Such moves run the gamut from the split of Viacom and CBS nearly two years ago to more recent newspaper spinoffs by old-line media concerns to renewed speculation about the prospective breakup of Time Warner and the eventual sale of NBC Universal by GE.
The unraveling of big old media (to the extent it occurs) is anti-climactic compared to the explosive growth in a new strain of media leviathans led by Google and Microsoft, which control the tools and software to aggregate, search and distribute content, advertising and consumer interface in an interactive market.
These new giants are battling over acquisitions to fortify their positions in growth areas like online advertising, video, search, social networking, games and e-commerce. Despite all the squawking from Washington regulators, it is unlikely that any new empire-building will be deterred.
In that context, it is not clear that more value will accrue by breaking up traditional media conglomerates than there was in assembling their disparate assets in the name of synergy. For now, it appears Viacom and CBS are doing better on their own. For many traditional media companies, synergy and integration were better ideas on paper than in real-life execution, with News Corp. a rare exception.
Just as News Corp. is about to spread its wings again and take Dow Jones into its fold, other old-line media firms, such as A.H. Belo and Hearst, have moved to spin off their print operations or take them private. The newspaper business has become a beat-the-clock game: trying to ramp up online and digital interactive revenues faster than print revenues dissipate. Newspapers are still a growth business in emerging markets. They can generate 20% revenue growth online while losing 9% of their print revenues (like last quarter), and they remain the strongest media link to untapped digital wealth in local markets.
As the 2009 federally mandated analog switch-off approaches, bet on a scramble to merge, sell and spin off the local broadcast TV stations owned by many of these same media companies, which are unsure how to play the digital card. The restructuring of old-line media that own both newspapers and TV stations may be a prelude to quick, stand-alone consolidation on both sides.
While vertical rollup acquisitions in traditional newspaper, broadcast, cable, telecommunications and satellite sectors will continue, the driving incentive is to simplify traditional media companies so they can concentrate on core competencies and support services. Call it limited-liability M&A. It's not the insatiable buying that media companies did in the 1990s and earlier this decade.
In fact, the conclusions of a 2002 Bernstein Research study of media mergers (which included the newly combined Viacom and CBS) still hold true five years later: Most media combinations never reach the goal of above-market growth. Smaller "fill out" deals are rarely reflected in the share price, although large crossover deals can create some shareholder value. Finally, nothing good is possible without strong corporate leadership and vision.
The factors Bernstein identified as most sabotaging corporate marriages still apply: buying a new business to save a dying one, improperly managing a new asset, buying outside a company's knowledge or comfort zone, and trying to correct high senior management turnover or clashes of culture and philosophy.
A new wild card in media M&A is the inevitable generational shift of ownership and vision (from News Corp.'s Chairman and CEO Rupert Murdoch and Viacom CBS chairman Sumner Redstone), which could test the limits of expanding or streamlining conventional media empires.
Another emerging deal catalyst is the yearning by even the largest media players to simplify operations and integrate new forms of interactivity that put them on the digital fast track. Easier said than done. Many conventional players are burdened by legacy structures, economics and processes, which will take years to change.
Also, in a digital age in which many businesses, disciplines and technology overlap, the sum-of-the-parts argument for preserving multifaceted giants just doesn't play. It may not be how much media you own, but what you do with it, that makes a difference. Since Time Warner has had seven years to figure it out--to no avail--Wall Street is betting it will spin off or sell AOL, all or parts of Time Inc. publishing, and more of its new stand-alone cable entity. But don't be too quick to pull that trigger.
In fact, a significant amount of traditional media consolidation remains, as we were reminded Wednesday by the renewed speculation of an AT&T and EchoStar Communications merger, which spiked the satellite company's stock price more than 20% since Monday. It would be the kind of strategic marriage we will see more of: combined television, telephone and satellite assets to create a more potent triple-play competitor to cable. Such a deal would embrace the new catalysts for deal-making and dismantling, strengthening corporate structures and strategies, focusing resources and playing to niche expertise over scale.
Depending on how they are defined, media M&A will continue as briskly into 2008 as it did earlier this year. Media deals--in the broadest sense--in the first half of 2007 exceeded full-year 2006 deal value by 25%, according to the JEGI Transaction Database.
Mega players with cash to burn (Google, Microsoft and Comcast) especially will continue to pursue "tuck in" deals for digital assets, services and knowledge they needed to be more competitive. The tenor of media deals and participants will become more eclectic, encompassing tech and business blogs, and even alternative content distributors such as Starbucks. The meteoric valuations being thrown about ($10 billion for MySpace, $15 billion for Facebook) could alter new media giant economics in one swoop. A massive buying spree could transform Google from a tech genius to just another plodding conglomerate.
There is a good chance that more than a decade from now, Google and Microsoft will be spinning off some of their operations in order to remain more focused and nimble as they wrestle for market share in this new competitive landscape. They, too, may succumb to the law of large numbers: Nothing is ever enough if there is more to have.