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

1. Curse of the Mogul
SIIA Information Industry Summit
January 2011

2. What makes media different?
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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.
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4. Media Conventional Wisdom…
Growth is good
Global is great
Content is king
Convergence creates opportunity
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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
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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
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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
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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
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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
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10. Strategic Approaches – First Moves Advantages?
First Mover Dominant Competitor
Mainframes UNIVAC IBM
PC Apple Dell, Compaq
Operating Systems CP/M Microsoft
Spreadsheets Visicalc Microsoft
Portals Prodigy Yahoo!
Search Engines Inktomi, AltaVista Google
TV Networks NBC CBS, NBC, CBS, Fox
Airlines PanAm, TWA none
Cellphones Motorola Nokia
Automobiles Ford none
Online Auctions Ebay Ebay
VCRs Betamax VHS
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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 12/31/10
McGraw-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%
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12. Information Conglomerates Ignored the Lessons of Dun & Bradstreet
DNB Corp. (Old) AC Nielsen Cognizant DNB (New)/ Moody's
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%
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13. Six Principles for the Good Mogul
1. Dare To Dream
2. Keep It Local, Keep It Focused
3. Efficiency Is Cool
4. Don’t Be Such A Big Shot
5. Watch Your Back
6. There Is Much To Be Said For Dying With Dignity
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