Apocalypse 29: In Search of Patient Investors

BusinessWeek, my one-time employer, is on the sales block as of today with potential buyers being Bloomberg, Pearson or a private equity fund of some kind. My first reaction is just sadness for all my friends there, a group of sharp-as-nails writers and editors. My second reaction is to pray that a media company beats the LBO boys for the buyout. Here’s why:

The brutal reality of news media is that there’s no business model right now. Our output is divided between ‘old’ and ‘new’ platforms at one ratio, while our revenue is divided at a different ratio. It will stabilize as we create a business model for monetizing online, whether by premium subscriptions, better more expensive advertising, or both. I wouldn’t be entering this business now if I didn’t think so. But I’m betting it will take at least five years.

A media conglomerate ultimately wants to be in whatever new media form emerges in five years. So they will invest—not recklessly, but liberally—in a magazine or newspaper as the industry gets to its future state.

An LBO firm, by definition, buys distressed assets to get profits out of them fast, and then exits the business to try something else. Trying to cost-cut your way into profitability at a time when sustainable profits are years out is a fool’s errand. That’s the lesson Sam Zell learned at the Tribune. I sure hope we don’t have to watch BW go through the same.