Aug
18
Forever Blowing Bubbles
Filed Under Blog, eBook, Industry Analysis, internet, mobile content, online advertising, Publishing, social media, Uncategorized | Leave a Comment
It must be mid-holiday season again. While our minds are elsewhere, journalists are licensed to inflate and selectively invoke evidence of boom and bubble, to the point where we have all lost sight of reality in our wonderment that investor X has valued the start-up Y at $15 billion, before it has earnt a cent or its founders used a razor. Charles Arthur, a very knowledgeable technology journalist, set off down this track on Sunday in The Observer (17 August 2014).”New tech bubble – or new business model?” argues that bubbles may be harmful, but Arthur is too clever to do exactly what the silly season demands and write an article that gets liberal-minded readers pursing their lips and wondering if we really want all this new media technology, and whether bubbles threaten the economy just when the Brits have restored growth through a consumer housing purchase bubble. He knows as well as the rest of us that neither boom nor bubble nor bust accurately describe what has happened since the mid 1990s.
When we look back on the post-internet investment scene we will see that future technology became the bargaining card of present technology. In each five year period those who had succeeded in the previous period were forced to buy into the next generation in order to persuade investors post-IPO that they were not going to be overtaken by events. This inevitably involves paying silly prices for as yet undeveloped assets. Some of those bets will work, others will only work after constant re-iteration and when the market is ready for them. Some will fail and be quietly buried in the place where Mr Murdoch put My Space. But this is not bubble culture – it is building value in the only way that this market understands. This is never going to become “more realistic”, since by its nature it has to be unrealistic to persuade us that it is serious.
But blow away the bubble talk and serious things really are happening. For a start, the UK football (soccer) authorities have suddenly discovered that users are recording highlights (you know, those rare moments when someone actually scores a goal in the beautiful game with the ugly manners) and putting them on social media, where they are passed from hand to hand to no pecuniary advantage to the authorities. These administrators must be related to Rip van Winkle – where have they been dozing all these years? And waking up and saying this must stop is not an answer. On the other hand, making it easier to do legally within a package offered by football to enhance user enjoyment could be a great move. Yet, this is happening in the context of a shrinkage in the revenues generally earned from video, as the same network-invoked sharing capacity does to video what it has done to every media form. I was very excited by an article by Liam Boluk in Media Redefined (http://www.mediaredefined.com/a-redef-original-if-video-is-b-668292818.html?curator=MediaREDEF) kindly drawn to my attention by Neil Blackley. This demonstrates in great detail the revenue decline in video, and shows us the inflationary and deflationary trends we really should be watching. Not who is paying over the odds for what, but what are users doing with this media avalanche that their networks now provide, and how do they value it.
So it is simply not enough to look at the video market and say it is all down to Netflix spoiling the party. Netflix was one of the over-valued start-ups a few years ago that journalists in mid-summer page fillers called empty bubbles. Liam Boluk points out how cheap US TV, wherever you tap into it, now is – and how very unproductive the licensing deals done by Disney et al have proved to be. He might have said how commoditized it now seems – unless you actually want a seamless palimpsest of low value advertising and entertainment, without the effort of selection, most channel based offerings in many parts of the world feel the same. Mr Boluk points out that the average US home spends less on video entertainment today than it did in 1998, although volume consumed has risen. He says that the value of consumer rentals and purchases,”which are critical to profitability for almost all content owners”, have fallen by a third in this period. Are we sure that the bubble is in the pricing of Snapchat, or in the Murdoch bid for Time Warner?
Is there a solution to all of this? Having stood, like old Tiresias, amongst the burning towers of Fleet Street and the regional press, having observed the desperate attempts of the book world to innovate without changing the business model, having watched the humbling and consolidation of the music industry, having witnessed the decay of business and professional media in print and the decline and fall of value in advertising markets universally, it is tempting to say No. But clearly that would be very wrong. Mr Boluk says the way forward for video is to find new ways of telling stories. And to find it in new forms in fields like mobile, and not just by reheating the archive product.
And how right he is. He cites the Virtual Reality player Oculus Rift (http://en.wikipedia.org/wiki/Oculus_Rift) as an example. While no one yet knows whether the Rift headset will succeed, the Facebook purchase, worth up to $2 billion if it earns out, will underline Facebook’s determination to stay a front line player as it too becomes commoditized – and to re-assure its investors of that intent. And VR is one of those many areas where huge promise is recognized, but constant iteration is needed to get closer and closer to the awakening pulse of the user. What we are watching here is a ceaseless beating of waves on a shoreline as a tide comes in, and a hugely exciting “after media” marketplace is revealed. No bubbles here at all.
Jul
26
The Media Investment Game
Filed Under B2B, Big Data, Blog, data analytics, healthcare, Industry Analysis, internet, online advertising, Pearson, Publishing, Reed Elsevier, STM, Thomson, Uncategorized, Workflow | Leave a Comment
The past week demonstrates triumphantly that human ingenuity knows no bounds in finding fresh ways to invest in content and software marketplaces, with appetites apparently undaunted by the many examples available which show how hard it is to get growth in traditional media and how hard it is to get margins in the newer variety. Pearson’s results, despite positive underlying trends and signs of more normal market conditions in the US, failed to set investors alight. The mean machine at Amazon, trying to cope with the margin constriction of online retail while desperately seeking other sources of value add profits in logistics and AWS got a chilly response from markets. And yet, during the week, a number of unrelated deals demonstrated a continuing hunger for media and information marketplace assets that belies the difficulties and provides new exemplars of market reconstruction and consolidation at work.
We are all used of course to the cellular division process employed by McGraw Hill and News Corp to create a Good Bank/Bad Bank division of assets that enables the bit with prospects to be revalued and become a new growth point. This week we could call this the Murdoch Gambit, as Twentieth Century Fox, aka Good Assets, went after Time Warneur while the latter was in process of casting its Bad element, aka Time Inc, overboard. The acres of screenspace devoted to discussing this rather obscured remarkable goings-on in the wholly less glamourous but once far more profitable field of building and construction industry information. A few weeks ago McGraw announced that it was selling its properties in this area, clearly not relishing the build to a workflow-based BIM marketplace, with market players only slowly migrating to towards a new world of data handling. Last week Reed Elsevier went one further, by selling its RS Means building costs division to Warburg Pincus (who own the competitor, Gordian Group) and including 49% of Reed Construction in the deal. This demonstrates two interesting possibilities: Reed really are a portfolio player now, with a clear strategy on the rules of investment engagement and a determination to let others share the risk when retooling and re-investment becomes necessary; and private equity is becoming recognised again as a good place to go for those re-investment activities. Warburg Pincus in particular can point to their years of patient market and service development work at GlobalSpec, now a key element in the IHS positioning at the front of the Engineering information market.
And this was not the only interesting news from Reed Elsevier. For a start, it’s revenues are now 82% “digital”, a figure that only financial analysts seem to care about, long after the rest of us had assumed the figure was 100%! And for a moment midweek we could have been forgiven for thinking we were returning to the “Happy Families” consolidations of the 1990s as Reed (Lexis) sold its Polish law assets to Wolters Kluwer, who with equal solemnity sold their Canadian assets to Lexis. It all made perfect sense. Neither Thomson Reuters or Lexis ever made Germany work, yet WK did. Poland was the same, only smaller. Canada was much more comfortable for Lexis, which had considerable assets there already. One can only wonder why rationalisation sometimes takes so long. Whatever the answer, looking at the assets as a portfolio investment manager and not as a committed investor in certain markets and geographies certainly aids the thought process and clarifies the rules. One of Reed’s mantras in recent years has been reducing reliance on unstable advertising marketplaces. This week’s results indicated that advertising is now down to 2% of gross revenues. Mission accomplished then, since Reed are clearly not interested in the marketing services environments which will succeed old-style advertising, and which created what for me was Deal of the Week: the sale of Bizo to LinkedIn. When we look back for benchmarks of the recognition of marketing services online as a wholly new service concept, then Russell Glass’s company, itself a breakout from ZoomInfo, will be the measure.
So should we expect more weeks like this as the industry vertically restructures and consolidates? Will Wolters Kluwer seek a revaluation of its wonderful health portfolio by floating it separately from the less vibrant business, law and tax divisions. Informa, who recently announced a very logical and much more service-centric structure, could take a similar view, since the relationships between, for example, their academic research and their trade exhibitions businesses are pretty tenuous. My guess however is that the real control here will not be the investment savvy of the suits at head office, but market tolerance and utility. In markets where data availability inside workflow driven models becomes the expectation, and each offering must be content complete in order to compete, there will seldom be more than two competitors. The portfolio investor decision is the oldest on record: stick, or …twist.
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