WHY INVESTMENTS IN MEDIA ARE SHRINKING
Private Equity investments in the Media & Entertainment space are drying up. This is largely due to increased focus on consolidation and an interesting shift in deal activity towards the Gaming and Digital segments as compared to traditional media segments. If we look at the last five years, the maximum investments were seen in 2015 with 42 deals amounting to an investment of $ 846 million. In comparison, according to EY, 2017 recorded $ 576 million in PE/ VC investments across 17 deals and 2018 (till Nov) recorded $ 356 million across 30 deals.
Meanwhile, data from VCCircle for the year 2018 (entire year) says value of investments in the M&E sector barely touched $47.90 million for 16 deals. The mismatch with EY data is because VCCircle figures are only based on deals confirmed and disclosed by the company, and not estimates, whereas EY data includes all the news reports (confirmed/non-confirmed) and estimated numbers too. For example, EY data includes PE investment in Dream 11, which was about $100 million in 2018. But VCCircle has not included it in calculations as those are estimated numbers and the company has not confirmed them.
“What has happened is that the number of transactions in the traditional media space have been fewer. So the large deals of the previous years like Dish TV-Videocon, Warburg-Airtel DTH, or Zee-Ten Sports, etc., have not happened in 2018 - that makes it look small. But today, there is a lot of new deal activity and investor interest in emerging segments like Digital content and Gaming – basically, areas which are straddling both media and technology,” says Koreel Lahiri, Programme Director - South Asia, Media Development Investment Fund. “Further, both media companies and investors are building themselves to take a position of strength in the vernacular market. Investments might seem to be only trickling in right now, but that is really going to be the next phase of powerful growth for Digital media in India,” he adds.
DRAWN TO DIGITAL
The Digital or new-age space is seeing a wave of funding from financial investors, specifically venture capitalists. “Companies such as Pocket Aces, Dream 11, Roposo, etc., are the recent examples of funding by PEs and VCs in the Digital media space. The largest deal in 2018 saw Tencent, Multiples and Kalaari together invest $100 million to buy out Dream 11,” says Ajay Shah, Transactions Partner (M&E), EY.
“Investments in the traditional media space are going down because in most segments, there are well entrenched players. Also private equity investments in Media in the past 10 years have not given very good returns,” says Abneesh Roy, Research Analyst - Senior Vice President - Institutional Equities –Research, Edelweiss Securities Limited.
Another reason why investments in traditional media like publishing, Cable & DTH, Television, etc., have declined is because these are highly capital and infrastructure intensive companies. It takes time to build scale. Indian Media is highly skewed towards advertising revenues. And monetization is completely dominated by players who already have certain scale. Subscription revenues are a tiny portion which do not even support the variable cost. This also gives very little exit opportunity for investors. “Segments that are getting least interest from PE investors are: Print, due to user shift to Digital modes, lack of exit opportunities and limitation of FDI in Print up to 26% and Events, due to unstructured market, lack of infrastructural development and pricing models,” says Girish Menon, Partner and Head, Media & Entertainment, KPMG India.
Money in Digital is much easier to leverage and gather scale compared to Publishing and Television. Also, a lot of investment is being made not on infrastructure but on content. Content does not require huge investments, except for a few big players like Netflix and Amazon Prime, that are spending big on content. Hence the overall average of investments is being dictated simply by the slowly changing nature of the industry.
WHERE THE MONEY IS GOING
The top 70 companies that have raised more than $1 million of funding in the Media & Entertainment industry can be broadly classified into the following four types:
• News portals- e.g., Inc42, YourStory, the Ken, InShorts, etc.
• Song streaming- e.g., Saavan, Gaana, Hungama, etc.
• Video streaming- e.g., TVF, Arre, Dekkho, etc.
• Digital content house- e.g., ScoopWhoop, Factor Daily, Pocket Aces, etc
In addition to these, social media platforms with video content, e.g., Tik Tok, Like, etc,. are gaining popularity among millennials. “Thanks to Internet penetration across Tier II and Tier III cities, the country is witnessing a data revolution. Video social media apps (that are mostly Chinese) are gaining popularity (more than 1M PlayStore downloads). It also indicates that the content choices of Bharat and India are quite distinct,” says Apurva Damani, Managing Director, Artha India Ventures.
Companies like Blumeventures and Kalaari Capital are making their initial bets in Digital content and Digital media. According to an industry source, companies like Times Internet undertake about 20 deals a year on a strategic perspective, but they might not feature in the average league tables of deal-making. So, there is a lot of deal-making that is happening in media, media tech and allied areas which can aid a larger news organization or a larger media organization in aggregating a different set of audience.
CHALLENGES & OPPORTUNITIES
While the explosion of data, analytics and connectivity has dramatically enhanced a Private Equity (PE) firm’s ability to assess a company during the diligence stage, the investors are also looking forward to companies that bet big on technology, irrespective of the segment. How Digital has already affected the profit pool of the company will affect PE firms’ decisions in the next 3-5 years.
However, the key challenge for Indian companies in this space is to develop engaging content and applications that will get them more users that they can retain. “Indian companies are sluggish as they are unaware of the strategies that are required to reach the one million download threshold. Indian companies lack customer understanding and how to use it as an advantage to scale. Their Chinese counterparts seem to have figured the secret sauce of understanding their user base and providing relevant content,” says Damani of Artha India Ventures.
Challenges that PE firms face today in the M&E space are with regard to mismatch in valuation expectations, regulatory hurdles and exit opportunities.
Program Director - South Asia, Media Development Investment Fund
Transactions Partner (M&E), EY
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