Media Execs Only Care about Share
Christoph Hitz

Consider these recent key actions: Universal abruptly refocuses Focus Films in hopes of maximizing profits. Time Warner plans to spin off its magazines to a new publicly traded entity in which the editorial side of the magazines is placed under control of the business side, undermining editorial autonomy. The Tribune Co. has announced it will dispense with its newspapers, which will saddle them with huge debt; and in July, News Corp. spun off the publishing unit from its entertainment assets.

Some of these corporate strokes may seem disconnected, but they all point to one phenomenon: The CEOs of the media conglomerates like to play “good parents” to their prized assets, but are increasingly punitive toward their “stepchildren” — those assets that may occupy an important place in pop culture, but have been consigned to that dread category of mature businesses.

The conglomerates once were proud that they produced risky films like Focus’ “Brokeback Mountain” or published influential magazines like Time or owned formidable newspapers like the Los Angeles Times. But low-growth, capital-intensive properties like these have lost their luster in the new digital universe. And spinning them off provides a major boost to share price; to CEOs, that’s the end game.

Stock prices of the media companies are at record highs (Viacom is up 63% over last year, Disney up 49%). Not surprisingly, CEO compensation packages also are stratospheric. Leslie Moonves earned $60 million in 2012 (the most recent year for which figures are available, down from $66.2 million in 2011), and while Bob Iger had a tough time at the box office last year, he still came away with $34.3 million in fiscal year 2013 (though this represented a roughly 15% drop from the previous year).

All of which leads inevitably to this question: Do the responsibilities of these CEOs extend beyond shareholders and bankers? After all, the global platforms they control still use the public airwaves and often government-owned channels.

Analyze how the big media companies are managing their resources, and you wonder if anyone worries about the public interest. Let’s look at the specifics: In structuring its spinoff, the Tribune Co. will require its newspapers to pay a substantial dividend to itself, the parent company. The resulting debt could be a death sentence for the newspapers while boosting Tribune shares, concludes Rep. Henry Waxman, D-Calif., after reviewing the regulatory filing this month.

Time Warner has yet to disclose financial details of its Time Inc. magazine spinoff, but the company already has changed division chief executives three times in three years. Editorial staff will now report to the business side of the publications — a change that has further exacerbated management churn.

On the film side, the conglomerates have not only shuttered, or in the case of Focus reconstituted, the specialty divisions, but they also have sharply reduced overall production spending in the quest for improved margins. And top management likes its policy of austerity: A recent story in the New York Times quoted Viacom CEO Philippe Dauman as boasting that Paramount had brought revenues down 27% while its release schedule dropped from 16 to 11 films a year. Paramount’s austerity hopefully will result in a projected profit margin of almost 10% — that’s the number that matters to Dauman.

To be sure, other studios — Sony in particular — also are under pressure to curtail output and overhead. The upshot will be to focus on franchise films and marginalize specialty fare.

These austerity policies pose a sharp contrast to the attitudes of the CEOs of a generation or so earlier. The studio founders in Hollywood loved their content as much as their profits, and occasionally took on heavy debt to finance passion projects.

The first generation of conglomerators, too, were showmen as much as they were entrepreneurs. Steve Ross of Warner Bros. and Charlie Bluhdorn of Paramount loved to attend premieres and mingle with stars. I was present at a conference when the two exchanged boasts about their lavish film budgets and their willingness to spend big on star salaries. Shareholders in that era had a rocky ride on occasion, but filmgoers seemed happy. So was Hollywood’s creative community, which enjoyed the bounty of being favored sons of the media barons.

Now the favored sons have become sad stepchildren, and the transition will likely become increasingly uncomfortable. Once the CEOs decide that an asset faces a dubious future, they do their best to make that a self-fulfilling prophecy.

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