STAFF NEWS & ANALYSIS
The Salvaging of Mainstream Media
By Staff News & Analysis - October 08, 2010

The Washington Post Co. has revealed exactly how much cash that audio equipment magnate Sidney Harman paid for Newsweek magazine this summer: $1. The Post Co. also agreed to cover up to $10 million of Newsweek's existing bills. And it will hold on to certain employee pension liabilities, though it did not spell out a dollar figure in a regulatory filing Wednesday. No one thought Harman paid much for Newsweek, which lost almost $30 million last year amid circulation and advertising declines. But the magazine's sale for less than its $5.95-per-issue price on newsstands is still a grim milestone for a brand that was once a prized asset at the Post Co., which bought Newsweek in 1961. The filing comes as speculation builds that Harman's Newsweek will form some kind of partnership with The Daily Beast, a news and opinion site owned by Barry Diller's media conglomerate, IAC/InterActiveCorp, and run by former New Yorker magazine editor Tina Brown. – Washington Post

Dominant Social Theme: It may be only worth a dollar, but it's worth saving.

Free-Market Analysis: We have noticed a kind of phenomenon taking place within the US media circles. It has to do with great media properties that have essentially be ruined by the Internet and then offered for a single dollar. We read reports that this was the initial nominal price for BusinessWeek (now owned by Bloomberg) when it was first shopped around and now we read courtesy of the Post article excerpted above that Newsweek's price was of a similar nature. Sub dominant social theme: "If they were big once, they can be big again."

There is a deeper phenomenon at work, however. That has to do with the recycling of these failed publications. We read all the time about how merciless capitalism is. A company (any company) that fails to make money and runs a loss is to be cast aside – shut down as a failure. But when it comes to the mainstream media establishment this rule seems strangely in abeyance. Both Newsweek and BusinessWeek were bleeding red ink not over a year or two but over a series of years. Yet both publications managed to find buyers and continue in existence today. Another mainstream media property that simply cannot be killed is AOL.com. Here's the tale of the tape regarding AOL from Wikipedia:

America Online, Inc., as the company was then called, was led by executives from AOL, SBI and Time Warner. Gerald Levin, who had served as CEO of Time Warner, was CEO of the new company. Steve Case served as Chairman, J. Michael Kelly (from AOL) was the Chief Financial Officer, Robert W. Pittman (from AOL) and Dick Parsons (from Time Warner) served as Co-Chief Operating Officers. The total value of AOL stock subsequently went from $226 billion to about $20 billion. Similarly, its customer base has decreased to 10.1 million subscribers as of November 2007, just narrowly ahead of Comcast and AT&T Yahoo!. As of June 2010 AOL's subscriber base has dropped to 4.4 million.

We are not surprised actually by the staying power of some of these media enterprises. There is a core of publications in the United States that are probably too important to the Anglo-American power elite to fade away. The Time-Life media complex (Life has been resuscitated as an online enterprise) lies at the heart of the mainstream American conversation. Likewise the Washington Post Group, the Wall Street Journal, the nation's "big three" television networks and a handful of cable companies as well, most notably CNN.

We would predict that the above mentioned media companies (and a handful of others as well) could bleed red ink for decades and always find another individual or group to fund them. One watches how failing media properties are juggled generally and it becomes clear that normal profit-and-loss rules simply don't apply. CNN for instance has been losing viewers for years and yet we would bet the company could go belly up and some entity or other would step in with deep pockets to rescue it.

These media entities, in fact, are necessary to the elite that likely runs Western society from behind-the-scenes. Capitalism is made up much of in this case but honored only in the breech. There are individuals and entities willing to take losses in the billions to sustain certain media properties. It is interesting to watch loss-making publications in fact because one can soon guess which are the really critical ones and which are not.

The truth-telling of the Internet has proven most inconvenient to what increasingly seems to be a familial and generational conspiracy to create a kind of one-world global government. Like the Gutenberg press before it, the elite is using every tool at its disposal to try to vitiate the Internet's impact, while gradually bringing it under control. There are seemingly three major elements to this strategy. One is market-based and has to do with using monetary leverage to dominate the Internet with media properties sympathetic to its cause.

The second strategy is also market-based and has to do with the new proprietary applications now coming online. These applications – like Apple's iPhone – are set up as private platforms that (unlike ISPs) present only certain, contractually obligated, vendors. Owners like the Wall Street Journal's Rupert Murdoch have stated frankly that they are counting on these applications to gradually capture increasing share-of-mind from ISPs.

Finally, there is outright censorship, surreptitious or otherwise. The main method of introducing such censorship seems to be via transparent efforts that focus on Internet providers without letting the public know that such conversations – and ultimately censorship – is taking place.

From a purely objective standpoint, the three above methodologies will over time grant the elite-dominated mainstream media increasing penetration of the Internet. But in the case of the Gutenberg press, elite publishing dominance took about 400 years from what we can see. Now the Internet, from our point of view, has had a significant impact in 25 years; whereas it took the Gutenberg press about 100 years to generate the same.

This means, if one can argue parallel timelines, that it will take at least a century for the elite to dominate and control the Internet. And in the meantime, we would look for considerable societal changes to take place. The Gutenberg press, after all, spawned both the Renaissance and the Reformation from what we can tell. These large communication revolutions can make existing society extremely unstable.

From an investment perspective, the media scene must seem more unsettled today than almost ever before. Even business models such as YouTube and Facebook that attract massive viewership have yet to be monetized in a way that turns a profit. Meanwhile, the alternative press, filled with small entrepreneurs and niche businesses, does much better in our view.

After Thoughts

The determination of the elite to dominate the Internet with its own programming is bound to be confusing because these massive enterprises may seem to some to be tempting opportunities. But we would argue that there is currently a good deal less than meets the eye when it comes to mainstream dominance of the Internet and that this unstable situation will persist not for just years but decades. Others may disagree of course.

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