Future of the media industry? Just follow the money

Posted by Ben Compaine

 

Among the worst performing publicly owned companies over the past three years are a collection of media companies. At my Who Owns the Media? blog I discuss the implications of this in a media ownership context. However in the Rebuilding Media space there is a different, though related message. First the data.

The Wall Street Journal last Monday tallied the best and worst performing stocks (subscription required). Among the 50 poorest performers were six media companies, four with major holdings in the fading newspaper segment, but also two major broadcasters, including the largest owner of radio stations. Among the best performing media companies were younger and thus more volatile entrants.

Worst and Best Performers, Total Return, Past 3 Years
Worst	% change	Best	% change
# 4 New York Times Co.	-15.4	# 5 Sirius Satellite Radio	118.8
# 8 Tribune Co	-11.5	#9 XM Satellite Radio	116.5
#14 CBS	-6.6	#39 CNET Networks	75.7
#25 Gannett	-4.2	#49 Yahoo	68.6
#27 Dow Jones	-4.0
# 33 Clear Channel Communications	-2.9
Source: The Wall Street Journal, Feb 27, 2006, R1. Compiled by L.E.K. Consulting LLC.

Last year Adam Thierer and Dan English published a paper,  “Testing ‘Media Monopoly’ Claims: A Look at What Markets Say” that I wrote about in September. In brief, Thierer and English found that Time Warner, Viacom, News Corp., Clear Channel, and Comcast lost a combined 52 percent of their value (in terms of market capitalization) over the previous five years. Time Warner in recent months was the target of an attempt by major stockholder Carl Icahn to break the company into four pieces to “unlock value.” Time Warner’s capitalization was lower in 2005 than in 2001. Knight-Ridder has been forced to put itself up for bid.Although one might criticize Wall Street as being obsessed with last quarter's and the next quarter's earnings, over the longer haul the financial markets tell a story of substance. Out of 76 industry sectors (from home construction to computer hardware), the publishing industry was 72nd over the three year period, broadcasting and entertainment was 63rd. This is a statement about expectations of the future—the one year and five year future.

Folks who put our money (most of the big investments come from our retirement and mutual funds) out for investment are saying that there is so much uncertainty in the media arena that even when companies show reasonable profit they are not attractive bets for the future. On the other hand, some companies that have little or no profit may be worth the uncertainty and risk because their upside is substantial.

One clue to the media future may be found in following the money. But look at where it’s not going as well as where it is.