Media's mating ritual
There were plenty of media deals in the first half of the year, and investment bankers say you ain't seen nothing yet.
By Paul R. La Monica, senior writer

NEW YORK ( -- Around and around the media merger merry-go-round goes. Where it stops, nobody knows.

There have been several high-profile deals in the media and entertainment industry this year. Walt Disney (Charts) kicked things off by announcing it would buy its longtime animated studio partner Pixar in January for $7.4 billion. Newspaper publisher McClatchy acquired rival Knight-Ridder for $6.1 billion.

There has been a flurry of media mergers already this year and investment bankers expect plenty more before the year is done.

In the latest big deal, Spanish-language television company Univision sold out to a private-equity-led group for $13.6 billion. Overall, there have been 138 media mergers in the United States - worth $48.1 billion - so far this year, according to market research firm Dealogic.

And this is probably just the beginning of a wave of deals as companies try and adapt to the rapidly changing media landscape.

"There's a lot in the pipeline that's going to be announced in the next month or two. Our expectation is for a stronger second half than the first half," said Reed Phillips, managing partner with DeSilva & Phillips, a media investment bank in New York. "There will be a lot of traditional media companies trading hands and online companies getting acquired also."

Embracing the Web...better late than never?

There already have been several smaller deals involving larger traditional media firms buying online upstarts this year. NBC Universal, the media arm of General Electric (Charts), acquired iVillage, an online media firm specializing in content for women. Viacom (Charts) bought Xfire, an Internet video game site.

Giles McNamee, founder of McNamee Lawrence & Co, a Boston-based investment banking firm focusing on technology and new media, said he thinks "old" media firms will continue to show interest in online media firms like gaming sites and possibly even blogs.

Bob Filek, a partner in the Transaction Services group of PricewaterhouseCoopers (PwC) also thinks that mainstream media firms eager to cash in on increased consumption of online media will be shopping for smaller online firms.

"We will see a fair amount of continued activity over the next few months. There is a fair amount of cash in the corporate world and the digital convergence issue is one that has real substance behind it," he said.

Phillips added that strategic buyers, i.e., traditional media companies, will also face more competition from private equity firms since many of them are also flush with cash and have shown intense interest in the media sector.

In addition to the Univision deal, a private-equity-led consortium recently bought VNU, the Dutch firm that owns Nielsen Media Research and entertainment trade publications Billboard and The Hollywood Reporter, for $8.9 billion.

And McNamee thinks that online firms like Yahoo! (Charts) and IAC/InterActive (Charts) will also be looking for deals.

McNamee said that the biggest prize out there might be Facebook, the social networking site that is popular with college students. News Corp. (Charts) bought Intermix Media, the parent company of Facebook rival MySpace, last year for $580 million, and bankers say that Facebook's founders have been seeking $2 billion in a sale.

That may seem extremely high, but McNamee thinks someone might pony up. He points to eBay's $4.1 billion purchase price of online phone company Skype, criticized by some as being too high, as evidence that even large online companies will do whatever it takes to increase market share. So the sense of desperation may be even greater for established media firms.

"There is a technology revolution going on that has changed the world for traditional media," McNamee said. "They want the registered users. Skype was worth whatever it was worth for, at the end of the day, an enormous community of users. So media companies out there may think they can make money from Facebook's audience."

Phillips agrees that there will be more of a rush to grab online properties.

"If there's a mantra coming from the traditional media companies, it is that they are not looking to acquire more of what they already have but to acquire online," he said. "With most of the big media companies, we find many think they are doing innovative things but what they are doing pales in comparison to the online guys."

Newspapers are most desperate

And Larry Grimes, president of W.B. Grimes, an investment bank based in Gaithersburg, Maryland, that focuses on media mergers, said he expects more newspaper deals as print companies fight to make inroads online and investors force companies to sell out.

"Some of the venture guys who bought into newspaper companies over past five to seven years are getting antsy so I do see further consolidation," he said. "Newspapers are struggling to make money online."

Grimes said he expects Gannett (Charts) to be a likely buyer of individual newspapers that are put up for sale or entire companies.

He added that the Knight-Ridder sale proves just how tough the business is and that some family-controlled companies that wouldn't have considered a sale only a few years ago, such as troubled publisher Tribune, may wind up going on the block.

"It looks to me like with some of the older media companies, we've got families ready to throw in the towel," he said. To that end, the Chandler family, which is Tribune's second-largest shareholder, is pushing Tribune to spin off its broadcast TV operations or possibly even sell the entire company.

However, PwC's Filek said that investors should not expect all "older" media companies to be interested in making deals. Even though there is a lot of talk about how Craigslist is killing the newspaper industry, satellite radio is destroying the terrestrial radio business and YouTube is stealing away all of television's viewers, he thinks some of these concerns are overdone.

"The more mature media companies have some pretty strong cash flow. Sometimes you can see people being happy just being stable. I don't think any of these companies are in immediate jeopardy," he said.


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