Investment Outlook Improves For All Media, Social Networks Deemed Most 'Overrated'

The vast majority of media industry executives, and investors, have grown more confident in the macro economy, as well as the underlying health of the advertising industry, but are far more bullish on the prospects of digital than traditional media. Those are the findings of an annual survey, released this morning by investment banking firm AdMedia Partners.

The report, the 16th annual edition of "Acquisition Prospects for Media, Marketing Services and Digital," is based on online survey of more than 7,400 executives in the advertising, marketing services, digital marketing, marketing technology, media or digital media businesses, and related venture capital and private equity investors. It finds that 70% of the respondents have a "stronger" view of the economy in the year ahead, while 29% think it will remain the same, and only 1% believe it will worsen. That compares with only 3% or believed it would get stronger, and 80% who thought it would get weaker when AdMedia Partners surveyed them a year ago.

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That outlook has also transferred to the advertising economy, with respondents projecting that overall ad spending would rise 3% this year, vs. a decline of 5% a year ago. Expectations for interactive ad spending, the sweet spot within a struggling ad economy, have also grown much better, with respondents projecting a 10% gain this year vs. a 5% gain a year ago.

Those expectations are fueling the underlying values of advertising- and media-related investment decisions, and based on the results, AdMedia Partners says the mupltiples - or M&A valuations - of companies has grown to 7 to 8 times EBIT (earnings before interest and taxes) for digital agencies and marketing services firm, which compares to a multiple of only 5 times EBIT for traditional agencies and 6 to 6.5 EBIT for traditional marketing services firms.

The valuations for pure play online media firms is even healthier - 8 to 9 times EBIT - while the multiples for traditional newspaper operators are the worst: 3 times EBIT.

Asked when the online businesses of traditional media categories would represent more than 50% of their total revenues, 44% of respondents said that inflection point would occur within five years for the newspaper industry, while 38% believe it will happen within 10 years. Nearly two-thirds of respondents (65%) believe those business models would flip for B-to-B publishers within the next five years, while only 21% believe it would occur for consumer magazine publishers during that same period.

Despite those expectations, only a minority (20%) of respondents believe that online content companies have developed "sustainable business models, which is actually significantly worse than the percentages citing that in 2009 (30%) and 2008 (51%).

The most "underrated" online business opportunities, respondents said, are for "niche enthusiast content" (49% citing), mobile content (43%), gaming (32%), user-generated content (21%), and ad networks (20%).

The most "overrated" online business opportunity, they said, is "social media networks" (63% citing), followed by "ad exchanges" (51%).

3 comments about "Investment Outlook Improves For All Media, Social Networks Deemed Most 'Overrated'".
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  1. Jonathan Mirow from BroadbandVideo, Inc., March 2, 2010 at 2:03 p.m.

    That's because the whole "Social Media" deal is just the trend-du-jour. Seriously now: remember GeoCities and RSS feeds and AOLTV and all that other nonsense? The first time you sing up for Twitter it's kinda cool - but 7 months later the thrill is gone after you read your 2 billionth "tweet" about what kind of coffee somebody you barely know is ordering. The fear is that you'll somehow become "disconnected" if you don't use all these Social Media platforms, it takes a while to realize that what happens after you stop responding to all that crap is that you get your life and free time back. Tweet THIS!

  2. Jason Spievak from RingRevenue, March 2, 2010 at 9:08 p.m.

    While it’s true online spending is on the rise, offline is still a big enough piece of the pie that companies continue to look for ways to maximize revenue across both offline and online channels. For example, simply including a phone number in an ad either on the radio, in print or online goes a long way to boosting ad ROI. Phone numbers impart credibility, they lead to more sales and they give customers another way to interact with the business. It’s also no surprise that few respondents believe that online content companies have developed sustainable business models. Certainly new business models could help – like performance marketing, pay-per-call, etc. Content companies might find themselves heading back into the black if they give some of these out-of-the-box ideas a shot.
    --Jason Spievak, CEO, RingRevenue

  3. Walter Sabo from SABO media, March 2, 2010 at 11:35 p.m.

    We look forward to an aggressive funding from AdMedia since we fall into the underrated category and therefore the best investment. They have the money, have you seen their offices? Awesome !

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