Media companies of the future will be organized differently from the way they are now, with much higher capital expense costs and much greater need for in-house digital development skill.
That, with some accommodations for varying markets and editorial missions, was essentially the conclusion of a panel of media executives at the DeSilva + Phillips Dealmakers Summit last month.

The panel, called “How Will Media Companies Be Organized in the Future,” featured four well-known executives: Frank Anton, CEO of Hanley Wood; Dan Lagani, president of Reader’s Digest Media; David Liu, CEO of The Knot; and Vivek Shah, CEO of Ziff Davis Media.

Liu, CEO of the Knot, described the disorienting nature of media-industry competition these days: “The big threat to most people is that it used to be, say, Travel +Leisure competes with Conde Nast Traveler. But now, you find yourself competing with people who weren’t even in your zip code. If your competitive silo doesn’t exist anymore, and if your internal silo doesn’t exist anymore, then you really have to re-imagine your business.

“We have people tracking Twitter feeds and Facebook feeds that you didn’t have to worry about 18 months ago,” Liu added. “You used to want to just hit a groove and not have to worry about [the business model] for a while. You can’t do that anymore. “

Liu added this anecdote: “In the early days, I had an investor say to me, and it was an epiphany: ‘In software there’s no number two. There’s no second operating system. There are no alternate standards. In media, as we’re moving toward being more like tech companies, we have to be thinking like software companies too.”

The challenge to that type of thinking was pointed out by Anton. “We have a quandary,” he said. “Our average reader is male, 57-years-old, and fewer than half have a smart phone. You come to a conference like this, and you come away convinced that you have to do this online stuff. But those 57-year-olds are not online.”

The other challenge, Anton said, is in developing digital skill sets among the staff. “We wonder why the best and the brightest in digital technology would want to come to Hanley Wood,” he said. “We’re not a technology company.”

Lagani, for his part disagreed, saying the best and the brightest in any venture are attracted to a brand. “The number of people actually looking to move east [presumably from Silicon Valley] and work for Reader’s Digest, it’s fascinating,” he said. “It doesn’t have to be a great digital-only pure play in order to excite people.”

New Cost Structure

Ziff’s Shah pointed to an entirely new cost structure that media executives have to deal with. Traditionally, he said, media companies have had predictable costs in various areas, like content creation, sales, central services and manufacturing. But now, he said, “What we’re seeing at least, is that traditional costs are now about 65 percent of the total. And that’s not because they’ve gone down, but because we have new costs in commerce and other areas.”

Essentially, he said, the cost structure has expanded to the point that total costs are 120 percent of what they once were.

Added Anton: “We used to spend maybe $2 million per year in capital expenses. Now it can be five times that. Private equity used to invest in media companies because they had strong cash flow. But now our expenses are much higher.”

Nevertheless, the mood at the event was upbeat, said DeSilva + Phillips managing partner Roland DeSilva. There are a lot of broad economic drivers coming into play, he said, including projected GDP growth of 4 percent; a stock market that has crested 12,000 for the first time in several years; and a recovering debt market.

More specifically, DeSilva said, most of the companies in this corner of the media have been through their restructuring already, meaning that their leaders “are not focused on paying down debt, they’re focused on the digital transition. You also have an unprecedented amount of liquidity in the market. This liquidity is going to fuel more deals. Most companies are owned by debt-based financial institutions. They can’t keep these businesses. It’s a perfect storm in a positive way.”