{"id":8506,"date":"2020-05-01T11:20:00","date_gmt":"2020-05-01T15:20:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=8506"},"modified":"2020-05-06T14:04:30","modified_gmt":"2020-05-06T18:04:30","slug":"capital-cities-broadcasting-tom-murphy-outsiders","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/capital-cities-broadcasting-tom-murphy-outsiders\/","title":{"rendered":"Capital Cities Broadcasting: History and Rise to Media Giant"},"content":{"rendered":"\n

What made Capital Cities Broadcasting successful? Was it the CEO, or good business<\/a> practices, or both?<\/p>\n\n\n\n

Capital Cities Broadcasting was a media company owning television stations, radio stations, and print publications. CEO Tom Murphy<\/a>, in charge from 1966 to 1996, implemented management strategies that showed a 19.9% annual return rate, compared to the 10.1% for the S&P 500 and 13.2% return for leading media companies. <\/p>\n\n\n\n

Tom Murphy, Capital Cities Broadcasting CEO, enacted several business policies during his tenure there that helped the company grow and succeed. Read about the history and major successes of Capital Cities Broadcasting. <\/p>\n\n\n\n\n\n\n\n

Capital Cities Broadcasting: Successes<\/h2>\n\n\n\n

Capital Cities Broadcasting was a media company owning television stations, radio stations, and print publications. Outsider CEO Tom Murphy was CEO from 1966 to 1996.<\/p>\n\n\n\n

In 1966, the market capitalization of Capital Cities Broadcasting was 6% that of CBS, the dominant media business in the country.<\/p>\n\n\n\n

By 1996, when Capital Cities Broadcasting sold to Disney, it had rocketed past CBS and was now worth three times as much as CBS<\/strong>. It had acquired media giant ABC, which was dubbed by the press as akin to a \u201cminnow swallowing a whale.\u201d Relative to CBS, Capital Cities Broadcasting had grown nearly 50 times as much in the same period.<\/p>\n\n\n\n

The strategy was simple and repeatable: buy media properties with attractive economics, improve operations to generate more cash, and use the cash to buy more media properties. Capital Cities Broadcasting had a management playbook that made it very effective at increasing revenue and cutting costs at its newly acquired companies. This created a \u201cperpetual motion machine for returns.\u201d <\/p>\n\n\n\n

Capital Cities Broadcasting Performance<\/strong><\/h3>\n\n\n\n

From 1966 to 1996, Capital Cities Broadcasting showed a 19.9% annual return rate, compared to the 10.1% for the S&P 500 and 13.2% return for leading media companies. <\/p>\n\n\n\n

$1 invested at the beginning would have been worth $204 by 1996. This outperformed the S&P by 16.7 times, and his peers by almost 4 times.<\/p>\n\n\n\n

Capital Cities Broadcasting History<\/strong><\/h3>\n\n\n\n

Tom Murphy served in World War II and graduated from Harvard Business School in 1949. He worked as a product manager in consumer packaged goods for Lever Brothers until 1954, when his father\u2019s friend Frank Smith told him about a TV station in Albany he\u2019d purchased from bankruptcy. With no broadcasting experience, Murphy left to run the station day-to-day, with Smith running the business from downtown New York.<\/p>\n\n\n\n

Murphy\u2019s strategy was to improve programming to raise revenue and manage costs to reduce expenses<\/a>. After a few years of losses, Murphy turned the station into a profitable cash generator. In 1957, they bought a second station in North Carolina, then a third one in Providence, and continuously from then on.<\/p>\n\n\n\n

When Smith died in 1966, Murphy became CEO of Capital Cities Broadcasting. Murphy in turn promoted Dan Burke, a Harvard MBA he had hired 5 years earlier, to COO. They had a clean division of labor\u2014Burke would focus on the day-to-day operations, while Murphy was responsible for capital allocations and acquisitions.<\/strong> In essence, Burke generated the free cash flow, and Murphy spent it.<\/p>\n\n\n\n

At the time, Capital Cities Broadcasting had revenues of $28 million. Over the next few years, Murphy made large acquisitions. <\/p>\n\n\n\n