With emerging digital channels and mobile technologies propelling the media sector into a constant state of change, companies of all shapes and sizes are scrambling to evolve. This evolution is fueling a wave of deal-making in support of horizontal integration and outright consolidation across the industry. As evidence, media entities and their advisors are now laser-focused on identifying opportunities that will bolster their existing content pipelines and distribution models.
The Jynwel Capital team expect to see a continued increase of M&A activity in the media sector during the next year, particularly as content distributors and providers try to emulate integrated, mobile-friendly models that have already been implemented by the likes of HBO and Netflix. With acquisitions rising 92 percent on a year-over-year basis to $128 Billion (USD), Comcast’s acquisition of Time Warner and AT&T’s deal with DIRECTV are two examples that have helped drive sector-specific M&A figures to post-recession highs in 2014.
Although we see the potential for a couple more “mega deals” involving distributors and producers, we are more confident in sub-sector consolidation. This consolidation, reflecting a broader shift in content consumption patterns, stems from technological advances in the mobile and online advertising segments—two areas we see as key drivers of a consolidation trend already underway:
The media sector’s mobile segment, one of the most active alongside software, fueled robust M&A activity in 2014. This flurry was highlighted by Facebook’s $19.7 billion Whatsapp acquisition early in the year. The ongoing shift to wireless consolidation is likely to accelerate in the coming months as mobile and new wearable innovations continue to alter standard media consumption habits. We are already seeing this trend take shape in much of Europe and it is likely to evolve on a global scale as more and more telecommunications firms upgrade their wireless networks to support mobile-first user experiences.
The same consolidation trend holds true in the rapidly evolving digital space, where the online advertising segment grew by 22 percent in 2014, eclipsing television’s 2.6 percent rise over the same period, according to new research from research firm MoffettNathanson. This new advertising landscape—one dominated by full-service, rather than niche advertisers—is punctuated by a growing demand among distributors for video and other digital content formats. In addition, advertisers and the companies they are servicing are looking to new advertising technologies as richer sources of actionable data specific to their target audiences.
Given these industry changes, we expect continued M&A activity in the near term with the elements in place for accelerated consolidation across the media sector. For additional insight into the ever-evolving media sector in the months ahead, stay connected with our Jynwel Capital blog.