Media Maneuvers: Lessons of Lucifer

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Published November 17, 2006 at 1:07 PM

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Pity the poor mainstream media. It simply does not know what to make of private equity, which these days seems to be gobbling up everything from Dunkin' Donuts to Outback steakhouses. For most of the press, private equity is pretty much a weird and sinister phenomenon, vaguely reminiscent of that notoriously bad Oreo-and-tobacco deal immortalized in that big red book they once perused. Indeed, BusinessWeek a few weeks ago basically declared private equity a criminal enterprise in the cover story "Gluttons At The Gate." Private equity, the mag declared, "is using slick new tricks to gorge on corporate assets." How barbaric.

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Now, another county is being heard from — B'week competitor Fortune. And lo and behold, its take on private equity is the polar opposite of its longtime rival. Private equity's practitioners aren't barbarians, its Nov. 27 story suggests, but rather, management geniuses. In fact, it urges public companies to take a page from the private equity playbook. "Investigation shows why privately-held firms — at least if they're owned by one of the major buyout shops — have important advantages over competitors, and why they're regrading the playing field in several industries. Many of the lessons apply to virtually any organization," it chirps.

We'll get into just what those "lessons" are — and why it's virtually impossible to apply most of them to a public company — in a moment. (But here's a hint: Public companies have these pesky outsiders they must answer to called shareholders.) But first, we want to point out that Fortune's take on private equity, though positive, is pretty much as cartoonish as BusinessWeek's. The latter paints private equity practitioners as money-hungry potential fraudsters who are raping companies they own for onerous fees and burying them under piles of debt; the former wants to nominate PE folks for management sainthood because they allow talent to flourish and "produce stunning results that others can't match." What neither of them attempts to do, however, is take apart any actual deals the PE crowd has done to see how they're faring, based on some real metrics — coverage ratios, acquisition multiples, default rates, etc. (Forgive the shameless self-promotion, but we attempt to do just that in The Deal's cover story this week .) Isn't that the only way to judge if the private equity boom is good, bad or, much more likely, somewhere in between?

Fortune, for its part, is more content to view private equity as — what else? — a management story. The piece sings the praises of PE management techniques and then — and here's the really amazing part — blithely urges public companies to try these tricks at home. Among them: pay up for talent; act quickly, even if it hurts quarterly results; focus on running the business rather than dealing with outsiders (otherwise known as analysts, investors and the press); work with a tiny, involved and interested board (otherwise known as entrenched); and manage for cash, "the ultimate business reality," rather than earnings per share, return on equity or share price. In other words, remember that whole corporate governance and shareholder value system Fortune and most of the media has been preaching about for years? Well, fugghedabout it!

Says Fortune: "The most fundamental question raised by today's private equity boom is, Why can't public companies do all these things themselves? In theory, they could and should. In other words, private equity's success is built on advantages that public firms just haven't figured out how to adopt yet. But the history of markets says that they will figure it out eventually."

So public companies are going to figure out how to revamp the entire governance system? Wow. They must be even smarter than the buyout guys.

A few weeks back when we pontificated on Josh Quittner's plan to turn staffers at Business 2.0 into bloggers — and pay them for their extra work based on their blogs' popularity — we speculated that some of the magazine's writers might be tempted to blog about obviously sexy, traffic-attracting topics, such as, say, life as a dominatrix. We were being facetious to make a point, but it turns out we weren't that far off the mark. Check out the now up-and-running "Business 2.0 Beta" and you come across The SINdustry Standard, "a blog about the business of vice." Its keeper, Business 2.0 reporter Sidra Durst, explains in a posting that the blog "discusses porn, gambling, booze, and other businesses that have been part of our culture since the beginning of time but have remained on the margins of business reporting. By breaking that taboo and understanding how the vice industries work, she hopes to uncover universally applicable business lessons for everyone." ("Lessons" are apparently the sine qua non of business journalism over at Time Inc.)

So what can a reader glean from surfing The SINdustry Standard? Well, on the day we first logged on, the lead item was the "big news" that Marc Bell, CEO of Penthouse Media Group Inc., plans to take the porn publisher public in the next 12 to 24 months. The rather anodyne item, based on an interview with Bell, is illustrated with a photo of a cleavage-bearing Danni Ashe, founder of Danni.com, a porn Web site recently purchased by Penthouse. "Don't type in that URL — it's not appropriate for the office, unless blogging about porn is your job," Durst warns her readers, in what must be the "universally applicable business lesson" of the post.

In another porn-centric entry, Durst plugs a four-part series entitled "Porn: America's Addiction" that aired on Business 2.0's corporate sibling, CNN. She admits to not having actually tuned into the program, which featured controversial radio talk show host Glen Beck, or to even knowing what its fourth installment is about. Still, she writes, "it looks like [Beck's] got it covered from several different angles." How insightful!

Look, we really don't mean to pick on Durst, who has written stories for Business 2.0 magazine on a variety of topics, from hybrid vehicles to traveling abroad. Her blog is just one of 16 on Business 2.0 Beta, which also includes blogs on venture capital, marketing, extreme gadgets and other topics. It's just that The SINdustry Standard is one of the starker examples of the kind of pedestrian pandering you end up with when you force a bunch of print reporters — including some unseasoned ones — to post their musings on the Web, with explicit orders to generate traffic. Blogging, explained Quittner on a recent appearance on National Public Radio's "On the Media," allows his reporters "to mix it up on a daily, hour-to-hour basis with their sources and live in a world of commentary and instant analysis, while, at the same time, becoming better at what they do and bringing those ideas back to the magazine, where they will practice the age-old profession of journalism and go out and report and polish and produce something that becomes the text."

Whewww. To us, instant analysis is a lot like mashed potatoes. The real thing might take a little longer, but it's a lot better than the instant. We'd rather wait.—Yvette Kantrow