Bubble logic

For entrepreneurs interested in the media and technology sectors and business models more generally, then can I recommend adding the blog Monday Note to your weekly reading list.

Each week, writers Jean-Louis Gassée and Frédéric Filloux take a look at a burning issue from the tech world and this week they wrote a brilliant post called The Publishers Dilemma.

Essentially the logic of the piece goes like this. Media companies are in serious trouble because while traditional advertising revenue (print, radio, television) is falling, many mainstream publishers have fallen into the trap of charging too little for digital ads.

So no matter how much the digital revenue streams grow, it’s never going to be enough to offset the loss of these premium offline ads.

Where does that leave these big media companies in two or three years, when their offline audiences have shrunk, their offline revenue sources have fallen, but their cost bases (that is, journalists and infrastructure costs like printing presses, radio stations, broadcasting equipment) are still high?

Well, investors appear to be betting that it will leave the big media companies with no choice but to blow up their existing operations and start buying web properties.

According to one investment banker we’ve been chatting with, that’s one reason you are seeing investors pouring into web properties in Australia and particularly in Silicon Valley, often at what looks like very high prices.

Quite simply, these investors are confident that they are going to be able to get their money out in a few years and get a good return when the big media players are forced to start buying websites, social networks, community platforms and other web properties.

It’s interesting logic. I guess the only danger is if investors overpay to buy into these web properties, and then find the media companies don’t have the financial firepower to buy them out.

In that case, the web properties have to go it alone and give investors the chance to exit via an IPO.

It’s a very interesting little period right now. The long-term decline of traditional media (particularly print media) is now difficult to argue against, and likely to be impossible to reverse.

Media bosses will need to look at all their options – and investors are betting they will need to buy their way out of trouble.