xfdfw BLOOMBERG-TV-51
<Show: BLOOMBERG TV>
<Date: November 04, 2009>
<Time: 11:43:00>
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<Tran: 110451cb.550>
<Type: SHOW>
<Head: Evercore Senior Managing Director Jonathan Knee on
Bloomberg TV>
<Sect: News; Domestic>
<Byline: Margaret Brennan>
<Guest: Jonathan Knee>
<High: Evercore Senior Managing Director Jonathan Knee on
Bloomberg TV talking about consolidation in the media space>
<Spec: Comcast, NBC, Consolidation, Universal>
EVERCORE SENIOR MANAGING DIRECTOR JONATHAN KNEE ON BLOOMBERG TVNOVEMBER 04, 2009
SPEAKERS: JONATHAN KNEE, SENIOR MD, EVERCORE
MARGARET BRENNAN, BLOOMBERG NEWS
(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)
11:43
MARGARET BRENNAN, BLOOMBERG NEWS: It seems like the markets anticipating it's almost a foregone conclusion that this is going to happen at this point. Is it and is it truly a good idea?
JONATHAN KNEE, SENIOR MD, EVERCORE: Whether a deal is a good idea is a function of three things. One is the price, which everybody has a point of view about this deal. But nobody knows the price.
BRENNAN: Twenty-eight is the number being thrown around.
KNEE: The second is whether it makes operational sense, and the third is whether or not they are going to be able to execute on it. People are throwing out numbers, but without knowing what the price is, it's hard to know. On whether it makes operational sense, there's parts of it that do make sense. Comcast, it is a sub-scale cable channel provider, as well as a big cable operator. And combing those channels with the NBC channels makes sense. Whether putting a studio together with cable operations makes sense is a totally separate question.
BRENNAN: It would seem to be sort of all-in on the cable TV film front when we're talking about a lot of focus needing to be these days on digital as the new horizon for media.
KNEE: I think at the end of the day, if this deal happens, that is not going to be how it's justified. If you look to the movie studios, you look at Universal, the guts of NBC Universal, this company has been passed around from one person to another since the late '80s after having been under the same ownership for 30 years. Each time there was a different theory of how you were going to make it better. The first time, the Japanese bought it on the idea that owning hardware and software would create value. The next theory I guess having a spirits company own it would be good. Then having cable channels in it would be good, then having a TV network would be good. None of those things had any impact on how profitable that business is. It's a hit driven business What determines whether it's profitable is whether or not they have hits. And those don't have any impact on whether or not they're going to have hits.
BRENNAN: Well, in your book The Curse of the Mogul, you look at whether some of these major mergers truly do make sense. In hindsight here you're pointing out some calculations, between '95 and 2005, the major media companies returned an average of only 2.5 percent to shareholders, while the S P returned three times that amount. So when we're talking about consolidation being inevitable, it doesn't sound that rewarding.
KNEE: It's not rewarding and God willing, it won't be inevitable. And indeed, if you look at the last few years, it's going in exactly the opposite direction. Viacom split off CBS, Time Warner split off Time Warner Cable, and will be splitting off AOL. So it feels to me like most media companies are focusing on getting more focused and more directed rather than getting more far-flung. But your point is exactly right. If you look at the biggest deals of time, every one of them demonstrably destroyed value in the media sector. And the one thing that really distinguishes the media sector against others sectors is how much they rely on acquisitions to get their growth.
BRENNAN: And Time Warner, you pointed out, pretty cash-rich, in need of either being acquired or making some sort of move here?
KNEE: I don't know that it's in need of anything. It's a leading cable channel provider and it's spending its time under its new management focusing on things that it's best at it, and getting out of things that really don't bring any value to their core franchise and which make managing the whole far flung enterprise much more difficult. The CFO was on a panel with me a couple of days ago and he said with respect to M A, sometimes abstinence is the best policy.
BRENNAN: What are some of these companies going to look like in another ten years? Are we going to be even characterizing them truly as media? Or are we going be characterizing them as tech empires?
KNEE: No, I think they'll be media companies. I mean, media isn't going away. In fact, people are consuming more media, not less media. Hopefully what you will see is a lot more focused companies. Right now the biggest companies are in a dozen different business that bring nothing to each other. Each of them are facing very dramatic threats and it's really hard to manage a dozen unrelated businesses all facing significant threats. If those industries rationalize, if those companies focus, that will be a better thing. If you take a very successful media company, Discovery Communications, that stock has actually outperformed the market. Margins have increased during this entire period. And the reason why is they do one thing and they do it really well, cable channels.
BRENNAN: So that would sound like consolidation is one of the worst things, then. If you're saying it's got to be a singular purpose or singular focus, is the key to success.
KNEE: It's not consolidation in the abstract. I think you're going to need to see some de-consolidation, that is get rid of the far flung nature of the empires, but then within the sector that is your expertise, it does make sense to rationalize and consolidate and make acquisitions. But acquisitions in space is where you already are and where you're rationalizing the industry structure, and where the synergies are clear and are mostly on the cost side, not the revenue side.
BRENNAN: And you charge for that content?
KNEE: Everybody - well, it all depends on the content, but absolutely. Certainly in the cable business you charge for content. And in the vast majority of businesses, you charge for the content.
BRENNAN: Thank you so much, Jonathan Knee, for the perspective.
11:49
END OF TRANSCRIPT
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