In March 2008, after raising $600 million, acquiring 18% of the outstanding stock, and threatening a proxy contest, I was elected to the board of The New York Times Company (NYSE:NYT). The company was struggling to make the transition from print to digital. The stock was at $17 (down from $53 in 2002). Investors were fleeing the Gray Lady for hotter, younger online media properties.
The Times is likely the most important media firm of the last century. At one point I had dinner with Bill Keller, executive editor at the time, who had to excuse himself to help negotiate the release of a Times journalist taken hostage by the Taliban. Our best and brightest were doing hostage negotiations while Google’s best were busy programming ways to steal and monetize the content of the hostage. In my first meeting, I urged the board to consider shutting off Google’s (NASDAQ:GOOG) (NASDAQ:GOOGL) crawlers and got nowhere.
I failed to establish a productive working relationship with Chairman Arthur Sulzberger. Striking a balance between being right and being effective is something I’ve struggled with my entire life.
My thesis was that the Times had the best brand in news globally, but that it needed to become a digital platform, monetizing traffic across an array of products. I lobbied the firm to sell its non-core assets (the seventh tallest building in America, the Boston Globe, 17% of the Red Sox, 16 regional newspapers, and about.com). I also lobbied to cancel the dividend (hush money for family members without overpaid jobs at the Times), double down on digital, move to subscription, and cease the idolatry of innovators (Google crawling our content for free, Apple (NASDAQ:AAPL) distributing our content on poor terms).
During my 24-month tenure on the board, my first son was born, Lehman filed for bankruptcy, Slumdog Millionaire won Best Picture… and the Times company stock sank to $3.50. Yet the marauders breaching the gray walls did catalyze real change. Specifically every damn thing we lobbied for. The firm put its main content behind a paywall and built out verticals based on its famous crossword and its deep content in cooking, real estate, and health. This seems obvious now, but it was hugely controversial at the time.
Undeterred by skeptics, the company launched podcasts, video products, and built a data journalism team that makes data sing with infographics that set the standard for all media. All without losing the DNA of the company, the most eminent concentration of great journalists ever assembled.
History Doesn’t Repeat, It CNNs
A similar structural change is unfolding in television news. TV news organizations including NBC, Fox, and CNN are television stations that also have web sites. But the linear television business model is eroding, and they, like the Times a decade ago, need to double down on digital and make a move to subscription.
This isn’t just a business story. Robust reporting of the news is essential to a healthy civic society. In our original letter to The New York Times Company in 2008, I wrote that the Times, like all great journalistic institutions, “is the world’s foremost evangelist for democracy, capitalism, and culture.” CNN holds a similar space.
But news is also a sh**ty business. A robust news organization maintains hundreds of employees around the world, with a variety of expertise and experience, on the off chance that something important happens on their beat. They don’t get to schedule world events in a seasonal rhythm or promote breaking news stories in advance. Even if a media firm calls something “The Situation Room,” they still need to find the situation.
CNN has two main sources of revenue: cable subscriptions and advertising. Both depend on viewership, and both are in structural decline.
25 million U.S. households have cancelled their cable subscriptions since 2012, and last month CNBC reported that the industry expects another 25 million households to cut the cord in just the next five years. There’s a reason two of the sharpest minds in media, Jeff Bewkes (who launched television’s second golden age as head of HBO) and Rupert Murdoch (tremendous damage to the world), both dumped their cable bundle businesses in 2016. Pro tip: when these two guys are selling an asset class, run from that asset class.
News and sports are the last remaining anchors of the cable bundle, but the streamers have the deepest pockets. Netflix (NASDAQ:NFLX) nibbled its way through reruns and lousy movies for years before taking a mammoth bite of first-run content. Amazon (NASDAQ:AMZN) currently broadcasts an NFL game and a Premier League match each week on Prime. If Jeff Bezos will spend $6 billion to take his girlfriend to the Emmys (Amazon original content), imagine what he’ll pay to be on the field at the Super Bowl or the World Cup. Meanwhile, Apple is sampling news with News+, and HBO already has two news hits with Bill Maher and John Oliver.
As subscribers drop, so too goes ad revenue. But it gets worse, because digital competition is eating linear television’s lunch. Viewers are catching on that advertising is a tax on the poor/lazy and can be evaded via subscription. And advertisers are flocking to digital products that offer more precise targeting and measurement. CNN is only able to garner 23 cents per viewer per hour interrupting Fareed Zakaria with constant reminders that getting old sucks. The cable bundle is built on the assumption that your time is worth less than $1/hour.
CNN and its ilk enjoyed a stay of execution these past four years thanks to The Trump Show, a four-year NASCAR race with a fiery crash every 15 minutes. Elections are generally good for television news, but the four-year Trump administration was the gift that kept on giving. The inevitable Mar-a-Lago spinoff won’t pull anywhere near the same share.
The good news is that CNN has extraordinary human capital (Anderson Cooper, Christiane Amanpour, Fareed Zakaria, John King’s soft and loving hands). CNN also has the definitive brand in television news and an army of skilled journalists. And while the cable bundle ice cube is melting every day, it’s still a towering position for leaping across the digital divide – much like the New York Times had in the 2000s. The EBITDA that SVODs are fighting over is a fraction of the profits lamestream cable media expectorates.
The question is What’s the business model on the other side?
Could CNN replicate the Times‘ strategy? Put the website behind a paywall and deepen its investment in verticals? It could try, but there’s already a dominant player in that offering. And the brand and its assets are different: CNN excels at live coverage and fast-paced, personality-driven analysis – at video, breaking live.
Since we are saving a public trust entity, it’s worth noting that we face a difficult future if all great journalism goes behind a paywall. About 25% of the country cares enough or has enough money to pay, while ad-supported algorithmic rage-fests masquerade as news for the other 75%. Trump TV, the president’s likely third act, has the potential to be a massive force here, but I don’t think it will happen. Trump and his affiliates are great marketers but terrible operators (Trump steak, Trump vodka, Four Seasons Total Landscaping).
Then there’s the benevolent billionaire model. Part of my pitch to investors when I was raising capital for my Times adventure was that great media brands have a floor on their value, because if they get cheap enough, a billionaire will buy them as a vanity project. I was right – while on the board, I received several calls from them. Just down the Acela from NYC, the Washington Post‘s financial future is secure, as long as Bezos doesn’t get bored with it. There’s no denying, Bezos has been a great steward to date, but relying on the kindness of billionaires is not a good business plan.
Still, it’s possible. My #1 draft choice is Marc Benioff, the founder & CEO of Salesforce (NYSE:CRM), who could reunite Time (which he purchased in 2018) with Warner. Marc has the cabbage and, in a refreshing change from the owners of Fox or Facebook, appears to have taken civics in high school.
Next, there is a huge opportunity for someone to become the Spotify or Netflix of news. I had Tom Rogers (#gangster), who started CNBC and MSNBC, on my podcast. When I asked Tom what he would do if he were to start a new media business, this is the vision he articulated. If Netflix (or Apple, or Amazon, or a startup yet to be started up) wants to create that business, CNN would be a foundation to build on. Just as the luxury houses were anchored by an iconic brand (Louis Vuitton, Cartier, Gucci), CNN is one of a handful of iconic anchor brands.
Like Bezos personally, Amazon or another big tech firm could buy CNN and finance its operations more or less forever without even noticing the expense. I could see Apple deciding to take Apple News seriously and bringing CNN under its wing, or Google deciding YouTube needs to mature (26% of Americans turn to YouTube for news). If AT&T (NYSE:T) is looking for a buyer, their money is as green as it gets. But big tech doesn’t have a great track record when it comes to news, or caring about the commonwealth, and is likely in no mood right now to poke the antitrust bear.
While Apple and Amazon are getting into media in order to sell more iPhones and toilet paper, there are also deep-pocketed buyers for whom media is the core business. Netflix and Disney (NYSE:DIS) lack a news property in their empires. A decent outcome would be for the Mouse to cancel its dividend to purchase CNN, and for AT&T to sell CNN, cancel the dividend, invest in 5G, and become the largest subscription-based tech company on the planet – shedding the distraction of $30 billion Time Warner (NYSE:TWX) assets that muddy the narrative of a better $150 billion business. I hope Disney and AT&T’s boards reread the last sentence.
The non-carbonated version would be a tie-up with Comcast’s (NASDAQ:CMCSA) cable assets. A decent outcome, and the bulking, as with any roll-up of declining assets, would be great for shareholders, as CNN are disciplined operators and would cut costs faster than revenue declines, creating shareholder value. In my experience, the premier risk-adjusted asset class is distressed investing.
Finally, there’s one major tech firm that presents a unique and compelling opportunity for a combination with CNN.
The Twitter News Network
Another underutilized, under-monetized news machine? Twitter (NYSE:TWTR).
In spite of its incredible shrinking CEO, Twitter has massive potential and would register a 20% increase in value upon moving to a subscription model. After cleansing its platform of rage-generating bots, Twitter could acquire CNN and begin to command the space it occupies. This move would make CNN/Twitter the iOS of news (more expensive, but higher quality) and Facebook (NASDAQ:FB)/Fox the Android.
Similar to all CNN advertising, the semantics of a Twitter/CNN deal remind us how much it sucks to get old. Twitter would likely own 80% of the combined firm despite having roughly equivalent EBITDA. Youth and beards are wasted and unwelcome on the young, respectively. Twitter is the Murder, She Wrote of the digital age – you keep watching it despite it never changing. Mr. Dorsey confirms light (perception) is faster than sound (words).
Twitter desperately needs to escape its advertising dependency and build up the value proposition to support a subscription model. It has experimented with packaged content, including airing NFL games. Despite my abundant criticisms of his part-time management style and facial hair, Jack Dorsey has a brilliant product mind, and Twitter’s platform is incredibly dynamic – there is opportunity here to invent the future of news.
Over the past 48 hours I have proposed this idea to the CEOs and/or board members of each of these firms. My sense is all of them are smart and civic minded. They have the resources and skills to arrest the march of big tech tyranny in the perversion of news. When I was a younger man, I’d find a hedge fund, buy a ton of shares and lay siege to the wall (the boards of directors). This time, my sword is my pen. And, finally, I’m more interested in being effective than right.
P.S. My new book, Post Corona, hits the shelves on Tuesday. Preorder now and I will surround you with white light.
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.