Under New Ownership: Big Media Companies See Opportunity

Over the course of one frenetic week this summer, two major media companies-the Academy Award-winning art-house film production company Miramax and the venerable 77-year-old weekly news magazine Newsweek were sold off to wealthy investors by their longtime parent companies. Before the dust had settled, the bookselling giant Barnes & Noble (B&N) announced that it too was looking for a prospective buyer.
The timing of these announcements can probably be chalked up to coincidence. And while there were a lot of peripheral factors at play in each case, digital content blogger and Outsell analyst Ken Doctor does see a common thread.

"All of this upheaval is about the revaluing of content," Doctor says. "Whether it was movies, books-in-print, or news-in-print, we used to think that value was eternal. But the valuing of old and new content is up in the air, and that is what's driving these deals."

Miramax's primary asset is its library of more than 700 films, including Oscar winners Shakespeare in Love and No Country for Old Men. But however prestigious Miramax's catalog may be, the inherent value in films that have already been released in theaters has traditionally been found in DVD sales, which are no longer the blockbuster revenue stream they once were.

The decline of the DVD has been charted in the entertainment business press over the past several years. In July 2009, The Times of London quoted Disney CEO Robert Iger as saying, "We have been taking a hard look at this business for a while with the belief that as choice grows, consumers will simply be more selective about what they buy."

More and more, consumers are turning to new, online sources to facilitate their home viewing. The online DVD rental service Netflix has begun to displace brick-and-mortar video stores-and its new and growing video streaming services dispense with DVDs entirely. When construction magnate Ron Tutor and his fellow investors complete their purchase of Miramax, they'll have to tap into these modern digital distribution channels if they want to see a return on their investment.

Newsweek's sterling reputation and long history seemed to be at the forefront of wealthy businessman Sidney Harman's mind when he purchased the magazine, in what looked and sounded almost like a philanthropic gesture.

Doctor believes that Harman and Newsweek have their work cut out for them. "Newsweek has suffered from the same malaise as most traditional publications," he says. "But Newsweek has specifically failed in one major way: It never developed a digital identity."

In essence, Doctor says, Newsweek needs to start by playing catch-up. Because its online presence is weak, the company will need to establish itself as an online source for news and information. Only then can it begin to think about its future-one which may dispense with ink and paper altogether.

"The future of magazines is on the tablet, not in print," Doctor says.

The future of e-readers is being hashed out, in part, between Amazon's Kindle and Barnes & Noble's nook. But the battle could be neutralized if, as more than one-third of readers polled on TheStreet.com believe, Amazon will be the buyer B&N is looking for.

But billionaire investor Ron Burkle, who is interested in B&N, seems to think that the company shouldn't wave the white flag over its e-reader-or, for that matter, it's land-based retail model-just yet.

Writing on GuruFocus.com, Geoff Gannon deconstructs everything that has been written on Burkle's interest in B&N. He concludes that the grocery store mogul sees real vitality, and value, in the bookseller. "Burkle seemed to be proposing that a company like HP should be given the chance to use some of Barnes & Noble's in-store retail space," Gannon writes.

"Personally, I think the idea of teaming up with a consumer electronics company makes a lot of sense," he writes. "I don't have much faith in the ability of a book retailer to develop multiple generations of an e-book reader without wasting tons of cash in expensive investments and missteps. Trying to get some other company, who happens to know a lot more about hardware than you do, to bear the burden makes sense."

It remains to be seen whether Burkle, Amazon, a third party, or anyone at all will make B&N the third big media purchase of the year. But Burkle's brand of innovative, digital content-oriented thinking may be just what B&N, and any other struggling media company, needs in order to flourish in the brave new media landscape.
Newsweek, Miramax, and Barnes & Noble did not respond to press inquiries in time for press.

(www.newsweek.com; www.miramax.com; www.barnesandnoble.com)