Media Cos Could Benefit More From Break-Up Than Mergers

Media companies should pursue break-ups, where they've had more success, than marriages, given the industry's poor track record on big deals. That's the opinion of some long-time industry observers as talk of media consolidation intensifies following Walt Disney's agreement in August to buy Marvel Entertainment for $4 billion, and reports of talks between Comcast and General Electric for NBC Universal. Big media companies may be tempted to get even bigger as they face revenue and audience declines amid the rise of digital media. High cash piles, low valuations and an easier credit market make deals possible, but heartbroken shareholders are less willing to commit. Major media conglomerates have written down $200 billion in assets since 2000 after "relentlessly overpaying for acquisitions" and delivering subpar returns to investors. Underlying that performance is the rapid rise of digital communications and the damage it's doing to the media's traditional business models. Just as the Internet has spelled trouble for the music and publishing businesses, a decline in DVD sales is crimping profits at movie studios and the ability to watch video on-demand and skip commercials is hurting the television industry. Cable networks have been an exception, benefiting from audience fragmentation and steady subscription revenue from TV distributors, making them a favored subject of acquisition speculation. But they depend on pay-TV distributors for subscription revenue, and Comcast's push for content doesn't look like a vote of confidence by the cable giant in the future of distribution amid the rise of online video.