Message From Michael 
May 20, 2011
MEDIA CEO'S LETTERS TO SHAREHOLDERS – PART TWO
You get the impression from reading the various letters to shareholders from the CEO's of the major media groups in America that the cost cutting is over. Okay, that may be wishful thinking, but it does appear that the majority believes that they have done as much of that as they could in 2009 and 2010 and that the new emphasis is on generating more revenue. Two approaches stand out in that regard. One is the so-called pay-walls. And related to that is the use of news Apps and, more particularly, paid news Apps. Virtually all of the groups with news interests are pursuing these, with News Corporation's Rupert Murdoch, most famously, leading the charge to, as he put it, "ensure fair payment for our journalism." As he says, it's time to "re-imagine" and "reinvent" the news model. But he is far from alone. Gannett Chairman and CEO Craig Dubow says they have tested various paid content models and here's the good news for the other companies and advertisers -- they have found that subscribers are much more engaged than non-subscribers, consuming four and five times as many page visits to their websites. One of the models Gannett is pursuing, along with The New York Times and Washington Post, is ONGO, a kind of personalized, digital news service built along the cable pay model. Similarly, Media General Chairman J. Stewart Bryan and President and CEO Marshall Morton talk about experimenting with the Google "One Pass" concept. They, too, have tried pay walls, starting with their little paper, the Hickory Daily Record. Now, they say they're going to try it in the flagship newspaper in hometown Richmond. Also, good news for other companies, they have found "heavy users are willing to pay a reasonable fee for unique local content." A.H. Belo's Robert Decherd says after testing the concept in Dallas, they are looking at moving it to other markets as well.
But the third approach that most of the multi-media groups are looking at is cross selling their content across all their platforms. At Cox Enterprises, Chairman Jim Kennedy and President and CEO Jimmy Hayes talk about taking an "integrated media approach." That translates into leveraging research, digital functions and, most importantly, sales, across all their newspaper, television and radio properties. In other words, one stop shopping. Several of the letters refer to growing advertiser interest in buying across all the platforms. Media General's Bryan and Morton refer to it as a "consultative sales approach… understanding customers business needs… and offering solutions across multiple media platforms."
For the larger, multi-national groups, the focus is on overseas and for good reason. This factoid comes from Viacom's Chairman and Founder Sumner Redstone and President and CEO Philippe Dauman: 96% of the world's population resides outside the U.S. Interestingly, Redstone and Dauman make very similar statements about global opportunities as Disney CEO Robert Iger. Redstone and Dauman talk about the rising demand and "rising middle class in developing markets combined with falling regulatory barriers" while Iger talks about the "stunning rise of family incomes in countries like China and India (with) demand rising while barriers are falling." As part of their global expansion, Iger also notes that Disney opened 19 Disney stores worldwide. News Corp's Murdoch says in his letter that Fox International launched 29 new channels worldwide. Another example of the media globalization comes from AT&T's Randall Stephenson who carries three titles – chairman, CEO and President. Stephenson says that on an average day, the AT&T backbone alone carries nearly 24 Petabytes of data traffic – 100 times the digitized library of Congress.
Every one of the CEO's managed to get at least one jab in at their competitors, or at least gloat a little at their competitor's expense. But that's to be expected in a letter to shareholders. For example, you can understand Comcast Chairman and CEO Brian Roberts bragging a bit when he notes that when his father Ralph took the company public in 1972, the annual revenues were $5.7 Million. The pro forma annual revenue of the combined Comcast and NBCUniversal for 2010 was… drum roll please… $54 Billion. Redstone and Viacom CEO Dauman brag that their networks get nearly a third (30%) of all 12 to 34 year old viewing in the U.S. That is why, they suggest, the President of the U.S. chose their network to speak directly with young voters. Other company highlights/ factoids are that MTV captured all 20 of the top 20 telecasts on cable, except for sports, among that same demographic, 12-34, and that Nickelodeon took the top spot among all basic cable networks in total day viewing not just among kid demographics but total viewers for the 11th consecutive year. Apparently that demographic is a new holy grail. Disney's Iger makes a point about the Disney Channel's success in that area and its executives doing "a fantastic job of staying in touch with what kids and tweens want to see and hear."
Redstone in his role as Chairman and Founder of CBS along with CBS President and CEO Leslie Moonves make the point that e-books are becoming an increasingly meaningful part of publishing sales, with publishing subsidiary Simon and Schuster recording a 160% increase in e-book sales in 2010, with more than 10,000 digitized titles. They also brag that CBS "retained the title as America's most watched network for the seventh time in the past 8 years." Leading the pack, they note, was NCIS which is the #1 ranked drama and which broke another series record, attracting nearly 23 Million viewers to the show in its 8th season. The network website was also the #1 television network website for 25 straight months in terms of unique visitors. AT&T's Stephenson says his company spent $70 Billion in spectrum and wireless and wireline networking in the past three years. Their domestic wireless network covers 300M people with 24,000 Wi-Fi hotspots nationally while globally their networking reaches 82 countries. Comcast's Roberts notes that the cable giant is becoming a telecom giant, as the fourth largest residential voice provider in the country.
Of course when it comes to bragging… excuse me, citing company facts, no one can beat Rupert Murdoch. But then he does back it up with facts in most cases. For starters, he notes that the Fox News Channel outperformed CNN, MSNBC and CNBS combined in total viewers for both prime time and total day categories. And while all the major networks showed impressive growth, "the Fox News Channel is simply unstoppable." And, probably rightfully, he calls the mega-mega hit Avatar "the most successful film of all time." He adds, "I am only half joking when I wonder if there is anyone left on this planet who has yet to see Avatar." But Disney's Iger has equal bragging rights, noting that Toy Story 3 is the #1 animated movie of all time at the global box office. In fact, two of Disney's movies could claim records. Toy Story and Alice in Wonderland both crossed the Billion Dollar mark at the global box office. Iger says the moves succeeded because they share the same "DNA" of Disney classics like Snow White, Pinocchio and Beauty and the Beast. It may not be in quite the same league but Gannett's Dubow also claimed some top spots. Gannett stations KSDK, KARE and KUSA claimed the #1, #2 and #3 spot in election night coverage in the 25-54 demographic in the top 25 markets. They then claimed the #1, #3 and #4 spots in Olympic coverage.
Finally, under the heading of company factoids, it was interesting to see how many employees the different companies had. The surprise (to me at least) was News Corporation which has, as Murdoch put it, 50,000 "innovative colleagues." I say surprising because that seemed low, considering Cox Enterprises has 60,000, Comcast 120,000, and of course, the biggie – AT&T with 267,000 employees worldwide. The smallest was Charter with 16,000. But at least they acknowledged their employees. Many did not.
Just about all of the CEO's and Presidents provided interesting quotes in one way or another. For example, it may not be brilliant but I like Charter Communications President and CEO Mike Lovett talking about acting "as the solutions provider to our customers." AT&T's Stephenson (who may rival Murdoch as most quotable CEO) says their focus on mobile has put the "internet in the palm of America's hand." He goes on to say AT&T gives students in small town same resources as one in a major metropolitan area and the small family business the tools to compete with the largest companies. An interesting perspective on the value of entertainment comes in a quote from Disney's Iger who writes, "no one has a better job than to transport people from their every day lives to worlds that could only be created by Disney." The company mission statement for Gannett talks about informing and inspiring consumers, but the provocative part that I find particularly interesting is when it talks about "being a catalyst for the conversations that are taking place every day." Then in the vision statement the company talks about being in a "new era in human engagement." Okay, this quote is one I mention semi-facetiously as worth noting. Gannett's Dubow says… and I quote… "Print continues to be important to many of our readers." Don't you like that? It's somewhere between "huh?" and 'damning with faint praise.' However, after saying that, he does note their focus on improving Sunday home deliveries.
Then there are the things in the various letters that I just find interesting. For example, the use of the phrase "free cash flow" or the word "de-risk" that I talked about in Part one. Another example, Comcast's Roberts talks about offering twice as many channels for "ethnically diverse audiences." A statement by Murdoch provides an interesting insight into his thinking. After saying Fox Broadcasting is the top TV network in the U.S., he adds a cautionary note that they have to "balance Fox profitability goals with a longer term objective of maintaining its ratings lead as TV audiences fragment." Anybody else find that as interesting as I do? Or how about this from Disney's Iger. While saying he had a strong management bench strength, he goes on to say he's always looking 'outside' to make sure they have new perspective and the right expertise "in a media environment where conditions are changing constantly and where insurgent companies have much to gain and little to lose."
There are two variations of a theme, which again are remarkably similar from two different groups – Gannett and Media General. Gannett's Dubow makes the point that the company has transformed its brand so that "we no longer decide what consumers and businesses need… customers decide and we provide them what they want." Similarly, Media General's Bryan and Morton talk about taking their "cues from the marketplace." They talk about switching from a platform-focused structure to a market structure because they say, in eloquent simplicity, it is about "getting us much closer to those who use our products."
And finally, emphasizing the technology aspect of the media business today, a prediction from AT&T's Stephenson. He says, "we expect very soon every machine and appliance we have in our homes and our businesses will operate better and more intelligently with wireless connectivity." Yes, folks, your fridge will be telling you that you need to buy milk at the store. And here's a little prediction of my own. In next year's letters to shareholders, you will see two new words being used bythe CEO's and Presidents – transmedia and curation. Transmedia because all of the groups are talking about tailoring content to the platform and curation because all of the groups talk about the need to organize, store and communicate the content.
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