Private Equity eyes media production
Private Equity eyes media production
Content production is having its finest hour as streaming platforms pay hand over fist for new material. You would expect the private equity sector, which is flush with cash and desperate to invest, to be all over this opportunity. But the reality is more complex.
Private equity houses are cautious of investing in content production, and perhaps with good reason. These investors like to put money into businesses where you can gauge the return on investment with a spreadsheet. That is why they are attracted to technology companies.
With an application or software platform developer, for example, it is easy to see how returns will arise from growing market penetration. The costs of product development and sales are simple to quantify, as is the return per customer. And many tech developers can achieve global scale.
Content production doesn’t work like that. Content producers hire in talent and take pot shots at creating a winning formula. Given the fickle nature of entertainment, it is hard for even the most talented production teams to estimate the success of a product before it hits the screen.
And even if a creative product does become a success, there is no guarantee it will transcend geographical and cultural boundaries. Streaming hit Squid Game raised eyebrows last year precisely because nobody expected a South Korean drama to become Netflix’s most popular series globally.
Because of this, private equity houses have traditionally shied away from investing in media content production. But that situation is changing.
The allure of content’s galloping growth is hard to ignore when several other sectors, from aviation to food services, are still suffering from the impact of COVID-19 lockdowns.
And private equity houses now have so much dry powder - according to Preqin1, as of August 2021, there was $2.3tn of dry powder in the market globally - that they are increasingly willing to take bets on businesses they would not have considered before.
As a result, we are seeing increasing private equity activity on the production-related fringes of the media sector.
In 2019, for example, Livingbridge pumped cash into digital marketing specialist Brainlabs, allowing the agency to make a string of acquisitions, ending with creative ad studio Consumer Acquisition last December.
In September, Livingbridge also made an undisclosed investment into Venatus, a global AdTech platform targeting gaming and entertainment audiences. The firm connects advertisers with games publishers, giving them access to a highly lucrative global gaming market which has been estimated to include up to 3 billion gamers. Elsewhere, Mayfair Equity Partners acquired mobile ad platform developer LoopMe for $120m in January this year.
And in August last year, DNEG, the special effects studio for blockbusters including Inception and Interstellar, raised $250m from Novator prior to announcing a listing via a special-purpose acquisition company this January.
Admittedly, most of these deals are still biased towards companies with a technology or platform-led approach. But they show there is growing appetite for investments in media production, albeit that private equity still has a lot to learn.
The private equity firms that are eyeing this space continue to grapple with valuations and other issues. For those that can choose their advisers wisely, however, there could be significant opportunities ahead.