What media investors want

So far, 2009 has been a slow year for the media and entertainment industry.

Both advertising growth and investments into the business have been lackadaisical. It, therefore, seems to be a good time to look at the pattern of investments into the M&E industry over the last three years.

The data on money coming into the media industry - through private equity investments, mergers and acquisitions, initial public offers , foreign currency convertible bonds or other forms of debt or equity - was collated over the last few months for the third edition of my book.

This data comes from various sources --  the Foreign Investment Promotion Board, the Securities and Exchange Board of India, media reports and websites such as VCcircle.

The numbers throw up three things:

One, investors are happier putting their money on pay-revenue-driven businesses as compared to advertising-driven ones. So, investments in films were among the top preferences of investors in this sector over the last two years, with the bulk of the money coming into digital screens (Pyramid Saimira, UFO Moviez), multiplexes (Cinemax) and some into production companies (The Indian Film Company-Altima).

This is to be expected. The film retail business is easy to track, the cash flows are clear and the risk is well-defined. A 40-60 per cent occupancy, combined with steady money from food and beverages and advertising, makes for comfortably predictable returns.

Add to this, the rising average ticket prices (the multiplex average has gone up from Rs 100 to Rs 120 or so), and the picture is positive, notwithstanding the current face-off between multiplex-owners and film companies  (The trouble with multiplexes, March 24).

Two, on the advertising-driven media front, investors prefer the segments with heavy pay possibilities such as TV broadcasting. Though, investments into DTH are not accounted for in the graphic, they constitute a large part of the investments into TV, with estimates running into a billion dollars over the last two years.

From the figures available, however, the bigger chunk has gone into broadcasting deals, especially ones like UTV-Disney, NBC-NDTV and the Sun TV or Global Broadcast  News' IPO.

Three, outdoor and events, surprisingly, proved to be very popular businesses with investors. Outdoor or out-of-home  media got just under Rs 1,000 crore (Rs 10 billion) over the three years from 2006 to 2008.

It may seem like a bad time to be in the outdoor business as the slowdown bites ad-driven businesses hard, but the underlying reasons for investors to find it attractive remain.

These are: Increasing investment in infrastructure (and, therefore, more organised supply of OOH media), more time spent out of their homes by consumers and the growth of advertising categories such as media or telecom that need a higher OOH proportion in their media plan. (more on this in later columns).

The slowdown is affecting every business plan these investments are based on. Expect many of the companies that raised this money to either put their plans on hold or actually go back on them, which means that many of the projections could be delayed by at least a couple of years.

Notwithstanding that, the pattern of investments makes one thing clear -- investors like businesses with a healthy-mix of pay plus advertising or at least ones where pay is becoming a more important part (as in TV). All Indian media companies need to do is worry about the balance between the two streams if they want the money to keep flowing in.

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