Rupert Murdoch crowed when his company bought Dow Jones Inc. two years ago. Since then, though, News Corp. has taken a $3 billion write-down on the purchase.

 

Murdoch’s struggles with his acquisition are hardly unique. A new book by three Columbia Business School professors takes a scathing look at media moguls and the businesses they run, concluding that despite much-hyped acquisitions and constant talk of synergies, their business deals have decimated their companies’ stock values.

 

Indeed, since 2000, the four large media conglomerates—Time Warner Inc., Viacom/CBS, News Corp. and the Walt Disney Co.—have collectively written off more than $200 billion in assets from their balance sheets, according to the authors of The Curse of the Mogul: What’s Wrong With the World’s Leading Media Companies?, which is scheduled for publication this month. Even before the Internet wreaked havoc with media business models, the industry had dramatically underperformed the stock market, say authors Jonathan A. Knee, Bruce C. Greenwald and Ava Seave. Even so, its leaders kept expanding their empires as shareholders lost out.

 

Greenwald, the Robert Heilbrun Professor of Asset Management, calls media conglomerates a danger to themselves and their investors—as well as others. “In a rapidly changing environment like this one, media firms that do not understand the competitive environments they face will ultimately destroy themselves at the expense not only of their leaders but also their workers, shareholders and communities,” he said.

 

As befitting a book about the media, The Curse of the Mogul has created a lot of buzz in the industry. The current issue of The Atlantic features an excerpt debunking common assumptions about what makes media conglomerates successful (“Growth is good”? Think again. “Content is king”? Not so much). Earlier this month, The New York Times media reporter David Carr praised the authors in a column titled “The Moguls of Mirage, Now Muted.”

 

“These moguls are paying for assets not connected to their core businesses,” explains Knee, an investment banker with Evercore Partners, adjunct professor of finance and economics and director of the business school’s media program. “All the biggest deals have demonstrably destroyed shareholder value, and the moguls in charge like to delude themselves and investors that the opposite is true.”

 

The authors ran the numbers, which show that from 1995 to 2005, the four aforementioned conglomerates returned an average of 2.5 percent to shareholders while the Standard & Poor’s 500-stock index returned 9 percent. In other words, says Knee, “less than a third of the performance that someone could have achieved by closing their eyes and throwing a dart.”

 

For example, Time Warner’s move to merge with AOL in 2000 was the “worst single deal in the history of mankind,” says Knee. “When AOL is spun off from Time Warner, it will be worth about 1 percent of the market price assigned to it at the time of the merger.”

 

Author Ava Seave, an adjunct associate professor of finance and economics and co-founder of the consulting firm Quantum Media, says the media business tends to foster false grandiosity and megalomania among its top executives. “The industry is based on celebrity; songs, books and movies can change people’s lives,” she says. “Because of this, owners tend not to think about things like cost control.”

 

Murdoch, for his part, hurt his company when he signed a pricey deal to bring NFL football television rights from CBS to FOX in 1993, says Knee. “The cycle of retaliation that ensued among all the other networks resulted in an orgy of overpayment to benefit stars, sports teams and station affiliates, to the detriment of shareholders,” he says.

 

The big four conglomerates aren’t the only culprits; smaller companies have faced similar struggles. The authors do applaud media companies like Bloomberg L.P. and Thompson Reuters who enjoy high returns by keeping their focuses narrow and finding ways to integrate their products into the day-to-day businesses of their clients, they say.