NEW YORK (AdAge.com) -- On one level, reports that Comcast is eyeing a joint venture with NBC Universal, or that Bloomberg is a favorite to snap up BusinessWeek, seem like just another M&A cycle -- the same lawyer- and banker-driven deal-making that's gone on for decades, sometimes with some nod to how these mergers might change day-to-day operations, yet usually with little actual impact on the individual media brands housed by these corporate leviathans.
But there could be something more than just periodic consolidation afoot in the current wave of talks: namely, a realization that media companies need to tamp down their reliance on ad dollars to support the content they make, and instead focus on getting consumers to foot the bill.
Media that relies primarily on ad revenue is suffering far more than those companies that have a hefty revenue stream coming directly from customers. Comcast, for example, is clearly betting that consumers will continue to be willing to pay for the content they want, when they want it. The company already gets hefty monthly fees from its cable and broadband subscribers, and it gets consumers to pay extra for premium, pay-per-view and digital video recorder options. Now it's looking to be in control of not just the pipes, but what comes through them.
"Consumers are spending more time with media which they support and pay for as opposed to ad-supported media," said John Suhler, co-founder, president and partner at Veronis Suhler Stevens, after the release of an August forecast that predicted further declines to many traditional businesses, including newspapers, consumer magazines and broadcast. "This development is a culmination of two decades of this secular shift towards consumer-controlled media, and shows no signs of slowing."
Perhaps even more pressingly, there's the supply-and-demand issue when it comes to relying on ad support: more media outlets springing up every day; fewer ad dollars. Already several newspapers and magazines have winked out of existence, and there's some thought that in coming months and years, some lower-rated cable or even broadcast networks might follow, as ad dollars move to those entities that are more reliable and yet can offer specific and tailored cross-platform ideas for marketers.
So this time around, consolidation will be driven not just by a desire by some heavy-hitters to make big bucks, while touting that mystical goal of finding "synergy," but also because, simply put, there ain't gonna be enough money to keep everyone on their feet.
COMCAST PLUS NBCUComcast's interest in NBC Universal makes perfect sense on this level. The once-quiet cable-services provider made headlines in 2004 when it made an unsolicited bid for Walt Disney Co., part of an effort to find more sources of content for its expansive cable-and-broadband pipes into America's living rooms, kitchens and computer hutches. At a time when marketers are pulling dollars away from second- and third-tier cable outlets, Comcast might be able to offer ads on USA, SyFy and CNBC in addition to its own Versus sports network or E! Entertainment. Comcast would also stand to gain access to a broader national ad-sales force as well as deep relationships with major marketers (Comcast has its own Comcast Spotlight ad-sales team, but one can argue that NBCU's ad-sales force wields considerably more heft and leverage).
In exchange, Comcast brings much-desired set-top-box data to the table, as well as an increased ability to offer interactive and addressable advertising, two emerging TV-ad techniques that many media buyers feel could help buoy the TV industry in shifting waters. Comcast's involvement with a broader program known as "TV Everywhere" -- which would only make online viewing of TV shows available to consumers who pay cable subscriptions -- might spell changes for online video-sharing service Hulu, in which NBCU has a stake.
Such a pact doesn't come without its challenges. Does Comcast really want to get into the struggling broadcast business -- particularly NBC's, with its years-long effort to revive its prime-time lineup? And does Comcast understand the costs of running entertainment properties? Already, insiders at NBCU are nervous that promised budgets for original series could be lost.
"In our view, an acquisition of NBCU makes sense as it relates to the cable networks. But the other assets -- broadcast network, the [owned-and-operated] stations and the theme-park units -- do not," wrote Wells Fargo analyst Marci Ryvicker in a research note last week. And even with its expertise in content distribution, Comcast faces the same onerous problems with DVR usage and competing emerging media venues that talented execs at Walt Disney, Viacom, News Corp., Time Warner and CBS have yet to conquer.
TIME WARNER MINUS TIME INC.Without any silver-bullet business models, those companies also will be eyeing their options for partnership or merger. It's not impossible these days to imagine the re-merging of Viacom and CBS. And, certainly, Time Warner watchers have asked themselves whether that company would be better off without Time Inc. in its stable.
Such a spinoff would have been unthinkable just a decade ago, but it's now a popular topic of discussion among media bigs, renewed again recently when Gordon Crawford, a major Time Warner shareholder, said Time Warner will sell Time Inc. just as it's spinning off AOL. Time Warner Chairman-CEO Jeffrey Bewkes tried to stamp the talk out again late last week, when he said at an event that "Time Inc. is not for sale." Asked by an interviewer whether Time Warner will still be in the magazine business five years from now, Mr. Bewkes said yes.
All the same, the talk will persist.
"I don't see signals coming out of Time Warner that they want to be in the magazine business in the long term," said Reed Phillips, managing partner at DeSilva & Phillips, a mergers-and-acquisitions adviser specializing in media and information companies. "That doesn't mean they'll sell Time Inc. at any price and just be done with the magazine business. It means they'll sell it when the market improves and they believe they can get a more attractive price."
When the possibility of selling Time Inc. last boiled over in conversation two years ago, however, investment bankers predicted it could command a multiple of perhaps 15 times earnings before interest, taxes, depreciation and amortization. If Time Warner were to go ahead and sell Time Inc. next year, even if the recession ends and credit markets recover strength, that multiple is now probably below 10. "The pool of buyers is going to be smaller," Mr. Phillips said.
Time Inc. could at least chart a new course if it weren't beholden to Time Warner shareholders' demands for constant growth. It could invest more, for example, in the kind of moves toward marketing-services capabilities that Meredith Corp. has pursued in recent years.
MCGRAW-HILL MINUS BUSINESSWEEKMcGraw-Hill's continuing effort to sell BusinessWeek, once the flagship of the company, will much more certainly result in new ownership. What happens after that, though, is very murky. Some potential buyers are expected to change the title's print frequency, perhaps even making it a monthly, or dramatically reducing its paid circulation in a bid for improved circulation profitability and a more concentrated audience to sell advertisers.
The varied bidders include Bloomberg, considered the odds-on favorite as well as the best-case scenario for the magazine; private equity's Open Gate Capital, which bought TV Guide Magazine for $1 in another recent mind-blowing media deal; ZelnickMedia, the media-investment company; and Mort Zuckerman, who owns U.S. News & World Report and the New York Daily News.
But it's not just BusinessWeek facing questions about the future business model. "I'm surprised as I go out and talk with media companies how broad all these issues are across media," Mr. Phillips said. "It's local TV, national TV, magazines, newspapers, trade shows. Everyone is really grappling for what the future's going to look like. In some ways it's a great time for media, because media's being reinvented and a lot of people are going to make a lot of money. It's also a scary time when people who are used to running media businesses the way they are used to are going to have to change."
Media outlets will have to recognize that they need to reduce their dependence on ad revenue, and -- as Bloomberg well knows -- get consumers to pay for premium services, subscriptions and electronic access, as well as build up the ability to create customized and integrated advertising initiatives.
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Contributing: Nat Ives
Season is ripe for digital acquisitions
Let the buying begin.
In the digital space, the M&A market has been frozen for a year, but there are strong signs of a thaw. Google, Microsoft, Yahoo, IAC and even the soon-to-be-spun-off AOL are still sitting on significant cash hordes and could use them to acquire companies that give them access to new markets, customers or technologies. Most importantly, all of these major internet players need to find the new source of growth, whether it comes from mobile, local or social media (see related story, P. 8).
"All the big players that you've seen are financially very strong -- they are not leveraged and generate a ton of cash," said Bruce Eatroff, partner at Halyard Capital. "They have a chance to buy businesses at prices that are much better than they were two years ago."
In a research note, Collins Stewart analyst Sandeep Aggarwal listed a number of public companies that could be targets, including ComScore and ValueClick, as well as private companies that could be snapped up or go public themselves, including Facebook, Twitter, LinkedIn, Rock You, Eye Blaster or Meebo.
Where should you watch for the deals?
Online-video consumption is exploding, and marketers view video ads as more engaging than static banners. One deal we like: FreeWheel to Google. The video ad server founded by ex-DoubleClick execs allows different parties to sell into video content, which has unlocked professional content deals for YouTube. The technology does what DoubleClick can't and would be a natural bolt-on acquisition for the company. Another potential deal we're watching is Veoh to Comcast. Veoh, or what's left of it, is on the block. Failed as a portal, the site still has some audience and content deals, but mostly search and ad targeting technology that could be of use to another video portal, like Fancast?
These algorithmic companies have valuable technology that typically command high multiples and could help display business squeeze more money out of a still-weak market. Watch for ad networks eying publisher optimizers, which have cut off ad networks from publishers. Perhaps no one needs this more than AOL, which has the largest display network in Ad.com. Our bet? AdMeld to AOL. Founded by a couple former AOLers, its CEO is also former AOL head of sales Michael Barrett.
Everyone's agitating for more accurate numbers and they want them to be census based. That's why we think Quantcast will go to Nielsen, which is looking to move beyond its panel-based technology. As a side bonus, it'll get the ability to offer advertisers web-wide audiences based on demographics like 18-49, not based on specific web sites.
The last big M&A wave was about big online publishers seeking to own the systems that enable online advertising . If the same happens in mobile, 4INFO could be in play. The SMS ad network has the reach, technology platform, user data and targeting, plus relationships with publishers like CBS, Gannett and Yahoo. Who'd buy it? Both Yahoo and Microsoft need a mobile equivalent to Atlas and a mobile-advertising offering on every front, including SMS. But the company could have old-media suitors: Gannett and Peacock Equity, the venture arm of NBC Universal and GE, are stakeholders.
|Selected major deals shown.
Source: Ad Age Encyclopedia; Ad Age DataCenter research.