Thirteen years ago the futurist Nicholas Negroponte, in his book Being Digital dove right into the difference between bits and atoms and what it meant to the future of business:
While we are undoubtedly in an information age, most information is delivered to us in the form of atoms: newspapers, magazines, and books (like this one). . . .As one industry after another looks at itself in the mirror and asks about its future in a digital world, that future is driven almost 100 percent by the ability of that company’s product or services to be rendered in digital form. If you make cashmere sweaters or Chinese food, it will be a long time before we can convert them to bits.
And while we are amazed that it has taken this long, Source Interlink’s recent chapter 11 filing is nothing more than the latest example of digital killing off the old way of doing business. Strangely, the people behind Action Sports Group’s (Surfer, Snowboarder, Skateboarder, etc. . . ) parent company are over-joyed that they drained their investors’ pockets down next to nothing before deciding to “take the company private.”
“We couldn’t be more pleased,” Source Interlink CEO Greg Mays said in a statement. “This restructuring will materially reduce our interest expense and debt levels, substantially improve free cash flow and allow us to capitalize on several operational opportunities to further improve and grow our business.”
We don’t know how optimistic we’d be with a company whose CEO is overjoyed to be filing for bankruptcy. Good thing Ron Burkle has billions of dollars, because they’re going to need it.
[Link: Folio Magazine]
I hate to disrupt their bankruptcy celebration, but let’s play this out. Source Interlink is now owned by a group of banks. Banks are not in the business of operating media companies, so they will sell it whole or in pieces as soon as they’ve prettied-up the bottom line and they think the market has rebounded. Whoever buys it will borrow a ton of money, then be shocked when profits decline and don’t meet the projections they used to justify their winning bid. All the upside was wrung out of these magazines ages ago, that’s why each successive buyer keeps failing with them. Considering that the Surfer group is on its sixth owner in about ten years, it’s unlikely that the seventh time will be the charm.
And the $100 million investment Source is bragging about is more like a bank sprucing up the yard of a house they just repoed.
Anon: Agreed about the celebratory spin being spun here by Mays. I wonder if Active’s crew is out there bragging about what a great day it is for their company to be on the hook to a lot of small companies who employ lots of people who might be out of a job as a result of their business methods. Think Rvca or Ezekiel is stoked on Active now? I wonder if Disney/ESPN finds the ASG group alone attractive? They could snap these titles up on the cheap, keep the ones that help them with their “cred” with the endemics and then clean house and shut down the ones that don’t. Then we could watch Mickey and Goofy MC the fantasy surfer draft on ESPN Ocho. Does Mickey Mouse surf? I know, I know, stupid crazy idea… just not as crazy and stupid as paying 1.2 BILLION dollars for a bunch of magazines.
The guy above me is on point.
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