Media's New Masters

Private equity ushers in a brutal accountability. Get used to it

It's now a matter of when, not if, private-equity players will begin owning a large chunk of the consumer media world. Thus, regardless of who ends up controlling Tribune Co. (TRB ) and Clear Channel Communications (CCU )—to cite just two recent headlines—it's worth considering, without rant or cant, what this will mean to media companies and properties.

Let's first ABANDON THE FANTASY of the rich local owner content to let profits slide because owning the local paper gratifies one's ego and public spirit. These types won't always be the buyers. And they're not immune to market pressures. Ask Brian Tierney, who led the local group that bought the Philadelphia Inquirer. Flushed with the joy of the deal, he told employees: "This is going to be the best news organization in America. You don't have to worry about the corporate thing." Last month he warned staffers that ugly revenue trends "will prevent us from meeting our bank obligations" without layoffs and other cost-cutting moves.

So say HELLO TO A NEW MATH, and the transition to what one successful private-equity-backed executive calls the "comforting and brutal calculus" of such financing: "There is equity. There is debt. There is cash flow. There is interest. There is growth. There is value. That's the world." For decades, major media companies have hewed to a softer accountability, even if they're publicly held: If the CEO can dance--not for nothing did Wall Street call Mel Karmazin a master salesman when he ran CBS (CBS )--he can buy a few quarters' grace from investor wrath. (As in: "We're not posting massive losses, we're investing aggressively for the future.") A shift to a "hard" accountability won't be easy. A soft-edged ecosystem allowed generations of lower-tier employees to make decent middle-class salaries--in some cases, much better than middle-class salaries. That world has been shrinking. It will shrink faster.

On a slightly cheerier note, expect an even quicker SPRINT TO DIGITAL. The calculus is brutal, but it liberates companies from both quarterly expectations and traditional thinking. One media executive who's mulling joining a private-equity play puts it this way. He goes to the Established Media Company and asks for, say, $2 million to build a robust digital strategy--and is told he'll get a fraction of it. He tells Potential Private-Equity Backer the same thing and is told fine--and, by the way, can you make me more money faster if I double it? The sharks of private equity swim remorselessly toward the payout. The one undercolonized frontier for media is online. (Most major newspaper companies, and NBC Universal (GE ), are still years away from getting 10% total revenues from online.) Development dollars and management attention will shift accordingly.

And HELLO FOCUS, GOODBYE OLD WAYS. The old-style conglomerate, be it Knight Ridder or Time Warner, consists of properties bolted together more or less haphazardly. Their run of dominating media will end. Also ceasing: what one might call the "Wizard of Oz" model of media management, as practiced by News Corp. 's (NWS ) Rupert Murdoch or Viacom's (VIA ) Sumner Redstone. In their place will come tightly focused companies. One example: GateHouse Media (GHS ), a newly public small-market newspaper company, whose stock rose 20% on its first day of trading. Individual properties will also be recast. A private-equity-owned (as opposed to a David Geffen-owned) Los Angeles Times may end up covering just Southern California, which readers who enjoy its farther-flung correspondents won't welcome. A private-equity-owned Tribune will jettison notions that there are synergies to be wrung from its Chicago TV, radio, and newspaper operations, and perhaps the entire notion that it's good for a company to own several kinds of media. Ironists alert: It may take the purely payout-seeking approach of private equity to break up the conglomerate, which--remember?--was once the ne plus ultra of greedy media ownership.

For Jon Fine's blog on media and advertising, go to

By Jon Fine

    Before it's here, it's on the Bloomberg Terminal.