Wednesday, October 15, 2008

Big Media, Bad Idea: Synergy Isn't Working

Once upon a time, bigger was better and synergy meant cost effectiveness and strategic efficiencies. But somehow, that concept seems no longer true. While conceptually synergistic relationships make sense; perhaps the human part of the equation offsets the logical side. Or so that seems to be the case today, especially with media companies. As measured by shareholder value, "Between last week and the same week a year ago, Time Warner shares were down 50 percent; Viacom was off 59 percent; G.E. had fallen 46 percent; News Corp. slid 65 percent; and Disney, the big winner, had tumbled a mere 34 percent."

Content connected to distribution is not a happy marriage; Time Warner is divorcing Time Warner Cable and continues to talk about pushing off AOL as well. Should Comcast Cable spin off its programming arm? What about Cablevision and Rainbow Media? The market seems to want these entities to separate in order to unlock more shareholder value. But will it also improve their operations?

In a recent move, Showtime and CBS are presenting content outside their distribution plant with You Tube. "Last week, it put Showtime content front and center in a new partnership with YouTube, offering the channel's most recent series premieres of Dexter and Californication to viewers for free." Would these deals be easier if Showtime spun off from CBS.

The biggest concern is how we measure success. What is more important, long term ROI or short term shareholder equity? Are they mutually exclusive or can they both be met? Clearly the market wants its value now but will that also improve the value of the content and distribution as separate entities as opposed to combined ones? It will be interesting to see which strategy works best.

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