As lost on TV

Two and a half years ago, I wrote a post using the shrinkage of TV Guide (a slow fall from 17 to 3 million circulation, from more than 100 editions to one or two) as a cautionary tale. Beware the cash cow in the coal mine, I said — the money machine that blinds you to the strategic imperative for change.

Well, that cow’s come home. As Paid Content summarizes a Wall Street Journal calculation, News Corp. lost about $7 billion on the quaint old relic, now being sold to Macrovision. Most of that was lost at the hands of John Malone (not uncommon in dealing with him). The Journal concludes:

But in gross terms, Mr. Murdoch looks to have paid $1.6 billion — after selling the magazines in 1991 and receiving cash from Mr. Malone in 2000 — for the first half of his Gemstar stake. He paid $6 billion in News Corp. stock for the other half. That is nearly $8 billion for an investment valued at $1 billion today.

Now, of course, that doesn’t calculate all the profits — the cash — that News Corp. and its partners were able to milk from ol’ Bessie before sending her to the dog-food factory. But then, that’s also the point: it was that cash that was blinding.

I repeat: There is a lesson here for every media company. Oh, yes, the cash may still be coming in. But what’s happening to the true value of your asset? What are you doing to make the bridge to the future? How much of that cash are you investing in innovation? Should you get rid of it now? Is it better to hold onto the old asset and its cash or cash out and invest in something new?

(Disclosure: I was TV critic at TV Guide in the ’90s.)

  • David

    Great post, but how do you suggest that this be done?

    Companies that become cash cows, particularly if they rely on subscriptions for the bulk of their revenues, are in my experience especially prone to the insularity and inertia you describe. At one–currently very profitable–company, this condition was exacerbated by a combination of extremely low turnover throughout the organization accompanied by an enforced promote-from-within policy.

    In these cases, especially if the company is still highly profitable, I don’t think you can just bring in a crop of new executives to make changes because they may not gain the support of either the rank and file and middle management constituencies (which may largely consist of clock-punchers there for the paycheck and pension and thus may not grasp the need for change). Because cash cows tend to be very hierarchical organizations, the voices of younger workers who may not have been indoctrinated into the company’s culture–and thus perhaps better able to understand the competitive environment–may not carry much weight.

    I don’t know what the solution is, but I’d be interested to know if any companies have ever been able to successfully make this transition. Semi-failed firms like GM and Ford for example didn’t have to adjust from distributing physical manufactured goods (somewhat analogous to branded, packaged aggregated intellectual property) to whatever impossible-to-describe dynamic organism that the web has become.

  • Walter Abbott

    But what’s happening to the true value of your asset?

    That question has been asked and answered. Merely look at the stock prices of the company in question. McClatchy (MNI), NY Times (NYT), Gannett (GCI), Time Warner (TWC), etc. All are at prices not seen in over ten years while the overall market is near all-time highs.

    The true value of any company is nothing more than its ability to deliver a product or service for which a customer will pay. It’s always been so and will never change.

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