July 2014
www.tvbeurope.com
TVBEurope 35 Feature
advertising markets recover. Given the diffi culties within the industry over the past number of years, operators — such as UTV and ITV, for example — have taken considerable costs out of their businesses, leaving them with a much more effi cient business model. This cost effi ciency has led to higher operational gearing available in their businesses. In the case of UTV, Goodbody estimates that this is up to 80 per cent of revenue converting to profi t within TV. Therefore, with the support of an improving environment, with all else being equal, cash generation should improve, helping to pay down debt further. As this deleveraging continues, the availability of credit improves; companies are likely to continue to scope out the large deals (where media ownership rules allow) that can provide synergies, such as the BSkyB, Sky Italia and Sky Deutschland proposal. On a smaller scale, companies may look to acquire some of the independent content producers, helping to secure
content for the longer-term and possibly add another stream of revenue if they can sell the programming rights overseas.
TV giants snap up the independents
On the other hand, rather than running the risk associated with short-term contracts for content and pricing risks around renewals, operators can buy up independent production companies with time-proven formats and content. However, the risk now becomes the lifespan of this content and whether it proves to be a hit with audiences long enough to justify the investments made. Therefore, this may not always be the most attractive proposition for operators. Additionally, the prices commanded by premium content producers could signifi cantly impact the risk- return ratio. In May, we saw the acquisition of All3Media by Discovery Communications in a joint venture with Liberty Global (a £550 million deal, 8.5x EV/EBITDA) and we
also saw ITV acquire Leftfi eld, a US-based content
producer for $360 million (plus an agreement for
“Holding rights to
additional payments should the company meet certain targets), which represented 9.5x EV/EBITDA. These compare to an average transaction multiple of c.7-7.5x EV/ EBITDA. Both of these deals highlight an increasing appetite for content ownership.
M&A activity within the operator space highlights confi dence in the European market Within the operators’ space, the most notable recent M&A activity has included Viacom’s acquisition of Channel 5 in the UK for £450 million.
audience-grabbing content will be one of the major factors determining TV operators’ ability to take full advantage of the cyclical
allow synergy benefi ts whilst also increasing exposure to a cyclical recovery, particularly in Italy.
recovery in European advertising markets”
Viacom is aiming to increase and enhance the programming content on the channel with the help of its resources, in a bid to increase its exposure to valuable audiences. Also, BSkyB’s recent proposal to acquire 21st Century Fox’s stakes in Sky Italia and Sky Deutschland in a reported c. £8 billion deal that would
Content is king In summary, holding rights to audience-grabbing content will be one of the major factors determining TV operators’ ability to take full advantage of the cyclical recovery in European advertising markets. However, this could prove expensive if target content, such as key sporting events, is bid to levels which already price-in aggressive growth assumptions to generate a return. Similarly, acquiring premium content producers, or indeed investing more into high quality proprietary content, can be uncertain given risks around audience retention. Companies with deleveraging balance sheets and high operational gearing are best placed to benefi t in the long-term.
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