Insights into changes in the media industry and the importance of creating a unique enterprise value.
John is the global leader of the Media sector for BCG’s Technology, Media, and Telecommunications practice. He is also the leader of the Private Equity sector of the firm’s Corporate Development practice.
Can you describe the main trends and dynamics in the media industry?
The media industry is going through a profound set of fundamental and structural changes. There is much talk about the pressure the economy is placing on media businesses, but we believe that although the economic downturn is exacerbating the structural changes, the latter constitute the deeper of the two issues. We do not believe that when the economy rebounds—and obviously, people have widely divergent predictions about when that will occur—dollars will flow back into media companies to restore them to the profitability they had before the downturn.
The inevitable conclusion is that absolute dollars are being pulled—and will continue to be pulled—from the traditional newspaper, magazine, and television companies. Because these are largely fixed-cost businesses, the number of dollars shifting away from them is greater than the businesses’ ability to cut their costs.
What are some of the core challenges facing the industry?
Everyone has been asking how they can replace the lost value of their physical business in the digital world. The right question, actually, is where the business’s unique basis of value is.
Many media companies are bundled businesses that combine elements of distribution, content aggregation, and content creation. Frequently, because of how these industries have developed, revenue acquisition is not aligned with value creation.
The companies that align the two successfully will see fairly significant increases in value. The ones that do not will contract and wither and lose significant amounts of enterprise value. But this challenge is really about how business models should change, not how to manage a transition from physical to digital.
What can companies do to win when emerging from the downturn?
I think the problem is not the downturn but rather the basic developments in how advertisers are changing their media mix and consumers are spending their time. Many companies coming out of the downturn will find that the revenues they lost will not return.
The companies that will do well are those that recognize the essential problem is neither the downturn nor the transition to digital. These companies will rethink their business model and value propositions significantly to account for the changed needs of advertisers and consumers. This will require jettisoning elemental portions of their business activities and restructuring the way their businesses work.