Don’t do them.
The management guru Peter Drucker told one of my past media conferences in Scottsdale that the acquirer is more likely to get the worst end of any deal than the selling entity.
That was certainly true of the radio industry where every consolidator that acquired stations got stuck with massive debt, a declining ad revenue picture or was less able to compete with new media than the lucky folks who sold their stations (or groups) at record prices.
Now, we hear General Electric is talking to Comcast about selling NBC Universal (barring any obstacles thrown into the situation by partner Vivendi).
The Comcast plan appears to be buy NBC and build a sports giant with existing NBC sports rights and talent and merge them with Comcast’s sports entities. In other words, take a chunk out of the mighty ESPN empire.
This is a failed approach to say the least. That’s not just my opinion but the considered advice of Jeff Bewkes, the CEO of Time Warner. Yes, that time Warner -- the one that got gobbled up by AOL in the last century and has never realized the promised potential.
Bewkes is quoted as saying that the AOL merger “made no sense at the time” and that the idea that the deal would cause synergy (are you listening, Comcast?) is nonsense. This is the same kind of talk that surrounds speculation of an eventual NBC-Comcast merger.
Of course the real motivation for radio mergers, cable-network TV deals and just about any other communications purchase these days is what authors Jonathan Knee, Bruce Greenwald and Ava Seave describe in their new book “The Curse of the Mogul: What’s Wrong With the World’s Leading Media Companies”.
“Their curse, the authors say, can show up in the form of qualities like hubris, overarching ambition and self-delusion”, the authors argue. Or as they put it more bluntly, “There are moguls running amok in Hollywood, and like financial Godzilla's, they prey on gullible investors on Wall Street and Main Street to feed their egotistical hunger for fame and fortune”.
Companies like Rupert Murdoch’s News Corp, Sumner Redstone’s Viacom, Brian Roberts’ Comcast, former Disney CEO Michael Eisner and Vivendi’s Jean-Marie Messier are among 15 media companies the authors studied.
But you don’t need a book – as good as this one is – to know the radio and record industry leads the way in hubris and self-delusion. But the similarities don’t stop there.
In the past nine years, large media companies like these have written down $200 billion assets basically constituting the diminution in value by overpaying for the assets -- “These write-downs represent the real destruction of value from relentlessly overpaying for acquisitions, ‘strategic’ investments and contracts for content and talent”, the authors assert.
Clear Channel, Cumulus, Citadel are three of the numerous radio industry consolidators that could easily plead guilty to the authors’ charges. Remember how consolidation was sold to Congress, the FCC, Wall Street, shareholders, the public and not that they cared – their own employees (forget listeners) and the end results are the very destruction of great assets?
I have chided their leaders in this space for being the puppeteers that they seem to be as Wall Street has pulled their strings. Now, with bankruptcy a real possibility trading debt for equity to their lenders caps the cycle and creates a curse of its own.
“Synergy” is how Eisner’s Disney sold the $19 billion Capital Cities/ABC acquisition in 1996 – a merger of a movie studio and broadcasting network among other things. Who could have known that studios would decline and broadcasting would join them? Not these arrogant dealmakers.
Comcast bought AT&T’s cable business in 2001 but not before Comcast got caught bidding and rebidding for the company that caused it to pay over $20 billion more than the deal was considered to be worth.
Had the radio industry consolidated in a way that would concentrate on “mutual benefits” these companies may have avoided the destruction that has already happened and is likely to continue into 2010.
So, with eyes wide-open we can all see (if we want to) that being number two to ESPN is meaningless.
Sounds good in principle.
Not so good based on reality.
History repeats itself, as the old adage goes, precisely because we fail to learn from it.
In radio, look no further than Greater Media, a well-respected company according to the voting of my readers (click here and scroll down the right hand column). They seem to like shooting for number two.
In Philadelphia, Greater Media attacked the biggest, baddest powerhouse of all, Jerry Lee’s B-101 and as many of you and I thought, they’d lose. We knew it. Somehow they didn’t.
Was it all that loose change they thought would drop their way by attacking B-101 or was it hubris?
Now, failing to heed history, Greater Media is attacking CBS sports leader WIP in the very same market and, I am predicting the very same results – their AM/FM sports combo “The Fanatic” will fail to hurt CBS and their stations will eventually have to do something else (like find a hole in the market or come up with a new format).
Strategically, this is a recent example of the kind of fouled up thinking that seeps down from the dealmakers and power brokers – yes, even to the market managers.
As “The Curse of the Mogul: What’s Wrong With the World’s Leading Media Companies” points out the “single most consistent reason for underperformance by media companies is bad acquisitions”.
Look what it does to company value.
To shareholders.
To listeners.
Hubris, indeed.
Makes you kind of wish for the old days when on-air talent was accused of having big egos but the owners were smart enough to rein in their own egos and concentrate on the mutual benefits of keeping them employed and on-the-air.
Isn’t it disgraceful that the sorry state of the record labels and the radio industry today has more to do with “hubris, overarching ambition and self-delusion” rather than focusing on the consumer?
If they had, they might own a company like Apple that has glided through the same recession to build great products as well as shareholder value.
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