The message that is being underscored throughout the media industry is that they can no longer be considered "growth" companies. They are beginning to act like a typical "mature" industry through using their extra capital to buy back stocks or increase dividends.
"An implicit message is that media companies view their businesses as "mature," as they can't better justify using their capital to build new businesses or in acquisitions. "With trading for most old media stocks weak, many management teams don't feel like taking big bets," notes Derek Baine, senior analyst with Kagan Research."
I've been saying for a while here at bizofshowbiz that the entertainment and media industry has been putting up a lot of smoke and mirrors to hide the current reality of the business. That is why they overly tout their occasional hit movie to get the focus off of the overall state of the industry. This is, after all, what they do best.
The Walt Disney Co. (DIS) is a good example of showing the reality of what is out there. Even though they've had some good success this year, they've cut back big on employees, are selling off properties not related to their core business, and are investing heavily in growth areas like the Internet.
A number of other companies are also seeing that it is more profitable to buy back shares and put out dividends than to risk their cash on huge uncertainties.
All of this is to boost or retain their share prices. Paying of cash, essentially, is one of the defenses of a mature industry to keep their stocks from dropping even more.
This strategy is not without other risks though as News Corp. (NWS) has shown with its acquisition of MySpace which is, at least in the short-term, paying off great for the company. It gives them a huge lead over the other companies that simply don't seem to know what to do at this time.
The shakeup of Hollywood is only in the beginning stages of a number of birth pangs, as it goes through transformation that will change it forever.
Comment Preview