MEDIA ACCELERATES INTO THE FUTURE – FUELLED BY PRIVATE EQUITY

As the longer-term winners and losers of the global pandemic continue to play out, the media sector has become increasingly attractive to private equity, with a very strong end to 2021 already looking likely to be eclipsed by a bumper crop of big investments this year.
PE money already invested in media in Q1 2022 is up by 119% in comparison to Q1 2021, demonstrating a trend that is likely to fuel further high quality output and technological innovation across the buoyant industry and its diverse ecosystem of sub-sectors ranging from ‘mediatech’ to support services such as agencies.
This fresh appetite for PE investment has been stirred by a happy confluence of factors, not just the clear resilience and adaptability media businesses have demonstrated in the face of the multiple challenges thrown at them over the last two years.
While the pandemic accelerated PE’s disillusionment with traditional retail channels and brought new uncertainty and risks to investing in the hospitality sector, this historically uncertain period saw the rapid rise of stay-at-home media as a major cultural force, something that looks set to have changed behaviours irreversibly.
With streaming audiences’ demand for new content driving high profile investment by the tech giants, and better tech delivering ever-more compelling experiences, potentially the strongest overriding driver of PE interest is that media companies have fundamentally changed too.
They now more closely resemble tech businesses, coming equipped with strong data processing platforms, first and zero-party data gathering capabilities, reoccurring revenue streams and consequently less of their traditional reliance on creative individuals and the associated risks around a single point of failure or a sudden departure.
While the world came to terms with a new 2D normal working life of diving from one chat room to another, positioning us all at the heart of a daily digital content production experience of our very own, PitchBook Data Inc research reveals that the media industry deal count increased by 30% from 2020 to 2021 whilst capital invested into the media sector by PE houses increased by 116%.
Across multiple deals over £1bn, the largest in Q3 2021 was Apollo Global management’s acquisition of Yahoo for £3.6bn, and in Q4 2021 was Next Generation Media Company acquisition of Moonbug for £3bn via its financial sponsor of The Blackstone Group.
The upswing in PE interest and its seismic impact on the sector continues in 2022, and may well be a deciding factor in the UK government’s plans to push ahead with the privatization of Channel 4. While its expressed intention to make the broadcaster more able to compete with the likes of Disney and Netflix may be missing the point, a strong return will be an attractive reason to come to market now in itself.
The lasting impact of consumers’ fast-tracked adoption of new platforms, behaviours and consumption models is still to be revealed, but the Knight Foundation report mapping media consumption on to demographic information hints towards permanent shifts, including 40% of Gen Z respondents intending to consume the same amount of online video post-pandemic as during the lockdown periods.
Clear winners, such as TikTok which doubled its user base (WARC), point towards the attraction of dynamic formats driven by tech innovation for potential PE investment, while lavish traditional blockbuster movie-making and TV production remains ascendant as the streaming services mature from their initial customer acquisition phases and need to increase pricing.
It all signals a golden age for the production of high-quality content, with the end-users benefitting as standards and technology continue to develop at pace. Not every media model can rise with the tide though: ad dependent media will no doubt struggle unless it is highly ranked in its particular market.
PE focusing on media investments in 2022 and beyond raises some exciting prospects with the potential to continue to change the landscape across the sector hugely. Let’s hope the cost of this fuel doesn’t display the same volatility as that of our fossilised friends.
 
With thanks to Dylan Sweeney (Corporate Finance, Moore Kingston Smith) for research support on this article.