FYI | Nov 08 2006
Australians might be forgiven for thinking that their country is the only one facing further media concentration. However, the trend is global and probably unstoppable.
Europe, for instance, is currently in the midst of a media merger and acquisition frenzy of its own. So far it has been a parade of “rumours but no substance” or at best several cases of “nearly there, but something came in between”.
It is not easy to achieve anything on the old continent that requires crossing borders. Different legislations and different tax laws are often too much to overcome. When it comes to media there’s more than a fair amount of nationalism and politics involved as well. Following on from press reports Italy’s Mediaset might be interested in acquiring German’s Pro 7, one media analyst commented subtly “the practicality of a Berlusconi-owned company bidding for a major German media empire would likely be too difficult”.
In other words: Europe is still Europe. But European media conglomerates are far from immune to the changes in industry dynamics that are rapidly sweeping throughout the global industry. Sure, in some Asian countries newspapers are still increasing their stronghold amidst local news consumers, but Europe is a very mature media market where cable television, mobile telephony and the internet already have taken a big slice of the total market. That trend is irreversible irrespective of whether local politicians like it or not.
This also explains why we haven’t heard or read much about private equity providers and foreign media companies sniffing around in the Australian media landscape – apart from the usual players who already have a presence in the Oz market. If I were KKR I would investigate first whether I could do a deal with Vivendi before I’d ship any more resources to Australia as well.
Apparently, KKR is finding it near impossible to construct a deal that would allow them to take Vivendi private without being skinned by the French tax office in the process. They may now turn their focus to the likes of ITV in the UK, Emap in France or Endemol in the Netherlands (the ones that gave the world Big Brother). Who knows, after all these options have proven to be too difficult, Australia may still be on the cards.
Look through all the humbug and what is left is one clear force that is driving this industry turmoil: the internet. Hailed as the new revolution in the nineties, and as the ultimate failure in the early years of the new millennium, the internet has made a comeback full of strength and entrepreneurship over the past two-three years that is now forcing traditional media to pay attention.
I am not telling anyone anything new here. Online advertising in Australia is growing at near 60% and its share of the total advertising pie is expected to overtake radio and magazines over the next few months. Internet will soon be the third largest channel of commercial advertising in the country. Who’d have thought only a few years ago?
And that’s just a tip of the iceberg of the revolution the internet will bring to our world.
I didn’t mention in my opening paragraphs some Europeans believe the large media diversity throughout the continent acts as a barrier against developing a more homogenised single European culture. They have, of course, turned to the internet to achieve their goal.
Visitors to a site like www.cafebabel.com can choose seven European languages to read and communicate with others, including Catalan the official language in the Spanish Catalonia region. (Wikipedia tells me Catalan is also the national language of Andorra and co-official in the Spanish autonomous communities of the Balearic Islands).
The potential to build homogenous communities via the internet has already been recognised by global media tycoon Rupert Murdoch. His News Corp (NWS) is -as usual- at the forefront of where the global industry is heading. When News Corp paid US$550m for MySpace owner Intermix Media, now seventeen months ago, the response from the rest of the world, and the media, consisted of nothing but skepticism and disbelief.
It is my prediction that the general view will change in only a few years from now to: Rupert got himself a bargain last year . Watch News Corp taking seven mile leaps into tomorrow’s future as the MySpace formula will be rolled out and translated into local markets across the globe. Mind you, this is happening while most of Rupert’s competitors are wasting time in further consolidating old media assets.
I don’t believe for two milliseconds that News Corp bought a stake in John Fairfax (JFX) last month to launch a full takeover bid for the company. But if someone wants to bid for the Fairfax flagship newspapers or magazines, I suspect Rupert will send his delegates to the gate with the message that he would like to have a piece of Fairfax Digital.
Throughout this process, owners of internet portals, websites and web-related channels should not get too excited about the value of their assets though. Unless the reach of these assets is of a significant size. This is one of the conclusions the founders of MySpace had made correctly: tomorrow’s internet emperors are not so much interested in content as well as in reach, scalability and connectivity to up-scalable advertising models.
I find it telling, for instance, that since News Corp has launched an Australian version of MySpace I have been receiving several spam emails that seemed to have only one goal: that I visit the service and sign up for my own account (as I cannot get otherwise in contact with the person emailing me).
We should all know by now that MySpace was the creation of some persevering net-marketeers who had tried mailing campaigns, referrals, spam, opt-in, spyware, trojans,… everything they could possibly think of to get hold of people’s details and on sell them to advertisers. It wasn’t until they copied the concept of the social community and linked it to music bands in the US that their latest duckling turned into a golden goose.
I must admit, until recently I thought getting set to become one of tomorrow’s leaders on the internet was all about setting up wide reaching channels that could pump out and deliver messages and promos by commercial advertisers. MySpace certainly fits into this mould.
However, that was before I read an analysis by Mark Anderson of Strategic News Services (SNS), sent to me by our friends at GaveKal in Hong Kong. Just as an introduction, GaveKal says SNS is “read by the top managers at companies such as Intel, Microsoft, Dell, HP, Cisco, Sun, Google, Yahoo!, Ericsson, Telstra and China Mobile, as well as by leading financial analysts at the world’s top investment banks and venture capital funds”.
According to Anderson, the new game on the internet is all about gathering information about the people that use your services. Amazon knows exactly who buys what. (Anderson suggests we would all be amazed about how much information Amazon has about its clients). What about Google matching ads with the contents of our emails in gmail?
MySpace fits this mould as well.
It is my view that the world is about to become a much scarier place. Be alert and very much concerned.
Till next week!
Your “I thought I’d share my concerns with you this week” editor,
Rudi Filapek-Vandyck
(supported by the Fabulous Greg, Terry and Chris)