Peter Mukerjea: GoodCo, BadCo & NewCo

04 Jul,2012

By Peter Mukerjea

 

So it has finally happened. The break up of a mega corp. And it’s happening before our very eyes, and like global warming, it’s a sign of the times. In years to come, students at media schools in India and elsewhere in the world will be reading how the media landscape evolved and how new media slowly, but surely, took it’s place in society. The demise of print and eventually, television, along with the numerous obituaries on the subject will all be in the history books eventually. How media moguls like Rupert Murdoch and James Murdoch were literally pushed off their lofty perches and new names and faces like Mark and Sergei took their places will all be a chapter or two in reference books. The erosion of the powerful dominance of print media brands will be replaced by brand names like Google, Facebook, Instagram. This period in social history will be seen by students of media studies as part of a process of evolution and not much more.

 

But for those of us who are seeing this unfold, it’s indeed an interesting and captivating phase.

 

Speaking to friends and ex-colleagues in New York, LA and in London recently, it seems many of them are seeing this as the transitioning of one company which comprises of both GoodCo and BadCo to several NewCos. Many of them are also now wondering how many more NewCos will emerge from this, and how soon, but more importantly for them, who will run them. The share price of the company stock has always been a subject of conversation amongst those fortunate enough to get share options, and the fact that it has been static or of negative value for long periods of time has been a source of annoyance. But the fact that this announcement has caused a flutter of activity and raised the share price is seen by many to be a good thing for them personally, so they can now actually make some use of the stock options and realise some value. Most also believe that this value will increase more dramatically when the family gives up control but that could be like waiting for Godot.

 

Let’s not forget that it’s the profits of today’s so called BadCo that  were used to acquire, build and grow the television businesses in the first place, which are now seen as today’s GoodCo. Like God made little green apples, surely there will come a day, very soon, given that the seed of thought has been planted, when these very television businesses at GoodCo will also be spun off into individual entities, driven by the same principles that are the cause for the split today – providing better shareholder value and value creation. But that’s the way the cookie crumbles.

 

The company which is the largest revenue driver within GoodCo could well find a viable financial spreadsheet reason and which showcases a scenario where better shareholder value could be created if certain parts of their GoodCo were then hacked off and cut away into separate entities as they were losing money or were no longer beneficial to their shareholders.

 

I do think that the possibility that billions of dollars of further investments into the UK and Europe being stopped and being diverted to the US is more of a veiled threat than reality, but the possibility that the Euro Zone and their currency itself may not survive for too long, will have financial planners everywhere crunching their numbers and hedging their bets in all sorts of different currencies, anyway. So for Rupert Murdoch to say this so plainly in a recent CNBC interview is not altogether surprising but is reminiscent of childhood cricket games, where if one could not get to bat then, they would pick stumps, bat and ball and go home so no one else could play either. Maybe some of those billions will head to India or Afghanistan or Pakistan, where there’s plenty of low hanging media fruit and bargains to be had for those with pockets of cash.

 

In India though, the trend compared to the UK seems to be the reverse and where each of the various media segments – print, television, cable, radio, outdoor and new media are all growing – albeit in an unregulated and pressure cooker kind of environment. This has to be great news for those working in the industry, and the business case for setting up several GoodCo, BadCo and NewCos would be different but the ethos and principles would of course be the same.

 

Maybe it’s time for the head of an Indian conglomerate to sail across to meet the boss of the media company that is now busy setting up GoodCo, BadCo, NewCo and  ‘make him an offer that he can’t refuse’ as they say in Mario Puzo’s The Godfather. Not that this is in any way connected to the words used by British MPs in the select committee set up to investigate the hacking scandal in the UK – when asking James Murdoch if he ever felt that he was running a mafia company or words to that effect? James Murdoch was, of course, most offended by that question and as expected, he refuted it completely.

 

Nevertheless, maybe it’s time for an Indian company to do what Rupert did some decades ago when he moved out of Australia and bought papers in the UK, thus  creating a global media company. For an Indian company now to own a few internationally acclaimed newspaper titles around the world, then cut losses by injecting Indian cost control systems and management into them would create real shareholder value – rather like the brilliant way in which Tatas have done with the Tata Motors acquisition of Jaguar Land Rover which was a real BadCo and is now a true GoodCo.

 

Maybe this is where the NewCo will come in.

 

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2 responses to “Peter Mukerjea: GoodCo, BadCo & NewCo”

  1. Arup says:

    Nice pause for thought on the value for mass-media groups to keep an eye on the future and the past (one could argue that this would leave no eyes for the present, but hey, take it up with rupert@myspace.com).

    As for Peter’s conclusion – EVERY large Indian company with ambitions beyond the domestic market should take heed… as with Jaguar / Land Rover – there are some huge global brands who’s owners’ growth, ambitions and funds have faltered in recent years and are ripe for the picking.

  2. PP says:

    Peter – great article. Brings up a couple of critical discussion areas on management, style of management, strategies for media co’s especially Indian co’s, current state of media and whats new moving forward.

    Media Landscape: We all know the landscape for media is changing faster than ever. We had newspapers moving to television moving to internet, moving to social news moving to apps that can filter news for you etc(All of this in less than 2 decades). and we finally know that it will be what you want, where you want, how you want and when you want…… No one really knows how this is going to evolve but its a very strong hypothesis

    Management: As a company to have sustainable growth over a period, it needs to combine the life cycle of the industry, life cycle of the company and the life cycle of the product effectively. News Corp has been able to do that so far. Whether it will be able to do it going forward is something that we will have to wait and watch. I however do not think it was a good move to actually separate the publishing divisions from film and entertainment as you rightly said that the publishing divisions were the ones that funded the expansion into television. The margins in the publishing division have been diminishing but News Corp seems to have lost complete faith in the publishing division to have taken this move. I think the earlier News Corp strategy was that the company would perform better as a conglomerate rather than the sum of the parts together. Publishing will continue to be a huge business but not in the near short term.

    Management Style: Every CEO/Founder has a style of managing. Steve Jobs’s wasn’t known for his consultative or consensus building approach but nevertheless turned out to be very good for Apple. As you have mentioned several times, Rupert is a person who takes huge bets. Star India is one great example. He was the first to announce paid news on the internet. Some of his bets haven’t paid off but nevertheless for the investors it has been a great investment so far. How this decision will impact the shareholders is something that we need to witness.

    Indian Media Companies: None of the media companies in India even come close to the aggressiveness and boldness of Rupert & News Corp. The only media company (the biggest) in India that is churning millions of cash that can go into expansion of the company is directing the cash in GOD-KNOWS-WHAT. Tata’s saw a strategic advantage in taking over something like Jaguar. Will media companies see any strategic advantage in taking over other media companies elsewhere? I dont think so.

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