  eWeek

Print News Fire Sales: Post, Globe, Newsweek (again)

Three big sales over the weekend in the news field.

First was the report that the New York Times sold The Boston Globe to the owner of the Boston Red Sox baseball team, for $70 million.  Considering that the Times bought the Globe for $1.1 billion in 1993 (before the newspaper business started crashing), that's quite a loss in value.  A 93% drop in value in 20 years.  But a look at some of the details makes it look even worse.  The sale of the Globe includes a couple of small regional papers and related real estate holdings; estimates place the value of the real estate alone at nearly $70 million.  More critically, the sale did not include pension liabilities of $100 million, which the Times will retain.  As such, what the Times got won't even cover its existing pension liabilities for the Globe's employees.
   From the viewpoint of the Times, they got rid of a distraction and a drain on corporate resources.  The Globe lost about half its readership in the last ten years, and reportedly, its advertising revenue fell a further 10% in the first half of this year.  This may help the Times in their stated goal of refocusing on building the primary Times brand and growing online revenues.  And it helps a bit with those pesky pension liabilities.
   It's also been reported that the Times turned down three higher bids for the Globe.

Newsweek has another owner, as well.  The Washington Post sale of Newsweek for $1 was one of the first of the news media fire sales.  After that initial sale to Sidney Harman in 2010, ownership shifted to Barry Diller through a partnership, and the Newsweek staff and brand was integrated into online news site The Daily Beast.  Ownership later terminated the print version, refocusing Newsweek as a semi-regular focused section within the Daily Beast website.  Portents of another sale surfaced when Diller publicly indicated that acquiring Newsweek was a mistake, and its merger into the Daily Beast a failure.
   Last weekend, IBT Media, publisher of online global news site International Business Times, agreed to acquire the Newsweek brand.

"We are thrilled to welcome this iconic brand and global news property into our portfolio. We believe in the Newsweek brand and look forward to growing it, fully transformed to the digital age," said Etienne Uzac, the co-founder and CEO of IBT Media in a press release.

Terms of the deal were not announced at the time, but Newsweek was starting to tap into growing online ad revenues as a digital publication, and continued to bring in revenue from licensing its brand outside the U.S. The internationally recognized brand of Newsweek should have a positive impact on IBT brands.

Then came yesterday's unexpected blockbuster - the sale of the Washington Post to Jeff Bezos, founder and CEO of Amazon.  The announced price of $250 million certainly tops recent newspaper sales, but is also significantly less than what the Post was worth ten to twenty years ago (one analyst indicated that just 10 years ago, the Post would have been worth $2 billion).  From a financial "multiples" perspective, the announced price is less than half of the Post's 2012 revenues of $582 million; conversely, it's 5 times annual losses.  Both multiples are significantly outside industrial norms (I used to do broadcast M&A evaluations, where prices were more typically 3-5 times annual revenues, or 8-12 times annual profits).
   Furthermore, unlike most recent deals, the sale is limited to the newspaper, the Post website, some suburban papers and affiliated publications, and two printing shops.  It does not include the Post's current building or other DC area real estate, other Post Co. owned media (broadcast stations, online magazines Slate and The Root, and the international magazine Foreign Policy), or other Post Co. properties.
   As such, it does seem that Bezos may have paid a bit of a premium for the Post - for the prestige and influence of one of the U.S.'s preeminent media outlets.  As for the parent Post Co., it gets to shed that portion of its business that's been a significant drain on the company's profits and had little indication of a rapid return to profitability. As for Bezos, he announced that Post ownership will fall under a new holding company (Explore Holdings) separate from Amazon, and that current editorial and management staff will continue in place after the sale is finalized (at some point in the next two months).  Since most analysts don't see much opportunity for a quick turn-around in profits for the Post, that's probably the smart move at this time.

In all three cases, sales to innovative, accomplished, and successful businessmen may be the best move for organizations facing radical transformation of their traditional markets.  They're likely to be more willing to explore and exploit new markets, and/or developing opportunities for added revenues.  At least their focus won't be on trying to hold onto past glories.


Sources -  7 things to know about The Boston Globe's sale to John Henry, Poynter
Newsweek Magazine Sold to IBT Media, The Daily Beast
Washington Post sale: Details of Bezos deal,  Washington Post

Hulu+: 3 Bids Over $1 Billion

News reports are indicating that at least three of the bidders for video streaming service Hulu+ are offering $1 Billion or more in the current round of bids.  One is identified as DirecTV.

Hulu+ currently has more than 4 million subscribers and generates around $700 million annually from subscriptions and ad revenues.

The new bid level is certainly more welcome than those obtained in 2011 - when Hulu+ owners News Corp, Disney, and Comcast first put the service up for sale, only to back off when bids didn't approach the amount they wanted.  Of course, the problem then was the unwillingness of the owner group to guarantee long-term access to their programming.  It's not clear what kind of commitments they might be willing to give prospective bidders this time around, but the increase in bids is at least partly a reflection of the growing success of subscription video streaming services and market.

Source -  DirecTV, two others bid over $1 billion for Hulu: source,  Broadcast Newsroom

China's Online Video market consolidates

China is an Internet outlier - particularly when it comes to who dominates online service categories.  Between the limits the state imposes on foreign firms, and language and cultural differences, the top online services in China are predominantly native firms - Baidu in search, Alibaba in e-commerce, Qzone and Weibo in social media.  As for online video, some firms are moving to consolidate what had been a fragmented market.

Last year, two of the larger video streaming sites in China merged, forming Youku-Todou.  Baidu, already China's dominant search engine, bought out its original partner for its video streaming service iQiyi, and recently announced its acquisition of video streaming service PPS.tv.  The moves created two claimants for the title of China's largest video platform (depending on how its measured).

Online video is huge in China, in part due to the scarcity of entertainment programs on state-operated TV.  Chinese online video users watch billions of videos monthly.  Video and search are the most popular online services in China, handily topping social media.  And revenues from online video is booming, with analysts predicting a five-fold increase from 2011 to 2016, mostly from advertising.
  Having a dominant position is important for advertising-supported media - dominant firms historically get an even higher share of total advertising revenues, while close competitors don't do as well (some advertisers don't want to buy both).  Some analysts argue that the future of online video in China will be in mobile, with video ads on mobile being the most effective, and most highly valued, segment of the online advertising market.  Youku Tudou claims 150 million daily mobile users for its online video content, and Baidu claimed 200 million monthly users for its iQiyi streaming service - and that was before its acquisition of PPS.tv.  (Note the difference metrics - daily vs. at least once a month).  That's out of 564 million Internet users, according to the latest Chinese government report.

Adding PPS.tv certainly puts Baidu in a better, more competitive position - but it's the content that ultimately drives online video use.  And the reports don't mention what this means in terms of content.  That makes it difficult to evaluate which, if either, will eventually dominate the Chinese online video market.

Sources -  Video streaming is China's big prize, and Baidu just edged closer to claiming it,  Quartz
Baidu Acquires PPS for $370 Million, Claims It's Now China's Biggest Video Platform,  TechinAsia

Edited - Fix typo in header, 13/5/2013

Google, Yahoo Interest in Pay TV?

News reports suggest that YouTube (owned by Google) is getting ready to charge for access to some of its specialty channels, and Yahoo has been in contact with Hulu about a possible bid to buy the premium video service.

Hulu has been on and off the market for the last few years.  When its owners first tried to auction off the service, deals fell through when networks wouldn't commit to continuing to license their content to Hulu.  This dropped the value of the service significantly, well below what the owners sought, so Hulu was pulled off the market.  A few months back, the network owners once again said they'd be open to selling the service, a number of groups expressed interest (including Amazon). 
  Yahoo has been seeking entry into the subscription video on demand (SVOD) market recently.  It had a deal in place to purchase a majority stake in Dailymotion (a video streaming service owned by France Telecom) - until the French government vetoed the idea of foreign majority ownership.  Reports have Yahoo's CEO Marissa Mayer, making initial contact with Hulu execs; but any talks are still in the early stages.  Yahoo's, and Mayer's, interest in online video was evident at a recent Wired conference:

“I think video is really important … video is something that we’re all innately designed and born to experience, everyone is born being able to watch and to hear,” she said. “Video is just this amazing format.”

 YouTube is already the biggest player in online video, but as a free hosting and streaming service.  What's new is a story in the Financial Times that states the service is ready to implement a pay wall for select specialty channels - possibly within a few weeks.  The official YouTube response to the story was that there was "nothing to announce" at this time - well short of a denial.  What YouTube insiders told the FT reporters was that YouTube was

“looking into creating a subscription platform that could bring even more great content to YouTube for our users to enjoy and provide our creators with another vehicle to generate revenue from their content, beyond the rental and ad-supported models we offer.”

  What that suggests is that the service is exploring, and probably already developing, a subscription / pay wall system that could be applied to specific channels/content providers.  The system might help some high-demand YouTube specialty channels with revenues, but it's more likely that YouTube wants the system in place to help attract new premium content channels such as movie studios and sports leagues.  In other words, those content creators that are now licensing content to various SVOD operators, and are thinking about cutting out the middleman and marketing direct to viewers.
  YouTube was quick to calm fears, promising that the vast bulk of user-generated videos would remain free.

I see these as reflecting the growing awareness of the importance of online video and licensing in the expanding TV viewing marketplace, and moves to help online  services position themselves to take advantage of that corner of the market as it expands.

Sources -  Yahoo's Mayer Has Met With Hulu Execs in a Preliminary Look-See at Premium Video Unit,  AllThingsD
Would Consumers Pay For YouTube Channels?,  VidBlog

Dish Makes Bid for Sprint

Dish Network has put forward a bid to acquire Sprint Nextel for $25.5 billion, providing them entry into telecommunications markets - and mobile broadband in particular.  It also provides the potential to offer the combination of multichannel TV, broadband data, and mobile services that competitors AT&T and Verizon provides. 

  Dish, and fellow DBS operator DirecTV, have largely been limited to providing TV service in an increasingly converged digital marketplace.  They've made deals with other telecomm operators to offer bundled service packages in competition with cable and cable telco operators, but these efforts have become problematic as partners have increasingly turned into competitors.  Analysts suggest that the acquisition of Sprint would provide Dish with their own telecomm service, significantly grow their ability to provide digital bandwidth in package deals, and provide new business opportunities to create systems that could give consumers access to media, content, and communication services across a number of devices.  And placing them in a better competitive position with rivals AT&T, Verizon, and Comcast.

Consumers would be happy with the Sprint purchase, says Dish. "Someone who gives you more than 2 [gigabytes] for the same money, that's attractive," said Thomas Cullen, Dish executive vp of corporate development of Dish. "Nobody is going to have a bigger pipe than Dish-Sprint." The proposed deal could give customers 50 gigabytes.

The deal would also provide Dish with additional leverage over TV content providers, and position it for future growth.

Specifically Dish would gain in the one area many media executives -- traditional, digital, and otherwise -- know is coming: an aggressive rise of all media on mobile platforms.

In addition, rumors are starting to spread about a possible deal between Dish, with its Hopper service, and broadcast redistributor Aereo (as if the traditional TV networks and content producers weren't already fretting about those technologies and services).  It'll be interesting to see how this all plays out.

Source -  Dish Looks To Give More To Consumers - And Perhaps Rankle TV Nets, Too,  TVWatch

FCC Approves T-Mobile/MetroPCS Deal

After the AT&T/T-mobile deal fell through, the U.S.'s fourth largest mobile operator went shopping for a new partner.  T-Mobile's corporate owner, Deutsche Telekom, had felt that the network was not well-positioned to be competitive into the next generation of mobile and sought either a buyout from a larger operator, or merger/acquisition of another midsize mobile operator whose strengths were in complementary markets.  The found a potential new partner in the country's fifth-largest mobile operator, MetroPCS.
  The FCC has now approved the merger, finding that the merger would not have a significant anti-competitive impact on consumers, and could even lead to "the development of a more robust, nationwide network,” according to FCC Commissioner Mignon L. Clyburn.  The deal now awaits approval by MetroPCS stockholders before its finalized.

Source - FCC approves T-Mobile/MetroPCS merger, Telecoms.com

NewsCorp. Splits, Drops The Daily

Murdoch's News Corporation announced that it will be separating print and audio-visual (film and video) operations.

  Current newspaper and publishing operations will retain the News Corp. name under the leadership of current Dow Jones editor in chief Robert Thomson.
  Current TV and film businesses will be shifted to a new corporate entity to be called "The Fox Group."  The Fox Group will be led by Rupert Murdoch as CEO, and Chase Carey as President and COO.
  As part of the move, the grand experiment (or bastard stepchild) that was The Daily - an only news outlet available on Apple's iPad, will be shut down.

“At Fox Group, what began with the acquisition of a modest film studio over 25 years ago has grown into one of the world’s most successful media companies of all times, defying conventional wisdom at every turn by pursuing excellence in creativity and innovation,” said Murdoch in a statement. “Fox Group is perfectly positioned to deliver even more inspiring stories that engage audiences through film, television, sports and digital platforms, driving not only financial results but a lasting imprint on the millions of people who enjoy our various services, in every corner of the world.”

Murdoch's note to staff stressed his vision of making the world a better place through storytelling as being at the heart of his vision for NewsCorp., but coming to the realization that the kinds of storytelling used by traditional print news (and other print outlets) was different from the kinds of storytelling undertaken by entertainment media.  As such, separating the two would help each to pursue their own path to excellence.

It could work out.  What it's sure to do, though, is rekindle arguments about Fox News Channel (is it news, or is it entertainment?)

Source -  News Corp. Splits Into Two: Fox News Now Part of 'Fox Group',  TV Newser

Disney's Latest Big Deal

Of course, you've probably already heard about is Disney's announcement yesterday of its deal to purchase Lucasfilm Ltd. for j$4.05 billion.  About half of the purchase price will be paid in cash, half in Disney stock - and the stock component will make George Lucas, sole owner of Lucasfilm, the second largest shareholder in Disney. 

“For the past 35 years, one of my greatest pleasures has been to see Star Wars passed from one generation to the next,” Lucas, the sole shareholder of Lucasfilm, said in a press release announcing the acquisition. “It’s now time for me to pass Star Wars on to a new generation of filmmakers.”

“Lucasfilm reflects the extraordinary passion, vision and storytelling of its founder, George Lucas,” Disney chairman and CEO Bob Iger said in a statement. “This transaction combines a world-class portfolio of content including Star Wars, one of the greatest family entertainment franchises of all time, with Disney’s unique and unparalleled creativity across multiple platforms, businesses and markets to generate sustained growth and drive significant long-term value.”

   And speaking of the Star Wars franchise, Disney announced that Episode 7 of Star Wars is forthcoming (scheduled for release in 2015), with other Star Wars franchise films to follow every 2-3 years.
  The announcement was only the most recent of a number of business moves that should help cement Disney's pre-eminance in a range of creative content-based industries - the acquisition of Capital Cities/ABC through merger in 1996 (which included ESPN), comic book publisher Marvel in 2009, producers of a number of children's TV programs (Muppets, DIC, Sabane (Power Rangers)), and Pixar in 2006.  The move seems to cement Disney's preeminence in the superhero and Sci-Fi/Fantasy market.

  While the decision of George Lucas to sell Lucasfilm and withdraw from the business came as a surprise, the sale to Disney shouldn't have been.  Both Lucas and Disney are considered to be among the smartest media business operators who have consistently taken a long-term approach to growing their business rather than focusing on short-term profit maximization.  Both also shared an awareness that good creative content was exploitable beyond the initial media product release.
  Disney in particular has had a long tradition of exploitation of creative intellectual properties, epitomized by Disneyland (a theme park incorporating Disney characters), the first movie studio to use television to further promote and exploit its movies and theme park (starting with the Disneyland series in 1954), long term recognition and exploitation of licensing and merchandizing its creations, and its pioneering distribution strategy for its animated movies. Disney recognized quite early that the primary audience for many of its animated features were children, and that that market had some distinctive characteristics - mainly that children grow up, while others are born to replace them. Disney recognized that he could exploit that feature by re-releasing animated features every 7-10 years to a new audience; and until the rise of recordable media that was Disney's film distribution strategy.
  George Lucas was also known for his innovative business practices as well as his creative acumen.  Lucas' first big success came from the film American Graffiti, both as a hit film and as an innovative financial arrangement. Rather than take a big salary and/or a percentage of profits - the industry norm - Lucas got a deal that provided him less upfront money, but a smaller percentage of the film's gross revenues.  In essence, Lucas bet on his own success, and American Graffiti, produced at a cost of $775,000, went on to earn more than $200 million in box office and home video sales alone.  Lucas' earnings allowed him to create Lucasfilm in 1971, special effects powerhouse Industrial Light & Magic, and largely self-finance Star Wars; and once again Lucas struck an innovative distribution deal with Fox - once again Lucas took a smaller salary in return for keeping licensing and merchandizing rights for the Star Wars creative franchise.  Star Wars became the highest grossing film in the industry's history (until surpassed by E.T. five years later), with global earnings of more than $775 million to date.  Those earnings allowed Lucas to self-finance the rest of the Star Wars and Indiana Jones films, while insisting on retaining licensing and merchandising rights. Lucas quipped that Disney's long history of protecting, nurturing, and - yes - exploiting, of its creative content and intellectual property meant that he could trust them to take good care of his signature creative franchises.

"I really wanted to put the company somewhere in a larger entity which could protect it," (Lucas)  said.

In an interview he gave to fan magazine Empire earlier this year, Lucas had indicated he wanted to move away from the corporate side.

"I'm moving away from the company, I'm moving away from all my businesses, I'm finishing all my obligations and I'm going to retire to my garage with my saw and hammer and build hobby movies.
"I've always wanted to make movies that were more experimental in nature, and not have to worry about them showing in movie theaters."

  There's a couple of lessons here for creative content producers and media outlets in the digital age.  Both Disney and Lucas recognized that the value of creative content is not limited to its initial production and release, but can be translated into value in other markets; both were adept at innovative exploitation of that value; and both recognized the importance of keeping and protecting intellectual property rights.  All key lessons for content producers in a digital media environment.

Sources - Disney to buy "Star Wars" producer for $4.05 billion, Reuters
Disney to Buy Lucasfilm for $4.05 Billion; New 'Star Wars' Movie Set for 2015,  The Hollywood Reporter
Disney Buys Lucasfilm for $4B, Targets Star Wars: Episode 7 for 2015.  Wired.com

Media General sells last newspaper

Media General has completed its divestment of its newspaper chain with the sale of the Tampa Tribune to Revolution Capital Group for $9.5 million.  Media General will not focus on its digital and broadcast properties. The first step in ridding itself of the print division caused a stir with the sale of most of its newspapers to Warren Buffet's Berkshire Hathaway last May (see this post).
  Media General looks to get a short-term boost this year, with it's TV stations in key battleground states of Ohio, Florida, Virginia and North Carolina.  Other stations are in markets with tight Senate races.

"Our Virginia, Rhode Island and Ohio stations are also benefiting from hotly contested Senate races," Media General Chief Executive Marshall Morton said in a statement.

In the latest quarterly report, the company upped its estimate of revenues from political advertising to around $58 million (up from earlier estimates of $50M.    Despite the optimism, Media General reported that corporate staffing has been slashed in half in the last four months, and its share price dropped 4% after the news on the sale of the Tampa Tribune broke.

Source -  Media General sells last newspaper; sees  strong election ads on TV,  Reuters

Really? CBS buys NY FM to simulcast AM sports talk

CBS has signed a definitive agreement with Merlin Media to purchase its New York station, WRXP-FM, for $75 million.  CBS Radio will reportedly use the FM station to simulcast its powerhouse sports talk AM station, WFAN.  Analysts suggest the move was prompted by ESPN radio moving its sports talk programming to an FM station.

“This is an extremely exciting opportunity to expand our radio presence in the nation’s largest market,” said Dan Mason, CBS Radio CEO. “Sports is a very popular format and a huge growth category for our business. As a result of this new asset, we look forward to The FAN building on its position as the leading sports radio franchise in the country.

For Merlin, the sale of its NY station will allow the company to pay off debt and focus on its stations in Chicago and Philadelphia.

CBS's move in "simulcasting" its AM station programming may seem a bit weird initially, as FM stations have the lion's share of audiences and revenues in radio markets.  But if you look at it as a way to bring a venerable and valuable sports talk AM to that more lucrative FM portion of the market, it makes a bit more sense.

Source - Merlin sells WRXP to CBS Radio, RBR.com

Senators concerned over Universal-EMI merger

A bipartisan group of Senators on the Anti-trust subcommittee have asked the FTC to examine the proposed merger between Universal Music, a division of Vivendi, and British-based EMI (now owned by Citigroup, which took over debt of around $4 billion).  Last November, Citigroup made deals to sell the music portion of EMI to Universal Music for $1.9 billion, and the music publishing arm to Sony/ATV for $2.2 billion.
  Prior to the sale/merger, EMI was ranked as #4 of the "Big Four" companies that dominate the retail music industry, and Universal Music Group was ranked #1.  The combination of the two labels would arguably dominate the US music industry, accounting for about 40% of the US market.  Artists signed to the two labels accounted for 51 of Billboard's Top 100 songs for 2011.
  The letter from the Senators express concerns that that level of dominance might give the merged labels the economic power to set prices or act as a gatekeeper for new online music services.

"The music industry has undergone a transformation in the last two decades as consumers access music through new online forms of distribution and as the market faces the challenge of piracy," the senators wrote. "Yet, in this as in other industries, robust competition remains the key to restraining prices, ensuring new and innovative forms of distribution, and maintaining diversity of choice available to consumers."

  Universal Music has argued that the online accessibility of music (legal and pirated), effectively limits the ability to manipulate prices; still they indicated that they were working with the FTC to address any concerns.
  The proposed merger is also under scrutiny from EU regulators, and Universal has given them indications that they might be willing to sell off some assets to reduce concerns.

Source -  Senators warn Universal-EMI deal poses 'significant competition issues,'  The Hill (Hillicon Valley blog)

NBC to acquire Microsoft share of MSNBC.com

Howard Kurtz is reporting that NBC and Microsoft are planning to end their joint participation in MSNBC.
  MSNBC was originally formed in 2005 as a joint operation designed to create both a cable news channel and a major online news outlet.  Later than year, NBC took over operations of the cable channel, while MSNBC.com remained a joint venture.  MSNBC.com used content from the various NBC news operations, but also did its own original reporting as well as aggregating news content from the AP, Reuters, the NY Times and other news outlets.  Most of the aggregator content comes through Microsoft's deals with content creators in support of its search engines and various other gateways (like MSNBC.com). Currently about half of MSNBC.com's traffic from Microsoft's MSN networks.  While any deal is likely to include some effort from Microsoft to continue to steer users to MSNBC.com, the story doesn't say whether NBC will continue to have access to content created or licensed by Microsoft.
  Kurtz reported that NBC executives have been frustrated that it didn't control the online site, and thus didn't have a separate location to promoting the personalities of the cable network.  One plan would have MSNBC,com chief Charlie Tillghast would continue to run the site, but that operations would move from its current location on Microsoft's Washington state campus.  That plan would also cut the sites staff in half, with no initial indication of new hires once NBC's online news efforts are consolidated.  There are also indications that NBC wants to rename and rebrand both the online news site and the cable channel.
  Kurtz is reporting that while NBC maintains that no deal is in place, employees of MSNBC.com have already been briefed on the plan and how it will affect them.

Source  -  NBC, Microsoft Getting Online Divorce,  The Daily Beast

Warren Buffet & Media General: Budding Press Lord or Media Baron?

A few weeks ago came the announcement that Warren Buffet was buying newspapers through his investment firm, Berkshire Hathaway.  Media General had owned 63 newspapers, primarily in small markets across the southeast U.S. (it also owns major market Tampa Tribune, but that paper was not included in the sale).  The newspapers will be folded into BH Media, a subsidiary of Berkshire Hathaway, leaving Media General a primarily broadcasting media company.  BH Media had also acquired the Omaha World Herald Company earlier in the year, which included the Omaha World Herald and six smaller papers in the region, and had picked up the Buffalo News in an 1977 deal.

  At first, the newspaper world treated this as good news - some arguing that this confirmed the economic vitality of print newspapers, and others hoping (or fearing) that the move was more political than economic - that the purchase was to give a platform for support of President Obama's re-election.  So the unasked question was whether Buffet was seeking to play the role of Press Lord or Media Baron.

  While both terms are widely used to describe individuals who own substantial news outlets, there is an important connotative distinction.  The title of Press Lord tends to be associated with those who are in it for the money primarily.  The classic example was Al Neuharth and Gannett, where editors and publishers of acquired papers were reportedly told that Neuharth and corporate didn't care about editorial policy or political endorsements, as long as the paper kept profit margins above 20% and regularly funneled cash to the corporate vaults.  On the other hand, William Randolph Hearst was the epitome of the Media Baron, who saw his papers as his megaphone, and regularly dictated coverage and editorial policy.

  The acquisition of the Media General titles was unexpected, particularly since Buffet had made dire predictions about the state of the U.S. newspaper industry, and in 2009 had said

"For most newspapers in the United States, we would not buy them at any price. They have the possibility of going to just unending losses."

More recently (last week, actually), Buffet call the idea of free news an "unsustainable model."  In a letter to the editors and publishers of the new acquisitions, he stressed the need to focus on becoming the primary source for locally important information, as well as the need to find a viable paywall strategy for the digital side.
  On the other hand, the newspaper industry is not monolithic, and smaller papers have remained profitable according to the Pew State of the News media reports.  In commenting on the Media General purchase, Buffet said that "(i)n towns and cities where there is a strong sense of community, there is no more important institution than the local paper."  Buffet also indicated that he was open to similar opportunities to acquire papers -  "I think the economics will be ok, but it will be nothing like the old days."  With an average price per newspaper of slightly more than $2 million, it certainly looks like Berkshire Hathaway didn't pay a premium for the titles.
  Ken Doctor wrote in his Newsonomics blog that the purchase is in line with other recent print newspaper deals, where value was determined less by the actual value of newspaper operations than by the value of affiliated assets (like real estate).  In this case, he feels that what's driving the deal is the perception that while no longer a cash cow, these smaller newspaper operations are likely to continue generate just enough profit to pay off its low-interest acquisition debt, leaving Buffet free to capitalize on two other aspects of the deal - ownership of all the real estate owned by the newspapers, and the opportunity to acquire almost 20% of Media General below market value (should the broadcast market prove more lucrative than print).
  Others have also suggested that Buffet's motives for the acquisition - if based on economics and business prospects - reflects a fundamental misunderstanding of the news business, and particularly the condition of the papers he's bought.  A former Media General CEO indicated that publishing revenues had fallen by more than 50%, while distribution costs were on a static or upward trend.  And historically, advertising has been the fundamental source of funding for news - in most print markets, subscriptions and sales basically pay for the distribution channel.  Erecting a pay-wall isn't likely to replace the consequent loss in advertising revenues in the long term.  Furthermore, the chance that newspapers will retain a monopoly on local news that will enable them to charge for it directly is even slimmer, with all the opportunities presented by the Internet and new media, in increasingly competitive open markets.
  Still, even those critical of the idea that the move reflects a rebirth of newspaper markets and profits indicate that in the way the deal is structures, Buffet is unlikely to lose much in the long term.
  So, it looks like this isn't a typical "Press Lord" at work, which has fueled the speculation that a liberal billionaire (and Friend of Obama) might be interested in buying 63 newspapers (in swing states) for other reasons.  While Buffet's letter to the acquired newsrooms promised editorial independence, he's not likely to say anything different before the FTC approves the deal and it finalizes (probably in late June).  And even if Buffet did see himself as a Media Baron supporting a political cause, he's likely to have seriously overestimated the influence of local newspapers in modern political coverage, debate, and elections.  It's not likely to stop him from trying, and it will be interesting to see if there are any changes in coverage and endorsements in the upcoming election.

  If Buffet's goal was to be Press Lord or Media Baron (rather than seeing the acquisition as a low-risk gamble on local newspapers), I suspect that he's going to be greatly disappointed with his new acquisitions.

Sources -  "Warren Buffet's Berkshire Hathaway buys Media General newspaper group",  Guardian.co.uk
Berkshire Hathaway Media Group: Financial Engineering Makes the Deal,  Newsonomics blog.
Why Clay Shirkey is right and Warren Buffet is wrong,  Gigaom.com