The Carlyle Group’s Norman Pearlstine Gives His Outlook for the Media Business

Since Norman Pearlstine joined The Carlyle Group in September 2007 as a senior adviser to its Telecom and Media group, the private equity firm hasn’t closed a single media deal. This hasn’t been because of a lack of effort, Pearlstine said. Instead, it’s an indication of just how precarious the media industry has become in recent years as the Internet and the proliferation of other media have made just about any newspaper or TV station a risky buy. “I spent the first six months looking at the Tribune deal,” Pearlstine said about the company — bought by Sam Zell for more than $8 billion last year — that owns newspapers, TV and radio stations, and the Chicago Cubs. “We saw no way we could put in a logical bid and be successful.” This came despite the insistence from investment bankers that buying Tribune would’ve been great for the Carlyle Group. “A lot of what passes for logic in M&A sounds like investment bankers trying to justify their fees.”

Other possible deals looked no more appealing to Pearlstine, who spoke at SOM on March 27 as part of the Millstein Center’s Lunch Forum on Corporate Governance. Pearlstine was a journalist before joining the Carlyle Group. He spent nearly 23 years covering business for the Wall Street Journal, before becoming editor-in-chief of Time Inc.’s magazine division, where he oversaw the content of 154 different titles. During his talk, he alternately discussed the declining fortunes of traditional media companies and the changing relationship between corporate boards and shareholders, which is often played out in the pages of newspapers.

When Pearlstine started at the Wall Street Journal, the typical annual meeting was a drawn-out affair dominated by individual shareholders looking to share a host of gripes about the ways companies were being run. Most of these individuals were often dismissed by journalists. “Shareholder-rights people seemed almost like a distraction,” Pearlstine said. “They made lots of noise on the sidelines, but they weren’t central to what the corporations really did.” But over the last several years, he said there’s been a dramatic shift both in the nature of shareholder concerns and how journalists approach them. With the rise of institutional investors such as hedge funds, mutual funds, and even some super-wealthy individuals, the financial reporter has begun to take shareholder concerns more seriously. This trend has increased as top executives have been accused of enriching themselves regardless of corporate performance — the elderly chairman of Comcast who negotiated a contract that paid his salary to his estate for five years after his death or the Merrill Lynch CEO who walked away with about $150 million without increasing the stock price at all during his tenure. “In many ways we were offended by management behavior, this wretched excess,” Pearlstine said. “A number of business journalists have come to see shareholders as not just pests but people with bona fide interests in how the money was being used.”

According to Pearlstine, we are currently in the midst of one of the most crucial financial moments in American history at the same time the media expected to explain it are under siege. As media companies see revenues and readership/viewership drop, top financial journalists are leaving the industry, with their replacements often far less knowledgeable about serious business, making them more reliant on sources that often have their own agendas. Across the newspaper industry, advertisers are shifting to the Internet, forcing the contraction of staff and budgets. Pearlstine said Rupert Murdoch’s purchase of Dow Jones last year reflects a personal desire rather than a sign the industry could soon turn around.

Considering he was speaking to a group of future business executives, Pearlstine had a bit of advice to go along with his less-than-sunny predictions. If he were consulting with managers on how to handle the press, he’d tell them not to hide from journalists, but to engage them. Too often, he said, executives try to shut the media out, which does little to squelch a bad story, and even might make one worse. “Access is one thing journalists crave,” he said. “You don’t necessarily get a favorable story, but you do get reporters to listen to you.”