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Investing in the media: financial return or political return?

University Professor of Management Sciences

University of Lorraine

*Faculty member of the Business Science Institute.


Article originally published on The Conversation France.

Given the financial resources required to develop a media business, recourse to investments by companies or groups from industrial sectors more or less distant from the media has become the most common case today. The creation of the Mediawan fund by Xavier Niel, Mathieu Pigasse and Pierre-Antoine Capton with the aim of investing in the media through acquisitions bears witness to the willingness of certain leading executives to invest significantly in this sector.

Indeed, Mediawan is a SPAC (special purpose acquisition company), i.e. a collective investment structure aiming at underwriting private equity operations of more than 250 million euros. However, it remains to be seen whether this type of investment will be profitable, particularly in the case of a fundraising.

Conglomerate diversification vs. linked diversification

Before considering the relevance of such an investment in the media, it is necessary to clarify what is meant by diversification. For companies, there are two types of diversification: conglomerate or unbound diversification and bound diversification (Ramanujan & Varadarajan, 1989). The first corresponds to the development of markets and activities that are, a priori, unrelated to each other. The holding company provides primarily accounting and financial management of all the activities. The logic is similar in the case of business angels who spread the risk through unrelated diversification.

The arrival in the media of Xavier Niel, founder and director of Free and already present in this sector through an investment in 2010 in the daily newspaper Le Monde, or of Mathieu Pigasse, managing director of Banque Lazard France and vice-president of Lazard Europe, who is also present in the media as owner of Les Inrockuptibles, Radio Nova and shareholder of Le Monde and The Huffington Post, can be considered as an unrelated diversification in view of the first activity of their group (telecoms and banking).

The second type of diversification, linked diversification, aims to extend the company's activities through one or more common points that link these different activities. Pierre-Antoine Capton's participation in Médiawan may fall under this logic. Indeed, as Chairman and Founder of the production company Troisième Œil Production, it is possible to see in this investment a desire to diversify into content production.

The difficulty of evaluating the link between activities

Once the two main types of diversification have been clarified, it is necessary to analyze in greater detail the question of the link between activities. Indeed, the justification for linked diversification is based on the idea that the activities benefit from sharing something in common (a brand, a technology, a raw material, a know-how, etc.). It is, for example, easy to see the element that inflatable mattresses, inflatable pools, inflatable spas, inflatable boats, buoys, etc. offered by the Californian brand Intex can share. Academic work (Leslie, Laura and Chet, 2000) concludes that the performance of companies that have chosen to diversify through linkage is superior to those that have chosen not to diversify or to those that have preferred conglomerate diversification, because of the appearance of these synergies.

However, there may be cases where the linkage between activities, and hence the synergies created, are of a different nature. Although they are very different, some activities may be complementary or even essential to each other. The ASO group (Amaury Sport Organisation), for example, organises nearly a hundred sporting events such as the Tour de France, the Paris-Dakar, the Paris Marathon, the French Open, etc. Most of the events organised are complementary to each other. Most of the events organized are very unprofitable or even unprofitable. However, they are essential for the ASO group, owner of the daily newspaper, l'Équipe, whose need for sports content is important throughout the year. It should also be noted that this positive relationship works both ways, as a sporting event, in order to be successful and attract sponsors, needs significant media coverage. It is in a global way that the links and the profitability must be evaluated between the main activity of a company and its media activity.

Seeking synergy with the political world

The media are often presented as the "fourth estate" (the original expression is Edmund Burke's Fourth Estate in 1787 in reference to the nobility, the clergy and the third estate) of the democratic system (in addition to the executive, legislative and judicial branches) because of their strong influence on public affairs and the behavior of citizens. Chateaubriand (2015 [1849]: 1588) notes in this regard that the press is "speech in the state of lightning, it is social electricity.

Following the law on freedom of the press in 1881, the idea of the influence of the media on the opinions and behaviors of citizens has persisted over the years to be reinforced with the penetration of television in French homes and then the Internet (Ferenczi, 2007). The media are considered by politicians as a central link between them and citizens that can have a considerable influence on opinions in general and on political life in particular. Jean Lecanuet, for example, studied the role of television in the 1960 American presidential election as early as 1965 and hired a communications advisor in order to best deal with the media.

It is interesting to observe that diversification into the media by certain companies or industrial groups takes place in sectors where the links with the political world are, by nature, very strong. Arms manufacturers such as Dassault or Lagardère (formerly owner of EADS, since sold) have, in the past, invested massively in the media. The construction and public works sector (Bouygues with TF1) and pharmaceutical laboratories (the Pierre Fabre Group with Sud Communication and the Privat publishing house, which publishes the works of Philippe Douste-Blazy, former Minister of Health and former mayor of Toulouse, the Canceropôle's host city) are also sectors concerned.

In the presence of economic activities that can potentially be impacted by political power (regulations, competition, taxation, etc.), it can then appear interesting to be able to exert a certain influence on political decision-makers that can have an impact on the evolution of their activities. In this case, it is obviously not the profitability of the media activities that must be evaluated individually. They can even, in some cases, be considered as cost centers (such as a research and development center) allowing the profit centers, i.e. the main activity, to function.

And what if Xavier Niel, always at the mercy of public authorities in terms of license allocation (as for the fourth three G license), competition law (authorization of the takeover of Bouygues Telecom by a competitor), taxation (special VAT on Internet boxes), sought to influence certain important choices through the power of influence of the media?

Mathieu Pigasse is also involved in an activity in which politics plays a predominant role, such as the work on the merger of the Caisse d'Épargne and the Banque Populaire or the rescue of the credit enhancer CIFG. Mathieu Pigasse is no stranger to the world of politics, as he began his career as a civil administrator at the Ministry of the Economy and Finance. He was a technical advisor in the cabinet of Minister Dominique Strauss-Kahn in 1998 and deputy director of Laurent Fabius' cabinet a year later.

As far as Pierre-Antoine Capton is concerned, here again, the links are strong since the main client in terms of television programs of his production company (C à vous on France 5, Les Carnets de Julie on France 3, Un soir à la Tour Eiffel on France 2, etc.) is the public television group France Télévision.

The media, a particular profitability

Whether to influence political debate or to obtain advantages for their company or group, investment in the media by major French captains of industry is a tradition (Jean Prouvost and Paris Soir in 1930, for example). However, it remains particularly difficult to measure the real impact of the media on public opinion on the one hand, and to clearly establish to what extent a media group can really influence the decisions of political decision-makers on the other.

What is clear, however, is that the media are proving to be a group of particular activities that easily remove decision-makers from any rationality. Of course, there are many motivations for choosing new activities in the case of diversification. But it seems difficult to deny that the press, television, cinema, etc. fascinate and lead to choices that are disconnected from justifications that fall within the framework of economic rationality. It is then impossible to reason in terms of financial profitability!

Article translated from French with


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Sébastien Liarte's articles on The Conversation France.

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