Television is the New Television

Though they are still too high for me, there has been a dramatic decline in the multiples of various media companies over the last few weeks. Investors can't seem to agree on what the future for video media is going to look like. I recently read Michael Wolff's Television is the New Television to help me think through this topic.

Wolff argues that print media's cannibalization by the web makes sense. The web's focus on returns on advertising put it in direct competition with newspapers, direct mail and other low-margin high-throughput type advertisers. But the lack of barriers to entry means supply of this media on the web is endless, and so prices for this type of advertising have nowhere to go but down. The publisher response is to create even more content to mitigate declining prices, leading to a constantly devolving profitability situation.

Television, on the other hand, is where the brand advertisers live, and is also a place where users are actually willing to pay for content. To grab a piece of this lucrative market, that's where the web has to go. Instead of the web cannibalizing tv like it has other media, it is becoming it. Netflix, Amazon, YouTube etc. are all moving towards becoming tv companies, creating/licensing premium content so as to differentiate, very much in contrast to the user-generated, viral-type stuff YouTube was borne out of.

It took a long time for Wolff to get to his point. He first goes on a bit of a deep dive into various media and how the web has impacted it. This part makes for an excellent primer.

But I found the discussion of who benefits from Wolff's thesis incomplete, at least from an investor point of view. Just because creating premium content is the key to getting the premium revenues from advertisers, doesn't mean content creators will earn excess returns. Talent is free to move from company to competitor, which reduces profits from companies that would appear to benefit from premium revenues. Sports leagues/events expect bidding wars to carry their content...do we expect a company that has to win this war to benefit over the long term from carrying this exclusive content that it pays full price for? The book does not discuss issues of this nature.

Readers interested in this topic from more of an investor point of view may enjoy Bruce Greenwald's The Curse of the Mogul...I know I did!

For a more extensive history of various media and how they have evolved over time, The Master Switch is also an excellent read.