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Distribution Is Queen


The comic Sandra Bernhard titled a one-woman show Without You I'm Nothing. The media company corollary is, without content there is nothing.

People don't want to watch a cable system; they want to watch Breaking Up With Shannen Doherty. (Or not, but bear with me.) The notion that the content you own will one day pay off massively is held dear by every media company.

Sadly, the stock market has yet to show the love for this view. Viacom Chairman Sumner M. Redstone is credited with the coining of "content is king." But expectations are high that his new CEO, Philippe Dauman, will soon buy a big next-generation Internet distribution play. So high that, were YouTube a public company, one analyst says its stock would have jumped $10 on the day Tom Freston was let go for insufficient ardor in pursuing things Internet.

In late 2006, owning content isn't enough if you're still pushing it through printing presses, cable systems, even standard-issue Web sites. What works for a media company's stock price right now is the whizbang pairing of content with some kind of next-generation distribution. Think News Corp. (NWS) and MySpace.com: A Web site that links users' pages and is visited by more than 49 million people in a month is a network, and thus a means of distribution. Think Disney (DIS) moving first to sell its TV shows, and now 75 of its movies, on iTunes. These are practically the only big-media stocks that have risen in the past year. (Another is Viacom's sibling CBS Corp., which streamed the NCAA basketball tournament online in March and is launching the broadband channel Innertube.)

SHOULD YOU THINK IT'S ONLY A DIGITAL-MAD market overvaluing anything dot-com, pause to consider that Google's (GOOG) and Yahoo!'s (YHOO) stock prices have spent months going sideways or falling. "We talk about content vs. distribution," says Aryeh Bourkoff, a managing director of UBS (UBS), referring to the long-standing truism that companies are best off focusing on one of the two. "But the coalescence of those two factors in a new medium is really where business models will flourish."

Emphasis on the "will" part. Consumers buy video iPod downloads, but current volumes don't mean much to a $33 billion company like Disney. Bourkoff says MySpace will gross over $300 million in 2006 but won't turn profitable until later this year. (A News Corp. spokeswoman pegged revenue at $350 million and would not comment on profitability.)

You may wonder why the new equation leaves the stock of Time Warner (TWX), long a proponent of synergies in content and distribution (and everywhere else), in the doldrums, even if AOL is no longer part of its title. Two answers: AOL (TWX) has been around far too long to count as next-generation anything, and for years the smart new- media play was to see where Time Warner was going and run in the other direction. (You may also wonder whether the currently fashionable content-pursuing-distribution play would work in reverse: Would cable giant Comcast Corp.'s run at Disney in 2004 today be hailed as genius and not result in a hit to the stock, as it did at the time?)

If you're Viacom or Time Warner, you might argue that the market is unduly fond of a new wave of portals, and that MTV.com, AOL, and Viacom's broadband video sites MTV Overdrive and iFilm.com all draw massive audiences. Agreed on the first point, but year-over-year Nielsen NetRatings (NTRT) data show that visitors to MTV.com, MTV Overdrive, and iFilm shrank by double-digit percentages in August. (AOL's audience declined less drastically.)

Meanwhile, triple-digit growth at Facebook and MySpace continues. In August, 2005, YouTube's audience was too small to be measured. Now Nielsen reports it attracted 34 million visitors this August -- or more than six times as many as MTV.com. Those numbers are closely watched at MySpace, which is why the site is studying a bigger push into video. While far from an assured success, such a move would heighten pressures on content players that lack fancy new distribution deals -- and make YouTube's nonexistent stock price jump that much higher.

For Jon Fine's blog on media and advertising, go to www.businessweek.com/innovate/FineOnMedia

By Jon Fine


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