Warren Buffett has long held media properties as part of that profitable "food chain" called branding. To be profitable, investments must slow the process of competing to zero profits that occurs with commodities. Brands help. Brands can encourage consumers to "pay up." But to create brands, media properties are necessary.
But media properties have been having investment problems of the same type. As I have blogged recently, newspapers, (as well as radios and televisions) are part of a disintermediation process driven by the Internet. As a result, media properties are losing their "tollway" characteristics. But a friend of mine argued that the "tollway" still exists because people need to trust their news source.
However, disintermediation is addressing the issue of trust in a novel way. Unlike the historical use of a gatekeeping media property separating companies from consumers, the Internet now allows direct linkage of company and conumer: whether through company website, or pdf file, or search engine or RSS feed. If interpretations are important, blogs can provide significant online and on-time commentary.
This thesis, persuasively made by David Meerman Scott in a complimentary ebook called "The new rules of PR," (and available at his excellent web log www.webinknow), appears financially confirmed: Buffett has purchased the company Business Wire for an estimated (by me) $500 million. Media disintermediation is at the core of Business Wire's growth. Formerly, Business Wire helped businesses disseminate information to the old "tollways" of the media world. Now, Business Wire helps businesses manage press releases in order to grow customer reach and direct branding. Further, new legal requirements for accuracy and timeliness on business releases help all involved. Business Wire gets more business because of heavier requirements and the businesses have releases which are considered more trustworthy - addressing some of my friends concerns.
As a financial aside, Business Wire appears to be already highly profitable. Business Wire charges $225 for each release. The top line of Business Wire is $125 million (yes, over a 1,000 releases per day!). The margins appear high, as the releases are already written. Business Wire has had a bottom line strong enough to allow former owner Lorry I. Lokey to donate $160 million over the past 10 years (mostly to schools: his alma mater Stanford and Leo Baeck Academy, a school in Haifa, Israel). At a contribution rate averaging $16 million per year, the business probably threw off at least $32 million of after-tax profit (most people don't donate over 50% of their income for tax reasons), leaving a pre-tax operating margin of nearly 50%. For financial types, I would estimate that Buffett paid about 8-9 times operating profit and comment that their largest competitor is London-based PR Newswire, a subsidiary of United Business Media, PLC.
2 comments:
Today's NYT reported that Disney is breaking off its radio stations and radio network programming business into a separate entity which will be merged into Citadel Broadcasting Corporation. This move appears to presage exiting the radio business completely, confirming the "disintermediation" process for radio (like newspapers). Not long ago, these media properties enjoyed high priced "synergies," using excess billboard space and television ads to promote radio audiences. Now traditional radio will increasingly represent a low priced niche - people with old cars who are too cheap (or poor) to buy satellite radio. Not exactly the most desirable audience.
The concern about trusted news raised in this post seems centuries old. The disintermediation or remediation by Google and Facebook creates the direct path to consumers that Business Wire takes. However, Google and Facebook appear to control the pathways to access that information without a "guardian" type of role. Without debating the pros and cons of that, it does appear that the emergence of "fake news" as a fact and as an accusation was an inevitable result of this new structure.
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