Taking Stock

Capsule:  How big will media losses get--reflected in declining advertising rates, lost equity value, wealth destruction and reduced creative adaptation--before content and distribution mature?  Media industry executives need to focus their substantial smarts, their love and their money on a new mix of experience and reinvention. 

(http://www.npr.org/templates/story/story.php?storyId=112861651 ;
http://www.telegraph.co.uk/news/worldnews/northamerica/usa/6173399/Charles-Darwin-film-too-controversial-for-religious-America.html)

To mark this week's anniversary of the 2008 Lehman Brothers collapse, NPR reporter John Ydstie summed up the past year's dollar damages, helped by former Fed Vice Chairman and Princeton Economist Alan Blinder.

The range of ill effects--including US government losses on Fannie Mae, Freddie Mac and AIG, as well as loans to the auto industry--started at $600 billion, moving to several trillion dollars when federal stimulus spending, increased unemployment and welfare benefits were added.  Not included was the massive value destruction suffered by the US economy in yesterday's dollars and in tomorrow's prospects.  Also mostly outside the tab range were whatever future effects we might anticipate from the Fed and FDIC take-over spending.  Small comfort: Blinder believes that Fed and FDIC spending will be recouped through a well-managed monetary and banking system returned to pre-Faustian proportions over time. 

So what's it to you?  In real terms, your equity-holdings are diminished; you may have lost your job; and, your future employment and retirement prospects have dimmed.   If you work in the finance industry, you're twice as likely as your neighbors to be out of work; in the auto industry, three times.   If you're a trained financial executive, your world has changed dramatically and the likelihood that you'll be back in a saddle you recognize anytime soon is slim.

If you work in the media business, your saddle is likely the same but your horse has morphed.  Content and distribution companies have lost close to $50 billion in market capitalization because of the overall market faint as well as real declines in advertising rates.  Some of the ad declines are directly related to reduced auto industry spending.  But some of the decline has occurred because media companies were caught unaware by online search, news and retail competition that ate everybody's lunch (including the Apple) beginning in 2005.

Search is replicable.  The most lucrative searchers are internet shoppers who'll keep searching for new uses of their time and money.  Google, the media king in market capitalization, product efficiency and worldwide usage, is seeing its advertising rates enter their own slow growth phase and may be capped in some categories.  Yahoo Microsoft finally got its merged search act together in time for a mature market without great expectations.  Facebook announced this week it was heading for a profit on advertising volume pumped by 300 million worldwide users searching for a "friend" (and finding political and brand advertising.) 

The maturity of search doesn't mean the end anymore than the maturity of other big distribution businesses--newspapers, magazines, broadcasting, cable and satellite--did from the mid-70's through 2007.  Maturity in even a slow-growing economy (like we've seen several times over the last 30 years) can mean content and distribution expansion with new players entering the field and mature players expanding their revenue-yielding products--think Mac, Apple and iPhone--with reinvested profits and borrowed capital.

Unfortunately, capital is in short supply in this Lehman anniversary year--particularly so in the US.  Money is moving, but it's moving in the mid-range where magic is generally scarce because the scale of big companies and the adventurism of start-ups are both hard to fund.  Are we making the media harder to fund because ideas are in short supply?

Today's crop of US C-level media executives is smarter and more experienced than any other in the mass media's short history; and that, like the ingenious genius of the financial and insurance whiz kids and eminence grises, may be just the problem.  Sometimes, the smarter you get, the easier it is to talk yourself into an old idea, particularly a sure bet--the king of idea efficiency.  The financial services business surrounded itself with "sure bets"--building derivatives onto traditional wins like a stairway to heaven.

What the media needs in addition to sure bets is some magical thinking.  A few original, even premature ideas--like Facebook was until this week and Twitter may be for some time to come--should sit next to the smart repetition and multiplier math of today's media management.  Examples abound. 

The brilliant and polished Dan Hesse, CEO of Sprint Nextel, was interviewed last week on PBS by Charlie Rose in a bipolar double-header with the completely magical E.L. Doctorow. 

Doctorow spoke about finishing his latest book inspired by opaque 20th century wanderers, a haunting first sentence and a cracked (meaning indulged) bottle of vodka.  In contrast, Hesse was so articulate he seemed smarter than the substance of his Sprint strategy, losing signal clarity in all the "G"'s inside his "4G" vision.  They were each as smart as hell and lost in translation--which works for Doctorow as long as our imaginations and Amazon are working for him too.  For Hesse, the brilliance of a break-away idea sharpened by the sale and supported by a sure bet strategy is essential.

AMC's Mad Men was an impossible full court shot that went in and has become the darling of the sure-bet-loving content business for the last two years.  If AMC's management hadn't been so smart and marketing-focused with its original products, the reinvention wouldn't have worked.  AMC was smartest in conceding what wasn't working, changing over to a new brand based on its Mad Men execution.  Buoyed by successful reinvention, AMC works now, a more mature and better-looking version of its original self built through original programming as well as distribution leverage and deal-making.

Reconstructing some of the media value lost in this crash year may require rethinking risk.  Taking on reinvestment opportunities and collaborative growth in the face of our hyper-rational risk-aversion will be tough.  A US-gazing headline from the UK in this week's Daily Telegraph seems lifted as a caution from the past: an award-winning film about Charles Darwin, that opened the Toronto film festival and has been feted by critics, can't find a US distributor--perhaps for fear of antagonizing politically vocal creationists?  As much as we'd like to yell "You Lie!" at the Telegraph's speculation, it's possible that we've lost our wits and some courage in service to our careful repetition of the past.

History can't keep repeating itself exactly if we're using technology and the intelligence of the market to our best advantage.  Whether through revolution or evolution, things change.  Since the economic crash, beyond a few highly concentrated examples, the media hasn't demonstrated enough of the creative adaptations that will power us into a healthy future.  Inevitably, this repetition compulsion will change if big content and distribution continue to suffer individual and corporate losses.  But how much will we have lost in the meantime?