If early reports are to be believed, today’s news might mark a renaissance in that most challenging of media propositions, the joint venture. In some quarters, Pearson’s proposed sale of Penguin to Bertelsmann is being presented as a JV: in fact, the deal would give Pearson a minority 47% stake in the proposed business. But in another interesting development, David Montgomery is reported to be heading up the bid to combine the local newspaper assets of Northcliffe and Iliffe / Yattendon. Under this proposal, each vendor will own just under 50% of the new venture, with Montgomery holding the balance.
Typically, the JV is a cautious response by businesses afraid of the future, but unsure how to respond. Certainly today’s announcements fit this profile: all the companies involved face existential threat, and are struggling to find new solutions.
As a report showed last week, Amazon is using its monopolistic position in e-books to really put the squeeze on publishers. This is both a great shame for the industry, and a massive opportunity lost by Amazon (perhaps material for a different blog). The upshot is, though, that only by the concerted effort of publishers will Amazon change its behavior. Since businesses are unable to act in negotiations in concert without a formal structure (this would constitute a cartel, which nature abhors), their best bet in acting against a bully is to create businesses which have significant negotiating power. The new look Random Penguin – please call it that – would have over 25% of the global English-language books market to bargain with. Kindle’s proposition would look considerably weaker if the company had the guts to withdraw co-operation until better terms were agreed for it and its authors. As argued in previous blogs, e-books can be a good thing – if they lead to more profitable publishing houses and, therefore, more money to invest in collateral. The current arrangements serve no-one but Amazon, and that only in the short term.
Montgomery’s new enterprise is born out of a similarly challenging commercial environment. Local newspapers have been massively hit by online; shelling media jobs as, in particular, highly lucrative classified advertising has migrated to the web. An early attempt to fix this was the Fish4 JV which was established by Newsquest, Northcliffe, Trinity Mirror, Guardian Media Group and others in the early 90′s. It failed as the partners fell out with each other. Montgomery’s new vehicle runs this risk: but by taking ownership of the newspapers, and allowing neither party to hold a majority stake, it substantially reduces the risk of meltdown. But will it stop the workforce reductions? Has that already bottomed-out?
This, of course, is the problem with JVs. It requires incredible maturity to sustain – a trait with which large media businesses are rarely associated. The Factiva JV between Reuters and Dow Jones was always bound to end in divorce, as was the Elle and Red JV between Hachette and Emap / Bauer. Remember LineOne? The truth is that if the business starts to do well, each partner will want the credit – and the profits. If it fails, they will want to apportion the blame. And the minority partner never wins.
Pearson have done well to get 47% of a business in which they only contributed around 41% of profits and turnover in 2011 – but they are likely to find that a minority stake means little as the business drives forward. They may have been wiser to consider an outright sale – and Murdoch’s $1bn valuation looks lowish, but a fair starting point.