The opaque short-term desires of private equity should concern anyone working in media and advertising
Opinion: 100% Media 0% Nonsense
Private equity firms run deep in the media industry but are famous for demanding short-term returns. How private equity trades media companies will mean big changes to media and advertising jobs.
Private equity now has its tentacles deep in the media industry, but how many of us even know who they are?
If you look at the ownership structures of challenger agency groups, media research companies, and media tech platforms established over the last 10 years, you will find private equity all over the map. Who owns the companies that support the media industry matters because it colours what decisions are made. And, if private-equity are known for making fast returns, those decisions are likely to be short-termist in nature — not to mention the publicly-listed industry titans which must reveal their earnings every quarter.
Which begs the question, how many media companies truly have this industry’s long-term interests at heart?
The cheap money magnet
Fifteen years after the Financial Crash, this industry is still being impacted by the crisis that followed.
That dark time gave rise to over a decade of rock-bottom interest rates, which made debt cheap to buy and riskier investments more attractive. Suddenly it was more appealing to bet bigger on the future, so private equity poured cash into tech startups and digital marketing agencies.
That’s why we see a range of PE owners controlling or holding significant stakes in newer agency groups, such as Brainlabs (Falfurras Capital Partners), Jellyfish (Firmalac, recently sold to Brandtech Group), and Croud (LDC).
It may surprise readers to know this industry’s audience measurement sector is now dominated by PE too: Kantar (majority owned by Bain Capital); Nielsen (controlled by Elliott Management and Brookfield).
I had the opportunity to interview the CEOs of Kantar Media and Nielsen at the ASI TV & Video Conference this week and the impact of their ownership was a key question for both (I hope to publish both interviews later this week).
The thing is, we never hear from PE about their views on media and advertising. Unless you do your research, we don’t know who runs these companies or what their views are on the many companies they own.
Given how much of media and marketing is increasingly owned by PE, many of the people who work in this industry are now directly impacted by those decisions.
And these decisions matter a great deal.
Why media and tech are less ‘sexy’
But the world has now changed, as media industry analyst Ian Whittaker warned at the ASI conference last week.
Whereas in 2021 investors were focusing on the cash cow of consumer technology and pouring money into Meta (Facebook), Alphabet (Google), Amazon, Netflix and Spotify, the impact of the Ukraine’s invasion, high inflation and further geopolitical tensions have made safer, “old-school” sectors seem more attractive again, such as defence, energy, infrastructure and logistics. So being boring has been making a comeback.
That’s bad news for a (relatively) sexy industry like digital media and tech. “[Investors] have a very limited pool of capital to play with. And quite frankly, if these [old-school] areas are gaining more opportunities than other sectors have to lose out. And tech is certainly the one that is doing that at the moment,” Whittaker said.
That must mean, then, that private equity is looking for an exit strategy.
And how that exit strategy shakes out will have a big impact on jobs, innovation and investment in media.
If PE companies might now be in selling mode, then it also matters which companies are in buying mode. Because, time and again, companies that want to scale through acquisition will be looking hard at what costs they can cut by smashing together a sizeable business with their own.
The current sale process for The Telegraph being a case in point: likely buyers DGMT and Paul Marshall (who holds a 45% stake in GB News), will be looking hard at “synergies” with their existing businesses.
In other words, as private equity exits there could be a wave of consolidations coming down the road.
If you’ve felt like the business world has seemed more volatile in recent years, this is the core reason why: this an industry that is impacted more and more by ownerships with shorter-term interests.
But that could be about to change as the macroeconomic conditions move towards a world more familiar to the pre-Crash era: higher interest rates making it more expensive to raise capital, and fewer shiny objects being dangled in front of investors looking to make a quick buck.
Until, that is, the next shock happens. And we live in strange times. Remember this morning when the idea of David Cameron becoming the UK Foreign Secretary was unthinkable?
Omar Oakes is editor-in-chief of The Media Leader and leads the publication’s TV coverage.
Editor’s note: This article originally featured a picture of Jellyfish founder Rob Pierre and Jellyfish CEO Nick Emery. After publication we were politely reminded that Firmalac did not fully exit Jellyfish because it is a shareholder in Brandtech, so we’ve changed it.