The Curse of the Mogul: What’s Wrong with the World’s Leading Media Companies. Jonathan Knee, Bruce Greenwald, and Ava Seave. New York, NY: Portfolio, 2009. 320 pp.
It has become fashionable even among communication scholars to predict the demise of legacy media like newspapers as a result of game-changing digital technology. In The Curse of the Mogul, however, three Columbia University business professors offer a contrarian view by focusing on fundamental economic principles. This is a compelling indictment of not just leading media executives, as the title suggests, but of much of the recent conventional wisdom surrounding the media business. Jonathan Knee, Bruce Greenwald, and Ava Seave systematically explode many of the myths promoted by media executives and generally bought by investors and a gullible public. Instead of swallowing the hype, the authors focus on the bottom-line data. The results are not flattering.
In addition to causing more than $200 billion in value destruction since the millennium dawned, media mogul mismanagement, the authors point out, saw stock prices of the leading media firms underperform the market by more than two-thirds from 1995 to 2005. The public, press, and analysts have all missed the obvious question of performance amid the glitz and glamour of media, claim the authors, who teach a course in Strategic Management of Media. By focusing on data rather than misinformation, they cut through the “fantastical factors” advanced by moguls to justify their high-priced mergers and acquisitions in often unrelated businesses.
“It is as if the media industry did not get the memo the rest of the business community got back in the 1980s that conglomerates do not create value,” they quip. The core mogul myth, as they see it, is that media management should not be subject to traditional metrics because it involves “supernatural” abilities in selecting content and cultivating creative talent. This might help moguls to schmooze with the stars, but it doesn’t help investors.
Instead, the authors urge focusing on business basics, such as erecting and protecting barriers to entry, which they see as the only defensible source of competitive advantage for media companies. Instead of selling local assets to go global, where barriers to entry are harder to defend, media managers would be more prudent to focus on less glamorous but more profitable local and niche media. Diversifying into digital media is the worst course of all, they contend, because barriers to entry there are almost non-existent. “The Internet is not your friend,” they warn, because it builds bridges for competitors to infiltrate your markets. They see convergence as a “huge pyramid scheme” promoted by Goldman Sachs starting in 1992 in an ongoing campaign to inflate interest among investors. Most, of course, ended up losers if they invested in such disasters as AOL-Time Warner.
Far from facing certain death, the authors write, newspapers continue to enjoy significant competitive advantages at the local level due to their vast economies of scale. By focusing on their strengths in local news and sports and their ability to dominate the local advertising market, newspapers can outlast digital competitors, whose barriers to entry and ability to capture and keep customers are lower. The angst in the newspaper industry, they say, stems more from “the unpleasantness of facing real competition for the first time.” Even if profits have fallen back in the recent recession to their level of the mid-1990s, however, they point out that newspapers are still more profitable than media conglomerates.
Much of the recent financial trouble in media is due to what the authors call the “growth fetish” of moguls. It has blinded them to structural weaknesses and questions of relevance that should have been asked before mergers and acquisitions, almost all of which have ended up destroying shareholder value. By chasing growth online to offset losses in print, moguls are instead approaching a “dangerous point of no return” where the benefits they once enjoyed from scale economies and customer captivity could become a “distant memory.”
Content is not king, they assert, exploding yet another mogul myth, pointing to the lousy state of earnings in movies, music, and books. They note that the selection of talent entails no sustainable competitive advantage, thus these industries have struggled to earn double-digit returns while newspaper profits have until recently been in the lofty 20% to 30% range. Instead, they see distribution as king. But while high profits are associated with steady cash producers within well-defined markets, such as niche B2B media, moguls tend to focus on more sexy global, hit-driven media, and investors are the poorer for it. Instead of attempting to outbid competitors for ill-advised acquisitions, moguls should concentrate more on co-operating with them to manage cost and revenue structures efficiently.
Not all moguls are misguided, according to the authors. Rupert Murdoch may have overpaid for Dow Jones and destroyed the prevailing culture of cooperation in network television by bidding up the price for NFL broadcasting rights, but otherwise he has “all the elements of the perfect mogul,” not least for his faith in newspapers. Murdoch values operating efficiency, understands that competitive advantage springs from industry structure, and above all leverages his global sophistication to enhance his local operations. Other examples of “good mogul” operations include Reuters, Bloomberg, and Disney.
The Curse of the Mogul is a dandy dissection of media management myths that is counter-intuitive in the current climate of media morass, and would make a timely supplemental reading for senior or graduate-level courses.