MediaFile

Outlook grim for media and entertainment deals

February 27, 2009

Deal-making in the U.S. media and entertainment sectors is going to be down this year, says a new PricewaterhouseCoopers survey (request a copy here). Now, that’s not a new or startling conclusion given the state of the economy, but it’s just another piece of evidence that when consumers and advertisers get thrifty, deal makers can end up become benchwarmers as companies struggle with cost cuts and other exigencies.

Here are some industry trends for 2009 from the PWC survey:

  • Declining consumer spending is hitting many media and entertainment companies. What’s more, these declines were exacerbated by technological convergence, as these firms adapt to and look for ways to make money off new Internet technologies.
  • Overall U.S. advertising market is going to shrink as sponsors cut ad budgets across retail, consumer goods, automotive, financial and other sectors.
  • Companies will continue to divest their non-core assets, but those that don’t get a good price will prefer to hold on rather than sell at bargain prices.
  • Bolt-on deals will likely be popular for risk-averse companies, so deals below $1 billion — mostly small and mid-market companies — will be a rising trend.
  • Private equity will remain quiet since the debt markets aren’t really healthy yet.
  • Deal structures will change this year, given the difficulty of getting debt financing. The strategic rationale for doing a deal will be more important than getting a favorable capital structure.

But all hope is not lost, according to PWC’s Transaction Services Entertainment & Media Leader Thomas Rooney:

With M&A activity ingrained in the DNA of so many companies and the ever growing presence of private equity, E&M deal activity might not be as quiet as many expect in 2009… History has shown the E&M industry to be one of the more active M&A sectors irrespective of market and economic conditions.

And there have been a couple of deals already this year, although no mega-transactions, as the PWC report suggests. Live Nation wants Ticketmaster and Sumner Redstone’s National Amusements theater chain is being shopped to potential buyers. Could Lions Gate be next?

(Photo: Viacom chairman Sumner Redstone/REUTERS)

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