Media Management in the Age of Giants

Business Dynamics of Journalism, Second Edition.

Dennis F. Herrick

• Publisher: UNM Press
• Year: 2012
• Print ISBN: 9780826351630
• eBook ISBN: 9780826351647
• Edition: 2
• Topic: Languages & Linguistics
• Subtopic: Journalism
• Index: Languages & Linguistics

The emergence of giant media corporations has created a new era in mass communications. The world of media giants—with a focus on the bottom line—makes awareness of business and financial issues critical for everyone in the industry. This timely new edition of a popular and successful textbook introduces basic business concepts, terminology, history, and management theories in the context of contemporary events. It includes up-to-date information on technology and addresses the major problem facing media companies today: How can the news regain profitability in the digital age?

Focusing on newspaper, television, and radio companies, Herrick fills his book with real-life examples, interviews with media managers, and case studies. In a time when all the rules are changing because of digital technology, conglomeration, and shifting consumer habits, this text is a vital tool for students and working journalists.

CHAPTER ONE

An Overview of Today’s Media Industry

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the government for a redress of grievances.

—First Amendment to the U.S. Constitution

U.S. media companies have been experiencing a crisis. In 2008–2010, about twenty-five U.S. media companies filed for bankruptcy in twenty-three months—at least sixteen of them large newspaper companies, with fourteen of those filing in the first thirteen months, from December 2008 to January 2010.¹ In fact, a third of all large corporations that defaulted on their debt in 2010 were media or entertainment companies.²

Media bankruptcies tapered off in 2011, although a few more filed. The largest, a major newspaper chain, expected to emerge from the bankruptcy process in sixty days.³ Other troubled media companies have avoided court with massive layoffs and deep cost cutting.

Newspaper companies were the biggest casualties, but several TV, radio, and magazine conglomerates also entered bankruptcy proceedings—primarily through Chapter 11 reorganization plans.

And students tell me they now get most of their news from the Internet and Comedy Central’s The Daily Show with Jon Stewart.

What’s going on with the media industry today?

In those two years, a few media companies were liquidated. Some were still in court-ordered negotiations in 2012. However, most emerged from bankruptcy by relinquishing ownership to private investment firms, known in business circles as private equity firms.

Thus, in less than two full years, wealthy investors who poured money into private investment firms seized control of several of the nation’s larger media outlets.⁴

One was the Tribune Company, whose properties include the Chicago Tribune, Los Angeles Times, and Baltimore Sun. Only a year after real estate magnate Sam Zell acquired the Tribune Company through a highly leveraged buyout, the company fell into bankruptcy, citing debts of $13 billion. By early 2012 the company appeared fated to become owned by its creditors, made up of national banks and private investment firms.

When the Tribune Company emerges from bankruptcy in 2012, seven of America’s twenty-five largest daily newspapers plus about one hundred others will be controlled by non-journalism institutions such as private investment firms and national banks.⁵ (Alden Global Capital was the investment company most active in acquiring media companies in 2011.⁶)

How could so many professional managers get their companies into such dire situations, resulting in an unprecedented number of bankruptcies and takeovers by non-journalism entities?

The answer is a perfect storm of the piling on of debt for acquisitions and mergers during the good years, missed opportunities as managers grossly underestimated and didn’t understand how to compete against the Internet, and a recession beginning in late 2008 that slashed advertising revenue for everyone.

Bloomberg, the financial business news firm, reported 282 media deals from 2005 to 2007, with a total value of $89 billion. The deals involved transactions in which media companies were taken private or involved in management or private equity buyouts, mergers, and acquisitions.⁷ Over the twenty years before, however, media companies had been buying newspapers and broadcast stations at inflated prices. They never made allowances for a one-two punch of Internet competition and a major recession occurring simultaneously in 2008.

As a result, the national banks and investment firms saddled expanding conglomerates with debt loads totaling billions of dollars each. When that Internet-recession punch reduced advertising revenue 20–30 percent, several conglomerates were unable to meet interest and principal payments. That pushed them into default on their debt obligations and into bankruptcy court.

The biggest question remaining is whether this is a temporary or permanent situation.⁸

The U.S. media industry is still characterized by expanding media conglomerates, with their increasingly publicly traded status on Wall Street, which was a focus of this book’s first edition. Selling stock on Wall Street often means control by institutional investors such as pension funds, insurance companies, and financial groups.

Those issues remain. The more problematic development of recent years, however, is the takeover of significant media companies by investment firms in the roles of equity investment or venture capital financiers. Whereas most media conglomerates had still been headed by people with experience in some field of journalism, these investment firms are non-journalism enterprises focused solely on profits.

The private investment firms, banks, and creditors that took over so many media companies during the 2008 recession will retain ownership at least until they can sell or take their companies public. In other words, until their acquisitions’ economics improve so they can sell stock to the public to raise money to pay the original investors back for their investment and risk.

There are three kinds of private investment companies. Although the terms are often used interchangeably, financial writer Matt Krantz explained the technical differences between private equity firms, hedge funds, and venture capital firms in a USA Today article.⁹ All three are involved in takeovers of distressed media companies, and we need to start learning more about this newest breed of media owners.

Recession recovery seemed to be on its way in 2011, after “two dreadful years,” as the Pew Research Center’s Project for Excellence in Journalism said in its annual “State of the News Media” report for 2011. The report noted that newspapers alone suffered revenue declines in 2010—“an unmistakable sign that the structural economic problems facing newspapers are more severe than those of other media.”¹⁰

This book frames today’s media challenges a little differently than other books that grapple with management of media companies and of the journalism they do in society today. Usually the questions asked are whether the profit chase is resulting in poorer, more superficial, and less informative journalism; whether good journalism can coexist with profit maximization; whether convergence, market-driven news, consolidation, and other facts of modern newsroom life are producing adequate journalism; and whether some balance needs to be struck between the way journalism used to be done and the way it is going to be done.

All of those questions are part of this book’s concerns. But overlying all those issues is an effort to understand how the media functions today and how a journalist can and should function in that media environment as an employee, manager, or owner.

A historical perspective on the media

T...

Table of contents

• Cover
• Half title
• Title
• Copyright
• Dedication
• Contents
• Introduction
• An Opening Thought
• Chapter One: An Overview of Today’s Media Industry
• Chapter Two: Preparing Yourself for Management
• Chapter Three: Motivation and the Workforce
• Chapter Four: Qualities of Leadership and Management
• Chapter Five: Decision Making
• Chapter Six: Media Ethics, Regulation, and Laws
• Chapter Seven: Operations and Structure of News Media Companies
• Chapter Eight: Budgeting, Financial Management, and Planning
• Chapter Nine: Sales, Marketing, and Market Analysis
• Chapter Ten: Consolidation and Convergence
• Chapter Eleven: Entrepreneurship
• Chapter Twelve: Technology Creates New Media
• Acknowledgments
• Notes
• Index