The media's stamp on the market

SMARTSHARE

We are all creatures of habit "" more so than we realise. For example, I know one elderly gentleman, who believes the regularity of his bowel movements depends on the solution of a crossword puzzle while he is "reigning over china". It has to be a specific crossword; anything else is too easy or too difficult.

For many years, that particular crossword has influenced his newspaper buying habits. This puzzle is carried only in a certain daily, which on every other ground delivers less value than several of its rivals. But it remains this gent's newspaper of choice because it carries his intellectual laxative.

For most people, the sampling of media choices is less clear-cut. We flip through many papers, we surf many TV news channels and we hit our favourite sites on the Net.

But we develop patterns too. Once you've bookmarked favourite sites and set up your TV-channel sequences, you revisit the same places. And, it's usually one specific paper that you reach for, to accompany your morning cuppa.

Media feeds off this inertia. A media incumbent, be it an electronic or print product, is assured that its core audience will take a while to switch even if there are better offerings available. Of course, that's after it has developed a base audience.

Some of the world's great newspapers have been profitable across three centuries. Given this, it's often assumed that, once a media product was established, it's a cash cow. Traditionally, media investors expected to take a few years of losses followed by decades of stable returns.

The cycle has speeded up. Investors cannot afford to wait too long for positive returns. Competition for both ad-revenues and audience-mindshare has heated up.

Costs, including capital costs and operative expenses, have escalated. Equipment needs to be replaced quite often ""unlike in the days of the letter-press. And, the churn in human resources is also higher due to competition.

A daily newspaper bleeds until it has established itself and started generating decent ad-revenues. A news channel bleeds in larger gouts. There is also less assurance of long-term returns. Audiences are more fickle, there are far more alternatives and there is copycat competition.

Look around you. There are so many news channels, dailies and weeklies, addressing the same audience and offering variations on the same content. All are run by teams imbued with marketing skills and gung-ho with the competitive spirit. Some have deeper pockets but while that helps ride out losses, it isn't a guarantee of long-term profits.

It's difficult to pick winners from this battlefield. It's difficult to believe that the winners, whoever they are, will be able to build profitability over decades. And modern media can never be a value-play because its key assets are easily depreciated and churned.

Thus, media as an industry fails the test of predictability in terms of revenues. Right now, every listed media concern is also fantastically over-valued in terms of current returns. It is the industry which has gained the most in terms of investor support during this rally.

It's probably the rational industry of choice if you're looking to lighten up on market exposure. The yo-yo movements in HT after its listing, suggests that the smart money may already be doing this. If you missed out on the windfall gains in all those media listings, too bad. Don't get provoked into buying at these prices.