Call it the great unraveling.
Viacom, Liberty Media and InteractiveCorp are all mulling various forms of breakups or financial realignments that they hope will painlessly restore value to the misunderstood, undervalued conglomerates so passionately assembled less than a decade ago.
Time Warner, for years the poster child for ill-conceived mergers, is back at the trough to buy Adelphia, but this time with an eye toward separating it from the parent company.
While there’s nothing sinister in the occasional rejiggering of a media business portfolio, it’s hard to ignore the hypocrisy in this 10-year merge-purge, dealmaking cycle.
Never mind that it’s the same bankers who touted the industry-redefining acquisitions who are now extolling the virtues of their unwinding; or the hundreds of billions of dollars in shareholder value wiped out when Bigger didn’t necessarily beget Better.
This latest bout of corporate bulimia belies a more mundane truth about Big Media management: Doing deals is easier, sexier and far more fun than running, fixing and organically growing the businesses the dealmakers so painstakingly and expensively amassed in the first place.
Certainly it’s easier to buy growth than to build it from within. Who needs the political infighting, the divisional protectionism and the anxiety that comes from disrupting profitable businesses like DVD or searching for new entertainment business models like VOD?
Like many business journalists (myself formerly among them), execs can’t help but become deal junkies, feeding off the adrenaline rush of the next “big deal” — be it a roll-up or a spinoff –that will miraculously inject growth or “unlock the value” in a company’s stagnating share prices. Why sweat the details of day-to-day operations when you may be just one big deal away from redemption?
History has shown that the best way to generate new value is to innovate, create and even disrupt your own business: a tall order for most corporate bureaucracies. But it’s a well-known axiom that the majority of mergers destroy rather than create shareholder value over the long term. And some $120 billion in asset writeoffs by Time Warner (AOL) and Viacom (Infinity) alone are testament to that.
The foundations of today’s Big Media dilemma were laid in the go-go 1990s when an unusually potent economic cocktail of globalization and tech boom fueled an unprecedented (and possibly unrepeatable) expansion in wealth and double-digit stock gains. The bubble burst, but those heady growth expectations remained, along with the hope that some big deal will be the next big catalyst for a share price surge.
Unfortunately, it’s not that simple.
What if “the next big thing” is simply incremental improvement that fosters evolutionary changes in how we buy, sell and consume content?
What does generate value is the genuinely new, rather than the expensive mega-acquisition. The digital video recorder, the iPod and the paid Napster site are all examples of new businesses that fundamentally altered the way people consume media and found a way to generate new dollars — often at the expense of their old media rivals.
The pitfall of the media behemoths is that they become creaky, inflexible machines that resist the very innovation that they hoped they were buying.
Breaking a film studio or cable network group back up into smaller pieces certainly makes them more nimble and able to exploit technological change. But as many skeptical analysts have already noted, Viacom may not know the true extent of its synergy value until it actually separates CBS from the rest of the business.
It’s a classic catch-22. Acquisitions can be a rocky road to profitable growth. As my Deloitte colleague Beth Rosenstein puts it, “Companies that accept the fact that nothing big starts out big are able to be more patient for growth. It’s what we refer to as ‘the Zen of growth’: The best way to find it is by not looking for it.”
(Meredith Amdur, Variety’s former New York editor, is now in Deloitte Consulting’s Media and Entertainment practice.)