"In general, I'm in favor of one-share-one-vote, but I do make an exception for newspapers, since there's never been a world-class newspaper without a controlling shareholder."
Nell Minow with the Corporate Library, a corporate governance research firm
"The Ochs-Sulzberger family's ownership of, and commitment to, The New York Times has protected the newspaper and its editorial independence through many business cycles," said Catherine Mathis, a spokeswoman for New York Times. "While the current turmoil in our financial markets creates stresses for virtually every business, this commitment remains unchanged."
Controlling Media Holders Face New Scrutiny As Econ Weakens
By Nat Worden Of DOW JONES
The global financial crisis threatens some of the media's elite controlling shareholders after a decade of disappointing investment returns, a rise in investor activism and a chaotic industry transition to the digital age.
Media moguls who rose to prominence while keeping a tight grip on control of their empires have lost some cachet on Wall Street in recent years, as public shareholders increasingly view their family relationships and resistance to change as a barrier to stock performance.
Now, the outbreak of a historic financial meltdown has sparked massive sell-offs in media stocks in expectation of an economic slowdown that could force structural changes to an industry already struggling to adapt to the Internet. This prospect could loosen the grip of controlling shareholders on their family businesses like never before.
"Conflicts of interest aren't felt during good times," said Nell Minow with the Corporate Library, a corporate governance research firm. "But they can be felt strongly in bad times."
Those particularly seeing extra scrutiny are Sumner Redstone, controlling shareholder of Viacom Inc. (VIA) and CBS Corp. (CBS); the Dolan family, owners of Cablevision Systems Corp. (CVC); and the Ochs-Sulzbergers, who control New York Times Co. (NYT). Of those companies, only New York Times would comment for this story.
Already, some legendary media families have faded to the background in recent years, including the Chandlers at Tribune Co., the Ridder family of Knight-Ridder and the Bancrofts of Dow Jones.
The sale of Dow Jones, publisher of this newswire, to News Corp. (NWS) last year exposed some weaknesses of family ownership - the potential for divisions of opinion and, in some cases, neglect. Ironically, Dow Jones was bought by another prominent media family, the Murdochs, whose News Corp. so far largely has escaped shareholder scrutiny, thanks in part to the company's diversification.
News Corp. declined to comment for this story, and a lawyer representing the Bancroft family could not be reached.
Privately controlled and publicly owned companies are common throughout corporate America, but the media industry is rife with such arrangements. Controlling shareholders are perceived to make takeovers harder and reduce corporate influences, giving stability to media companies and a measure of autonomy for content producers from corporate interests.
"In general, I'm in favor of one-share-one-vote, but I do make an exception for newspapers, since there's never been a world-class newspaper without a controlling shareholder," Minnow said. "They do offer protection from market volatility and pressure from advertisers, and shareholders should know what they're getting into when they decide to buy these stocks."
For major media conglomerates, though, stock prices generally have made little progress this decade, and in many cases, shareholders have lost significant ground and underperformed major market indices. With the U.S. headed for a consumer-led recession, prospects for a long-awaited turnaround are dwindling, and the business structures of the traditional media, largely protected by controlling shareholders, are becoming suspect.
One such structure exists at Viacom and CBS, both controlled by media mogul Sumner Redstone through his private firm, National Amusements Inc. The arrangement came into focus last week as Redstone was forced to sell $233 million worth of nonvoting stock in the two media conglomerates in order to comply with bank covenants on his firm's $1.6 billion debt load, adding to heavy selling in both stocks.
Redstone's firm said Friday that it is still negotiating on the terms of its debt load as credit markets remain under stress. Meanwhile, the mogul has been feuding with his daughter, Shari, over succession plans, and he recently fielded a lawsuit from his son, Brent.
Shares of Viacom have dropped more than 20% so far this month, leaving the company with less than half the market value it had at the start of 2008. CBS, with its heavy exposure to the weakening ad market, has fared even worse. It's down 40% in October and 67% for the year. Neither stock trades at anywhere near the price where they were valued after Redstone decided to split them into separate entities in early 2006 in hopes of rejuvenating their stock performance.
"At some point, the key institutional investors with a significant interest in Viacom and CBS but no voting control could start to push Redstone to consider new options for these companies," said Porter Bibb, managing partner with MediaTech Capital Partners, an advisory firm focused on the media industry. "They may not be able to vote, but they can buy big stakes in these companies and scream bloody murder if the stock declines continue. Eventually, something has got to give."
Having traded recently at $17.89, Cablevision shares now are trading at just about half the price the Dolans offered to pay shareholders for their stock last fall. Cablevision's shares are off 44% over the last 10 years, while the S&P 500 has broken even over that time. Meanwhile, a number of Wall Street analysts have long said that between its top-performing cable business, its cable networks and its iconic New York real estate holdings like Madison Square Garden and Radio City Music Hall, Cablevision is sitting on a treasure trove of assets undervalued by the market under the company's current structure.
Cablevision, which has little exposure to the advertising market unlike other media companies, has said it's exploring different options to return value to shareholders. It recently announced a regular dividend payment to shareholders.
Harbinger Capital Partners, a hedge fund with a history of shareholder activism, recently accumulated a 9% stake in Cablevision. A spokesman for Harbinger declined to comment for this story. Earlier this year, the firm took seats on the board of directors of New York Times, which is facing a rapid erosion of its advertising revenue, but the publisher's controlling family still holds sway over the board.
"The Ochs-Sulzberger family's ownership
of, and commitment to, The New York Times has protected the newspaper and its editorial independence through many business cycles," said Catherine Mathis, a spokeswoman for New York Times. "While the current turmoil in our financial markets creates stresses for virtually every business, this commitment remains unchanged."
To be sure, not all media families have felt shareholder pressure as intensely. Despite recent stock-price declines, News Corp.'s Murdochs and the Roberts of Comcast Corp. (CMCSA, CMCSK) still have firm control over their companies.
Friday, Murdoch told News Corp. shareholders at their annual meeting that the company's "right balance" of businesses will help it achieve "solid profitability" over the next year in the difficult economic environment. He also said he and his family have no debt outstanding that will affect the company.
Still, shares of News Corp. are trading 20% below where they started 2003 and 7% below where they traded a decade ago. Meanwhile, succession questions about News Corp.'s future after Rupert Murdoch hang over the company, raising another vulnerability of privately controlled companies as a dismal economic outlook for 2009 looms.
"Fiscal 2009 will be a year of many - in some cases unprecedented - challenges," Murdoch said at the meeting. "We cannot fool ourselves into believing otherwise."
-By Nat Worden, Dow Jones Newswires; 201-938-5216; email@example.com
Corrected october 22, 2008 16:16 ET (20:16 GMT)
(END) Dow Jones Newswires
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