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Conglomerates and Integration – How Big Is Too Big? Gigi Johnson Communication Studies 197C Media Madness? August 16, 2004.

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Presentation on theme: "Conglomerates and Integration – How Big Is Too Big? Gigi Johnson Communication Studies 197C Media Madness? August 16, 2004."— Presentation transcript:

1 Conglomerates and Integration – How Big Is Too Big? Gigi Johnson Communication Studies 197C Media Madness? August 16, 2004

2 Communication Studies 197C Summer 2004 Types of Media Business Models Experience (live) Rental/Subscription – multiple viewings, limited period of time Purchase – physical good – infinite viewings, 1 medium Purchase – digital good – infinite viewings, all media in format Syndication (B2B/business-to-business)

3 Communication Studies 197C Summer 2004 Different Attributes for Different Products LocationTime Shiftin g Multipl e Use Multipl e Media Example VenueNone1NoTheater, sporting event, concerts VenueYes1NoTheatrical movies HomeNone1NoHistorical TV HomeNone1NoRadio HomeYesSomeNoRental Home Video/DVD HomeYes1NoMovielink HomeYes NoPurchase DVD; Home- recorded DVR; books, newspapers AnyYes Downloaded Digital Music and Video Interactivity? Editability?

4 Communication Studies 197C Summer 2004 Asset Types Library Assets – residual value, low cost per additional copy; cash flow support most debt structures Licensing – (e.g. Classic Media, Marvel, Jim Henson?) – low COGS Production Assets Distribution Assets Real Estate – historical cushion for historical downturns New Assets – highest risk/reward

5 Communication Studies 197C Summer 2004 What Are Media Companies Made Of? TangibleIntangible Production facilities: studio lotRights: Library; copyrights on books and newspaper stories; options, screenplays, music Real Estate (land, offices, theme parks)Client/subscriber lists Transmission facilitiesFCC Licenses with FCC Station facilitiesFranchise Agreements w/ local governments Set-top boxes in homesOutput Deals with Distributors Coaxial Cable & FiberLeases & Credit Facilities with Banks Satellites“Relationships” Distribution and sales officesUnused Leverage – Debt capacity

6 Communication Studies 197C Summer 2004 Regulation: Key Business Drivers The Consent Decree of 1948 -- the "Paramount Case“ – and the resulting breakup of the “studio system” Financial Interest and Syndication FCC ruling in 1970 (aka “FinSyn”) United States Supreme Court ruling in Universal City Studios et al. (including Disney) vs. Sony Corp. in 1984 – the “Betamax Case” 1996 US Telecommunications Act results in billions of dollars of broadcast properties changing hands

7 Communication Studies 197C Summer 2004 U.S. Strong, But Local Power Abounds Source: Public Filings

8 Communication Studies 197C Summer 2004 …and Abounds Source: Public Filings

9 Communication Studies 197C Summer 2004 Common Elements? Local Dominance in Other Media International heritages in publishing, then radio, TV, new media Lower risk cash flows to redeploy and lever with new media to diversify For all -- need for local partners, JV’s, local contracts

10 Communication Studies 197C Summer 2004 How Did Media Corps Get So Big? FinSyn (started in late 1960’s) repealed in 1995 Deregulation/removal of ownership caps Appetites of public capital markets

11 Communication Studies 197C Summer 2004 FinSyn Continued… Fox bought Chris-Craft stations for $4.4 billion, giving it 41% coverage and ownership in UPN FCC “ignored” the 35% coverage cap after this deal NBC was the only network without a major studio connection – until they closed the Universal transaction Repeal of FinSyn means production companies often compete with their own clients Telepictures must sell to NBC stations and competes with product from NBC Studios Also run into “self-dealing,” like X-Files on FX

12 Communication Studies 197C Summer 2004 FinSyn Impacts Led to formation of UPN (1992) and WB (1994) Disney bought Cap Cities/ABC for $19 B in 1995 CBS acquired King World in 1999 for $2.5 B, then merged with Paramount in a $36 B deal Viacom spun off in 1971 as syndication arm of CBS; ended up buying CBS in 1999 for $50 billion, Paramount in 1994; owns MTV, VH1, Nick, Spike, etc…

13 Communication Studies 197C Summer 2004 How Did Media Corps Get So Big? Station ownership cap continually relaxed (currently at 35%, FCC proposal just defeated by the courts would change cap to 45%) – huge fight over this right now Other rules up for discussion: Newspaper/TV cross ownership TV duopoly rules (only permitted when 8 other stations remain; only 1 station can be among top 4 rated)

14 Communication Studies 197C Summer 2004 U.S. “Banks/Libraries” -- Content Companies

15 Communication Studies 197C Summer 2004 Sony Pictures

16 Communication Studies 197C Summer 2004 Columbia Pictures 1920 -- Harry Cohn founds CBC Pictures 1924 -- CBC renamed Columbia Studios 1951 -- Columbia Pictures establishes Screen Gems television program subsidiary 1982 -- Tri-Star Pictures formed by CBS Television, HBO and Columbia Pictures 1982 -- Coca-Cola buys Columbia Pictures 1987 -- Columbia Pictures merges with Tri-Star Pictures under the ownership of Coca-Cola

17 Communication Studies 197C Summer 2004 Sony’s Attempts for New Media 1975 -- Sony launches Betamax VCR 1982 -- CD hardware and software launched by Sony and Philips 1988 -- Sony buys CBS Records' global business for $2bn 1989 -- Sony Corp. buys Columbia Pictures and Tri-Star Pictures from Coca-Cola for US$3.4bn 1989 -- Sony buys Loews cinema chain 1992 -- Sony launches Mini Disc 1997 -- Sony/Loews cinema chain merges with ailing Cineplex Odeon 2001 -- Loews Cineplex (inc Sony-Loews) acquired by Onex and Oaktree Capital Management after financial crisis 2004 – Sony Music merges with BMG Music; Sony makes $5bn offer for MGM with Providence Equity Partners, Texas Pacific Group and Credit Suisse First Boston – why?

18 Communication Studies 197C Summer 2004 Viacom

19 Communication Studies 197C Summer 2004 Paramount Pictures 1912 -- co-founder Adolph Zukor started his Famous Players Company in New York 1913 -- Cecil B. DeMille, Jesse L. Lasky, and Sam Goldfish (later Goldwyn) started the Jesse L. Lasky Studios in Hollywood 1914 March The Squaw Man released 1914 -- Paramount Pictures Distribution Co. was formed W. W. Hodgkinson 1916 -- Firms merge as Famous Players-Lasky Co., then bought Paramount 1928 -- Wings received the very first Academy Award® for Best Picture

20 Communication Studies 197C Summer 2004 The Consent Decree and G+W 1940 -- Paramount puts first TV station on the air in Chicago 1949 -- US Department of Justice forces Paramount and other studios to spin off their cinema operations. United Paramount Theatres is established (later buys ABC television network) 1966 -- Gulf+Western conglomerate buys Paramount 1989 -- G+W was renamed Paramount Communications Inc. 1993 -- Paramount and Chris-Craft Industries announce plans to launch new broadcast network 1993 -- Paramount Publishing announces plans to acquire Macmillan Publishing Company USA 1994 -- Paramount merges with Viacom – an US$8.4bn deal

21 Communication Studies 197C Summer 2004 Viacom 1971 -- Viacom formed when FCC rules force CBS to spin off some of its cable TV and program-syndication operations; Viacom buys TV & radio stations through 1970’s and early 1980’s 1978 -- co-founds pay-TV network Showtime. Viacom 1982 -- becomes full owner of Showtime 1983 -- combines Showtime with The Movie Channel to form Showtime Networks 1986 -- buys MTV Networks in 1986

22 Communication Studies 197C Summer 2004 Viacom and Redstone 1954 -- Sumner Redstone gains control of National Amusements Inc (NAI), builds multinational cinema group 1987 -- NAI LBO’s 83% majority interest in Viacom in a bidding war with Carl Icahn and management 1993 -- Blockbuster invests US$600m in Viacom, telecommunications group NYNEX invests US$1.2bn 1994 -- Showtime Networks and Castle Rock Entertainment enter into multi-year, 50-picture exclusive output deal 1994 -- Blockbuster invests US$1.25bn in Viacom, which then buys Blockbuster for US$8.4bn 1994 -- Viacom and Paramount announce US$8.4bn merger after Viacom wins bidding war with USA Networks/QVC

23 Communication Studies 197C Summer 2004 Viacom: Buyer and Seller 1994 -- sells its 33% of Lifetime Television to Hearst Corporation and Capital Cities/ABC (subsequently acquired by Disney) 1994 -- sells Madison Square Garden for US$1.075bn 1995 -- spins off its cable systems to Tele-Communications (TCI) 1996 -- announces it will exercise its option for 50% ownership interest in UPN 1997 -- equity in Spelling increased to 80% 1997 -- sells interest in USA Networks to Seagram 1997 -- CinAmerica Theaters joint venture of Viacom and Time Warner sold to WestStar Holdings 1997 -- sale of educational, professional and reference publishing businesses to Pearson for US$4.6bn, with Viacom retaining the consumer operations (including the Simon & Schuster name) 1999 -- Viacom buys CBS for US$50bn

24 Communication Studies 197C Summer 2004 Walt Disney Company

25 Communication Studies 197C Summer 2004 Disney: 1928-1940 – Animation Roots 1928 -- Iwerks modifies Disney's "Oswald The Lucky Rabbit" character, turning it into Mickey Mouse 1928 -- first silent film featuring the Mouse premieres 1930 -- Disney buys Iwerks' 20% share of company for US$2,920 1934 -- Three Little Pigs wins Academy Award 1937 -- Disney's first full-length animated feature film Snow White & the Seven Dwarfs premieres at cost of US$1.5 million 1940 -- Walt Disney Productions goes public to repay US$4.5 million in debt

26 Communication Studies 197C Summer 2004 Disney: 1950-1960 – Beyond Animation 1950 -- first Disney TV special One Hour in Wonderland airs on NBC 1952 -- Walt Disney develops ideas for a "family park" to be called Disneyland 1953 -- Disney establishes Buena Vista Distribution Company as Disney's film distributor 1954 -- ABC invests US$500 000 in cash, guarantees all WED bank loans and gets 35% ownership of Disneyland (with all profits from park's food concessions for 10 years 1954 -- Disneyland show on ABC network 1955 -- Disneyland opens in Anaheim; 1 million visitors within 6 months 1955 -- Mickey Mouse Club, Disney's second TV show, is launched 1960 -- Disney buys ABC's one-third interest in Disneyland for US$7.5 million and pay off all loans 1966 -- Walt Disney died (frozen?)

27 Communication Studies 197C Summer 2004 Disney: 1980-2004 – Further Expansions 1983 -- Disney Channel; Tokyo Disneyland – licensed 1984 -- Michael Eisner, from Paramount, became CEO of Disney after failed takeover bid for company by Bass Bros.; First Touchstone release 1986 -- Capital Cities Communications buys ABC network for US$3.5 billion to create Capital Cities-ABC 1987 -- first Disney Store opens 1990 -- first Hollywood Pictures release 1992 -- Disneyland Paris opens 1993 -- buys Miramax for US$80m

28 Communication Studies 197C Summer 2004 Disney: 1994-2004 -- Frustration 1994 -- Frank Wells (COO) dies 1994 -- Jeffrey Katzenberg leaves, starting Dreamworks with Steven Spielberg (famed film director/producer) and David Geffen (recording industry maven) 1995 -- Pixar relationship pays off with Toy Story release; Pixar goes public 1995 -- Disney buys Capital Cities-ABC for US$19bn 2001 -- buys Fox Family Worldwide from Murdoch and Saban for US$5.3bn 2003 -- sells Anaheim Angels for US$180m ($240m invested) 2004 -- Pixar ends relationship after 2005 2004 -- Comcast makes unsuccessful US$54bn hostile takeover bid for Disney

29 Communication Studies 197C Summer 2004 Time Warner

30 Communication Studies 197C Summer 2004 Time Warner 1907 -- four Warner brothers establish film distribution business and move into production 1918 – the brothers open their first West Coast Studio on Sunset Boulevard 1925 -- Warner establish Vitaphone Co., begin experimental sound pictures at Warner Vitagraph studio in Brooklyn 1926 – Warner’s Don Juan, starring John Barrymore, features music but no spoken dialogue 1927 -- Warner moves Vitaphone to Hollywood, release Al Jolson's The Jazz Singer

31 Communication Studies 197C Summer 2004 Time Warner: Warner Bros. 1935-1950 1935 -- first Porky Pig cartoon from Warners animation unit 1940 -- Bugs Bunny introduced by Warners 1944 -- Court ruling that Warners must release Olivia de Havilland after 7 year contract – beginning of end of “Studio System” 1948 -- much of Warner’s film library sold to MGM 1949 -- Warner ordered to divest cinemas; sells chain in 1951 to Mann Theaters

32 Communication Studies 197C Summer 2004 Warner Frustration: 1958-1970 1958 -- Warner Bros. Records founded, later renamed WEA 1963 -- Warner closes animation unit 1963 -- Warner buys ailing Reprise records (Sinatra) 1967 -- Jack Warner sells his stake in Warners to Seven Arts 1967 -- Atlantic records bought by Warner-Seven Arts 1969 -- Warner-Seven Arts acquired by Kinney National (Steve Ross) and becomes Warner Communications

33 Communication Studies 197C Summer 2004 Time Warner/AOL/Turner 1980 -- CNN founded by Ted Turner 1986 – got back into theater business with Paramount, buying CinAmerica (Mann & Festival Theaters); sold out in 1997; 1988 -- Turner founded TNT, a movie channel 1989 -- Time Warner created with Time's acquisition of Warner Communications 1992 -- Turner founded Cartoon Network 1996 -- Time Warner takes over Turner Broadcasting System 2000 -- AOL “merges with” Time Warner 2003 -- 'AOL' dropped from AOL Time Warner corporate name 2003 -- Warner Music arm sold to consortium led by Edgar Bronfman (former head of Universal) in Nov. for US$2.6bn 2004 – Time Warner makes $4.7-$4.8 billion offer for MGM

34 Communication Studies 197C Summer 2004 News Corporation (Australia)

35 Communication Studies 197C Summer 2004 Fox 1904 -- William Fox (clothes dealer) forms Greater New York Film Rental Company 1916 -- William Fox starts film production in Los Angeles 1930 -- Fox loses firm in $18 million to bankruptcy to his banks 1935 -- Merges with Twentieth Century Pictures Company (founded in 1933 by Darryl Zanuck) 1936 -- Fox tries to bribe the bankruptcy judge and goes to prison 1963 -- much-heralded Joseph L. Mankiewicz film Cleopatra was a disaster and cost a record $44 million. Fox was saved from financial disaster only by the release of the fact-based war epic The Longest Day (1963) and the unexpected success of The Sound of Music (1965).

36 Communication Studies 197C Summer 2004 News Corp – 1980’s expansion 1985 -- News Corp buys TCF Holdings (parent company of Twentieth Century Fox Film) 1985 -- buys seven US television stations from Metromedia for US$2bn to form Fox Television 1985 -- Murdoch becomes US citizen in line with regulations barring foreign ownership of television stations 1986 -- launches Fox television network in US 1987 -- buys Harper & Row, later merged with William Collins as HarperCollins 1988 -- buys Triangle Publications, which includes TV Guide, from Walter Annenberg for US$3bn 1989 -- launch of Sky Television - reaches million viewers within year 1989 -- The Simpsons premieres on Fox Television Network 1990 -- BSkyB formed through merger of Sky Television and British Satellite Broadcasting

37 Communication Studies 197C Summer 2004 News Corp – Regrouping 1990 -- News Corp nearly goes bankrupt with over US$6bn in debt on three continents 1991 -- sells most US magazines - including New York, Seventeen, Soap Opera Digest, Soap Opera Weekly, Seventeen, Automobile, New Woman, Premiere and Daily Racing Form - to Primedia 1992 -- family's stake in News reduced from 43% to 35% 1993 -- pays US$525m for 63.6% stake in Hong Kong-based satellite broadcaster Star TV

38 Communication Studies 197C Summer 2004 News Corp. – Expansion Continues 1993 -- pays $1.6bn for rights to broadcast US pro football on Fox 1994 -- agrees to pay US$500m to New World Communications Group for affiliate agreements from its 12 current network affiliates, takes 20% stake 1994 -- BSkyB floated with value of £4.5bn 1996 -- sells HarperCollins US education interests to Pearson for US$580mPearson 1997 -- buys Heritage Media coupon insert business for US$1.4bn 1997 -- buys remaining 80% of New World Communications (10 US television stations) for US$2.5bn 1997 -- buys LA Dodgers baseball team for US$350m

39 Communication Studies 197C Summer 2004 News Corp – It Keeps Growing 1997 -- agrees to buy International Family Entertainment cable network (renamed Fox Family Worldwide) for US$1.9bn 1998 -- sells Heritage’s radio and television broadcast properties to Sinclair for US$630m 1998 -- floats 18% of Fox Entertainment Group 2000 -- buys Chris-Craft Industries, BHC Communications and United Television (10 television stations) for US$5.35bn 2001 -- sells 49.5% stake in Fox Family Worldwide to Disney for US$5.3bn 2003 -- buys 34% controlling stake in Hughes Electronics (satellite broadcaster DirectTV) for US$6.6bn

40 Communication Studies 197C Summer 2004 20 th Century Fox Production -- Today Units Twentieth Century Fox: 10+ films per year Fox 2000: 6-8 films per year Fox Searchlight: 8-10 films per year New Regency: 2-4 co-financed films Partners/Key Distribution MGM: 5+ films per year Lucasfilm: 2 films over four years New Regency: 3-4 films per year

41 Communication Studies 197C Summer 2004 NBC Universal

42 Communication Studies 197C Summer 2004 MCA/Universal: Monster Movies & Music 1906 -- Carl Laemmle started in nickelodeons in 1906 after migrating from Bavaria 1909 -- with support from several minor studios opposed to the Edison monopoly, he established the Independent Moving Picture Company of America (IMP) 1912 -- Universal Film Manufacturing Co formed in New York by, later becomes Universal Pictures 1946 -- Universal Pictures merges with independent production company International Pictures to become Universal International 1952 -- Universal International is sold to Decca Records 1957 -- MCA buys Paramount's pre-1948 film library for US$50m 1958 -- MCA buys Universal's 750 acre back lot for US$11m 1962 -- Decca sells Universal to MCA 1975 -- Spielberg's Jaws – first Blockbuster 1986 -- MCA buys 42% stake in Cineplex Odeon cinema chain

43 Communication Studies 197C Summer 2004 Universal to NBC Universal: 1990-2004 1990 -- Matsushita buys MCA for US$6.1bn 1990 -- MCA buys Geffen records 1993 -- Polygram buys Motown records 1995 -- Seagram sells Du Pont stake, buys MCA from Matsushita for US$5.7bn and renames it Universal Studios 1997 -- Seagram buys remaining 50% of USA network from Viacom for US$1.7bn 2000 -- Vivendi buys Seagram for US$34bn, becomes Vivendi Universal 2003 -- Vivendi combines US film studios, theme parks and cable tv channels with NBC to form NBC Universal

44 Communication Studies 197C Summer 2004 Metro-Goldwyn-Meyer

45 Communication Studies 197C Summer 2004 MGM 1919 -- United Artists formed by Charlie Chaplin, D.W. Griffith, Mary Pickford, Douglas Fairbanks 1924 -- Merger -- Metro Picture Corporation (1915), Goldwyn Picture Corporation (1917), and Louis B. Mayer Pictures (1918) 1929 -- attempted to sell the properties to Fox 1939 -- Gone with the Wind AND Wizard of Oz 1957 -- studio lost money for the first time; shut down animation; Hanna and Barbera left to found their own company 1959 -- Loew's was forced to sell its theaters 1980 -- Heaven’s Gate -- $40 million – UA -- US box-office was about $1.5 million

46 Communication Studies 197C Summer 2004 MGM – 1969-2004 – The Yoyo 1969 Purchased by Kirk Kerkorian 1973 sold distribution system 1981 purchased United Artists 1986 sold studios to Ted Turner, who then sold all of United Artists and the MGM trademark back to Kerkorian. Sold studio lot to Lorimar, which was later acquired by Warner Bros. 1990 the lot sold to Columbia Pictures, in exchange for the half of Warner's lot they'd rented since the 1970s. Turner kept the MGM back catalog, however, which passed on to Warners as well in 1996. 1990 purchased by Italian financier Giancarlo Parretti 1992 Credit Lyonnais foreclosed on him 1996 sold back to Kerkorian (as part of a group composed of his Tracinda company and the Australian Seven Network) 1997 MGM purchased Metromedia International's studio properties (Orion Pictures, Goldwyn Entertainment, and the Motion Picture Corporation of America), further enlarging their movie back catalog.

47 Communication Studies 197C Summer 2004 Other Major Players Liberty Media (Malone) Cable Companies (Comcast, et al) Microsoft Telecom Companies Wal*Mart (!), Best Buy, Costco International Media Conglomerates Bertelsmann Globo

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