Recent acquisitions highlight synergy in marketplace
Starting about midway through the past decade, big media companies developed a significant memory lapse as they began making acquisitions away from their comfort zones. They explained the logic of the transactions by saying the new properties expanded their breadth and offered new opportunities for their content.
While the moguls couldn’t see it, these deals were reminiscent of colossal mistakes some made just a few years earlier during the first Internet boom. But who remembers that far back?
Now it seems they have gotten religion again. On Thursday, Viacom announced it was selling Harmonix, the creator of the once-popular videogame “Rock Band,” just four years after purchasing it.
Time Warner had already beaten Viacom to the punch, showing that the last in on these deals would be the first out. In 2008, Time Warner spent $850 million for the profitless, second-run social network Bebo.
The executives at the HQ perched above Manhattan’s Columbus Circle quickly realized the error of their ways and conveniently jettisoned Bebo as part of the AOL spinoff last fall. So in one sweeping disgorgement, Time Warner rid itself of the new and the old from its regrettable M&A history.
“You are seeing companies get more focused on what they do best,” said investment banker Jonathan Knee, author of the book “The Curse of the Mogul: What’s Wrong With the World’s Leading Media Companies.” “Executives are realizing the limits of the once-imagined synergies and the management challenges of running unconnected businesses.”Today, Time Warner now derives 80% of it earnings from TV — through the HBO, the Turner cablers and its robust TV production business — and the bulk of the rest from film and publishing.
Thursday’s news of Viacom canceling its gig with Harmonix came as a shock at first. In 2006, Viacom bought Harmonix for $175 million hoping to expand its gaming business and give it a another way to make money on its content.
In 2008, Viacom CEO Philippe Dauman said to analysts that “Rock Band” “is a major new brand and long-term franchise for Viacom, and we intend to nurture it and grow it in the same way we maximize our television brands.” On Thursday, Dauman described Harmonix as not being core to Viacom and conceded that company execs had no core competency in running a console gaming business.
The scarcest resource these days in the media business, said Knee, is management time, especially as execs scramble to figure out new business models as the industry undergoes secular changes. Do you want your managers taxed by trying to run disparate businesses? “Or is the better use of time focusing on sectors where you can be a leader,” Knee added.
That clearly has to be on the minds of News Corp. execs. The acquisition that first triggered this wave of deals back in 2005 was News Corp.’s $580 million buyout of MySpace, a grand bet on social networking. Some recent candid talk from executives would lead you to believe MySpace could soon be unwound, too.
During a conference call with analysts earlier this month, News Corp. president Chase Carey said: “We’ve been clear that MySpace is a problem. We recognize that we had to redefine and largely rebuild this business. We believe in the foundation that warrants this effort and it has been our focus this year.”
But he added that a turnaround would be evaluated in “quarters,” not years.