Investing in the Media and Entertainment Business

I did not know that private equity firms and venture capitalists take creative businesses seriously. Only recently was it made known that private equity investors took interest in fashion houses. Which other creative business could become a target for investment and growth? It turns out most of the media and entertainment businesses may appear appealing to savvy investors. This is what I learned last Friday at the MBA—Media and Entertainment Conference (MEC) organized by the best business schools in the US: Columbia Business School, The Wharton School, MIT Sloan Management School, Duke The Fuqua School of Business, and NYU The Leonard N. Stern School of Business.

The conference took place on Friday February 25, 2011 at Columbia’s Low Library. McKinsey & Company, Goldman Sachs, and AOL were the underwriters of the event while a great number of MBA students from the aforementioned schools took charge of the logistics. Throughout the day, great discussions unfolded and hundreds of other MBAs and many professionals were able to participate.

The main point of the keynote address by Leslie Moonves, President and CEO CBS Corporation was that content is key, especially now that digital technology is enabling the industry to transform structurally. This struck me as an interesting point of differentiation between this conference and the one on the Retail Industry I attended a few weeks ago also at Columbia University. There I learned that retail/fashion/design brands are using digital technology as a means of distribution and a new way to interact with their customers. At the MEC I heard from those who own distribution channels and who invest in new digital technology to transform these channels while they also strive to develop proprietary content. What type of content? Anything that is based on good writing, such as films, TV series, books—after all CBS owns the esteemed publishing house of Simon & Schuster. What a remarkable moment this is: media companies capitalize on inexpensive productions (such as reality shows) that bring spectatorship numbers up while creative companies (fashion, design, advertising) experiment with new content to take advantage of the new digital technology. One wonders for how long these two industries will be approaching what seems to be the same target, whether the two will merge under a new order or whether yet a third type of business will spring up to dominate both directions.

Content is the driving force either for those who produce it and wish to increase its reach or for those who have been facilitating its distribution. Content was the catalyst behind the acquisition of The Huffington Post by AOL, a business transaction that took place just days before the conference and as a result stirred an exciting discussion between Arthur Minson, CFO of AOL, and John Martin, CFO of Time Warner.

Content is what impels Contour Venture Partners, Canaan Partners, Warburg Pincus and Zelnick Media to invest in new ventures in the media business and not technology alone. Content is what inspires film financing, an area that most private equity investors avoid, unless they have a solid (low to zero correlation) strategy as Chip Seelig Jr. Partner and Managing Director, Dune Capital Management facetiously admitted. Apparently, the film industry remains the most elusive to investors. Even with a well thought out approach to content, a production does not always respond to the audience’s psychographic wants and often results to “flops” (creatively and financially speaking) mused Brent Stone, Partner ABRY Partners. Finally, the one industry where content itself remains elusive is the art market. “The Art Market in the 21^st Century,” was the last panel but rather than crowning my day with new insights on the visual arts industry it sadly highlighted the discordance between the uninitiated (to art) public and the uninitiated (to business) art professionals. Except for the “black swan” of course: right now this would be Manish Vora, Co-Founder, ARTLOG.com former investment banker and driving force behind a major transformation that even the arts industry is about to face.

Next year, the conference will take place at NYU’s Stern School of Business. In one year’s time, a whole new generation of ventures will have come and gone with plenty of valuable lessons for those who find the creative fields to be an appealing investment. 

Retail Reborn

The Department Store shaped America. As a new type of building in which to trade clothing, home appliances, and a variety of other goods it penetrated American life and changed its course. There are a few notable examples in Europe; think of La Samaritaine and Le Bon Marché in Paris, two very prominent examples that changed the retail business in France, or the Schocken Department Store in Germany. But it is only in the US where this model of retailing changed life for good. It changed entire cities, their history and architecture. It changed people’s needs and wants. It became the cornerstone of new urban settlements and the center of social life. And while it spurred American consumerism, it also ignited manufacturing, entrepreneurship, and financial savvy all of which have defined American identity for at least the last one hundred and fifty years.

The decision to invite Michael Gould, Chairman and CEO, Bloomingdale’s to deliver one of the two keynote addresses at Columbia’s Business School Fifth Annual Retail & Luxury Goods Conference was truly enlightened.  The conference took place on February 4, 2011 at the Low Memorial Library, Columbia University in New York.  Aniza Shah (’11) and Derrick Chan (’11) hit the right note with that decision and also put a most interesting program in place for their audience.  They also echoed a similar decision the NYU Stern Luxury Retail Conference Committee made a little over three months ago (http://thomaiserdari.blogspot.com/2010/10/c-suite-retail-spotlight.html) when they invited Lord & Taylor CEO Brendan Hoffman to be the keynote speaker.

This means that student committees know how to read the pulse of the market and put together programs that many a professional organization would envy. It also means that New York City is blessed with two wonderful institutions, each one with its own character and approach to student life but both with a very rigorous business curriculum. These two schools have traditionally staffed executive positions both in the Garment District but also in the great department stores that dot the city’s grid. It seems that these two schools are also producing the executives for several retail and luxury brands that have already expanded their businesses oversees—and wisely so, as Rick Darling, President, Li & Fung, USA pointed out in his keynote address, later that afternoon. (http://www0.gsb.columbia.edu/students/organizations/retail/conference.html)

It is not easy to summarize the speakers’ main arguments in one entry only. But the same points kept returning in both key speeches: staff training and development and brand development strategy. The former raises questions of leadership (should it be top-down? Or should one lead and manage from behind? How does one reach out to recruit?). The latter is the outcome of two important events: a. manufacturing has very little future domestically (within the US) and is rapidly developing in new hubs in Asia (Central China, Thailand, Bangladesh for example); b. the size of the American market is not enough in itself for brands to maintain their competitive advantage. It may have rendered a variety of brands complacent because the opportunity to record substantial revenues within a consumerist society of the size of this country has always been present. However, today, when new economies are emerging and grow to consume, a brand’s viability and its competitiveness are proven on an international level. For this to be successful, brands need to study and understand their new markets rather than rely on outdated models supplied by the saturated by now American reality.

These are tough points to digest but Profs. Ketty Maisonrouge and Mark A. Cohen who moderated the panel discussions had planned a series of thought-provoking questions that allowed the panelists to express a variety of perspectives across brand levels (from mass-market to upmost luxury). It did not hurt that the audience (mostly Columbia students but young professionals as well) was particularly sophisticated and added to the discussion with pertinent, and rather challenging questions. I will make sure to return to a few of the most novel ideas that were presented last Friday in subsequent entries. Certainly, I am looking forward to the Sixth Annual Retail Conference of 2012.