Media Consolidation is Just a Phase June 30, 2005

Sumner Redstone knows a trend when he sees it and he made clear, almost, that Viacom needed to be split into two companies: one – Viacom - to ride the wave of niche content like MTV and another – CBS - to manage more traditional media, broadcast stations plus the billboard business. Both have their strengths and weaknesses.

ftm background

Timing Is Everything
UK media consolidation took another step forward this month as The Wireless Group (TWG) shareholders and Ulster TV (UTV) agree on a price. And the GWR-Capital Group merger – GCap Media - becomes official.

Mel is Sirius!
Speaking to the NAB/Europe Radio conference Mel Karmazin gave no hints he was taking Sirius seriously.

Broadcaster Banks on EU Benefit
SBS Broadcasting re-takes its stake in Prima TV and acquires two radio stations in Romania, citing benefits expected from 2007 EU entry.

European Commission Sends Broadcasters New Signals
Reorganizing European Commission Directorates, President José Manuel Barroso is sending strong signals to the audiovisual industry. The most important is that the Commission recognizes the sector’s economic as well as cultural significance. But, equally important, profound changes in technology taking place right now do not pause for rule-makers thoughtful debate.

Media Concentration Studied...and Studied
Concentration of media ownership in Europe is more than a pointless academic debate. Every regulatory agency takes it seriously. The EC takes it seriously. Measuring media concentration and analyzing the effects has rarely been systematic. Conventional wisdom, often from the public sector, charges concentration with metaphysical badness.

“It’s Pointed and a Bit Uncomfortable”
In an extraordinary positioning campaign, Swedish public television “provokes” as it promotes.

Media consolidation in Europe is far from dead. Ulster TVs recent purchase of The Wireless Group in the UK illustrates the “grow or die” principle. CME strengthens its position in Central European TV, Lagardère in Poland, Talpa in the Benelux, SBS Broadcasting in Scandinavia, MTG in Scandinavia and beyond. And do not forget Fininvest/Mediaset in Italy. These are all very strategic moves. The list goes on and on.

Clear Channel, benefiting from liberalized regulation, amassed 1200 radio and 40 television stations in the US, substantial outdoor advertising fixtures around the world, an entertainment division owning venues in the US and Europe. In April the company decided to spin-off the entertainment division to shareholders and offer 10% of the outdoor business in an IPO. The entertainment division, purchased from Robert F.X. Sillerman for $4.4 billion, looked like “synergy.” It wasn’t. Consolidation gave Clear Channel nothing but headaches: from consumer complaints, lawsuits and protests to FCC fines.

Emmis Communications CEO Jeff Smulyan told an investor conference call in May all or some of the company’s 16 television stations might be up for sale. Whenever a CEO uses those marvelous code-words “explore strategic alternatives” it’s clear the “for sale” sign is up. Emmis owns 25 radio stations and several publications in the US and, through Emmis International, has been expanding radio holdings in Europe.

New York business wags jumped to early excitement over a rumor in March that Time Warner was ready to split off AOL.

Two weeks ago (June 13) the US Supreme Court declined to review a lower court ruling overturning a 2003 Federal Communications Commission decision allowing greater media consolidation. Major media companies – from Viacom to Clear Channel to News Corp. – asked the Supremes to vacate the 3rd Circuit Court of Appeals decision. They did not; virtually assuring a halt in continued ownership de-regulation, perhaps for years, as the FCC – currently led by de-regulation proponents – decides what to do next. Throwing out the FCC rules on ownership, the 3rd Circuit Court said the FCC had not “sufficiently justified” its relaxed ownership rules.

Consolidation is part of business cycle evolution. Industry sectors consolidate to recover investment costs, with individual companies buying market share, squeezing out the weak. A natural limit is reached as companies digest acquisitions, discover what does and does not work, and – with shareholders looking over their shoulders - try to maximize asset value.

Where national regulation blocks consolidation media companies are forced to diversify, often into businesses outside their core competence. CEOs and shareholders become impatient, or bored, simply running a good newspaper in Zürich, or radio group in France.

Consolidation continues until neither the CEO nor the shareholders can see both ends of the boat. The classic press release issued when a company expands through acquisition always contains a reference to benefits of “substantial cost savings.” Large, complex organizations – the classic conglomerate – spend enormous resources being large, complex organizations, often at the expense of innovation. CEOs and shareholders notice when quicker, often smaller and smarter competitors start to threaten.

Deconsolidation, if it occurs, is always driven by maximizing profit, which is, as investors see it, simply survival. Splitting off profit centers at different points in the business cycle makes perfect sense. And it’s also proof that the media sector is dramatically changing. Distribution and content are both high growth areas. Hybrids are not.

Consolidation "hasn’t been working” - July 11, 2005

Speaking to press Friday (July 8) at the annual Sun Valley, Idaho gathering of media oligarchs and reported by AP, Viacom Chairman Sumner Redstone said “The age of the conglomerate is over.”

Commenting on the recent Viacom split into two companies, the 82 year old chairman said “It’s time to be nimble.”

More Consolidation in UK Radio as Scottish Radio Holdings Finally Gets its Price - June 21, 2005

EMAP’s long pursuit of Scottish Radio Holdings (SRH) ends as a share bid values SRH at £391 million. Score Press will be spun off to Johnson Press for £155 million.

Glasgow-based SRH owns 22 local radio stations in the UK, Northern Ireland and the Irish Republic. Its local newspaper operation, Score Press, publishes 45 titles.

EMAP purchased 27.8% of SRH in January 2004 at a premium. The company indicated interest in buying out the remaining shares this past March. Its offer in early June was rejected as “undervaluing” the company.