Message from Michael -- May 28, 2007

CHINA TO OWN AMERICAN MEDIA

THE TRILLION DOLLAR MEDIA MOVE

TV WATCHING INCOME

LIVING IN SPAMALOT

COCKTAIL CHATTER


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CHINA TO OWN AMERICAN MEDIA: No cute headline this time. Just a statement. The Chinese state investment agency has made a $4 Billion investment in one of the top private equity firms in America – The Blackstone Group. You may have heard about that. However, what I haven’t heard reported is the fact that The Blackstone Group owns or has investments in many of the leading media companies in America. Everything from VNU and Nielsen to wireless and broadband providers, cable operators as well as Freedom Communications which owns nine television stations and more than two dozen daily newspapers. And recently Blackstone formed a new group with Cumulus Media called Cumulus Media Partners which owns 345 stations in 67 markets. Of course, the Chinese investment is in the form of “non-voting common units.” (I’m sure some of the smarter MfM readers know exactly what that means. I confess I don’t.) And because the Chinese investment is only 10% of Blackstone, that keeps it off the “radar screen” (as The Washington Post put it) of government scrutiny. Oh, and that $4 Billion. Chump Change. China has $1.2 TRILLION in “foreign exchange reserves.”

Now, I’m not trying to develop some kind of conspiracy theory, but the other partners in the Cumulus group are Thomas H. Lee Partners and Bain Capital Partners. These are the same two private equity groups that are “merging” with broadcast behemoth Clear Channel, owner of more than a thousand radio stations. Which brings me back to what started me on this thread – private equity firms buying media groups. In addition to the radio ‘merger,’ for example, Clear Channel has reached agreement to sell its 56 television stations to private equity firm Providence Equity Partners for $1.2 Billion. And that’s just the beginning. You heard about The New York Times selling its nine TV stations to private equity firm Oak Hill Capital Partners for $575 Million. And US Spanish language media network Univision is being acquired by a private equity consortium of Madison Deaborn Partners, Texas Pacific Group, Saban Capital Group AND Providence Equity Partners (yes, the same one that ‘acquired’ Clear Channel’s TV group) AND Thomas H Lee Partners (yes, the same one involved in the Cumulus purchase). And the private equity firms' interest in ‘old’ media isn’t limited to television either. Even ‘old-fashioned’ Reader’s Digest has ‘agreed to be taken private’ by a private equity consortium led by Ripplewood Holdings. So you’ve heard about those. But how about ProSiebenSat, the largest private German television broadcaster, being acquired for $7.6 Billion by the European private equity firm of Permira and the American private equity firm of Kohlberg Kravis Roberts. (I was working for Miami TV station WTVJ when KKR bought it.) Or how about European media giant Bertelsmann selling part of its assets (Sony Music maybe) to private equity firms and then teaming up with private equity firms to raise more money.

So, if declining audiences, fragmenting audiences, the Internet and information overload, along with multiple sources over multiple platforms are raising economic concerns for traditional media… why are these savvy financial experts buying them? The other point being raised by many observers is what does this mean to the journalism of the future. I know what you’re saying -- I’m getting off my fact-based approach and straying into opinion, but I’m not. I’m just pointing out questions being raised by others in the many publications I read – from The New York Times, The Financial Times, The International Herald Tribune, The Economist and many others. Lastly, as a footnote, there have been several reports speculating that private equity firms may bid on Nexstar Broadcasting and Lin Broadcasting, both of whom were put on the auction block.

THE TRILLION DOLLAR MEDIA MOVE: Part of the reason the private equity firms are snatching up traditional media can be found in a report by media investment banker Veronis Suhler Stevenson which predicts that media spending will surpass $1.236 Trillion by 2010. The report says “growth will see-saw in coming years as traditional media outlets transition business models.” Even more interesting (to me, at least) is the report’s statement that consumers spent 3,543 hours per person per in 2005 but that by 2010, it will grow to 3,620 per person annually – meaning 10 hours a day. The report says the fastest growth in Internet and mobile services is actually coming from the ‘traditional’ media companies. The problem is that online platforms don’t generate the spending that traditional media generates, at least in the short term. Consumers spend less time with online and mobile media than they do with traditional media. For example, they read a few news stories on the Web but entire sections of a printed newspaper. Complicating the financial picture is the fact that consumers are accustomed to getting content for free on the Web and are reluctant to pay. Add to that, the report says, user generated content (such as blogs and podcasts) which are also free and the decline of many media formats such as VHS, PC games and CD’s.

As a footnote to the hours spent with media, another report by Media-Screen which bills itself as a market research and consulting firm for “the digital lifestyle” says BROADBAND online users spend nearly half of their spare time (48%) online on a typical weekday. According to the study, that amounts to an hour and 40 minutes daily. Nearly half (49%) of the broadband population (45 Million people) regularly visit sites decided to a personal hobby or interest. And the authors say sending e-mail and visiting web sites for personal reasons are more popular than television.

TV WATCHING INCOME: Only one program, Desperate Housewives, ranked in the top 20 in terms of ‘upscale’ income viewers in every part of the U.S. MAGNA Global, one of the world’s largest media services firm, did an analysis of Nielsen data to find out which programs drew the highest income viewers and in which areas of the country – Northeast, Southeast, Southwest, East Central, West Central and Pacific. Only Desperate Housewives scored in all six Nielsen regions. The other top 10 programs in terms of ‘upscale’ viewers was The Office (NBC), Andy Barker, P.I. (NBC), Grey’s Anatomy (ABC), Two and a Half Men (CBS), Sixty Minutes (CBS), Boston Legal (ABC) Friday Night Lights (NBC) and What About Brian (ABC). On the cable side of the equation, the Magna analysis showed the top five cable networks are Fox News, HGTV, NFL Network, ESPN and ESPN2.

The highest income prime time viewers are in the Northeast where the ‘average medium income’ is $68,000 and lowest income prime time viewers are in the Southwest where the ‘average medium income’ is $48,000. Steve Sternberg, Magna’s Executive Vice President for Audience Analysis, says the analysis isn’t completely on target because Nielsen only reports total household income, not individual income. To put those figures into some kind of perspective, I looked up national figures. According to the Federal Reserve’s survey of consumer finance, the average family income in 2004 (the last time surveyed) was $70,700. And, according to the U.S. Census Bureau, the ‘real median income’ for an American household in 2005 was $46,326.

LIVING IN SPAMALOT: Despite an increase in Spam, American Internet users are less bothered about it, according to a study by the Pew Internet and American Life Project. In 2003, when Pew first asked people about the affect of spam on their Internet life, one in four (25%) said spam was a big problem. In the latest survey just released, that number had dropped to less than one in five (18%). Part of the reason for that, according to the authors, may be that the amount of pornographic spam (which people find to be the most offensive) has dropped. Three years ago, nearly 3 out of 4 people (71%) reported receiving porn spam. In the last survey the number had dropped to half (52%). However, phishing spam (email designed to trick people into revealing financial information) is the same with one in three (36%) receiving this kind of spam. As a side note to this, I found it interesting that the survey showed more email users (88%) have a personal email account compared to those with a work account (49%).

COCKTAIL CHATTER: The big story in Europe is the disappearance of a three-year-old British girl named Madeline McCann while on vacation with her family in Portugal. To give you an idea of the extent of coverage, do a search for her name and you get 127,000-plus hits. Nearly a quarter of American adults (23%) say they mostly (14%) or completely (9%) agree that American lives are worth more than the lives of people in other countries, according to the most recent Pew Social Values Survey. A :30-second spot in the American Idol finale went for $1.3 Million – the same as last year, despite some ratings attrition. By way of comparison, a :30-second spot in the SuperBowl went for twice that -- $2.6 Million. But, of course, that’s a once a year event. The latest ‘sensation’ in online video is Justin.tv which is a 24/7 “lifecast” of some guy with a camera on his head. Literally, nothing happens for hours on end. But it has become so popular, that backers are offering to help other people start up their own “lifecast.” And despite all the focus on digital entertainment, the latest ‘sensation’ among male ‘tweens (boys aged 10 to 12) is The Dangerous Book for Boys which the Wall Street Journal calls a “retro-style adventure manual.”

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