MEDIA ECONOMICS

0. INTRODUCTION
● We have some convictions about the trend of media consumption. We know that the number
of users will continues to grow and will be driven by several factors:
○ Broadband access
○ The growth of the “digital natives” generation (digital revolution)
○ The increase in the average time spent consuming online content and services

1. EVOLVING RESEARCH AND THEORIES IN MEDIA ECONOMICS

● The term “media” has two definitions:
○ (A) The industry that facilitates mass communication
○ (B) An intermediate layer or intervening substance
● From an economic perspective, media firms have traditionally operated as part of a two-sided
(or perhaps multisided) market. That is, there are almost always two types of customers in
media markets:
○ Public and advertisers
● The “freemium formula”: you acquire the real service way after you have been annoyed
by the advertisements. The Internet has destabilized the traditional function of media firms
as intermediaries facilitating communication. In the past, the roles of producing information
and distributing it were vertically integrated by media firms.
● The Internet has emerged as an alternative distribution mechanism for all forms of media with
a variety of convenience and cost advantages. For example, podcasting serves as a
competitive alternative to the incumbent approach of radio broadcasting.
● The Internet has also drastically altered the advertising market. Prior to the Internet, the
minutes of TV and radio broadcasters, as well as the space available in newspapers and
magazines, were in finite supply. This implied that the “space” available to advertisers had an
inherent scarcity and, therefore, value. Such scarcity was essentially eliminated by the
emergence of the Internet. Consequently, advertising is a far less secure source of income for
traditional media firms and many have struggled to stay solvent in the new digital age.
● Amazon could be the enterprise that might know us the most because it creates a circle
between time spent watching things (Prime Video) and the money we spend buying things
(Amazon delivery service). Widespread availability of the Internet has lowered barriers to
entry in the media industry. Creation and distribution of information/content have historically
involved significant fixed costs. Modern information technology and networks allow cheap
information distribution and have radically reduced fixed costs. Blogging, podcasting, online
video delivery and the like allow almost anyone to create and distribute information for an
immense audience at minimum cost.

1.1. TRADITIONAL MEDIA VS. DIGITAL MEDIA

● Facebook uses advertising in a very distinctive way. They share data with the advertisers in
order to target a certain audience.
● There is a triple market:
○ Public
○ Advertising
○ Content (properties)
 ● What do traditional media, digital media, advertising, the sport industry and the publishers
have in common? THE CONTENT. And how do you pay them? With your precious time and
money. The time is monetized through advertisement.

2. ADVERTISING: FUNDAMENTAL ISSUES

● One of the earliest theories of advertising is the persuasive view, in which advertising alters
consumer preferences. This will generally give rise to higher prices if firms have any market
power. As time passed, a new thread in the literature emerged, in which advertising played an
informational role. Firms employed advertising to notify consumers regarding the availability
of products as well as the characteristics of those projects. Much of the current literature has
focused on the structural changes to advertising markets as a consequence of the Internet.
Internet advertising differs significantly from advertising in other media since detailed
information regarding particular consumers can be conveyed to advertisers so that they can
target their message.
● Targeting increases the effective supply of advertising, less advertising is wasted on
uninterested consumers. Thereby reducing prices and increasing the return to advertising.
● And the present landscape features the entry of more competitors in content production, in
large part due to failing costs. Programming is now developed by firms such as Netflix,
Amazon and Apple. The incentive for these firms to produce content is not advertising, per se.
Rather, it is a means to induce consumers to subscribe to a particular service and/or induce
demand for hardware which has exclusive access to the content (e. g. Apple).
● Much of the media has the characteristics of a public good. It is non-rival because
consumption of information and entertainment by one individual does not hamper the ability of
another to consume it. Copyright laws grant exclusive reproduction and distribution rights to
media producers.

2.1 HUMAN RESOURCE MANAGEMENT MEDIA

● Media companies that adapt to changes in the competitive environment will succeed, while
those that don't will fail. It is “adapt or die”, like the case of Netflix and Blockbuster. The
experience economy and the content economy are closely related because to have new
experiences you need content.
● While the number of mega-media conglomerates is increasing globally, the workforce is being
downsized and employees are being moved from permanent contracts to a freelance
working basis. Not providing training and development for temporary employees can
sometimes be viewed as a cost savings measure, although studies have found that if
organizations do provide training to non-permanent employees, the training does have a
positive effect on their affective commitment to the organization.
● The social voice of internal and external stakeholders has become more prominent in the
social media age. Organizations are using employee engagements as means of channeling
this voice. Internal stakeholders such as employees, want their voices to be heard in a
manner that positively affects their work life balance and well-being. External stakeholders,
such as consumers, have broad societal expectations and are increasingly engaging in
dialogue with organizations about expected social responsibilities.

2.2. STRATEGIC MANAGEMENT

● Firms operate in a more and more complex, dynamic, less predictable environment,
especially in the media and entertainment industry. This situation requires companies to
follow various strategic approaches and to develop new patterns of strategic thinking.
THE EVOLUTION OF STRATEGIC MANAGEMENT CONCEPTS:
● The concept of strategy was developed first in a military and political context. The military
strategy books The Art of War, by Sun Tzu, and On War, by von Clausewitz, are famous and
have become business classics.
● Sun Tzu developed a tactical side of military strategy. Von Clausewitz highlighted the dynamic
and unpredictable nature of military strategy. If strategy can be seen in decisions and actions
used within a military context, it must not be confused with the notion of tactics. Great battles
are often analyzed by historians in terms of strategy (referring to a general plan and to the
deployment of resources) and tactics (related to the employment of resources already
deployed).
● The strategic management discipline originated in the 1950s and 1960s. When the 60s gave
rise to basic concepts of the strategy, the 70s provided important knowledge about their
development and application. The most influential pioneers were Alfred Chandler, Igor Ansoff
and Peter Drucker.
● Strategy refers to actions that have been taken and decisions that are to be made by an
organization in achieving its objectives and, in particular, to achieve a competitive advantage.

SHAPING COMPETITION
● Environmental factors are those areas over which organizations have little control. Several
tools can be used in order to analyze the external conditions. We will study the following:
○ PEST model
○ SWOT analysis
○ BCG matrix
○ Porter’s five forces framework
PEST MODEL:
● The PEST analysis is one of the most commonly used analytical methods for assessing
external macro-economics factors. PEST is an acronym for Political, Economic, Social and
Technological. This analysis is used to assess these four external factors in relation to your
business situation. Basically, a PEST analysis helps you determine how these factors will
affect the performance and activities of your business in the long-term. It is often used in
collaboration with other analytical business tools like the SWOT analysis and Porter’s Five
Forces to give a clear understanding of a situation and related internal and external factors.
○ Political: political stability, tax guidelines, employment laws
○ Economic: Inflation, interest rates, unemployment
○ Social: cultural trends, lifestyle, attitude, education
○ Technological: internet, digital distribution, digital revolution
● We can add other factors:
○ Environmental: climate, recycling, eco-friendly
○ Legal: discrimination laws, safety laws, copyright laws
● Both new business owners and veterans should include PEST analysis in their business plan.
PEST can help you identify significant changes in the political, economic, social and
technological landscape. And these landscapes will affect your business in the future. By
breaking down the critical influences in these four categories, business owners get a better
understanding of whether their next business move is strategic or idiotic. For example,
political factors aren’t only related to elections, but also the regulations about wages, taxation,
and intellectual properties. You also have to consider laws in any other country where you do
 business. Even if you aren’t doing international trade yet, it could be a possibility in the future,
and going in blind is a good way to toss success out the window.
● Many business owners focus on internal relationships, such as marketing, accounts, and
sales. Each of these departments is controllable from the inside. You can influence the
marketing budget or put more people on the floor to close sales. At the end of the day, these
results depend on the people you directly oversee. But the categories of a PEST analysis
can’t be influenced easily. Political, economic, social, and technological factors exist and will
continue to exist without your input. For example, technology continues to advance. More
products and apps are being built to streamline business decisions. Developers are building
artificial intelligence in the form of chatbots to talk to customers on websites. And while you
don’t have to use this technology, it could provide opportunities in the future. And you never
want to miss an opportunity just because you weren’t aware of it.

SWOT ANALYSIS:
● SWOT is an acronym for Strengths, Weaknesses, Opportunities and Threats. SWOT
analysis is a methodological tool designed to help workers and companies optimize
performance, maximize potential, manage competition, and minimize risk. SWOT is about
making better decisions, both large and small. It can help you determine the efficacy of
something as small as introducing a new product or service or as large as a merger or
acquisition. Again, SWOT is a method that, once mastered, can only enhance performance.
● SWOT analysis was the product of a decade of research at the Stanford Research Institute
between 1960-1970. By the late 50s, many American Corporations had grown frustrated that
their significant financial investments in strategic business planning had failed to produce
acceptable results. So, in 1960 a number of these corporations initiated a project at Stanford
to develop a better method for strategic planning. The result was SWOT.
● It can be applied to answer certain questions:
○ A. Do you want to explore the efficacy of a new venture, product, acquisition, or
merger?
○ B. Are you interested in identifying solutions to address a particular problem in your
business?
○ C. Do you need to re-evaluate a particular strategy mid-course?
● The SWOT analysis provides organizations with an opportunity to accurately assess their
particular market or field. Developing a full awareness of your situation can help with both
strategic planning and decision-making. A SWOT analysis, which offers simplicity and
application to a variety of levels of operation, is an ideal way to develop such awareness,
which can then be used to craft a sound strategy that capitalizes on an organization’s
internal strengths and external opportunities, while simultaneously addressing (internal)
weaknesses and (external) threats. Moreover, although originally developed for business and
industry, SWOT analysis is equally useful in the work of community health and development,
education, and even personal growth.
● SWOT consists of four components. These four elements are:
○ Strengths (internal): the resources and capabilities that can be used to develop a
competitive advantage.
○ Weaknesses (internal): one way to think of weakness is the absence of strength.
Therefore, the items of your business model you did not identify as strengths above
are the first place to look for weaknesses. Cash flow, brand recognition, marketing
budgets, distribution networks, age of your company, etc. are all places to consider
when assessing weaknesses.
 ○ Opportunities (external): opportunities for growth, greater profit, and larger market
share. The key with Opportunities is that they must be acted on. Remember, if you
don’t act your competitors will.
○ Threats (external): possible events or forces outside of your control that your
company or unit needs to plan for or decide how to mitigate.
The Boston Consulting Group Matrix:
○ Market Growth rate (high or low)
○ Market Share (high or low)
● This is a consultancy group that reviews a company’s product portfolio or SBUs (strategic
business units) to help them decide on what to invest, what to discontinue and which products
to develop further. The y-axis represents the market growth rate and the x-axis relative market
share. By placing their business offerings into one of these four categories, companies
determine where resources should be allocated to generate the most value or which to cut
loose and minimize losses.
● Those four blocks are:
○ Cash cows (low growth, high share) -> are businesses with a very significant market
share (main business unit), but low growth (milk the cow metaphor). For example, the
iPhone.
○ Stars (high growth, high share) -> business with very high growth rate, but the share
is low. For example, the AppleTV streaming service.
○ Question marks (high growth, low share) -> brand with very high growth and market
share (it is perfect, deserves a star). For example, the AppleWatch.
○ Dogs (low growth, low share) -> business with very low growth rate (little future) and
that brand has low share (living like dogs). For example, the iPod.
○ The question mark is the introduction of the brand, the star is the growth, the cash
cow is the maturity and the dog is the decline of the business.

Porter’s Five Forces:

● Porter’s Five Forces is the most complex tool. It uses five forces to develop its analysis:
○ Threat of Substitutes (fear of existing substitute products)
○ Threat of New Entrants (fear of new competitors)
○ Bargaining Power of Buyers (power that customers have over you)
○ Bargaining Power of Suppliers (power that suppliers have over you)
○ Rivalry Among Existing Competitors (the combination of the last four determines the
competitive rivalry)
● The term was first introduced by Michael E. Porter in his classic 1979 Harvard Business
Review article. In it, Porter outlines his model and demonstrates how it helps businesses
assess an industry’s competition and gain strategic insight into competing more effectively.
● To start a new business, first of all we need a license to start broadcasting, for example. You
have to watch out for the barriers (if they are high or low in your country) and surpass them.
Some barriers are capital requirements, government policy and switching costs.
● The substitute products can be anything that performs or carries out similar functions to your
products or services. Email, for example, is a substitute for written mail, and Whatsapp is a
substitute for email, and Microsoft Teams or Google Chat are substitutes for Whatsapp, and
so on. That was the problem between Blockbuster and Netflix (Blockbuster never thought
they were going to be substituted by Netflix).
 ● The power of buyers is the power to manipulate and control the industry. The more buyers,
the lesser the bargaining power. The buyer can choose the company to stay with, but if that
company changes something the buyer does not like, he will go to the competitor.
● The power of the supplier will often be seen as a threat of increased prices for goods and
services, reduced product quality or a shift of costs to other industry partners. A good
example is the software industry. Take the likes of Microsoft, Apple, and Salesforce. They
practically monopolize their respective markets, leaving little leverage room for buyers. We
can tell when suppliers have the upper hand by spotting some of the typical determinants of
supplier power threat:
○ Number of competitors.
○ Patented products (is the supplier the only one legally able to produce the product?).
○ Product substitutes (are there available substitutes?).
● The competitive rivalry is a familiar concept to many business owners and entrepreneurs,
manifested through heavy discounting, innovative product introductions, marketing
campaigns, and service improvements. As might be expected, high levels of rivalry severely
affect the profitability of an industry. Typically, when one business makes a significant market
move it forces competitors to counter with their own. This endless cycle of action and reaction
is what limits profitability. It can be particularly harmful (for businesses) if the moving
factor is the price.

INTERNAL DIAGNOSIS
● The Resource-Based View (RBV) Approach:
○ The idea of considering firms as a large set of resources goes back to the 1960s. But
this concept received renewed attention in the 1980s. Since then, the resource-based
view has become an influential framework for analyzing corporate strategy.
○ In this approach, the aim is not to focus on the external environment of the company
but instead to thoroughly analyze the company’s resources. The RBV considers the
firm a collection of resources which are tied to the firm’s management: firms are
heterogeneous with respect to their resources and capabilities. This analysis, based
on “resources and competencies”, insists on the ability of a company to use and
transform its external environment and to change the rules of the game or the game it
chooses to play. It is based on the idea that the organization can be studied as a set
of resources, which may differ depending on the company.
○ The resources are of various kind:
■ A. Physical (machines, manufacturing facilities)
■ B. Human (qualifications, degree of adaptability of employees)
■ C. Financial (the various sources of liquid assets)
■ D. Intangible (patent, brand, know-how) -> Simon Sinek video (WHY, HOW,
WHAT)
○ Resources and capabilities can be viewed as bundles of tangible and intangible
assets including a firm’s management skills, its organizational process and routines,
and the information and knowledge it controls. Intangible assets are particularly
important in that they are hard to access and imitate. They often constitute strategic
resources (that is, unique resources from which the company’s competitive
advantage stems).
○ The analysis of the strategic capacity of a company depends on several factors. To
describe a general overview of a firm, the RBV analysis must be combined with the
competence-based view (CBV), representing the second level of analysis. The
 concept of resources is thus often associated with the concept of organizational
competencies- that is, routines, know-how, and processes that are specific to the
company and to its collective learning process.
○ Organizational competencies must be difficult to imitate in order to create a
sustainable advantage. They form part of the core competencies that are the
collective learning in the organization, especially how to coordinate diverse
production skills and integrate multiple streams of technologies. The competencies
enable the organization to outperform its competitors. With strong core competencies
in its existing business, a company can seek new customers by developing new value
chains. Core competencies have to be analyzed in relation to resources and
distinctive capabilities. Both of them provide sustainable competitive advantage.
○ Extension of the RBV: Hamel and Prahalad proposed a complementary approach to
Porter’s external analysis by identifying internal factors affecting the firm’s
competitiveness with an emphasis on dynamic capabilities and competencies.
Hammel and Prahalad deepened this analysis and define the concept of strategic
intent in which the organization must develop a long term strategy thanks to its core
competencies to achieve leadership position by:
■ Defining emerging market opportunities
■ Identifying markets in which its capabilities provide a sustainable competitive
advantage
■ Or creating entry barriers (linked)
○ The knowledge-based view (KBV) is an extension of the RBV. The firm is considered
a heterogeneous-bearing entity. The KBV considers knowledge as a key element to
combine the distinctive resources and the core competencies of organizations.
Recent developments in corporate branding research grounded in the
resource-based view of the firm have argued for the inclusion of corporate branding
as a strategic resource that meets the parameters of an intangible-based resource.
○ The audience could be also considered a specific and a key knowledge-based
resource. A better understanding of the audiences (key features and evolution) is the
basis for increasing revenue.

BUSINESS MODELS EVOLUTION IN A CONTEXT OF DIGITAL TRANSFORMATION

● Digital transformation is not just about tools and digital technologies. It is the integration of
digital technologies into business. Most definitions include additional changes in user
experience, products, offerings, and business models, including value proposition and
revenue.
● Digital transformation has also had an impact within companies on business processes and
digital capabilities. The foundation of digital business transformation is closely related with
organizational and external changes (market strategy). Users at both internal and external
levels are affected.

2.3. FINANCIAL MANAGEMENT

CORPORATE RESTRUCTURING AND SPIN-OFFS
● The media industry is a fertile area for research on corporate restructuring because there are
many examples of companies attempting to unlock value through spin-offs, divestitures,
split-offs and tracking stocks.
● Gannett Corporation, the Time Warner and News Corp. announced in 2014 that it will split its
print news business and 80 other newspapers from media businesses. A split-up like this is
 hardly news. Companies have been splitting off and emerging business for more that twenty
years and the logic is usually pretty obvious to the lay observer. Spin-offs and split-offs can be
justified by financial modeling around the relative profitability and growth prospects of the
units involved, by giving a company greater focus or by allowing it to unload units that have
been a drag on growth.
● Yet although the lay observer can understand the reasoning for these corporate break-ups,
the frameworks and ideas that underpin strategy theory are actually pretty unhelpful when
considering whether or not to initiate a break-up. Let’s look at our current dominant strategy
theory: the Resource-Based View or RBV. According to this theory, the “resources” that a
firm possesses determine whether it succeeds or fails. Strategic decision-making, therefore,
is about building or exploiting “resources.”
● What exactly is a “resource”? The theory defines that it could be an asset. It has to have three
features:
○ 1. Valuable to customers or enable the creation of something that is valuable to
them.
○ 2. Rare, meaning that it is not possessed by most competitors.
○ 3. Hard to copy or substitute, so that competitors cannot easily build or match the
same resource.
○ Typically, resources that satisfy these conditions are capabilities or know-how that
have been developed over time and are hard to transfer or document. But they can
also include property or patents or brands or contracts.
● Gannett clearly has resources in both its original newspaper businesses and in its more
recent media businesses. We know this because both businesses earn returns that are
reasonable for their industries. This would not be possible unless these businesses had some
resources that met the notion above. To understand it, we would have to believe that splitting
print from media either creates a new resource or makes it easier for the company to
exploit an existing resource. It seems evident that the split does not create a new resource,
and it is not obvious why splitting would enable the management team to exploit existing
resources better. So it is hard to explain this decision using the RBV.
● You may also have noted that the RBV contains no concept of focus. Indeed, if you have
multiple resources, the RBV implies that you should develop a strategy to build and exploit all
these resources. It does not explain why you might be wise to focus on some resources and
spin off other resources. So maybe there is a better theory of strategy? The main alternative
is the Positioning School. This theory states that success is dependent on positioning your
business in a pro table market, where it will have or can gain a competitive advantage.
Unfortunately this theory also fails to explain the decision to split. Splitting the business does
not change the position of either half. The print business remains in an unattractive market,
and the media business remains in an attractive market. Moreover, the split does not change
the competitive advantages either.
● The RBV would be a stronger theory if it contained concepts for both resources and liabilities.
A “liability” could be defined as a feature of the firm that is:
○ Detracting value from customers or makes it harder for the firm to create value for
them.
○ Rare, not possessed by most competitors.
○ Hard to eliminate, not easily eradicated, traded or jettisoned (blocks the advance of
the business).
 ● The CEO of Gannett Corporation, Gracia Martore, claimed that the reason for the split is that
the combined businesses had liability and trust restrictions. She suggested that the spin off
was about removing a liability (antitrust restrictions) that was subtracting value.
● Maybe it is difficult to manage a growing business alongside a declining business.
Private equity firms have shown that it is often better to separate out cash generative
businesses; so that managers can focus on this task without looking jealously over their
shoulders at their more favored colleagues in growing sister divisions.
● With this additional concept, the RBV can provide the strategy field with a firmer academic
base than it currently has for guiding managers and for explaining the full range of successes
and failures.
● IBM (Industrial Business Machine) announced two years ago the plan to spin-off its Managed
Infrastructure Services business which is part of the Global Technology Services division into
a new publicly traded company. Post spin-off, IBM will focus on its open hybrid cloud platform
and Artificial Intelligence capabilities and accelerate clients digital transformation journey.

DIVESTITURE
● Smart people farmers routinely saw off dead and weakened branches to keep their trees
healthy. They also cut back a number of vigorous limbs (like the ones that are blocking life).
Regular divestiture businesses ensure that remaining units reach their full potential and that
the overall company grows stronger. Managers use divestiture to strengthen and rejuvenate
their companies, but only if they look beyond the stigma currently associated with selling off
businesses. This refers to the dog in the Boston Consultancy Group Matrix.
● In a study conducted by McKinsey & Company they found out that those companies that
actively manage their business portfolios through acquisitions and divestitures create
substantially more shareholder value than those that passively hold their businesses.
However, when companies do divest, they almost always do so reactively in response to
some kind of pressure.
● Why do corporations divest too little and too late? The reluctance to divest is rarely
purposeful. It’s not part of a well-planned strategy. Rather, it reflects a pervasive belief in
business that, while acquisitions are marks of strong growth-focused executives, divestitures
signal weakness and even failure. This stigma is prevalent in the top management ranks of
many companies but is felt most strongly within divested businesses themselves.
● But executives shouldn’t feel ashamed to get rid of businesses. The marketplace shows that
active divestiture is central to value creation. Divestiture is not a symbol of failure; it is a
badge of smart, market-oriented management.
● The two main sources to get money in order to start a business are:
○ Investors (shareholders)
○ Loan (banks)
● Why is it so hard to move from reactive divestiture to productive divestiture? Our success in
the business can blind us (generation of substantial cash flows, strong sentimental
attachments for employees or other stakeholders). But whatever the costs of divesting a
business are holding on to a unit too long, also imposes cost (both on the entire corporation
and on the unit itself). Through these costs they are often hidden and accumulate slowly they
can be onerous for outweighing the benefits of keeping the business. There are three forms
these cost take:
○ Cost to the Corporation:
○ Cost to the Unit:
○ Depressed Exit Price:
 ● Spin off: you own a company, and a management team is separated into parts. Ownership is
the same, but entities change. It is a type of Divestiture.
● Split off: is the same as a spin off, but you (as owner) decide how you separate the parts of
your business between your corporation or a second corporation. You control both
businesses. In this case, the shareholders have to give up their existing shares.
● Why should we split off?:
○ You create higher value for shareholders as a new company
○ No sé
● Differences between spin off and split off:
○ The distribution of the shares to the shareholders and their ownership.
○ NO seeeeeeeeeeee lol ya se :0
● Tracking stocks are a special type of stock issued by a company to represent a particular
division or segment of the business. Investors can use tracking stocks to value specific
aspects of the company. Management can use tracking stocks to retain control over the
tracked operating segment or business. One drawback to tracking stocks is that they can be
reabsorbed by the main stock at any time and at a price that may be unappealing to
shareholders.
● Mergers and acquisitions entail a number of key legal, business, human resources,
intellectual property and financial issues. To successfully navigate a sale of your company, it
is helpful to understand the dynamics and issues that frequently arise. There are 12 key
points, according to Richard D. Harroch, to consider in mergers and acquisitions (M&A)
involving sales from the viewpoint of the sellers and its management.
○ 1. M&A valuation is negotiable: its value is ALWAYS negotiable. That value is
established by the buyers, not the sellers.
○ 2. M&A can take a long time to market, negotiate and close: the time frame will
depend on the urgency of the buyer.
○ 3. Sellers need to anticipate the significant due diligence investigation the buyer will
undertake: the buyer will want to ensure it knows what it is buying and what
obligations it is assuming the nature and extent of the selling company’s contingent
liabilities, problematic contracts, litigation risk and intellectual property issues.
○ 4. The seller’s financial statements and projections will be thoroughly vetted by the
buyer: it is likely that the buyer would ask for a representation.
○ 5. Multiple bidders will help the seller get the best deal: by leveraging the competitive
situation, sellers can often obtain a higher price
○ 6. You need a great M&A lawyer and a great M&A legal team: it involves complex
transactions
○ 7. Consider hiring an investment banker: they can bring significant value and provide
independent advice, as well as drive a focused process.
○ 8. Intellectual property issues will be important: we have to evaluate these intangible
issues and know how important they are for the company.
○ 9. Don’t get trapped at the letter of intent stage
○ 10. The definitive acquisition agreement
○ 11. Employee and benefits issues will be sensitive and important
○ 12. Understand the negotiation dynamics

BUSINESS VALUATION
● We have to check the profits, the earnings (income, revenues) and the market value in order
to investigate and identify a certain business.
 ● Determining the fair market values of a company can be a complex task. How do finance
professionals evaluate assets to come up with a solid number? What exactly is company
valuation? It is the process of assessing the total economic value of a business and its
assets.
● How is that valuation calculated? There are 6 different methods of valuation:
○ 1. Book value: is the simplest method, but is notably unreliable because it relies on
basic accounting metrics and that doesn’t picture a business’ true value.
○ 2. Discounted cash flow analysis: it is the process of estimating the value of a
company or investment based on the money or cash flows that is expected to
generate in the future, which reflects the company’s ability to generate cash.
○ 3. Market capitalization: it multiplies the total number of shares by the current share
price, but it only accounts for the value of equity and not combined with debt.
○ 4. Enterprise value: it is calculated by combining debt and equity and subtracting the
cash.
○ 5. Earnings (Earnings Before Interests, Tax, Depreciation and Amortization):
○ 6. The present value of a growing perpetuity formula:

2.4. ADVERTISING
● What is advertising? Advertising can be defined as any deliberate message with an identified
sponsor displayed in third-party editorial media.
● Third-party editorial media are media producing professional editorial content which is
independent from and not owned by the advertiser or sponsor. The purpose of advertising is
to utilize the mass reach and credibility of independent editorial media other than the
advertiser itself to inform and persuade consumers. Based on this definition, station promos
on a TV station's own program or its sister stations' programs would not be counted as
advertising but self (and cross) promotion respectively. Websites also would not be
considered third-party editorial media and so the advertiser's web content is not advertising
from media management's perspective.
● Media management is about the management of media with editorial content in which a
media organization selects the content or sets rules for content to be displayed in its media
outlet. So, user-generated social media, such as Facebook and Twitter, is still editorial media,
albeit most of its content is not created by the companies themselves.
● Direct consumer payment may be in the form of subscription, pay-per-view, single copy price
or admission tickets. Advertising is a common form of indirect consumer payment, in which
media consumers receive the advertisements and buy the advertised product instead of
paying for the media content directly. It has become the lifeblood of media with the largest
audiences, such as broadcast TV networks and social media. The free or very low price
further increases the reach of the media.
● The large audience of editorial media is what attracts advertisers to pay for the advertising
space or airtime. Consequently, the media industries become the drivers of popular culture.
● Media managers can choose their revenue model, relying on either indirect payment income,
such as advertising, sponsorship, commission on sales or government and organizational
funding, or direct payment income, such as subscription fee or single copy sales or a mix of
both. The importance of advertising as the income revenue for the media industry is
paramount in capitalist markets, such as the United States, Japan, and South Korea.
Government-owned media are more a niche service in these markets. Corporations are the
major sponsor of media content.
● All major media either are funded solely by advertising income, such as broadcast TV and
radio, or have a substantial portion of income coming from advertising, such as newspapers
or magazines. The maximization of the value of the advertising inventory and advertising
sales management are important topics for media management. Advertising inventory is
perishable and can be available only once, similar to a seat on an airplane. Furthermore, if
the advertising space is unsold, the media organization must fill it with editorial content and
lose revenue. The lost sales of the unused advertising space cannot be recuperated at a later
time. Media managers have their own internal training on how advertising value can be
maximized by putting a premium on space and airtime with the highest demand and filling the
advertising price.
● The study on the economic nature of media sheds light on how media products and services
should be provided to the public. There are three forms of goods: public goods, private goods
and mixed goods.
● A pure public good is a good or service that can be consumed simultaneously by everyone
and from which no one can be excluded. A pure public good is one for which consumption is
non-rival and from which it is impossible to exclude consumers. A pure private good is one for
which consumption is rival and from which consumers can be excluded. Some goods are non
excludable but are rivals and some goods are non-rival but are excludable. The first feature of
a public good is called non-rivalry. A good is non-rival if consumption of one unit by one
person does not decrease available units for consumption by another person. An example of
non-rival consumption is watching a television show. A private good, by contrast, is rival. A
good is rival if consumption of one unit by one person does decrease available units for
consumption by another person. An example of rival consumption is eating a burger. The
second feature of a public good is that it is non-excludable. A good is non-excludable if it is
impossible, or extremely costly, to prevent someone from benefitting from a good who has not
paid for it. An example of a non excludable good is national defense. It would be difficult to
exclude a foreign visitor from being defended. A private good, by contrast, is also excludable.
A good is excludable if it is possible to prevent a person from enjoying the benefits of a good
if they have not paid. An example of an excludable good is cable television. Cable companies
can ensure that only those people who have paid the fee receive programmes.
● Not all forms of media products are the same in economic nature. Broadcast and online
media are public goods or near public goods because they are non-rival in consumption and
are almost non-excludable. Non-rival consumption means that someone consuming a
broadcast TV program will not diminish another person consuming the same program at the
same time. Everyone can simultaneously consume the same program without additional cost.
Broadcast radio and TV are also non-excludable because anyone with a receiver will be able
to receive the terrestrial broadcast within its footprint.
● Cable TV makes the program service excludable through the set-top box's scrambling of the
cable transmitted signals. Movies shown in cinemas and pay cable are mixed goods because
consumers can consume the content at the same time (non-rival) but they are excludable
through the ticket admission and cable subscription and provision of set-top box to display the
TV signals. Print books are private goods as one individual can read only one book at a time
and others have to read another hard copy of the book. Typically, people cannot share a book
at the same time.
● If the private sectors are to provide public goods types of media product formats, they have to
use an indirect form of consumer payment to compensate for the cost because no one will
pay for the service as broadcast and online content is non-excludable and non-rival in
consumption. Advertising becomes the best form of funding support or revenue for these
 media forms because the public nature of these media means they will reach a large number
of audiences at no additional cost to the media. They can charge advertisements a high price
for access to the large audience. Advertisers have to pay for that access to audiences.
● The extremely high price of Super Bowl broadcast TV commercials in the United States is an
example of the provision of a highly popular sports game to give advertisers simultaneous
reach to the largest national audience with a very high profit margin for the network that owns
the broadcast rights.
● Because of the different economic properties of media formats, the importance of advertising
is different for different media. To those media formats that are more of a public good in
nature, such as broadcast TV, radio and online media, advertising is the most important
source of income. Advertising is supplemental and not the primary income for cable TV
service.
● One important question for media managers is what factors affect advertising revenue. In an
early study on newspaper advertising, Glover and Hetland found circulation is the most
important predictor of advertising revenue, more than the advertising rate. The scope for
raising revenues from consumer payment is constrained by competition which offers close
substitutes. The less differentiated the media firm's content, the larger the proportion of their
revenue from advertising.
● Because the media industry has dual product markets, revenue models of media products
highly vary. They can range from completely free to consumers (supported fully by
advertisers) to completely paid by the consumers, such as HBO. Advertising allows people
who cannot afford or are unwilling to pay for media content access to information and
entertainment. Free content can maximize audiences because there is no monetary risk to
the audience.
● So, for media that strive to achieve the largest audience, the free model supported by
advertising is the best way to go. This indirect payment revenue model is a win-win situation
for the two sides of the media markets-the advertisers, who need to find ways to
communicate to a large or specific audience, and the audience, who wants to get content for
free. Media get profits from advertising and serve both advertisers and audiences as
customers.
● Basically, all popular social media run on a primarily advertising-supported model to maximize
audiences. Pure revenue models, such as free-access models and pure subscription
fee-based models, are not sufficient to support the survival of online information sellers. Many
experts advocate hybrid models based on a combination of subscription fees and advertising
revenues to replace the pure revenue models.
● Several factors contribute to the appeal of a freemium strategy. Because free features are a
potent marketing tool, the model allows a new venture to scale up and attract a user base
without expending resources on costly ad campaigns or a traditional sales force. The monthly
subscription fees typically charged are proving to be a more sustainable source of revenue
than the advertising model prevalent among online firms in the early 2000s. Social networks
are powerful drivers: many services offer incentives for referring friends (which is more
appealing when the product is free). And freemium is more successful than 30-day free trials
or other limited-term offers, because customers have become wary of cumbersome
cancellation processes and find indefinite free access more compelling.
● Due to public skepticism toward advertising, advertisers try to attract attention to the brand
and advertising messages via integrating with editorial content (hybrid advertising formats),
such as product placement, sponsored content, and branded content. Product placement can
take the form of prop placement putting the brand product in the background or planned
 integration into the editorial content. Many of these product placement packages include
commercial spots.
● Sponsored programs attach the brand name to the editorial content and become forced brand
message exposure to the audience. What is branded content? There are almost as many
definitions as there are examples. It is simple as follows: content that carries a consumer
benefit. serves the brand. and is presented in an environment that consumers find authentic.
The power of branded content is that it offers marketers the opportunity to build or deepen
customer relationships, and it provides media companies with new sources of revenue by
helping brands achieve their objectives. Consumers are very receptive. Not only do they want
more interaction with brands. They both like and trust content created by brands. Media
company involvement further fortifies the impact. There are conditions, of course. The content
must provide a consumer benefit, and it must fit the environment in which it appears in a way
that feels authentic to consumers.
● Does commercialized content result in lower quality or diversity content? Many studies on
mass media blamed advertising for homogeneous and mass appeal programs and media
content. In contrast to the common perspective of advertising's negative effect on content,
there are other studies that show that improvement in diversity and content actually attracts
more advertisers.

1.8. COMMERCIAL PRESSURE ON MEDIA

● Advertising clutter has been defined as a “large amount of non-editorial content in an editorial
medium”. Advertising clutter can be the objective physical presence of advertising (actual
amount of advertisements) and the subjective perceived amount of advertising (which varies
by individuals).
● Current digital technologies allow a more sophisticated way of presenting ads based on
location and other user data. To media managers, advertising clutter is both an evil (possible
irritation to the audience) and a blessing (more advertising revenue and indication of a high
demand for advertising for the media company). Ads may not be perceived as clutter when
consumers are the one who requested the information/ads (pull), such as a product search on
Google. But when ads are unsolicited (push), then they are easily perceived as clutter unless
they offer consumers other value, such as entertainment.
● The rise of media marketing (which refers to the marketing of media companies, not the
marketing that uses media as vehicles to deliver ad messages to target groups) dates back to
the 1970s and 1980s, when new competitors entered and the media market changed from a
seller's to a buyer's market. During this time, media markets with dominant public service
broadcasters were "suddenly" confronted with commercial competitors.
● The increasing competition concerning audience and advertising markets forced all media
companies to invest in marketing activities and orient the organizations to meet the
customers' needs and desires. Related to the value chain of media production, media
marketing is sometimes referred to as the final step after content production, packaging, and
distribution. However, media marketing in the broadest sense covers a market-oriented media
management, as is the case for marketing in general.
● Marketing management is the art and science of choosing target markets and getting,
keeping, and growing customers through creating, delivering, and communicating superior
customer value (Kotler and Keller). Theodore Levitt underscored many corporations suffer
from marketing myopia: a narrow focus on selling products and services, rather than seeing
the "big picture" of what consumers really want.
● As competition increases and audiences fragment throughout the modern-day digital age,
media companies are urged to increasingly pay attention to their brands, as it becomes
increasingly more difficult for media brands to remain visible and become recognized by
consumers in online social networks environments. As an important goal for media
companies has always been differentiation from competitors, branding remains a very
common strategy in the media industry.
● One of the most essential aptitudes of a media brand is the capacity to signal symbolic
characteristics to audience members, advertisers, employees, and other stakeholders,
beyond its functional use. These symbolic characteristics support differentiation and decrease
market failure problems that media products experience. Therefore, media organizations can
gain a competitive advantage through a strong brand.
● Media branding can be seen, on the one hand, as a prototype of a media marketing strategy.
and, on the other hand, as an integrated management strategy that covers external as well as
internal relationships. Media Brand can be defined as:
1. An organization or person who creates, edits, publishes or distributes.
2. A product that contains:
■ A. Informative, entertaining, or educational content that is publicly available.
■ B. Signals symbolic value to internal and external stakeholders.
3. Examples of the aforementioned categories include: (1) publishing houses, online
distributors, and TV channels, as well as news hosts, journalists, actors, authors, and
owners of media organizations, in addition to (2) TV series, movies, radio shows,
newspapers, and magazines.
● Although Facebook often refuses to refer to itself as a media company, our definition includes
Facebook as a media brand because it is an organization that manages and distributes
mass-media content. Mark Zuckerberg has laid out his vision to transform Facebook from a
social media network into a "metaverse company". A metaverse is an online world where
people can game, work and communicate in a virtual environment, often using VR headsets.
The Facebook CEO described it as "an embodied internet where instead of just viewing
content - you are in it". As you know, the new brand of Facebook is Meta.
● Marketing and branding matter, in particular to media organizations, as media products are
experience or credence goods. As such, audience members cannot assess their quality
before consumption, yet they need to experience the product. In other words, one must watch
the new Marvel movie to know whether one was entertained.
● Regarding news, it can be hard for audience members to assess whether the information is
accurate, even after consumption, especially with the growing number of news sources online
or on social networks, where entry barriers are low for content providers. In an online or social
network environment, news brands can signal credibility and authority. Here, media brands
assist audience members in making their consumption choices and evaluating media content.
● Therefore, publishing activities depend not only on a large extent on advertising expenses
and marketing and publishing policies, but also on reputation (the star system, word of mouth,
reviews, awards, ...), which become part of media brands. Thus, a brand can repair the
experimental and credence good characteristics of a media product to a certain [Link]
suggests that media brands "can be viewed as institutional arrangements which help to ease
market problems to a certain degree, since they signal quality and credibility.
● For example, when a consumer has an indirect experience with a movie (e.g., through a
trailer, media reports, or word of mouth), he or she can more easily evaluate the
entertainment value of that movie beforehand. In fact, the mere function of movie trailers is to
reduce market failure through providing a priori information without giving away too much
 content prior to viewing the movie. Similar functions hold true for news headlines, audio
samples of a song, or the cover text of a book.
● The way media products are presented and structured indicates an attempt to decrease
market failure through a priori information, as such knowledge eases consumption decisions.
Media brands have a similar function, as they indicate a priori information for audience
members as part of the image users develop in their minds.
● The power of a brand lies in the minds of its customers. How customers regard a brand
depends on:
1. Consumption experiences with the brand
2. As well as marketing communication
Media brand marketing aims to build strong relationships with audiences. Through brand
awareness and brand knowledge, audiences create a brand image, attachment, preference,
and, eventually, loyalty.
● Falta diapositiva
● Five years since it last held the top spot, Apple is named world's most valuable brand by
Brand Finance Global 500 2021 ranking as diversification strategy finally pays off, brand
value US$263.4 billion. As new technologies drive brand value across industries, Tesla leaves
traditional auto marques behold with fastest brand value growth in ranking, up 158%.
E-commerce brands thrive in a new normal, with [Link] doubling in brand value, but
chain retailers cash in on home delivery too - Walmart climbs up to 6th rank. Traditional media
brands continue to suffer as lockdowns boost popularity of streaming services - CBS is the
fastest-falling brand in ranking, down 49%. Grounded by COVID-19 pandemic, airline and
aerospace sectors account for 6 out of 10 fastest-falling brands in ranking.
● Policy is defined as any course of action or decision rule that an organization voluntarily
adopts or is required to adopt, under the influence of an external agent. In the media and
telecommunications industries, a number of external agents make policy according to this
definition (either by imposing rules of decision or behavior on firms, or by shaping the external
business environment).
● These external agents include:
a. Legislatures
b. Regulatory agencies
c. Government departments at the federal, state and local level
d. The courts
e. Industry groups
f. Professional associations
g. Standard-setting bodies
h. International organizations, and so forth
● Reviews of media policy have often been organized along the lines of media industries (e.g.
newspapers, radio and television broadcasting, cable, broadband). The silo model may no
longer make sense in the era of convergence. The digitization of all traffic has erased the
distinctions between different platforms and modes of media consumption.
● Millennials and younger viewers (age 18-34) especially are unlikely to draw a distinction
between live TV and other forms of audiovisual consumption. Similarly, voice over Internet
protocol (VolP) calls carried over broadband networks now provide a near-perfect substitute
to telephone service provided by a telecommunication company. As a consequence, data
show that for the first time since the 1930s, telecommunications carriers' international voice
traffic was down in 2015-2017, the slack made up by VolP providers, such as Skype or even
Whatsapp.
● Before analyzing media policy issues at the local, national and international level, we should
ask ourselves: what are or should be the rules in the virtual world, in the metaverse?
● Media and communication networks, by their very nature, are national and international.
Broadcast signals are not easily confined within territories, and the very purpose of
telecommunications networks is to enable communication over vast territories. In the US,
broadcasting is considered a form of "interstate commerce" subject to federal jurisdiction.
● Therefore, local and provincial jurisdictions are not usually heavily engaged in policy-making
for media and telecommunications. However, they often oversee the links (the so-called last
mile) connecting end users to networks utilizing a variety of technologies, such as telephone
wires, satellite dishes, coaxial or fiber optic cable and fixed wireless connections.
● Local governments often have rules and regulations on the permissible use of land for a
variety of purposes, including the protection of local property values, improving traffic safety,
avoidance of interference with aviation, environmental concerns and aesthetics
considerations. The placement of broadcast and mobile communication towers and the
collocation of such elements on existing facilities have to comply with zoning ordinances as
well as with applicable environmental regulations.
● Rights of way enable media and telecommunications providers, such as cable companies, to
lay coaxial or fiber optic cable in privately and publicly owned land. Facilities such as
broadcast and mobile communication towers and cable plants are required to abide by local
regulations on zoning and rights of way. Local and state governments in many jurisdictions
have varying degrees of authority to permit media and telecommunications firms to operate in
their territories, through licensing, franchising and subsidy support.
● Though local jurisdictions do have several policy-making and implementation functions within
territories, media and telecommunications policies are mainly within the jurisdiction of national
authorities. The activities of national regulators and government agencies extend to (a)
content, (b) infrastructure and (c) Human Resources issues.
● Legal traditions in many liberal democratic countries include protections for media
organizations against government interference with freedom of speech. Legal restrictions on
free speech have been placed on a variety of grounds, including sedition, promotion of
communal, blasphemy, and propaganda against the established political order.
● In general, media policies have focused on promoting desirable intent, and restricting other
types considered harmful on economic, cuItural or social grounds. Favored content includes
children's programming and national origin ramming (defined in various jurisdictions as films
and television programs reflecting local cultural values, involving significant local Iction
investments or local artistic talent).
● For a variety of reasons, broadcast media enjoy fewer free speech protections than print
media:
○ 1. Broadcast media use a scarce public resource, the broadcast spectrum, and in
return are expected to assume certain public service responsibilities.
○ 2. Broadcast signals are more intrusive and available unsolicited to all persons,
including children, with a compatible receiver within the broadcast zone.
○ 3. The psychological effects of incitements to violence or of audiovisual depictions of
obscene or violent content are stronger and more immediate than written or
descriptions.
● Accordingly, media policy in many countries restricts several types of content, including
pornography, indecency and incetements of violence. Also countries have created guidelines
for broadcasters on issues such as gender portrayals or graphic depictions of violence.
 ● As public trustees, spectrum licenses are expected to serve the public, including minorities,
children and special needs populations. However, economic modeling shows that the
tendency in advertising-funded models is to provide least common denominator programming
that will be acceptable to a large audience, rather than niche programming of high interest to
small audiences.
● Some of the emphasis on program and content diversity has lessened, since broadcast
spectrum scarcity is not as much of a pressing concern. Viewers now access content from a
wider mix of cable and satellite television networks, subscription VOD services, over-the-top
(OTT) content providers and advertising-supported video distribution sites. With channel
scarcity no longer a bottleneck, the importance of content diversity in media policy has also
waned.
● While political coverage is encouraged, media regulators have sought to encourage values
such as fairness, impartiality, editorial independence, balance and neutrality. Regulators may
be concerned about coverage of politics in news and current affairs, or about political
advertising.
THE END