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INSIGHT... What Market Slowdown??
plus, How We See It...

by Dan Ramsden, Near Earth LLC

Despite a precarious funding environment that, as widely reported, is not expected to improve in the near term, our view from the trenches is that the rapid evolution of new media and the technologies and infrastructure that support it have in no way slowed. Driven in part by growth of the Internet as a universal distribution and content platform, the evolution of hardware and software to facilitate information traffic, and the continuing financial and strategic interest in high-growth digital media and telecom projects even in a turbulent financial market environment, there appears to be an expanding division between “haves” and “have nots” in the form of new and traditional media respectively. Although there are winners and losers in each segment, our own observations can also be supported by more broadly publicized recent industry developments, including the following:

• M&A/consolidation
  • Several high profile announcements in new media point to increasing consolidation activity in the sector. The most substantial of these news items has been Microsoft’s bid for Yahoo!, a potential deal that threatens to at last create a new media titan to rival Google on all cylinders; and more recently the bid by Electronic Arts for video-game publisher Take-Two, and the buyout of Getty Images by Hellman & Friedman. Of lesser profile, although highly indicative of the analog to digital migration that has been underway in the consumer marketplace, has been the announcement of Amazon’s acquisition of Audible, the sector’s largest retailer of digital audio-books and downloads. We note, by way of contrast, that the most visible M&A event in traditional media at this time, the ClearChannel going private transaction, remains uncertain and has even entered a complex litigation phase (never a good sign) to force certain components of the multi-pronged transaction to be completed.

• Infrastructure expansion
  • As reflected in the activity surrounding the just-closed FCC spectrum auctions, as well as the lofty public valuations of wireless infrastructure platforms such as communications tower companies (e.g., American Tower and Crown Castle still trading close to all-time highs), a great deal of capital continues to make its way toward infrastructure that supports digital media and communication. This includes wireless broadband and other services (not necessarily limited to consumer offerings). We again note, in contrast, that the public market valuations of many traditional infrastructure companies, such as cable MSO’s (e.g., Comcast, Cablevision) and wireline communications carriers (e.g., AT&T, Level 3), have performed very differently from the examples cited above. In many cases, these are now priced as much as 30-40% or more off their peaks.

• Consumer audience share
  • By way of example, although similar patterns can be found in numerous traditional media, we look at the radio sector. In the Fall of 2007, Arbitron reported that traditional radio listenership had declined to the lowest level since Arbitron began keeping statistics in Fall 1998. Radio usage dropped in every category except the 50-54 age group, and the steepest declines had continued to be among teenagers and young adults, as “their attention was increasingly diverted to other media.” Additionally, AccuStream iMedia Research recently reported that time spent listening to online music radio was up 26 percent in 2007, with the segment logging 4.85 billion listening hours. This undoubtedly included time spent listening to new digital music services such as Pandora, LastFM, Rhapsody, and Slacker.

• Advertising receptivity
  • Reflecting some of these audience trends, it does appear that advertisers are continuing to revise their spending habits, and that increasing sums are being directed toward the Internet and related new media at the expense of traditional media, such as radio and newspapers. According to TNS Media Intelligence, while 2008 will see an overall advertising expenditure increase of 4.2 percent over 2007, the Internet will post advertising growth of 14.4 percent, while radio will increase by a mere 0.7 percent, newspapers will diminish by 0.9 percent, and network television will increase by 2.7 percent (below the overall average, and in an election year!).

From our perspective as an investment banking and advisory boutique focused on the satellite, media, and telecommunications industries, we are therefore not surprised to continue seeing our pipeline of activity and opportunities swell, even in the current deal environment that is by all accounts challenged.

Having for a long time emphasized new media, emerging technologies, and wireless infrastructure as our core areas of focus, we continue to encounter exciting new platforms in a variety of non-traditional media fields. We look forward to reporting back in 2009 with an overview of the prior year’s new media and telecom successes.

And this is the way we see it…

MSS/ATC player TerreStar closed a $300 million financing deal with strategic investor Echostar and financial investor Harbinger Capital. This deal, which also included substantial 1.4 GHz spectrum assets, serves to further differentiate TerreStar from its MSS brethren and may signal one approach EchoStar intends to use to counter cable TV’s vaunted triple play.

There has been a whirlwind of activity on the new media front, even as traditional media continues in its holding pattern, (see Clear Channel Communications and its most current deal litigation wrinkles by way of example). In the meantime, Microsoft’s bid for Yahoo! quickly gave rise to rumors of competing alternatives for the target, and Take-Two Interactive has indicated that it is being approached by other potential bidders on the heels of Electronic Arts’ offer to acquire the company. It required Liberty Media 14 months to obtain all of the necessary regulatory approvals to complete its DirecTV acquisition, now finally closed.

Wireless carrier Sprint Nextel continues to struggle. The company has now written off most of its acquisition price for Nextel, resulting in a nearly $30 billion 4th quarter loss, and provided a less than upbeat subscriber growth outlook for 2009. We do not see this to be a reflection of the wireless sector overall, as previously noted, but particular to a merger that has had a tough time integrating two types of spectrum that are incompatible.

Author Biography
Dan Ramsden is a Managing Director of Near Earth LLC, focused on private placements, M&A advisory, and client coverage in sectors including New Media, Publishing, Broadcasting, Entertainment, and Communications Towers. Mr. Ramsden’s banking career started in 1990 with Bank of Montreal, where he was a Director actively involved in leveraged buyouts and highly structured financings. In 1994, Mr. Ramsden was asked to join the Bank’s start-up investment banking operation (now BMO Capital Markets) as a Managing Director, responsible for the development of a Media & Communications U.S. investment banking practice, providing private placement services (equity and debt), M&A advice, and public equity and debt underwriting. In 1999 Mr. Ramsden’s responsibilities were expanded to include credit-related products and soon thereafter also private equity investments for the Bank’s proprietary fund. He remained active in all these areas (with a Media & Communications focus) until his departure in 2002.