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Jonathan Knee, Co-Author, The Curse of the Mogul: What's Wrong with the World's Leading Media Companies; Senior Managing Director, Evercore

Jonathan Knee, Co-Author, The Curse of the Mogul: What's Wrong with the World's Leading Media Companies; Senior Managing Director, Evercore

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  • 1. Curse of the MogulSIIA Information Industry SummitJanuary 2011
  • 2. What makes media different? 1
  • 3. Consistently Bad Returns…For a Generation 12/31/10 - 12/31/10 12/31/99 - 12/31/09 12/31/98 - 12/31/08 12/31/97 - 12/31/07 Disney 3.7% Disney 1.7% Disney (1.2%) News Corp. 7.6% News Corp. 0.4% News Corp. (1.3%) News Corp. (2.0%) Viacom 5.6% Time Warner (1.5%) Time Warner (5.6%) Viacom (9.1%) Disney 0.6% Viacom (4.2%) Viacom (9.0%) Time Warner (15.7%) Time Warner (5.5%) Average (0.4%) Average (3.5%) Average (7.0%) Average 2.1% S&P 1.4% S&P (0.9%) S&P (1.4%) S&P 5.9% 12/31/96 - 12/31/06 12/31/95 - 12/31/05 12/31/94 - 12/31/04 12/31/93 - 12/31/03 12/31/92 - 12/31/02 News Corp. 9.4% News Corp. 5.0% News Corp. 10.6% Viacom 7.3% Viacom 7.1% Viacom 7.7% Viacom 3.3% Disney 6.7% Disney 5.8% Disney 2.5% Disney 5.0% Disney 2.6% Viacom 6.0% News Corp. 1.7% News Corp. 1.4% Time Warner 1.9% Time Warner (0.7%) Time Warner 1.0% Time Warner (1.9%) Time Warner (0.8%) Average 6.0% Average 2.5% Average 6.1% Average 3.2% Average 2.5% S&P 8.2% S&P 9.0% S&P 11.8% S&P 10.8% S&P 9.3% 12/31/91 - 12/31/01 12/31/90 - 12/31/00 12/31/89 - 12/31/99 12/31/88 - 12/31/98 12/31/87 - 12/31/97 Time Warner 11.4% News Corp. 21.9% Time Warner 16.6% Disney 18.7% Disney 20.5% Viacom 10.1% Time Warner 17.1% Viacom 15.4% Viacom 16.9% Viacom 16.4% News Corp. 8.9% Viacom 14.6% Disney 12.1% Time Warner 16.7% Time Warner 11.5% Disney 8.7% Disney 13.5% News Corp. 11.8% News Corp. 11.8% News Corp. 9.3% Average 9.8% Average 16.8% Average 14.0% Average 16.0% Average 14.4% S&P 12.3% S&P 16.3% S&P 16.6% S&P 17.5% S&P 16.3%Note: Total shareholder returns include capital gains and dividends. 2
  • 4. Media Conventional Wisdom… Growth is good Global is great Content is king Convergence creates opportunity 3
  • 5. Growth and Returns Analysis (1995-2005) R2 = 0.709 18.0% 17.0% 16.0% 14.0% 12.0% 10.1% 9.8% 10.0% 7.5% 8.0% 6.0% 5.0% 4.0% 3.3% 2.6% 2.0% 0.0% TWX NWS DIS VIA (2.0%) (0.7%) Revenue Growth Total Shareholder Returns 4
  • 6. Basic Structure of Strategic Analysis Are there Barriers to Entry? No Yes Level playing field You Alone? Many competitors Efficiency, efficiency No Yes Competition Among the Few Exploit, reinforce vs. Cooperation Among the Few competitive advantage 5
  • 7. True Competitive Advantages Sources of Advantage Tests to Assess Economies of scale Profitability = earning returns on capital – Fixed cost in excess of cost of capital – Network effects Share stability Revenue = Customer captivity – Habit – Switching costs – Search cost Cost – Proprietary technology – Learning – Access to resources Government regulation 6
  • 8. Sham Competitive Advantages for the Media Industry Alleged Advantage Tests to Assess Deep Pockets Good table at Spago Brands Invited to Sun Valley Talent First Mover 7
  • 9. Brands as Competitive Advantage Superior Profitability and Share Stability? Yes No Automotive Harley Davidson Mixed Cadillac Mercedes Benz Consumer Products Budweiser Mixed Coca-Cola Colgate Tide Marlboro Financial Services Wells Fargo JP Morgan Chase Citibank Retail Wal-Mart Gap Liz Claiborne Technology/Electronics Intel Dell HP Motorola Sony (RCA) Telecom AT&T Cingular Sprint Verizon Other Industries Insurance Cosmetics 8
  • 10. Strategic Approaches – First Moves Advantages? First Mover Dominant CompetitorMainframes UNIVAC IBMPC Apple Dell, CompaqOperating Systems CP/M MicrosoftSpreadsheets Visicalc MicrosoftPortals Prodigy Yahoo!Search Engines Inktomi, AltaVista GoogleTV Networks NBC CBS, NBC, CBS, FoxAirlines PanAm, TWA noneCellphones Motorola NokiaAutomobiles Ford noneOnline Auctions Ebay EbayVCRs Betamax VHS 9
  • 11. Information Conglomerates Have Outperformed the Media Conglomerates ― But Not by Enough to be Proud Last 10 Years - as of 12/31/10 Last 10 Years - as of 12/31/10McGraw-Hill 3.5% Disney 3.7%Thomson 1.9% News Corp. 0.4%Reed Elsevier 0.4% Time Warner (1.5%)Wolters Kluwer 0.0% Viacom (4.2%)Pearson (1.6%)Information Conglom. Average 0.9% Media Conglom. Average (0.4%)S&P 1.4% S&P 1.4% 10
  • 12. Information Conglomerates Ignored the Lessons of Dun & Bradstreet DNB Corp. (Old) AC Nielsen Cognizant DNB (New)/ Moodys Nielsen Media IMS Health RH Donnelly Gartner Synavant DNB (current) Cognizant Tech. Solutions Cumulative Dividends $250.00 $227.83 Original Dun & Bradstreet Share Cumulative Value of One $200.00 $183.44 $150.00 $130.48 $132.85 $136.49 $126.01 $118.59 $100.00 $87.29 $58.63 $64.34 $50.00 $0.00 3 Months Prior 1996 1997 1998 1999 2000 2001 2002 2003 2004 to Announcement Date Total Return 9.7% 48.9% 122.6% 102.3% 126.6% 132.8% 114.9% 212.9% 288.6% S&P Total Return 30.3% 72.6% 120.1% 164.6% 142.4% 116.2% 73.7% 117.5% 139.1% 11
  • 13. Six Principles for the Good Mogul1. Dare To Dream2. Keep It Local, Keep It Focused3. Efficiency Is Cool4. Don’t Be Such A Big Shot5. Watch Your Back6. There Is Much To Be Said For Dying With Dignity 12