Message from Michael -- April 23, 2007

VIRGINIA TECH

SWEEPS

AN MFM MEDIA MATTERS MINUTE

BILLIONAIRES WANTED

BILLIONAIRE’S ADVICE ON NEWSPAPERS

THE BILLIONAIRE BUSINESSMAN’S PRINCIPLES

TAXPAYERS WANTED


We encourage people to pass on copies of Message from Michael. But if you would like to get your own copy, you can subscribe by sending an e-mail to newsconsultant@aol.com with the word “subscribe-MM” in the subject line.

VIRGINIA TECH: Those two words are going to take on an added meaning after the events of last week, just like… 9-11… Columbine… and Oklahoma City. I am not going to add to the avalanche of words written, but I can’t and won’t ignore it. And neither should you. I would urge every news operation to do a self-examination to see if they would be ready to handle such a catastrophic event in their community, and I would urge every member of the media to do a self-examination to define the ethical and moral principles that would guide their coverage. And do it now, before it happens; it’s too late to sort these things out when it happens. Oooh, that’s very preachy of me. Sorry. Let’s go on.

SWEEPS: Yes, here it comes – the May sweeps, the most critical ratings period of the year, the one that will determine your sales department’s future, the most hotly contested time of the year, the… Okay, you get it. Don’t get nervous or anything.

AN MFM MEDIA MATTERS MINUTE: In last week’s MfM, I warned or promised that I would spend much of this week’s report on the world’s 2nd richest man -- Billionaire Warren Buffett’s annual letter to shareholders. There is a wealth of insights and ideas worth thinking about. And just to make it more interesting, I am also including remarks from Fox/ News Corporation chairman Rupert Murdoch’s letter to shareholders. But I didn’t want to ignore some of the media stories from the last week. So, here it is:

Coincidental to the incident in Virginia Tech, the Federal Trade Commission issued a report on media violence that shows ‘improvement’ but indicates the entertainment industry has more work to do. Despite the so-called information revolution, a study by the Pew Research Center for the People and the Press found that today’s citizens’ know about the same as people 20 years about news leaders and major news events. Fewer people could name the vice president, their state’s governor, the president of Russia or knew that America has a trade deficit. More though rightly identified Arnold Schwarzenegger and Hillary Clinton and knew that the Democrats control Congress. MySpace has launched a new aggregation service that will rank news stories and headlines on the basis of user feedback. Controversial broadcaster Al Jazeera which has been unable to get clearance on any U.S. Cable operation, is launching an English-language news channel on YouTube. A survey by consulting firm Accenture found that more than half (57%) of people in the media identified ‘user generated content’ as one of the biggest threats to the global media and entertainment industry. A survey by research firm Zogby International found that more than half (53%) of Americans would replace their satellite or cable TV in their homes with broadband TV if the content were similar. Page views for newspaper websites increased 27% year to year during the second half of 2006, according to Newspaper Audience Data.

BILLIONAIRES WANTED: Buffett is looking for his replacement. Of course the person should have an impressive investment record, but he says they also need to be “genetically programmed” to recognize and avoid serious risks. Underlying this is “temperament” which Buffett says should include independent thinking, emotional stability and, “a keen understanding both human and institutional behavior (because it) is vital to long-term investment success.” Okay, maybe you don’t qualify, but you might qualify for a position on his board of directors which pay upwards of a quarter million dollars. The ‘long-standing’ criteria is that you be “owner oriented, business-savvy, interested and truly independent.” Buffett emphasizes the independence because he says too many directors become enamored of the salary and perks which have soared in recent years thanks to what Buffett jokingly says is corporate America’s favorite consultant – Ratchet, Ratchet and Bingo – which emphasizes things like being a woman… or a Hispanic… or from abroad… when what is needed is someone who thinks “like an intelligent owner.” Buffett facetiously notes that his cynicism about corporate compensation has meant that he has become the “Typhoid Mary” of compensation committees and has never been nominated for the compensation committee of any of the 19 boards he sits on.

To provide some perspective, here are the newest additions to their board. Buffett chose Susan Decker, the CFO of Yahoo, because, he says, she scores well on his four criteria, plus at age 44 is young – “an attribute, as you may have noticed, that your chairman has long lacked.” Murdoch on the other hand chose two: former U.S. Secretary of Education Rod Paige because of his insistence on system-wide accountability and because “his deep knowledge of education will be an asset for a company whose lifeblood is the literacy of its consumers;” and Jose Maria Aznar who, as President of Spain, “enacted a bold array of reforms that catapulted the Spanish economy to the forefront of Europe” and who showed “courage as a leader in the war on terror.”

BUFFETT ON NEWSPAPERS: The fundamentals of the business are eroding. The slide will continue. They’re losing ground in the ‘battle for eyeballs.’ The economic potential of newspaper Internet site is only a fraction of the past performance of newspapers. Yet Buffett says he has no intention of selling his ownership in the Buffalo News. (He also has an 18% stake in the Washington Post group.) And it isn’t because he reads five newspapers a day or that he believes, as he does, that a free press is key to a free democracy. No, it’s because of Principle #11 in his list of Business Principles – he doesn’t believe in “gin rummy managerial behavior” which he defines as discarding your least promising business at each turn. As long as there is a reasonable expectation of cash flow, good managers in place and good labor relations and barring an irreversible cash drain, he says he will hold on to a business. Besides he is hopeful that some combination of print and online activity will ward off an economic doomsday for papers. Interestingly, he predicts that wealthy local citizens – or, as he phrases it -- ‘non-economic individual buyers’ – will emerge as owners, just like the sports franchise owners.

MURDOCH ON NEWSPAPERS: Except for the fact that Murdoch makes no pretense of holding onto under-performing business, his comments about newspapers are remarkably similar to Buffett’s. Murdoch shows some of the same affection, calling the print business “the heart of this company” and he argues that it is much too early to pronounce the death of print media. But there are challenges, as he says, with survey after survey showing newspapers are less integral to people’s lives with each passing year and that younger people are prefer alternative means of getting the news. “Yet,” Murdoch writes, “the hunger for news and information – for content – is not fading. It is intensifying.”

As a side note, News Corporation chair Rupert Murdoch says sporting events – along with live news – are as close to “DVR-proof” as programming gets.

THE BUFFETT BUSINESS PRINCIPLES: In 1983, Buffett set down 13 principles to help shareholders understand his managerial approach. In addition to Principle #11 mentioned above, here are just a few to give you a flavor of his thinking: Our attitude is partnership and (we) think of our shareholders as owner partners… We eat our own cooking (as in he invests in the same companies he recommends)… We use debt sparingly… We will only do with your money what we would do with our own… We feel noble intentions should be checked periodically against results… We will be candid in our reporting to you… As a company with a major communications business, it would be inexcusable for us to apply lesser standards of accuracy, balance and incisiveness when reporting on ourselves than we would expect news people to apply when reporting on others… Despite our policy of candor, we will discuss our activities in marketable securities only to the extent legally required… Good investment ideas are rare, valuable and subject to competitive appropriation just as good product or business acquisition ideas are.

This year, Buffett added in the concept of Intrinsic Value. The simple definition is that it’s the discounted value of the cash that can be taken out of a business during its remaining life. But how to calculate intrinsic value is not so simple and two people looking at the same set of facts with come up with different figures.

THE MURDOCH BUSINESS PRINCIPLES: The principles are laid out during Murdoch’s examination of his cable business. Topping his list – be willing to ignore or even take on conventional wisdom. Just behind that is the admonition to “invest wisely and early in a new business.” Third, be patient as the new effort finds its footing. Fourth, enjoy the growth and profitability as the business matures but always be thinking about and building the next generation of new channel offerings. As Murdoch says, “the elements are simple to understand, if not always easy to implement.”

TAXPAYERS WANTED: To put Buffett’s wealth in perspective, consider this: his company Berkshire-Hathaway will pay about $4.4 Billion in federal income tax on its 2006 earnings. In its last fiscal year the U.S. government spent $2.6 Trillion – about $7 Billion a day. Thus, Buffett notes, his company picked up the tab for ALL federal expenditures (social security, medicare, the armed services) for more than half of one day. He notes that if there were 600 taxpayers like his company, no one else in American would need to pay ANY federal income or payroll taxes.

SUBSCRIPTIONS: If you wish to stop receiving this newsletter, e-mail newsconsultant@aol.com with the word “unsubscribe-MM” in the subject line. Also, back issues of MfM are available at the website, media-consultant.blogspot.com. You can reach me directly at Michael@MediaConsultant.tv.