The Curse of the Mogul: What's Wrong with the World's Leading Media Companies
Why media scale rarely earns returns; useful on conglomerate logic.
Summary
Jonathan Knee, Bruce Greenwald and Ava Seave apply competitive strategy analysis to media companies and conclude that most of them destroy shareholder value while their executives are celebrated. Greenwald's framework, which asks where barriers to entry actually come from, drives the analysis.
Their argument is that the sources of competitive advantage in media are narrow. Scale in content production does not create a barrier, because content is a hit business with no learning curve and each production is a separate project. Vertical integration between content and distribution does not create one, because content sells to whoever pays most. Brands rarely create one in media, because audiences follow programmes rather than networks. What does create advantage is local or niche market dominance with high customer switching costs and low content costs, which is why local newspapers, trade publications, financial data and cable systems earned better returns than film studios and music labels.
They then attack the strategies moguls pursue: acquisitions justified by synergy that does not materialise, global expansion into markets where local competitors have the advantage, and the pursuit of scale for its own sake. They document the value destruction with returns data across the sector. The book was published in 2009, before streaming transformed distribution economics, and some of the specific conclusions have been overtaken. The analytical framework, and particularly the argument that content scale creates no barrier, has held up well.
Key takeaways 7
- Scale in content production creates no barrier to entry, because each production is a separate project with no learning curve.
- Vertical integration between content and distribution fails to create advantage, since content sells to the highest bidder.
- Durable media advantage comes from local or niche dominance with high switching costs, not from global scale.
- Talent captures the rents from successful content, which is why studios and labels earn poor returns on hits.
- The authors document that media conglomerates destroyed shareholder value while their executives accumulated reputation.
- Acquisitions justified by synergy in media have consistently failed to produce the claimed cost or revenue benefits.
- Global expansion in media usually fails because local competitors hold advantages in language, relationships and regulation.
Who should read it
Investors in media and entertainment who want a rigorous competitive analysis of where advantage in the sector does and does not exist.
About Bruce Greenwald
Robert Heilbrunn Professor Emeritus of Finance and Asset Management, Columbia Business School; former director of the Heilbrunn Center for Graham and Dodd Investing
Value Investing: From Graham to Buffett and Beyond is the canonical modern restatement of the Columbia value framework, and Competition Demystified is its standard companion on barriers to entry.
Columbia Business School, Heilbrunn Center for Graham and Dodd Investing
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