Digital Shift To Spark Media M&A In 2012

Emerging digital companies in the entertainment and media industry will spur M&A activity in 2012, according to PricewaterhouseCoopers. In particular, the firm pointed to companies in categories including over-the-top interactive TV, online social games and digital lockers as ripe for M&A transactions.

It also noted that if changes in online gaming regulations open the door to the legalization of online gambling in some states, that could lead to corporate and financial buyers to ante up for Internet companies in that area. “The legalization of online gaming could be a real game changer in 2012 if state regulators move rapidly to establish online gaming regulations,” noted Bart Spiegel, PwC’s U.S. entertainment and media transaction services partner.

Strong company valuations for content providers, a vast pool of untapped private-equity capital, and expected IPOs for social media companies, including Facebook, could help accelerate dealmaking in 2012.

Total completed and disclosed E&M deal value last year increased to $52 billion from $27 billion in 2010, based on Thomson Reuters data.  However, 2011 included $27.3 billion in value related to the Comcast-NBCU merger. Excluding this megadeal, deal value was flat year-over year. But average deal value increased 25% from $128 million to $160 in 2011, while deal volume fell 14% from 801 to 687 transactions year-over-year.

“Content acquisition has risen to the top of the agenda with the accelerated adoption of digital media consumption and the rise of over-the- top services,” said Thomas M. Rooney, who leads PwC’s U.S. entertainment and media transaction services unit. He added that companies are seeking out domestic and international targets to expand their media libraries and push their content globally as the digital shift unfolds.

In the emerging OTT, or interactive TV area, content owners are looking for partnerships with cable and satellite providers to allow exclusive OTT access to cable and satellite subscribers. Nontraditional companies aim to increase spending on content acquisition and development to position themselves as major players in the entertainment sector. 

PwC also expects continuing growth in the video game segment, driven by online, social media and wireless gaming. Valuations will also remain strong, based on the increasing willingness of consumers to shell out money for downloadable content and micro-purchases. Increased bandwidth and access to social media along with rising consumer demand will drive acquisition of niche game studios and publishers.

PwC is among other analysts predicting that 2012 could be a breakthrough year for online gambling. Last month, after years spent trying to shut down U.S.-based Web casinos, the Justice Department reversed its stand on the 1961 Wire Act, concluding that it applied to sports betting but not Internet gambling. That move could pave the way for states to legally operate gambling sites starting with poker.

“Land-based casino operators, gaming manufacturers and suppliers, and social media are all watching these developments closely and will move aggressively to stake a first-mover advantage in this potentially lucrative market,” said Spiegel.

A 2010 Morgan Stanley report estimated that Internet gambling could bring in $5 billion in profits. With many states facing severe budget pressures, the prospect of legalized online gambling and lotteries could prove an appealing option for generating new revenues.

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