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How media businesses can stay competitive in 2020

30 Apr 2020  |  Nick Field 
How media businesses can stay competitive in 2020

Nick Field looks at the necessary business models required in a changing media market, and the role of private equity investment to bolster them

The media market is undergoing fundamental change and the ability to adapt, and in some cases re-invent, business models successfully is a key success factor. In this environment, we see media operators across many market segments doing great things to compete effectively.

Media consumption has grown as digital has expanded the reach of media operators. Across verticals ranging from weddings to chemical safety, and home furnishing to pork belly trading we see operators using digital tools to drive growth with a range of strategies and media products as diverse as their end markets.

Within the media industry there are consistent overall themes in the transition from print, and the effect of digital on both product and distribution. Because of structural differences between consumer and business audiences, this is playing out quite differently for B2C and B2B media operators with profound implications for strategy and valuation.

UK Consumer Media: Advertising Revenue

A significant proportion of consumer media historically delivered ‘general interest’ products that encompassed a wide range of demographics and interest groups within a single audience. As digital media platforms such as Google and Facebook have grown, their ability to deliver audience segmentation at scale has significantly challenged some ‘general interest’ media models, particularly those focussed on advertising.

At the same time innovation in media models has created new categories of product like Rightmove and Autotrader that have turned static content that previously appeared as printed listings into dynamic digital tools. Data-driven ‘decision support’ tools have shown the ability to deliver both larger audiences and stronger segmentation through their functionality, creating a virtuous circle of better solutions for the user and higher conversion rates for advertisers.

UK Consumer Media: Market value (1997 – 2017)

Overall consumer media is growing significantly as digital products both take share from traditional media, and simultaneously make the market larger by augmenting functionality and performance. In the UK market this is graphically demonstrated by the aggregate value of consumer media operators which has more than quadrupled from £3.1B in 1997 to over £13B today.

B2B Media: Global aggregate profitability

Vertically segmented audiences have long been the mainstay of the B2B media market and therefore the digital transition has not resulted in such far-reaching disruption of existing audiences and business models as seen in B2C. By exploiting the potential of digital, B2B media operators have been able to deliver richer and more flexible media products to address a wider range of business needs, and in aggregate are growing substantially.

What defines success?

Across markets and products, the most consistent driver of commercial success and value that we see is the relationship of media operators to their audiences. Media brands that occupy a trusted place at the centre of their communities possess a durability that is powerful in any environment, and particularly valuable during times of uncertainty and disruption such as the current global pandemic.

Strong, direct user relationships have particular value because of the importance of data as an operational and strategical resource. Beyond the obvious applications for direct marketing and segmentation, knowing in granular detail who your users are, what they are interested in, and how they use your products can be the raw material that enables a media operator to adapt successfully to change and drive growth.

Focus on a clearly defined set of vertical or horizontal interest groups is also a characteristic that we see in many successful media operators. Whilst segmented audiences have always been valuable, their value is amplified by greater usage of data and their insulation from the challenges of general interest categories.

Outside pure entertainment, a dependable driver of commercial success and value is the ability of media products to support decision-making by their users. From B2C markets like home buying or utility switching, to specialist B2B markets such as fertilisers or pharmaceuticals, the scope for information and data to enable people to make better decisions has expanded with global supply chains. In markets with the right characteristics, this can translate into clear ROI for users and strong profitability for media brands across products from news to trade shows.

Related to this, the value of anticipatory content that enables users to ‘see around the corner’ can have particular value as a differentiator in a market that has seen the volume of original content decline significantly in certain segments.

At the apex of value, a relatively small number of operators have built successful proprietary data models that enjoy uniquely strong positions in their markets as providers of benchmark data that is both indispensable to their users and almost immune to competitive substitution. Whilst only a few B2B markets have the characteristics that enable successful price reporting agency models to develop, the rewards for successful operators are amongst the richest in the industry.

Increasing market value

The value of user engagement is well understood across the market for very fundamental reasons. The more users engage with a product the better a business can understand their needs; and the better it understands their needs the more effectively can cater to them, and the lower the risk that it will lose ground to a competitor. Used intelligently, customer retention and loyalty can be fantastic indicators of both the risk profile of a product and potential for growth, and is therefore a key driver of value across media products.

Deepening customer relationships by extending the product set is a strategy we see frequently in successful media operators. Adding complementary products like exhibitions and conferences, or data sets and analytical tools can have a double benefit. As well as generating more revenue, adding more touch points with customers generally makes them more loyal which also increases the valuation multiple of the business.

Reflecting the importance of the quality of revenue streams, growing a business in the direction of more transactional products or customer segments might not be accretive to value even if it may increase overall profitability. We expect this focus on quality of earnings to heighten as a consequence of the market disruption caused by COVID-19.

The role of private equity

Fundamentally private equity structures can provide clarity of focus on the value drivers in a business and flexibility to plan on the appropriate time horizon. Whilst this might sound simple the advantages can be significant when compared to either being part of a multi-divisional public company with short-term stock market reporting obligations or to family ownership. This can be particularly true of businesses undergoing a transition of some kind, for example in technology or product mix, which may require investment over several years.

As private equity in Europe has grown it has developed significant media industry experience and understanding. To illustrate this, there are currently 32 UK media operators owned by private equity in the B2B market alone. Management teams can find that investors with real experience of their business model bring valuable insights from other investments.

Because of the highly analytical approach that tends to characterise the private equity community, they are also generally highly literate in data analysis and adept in using data to drive business decisions. Being a data-rich industry, media operators can often find these transferable skills valuable.

The basic alignment of motivations created by a private equity structure in which the management team are typically highly incentivised to make their business more valuable is also powerful. Fundamentally media, like all business, is about people and the importance of motivating a team and attracting the best talent cannot be underestimated.


Nick Field, Director, Arrowpoint Advisory

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