Entertainment and media is where it’s at

What this translates to is investment opportunities available in several niche areas, especially in Asia Pacific. In the next five years, regional E&M spend is expected to increase by a compound annual rate of 6.4% to $475 billion, up from $348 billion in 2009. Some key markets are poised to experience even greater growth. Spending in China, for example, is slated to grow by 12% this year, while emerging markets Pakistan, Vietnam and the Philippines are the region’s fastest-growing, with 25%, 17.2% and 12.7% compound annual growth, respectively.

Investment options on the back of these trends are plentiful, – highlighted by the range of recent transactions. Australia's Quadrant Private Equity acquired regional media intelligence and news-aggregating firm Media Monitors for an undisclosed amount this month. And in June Kohlberg Kravis Roberts & Co. outbid Carlyle Group and Advantage Partners for Intelligence Ltd., a subsidiary of Japanese wire broadcasting and media content provider Usen Corp, which could be the largest private equity deal in the market this year.

Venture capital investments across Asia are abound in the media segment, but for larger deals a few trends stand out.

China

All of the factors that make China an appealing market apply to the media: according to sources, the global crisis increased China’s dominance and financial reserves making it more able and ready to spend on media infrastructure. New media in China has garnered special attention, and the industry has seen some investments in these areas of late. In December 2009, one of China’s two most prominent portals, Sina, received $130 million of investments from Sequoia Capital, FountainVest Partners and CITIC Capital Holdings as part of a $180 million management buy-in. Names such as Chengwei Ventures, Bain Capital and IDG Technology Venture Investment Fund have also infused money into mainland ventures like online video sites Tudou and Youku, which are the leading names in their sector, and both rumored to be considering IPOs in the next three years.

Two Singapore-based firms, the Asia Media & Technology Capital Management Private Limited and Sky Films Capital, have recently teamed with Chinese entities – the China Information Broadcast Network Company Limited and SND Ventures Group, respectively – to launch China-focused media funds. While the nature of the deals are different - Sky Film Capital appears to be a content development PE fund while AMTC is a technology focused venture fund - Peter Tan, CEO of AMTC, notes that the deals came as no coincidence as China’s media industry is emerging as a hotbed for investment.

“The investment opportunities are plentiful – you could say that China is the last frontier of media, and it will also be the biggest market the world has ever seen.  Part of the reason is the huge pent up demand for media. China is one of the most regulated media markets in the world, and yet the consumer spending power has grown tremendously from 32 years of liberalization in other areas of business. China wants the latest of everything now,” Tan says. “There will be opportunities in every sphere from traditional to new media, from infrastructure to mobile applications, from government sponsored educational projects to private initiatives in digital and broadcast entertainment.”

The digital play is in line with China’s burgeoning population of netizens: according to state-owned China Internet Network Information Center, by June 2010, there were 420 million internet users in China, including more than 115 million in rural areas. While this creates opportunities across digital sectors, industry observers expect more in the future as this equates to a mere 32% internet penetration.
Opportunities might be abundant, but China’s media landscape is highly regulated.

According to sources, firms are almost bound to run into red tape if they are directly linked to content development because China’s media and digital outlets are strictly monitored by the State Administration of Radio, Film and Television (SARFT). In the past, SARFT has blocked even its home-grown websites, never mind the high-profile problems Google, Twitter and Facebook have faced. In addition, essentially all media consumed by television almost assuredly goes through China’s state-owned networks, which is difficult to crack as an outsider.

Telecommunications

The ongoing manifestation of mobile as a major media outlet will support long-term investment opportunities due to a need for content development, data, storage, production materials and towers. In 2010, Indonesia and Australia emerged as two markets of particular interest.

Indonesia is the sixth-largest mobile market in the world. According to data research firm Research And Markets, the ASEAN nation experienced 50% growth in its mobile sector in 2008, which now reaches 65% penetration or approximately 230 million people. These stats are not lost on investors.

According to Hanjaya Limanto, Managing Partner of Aureos Capital’s South East Asia Fund, while the areas of content development and data storage present substantial investment opportunities, Indonesia’s cellular towers are the prize assets. This becomes difficult for foreign firms however, as communications is a highly protected industry.

In 2008, Indonesia’s fourth-largest mobile operator, Bakrie Telecom, put its 543 telecommunication towers up for sale in hopes of raising as much as much as $40 million. The country’s second-largest mobile operator PT Indosat announced in May 2010 that it is considering offloading some of it base transceiver stations this year.

Moving south to Australia, the country currently has four major telco players: Telstra, formerly government-owned; Optus, which is owned by Singaporean major SingTel; Vodafone Hutchinson, a mobile-focused joint venture; and AAPT, a unit of Telecom Corp. of New Zealand Ltd. Recently, rumors have circulated that SingTel is considering spinning Optus, Australia’s second-largest telco, out via an IPO. While SingTel has told press that it has no immediate plans to float the company, SingTel has said that it would “not be averse” to divestment opportunities if it favored stakeholders. Analysts have suggested Optus could raise up to $8.7 billion in an IPO – creating opportunities for private equity firms looking for a strategic deal, says one source at a regional law firm.

However, more relevant to PE firms is the news that Telecom Corp. may look to sell AAPT, which has attracted the attention of financial buyers, one regional source says. According to local media, Telecom Corp. has been reasonably open about its interest in offloading AAPT, Australia’s fourth-largest telecommunications company, for $400-500 million, and ASX-listed TPG Telecom has been cited as a top contender for the bid if motions were to proceed. Australian private equity firm Quadrant and smaller-scale telco Amcom have also been named as potential bidders.

“The loosening of foreign ownership restrictions in broader the media sector has helped generate attention from private equity firms,” the source says. “Private equity firms look around a lot in Australia because it’s a very developed market with a lot of debt that could be obtained to help financing. Australia also has a very familiar legal system and settled way of doing transactions. Its media companies tend to be very large and very well run, and that makes it a very attractive market for PE firms.”

Traditional Media

While investments into traditional media have been overshadowed by developments in digital, there are still distinct pockets of opportunities. According to PwC, spend on newspaper publishing in Asia Pacific will expand at a 2.3% compound annual rate to $56.9 billion in 2014 from $50.8 billion in 2009, compared to the 1.8% growth in the region’s consumer magazine market. While these growth figures are not as robust as other media sectors, Ed Sippel, Managing Principal of Quadrangle, says there are Asian markets where investment in these sectors still makes sense.

Sippel notes that newspapers in India are “still a very interesting place to invest” because of its thriving local-language publications in the culturally diverse market. Even in a mature market such as Australia, he says traditional radio is still very popular for both listeners and advertisers. Inversely, cable has been a heated industry in Taiwan, and has been recently been thrust into the spotlight after Carlyle Group hit an unforeseen snag in its pursuit to sell its stake in cable company Kbro to Taiwan Mobile for $1 billion. The firm also holds a 33.5% stake in Korean cable operator Hyundai Communications & Network – another active sector in what is considered among Asia’s most mature media markets.

“In Asia, you can’t generalize. In the media sectors, the difference between geographic markets and investment opportunities is probably even more pronounced than in other sectors. Media markets vary widely across the region ... The way people create, distribute, price, consume and regulate media is wildly different across the various markets of Asia. Because of these factors you can’t rule out there being interesting investment opportunities in any area of media in any given market. The key is having an in-depth understanding of these dynamics in order to price in those key factors and achieve the appropriate risk-adjusted returns.”

There is a difference between good business ideas and good investments, however, and the market is rife with examples, particularly in the Indian broadcast station segment and the direct-to-home satellite segment.

Investment potential lies in less glamorous areas surrounding growing media sectors, including such as infrastructure, power distributers, antennas and tower providers, data network operators, server and data centers and monitoring firms for video and wireless. It’s certainly not as sexy as a Facebook, but perhaps a lot more lucrative. 

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• Topics
• Media
• Investments
• Performance
• KKR
• CITIC Capital Partners
• Bain Capital Asia
• The Carlyle Group
• Sequoia Capital
• FountainVest Advisors
• IDG Ventures
• Quadrant Private Equity
• Quadrangle Group Asia
• Edward Sippel
• Advantage Partners
• Aureos Advisers (Aureos Capital)