Insight Analysis: Media Sector Slumps After Unparalleled Year Of Deals
Talk of an imminent recession has filled the media trade press in recent weeks. AC Nielsen and the IPA disagreed over the extent of the slump but the message from all sides was the same: the next six months will be tough for the sector as a whole.
A recent report from ABN Amro suggests that while media companies themselves are relatively healthy, investment in dotcoms and the trend for convergence with other sectors during 2000 fundamentally changed the way in which media is analysed. “Before 2000 the media sector had traditionally been seen as a consumer cyclical, driven by factors such as advertising, paper prices and macro factors,” it reads. “But in 2000, it became a part of the TMT triumvirate, enjoying a spectacular rise and almost as stunning a fall.”
Convergence was a huge factor in pushing media stock during 2000, but it also created a transference of its value to that of the volatile telecoms and technology sectors. Last year saw a huge rise in cross-media deals as vertically-integrated companies tried to carve out a piece of the broadband future. The Time Warner-AOL deal was by far the largest of these, while in the UK content provider Flextech and cable group Telewest were united. ABN estimates that 75% of corporate activity in 2000 was convergence-related.
The actual number of deals last year was down on 1999 but the amount of money spent rose to $382bn, almost double the amount spent in 1999. Such unparalleled levels of corporate activity are not expected to continue during 2001, however.
While ABN believes there is scope for further consolidation within media, the urgency of such deals has waned. “With the fall in net valuations and the probable delay in the rolling out of broadband networks there is less need for companies to position themselves aggressively for convergence, as was the perception in 2000, ” the report says.
Media is likely to continue to be tied to the struggling telecoms and technology sectors, however; convergence with these markets lies at the root of its growth as well as being the cause of its recent downturn.