34 TVBEurope Feature
www.tvbeurope.com July 2014
Mergers and acquisitions in a recovering Europe
This issue, we turn our attention to the M&A activity that has swept through the industry in 2014, bringing about a market consolidation that is set to continue, at least in short-term. Rachael Cairns, media analyst at Goodbody Stockbrokers, offers an assessment of the recovering European market, and which companies are best placed to engineer growth in the current climate
AS EUROPE re-emerges from its economic doldrums, advertising revenues should at last see an upturn due to rising consumer confidence and disposable incomes. Of course, while the majority of television operators will benefit from this recovery given TV’s cyclical bias, the real winners will be: (i) those providing a superior schedule of programming, which can drive market share gains in their relevant geographies and; (ii) those that can retain financial discipline and maintain an efficient cost base to yield the benefits of the operational leverage available.
Getting the right content in place and having security on programming rights over the longer-term can be easier said than done and recent activity in new programming deals is evidence of this. In addition, there has been some noteworthy mergers and acquisition activity in the TV sector.
We believe that further consolidation is likely. Some of the recent deals in the media sector highlight the race to secure programming in an attempt by operators to best position themselves for the recovery in Europe. Outside of M&A deals, there has been some change of rights in some high profile, premium content.
Encouraging trends in advertising continues across Europe
There is increased confidence in the recovering advertising markets in Europe, and while there is a boost this year as a result of the World Cup, outside of that, underlying trends still continue to point to an improving backdrop. Looking at the UK and Ireland markets, growth has returned to advertising and UTV has highlighted strong growth coming off its Irish TV and radio businesses as markets
that were particularly depressed during the downturn begin to benefit. For example, reported figures from the Broadcasting Authority in Ireland show TV advertising declined by 43 per cent between the peak in 2007 and the low of 2012, while GDP has decreased by nine per cent. If we apply the factor to the upside, as European economies recover, we will surely see a considerable portion of that lost revenue return, albeit some structural issues will also have an impact, such as the move to digital advertising. Generally, the Western European advertising market as a whole is expected to grow in the region of two to three per cent in 2014. Within this, some countries are expected to deliver an outperformance, such as the UK, Ireland and Spain. Other peripheral countries look like they too will contribute to the growth for Europe, with Greece expected to accelerate growth
into 2014 and 2015, while more recently, Italy has returned to modest growth after a poor performance in 2013, when it was down more than ten per cent. Of course, given the recovery and the cyclicality of TV, operators will want to increase their exposure either through increasing scale or by having the best content in place to win the more attractive advertising deals.
Recent programming deals highlight increased competition for premium content rights In the UK, rights for the Champions League have passed from Sky to BT as the latter tries to establish itself in the TV market. In Ireland, we have seen Sky make a move to secure market share by obtaining the rights to some of Ireland’s popular GAA match coverage. Also in Ireland, we have seen UTV (the number one TV
broadcaster in Northern Ireland by market share) announce its plans to launch UTV Ireland in the Republic in January 2015. One of the key drivers behind the launch was the group’s ability to secure exclusive rights to ITV Studios content in the Republic of Ireland from 2015. The incumbent holder of the rights, commercial broadcaster TV3, is now left in a difficult position as it must replace some of its key programming such as Coronation Street and Emmerdale (in addition to losing GAA rights to Sky as noted, although it has secured domestic rights to the 2015 Rugby World Cup).
Operators that have exercised financial discipline are best placed to benefit from market consolidation
The financial strength of a company will be critical to ensure security over content, whether that is having the capacity to outbid other leaders in the space for premium content, or having the ability to produce its own. Fortunately for the most part, the media sector as a whole is continuing to reduce debt levels on its balance sheets, particularly as
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