Entertainment and Media businesses must look to exploit $40bn of valuable intangibles

Despite downturn online advertising sees double-digit growth

October 30, 2008 — The PricewaterhouseCoopers report ‘On Media: Managing through the credit crunch — intangibles must play their part. Online advertising through a downturn — weathering the storm’ discloses despite the economic outlook, the cupboard is far from bare for entertainment and media (E&M) companies that are sitting on a $40billon goldmine of intangible assets. Besides, discloses that in particular Search is set to dominate the market.

Managing through the credit crunch — intangibles must play their part

The global credit crunch has forced the financial sector to reign in its lending, at a time when, just to stay competitive, E&M companies’ evolving business models demand funding. The PwC report states that intangible assets such as royalties, copyrights and trademarks may be worth as much as 25 per cent of the value of an E&M business.

Adam Sutton, director, PricewaterhouseCoopers LLP, commented:

“These assets could provide a lifeline in difficult credit markets, the value associated with intangible assets could be employed to provide comfort to lending banks and pension fund trustees, at least until the stock markets rediscover their equilibrium and the full economic value of E&M businesses and their pension fund assets are restored.”

Even in uncertain times, the E&M industry is likely to remain one of the fastest moving and most dynamic, with forecast revenue growth of 6.7 per cent globally in 2008*. However, this expansion is highly dependent on the ability to raise funding and intangible assets could support this via securitisations.

The music, film and broadcasting industries have been responsible for the greatest number of high profile intangible asset securitisations so far. The Bowie Bond paved the way in 1997 when David Bowie reportedly became the first singer to issue bonds using future royalties as security.

Adam added:

“Intangible asset securitisations are not a new phenomenon. The music business has really made intangible assets sing for their supper in the past, but many other E&M businesses have valuable intangibles too. During times of easier credit, focusing on these intangibles was just not necessary”.

Businesses need to consider carefully if their intangible assets tick the right boxes for lenders, especially in the current environment.

The valuation of intangible assets has become a much more robust practise. Ultimately both the E&M industry and asset backed lenders need to be innovative about how they work together to exploit the best opportunities for both sides and not automatically place intangible asset-based deals in the ‘too difficult’ box.

The additional capital which could be placed at the disposal of E&M businesses could be used strategically in terms of accelerating telecoms, media and technology convergence, developing new digital technologies and exploiting content distribution over new platforms.

Despite downturn online advertising sees double-digit growth

Although recent turbulence in the financial markets has caused advertising executives to reign in spending across the board, online looks set to achieve double digit growth in 2008, a PricewaterhouseCoopers LLP report reveals.

Prior evidence shows that there is a strong correlation between GDP patterns and advertising spend. However, the emphasis is now on a structural shift in favour of online - that has been apparent in recent years- to continue through the downturn. Although online will feel the squeeze, it will fare relatively much better than many other forms of media.

Nick George, partner, PricewaterhouseCoopers LLP, said:

“Achieving double-digit growth in tough economic conditions is impressive; not many industries will achieve this. We expect media companies and investors to continue investing in on-line and to reflect a higher weighting across their business or portfolios.”

Experts note that within online, Search appears most resilient given its clearly attributed RoI. This year was marked by 30 per cent growth rate in the UK in this segment. This is not just a UK phenomenon and further research focusing on Germany and Poland indicates a European-wide shift is to follow. Classified advertising should continue its online migration, off-setting overall weakening in the category. The biggest questions are around Display. Innovation is coming through (such as behavioural targeting and on-line video), but the medium is fragmented and advertisers may be wary of spending on a less proven new medium.

The shift from offline to online hangs heavily on the level of measurability of the latter, and return on investment (RoI) is paramount in the world of online advertising.

Notes to Editor:

1. For additional information, please contact Anna Kogosova, PR Assistant Manager.