The bursting of the media bubble

Analysis
By Tim Weber BBC News Online

They come in threes.

ITV digital has applied to go into administration - to you and me that's bankruptcy.

This is about an industry that over-promised, over-expanded and was over-hyped

UK cable network operator NTL is running out of cash fast. The company warns that it may not survive.

And in Germany media giant Kirch Gruppe - owner of the rights to World Cup football, Formula One and an awesome Hollywood film library - is on death-watch, slowly being crushed by its debt burden.

We are witnessing the bursting of the media bubble, the third bubble to pop after technology and telecommunications.

Bye, bye TMT

Technology, media and telecoms (or TMT as it was called in fashionable shorthand) were once seen as the cornerstones of the economic and investment miracle of the past five years.

No more. Technology firms, and especially dot.com upstarts, were the first casualties. Telecoms came next.

Both industries suffered terrible financial losses, cut tens of thousands of jobs and are now hobbled by huge debts.

Plenty of firms did not survive at all.

Now it is the turn of the media industry, and this is not just about ITV Digital and its desperate scramble for subscribers and advertising revenue.

It is about an industry that over-promised, over-expanded and was over-hyped.

The technology trap

In an ironic twist, the media industry has fallen victim to a trap that is the inverse of that sprung on tech and telecoms firms.

The tech and telecom bubbles burst because their visions were way ahead of the technology.

The roll-out of broadband connections is arriving late. The launch of third-generation mobile phones is surrounded by uncertainties and escalating costs. And most computer software is still bug-ridden and not particularly user-friendly.

Consumers have taken a look and found the products and services wanting.

Media companies, however, have a different problem. The technology is there. The world of multi-channel television, both digital and analogue, is a reality.

What lacks is the vision on how to fill it.

Expanding as if there is no pay-day

This is not necessarily a lack of content, but the failure to develop a business model that suits both broadcasters and consumers.

In the United States, giants like Disney and AOL Time Warner are still smarting from the dot.com meltdown, and scrambling to improve their broadcasting divisions.

But the bang of the media bubble bursting is heard especially loud in Europe.

Desperate to catch up with their US rivals, European media firms rushed to expand - buying competitors and content as if there was no pay-day.

The killer content kills

However, there was a fatal mistake in their calculations. They spent huge sums of money on what they thought would be the content equivalent of a "killer application" - an offer that every consumer was eager to pay for.

Football and a host of other sports were the broadcaster's preferred "killer content". Amid the media frenzy, the cost of these transmission rights escalated.

What failed to grow was revenue. There is actually not that much riveting sport worth watching. And there are only that many sports fans happy to cough up the money to see it.

High costs, little income. Now the killer content is killing the firms that dreamed up the concept.

This is not the end of the industry, though. A few media giants will survive, even grow fat on what remains of their collapsed rivals.

As usual, the true losers will be the investors.

After the slump of the technology and telecoms sectors, we are witnessing the third big exercise in shareholder value destruction in as many years.