I was asked today why I thought private equity investors were buying media companies like Reader's Digest (today) and Clear Channel Communications (Tuesday).
Here's what I think:
In the case of Clear Channel, the simultaneous announcement that they are selling their TV business (all in small and mid-size markets) and their small-market and mid-market radio holdings would lead me to think that the private equity investors are looking at the out-of-home (OOH) advertising component as the strategically significant part of things - and they are probably right. OOH has great growth potential due to technology innovations and an almost unlimited 'spectrum'. Radio and TV are both industries that are facing considerable challenge at the moment, in particular TV. Broadcast TV, at least as we know it today, is an endangered beast - even more so for small operators and network affiliates. So... perhaps the buyers looked at Clear Channel and saw one unit with great long-term growth potential and other business units that could be divested today and still command a reasonable price that they won't be able to get down the road. Perhaps that makes the sum of the parts, today, greater than the whole and a good time to break up the operations. There's little synergy between the OOH, TV and radio pieces and, therefore, no added value from a media convergence point of view.
As for Reader's Digest, without looking at the financials, I expect that it is a profitable business and will continue to be so. They will never capture the younger demographic - but so what? There's still that big group that IBM called the "massive passives" who aren't going to radically change the way they consume media, whether that be TV or magazines. They will, however, inevitably turn more and more to the Internet for media content - and who better than a trusted brand like Reader's Digest to address their lifestyle content needs? Despite its enormous popularity, RD is really a niche magazine, at least in one sense - that is, it has a stranglehold on the magazine market for pre-digested and quick-fix content. So, its hard-copy operations probably have a future, but it also has an opportunity - if seized, and executed upon effectively - to build a strong on-line presence to satisfy the same demographic and same niche as the hard-copy magazine - and this could be additive rather than cannibalistic and contribute strongly to the bottom line. In their current incarnations, though, neither the Canadian nor American Reader's Digest websites seem to do much to extend the content or value of the magazine version. There is considerable value in the familiar and trusted Reader's Digest brand name, but that isn't being leveraged well online. Perhaps that's the hidden value that's being seen by the buyers of the company. The brand isn't broken, and it doesn't need fixing, but it could be better - and more profitably - utilized.
[Update: some of my analysis was used by Barbara Schecter in her story in the November 17th, 2006 Financial Post]
Here's what I think:
In the case of Clear Channel, the simultaneous announcement that they are selling their TV business (all in small and mid-size markets) and their small-market and mid-market radio holdings would lead me to think that the private equity investors are looking at the out-of-home (OOH) advertising component as the strategically significant part of things - and they are probably right. OOH has great growth potential due to technology innovations and an almost unlimited 'spectrum'. Radio and TV are both industries that are facing considerable challenge at the moment, in particular TV. Broadcast TV, at least as we know it today, is an endangered beast - even more so for small operators and network affiliates. So... perhaps the buyers looked at Clear Channel and saw one unit with great long-term growth potential and other business units that could be divested today and still command a reasonable price that they won't be able to get down the road. Perhaps that makes the sum of the parts, today, greater than the whole and a good time to break up the operations. There's little synergy between the OOH, TV and radio pieces and, therefore, no added value from a media convergence point of view.
As for Reader's Digest, without looking at the financials, I expect that it is a profitable business and will continue to be so. They will never capture the younger demographic - but so what? There's still that big group that IBM called the "massive passives" who aren't going to radically change the way they consume media, whether that be TV or magazines. They will, however, inevitably turn more and more to the Internet for media content - and who better than a trusted brand like Reader's Digest to address their lifestyle content needs? Despite its enormous popularity, RD is really a niche magazine, at least in one sense - that is, it has a stranglehold on the magazine market for pre-digested and quick-fix content. So, its hard-copy operations probably have a future, but it also has an opportunity - if seized, and executed upon effectively - to build a strong on-line presence to satisfy the same demographic and same niche as the hard-copy magazine - and this could be additive rather than cannibalistic and contribute strongly to the bottom line. In their current incarnations, though, neither the Canadian nor American Reader's Digest websites seem to do much to extend the content or value of the magazine version. There is considerable value in the familiar and trusted Reader's Digest brand name, but that isn't being leveraged well online. Perhaps that's the hidden value that's being seen by the buyers of the company. The brand isn't broken, and it doesn't need fixing, but it could be better - and more profitably - utilized.
[Update: some of my analysis was used by Barbara Schecter in her story in the November 17th, 2006 Financial Post]
Leave a comment