There is always a paucity of books on the “business” of media and entertainment (M&E). There are dozens of them on personalities (Rupert Murdoch being everyone’s favourite); on the soft power of media (influence of cinema et al); on history and evolution of some segments (cinema, TV) among other related subjects within M&E. On just the business of M&E, Harold Vogel’s Entertainment Industry Economics or the stuff that Hal Varian writes are among the few satisfying reads that I have come across.
So, it was with impatience that I ordered my copy of The Curse of the Mogul. The reviews in the international press were interesting. The book promised to examine (and it does) how the glam quotient of the business affects its ability to deliver profits. Knee and company use damning evidence, anecdotes and a strong theoretical framework to show how the personality-driven cult of the media business has led to bad business.
Since 2000, the largest US media corporations have written down over $200 billion in assets. That, say the authors, is the amount of value destruction that overpaying media moguls have wrecked on their companies. In ten years ending in 2005, four of the largest media corporations — News Corporation, Viacom, Disney and Time Warner put together — delivered average returns of 2.5 per cent to shareholders, compared to the S&P average of 9 per cent for other American companies.
This has happened, briefly, because owners are too focused on growth and less on profitability. Many of their decisions, on the direction to grow in, come from a flawed perception of competitive advantage. The authors examine the whole nature of competitive advantage across industries — scale, an unduplicable cost structure, customer captivity and government protection. The list as per media moguls: Deep pockets, brands, first-mover advantage or talent.
The Curse of the Mogul places in context many of the big business events that you and I see only in isolation — like Michael Eisner’s rule of Disney for 21 years. The general wisdom is that Eisner was great for ten years and the stock outperformed in that time. After that, he lost it. While the authors don’t take away credit from him, they do put Disney’s success in perspective.
The book could, however, do with more perspective. For instance, if the media industry lost $200 billion in assets, how bad is that compared to other industries? My guess is that the automobile industry in the US has probably destroyed more value through its decision to stick to big cars.
Throughout the book, the authors use examples of acquisitions made in haste and repented at leisure. That, however, is true for most M&As. Almost every major study shows that digesting acquisition-led growth is one of the biggest challenges for any industry. Why single media out?
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The authors particularly sneer at the value that media owners set by content and the media adage that “content is king”. Their contention is that when the content produced is of a continuous nature — for a TV station or a newspaper — it brings a bigger advantage. That is because it requires a huge scale and captive customer base to justify the fixed costs of producing continuous content. The authors reckon that it is the one-offs, such as films that do not entail significant fixed costs, that offer no competitive advantage.
What they essentially do is separate creative content such as films from non-creative content like databases or business information. The catch: The latter is naturally amenable to easy analysis compared to the former.
In fact, the book suffers from over-analysis of past data. Eventually, most business decisions are taken at a point in time, and anyone analysing them does not have the same set of variables that the person making them had. So hindsight can be wrongly judgemental.
Nevertheless, the book is worth picking up. My favourite part of the book was the chapter, “The Internet is not your Friend”, maybe because it tackles somewhat contemporary issues instead of going on about the moguls. Their take: The Internet is great for consumers but it does not offer a single sustainable advantage for media companies as they exist today. To quote them, “For incumbent media companies, any benefits from the Internet on either the cost or opportunity side are overwhelmed by the damage done by lowering barriers to entry.” So, for newspaper or TV companies, all the struggling with the Internet will remain that, because the structural reasons why the Net doesn’t work for media companies remain.
Watch out, though, for the patronising, know-it-all tone. Shorn of that tone, the book presents a great conceptual framework to look at the media business. Maybe choosing to use the media owners’ perspective, which they clearly don’t have much of an opinion about, was wrong. However, not using the mogul perspective would have made the book far less appealing. So, essentially the authors too have used the glam quotient of the business — the personalities of the men who run the M&E business — to make the book fun.
The Curse of the Mogul
Jonathan A Knee,
Bruce C Greenwald,
Ava Seave (Portfolio)
304 pp
