It used to be a favorite national pastime was asking in times of crisis, “What would a media mogul do?” Now the media moguls are asking each other.
That likely will be the case at this week’s annual private Sun Valley, Idaho, conclave hosted by investment banker Herbert Allen, that generally sidelines the press to begging for story scraps.
This year’s gathering could be overshadowed by some stiff competition between today’s overblown public memorial for Michael Jackson in Los Angeles and the ailing economy, mired in more extraordinary bad news and an indefinitely suspended recovery.
The world of entertainment and media barely holds a candle these days to high drama on the global stage even with the slow death of newspapers, the anticipated sale of struggling branded assets and industry-wide consolidation, the weakening of broadcast stations and advertising, and the scramble to monetize Twitter and other vibrant social networks.
The established and so-called new media now stand united knee-deep in elusive new business models, erratic and resistant consumer behavior and dashed expectations in a sea of changing economics. The task of creating constructive solutions is bigger than any one mogul and, maybe, even all of them.
The industries remain unsure of their digital footing even at a time when they have no analog ground to stand on. It is not just that the economic recovery will likely take a year longer to materialize than initially expected, or that experts miscalculated the depth and breadth permanent domestic job losses and the devastation of business fundamentals. The widespread economic malaise is unraveling uncontrollably against a backdrop of digital transition that is changing all assumptions and assessments. Both factors will increasingly play havoc with quarterly corporate earnings, the next round of which is just beginning.
Although deal-making has historically been the commodity on which the Allen & Co. retreat trades, this year’s focus might wisely be survival strategies. Mark Zuckerberg’s Facebook needs them as dearly as much as Rupert Murdoch’s News Corp.
Still, the deal buzz is ever-present. John Malone’s Liberty Media and Barry Diller’s InterActiveCorp. are said to be eyeing AOL ahead of its stand-alone spin-off later this year. Although Paramount is up for grabs, Sumner Redstone’s entire media empire could be impacted by his ongoing financial issues. CBS in particular is an M&A target given its rocky pure-play financial status.
Perhaps more important than hardcore transactions are the strategic alliances by which media-related companies can share their resources, risk and innovation. Some of the more notable forward-looking alliances include the TV everywhere web video project fronted by Time Warner and Comcast, the addressable advertising Project Canoe supported by leading cable operators, and Hulu.com (an ad-supported online video site pioneered by General Electric's NBC Universal and News Corp.’s Fox).
There are formidable reasons why most media chiefs will continue to see this more as a time of talk than action:
- Lack of clarity: Business in general lacks visibility for two months, much less two years, due to volatile and degenerating economics as well as the disruption and unknown promise of digital.
- Mounting fiscal stress: The challenges posed by a struggling economy and digital development will continue taking a toll on corporate growth and earnings for the foreseeable future. Cost cuts are no longer enough, and costly legacy operations and infrastructures are difficult to abandon.
- Companies keep hording cash: While there will be exceptions, companies with cash reserves such as Time Warner, Google and Microsoft will continue to judiciously make strategic bets.
- Consumers under siege: The unabated rise in unemployment, payment delinquencies and debt will keep consumer spending low on goods and services.
- Uncertain values: With the stock market, earnings, cash flow, revenues and other fundamentals way off the mark, it is impossible to know where to re-set valuations in a changing digital environment.
- Advertising stall: The revenue backbone of media is being re-priced but reinvented.
- Changing leadership: There is need for new vision, risk-taking and enterprise-once the next generation of leaders figures it out.
- Business purgatory: It will take time to formulate new business models, values and financial engineering for deals.
These are not the kinds of issues solved over a commiserating hike, swim or sail. This is not a textbook business cycle; it is a game-changer.