The New Multimedia: What are the stories and the stories behind the stories in this new world of entertainment? How do reporters keep up with changing technologies and still meet their deadlines?

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The New MultimediaWhat are the stories and the
stories behind the stories in this new world of
entertainment? How do reporters keep up with
changing technologies and still meet their
deadlines?

• David Lieberman
• USA Today
• June 6, 2005

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Follow the money.
W. Mark Felt
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Conventional wisdom pre 2002

• Entertainment is a growth business
• U.S. consumers want more, more, more
• Satellites and other technologies are opening
  overseas markets
• We can control the Internet
• Upshot Well be rolling in dough after we strike
  synergistic mega mergers and invest in new
  technologies, networks, etc.

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But then came
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Realization 1 Mega mergers didnt pay

• Most big deals delivered as little as a 3 return
  on invested capital the year after they closed,
  and only as much as 7 after 10 years.
• That's not good enough Companies have to
  generate 7 to 9 just to service their debt and
  attract investors.

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Most entertainment companies still are just
marginally profitable or in the red
Fox Entertainment 11.1
Time Warner 8.0
Disney 7.6
Viacom -77.5

Pixar 52.0
Dreamworks 30.9
MGM -1.7
Lions Gate -24.9

Carmike 6.1
Regal 3.4
2004 Net Profit Margins
In 2003 6.8
In 2003 -62.1
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Comcast 11.5
EchoStar 3.0
DirecTV -17.2
Cablevision -13.7
Charter -87.2

Blockbuster -20.6
TiVo -46.5
Netflix -161.1

Warner Music -7.1
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Realization 2 Theres a media glut
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Overseas sales are upbut not as much as
executives expected

• China still has import caps on movies
• DVD and music piracy are rampant
• Local musicians and TV shows in many countries
  gaining popularity over imports from the U.S.

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Consumers dont have a lot more time to spend on
media
Source Veronis Suhler Stevenson
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Make more movies? Production is already high
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Ticket sales have hit a ceiling
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Costs are rising faster than B.O. sales
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The DVD boom enabled studios to look the other way
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But that may end soon.
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Create more TV networks?

• We already have more than 340 national
  programming services
• Broadcast ratings continue to fall -- down 1.6
  in 04/05
• Cable ratings are flatteningnew networks are
  cannibalizing old ones

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Produce more music?
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Realization 3 New technology may be more foe
than friend
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DVRs will cut ad viewing
Source PriceWaterhouseCoopers
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Then theres the Internet

• 41 of users in the United States are online an
  average of 10 hours or more per week.
• U.S. Internet Users Watch TV 5.2 Hours Less Per
  Week Than Non-Users

Source UCLA World Internet Report
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No wonder Wall Street has lost confidence in
entertainment companies
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Wall Streets new message Pay usnow!

• "Enough is enough. We keep waiting for the cash
  to come in. When it does, it seems they always
  have to make new growth acquisitions. And the
  real return to investors hasn't been that great.
  Mark Greenberg, Invesco Leisure Fund mgr.
• "We hit a crisis, and the only way out is for the
  companies to pay out their capital." Morgan
  Stanley analyst Richard Bilotti
• "Generally speaking, media companies just (throw)
  it all away. They've never been interested in
  maximizing shareholder return." Bruce Greenwald,
  professor of finance and asset management at
  Columbia Business School

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Whats a mogul to do?
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The response so far

• Viacom spun off Blockbuster, began paying
  dividend, now making plans to split in two
• Disney increased its dividend and bought back
  stock
• Comcast abandoned 54 billion bid for Disney
• Cox Communications went private

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And now

• Invest modestly in new media.
• Lots of saber rattling to frighten potential
  competitors.
• Turn to Washington for help.

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Expectation New media is where the growth is
but legacy media still have more good years left.
Consumer and ad spending, in billions
Source Sanford C. Bernstein
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A skeptics guide to new multimedia products and
services

• Who really wants it?
• Who paysand how much?
• Consumers? (Mainstream or just early adopters?)
• Advertisers?
• Whose ox gets goredand how will they retaliate?
• Price waror price fix?
• Lobby lawmakers for help?
• Acquire?

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And finally

• Does anyone have a clear competitive advantage?
• Captive consumers (e.g. monopoly)
• Proprietary technology
• Economies of Scale
• If not, it wont be long before competitors
  including legacy media companies -- move in and
  take away the profits.