Magazine article The New Yorker

Merging like It's 1999?

Magazine article The New Yorker

Merging like It's 1999?

Article excerpt

MERGING LIKE IT'S 1999?

When news broke that Rupert Murdoch's 21st Century Fox had made an eighty-billion-dollar bid to acquire Time Warner, it looked like a throwback to the days when the media business was dominated by high-profile moguls obsessed with aggressive takeovers. In recent years, content companies have become more sedate and disciplined, focussing on efficiency rather than on acquisitions. But, from the nineteen-eighties until around a decade ago, they tended to be run by C.E.O.s who were largely indifferent to shareholders and unfettered by boards of directors. Moguls like Ted Turner, Sumner Redstone, and Murdoch himself did pretty much whatever they wanted--which, most of the time, meant doing deals and building empires.

These imperial adventures made for good drama but bad business. As Jonathan Knee, Bruce Greenwald, and Ava Seave showed in their book "The Curse of the Mogul" (2009), media stocks significantly underperformed the market in the mogul era. Companies had to take huge writedowns on overpriced acquisitions--two hundred billion dollars' worth between 2000 and 2009. Obsession with size blinded moguls to the fact that they were paying too much for assets that made little strategic sense. Obsession with dealmaking led them to neglect the basic task of managing their companies. According to a study by Douglas Shapiro, a Bank of America analyst, in most cases their shareholders would have been better off if the deals had never been done.

Unlike some of his peers, Murdoch has a knack for managing. As Knee and his co-authors put it, Murdoch had "all the elements of the perfect mogul." He was able to run his companies efficiently, to spot new opportunities when they arose (the Fox News Channel), and to cut his losses when businesses weren't working. But he still couldn't escape the mogul's curse. He sabotaged performance by spending absurd amounts of money on assets of dubious value: three billion dollars for TV Guide and a couple of other titles, six billion for a stake in Gemstar (which he ended up selling for less than a billion), more than a billion dollars for MySpace and IGN. In 2007, ingrained press-baron instincts led him to shell out five billion dollars for Dow Jones. As a manager and an entrepreneur, Murdoch created value. But as a shopper he often destroyed it.

Still, at least Murdoch can say that he's the last man standing, because, in the past decade, those old-style media moguls have vanished. Some were pushed out by restive shareholders, some gave up, some got old. And the men who replaced them--people like Jeffrey Bewkes, at Time Warner--adopted a very different approach. Instead of building empires, they spun off businesses--Bewkes got rid of Time Warner's print division, its cable division, and A. …

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