Venture Capital Media
Venture Capital Media
Venture Capital & Private Equity Investment in Media
Some alarming predictions for investors in the technology, information, and media space comes from the CEO of Providence Equity Partners. Jonathan Nelson warns that investors in these areas will have a “culling of the herd.”
Subscription-based businesses have survived relatives unscathed and continued to grow despite the recession but those media companies that rely on advertising to cover costs are feeling the downturn most severely. These sentiments were echoed by top private equity investor in technology, Silver Lake Partners. Co-founder and co-chief executive David Roux but was optimistic about those tech and media companies that have a winning revenue structure i.e. not dependent on advertising.
“We’re at a point in the cycle where we feel like we’re being paid to take risks,” he said. While companies would like to keep their valuations from July 2007, Roux said that a term of art in the industry now applies: “the valuations have begun to season.”
In deciding whether to invest, Roux said he tries to determine if a company has good technology at its core that’s hard to build and replicate. He wants a business model that’s predictable and scalable, and it’s also got be misunderstood and therefore undervalued by the marketplace.
Roux noted that the perception of technology investing has changed from the 1980s and most of the 1990s when he quipped that taking a stake in a tech company was viewed as finding a 25-year-old kid wearing shorts and with a lot of body piercings. But now “the technology economy has grown up.” Source
We can see the importance of a solid technological base and the difference between advertising-only revenue structure and alternative models with with two major newspaper companies: Rupert Murdoch’s Wall Street Journal and the ailing New York Times. Newspapers are dying out in recent years, partly because of the recession but largely from the trend toward electronic media over print.
While others struggle to survive, the Journal actually saw an increase in its circulation in the first quarter of this year. One reason is its renowned business coverage which is especially coveted during a down economy when executives and common investors want to keep up with the latest. The paper has had to make some redundencies from a drop in advertising revenue but its subscription revenue has balanced that so that it is not facing the difficulties the New York Times or many other papers are dealing with.
The New York Times has become the symbol for the failing print media business. Its revenue fell an alarming 21% in the second quarter of 2009. The New York Times Company, which a number of publications including the Boston Globe and the New York Times, announced a surprising Q2 profit this year despite the loss in advertising revenue for one of its largest. The company explains this profit with a large cut to operating cost including reducing its staff 19% from last year, lowering salaries and eliminating benefits for many employees. The cost cutting measures may keep the company afloat but it is no wonder that private equity firms predict a “culling of the herd” for tech and media companies.
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