For Digital TV Europe.net January 29, 2009

There is enough bad news in the financial world in general and the media world in particular to fill a dozen columns right now.

So let’s buck the trend and see what’s going to be good about 2009, or at least what good opportunities there may be after the fallout.

First the money: the venture capital business is in a sorry state and European stalwarts 3i and Apax Partners have gone so far as to end all early-stage company investments. That said, the backer of pay-TV company Setanta and social network Bebo, Balderton Capital, announced in January that it had raised US$430m (€327m) for technology and media investments in Europe and California-based Accel Partners also recently raised US$1bn to target technology and media investments in Europe in 2009. Balderton and Accel are optimistic because their private-equity cousins rely on debt to make their investments work, which will give the venture capital guys an edge in credit-crunched 2009.

There is also a feeling that private-equity guys are going to try and wean themselves off their debt-funded business models and invest in things using more (gasp!) equity. How much of this actually happens remains to be seen but I figure the longer the downturn lasts the more equity you’ll see as the PE companies have to invest in something or risk having to give back capital to their investors. In any case 2009 will see more deals led by companies themselves, using cash and from their own balance sheets. Companies without cash will be hampered in the deal-making sphere.

In the broadcasting world, Italy’s DeAgostini and Greece’s Antenna Group say they are looking to expand and have the capital to do so, with the UK as a target for both of them. Armed with €620m from the sale of broadcaster Nova to Modern Times Group, Antenna has hired long-time pay-TV hand and ex-ProSeibenSat1 executive Guillaume de Posch as a part-time advisor. DeAgostini, which owns TV producers Marathon, Magnolia and Diverse Productions, said late last year that it had at least €400m available for acquisitions and is especially interested in companies with strong IP portfolios.

The public markets are pretty hostile places at the moment so fundraising in 2009 will likely have to be backstopped by big corporate owners. One example is German pay-TV company Premiere, which has a new CEO who is keen to refinance the beleaguered business. Premiere renegotiated a €525m debt facility in late December 2008 only after it agreed to sell new shares in the company that are backed by its biggest shareholder News Corp.

This year will also see more ‘co-optition’. Just look at France, where after many months of wrangling, Vivendi’s Canal Plus and France Télécom/Orange have signed a multi-year deal to offer each other’s services to their subscribers. So Orange Cinema TV satellite customer will now be able to buy the Canal Plus premium channel as well as the CanalSat digital bouquet of channels. This peace pact is important because the French pay-TV market is maturing at the same time that consumers are re-thinking their discretionary spending.

This looks to be the year of economic Darwinism, when companies with lots of debt have to either find a corporate parent to back them or be driven into a sale or some kind of consolidation play. The head of the UK’s BBC is even calling for Channel 4 and RTL Group-owned Five to merge in order to beat the TV advertising downturn. Of course in this case there is also a bit of self-preservation at work: the BBC is loath to hand over any of its public licence fee money to help support Channel 4, which both Ofcom and the government agree needs some kind of financial succour.

2009 will also see a lot of pressure on listed media companies. This is because the market traditionally punishes media – especially those companies exposed to advertising – much more severely than other sectors.

And even the more recession-proof pay-TV companies such as BSkyB are vulnerable in this climate. A “sell note” from Goldman Sachs sent BSkyB shares tumbling 24p or about 5% from an already depressed level to just over 450p a share on January 9. Goldman noted that BSkyB “is at close to a four-year high P/E premium to the sector and market, despite heading into a trading period where its perceived attributes of defensiveness and growth appear most at risk.” Goldman cut its price target from 500p to 457p and said that BSkyB’s problem is that because it has outperformed the media market as a whole it is now “priced for perfection”. The market seems to have taken Goldman's concerns to heart: by January 12 the share price had fallen to 437p. In this economic climate being “priced for perfection” is not a good thing because there is very little room for error.

The good news? History shows that while the media sector is the first hit in an economic downturn it is also the media business that traditionally is one of the first to recover as economic gloom lifts. Hold that thought as we all prepare to navigate the next 12 months.