So, another roller-coaster week for UK media companies: Virgin Media faces a possible $15bn (£8bn) private equity bid after US shareholders are disappointed by the latest quarterly results; EMAP parts company with chief executive Tom Maloney after 26 years; Iostar (less Dawn Airey) calls in the administrators; Reuters agrees a $9bn (£5bn) take-over by Canadian rival Thomson; and Endemol is sold by Spanish telephone company Telefonica back to a group including founder John de Mol. And all that in one week.
Whether it’s platform providers, magazine publishers, production companies or financial data services, it’s clear that what’s going on here is a 21st century media scramble for assets that matches the Klondike gold rush. Just like then, it’s not apparent whether you make more money finding the gold (content) or selling the shovels (platforms and distribution systems) – but it is increasingly problematic to do both.
This shouldn’t surprise anyone. When William Caxton first invented his revolutionary platform for mass distribution of content, it was pretty obvious that the leading content of the day – the Bible – had an ownership and intellectual property quite distinct from the printing press.
And, throughout the whole time, that truism – the separation between ownership of the content and ownership of the platform in media – has held strong. Hollywood studios make the films and the video/cinema/TV distributors provide the platform.
In recent years, nowhere illustrates this truism more clearly than the tribulations of the music industry/ the musicians own the content, but have no direct control over the distribution, which has evolved over 50 years from live performance, through vinyl records, tapes and CDs to digital downloads. In fact, in recent years, (unsuccessfully) trying to control the distribution has caused the music industry more angst than focus on the delivery of the content.
And there’s money to be made on both sides of the separation. We all know that “content is king” – so that’s why assets like Endemol are attractive and why investors are impatient for success at EMAP. In the long run, talent and entertainment rights will always be terrific media assets – whether you are Simon Cowell or the Premier League. But ownership of the distribution system is also lucrative. Take the rather mundane area of UK TV and radio transmission – with one company, Arqiva, taking over its only competitor, National Grid Wireless.
Now, monopoly supply of transmission sounds like a good business to be in, if you can persuade the competition authorities it’s in the content owners’ best interests (though it’s hard to see how). No doubt, the combination of Reuters and Thomson will give Bloomberg a real run for its money in pumping datastreams to City traders.
This clarity has resonance in other sectors too. I always remember the simplicity of the business model at Coca-Cola. One business owned the content (the advertising and the secret formula) and one owned the distribution (bottling, sales, manufacture). One’s a high-margin, entrepreneurial business and one’s a low-margin utility. But the two co-exist with great returns for both parties from differing businesses.
Today, in media, the convergence of content and distribution is blurring the picture. Indeed, it’s really seductive to believe that the synergy of owning rights to both areas might be key. If you believe so, you’d need the very best content to justify exclusive distribution to consumers. In this instance, there is the occasional example of real success. For example, in the UK, Sky has a huge distribution platform (selling subscriptions to 10 million homes) and some powerful content rights (especially Sky Sports and a few programmes on early release from the US).
But even this success model is balanced by access to the same Sky content on other platforms (with the odd exception of Virgin media) and the open access to the Sky platform for other content providers – BBC and commercial operators. So, in this case, there’s a real flow across platform and content, rather than an exclusive walled garden. And even this success is an exception.
In most scenarios, the business case for combining content and distribution remains uncompelling. They are differing business models, with differing margin structures, very different management challenges and differing external focus. Put simply, content is consumer facing, whereas media distribution is industry facing.
So, if you are a media owner in the Klondike, find your content gold and then make sure it’s available for sale as widely as possible. If you are a distributor, encourage the search for gold by making as many shovels available as possible. But it’s very hard to sell shovels and dig for gold at the same time.