MUMBAI: Deal activity in the Indian media and entertainment (M&E) industry stayed strong in 2011. More than 1000 deals were stitched as mergers and acquisitions and private equity funding accounted for over $50 billion, according to a Ficci KPMG report.

The deal activity in the M&E sector witnessed a significant uptrend in 2011 with 42 transactions valued at $940 million as compared to 27 transactions valued at $693 million in 2010 and 27 transactions valued at $722 million in 2009.

However, the deal activity did not touch the peaks of 2008, which saw 38 deals valued at $1.5 billion.

Private equity funds closed 16 deals valued at $319 million, while, within the M&E sector, television was the largest contributor accounting for $320 million of the total deal value.

“Consolidation will be a major theme going forward as media and entertainment companies will seek to grow inorganically by expanding into newer geographies and by adding to their existing portfolio. Consequently, robust deal activity is expected across all platforms and segments in 2012,” the report says.

Marquee transactions in 2011 included the Walt Disney Company’s acquisition of an additional 41 per cent stake at a value estimated to be over $300 million in UTV Software, thereby taking its total shareholding in UTV to approximately 90 per cent, Providence Equity Partners’ PE investment in UFO Moviez India ($58 million), and HSBC’s PE investment in Avitel Post Studioz ($60 million).

Television

The large volume of funding received by this segment over the last five years has resulted in the continuing wave of consolidation. TV18’s acquisition of the Eenadu Group in early 2012 for a consideration of $395 million was the standout transaction of the year indicating the need for a complete channel bouquet focusing on profitable growth.

The need for profitable growth and to more effectively build the business around its niche segments resulted in the Walt Disney Company making a delisting offer for UTV Software Communications.

Educational Trustee Company, floated by the promoters of Dina Thanthi Group, acquired Metronation Chennai Television (NDTV-Hindu JV channel) for $3.2 million, further reinforcing the theme that businesses are focusing on core competencies and exiting segments that witnessed hyper competition.

However, the regional ad market boosted by increasing reach and consumption in tier II and tier III towns is reasonably under capitalised. Regional channels with a disproportionate share between viewers and advertisement dollars are likely to witness investment interest from financial investors and large broadcasters.

Intense competition in general entertainment and news genre has resulted in broadcasters offering content across niche genres such as food, lifestyle, music, technology, science, thus catering to an urban upscale audience that enjoys a disproportionate value of ad dollars.

Distribution Biz

The cable and satellite distribution market witnessed minimul deal activity. However, 2011 witnessed a landmark distribution tie-up between Star Den and Zee Turner. The two formed a 50:50 JV, Media Pro Enterprise India, to jointly distribute channels.

The C&S distribution market has over the last few years seen its fair share of investment activity from financial and strategic players on the key premise that this unorganised market, dominated by local cable operators (LCOs), will witness disruptive changes brought forward through digitisation.

In their quest to build a sizeable subscriber base, each player is saddled with high customer acquisition costs, leading to low profitability and being in the investment stage.

Going forward, a consolidation may be witnessed amongst MSOs (multi-system operators) and capital be raised by them. DTH players, promoted by large business houses with diverse business interests, may pave the way for consolidation by exiting non-core, non-profitable operations.

Print

Favourable demographics saw larger players seeking to expand reach by entering new markets by acquiring smaller regional players.

The newspaper industry, which is facing declining readership in many international markets, continues to thrive in India, driven by increasing literacy rates, consumer spending and the growth of regional markets and spatiality newspapers.

The newspaper industry has high entry barriers as existing players have developed strong brand equity and have developed control over their distribution network. Hence, regional print companies with strong operating dynamics are expected to raise capital through the capital markets or PE to expand their presence across the media value chain and also launch city centric supplements.

Consolidation is imminent as the large players will continue to seek regional players to add to their portfolio.

Activity from international players may remain muted till such time that FDI caps are rationalised.

Radio

As the oldest and one of the most cost-effective form of advertising, radio has more reach than both traditional print media and television.

Although deal activity was limited, 2011 witnessed the re-emergence of satellite radio services with Saregama India acquiring 10 per cent stake in Timber media.

The Phase III round of licensing is expected to bring about regulatory changes such as relaxation of FDI limits, grating permission to own multiple frequencies in a city and a permission to air news and current affairs. As a result, this segment is likely to witness deal activity in the form of consolidation amongst existing players, PE investments/exit and increased interest from International strategic players such as Fox, Walt Disney, Hearst, Rogers Communications, Virgin Group and CTV Globemedia.

Films

India remains the largest film consuming market in the world and continues to attract interests from financial and strategic investors. With economies of scale and cost efficiencies being prime value drivers in the film exhibition space considering low value of ticket sales, the film exhibition segment is expected to witness further consolidation and also embrace technological innovation.

On the back of investment received from Providence, UFO Moviez India acquired a majority stake in Scrabble Entertainment to globally expand its business of digitising screens.

Large players in M&E ecosystem may consider taking minority stakes in production houses.

Gaming

Deal activity in the online gaming segment searched in 2011 as both financial and strategic investors clamoured to get a share of the industry, estimated at $280 million.

Private equity players invested in Games2Win while UTV acquired additional 30 per cent stake in Indiagames in a deal worth $20 million. The growth prospect for the industry remains strong as global gaming firms enter into distribution alliances to promote their games through the web, mobile phones, consoles and gaming cafes.