Tech Firms Should Buy Media Companies Now

Last week, Microsoft CEO Steve Ballmer gave a one word answer, no, to the question of whether his company would buy the New York Times. The answer was as definitive as you can get, but might be as wrong-headed as many other decisions that management there has made over the last few years. But let’s not single out Microsoft. Every tech company — including Google and Yahoo, which are in the media business — have been passing up opportunities to purchase newspapers, television networks, magazines, and book publishers. That’s eventually going to come back to bite them.

That may sound reminiscent of the arguments that must have gone on at AOL and Time Warner before that disaster of a merger happened. But conditions today are different than even a few years ago. Media companies are highly devalued:

• Checking Yahoo Finance today, CBS has a market cap of $2.89 billion versus 2008 total revenue of almost $14 billion. That’s with nearly $420 million in the bank. The combination of total current assets and net property and equipment is about $8.2 billion. So write off all the goodwill and intangibles.
• How about the New York Times, which has been reported to be in a financial jam? Its market cap is about $667 million, maybe because, according to the 2008 10-K, it lost almost $58 million last year and has that big May payment of $400 million coming due. So, figure a price around a billion. And the combination of current assets and net property, plant, and equipment? About $2 billion.
• Let’s look at Time Warner, with a market cap of $29.5 billion and a 2008 loss of $13.4 billion (all of which occurred in the last quarter of the year). Even if you wrote off all goodwill and intangible assets, it would still have assets of $74.5 billion.

That represents four types of media — newspapers, magazines, books, and broadcast — and were literally the examples that first came to my mind when I was thinking of media properties that have been reported as being in various degrees of trouble. In each and every case, the on-hand hard assets far exceed the market values. The market says, “This is only worth X to us,” even when the hard assets far exceed that number.

Is that nuts or what?

Beyond bargain hunting, the tech companies have a more pressing need to have media available on demand. Many live on content. Some, like Facebook, heavily depend on what users have to say to each other … and having content to share. Google thrives in part on repackaging old media, whether posting links to stories on Google News, reproducing books without initial copyright owner permission in Google Books, or having both user-created and popular commercial media clips on YouTube. Microsoft has often said that it sees online advertising as the future. Cisco splits its time between trying to own the data center and wanted to own the home entertainment network, and if that’s not about being connected to content, I can’t think of what is..

The following scenario is hardly difficult to imagine. A tech giant like IBM purchases the Associated Press. Cisco buys the New York Times. Both now turn to Google and say, “If you want to use content, you can pay us.” Or Facebook buys CBS and puts television programming online as well as on broadcast. Or what if Yahoo could ensure that anyone wanted stories from the Washington Post had to use their search engine? Even Google’s approach of using content and only asking permission, or paying, when sued would start to fall apart.

Suddenly, media companies aren’t important for the advertising they already bring in, but for the offensive and defensive strategic possibilities that content, otherwise known as intellectual property, makes available. Most of tech companies have wanted to find ways to make money off content without having to pay, whether wrapping advertising around search engine results or letting users post popular television clips. But eventually you need to ensure your own ready supply of material. Given the current state of the market, you’d think that a lot of companies might want to lock in future access at fire sale prices.

Newspaper image via Flickr user eürodäna, CC 2.0.