Media Businesses--No Need To Die?

Over at Talking Points Memo, one of Josh Marshall's correspondents offers some further thoughts on the economics of newspaper publishing:

I have done a significant amount of strategic planning and management consulting work with major metro newspapers over the past 10 years and saw much of this coming via scenario-based planning in the late 90's.

The problems are well documented by now - classified advertising (the most profitable part of the old print model) is done much better and much more cheaply online, young (and not so young) readers prefer the immediacy of the online channel, core display advertising clients have consolidated (fewer department stores, cellular providers, etc.). Meanwhile, advertising revenues always fall in a down economy (and this is a very down economy).

But, most of these businesses are still fine on an operating basis (i.e., they make money before interest and taxes). Having gone public (seemed like a good idea at the time given the 20% margins, etc.) and subsequently having been leveraged to the hilt, they are getting killed on debt-service as well as in the public equity markets (which prices assets based on future growth potential). For goodness sakes, every single operating entity owned by the now bankrupt Tribune Company is making money - but, Sam Zell (and John Madigan before him) loaded the company up with so much debt, there is no way out other than a bankruptcy judge.

Having spent my life in book publishing, I'm no expert on the newspaper business.  But the underlying point here is one that applies to lots of media businesses, including book publishing.  There are perfectly viable business models that media companies can live by--provided their owners don't expect the financial returns to match those produced by the highest-flying, fastest-growth industries. 

When Wall Street decides that every company ought to go public, take on debt, and try to grow at 12 to 20 percent a year, it creates expectations that are ridiculous and sustainable.  And one side effect is the labeling of entire economic sectors, like media, as "losers," just because they can't match the performance of a Google or a Wal-Mart.  The problem isn't so much with media businesses as it is with the reductionist thinking of some business analysts who think one set of financial expectations should fit all.

Comments

[The Ridger]

I've always felt that there is something perverse in lambasting a company because its profits were lower than desired. Not "no profit", not "losses", just "not enough profit".