Summary:Roy Furman, Vice Chairman of Jeffries and Company, opened the panel by identifying four key drivers of change that the media industry has experienced over the last thirty years: globalization, consolidation, regulation and technology. To explore these issues he was joined by Jeffrey Berg, Peter Chernin, Mel Karmazin, Robert Kotick and Terry Semel.
Furman remarked on the great consolidation the industry has seen, the increase in movie grosses and the appearance of new sectors, notably cable television and new technologies such as the VCR and the DVD. At the same time, he noted, the reach of top television programs has fallen with leading shows no longer commanding the audience shares they used to. And as revenues have increased, so too have costs. Turning to the panelists, he questioned whether consolidation in the industry has been a good thing. Is bigger better?
Karmazin suggested that the logic of mergers was a question of specifics. Mergers that were carried out for strategic purposes or to achieve cost savings were working while those that were carried out simply to take advantage of acquirers′ inflated stock prices were not. Bigger is better, he contended and suggested that in fact mergers in other sectors require consolidation in the media industry.
Chernin agreed that bigger firms were needed and stressed that managing these mergers was a crucial challenge. Product quality was the ultimate measure of a firm′s success. Indeed, he noted that firms "are as good as (their) product."
Furman took this point further then, asking whether large firms had the ability to act creatively. Karmazin felt this was possible suggesting that decentralization was needed as "creativity is down at the grassroots level." Berg agreed, noting that media executives served in an editorial role rather than directly in a creative role.
Access to capital was a concern, Berg suggested, as were ways to "allow risk to be hedged." Chernin returned to the decentralization theme, using the example of Fox Searchlight to illustrate how a large firm can remain innovative and creative.
The moderator then raised the sensitive issue of content. Was the media guilty of dumbing down content, he asked. Karmazin felt that the proliferation of channels and media allowed new opportunities for niche marketing. Chernin felt the entire issue of dumbing down was "elitist and politically correct" and that viewers always had the option of simply changing channels.
While competition was fierce in the media industry, Furman suggested that MTV remained dominant and seemed to have a "wall of impenetrability." Panelists, however, felt that MTV was likely to face competition from new technologies such as the Internet as Semel suggested, and from the video game sector as Kotick contended. Kotick contrasted the media and video game industries quipping that "our budgets are their catering costs." While independence might be problematic in other industries, it was not for Activision.
Berg then provided the segue into a discussion of globalization by contrasting the political sensitivity of the media in foreign markets with its domestic commercialization. Chernin felt that an awareness of local politics, customs and mores was needed to successfully operate in foreign markets. Semel noted the global nature of the Internet.
Panelists were then asked to identify the greatest challenges to the industry. Piracy and other violations of intellectual property were common to panelists′ responses. Both Chernin and Kotick agreed that piracy would be the leading challenge and were echoed by Karmazin. There was, he felt, a role for congressional action but noted little taste for it on the Hill. Semel contended that part of the problem was the failure of firms to respond to new technology. Chernin who felt that the "business model" question was not the pressing issue, disputed this. Instead, he insisted, copyright must be sacrosanct. Berg provided a compelling context for this discussion noting that the "leakage" in the business was in fact greater than the industry itself. Piracy took two forms, organized commercial piracy and small scale individual piracy.
Before bringing the panel to a close, the moderator posed the question of regulators′ double standard in dealing with cable and video game content. Furman asked panelists whether they felt that the apparent leniency of regulators in dealing with violence in cable programming and in video games was a problem for other media. Chernin felt that this was not of concern.
The panel ended with a final question to the panelists. What was their greatest concern, risk or opportunity, Furman asked. Kotick, alluding to the previous nights′ presentation, joked that deforestation was his greatest worry while Karmazin replied that the strategic positioning of Viacom as a content, not distribution provider kept him awake. Berg said that accessing new forms of capital and providing value to his clients was his greatest concern while Chernin felt that product quality was key.
