Up until very recently, perhaps as recently as six months ago, the prevailing wisdom among analysts who covered the media industry was that “content is king.”   It is an inexact way of looking at what editors, photographers, actors, producers, and reporters create.

Movies, TV shows, magazines, radio programming and high-quality internet content were viewed as having a significant intrinsic value. The best content can be moved from one medium to another, increasing its value even further.  TV shows can be played on TVs, PCs, and handsets. Newspaper content can run on a printed page or on the internet. Radio can be broadcast from satellites or radio towers.

The value of content has never been ethereal. It has always been directly tied to what owners could “get” for it, either through advertisers or subscribers. For content to have a value, it could never be free.  Its position as royalty depended on that.

Content is rapidly being devalued. The first people to press that case are accountants. They have insisted that companies from News Corporation (NWS) to The New York Times (NYT) to Time Warner (TWX) to CBS (CBS) write-down tens of billions of dollars in assets. Cablevision (CVC) bought the large daily newspaper Newsday less than a year ago.  Its accountants reduced the value of that property by 70%. That was not simply the value of the Newsday building.  What they were saying is that the income from the property has been impaired, probably permanently.

Yahoo! (YHOO) and Time Warner were downgraded by a Wall St. analyst yesterday. His reason for cutting Time Warner is that, once its cable systems have been spun-out to shareholders, its crown jewels which include Time, Inc, AOL, and networks such as CNN were not worth the multiple at which the company trades. The essence of his argument is that content, even the best content, is losing its value.

Part of the problem with content value is tied directly to the recession. Accountants should take it easy when they lean on that too hard. The best assets bounce back when the economy recovers. But, by forcing companies to write-down their content assets so extremely they are saying that the firms can never go home again. Their TV shows, movies, magazines, and newspapers will never recover all of their value.

Making the case that newspapers cannot recoup their value is fairly easy. The argument has moved beyond that part of the media industry. The value of feature films is under attack. DVD sales used to drive a lot of the profit from movies. Consumers are getting what they used to see on DVD from the internet. They now often pay less than they did for the physical copy of a film. In many cases, the internet can be used to get the film without paying at all. And, it is easier than sneaking into a movie theater undetected.

The internet has already proved to be an imperfect place for the film and TV industries to make money. YouTube, Google’s (GOOG) video-sharing site, has always had the lion’s share of the online video audience. Virtually all of the content there is free. Visitors do not watch advertising or pay a fee. NBC has tried to set up a large video site that does capture revenue. Hulu.com only has high-end TV and films. There are commercials that run on every program. But, a number of the advertisements running at Hulu now are free public service spots. The yield for the content owners is, in some cases, next to nothing.

No one knows to what extent content will be ‘re-valued” as the economy improves. The newspaper industry may not be able to get any of its value back. Magazines may face the same problem. To the surprise of many, some of the more valuable content, like expensive feature films, may only make a great deal of money in theaters. The yield from VOD on the internet sales and syndication on the Apple (AAPL) iPod may turn out to be extremely modest.

The largest media companies are making the case that the only reason their asset values have dropped is the economy.  That case may not hold up.

Douglas A. McIntyre

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