Independent Media Sustainability: A Review

[Joanne98]

Independent Media Sustainability: A Review

Catherine and Daily Musings,September 2, 2008 at 5:09 pm

INDEPENDENT MEDIA SUSTAINABILITY:
A REVIEW OF EXISTING MEDIA CAPITAL STRUCTURES

By Carolyn Betts, MBA/JD

Anyone who is focused on building wealth—whether personal financial wealth or community and environmental wealth—comes to appreciate the importance of independent media. Freedom cannot exist without free speech, and no meaningful free speech can exist in the absence of an independent media. Healthy markets depend on transparency. The estimated $1 trillion of global losses in the US mortgage markets has followed (and, arguably, been made possible by) years of censorship on the part of corporate media.1 One step that we can take to prevent such losses in the future is to shift greater attention and resources to support a diversified, independent, global media.


A client of mine asked me to identify what capital structures might best suit an independent media company seeking to raise capital for infrastructure improvements and to expand its operations without the loss of editorial control that might accompany the sale of an equity interest in the company. As is the case for most young companies financed primarily with management sweat equity, retained earnings and loans and capital contributions by close friends, family and founders, the percentage interest that would need to be sold to raise adequate capital could result in a dilution of voting control by management.

Potential loss of voting control by management is an important consideration for any closely-held company due to the possibility that passive investor shareholders could use their power to (1) slow down the implementation of important decisions that need to be made decisively in order to capitalize on market opportunities, (2) second-guess experts in the field (i.e., company management) in ways that are harmful to operations, and (3) prevent management from making short-term sacrifices that are in the best interests of the company and its long-term profitability. It is for these reasons that Solari had promoted the “A/B share” nonvoting/voting capital structure as a means for local investors to support community small business growth in a way that would not interfere with day-to-day operations of such businesses. We reasoned that entrepreneurs would be much more willing to accept equity capital than the tempting, but ultimately much more risky, debt alternative if they believed that they could do so without disrupting the management decision-making process.

In the case of an independent media company, the need for management independence is considerably greater because, in addition to the factors listed above, there is the potential for editorial interference by holders of significant voting power through their share ownership.2 Witness the repeated accounts of “spiked” stories at the three major television networks, now controlled by Disney, General Electric and Viacom/National Amusements. Of course, some of the pressure to change editorial policy comes from major advertisers who are wont to pull their advertising dollars at the drop of a hat when displeased at the latest exposure of inconvenient truths. And, in the case of National Public Radio and the Corporation for Public Broadcasting, from the influence exerted through the political process by which government support as well as tax-exempt status is meted out on the part of those wishing to distort, hide or fabricate stories. Many other instances of economic warfare on the battlefield of public opinion come to mind. Nevertheless, we wanted to do what we could, as investment bankers, to assist our client in identifying a long-term sustainable capital structure that would contribute to editorial independence in a climate of economic warfare.

We had heard that Google, the Washington Post and the New York Times, all public companies, had implemented some sort of A/B share structures, at least in part in efforts to retain a high degree of editorial control and stave off hostile takeover attempts by unwanted suitors. This chart is the result of our initial survey of the capital structures of some, but by no means all, major publicly-held media companies.

In brief, what we found is that:

Continued>>>
http://solari.com/blog/?p=1474#more-1474