Archive for March, 2010

The End of Big Media Conglomerates

March 23, 2010

A few years ago, it seemed that -in the future- most part of relevant media outlets would be in the hands of big media conglomerates. In 2000, when Time-Warner merged with AOL, CEO´s of media companies all over the world identified two main competitive advantages: big size and a diversified portfolio of media assets. Ten years later Time-Warner has split in two units: content (magazines, TV networks and film production) and distribution (AOL and cable systems). Viacom followed a similar strategy some years before.

What happened with the economies of scale, the synergies and the diversification of risks that those companies where looking for? In fact, most part of operations of concentration in media industries in the last two decades destroyed value for shareholders. Economies of scale have a rationale: costs per unit decrease when production increases; but the disadvantages have more wheight: in such cases, firms have lack of focus, problems of coordination among business units, more burocracy, less innovative spirit… and synergies do not appear. In some ways, companies are like human beings: they should be strong enough but without exceeding a given size.

If a company has a clear “market fontier” its risks are highly concentrated. But the solution is obvious: the shareholders can select different bets. In this way, they diversify their risks while invest in focused media companies.

Orbyt or the search for a profitable business model for on line information

March 15, 2010

The Spanish newspaper “El Mundo” has recently launched “Orbyt”, a “new way of reading newspapers for the XXI century”, according to his editor, Pedro J. Ramírez. Orbyt will allow users to read whenever and wherever they want, and also, through different devices.

Orbyt is not just a way to read on line newspapers, but a different concept of approaching  information in the web 2.0 world. Users can access the archives, all the regional editions and magazines, give their opinions, interact with the newsroom, or participate in the configuration of the daily paper. According to Pedro J. Ramírez, Orbyt is a new way of  “reading, seeing, feeling, listening, participating, and living the newspaper”.

In times of crisis, “El Mundo” has launched an initiative which tries to add value to the traditional information on line. In fact, the on line newspaper remains the same and for free. Orbyt costs 14.99 euros per month, and therefore, it follows a different business model. After the launching, the application seems to be successful for Iphones, since in 48 hours, there have been 4.000 unloads.

It is worthwile to watch the development of this application as a way of implementing innovation in the searching for profitable business models.

Indebted Media Companies

March 2, 2010

Every 10 years media companies realize that their debt is a extremely heavy burden. At the beggining of the 90’s, News Corporation was close to collapse, and the empire of Robert Maxwell (at that time owner of the Mirror Group) was destroyed. In 2002 AOL Time Warner fired its CEO, Bob Pittman, and Vivendi Universal its CEO, Jean Marie Messier; Bertelsmann did the same with Thomas Middelhoff: those (and other) big media coroporations have increased their debt in order to follow strategies of fast growth.

Companies should choose between the aim of been the faster and bigger player of the market or, by the contrary, the aim of preserving the organization’s future. They can not do both things at the same time: one of the two options is always the priority.

The crisis is a good oportunity to learn. Sooner or later the “perfect storm” arrives: advertising decreases, consumtion goes down, the banks are not so willing to lend…. Well managed media companies are prepared to face such unavoidable disasters: innovation is part of the game, but prudence is the neccesary complement.