Increased M&A activity is likely to be the driver for the media industry with internet start-ups gen...
Increased M&A activity is likely to be the driver for the media industry with internet start-ups generating additional advertising demand.
Aberdeen Asset Management recently rebranded its Radio Trust as the Media & Income Trust as consolidation within the market has reduced the number of companies to just a handful.
Dave Clarke, UK Growth Fund co-ordinator at Britannic Asset Management, says lack of diversity in radio stocks makes all the obvious candidates such as Capital and Scottish Radio, overpriced and adds the fact that a group like Capital owns a chain of restaurants means its core business is diluted.
Simon Atherton, a fund manager on Aberdeen's UK desk, says the media sector has recently been upgraded by pundits and insists that, over time, the sector will outperform GDP in terms of growth. He says: "There is some concern over media stocks being cyclical but I would argue this will wash itself through in the long term."
Clarke supports this argument by pointing out advertising companies have changed the way in which they operate, generating additional revenue from support services and brand support.
Atherton believes the prospects for the traditional media of TV, radio, publishing and agencies, can be measured by the total growth in advertising expenditure relative to their markets.
Atherton says, as Europe lags the US, there will be more spending on advertising as a percentage of GDP as the markets open and deregulate.
He adds: "Whenever you get privatisation, deregulation and increased competition, you tend to get growth in advertising as the new companies try to get a stranglehold on consumer markets.
"On top of that we have the internet where start-ups need to build up brand awareness. They are not going to use the internet to advertise because that market is still developing, so they turn to more traditional media like billboards and radio."
Atherton says the internet should "create a lot more cake to go round the advertising industry" as start-ups attempt to generate brand interest. He also feels the long term potential of the internet as an advertising tool will help advertising develop into an even bigger, more efficient market.
He adds: "It will be similar to how supermarkets use loyalty cards and know more about your shopping habits than you do.
Companies will be able to collate data and sell it to, say, a company like Proctor & Gamble which can then target their markets more efficiently."
Atherton believes there is bound to be some cannibalisation within the industry, which will go through a powerful consolidation phase, as highlighted by the recent Granada Media and United News & Media merger. The merger between the the two takes Granada Media's market cap up to around £14bn, on par with a company the size of Tesco.
The size of the deal between Granada Media and United means there is not much scope for further consolidation activity over the next few months.
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