As I mentioned earlier, News Corp's bid for the Dow Jones is big news and will be talked about some time. I believe it is a sign of a market top in the Financial Bubble. But unlike its Tech Bubble counterpart, Time Warner, this doesn't mean it was the wrong move. Before my 21st century brain forgets it forever, drives to my friends house in a Hummer to watch American Idol on his new Plasma (<--written in Arial Sarcastic font - that's actually a great idea), I would like to address the deal and what it implies about Old vs. New Media.
Howard Lindzon points out how this deal shows that Old Media is not dead. I agree - it is still alive. However, that doesn't mean that it isn't bound for the grave. Yet they are all very undervalued. How could companies that are destined for failure be so cheap? Let's explore.
As it stands, Old Media is headed for the grave. This is the case for two reasons. First and foremost, because of the drawn-out explanation of the Information Age (very High Beta topic - not for this blog). More subtle and I believe more important is because of my generation. As a 24 year old, I don't have as much experience as the next guy but I have some deep insight into the future media subscribers of the future. My generation falls into two camps, The Intellectually Active and their counterparts the Intellectually Passive. Using generalizations, and trying not to come off arrogant or pretentious, allow me to explain them both.
- The Intellectually Active (25% - 35% of the Population and falling) - A dying breed, the Active are characterized by curiosity, healthy skepticism, and lack of stimulation. They are the members of my generation who seek information. This group grew up on Old Media. They used to (and some still do) read the NY Times, enjoy a good book, and watch the news (not just the Daily Show). There is a high correlation between Readers and the concept of "Giving a Sh*t". They are liberal, they are conservative, they are black, white, Asian, and albino. These people usually shun The New York Post for the New York Times - but enjoy the Post because of its absurdity. There is also a high correlation between these people and their distaste for MTV (when did they stop playing videos?), Reality TV, and BS. Being younger, they already have to deal with enough of smoke blown in their face, but also have to deal with the rest of their counterparts the Passives. Therefore they value the ability to get what they want when they want along with the company and recommendations of other Actives.
- The Intellectually Passive (65% - 75% of the population) - The Passives are not stupid, may be well-educated but are a victims of the times. They grew up during one of the most prosperous times in history, and are used to things being handed to them. This sense of entitlement has made not only vain but apathetic and lazy. Although they may not be outwardly lazy, they are the intellectually immobile and would rather be "fed" information than "eat" it. They accept whatever their parents told them, their friends say is so, and whatever they see or read on the popular media. They may be enormous consumers of Old Media, but not the type of people you want to bet the house on. These are not the people who found MySpace (it was actually a website for indie bands and their fans), they joined after their friend sent them a link well after News Corp bought it. The Passives are people who, to use a play on words, "do as they are sold".
One would think that with such a large market out there, Old Media would not be dying but flourishing. The problem is that there is such a difference between the two groups, that by not catering to the Actives, Media outlets are vulnerable. The Actives are so active and the Passives so passive, that it is much more economically efficient to put out Media for the Active Group and let them do the marketing. It is not worth the cost putting out a Newspaper catering to the Passive, only to see them absorbed by the New Media the Actives have sought out and shared online with the Passives. Also, the Passives are so apathetic that you may not rely on them watching your channel or buying your newspaper because they simply may not care enough to do so.
Now that we have seen why Old Media will soon be pushing up tulips, then why are they so undervalued? The Passive Information absorber is much likely to consume a brand of media that he or she is familiar with. Remember, they are intellectually lazy, so they don't want to spend time experimenting with the unfamiliar - that is the Active group's job. Therefore, the perfect business model for the industry is to consolidate, maintain brand recognition, and then completely cannibalize themselves - while keeping the only name and brand alive. Therefore media companies with relatively large market shares, strong brand recognition, wide circulation, and diverse subscriber bases are very attractive. Companies can buy a New Media firm that the Active's frequent, or create a new brand to attract them, then repackage it and sell it to the Passive set. It is the large scale re-branding of information, which if you haven't been paying attention - is what Google, Amazon, Yahoo, Digg, blogs, etc. have been doing for some time now.
Even though I agree with the motivation and necessity of News Corp's bid, I still believe the deal that happened today was a sign of a top of the financial bubble. Although Media companies are undervalued, they are not THAT undervalued. Also, even if my explanation above seems logical to the point of inevitable (I highly doubt that), there is a huge amount of business risk involved in the future of this industry. Aside from the DJIA metaphor, the deal still wreaks of excess liquidity, ignorance of risk, and investment in the financial business. Yet, Murdoch knows what the future will bring if he stands idle and the idea of News Corp going the way of the OC is much scarier than overpaying for the future.
Recent Comments