h2 2020 | media talk 20
media talk | h2 2020 21
SPOTLIGHT ON THE US
SPOTLIGHT ON THE US
DEAL DRIVERS Looking ahead, built-up demand coupled with strategic and investor interest bode well for a resurgence in media deals in 2021. And already we can identify three major drivers of media and entertainment deal flow in 2021: CONSOLIDATION In 2021, media & entertainment companies will live or die on their ability to optimise and scale effectively. Independent studios and film & TV libraries will continue to be in demand by the streaming services, according to S&P Capital. Similarly, media agencies and professional service firms will likely continue to merge and consolidate as they reorganise to address pandemic impacts and reduce costs. Strategic deals will drive the vast majority of media M&A in 2021, with private equity keying in on subscription-based revenue models and other sectors where revenue growth is strong and stable. The resurgence of SPACs (special purpose acquisition companies) in 2020 is likely to continue as they are increasingly seen as attractive vehicles to facilitate some of the new year’s industry consolidation.
DEAL OUTLOOK In 2020, the US media and entertainment sector recorded 161 deals with disclosed financial terms worth some $60B in total announced value, according to S&P Capital IQ. Deal count declined 20% from 2019, but this is consistent with COVID-led market trends rather than a sign of any industry struggle. While CFOs forecast economic recovery and increased deal flow for this year, according to the 2021 BDO Technology CFOOutlook Survey , there is uncertainty around what’s likely to come out of Washington DC. With a new administration and change of Senate control, new regulatory and oversight issues are coming to the fore. Consumer privacy issues, though put on the backburner during the pandemic, remain a bipartisan area of concern and are likely to be the subject of new legislation in the next few years. Indeed, for many companies, a standard set of privacy rules or guardrails may be welcome: some 45% of CFOs think the industry needs more regulation, according to our survey. And no matter which issues take priority on the new President’s legislative agenda, media companies considering a merger or acquisition will need to place appropriate emphasis and value on information governance and sound data-ethics policies.
CONSUMER CHANGE Significant economic change inevitably leads to significant behaviour change; very quickly, some business models lose relevance, while others surge in demand. Quibi, for example, started the year as a hot platform for consumers on the go, offering short-form content that differentiated it from other streaming platforms. But demand shifted when the pandemic hit: the platform closed in December, then sold its content to Roku in January. Looking ahead, we concur with S&P Capital that many media companies will be looking to divest no-longer-core assets, whilst simultaneously bolstering their capabilities across now-essential opportunities. At the same time, online gambling surged in 2020 as consumers spent more time in home-entertainment mode, and brick-and- mortar businesses were forced to reimagine their spaces and offerings with new safety protocols and changing demand. This fact has clearly had a beneficial impact on gaming valuations, as demonstrated by the feverish bidding war for AIM-listed auto-racing game developer, Codemasters, involving bidders like US developer Electronic Arts (EA) and Take-Two Interactive Software. The online gaming industry is likely to continue to grow as strapped state budgets look for new ways to expand tax revenues, and we expect consolidation will drive deals in the gaming sector as well.
CONTENT Ad-based streaming services have generally performed well but face a growing challenge, as subscription services rise and competition increases. Consumers who wanted to cut cords are close to burnout on the breadth of streaming platforms. The key now will be content assets and the ability to differentiate. S&P Capital notes that Apple, Amazon and AT&T, among others, are likely to continue the chase for in-demand media assets. Streaming music platforms also continue to seek exclusivity following a year where many pivoted to provide live virtual concerts and other digital experiences.
BUILDING THE MEDIA CONGLOMERATES OF THE FUTURE US media deal activity slowed in 2020 compared to previous years. In the wake of recent historic market shifts, many companies and investors opted to watch and wait for a shakeout before committing to any big moves that might contribute to the media conglomerates of the future. But the slowdown also created pent-up demand to put cash to work and capture new opportunities as consumer media consumption habits change. After a stall in the first half of 2020, the end of the year brought a resurgence in ad spending, which was a boost both to entertainment companies and the media agencies that develop and place ads. Signs point to a busy year for deal flow and investment in 2021.
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