The Death (and Rebirth) of Media Private Equity
It is no secret that media has long been a very popular sector among private equity investors. Its popularity was shared among lenders, who were willing to lend to media companies at much higher multiples than they would to other industries because of the underlying franchise or license value. The bad news for media investors and lenders is that the 2007 to 2009 period is no normal cyclical downturn, and the oligopolistic franchise value no longer exists. The advertising revenue base and valuation multiples for radio and magazine companies have experienced a permanent structural decline. The bulk of the decline has been driven by the loss of pricing power for radio and print advertising due to the emergence of the internet. There is also potential for further decline as consumer spending, and thus advertising, becomes a smaller share of the US economy. The good news is that there is light at the end of the tunnel for radio and magazines. Surviving the current downturn will be a victory for any media investor, yet there are opportunities for new investors to enter the industry.
