• How has the recession affected the Media industry? 


    2009 was something of an Annus horribilis for the Media industry. During last year, S&P undertook 37 ratings actions in the European Media space – 90% were negative rating actions. Lest we forget, for many media companies (and banks!), both 2008 and 2009 were the most difficult years in recent history. In publishing, the traditional advertising revenue model been ripped apart with the ‘perfect storm’ of secular change and recession combining to significantly reduce corporate valuations. Coupled with huge volatility in financial markets and adding the overlay of technical change affecting consumption behaviours and distribution pressures, for some traditional media companies the aim was simply to survive. The question is whether the traditional national print operators can grow their online/mobile business model well and fast enough, whilst regional newspapers are severely hampered by falling classified revenues, rising newsprint costs and circulation declines, leading to a growing expectation of consolidation.

    However, the effect of cyclical advertising spend is partly mitigated for major players through the adaptability of their cost base, with significant efficiencies captured in the last 18 months under tight financial management. We are now in the phase where media companies are much leaner than in 2007 and cautiously optimistic that a sustained upswing will bolster profits in 2011. Whilst media is a cyclical sector, it is a very early barometer of consumer confidence and having seen this in the negative context in 2008 & 2009, all eyes are on Media at present. The good news is that there are positive financial signals coming from UK media corporates this year, spearheaded by ITV, DMGT, Trinity Mirror and WPP.


    What trends are you seeing in the sector? 


    With the industry as a whole undergoing significant structural shift away from “traditional” (print, linear TV, radio) to “new” media (internet, mobile), we expect event-driven opportunities to drive industry consolidation and de-leveraging (M&A, acquisition finance, equity issuance), particularly in Global Diversified, B2B and B2C Publishing. As organic growth has slowed in recent years, firms are looking to M&A to expand and create more diversified portfolios, adding resistance to boom and bust. Growth in advertising spend is highly correlated with GDP growth (over past 20 years, ρ= 0.88 for the UK, 0.83 for the US), with advertising spend significantly more variable than GDP. Straddling various distribution methods represents lowest risk, hence the observed drive to diversify product / media offerings and quality content to maintain share of advertising wallet.

    Media firms are actively seeking ways to encourage users to pay for online services such as streaming music, with greater emphasis on focused products and advertising to targeted audiences, Partnerships are being formed amongst content and medium providers, such as Apple with EMI for iTunes and major publishers for eReaders. Diversified Media companies are indifferent how content is consumed as long as they are paid for the viewing.


    How can businesses in this sector best respond in the current environment? 


    Technology continues to evolve rapidly, offering new opportunities for content companies, which are not dependant on a particular distribution method. Also, firms with subscription-driven revenues (e.g. B2B, pay TV or cable networks) have much less cyclical cash flows. Financially, the recession has resulted in the repair of many corporate balance sheets via rights issues / equity placements, with media firms following the general trend towards de-leveraging. We have seen liquidity returning to the bank markets and with strong bond issuance to date in 2010 across investment grade and high yield issuers. It is clear that asset values are still relatively low but corporate balance sheets and cash flows are strong. M&A will inevitably follow.

    Fragmentation of ad spend across more TV channels and competing distribution channels of other types has weakened many TV broadcasters. Consolidation within the UK is still mooted, but the switch to Digital and online distribution (e.g. BBC iPlayer) is opening new opportunities. New products are only likely to be progressed based on sufficient pay back, meaning supply of free media will inevitably reduce over time. Newspaper companies will seek to reinvent themselves as quality / niche content generators providing expertise at lower / shared cost. Increased governmental and industry anti-theft measures will feature to increase paying demand, whilst regulation in general is relaxing to reflect the multi-media landscape.


    Source: This was first published by Times Case Studies/Q&A, date unknow


6/21/2018 11:29:08 AM