Party Like It's 1999. Make That 2009: 4 Lessons From the Media Decade

Posted on December 27, 2009 by Tony Uphoff

The end of 1999 was a wild time. It was the dawning of the 21st century. Equity markets were soaring. Media synergy fueled an unprecedented wave of mergers and acquisitions and the Web appeared to be sweeping everything up in its wake. The Internet was proving to be as powerful as the predictions too. Pure play online start ups were popping up everywhere and valuations surpassed larger, profitable, more established media businesses. The concept that the Internet would be more efficient than "traditional media" was a significant valuation driver. Another was the promise of multiple forms of revenue. The "3 C's": Content, Community and Commerce, served as the foundation for hundreds of online start up business plans. In 18 months, from the middle of 1998 through the end of 1999, I had two acquaintances of mine from the media industry make over $125 million in online media IPO transactions. 1999 was a party indeed. Like all parties however the rager that started the decade came to an end. And the next morning wasn't pretty. Nor as much fun. In some respects the hangover continues...

In the decade since 1999, over $200 Billion dollars in assets have been written down by the largest media companies. The value destruction in traditional media over this period of time is truly unprecedented. The number of private equity media deals that have unraveled in the last year, suggests that the value destruction isn't over either. So as we head into a new decade, what lessons can we learn from the last 10 years ?

  • The 3 C's Still Matter. Yes the industry has gotten off track with online business models that aren't sustainable and a search myopia that led to the temporary devaluation of content. The core premise that the value is in the content and the community that is created in and around the content and that this in turn can create commerce opportunities hasn't changed however. If anything the 3 C's are more relevant today than 10 years ago based on the new applications available to media producers.
  • Synergy is a Concept. Media synergy served as the main driver for the majority of the mergers and acquisitions over the last decade. As the value destruction we've witnessed since proves, most of the synergy was simply financial optics used to rationalize a deal. This is not to say that mergers and acquisitions don't work. Obviously they do. They are tricky however and require discipline and analysis that goes well beyond the financial modeling. If 1 + 1 is the only way that value is created, then the lack of scale of the core entities will result in a lack of synergy that will never be fixed. Your only option then is to keep acquiring until the sum appears to be more valuable than the crippled individual pieces. Does the old cliche' of "we lose money on every deal but hope to outrun it on volume" ring a bell?
  • Content is Still King. The Business Models Need to Change However. Seems like every decade we get into this debate about content or distribution as the king of the media throne. Clearly you can't have one without the other; as Comcast's $30 billion acquisition of NBC/Universal demonstrates. What is true today however, is that the traditional reach=revenue model that has fueled media for the last 100 years is under siege. Exactly how to best monetize content in today's digitally centric media world isn't completely clear. Quality content is expensive to produce and traditional advertising has fallen off as media fragmentation has accelerated. This has created a difficult challenge as media companies look to right-size businesses to match market conditions and at the same time, investigate new areas of revenue. New models are emerging however. We will also see the return of what were previously thought of as dead business models. Which leads us to...
  • The Internet is Not Free. Far From it. The Internet has made all content free. It's accelerated the decline of all media by providing free access to expensive, high quality content, causing producers to struggle to even regain their costs of production. The cautionary tale of the music industry is now playing out in all forms of media as the inexorable march from analog to digital continues, leaving paid content revenues in its wake. Right? No. The reality is that the Internet is far from free. Whether manifest as access fees, bandwidth fees or paid content in it's traditional forms, there is nothing free on the Internet. Frankly it's downright expensive. Sure the first wave of business models on the web have basically been built around the disinter mediation of print and direct mail focused on advertising and direct marketing revenues. This doesn't mean that there won't be a paid content market on the web however. I can well remember the first wave of cable television. The major networks laughed out loud. "Who would ever pay for television ? " they asked. They aren't laughing anymore as the blended model of paid content and advertising revenues of cable, brings broadcast networks to their knees.
As we close out 2009 with a party - ok so perhaps it's a little smaller than the 1999 version - media landscape is poised for a new phase that may well deliver on the promise we all felt in 1999. This time however, lets focus on real value creation.,

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