Media Woes Overblown?


August 30, 2002


BOB GARFIELD: In a Wall Street Journal article last month, media consultant Michael Wolf made this observation. "Like much of the general turmoil that has gripped corporate America, what's besetting the media is part of the lingering aftermath of a bubble economy correcting itself. In many fundamental ways the media industry is thriving." But how can that be, you ask, when everywhere you turn nowadays there's another big media company hitting the rocks? Michael Wolf is here to explain the counter-intuitive argument in favor of big media. Michael, welcome to the show.

MICHAEL WOLF: It's a pleasure to be here. Thank you.

BOB GARFIELD: Okay. AOL has lost something on the order of 50 billion dollars in the past year. Vivendi on this very day that I'm speaking to you announced it has lost 12 billion dollars over the past 6 months. Tell me again how the media industry is thriving?

MICHAEL WOLF: When you look at those companies, corporately they, they may be having trouble. When you look at them on an operating basis, what you see is that pretty much their - all of their operating divisions are doing very well. And I, I think that part of what's happened is that we've had, in the last couple months, we've had four CEOs fired; one of them led away in handcuffs. We've had the decrease in the value on the stocks of a number of these companies, and everyone thinks, "Well, it's the end of media." The reality is -- these companies are in great shape.

BOB GARFIELD:Well let's look at AOL Time Warner. When these companies merged about two years ago, there was all sorts of talk about synergy; the-- the on-line business of AOL and the old media businesses of Time Warner. And I guess AOL still has a lot of cash flow. A lot of people are spending 20 bucks a month to be on line with AOL, and Time Warner is still selling advertising. But clearly, contrary to most of the predictions, the synergies have never really taken place and, and the old-line media company, Time Warner, is the one that's contributing most of the company's profitability. AOL is just about breaking even!

MICHAEL WOLF: It, it, it's interesting because AOL is not the only company where deals were done based on the expectation of synergy, and a lot of what people viewed as marriages of convergence were in reality just marriages of convenience. It was a good way to justify some of these deals. So I, I'm not saying -- I'm upbeat about the future of media, but I'm not saying that a lot of these companies have created synergy. In fact, a lot of them have, have, have destroyed value by making these acquisitions.

BOB GARFIELD:Is the synthesis of the Internet business and the old-line media business the right model? Have we learned from the experiences of Bertelsmann and AOL and Vivendi that maybe these businesses would be best off competing for media dollars and operating better separately than they, they have in the past two years together?

MICHAEL WOLF: The promise of revenues and, and subscribers to the Internet and all the potential of the Internet isn't false. What a lot of these people did was they bet way too early, and the promise is going to be there. It's just going to take a lot longer. The old line that pioneers get arrows in their backs is for sure. The reality is the pioneers really stake out a trail and, and clear the path for other that follow. So I think the next wave of businesses are likely to be much, much more profitable; much more successful!

BOB GARFIELD:Should we be happy that these companies have a brave and bold future ahead of them or does this militate against the interests of the media consumer?

MICHAEL WOLF: Ultimately the, the consumer has the, the, the biggest weapon in this whole game which is -we all have ability to choose. We can turn the dial much faster than a media company can merge. We as consumers have to choose content that we want. If they're going to present homogenous sort of lowest-common-denominator stuff for us to watch on television or listen to or read, then most people aren't going to watch it or buy it!

BOB GARFIELD:I don't know, Michael. It seems to me that whatever the number of choices is, that all of the competitors are engaged in a kind of race to the bottom. Am I just-- unnecessarily pessimistic?

MICHAEL WOLF: I think there's a lot more high quality programming out there than there ever was before. People look at programming, and yes, there's a lot of, there's a lot of programming that's, that's edgier; there's a lot of programming that is, that does deal with the sort of the bottom of the market. But there's a lot that's at the top. If you look, look at the Discovery Networks or A&E or PBS there is - there's incredibly high-quality programming! One of the advantages of these being part of bigger companies is that they can afford to spend a great deal on programming. All you have to look at is, is the kind of programming that HBO has done, and it's amazing. No other outlet would have been able to afford to spend that kind of money on programming.

BOB GARFIELD:Well you've-- you've hit a bright spot, and I guess we ought to leave accentuating the positive. Michael Wolf, thank you very much.

MICHAEL WOLF: Thank you.

BOB GARFIELD: Michael Wolf is a leading consultant to the world's top media and entertainment companies. He is director of McKinsey & Company's global media and entertainment practice and author of The Entertainment Economy: How Megamedia Forces Are Transforming Our Lives. [MUSIC]