No industry has been affected by disruptive innovation to the extent of the media industry in recent years.
The digital revolution and the almost-overnight emergence of entire new platforms, channels and markets have forced traditional media giants to transform themselves into something completely different. Top of the boardroom agenda has been how to manage the successful transition into digital media, regardless of the company’s legacy products.
Initially, many firms invested in organic growth – recruiting people with different skills to pursue ventures into new products and services.
But with organic growth often a slow and expensive exercise, and businesses unsure which emerging technologies might be ‘the next big thing’, major players have turned to buying their way into the digital sphere, both through acquisition and investment in external start-up businesses.
Strategic investment is one of several topics that will be discussed at the upcoming Digital Innovators’ Summit from 24 to 25 March in Berlin, Germany. Click here to register for the Summit (Early Bird rates are available until 31 January). The programme include speakers actively involved in investments, as well as an inaugural Accelerator, showcasing a number of Berlin startups to the audience.
PwC’s US Entertainment, Media and Communications Deals Report shows the level of investment activity among media organisations today. It reveals that industry deal announcements in the year to September 2013 were 9% up on the previous year – with the internet, communications and publishing sectors all seeing increased activity.
The top ten deals alone in 2013 totalled more than $77bn – a 55% increase on 2012’s $50bn. In addition, 80% of activity was corporate deals, while only 20% were private equity deals.
Giants make their move
Plenty of industry giants have made high-profile and well-documented acquisitions in recent years.
Google Ventures, the internet giant’s investment arm, was the most active investor in rounds under $10m last year, putting money into 12 different companies across a three month period alone.
Google Ventures was launched in 2009 with a $100m capital commitment. It has amassed a diverse portfolio of companies covering everything from mobile messaging apps to bitcoin to genomics.
Google’s biggest purchases have been the $12.5bn deal for Motorola Mobility in 2011, a $450m deal for social media marketing business Wildfire Interactive in 2012, and this month’s $3.2bn deal for home automation business Nest.
Many of Google’s investments have already paid off, with some businesses already being exited. Since last July, Google Ventures has seen the successful IPOs of RetailMeNot and Foundation Medicine, as well as the near-billion sale of The Climate Corp to Monsanto.
Apple makes many investments via its hedge fund Braeburn Capital, which has more than $120bn under management. But little is known about which companies Apple invests in. It occasionally owns stakes large enough to be declared: it was a founding investor in UK chip designer ARM, but has sold out, and it owns 9% of Hertfordshire-based Imagination Technologies, which designs video and audio chips.
In terms of acquisitions, Apple has invested in a number of mapping and 3D mapping businesses of late (Poly9, C3 Technologies, Particle, WiFiSlam, Locationary, HopStop.com, Embark and BroadMap).
Another area of focus has been analytics. Last year, for example, Apple picked up a $200m acquisition in the form of Topsy, a surging Twitter analytics company based in San Francisco.
Last November, MediaCorp’s strategic planning head Guillaume Sachet told the Start-up Asia Jakarta conference that the need to stay ahead of changing consumer consumption patterns was driving his firm to consider such purchases.
MediaCorp recently invested $40m in luxury e-store Reebonz and launched a start-up fund and incubator programme called ‘The Mediapreneur’, which consists of an investment fund for the seed-funding of start-ups and mentoring to help entrepreneurial ideas become solid start-up businesses.
“We are committed to nurturing and investing in start-ups with innovative and disruptive technologies, enterprising ideas and new business concepts in the digital media space,” Sachet said upon launch. The programme’s first investment was in video streaming start-up Ooyala.
Backing the start-ups
While media giants swallowing up digital businesses in large deals will often grab the headlines, plenty of start-ups are receiving part-funding from media giants – with many receiving backing from multiple players.
Vungle is a San Francisco-based company that purveys mobile video ads to promote apps. In May, it announced it had raised $2m from a host of big Silicon Valley and Alley names, including Google Ventures, AOL Ventures, Crosslink Capital, Ron Conway's SV Angel, Dave McClure’s 500 Start-ups, Charles Hudson’s SoftTechVCs, Maynard Webb, Scott McNealy and Tim Draper.
Media giant Hearst Corporation made a minority investment in Chicago-based Spooky Cool Labs, a social game studio that released its Wizard of Oz game on Facebook
In 2010, meanwhile, Amazon and Facebook joined forces with venture capital funding company Kleiner Perkins Caufield & Byers, which invested $250m in the sFund, an endeavour to finance new social applications. The fund also includes web social gaming player Zynga, entertainment giant Comcast and Liberty Media. Its goal is to seed start-ups in the red-hot market for social media software.
So exactly which areas are hot for investment right now? A report produced by PwC late last year, based on research by Thomson Reuters, revealed that software businesses reaped 40% of all tech investment in the previous quarter.
The continued growth of the mobile and tablet markets is fuelling investment in social media start-ups – but also the technologies that can help improve the user experience: mapping, data analytics and mobile software.
Investing your way out of print
Of course, many of those who have invested in start-ups and the acquisition of smaller businesses have been print businesses threatened by the digital revolution.
Last year, Dennis Publishing invested in app software business Contentment, a tech start-up dedicated to creating multi-platform publishing and production tools.
Axel Springer is another traditionally print media business that has undergone an investment-fuelled digital transformation. Its investments are very diverse: For instance, in 2012, it did a minor investment in apartment-letting site AirBnB, which was part of a strategic marketing agreement. In 2013, it purchased a majority interest in the sports and fitness app Runtastic. In October 2013, it announced that it was to purchase, through its subsidiary StepStone, the YourCareerGroup – one of the leading operators of job portals for hotels, restaurants and tourism in the German-speaking countries.
Naspers is another business that has completely transformed its offering from a traditional print base. It began its evolution through an investment into Tencen in China, in the late 1990s. A host of other such investments have paid off spectacularly to see the firm now termed by some as ‘the biggest multimedia conglomerate you’ve never heard of’.
In 2011 alone, Naspers bought majority stakes in social shopping’s Multiply for $44m, emerging-markets online-game firm Level Up! for $51m, Latin American payment provider DineroMail for $28m, and Turkish online shopping service Markafoni for $86m – taking it not just into the digital publishing space, but also into e-commerce.
Other traditional print giants have also moved into e-commerce. Condé Nast has invested in RenéSim, one of Europe’s first online jewellers in the luxury market. The move was the magazine publisher’s seventh investment in e-commerce businesses, after it allotted $500m for investments in digital start-ups and screened more than 200 companies in the past two years.
Getting it right
So how do you manage your investment? Moritz von Laffert, managing director of Condé Nast Germany and VP of Condé Nast International has said of his company’s investment in e-commerce businesses that there are specific criteria requirements: “We specifically target young, innovative businesses where we can contribute actively to a sustainable increase in value and which, as new business models, can provide meaningful additions to our media portfolio.”
Martin Belson, managing director of enterprise division, at Dennis Publishing, appears to agree, adding of his company’s investments that they must contribute something to the business strategy, as well as being a sound investment.
“The whole point of Dennis Enterprise is to create investment outside our digital revenue streams,” he said. “We’re not here to just be a venture capitalist and invest in start-ups. They need to have a strategic synergy with us.”
Meanwhile, Edi Taslim, digital group director of Kompas Gramedia, which has also invested in start-ups, believes taking on some form of control of the business is essential.
“We have an independent policy to run the business,” he told the Start-up Asia Jakarta conference. “Having a separate entity would also mean having a different mindset and a different way of running a business.”
With so much activity taking place around the globe, and with thousands of start-ups taking flight every month, it’s likely investment in fledgling businesses will continue in 2014 and beyond.
Media CEOs agree. According to PwC’s US Entertainment and Media CEOs Survey, 20% of respondents said “new M&A, joint ventures and strategic alliances” will provide the main opportunities for growing entertainment and media business in the next 12 months – more than believed organic growth was the future.
Investing in the future
