Big Media’s love affair with the Internet ebbs and flows with the markets. When they see money pouring into Web startups, they feel threatened and rush to do the same. They ramp up their digital divisions, which usually are no more than venture arms, and hope to strike it rich. When the markets are down, as they are now, their attention drifts elsewhere—exactly at the time when they can pick up innovation on the cheap.
“M&A is gone,” the digital media chief at one of the largest media companies tells me. Other than a few targeted acquisitions to fill out business or technology holes, “you look foolish making any purchases,” he says, “especially if prices are still going down.”
And those prices are way down. Consider, for example, that CBS’s entire market capitalization is now only $2.5 billion, which is not much more than the $2.1 billion its digital division CBS Interactive paid in cash over the past two years for Cnet ($1.8 billion) and Last.fm ($280 million). (It also made a number of other smaller acquisitions and investments). As of December 31, 2008, CBS only had $419 million in cash on its balance sheet.
When it bought Cnet last May, CBS’s market cap was $16.5 billion. If CBS had instead paid in stock for CNET, that stock would be worth only $273 million today—less than what CBS paid for Last.fm two years ago.
But the media company that went on the biggest buying spree was News Corp. Its digital division, Fox Interactive Media, was lucky enough to pick up MySpace, which paid for the rest of its acquisitions. Now that FIM doesn’t seem to be buying much anymore, it is not clear why it exists. Most of its properties could be integrated into other News Corp divisions or sold off. It does have some ad targeting technology and a budding ad network which is seeing some success, but that could be a stand-alone business or combined with MySpace.
And that is kind of the whole point. It is not clear why media companies even need separate digital divisions anymore. Even the digital media chief I spoke with thinks that “it is silly to have a separate division.” Disney, Viacom, NBC, and News Corp. each have digital revenues that are close to or are approaching $1 billion. But that revenue is typically spread across many different businesses. And, as big as it is, the digital side of the media business is still overshadowed by the many billions of dollars more brought in by the traditional side of the business—TV, movies, radio, even print.
The executives leading those businesses have too many other fundamental problems to deal with to worry too much about having a Facebook strategy or how to market their movies through Twitter. The last time the big media companies pulled back from the Web, it was because the Internet sector led the downturn. And every Web-related business became toxic. Now, it is more that the general economic crash is hurting overall revenues across the entire media landscape.
Media executives are going into self-preservation mode. They know that all media businesses are going digital, eventually. But right now, they are more concerned with sheltering their core business than with pushing forward a digital business that will leech attention and profits from the core business.
So the digital divisions have to transition from M&A mode to business-building mode. But without money or attention, the most talented executives in those divisions may not stick around for long. Mika Salmi, who sold Atom Entertainment to Viacom and then became the president of Global Digital Media at MTV Network, is already headed out the door. NBC lost its digital chief last November. And digital media executives with M&A backgrounds like Quincy Smith at CBS don’t have a lot of money to spend these days.
That leaves building the digital part of the media business to the old-school executives in charge of the other businesses. How many of them get it?
(Photo by atomicjeep).