Friday, May 29, 2009

Quote of the day

"Vision without execution is hallucination."

-attributed to Thomas Edison, although this guy doubts that attribution. I don't care whether or not Edison said it, it is now one of my all-time favorite quotes.

I read this today in an article in the FT about Time Warner getting rid of AOL, finally"bringing the curtain down on one of the biggest and worst deals in history." Steve Case quoted Edison in a tweet, including himself among those who didn't execute properly. At least he's taking responsibility for his own supreme idiocy.

This should also put an end to any lingering discussion of "synergy," the idea that different parts of a media conglomerate can all profit by combining their different assets. This was an idea that I remember being popular as early as the '80's. It's a simple concept. One company buys up media properties in several different areas, and they collaborate. For example, a publisher buys the rights to a novel; the film studio in the same conglomerate makes a movie based on the book, and uses songs from the record company. Everyone wins.

But conglomerates have been tried before, in other industries, to disastrous effect. For example, Ford once owned multiple businesses that contributed to making cars. I heard once that Ford owned sheep farms, to supply wool for seats. The problem with this is that Ford is not necessarily good at making wool or raising sheep, and they can't coordinate production of the wool very well with making cars. The number of sheep is fairly static, and increases at a certain rate. The number of cars sold goes up and down much more dramatically. It's better for Ford to just buy the wool that it needs from regular sheep farmers. Same thing with lots of other products.

Synergy is a stupid idea in the media business for a slightly different reason. Let's take the example above. The book company within a conglomerate publishes an intense drama. Serious Literature. It would make a great movie. Probably won't make a lot of money, but it will attract top talent, and might very well be Oscar bait.

The best way to make money from a movie is to make a good movie. In our example, the synergistic approach to making a movie suggests that the movie studio owned by the conglomerate make the movie.

There are a couple of problems. First, the studio owned by the conglomerate may not be the best studio to make this particular movie. The best way to make a movie is to cast as wide a net as possible for the best possible producer. By limiting the choices of producing partner to one studio, the synergistic approach actually greatly reduces the options available for making the movie, which also greatly reduces the chance that it will be a good movie, and therefore that it will make money. So the synergistic approach is severely counterproductive. The same applies to the film studio and the record company. When the producers are making the movie, they will want access to the broadest possible range of music to incorporate into the movie. They will not want to be limited to one record company's catalog.

The second problem is that the book publisher and the film studio, although they are part of the same umbrella organization, are, very probably, different companies, with very different interests. One or both may have been separate companies that were bought by the parent conglomerate. If that's the case, they may be separate once again in the future - conglomerates are notorious for spinning off companies they once bought. Like, say, AOL being spun out of Time Warner. So the book publisher and the film studio also may have different interests than the parent. The publisher and the studio almost certainly will be staffed by people who are more loyal to the subsidiary company - the publisher or the studio - than they are to the parent. I discovered this when I worked for EDS (Ross Perot's company). At the time, it was part of GM, but the people who worked there made it clear that they considered themselves employees of EDS, not GM. They even had separate holidays. I was there one day when all GM employees had the day off for a certain holiday, but the EDS employees didn't get that day as a holiday (I can't remember what holiday it was).

GM, of course, eventually sold EDS. GM, of course, is about the best possible example of synergy failing as a corporate strategy. Of course, GM could be used as an example of many different corporate strategies failing.

When the book company sells the rights to the book, they want the highest possible price for it, so they can show a good profit on their balance sheet. The studio, of course, wants to pay the lowest possible price for it. This is natural. But it conflicts rather badly with the idea of "synergy." Which makes executing the vision very, very difficult.

I read a quote from a media executive that "Synergy is b---s---." This was from Jeff Bewkes. Who is the CEO of - you guessed it - Time Warner.

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