Message From Michael -- April 16, 2007

The State of Corporate Media – A Special Report

Words of Wisdom From Warren

Don Imus and Katie Couric


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FOREWORD: What started out as a paragraph or two in my weekly newsletter has evolved into this special report. A friend and MfM reader, Steve Smith, gave me the annual report for the Gannett Corporation. That prompted me to look up another which prompted another, etc., until I ended up with this. As part of the annual reports filed by corporations around this time of year, the chairman and/or CEO usually writes a “letter to shareholders” outlining achievements, challenges and issues facing the group and the industry. What follows is a summary of the letters I read from the heads of GE/ NBC-U, Disney-ABC and Fox/ News Corporation, along with Gannett, Media General, Hearst Argyle, Meredith and others. For the record, I couldn’t find anything for some corporations on-line but the most surprising one missing was CBS Corporation.

DIGITIZING FOR DOLLARS: Okay, as a headline, it’s a bad variation of the old “dialing for dollars” but that’s the clear message that comes through from a reading of the letters written by the media titans. Digital. Digital. Digital. Hearst-Argyle says it is “aggressively advancing our efforts in digital media.” ABC-Disney talks about digital activity “expanding the market.” GE-NBCU talks about a $4 TRILLION investment in Infrastructure Technology; and under the heading “digital connections” in its list of six global trends, makes the understatement, “our customers are increasingly using the Internet.” But it follows that up with a sentence that says it all, “digitization facilitates rapid distribution and knowledge transfer to a fragmented customer base.” Gannett talks about the international digital business and has created “Gannett Digital” – “an entity empowered to take the necessary steps we need to grow and attract customers.” The Media General report focuses on the Internet aspects, and it probably tells you something that topping its list of “key internal initiatives” is “creating a dynamic Internet presence in all markets.” Indicative of the importance they attach to it, Company President and CEO Marshall N. Morton devotes the first four paragraphs of his letter to their Internet efforts. Meredith which recently launched the website version of Home and Garden amidst much ballyhoo touts its “extensive Internet presence” as a defining factor for them. Rupert Murdoch, chairman of News Corporation, says, “There is more to this revolution than just the Internet.” He calls it the “digital revolution” and, in his usual under-stated way, says it has the promise of “changing our world as fundamentally as the Agricultural and Industrial Revolutions.”

INNOVATE THIS: Next to Digital and Internet, innovate or innovation may be the most popular word in the annual reports. In his letter, Disney CEO Robert A. Iger may be the most prolific user of the word, citing “innovation and imagination (as) essential components… to the company’s future growth,” talking about the employees “creative energy (and) openness to innovation” and says he wants the company to be known for “being contemporary, innovative and willing to take the intelligent risks necessary to carry us into the future.” In a very similar vein, GE CEO Jeffrey R. Immelt says innovation is one of the key factors to creating what he calls “organic growth.” Rupert Murdoch talks several times about the need for an “innovative, entrepreneurial spirit” and speaks glowingly of other innovators. Gannett chairman, president and CEO Craig A. Dubow says the need to “drive innovation throughout the company” is one of their three basic initiatives. The folks at Media General cite “introducing innovative products (that) will attract new readers, viewers and users” as the second most critical internal initiative.

THE CUSTOMER IS ALWAYS RIGHT ON: Most – if not all – of the shareholder letters cited the changing customer paradigm. The customer is defining the terms under which they want to get the news media product. Gannett’s executives talk extensively about being “customer centric.” Media General execs talk about “customer focus” and put it in an even more interesting fashion when they talk about “staying close to the customer.” GE’s Jeffrey Immelt talks about “an enterprise approach to customers” and “improving customer value.” And this may fall into editorial comment more than factual analysis, but I would note that News Corp’s Murdoch may use the word “customer” more in his letter than anybody else, but not as a company focus so much as a revenue target. Also as I said at the start, I couldn’t find the latest CBS report but in its previous one, the company also talked about how “audiences have more ways to see, hear and participate… and receive news and information whenever, wherever and however they choose.”

THE EMPLOYEE IS ALSO RIGHT ON: The importance of good employees was another key theme throughout all the reports. In all candor, sometimes there was a question of how much of it was real and how much was ‘lip service.’ Hearst-Argyle chairman Victor F. Ganzi and president and CEO David J. Barrett actually lead off their letter talking about employees, saying, “yesterday, today and tomorrow, the success of our endeavors is determined by the work of our talented employees in news and content development.” Adding to his list of things he wants Disney to be known for, CEO Robert Iger says he wants Disney to be known for “the quality and integrity of our people and products.” Media General refers to its “7,200 employees who have shown themselves to be innovative (there’s that word, again) and able to respond effectively to a rapidly changing marketplace.”

OTHER THINGS I FOUND INTERESTING: Semi-related to the employee emphasis is a training program taught by… no kidding… GE CEO Jeffrey R. Immelt who puts it in a most interesting way – “this is how we transfer knowledge within GE.” And in what many might find more intimidating than interesting, he says he mandates team leaders to “return to work as a GE zealot or find another job.” He says it has never been more important for people to understand exactly why they work for a company and that’s why they created a team-based training course called Leadership Innovation (there’s that word, again) and Growth. Meredith Corporation puts enormous emphasis on the Hispanic market. It was on the front page of their annual report and it was in the lead paragraph of the letter to shareholders by Chairman William T. Kerr and President and CEO Stephen M. Lacy. Completely unrelated but also in the “interesting” category – to me at least – was the Meredith focus on EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization.) Both Gannett and Media General made a big point about Duopoly operations. Gannett chairman Dubow in his letter states it bluntly, “duopolies are smart investments.” Media General chiefs Bryan and Morton make a pitch, clearly directed at the Federal Communications Commission, about the “exploding technology” and – most specifically – the question of newspaper-broadcast cross ownership and convergence. Talking about exploding technology, Murdoch says he “hopes and expects” that in the near future the Internet business will be where the cable business is today. I have mentioned this before in MfM but it’s worth mentioning again: Gannett’s re-definition of newsrooms as “Information Centers.” Board chair Dubow, somewhat poetically and prosaically, describes it as a place, a process and a state of mind. (FYI -- Several of the company’s broadcast brethren have been enlisted to teach their newspaper neophytes how to use video as part of this re-definition.) Not surprisingly but very interestingly, the big companies (GE, News Corp and Disney) put a great deal of emphasis in their reports and letters on the global market while the American-focused corporations emphasized earnings.

THE CHUTZPAH AWARD: Of all the media CEO’s, who would you expect to get this award. Who else? Rupert Murdoch. Not once but twice in his letter, he refers to his company as – “the most innovative and fearless media company in the world today.” On the flip side of that is GE Board Chairman and CEO Jeffrey R. Immelt who took over the job as CEO on September 7, 2001 – four days before the tragic events of 9-11. GE stock went into a “free fall” after that, dropping to $34 a share. He bought 15,000 shares thinking – as he put it – “I love the company and when will it ever be this cheap again.” He answers his own question with a touch of self-deprecating sarcasm – “the answer turned out to be – in 2006.” However, he quickly adds, “this is a long-term investment. There are no short-term tricks.”

BRANDING LINES: As a side note, I thought you might find some of the branding lines used by the various companies interesting. For Media General – We’re long past being just a newspaper or broadcast television company. For Hearst-Argyle – The Next Generation of TV. For General Electric/ NBC-U – This is YOUR GE. For Fox/ News Corp: Imagine the Future… Today. For Gannett – The Information Company. For Meredith Corporation – Delivering Content Across Multiple Media Platforms.

WORDS OF WISDOM FROM WARREN: As in Warren Buffett, the 2nd richest man in the world (behind his friend Bill Gates). The other thing that started me down this road of a special edition look at annual reports was that every year I look forward to Buffett’s “Letter to Shareholders.” It is part of the Berkshire Hathaway annual report. And every year I find it well worth reading and reporting. Who else uses Shakespeare, Ronald Reagan, Winston Churchill, Indianapolis car drivers and slightly risqué jokes in their letter?

Talking about how huge Berkshire Hathaway has become and his concern that big companies tend to become slow and resistant to change, he quotes Winston Churchill, “we shape our buildings, and afterwards our buildings shape us.” Describing his hands-off approach to delegating management responsibility semi-facetiously as taking the easy route, he says Ronald Reagan had it right when he said, “it’s probably true that hard work never killed anyone – but why take the chance?” And talking about his conservative approach to buying businesses without over-leveraging the balance sheet, he quotes an Indianapolis 500 winner who said, “To finish first, you must first finish.”

FOOTNOTE: I plan to devote a fair amount of next week’s MfM to Buffett’s letter to shareholders. Admittedly he is not a media titan (although he owns the Buffalo News and has an 18% holding in the Washington Post) but because I find what he says so fascinating and I think you will too. I will include some of Rupert Murdoch’s observations as well. Their two letters form a management treatise better than most management books.

COURIC AND IMUS: I would be remiss if I didn’t at least mention the dust-up over radio personality Don Imus’s racist and sexist remarks and the revelation that CBS Anchor Katie Couric’s so-called personal blog was not only not written by her but was plagiarized. As regular readers of MfM know, I try to keep my personal opinion out of these reports and keep them fact-based. However, I would offer an editorial thought, especially after reading Buffett’s Letter. I was struck by the fact that Buffett has some clear underlying personal principles and business principles by which he operates. So, how do these events fit into your personal and business principles? For example, could the Couric situation apply to your operation? And my compliments to Jill Geisler of the Poynter Institute who provided an interesting commentary about the Imus situation, raising the question -- at what point do you feel “uncomfortable.”

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