Curse of the Mogul

SIIA Information Industry Summit

January 2011

What makes media different?

1

Consistently Bad Returns…For a Generation

Note: Total shareholder returns include capital gains and dividends.

12/31/10 - 12/31/10 12/31/99 - 12/31/09 12/31/98 - 12/31/08 12/31/97 - 12/31/07

Disney 3.7% Disney 1.7% Disney (1.2%) News Corp. 7.6%News Corp. 0.4% News Corp. (1.3%) News Corp. (2.0%) Viacom 5.6%Time Warner (1.5%) Time Warner (5.6%) Viacom (9.1%) Disney 0.6%Viacom (4.2%) Viacom (9.0%) Time Warner (15.7%) Time Warner (5.5%)

Average (0.4%) Average (3.5%) Average (7.0%) Average 2.1%S&P 1.4% S&P (0.9%) S&P (1.4%) S&P 5.9%

12/31/91 - 12/31/01 12/31/90 - 12/31/00 12/31/89 - 12/31/99 12/31/88 - 12/31/98 12/31/87 - 12/31/97

Time Warner 11.4% News Corp. 21.9% Time Warner 16.6% Disney 18.7% Disney 20.5%Viacom 10.1% Time Warner 17.1% Viacom 15.4% Viacom 16.9% Viacom 16.4%News Corp. 8.9% Viacom 14.6% Disney 12.1% Time Warner 16.7% Time Warner 11.5%Disney 8.7% Disney 13.5% News Corp. 11.8% News Corp. 11.8% News Corp. 9.3%

Average 9.8% Average 16.8% Average 14.0% Average 16.0% Average 14.4%S&P 12.3% S&P 16.3% S&P 16.6% S&P 17.5% S&P 16.3%

12/31/96 - 12/31/06 12/31/95 - 12/31/05 12/31/94 - 12/31/04 12/31/93 - 12/31/03 12/31/92 - 12/31/02

News Corp. 9.4% News Corp. 5.0% News Corp. 10.6% Viacom 7.3% Viacom 7.1%Viacom 7.7% Viacom 3.3% Disney 6.7% Disney 5.8% Disney 2.5%Disney 5.0% Disney 2.6% Viacom 6.0% News Corp. 1.7% News Corp. 1.4%Time Warner 1.9% Time Warner (0.7%) Time Warner 1.0% Time Warner (1.9%) Time Warner (0.8%)

Average 6.0% Average 2.5% Average 6.1% Average 3.2% Average 2.5%S&P 8.2% S&P 9.0% S&P 11.8% S&P 10.8% S&P 9.3%

2

Growth is good

Global is great

Content is king

Convergence creates opportunity

Media Conventional Wisdom…

3

Growth and Returns Analysis (1995-2005)

17.0%

10.1% 9.8%

7.5%

5.0%

2.6%3.3%

(0.7%)(2.0%)

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

TWX NWS DIS VIA

Revenue Growth Total Shareholder Returns

R2 = 0.709

4

Basic Structure of Strategic Analysis

Level playing field

Many competitors

Efficiency, efficiency

Competition Among the Few vs. Cooperation Among the Few

Exploit, reinforce competitive advantage

Are there Barriers to Entry?

No Yes

You Alone?

No Yes

5

True Competitive Advantages

Economies of scale– Fixed cost– Network effects

Revenue = Customer captivity– Habit– Switching costs– Search cost

Cost– Proprietary technology– Learning– Access to resources

Government regulation

Sources of Advantage

Profitability = earning returns on capital in excess of cost of capital

Share stability

Tests to Assess

6

Sham Competitive Advantages for the Media Industry

Deep Pockets

Brands

Talent

First Mover

Alleged Advantage

Good table at Spago

Invited to Sun Valley

Tests to Assess

7

Brands as Competitive Advantage

Superior Profitability and Share Stability?

Yes No Automotive Harley Davidson Mixed Cadillac Mercedes Benz

Consumer Products Budweiser Mixed Coca-Cola Colgate Tide Marlboro

Financial Services Wells Fargo JP Morgan Chase Citibank

Retail Wal-Mart Gap Liz Claiborne

Technology/Electronics Intel Dell HP Motorola Sony (RCA)

Telecom AT&T Cingular Sprint Verizon

Other Industries Insurance Cosmetics

8

Strategic Approaches – First Moves Advantages?

First Mover Dominant Competitor

Mainframes UNIVAC IBM

PC Apple Dell, Compaq

Operating Systems CP/M Microsoft

Spreadsheets Visicalc Microsoft

Portals Prodigy Yahoo!

Search Engines Inktomi, AltaVista Google

TV Networks NBC CBS, NBC, CBS, Fox

Airlines PanAm, TWA none

Cellphones Motorola Nokia

Automobiles Ford none

Online Auctions Ebay Ebay

VCRs Betamax VHS

9

Information Conglomerates Have Outperformed the Media Conglomerates

Last 10 Years - as of 12/31/10 Last 10 Years - as of 12/31/10

McGraw-Hill 3.5%

Thomson 1.9%

Reed Elsevier 0.4%

Wolters Kluwer 0.0%

Pearson (1.6%)

Information Conglom. Average 0.9%

S&P 1.4%

Disney 3.7%

News Corp. 0.4%

Time Warner (1.5%)

Viacom (4.2%)

Media Conglom. Average (0.4%)

S&P 1.4%

10

― But Not by Enough to be Proud

Information Conglomerates Ignored the Lessons of Dun & Bradstreet

Total Return 9.7% 48.9% 122.6% 102.3% 126.6% 132.8% 114.9% 212.9% 288.6%S&P Total Return 30.3% 72.6% 120.1% 164.6% 142.4% 116.2% 73.7% 117.5% 139.1%

$58.63 $64.34

$87.29

$227.83

$183.44

$126.01$136.49$132.85

$118.59$130.48

$0.00

$50.00

$100.00

$150.00

$200.00

$250.00

3 Months Priorto

AnnouncementDate

1996 1997 1998 1999 2000 2001 2002 2003 2004

DNB Corp. (Old) AC Nielsen Cognizant DNB (New)/ Moody'sNielsen Media IMS Health RH Donnelly GartnerSynavant DNB (current) Cognizant Tech. Solutions Cumulative Dividends

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11

Six Principles for the Good Mogul

1. Dare To Dream

2. Keep It Local, Keep It Focused

3. Efficiency Is Cool

4. Don’t Be Such A Big Shot

5. Watch Your Back

6. There Is Much To Be Said For Dying With Dignity

12