Andrew Wilkes looks at how listed media companies are faring in the current economic climate.
There is no doubt that the worsening state of the global economy has, and will continue to, hit quoted media companies. Analysts are concerned that diminishing investor and consumer confidence will lead to a downturn in advertising, upon which many media stocks are dependent for their revenues. Earnings forecasts are being revised downwards and companies that are particularly exposed to the advertising sector, such as broadcasters, newspaper publishers and advertising and marketing agencies, have seen their share prices slump, with some trading at levels between 60% and 90% below those of just a year ago.
This justified pessimism about the outlook for advertising appears to have led investors to consider the entire quoted media sector as 'toxic'. However, there are a number of quoted companies whose business models do not depend on chasing advertising spend at all, or who are niche businesses benefiting from the migration of advertising from traditional print media to online. Television production companies, film distributors, STM (scientific, technical and medical) and B2B information publishers with subscriptionbased revenues and digital media pioneers have all seen their share prices fall – not as far as their advertising-dependent peers, but well in excess of the market generally.
Cheap deals for the taking?
Little wonder then that trade acquirers, private equity, and the managers of some of these apparently unloved companies, are beginning to think there may be some buying opportunities in these depressed markets. Within the television production space, the executive management team at Tinopolis took their company private with venture capital backing earlier this year. RDF Media's management have also signalled their plans to make an offer to shareholders.
However, while low share prices might mean some companies appear to be cheap by historical standards, the current high cost or reduced availability of debt means that willing buyers may not always be able to fund their interest. Specialist information providers Informa and Wilmington, and marketing services company Creston attracted the attention of private equity earlier this year. But, in all three cases, discussions were called off when, it is believed, the private equity houses involved could not raise sufficient debt to support their interest. Doubts have also been recently expressed about the funding available to the RDF Media buyout team.
Prepare for the upturn
So what should the management teams of depressed media stocks do against the current economic backdrop? Nobody can know how long the current economic difficulties will last, but we can be sure that recovery will eventually come. And, while media stocks tend to underperform during a downturn, they are usually among the first to bounce back when those green shoots of recovery are sighted. So the priority for quoted media companies must be to focus on trading through the downturn – use this time to review the cost base, maintain banking relationships, and, where possible, concentrate on building strong relationships with customers and clients. They should also take time to assess the potential opportunities for their businesses, so that they can take full advantage when the upturn begins.
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