The media industry is in dire straights — and it’s not because of the Internet. Rather the industry has made some fatal mistakes based on flawed strategies of growth and convergence. A new book, The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies written by Columbia Business School faculty members Jonathan Knee, Bruce Greenwald and Ava Seave, delves into the reasons why the industry is hitting bottom.
In the October issue of the The Atlantic Monthly, an excerpt from the book maps out the reasons behind the value destruction in media companies including “relentlessly overpriced acquisitions, ‘strategic’ investments, and contracts for content and talent.” The authors argue that drastic action is needed by the media giants to restore value. That requires “jettisoning all [the] entrenched media myths and going back to basics: understanding the key characteristics of various media segments and applying established business principles to determine the best way forward.”
So what exactly would this drastic action look like? Author Ava Seave, adjunct associate professor of finance and economics, elaborated.
“All of the advice we give in the book should be evaluated in light of the specific media segment the company operates under. If a company has the misfortune of being a conglomerate, each individual business should be evaluated in relationship to its industry, not its ownership,” says Seave.
“For example, Martha Stewart Living Omnimedia’s businesses (stock symbol MSLO) operate in multiple arenas — each with their own characteristics. The company’s products in magazines, books, TV syndication, online content aggregation and retail licensing are all very different businesses with very little in common in cost structure and competitive environment,” she continues. “It may be flip, but we are serious when we advise that the first drastic change is that immediately (if not sooner) media companies can stop making crazy acquisitions or have wild expectation about synergy among unrelated segments.”
The six principles the authors recommend media companies live (and die) by, according to Seave:
1. Dare to dream Imagine how the industries in which you operate could operate and most effectively organize -- and try to move the industry to the ideal.
2. Keep it local, keep it focused Ignore all the conventional wisdom about global footprint, and find businesses that have either a narrow geographic territory or more likely a product niche. This will have the double whammy of increasing likelihood that scale can be achieved quickly and there is a good basis for customer captivity.
3. Efficiency is cool It may be that asking you to pay attention to revenue and cost management is like preaching abstinence-only sex education in a high school, but it is important for you to try.
4. Don’t be such a big shot Overpaying and other means of destructive competition is a communicable disease, so try to find small areas of collaboration in your industry; cooperation can be similarly contagious.
5. Watch your back Even companies that seem to have an impregnable fortress will eventually be scaled, so a constant reassessment of the strength and reinforcement of the the source of competitive advantage is called for. Increased competition with other forms of media make it even more important to cooperate with your allies and collaborators.
6. Dying with dignity is an option It’s hard to admit you’ve lost it, but rather than reinvesting in projects that have little prospect of generating an adequate return, instead, milk a declining franchise and return the proceeds to the shareholders.
Photo credit: Kent Kanouse
Join professors Jonathan Knee, Bruce Greenwald and Ava Seave as they discuss the new book on November 16. Event is hosted by Columbia Business School Office of Alumni Relations. Click here for more information about the event.