• by Richard Morgan , October 2, 2008

Roland DeSilva has spent 25 years working where media and money intersect. And so he has reason to feel confident about where they're headed. "The perfect platform for the foreseeable future will combine print, online and face-to-face," says the cofounder of New York investment bank DeSilva+Phillips LLC. "Over time, though, these will all morph into the media brand. By then it won't matter if the technical medium for any one aspect of the brand's representation is print, online or a hologram."

At that precise point--whether it's 25 or even 50 years out--media and money will have forged a seamless relationship. Their many conflicts and collaborations will have finally culminated in an integrated technology that distributes print, radio, video and anything online as if they are all the same.

But this integrated technology will render consumers indifferent to qualities that currently distinguish one medium from another. That is, once the many forms of content and distribution available today converge into a single pan-media platform, all media will be the same. All media, in other words, will be subsumed into a single frictionless medium.

Getting there, however, will be anything but frictionless. That's because each medium is still fighting for its turf. The conflicts inherent in this basic division already have media of all types using elbows as sharp as any thrown by a big-city daily in an old-fashioned newspaper war.

Money, in its various guises--sovereign wealth funds, the public markets, private equity and venture capital--is doing its part. Each one has its own agenda, a direct or indirect stake in the destiny of each and every medium. An equity provider that invests in a single medium is, after all, betting against all others.

Equity providers have as much at stake as the media they back. And the interplay between them will parallel the activity of tectonic plates since time immemorial. These collisions will ultimately result in a singular medium so engrossing and extraordinary as to compare to the Alps or Himalayas. But only this final outcome is certain.

Not all the fault lines that will shape the media landscape decades from now have been identified. In fact, the relationship between media and money only recently entered its earthquake-and-volcano stage.

The most recent addition to the already combustible mix of media and money promises to become one of the most explosive: sovereign wealth funds. SWFS are government-controlled investment pools, representing such capital exporters as Australia, Brunei, China, Russia, Saudi Arabia and the UAE. But their penchant for risk-taking and inventing themselves as they go has them making headlines of their own every day.

No less than The New York Times, for example, could be scooped up by an emboldened sovereign wealth fund whose homeland newspaper industry--like those in rapidly developing BRIC: Brazil, Russia, India and China--is projected to post double-digit growth rates for years on end. An acquisition of this type would deliver both an immediately accretive asset (meaning that the acquired property would contribute to the earnings of its new owner at the outset) and a world-class staff that could then double as a wire service for a BRIC buyer's print-loving indigenous population.

One can imagine the jingoism that such a "smart money" buy would elicit from the "dumb money" left behind. There would be a linguistic flirtation with "media carpetbagging," no doubt, followed by another false start with something like "reverse outsourcing," as in jobs once taken overseas unexpectedly brought home to roost. Then, as even Americans came to appreciate foreign ownership's role in keeping traditional media afloat, a neologism like "insourcing"--plain, descriptive and bereft of negative connotation--seems likely to take hold.

"When you finance a new magazine, you pretty much know how big it can get," says Andrew Buchholtz, managing director of the Media, Communications & Technology Group at the Bank of Montreal. "When you fund the right Internet startup, the sky's the limit."

But VC didn't just succumb to the siren call of Internet valuations. Its dedication to new-media startups frequently has it funding enterprises that seek nothing less than to expedite the transition out of traditional media. That puts VCS in the business of financing disruption. And one need not look beyond the U.S. newspaper industry--which rode the same business model to untold profits and unmatched influence for nearly 300 years--to sense what it's like to be in its throes.

The PE community is not so keen on newspapers, either. This wholesale abandonment has affected the industry from top to bottom, reducing the value of The New York Times, its trophy property, to a mere six times cash flow.

Unlike many of his peers, Jim Rutherfurd, an executive vice president at the media-oriented private equity firm Veronis Suhler Stevenson, believes that such newspaper attributes as "feet on the street" and "long-standing relationships with local advertisers" still give the medium value. "There's going to be a lot more broken glass," he says. "But at some point, newspapers will reduce their infrastructures to a size commensurate with their ability to monetize whatever content they put online." Expect more indignities and surprises until then, Rutherfurd advises, as various classes of money from all areas of the world jockey for position at the media table.

While SWFS prepare to swoop down on digital stragglers, and VC finances new-media innovations aimed at leaving old media behind, private equity promises its own brand of disruption: the forced restructuring of media companies to alleviate debt loads that creditors no longer care to support.

The subsequent whiplash in the debt markets--from covenant-lite to credit crunch--now has more than a few PE portfolio companies with "upside-down capital structures." This phrase refers to the sort of media investment valued at seven times cash flow in the current environment, but stacked with debt totaling nine times cash flow from the easy-credit days.

"It's no longer enough for private equity to tinker with balance sheets," says Philip Thompson of Alta Communications. "Now we have to see how good we can be as operators."

Whether media's real operators--content creators and content distributors--will accept additional meddling from their equity providers is an open question. But once the disparate platforms converge, the feelings of at least half of these operators will be moot. Content owners will no longer be fraught with do-or-die distribution demands--a development that will signal the beginning of the end of media and money's earthquake-and-volcano stage. Any survivors will surely be ready, by then, for whatever post-convergence tranquility the media business can provide.