The past few years have seen media and entertainment executives focused on delivering near-term shareholder value above and beyond anything else. They have moved along the spectrum of protecting their capital during the 2008–2010 time frame to focus on returning capital to shareholders between 2011 and 2013.
Now, almost six years after the start of the financial crisis, media and entertainment leaders are shifting their focus more heavily toward acquisitions and capital investment for accelerated growth.
Between 2011 and 2013, a combined $70 billion of executed stock buybacks ($50 billion) and dividends paid ($20 billion) have dominated the movement of capital for the largest media and entertainment companies. They increased their borrowings by approximately $30 billion and deployed excess free cash of approximately $40 billion as part of their capital allocation process of shareholder returns.
That free cash available for shareholder returns is a testament to the operational focus of building strength in their core businesses as seen through higher earnings and cash flows.
The market returns and operational improvements are obvious points of pride for many of these C-suite executives. The market caps of these media and entertainment companies have expanded by 87%, rewarding shareholders with price appreciation, as well as with meaningful dividend growth. All good, yet during this period, the level of new acquisitions pales in comparison with the capital distributed to shareholders.
Money spent on new acquisitions for the 2011 through 2013 period was even less than the dividends paid in the corresponding period. The economic environment and the level of confidence in business conditions wants more than dividends. The opportunities and competitive threats that exist are signaling for a change to a more aggressive deployment of capital — a deployment toward acquisitions.
These astute executives must see that the changes in their market caps are now beginning to exceed the growth rate in their cash flows. To support future market value appreciation, there is a need for more market share, greater negotiating strength and geographic business expansion.
The results over the past three years support this change of focus, as the market cap appreciation of 87% now exceeds the growth in cash flows by close to 20 percentage points. This is one driving metric that demands action of an acquisitive kind, which is one of the reasons why we are seeing and will see a more growth-oriented attitude.
We are entering a new phase, and the media and entertainment industry is on the move. As the curtain goes up, we may just get to see the show of shows as the executives of these great assets and businesses look outward to seize the moment and the many opportunities for growth.