U.S. Media and Entertainment Deal Volume Rose 3% in 2010

The Comcast-NBC Universal combination 'could impact future M&A trends,' PricewaterhouseCoopers says as it predicts more deals this year.

NEW YORK - U.S. entertainment and media industry merger and acquisition activity rose slightly in 2010 when looking at the number of deals and outpaced the overall U.S. deal market, according to PricewaterhouseCoopers.

However, the total value of completed industry transactions with known deal values declined, with PwC saying a higher percentage of deals that did not disclose a value affected these figures.

It cited the continued shift to digital media, strong corporate cash reserves and private equity firms with dry powder as key catalysts for deal activity in the media and entertainment space and predicted activity this year will continue to outperform the broader U.S. market.

And the Comcast-NBC Universal combination could contribute to future deal appetite. If it goes well, it could lead others in the industry to seek out transaction opportunities as well, PwC argued. It also cited social media, international opportunities and video games a likely areas of deal interest.

Companies' interest in businesses based on subscriptions could also help fuel deal demand and lead to higher deal prices, at least in some areas. "Look for business models to shift from 'business paid for' (advertising) to 'consumer paid for' (subscriptions and per-transaction payments)," said Bart Spiegel, a U.S. entertainment & media M&A director at PwC. "The comparably higher stickiness of consumer-paid models should lead to higher valuation multiples in certain sectors."

For 2010, PwC counted 804 completed entertainment and media deals in such areas as cable, broadcasting, movies, video games, music, advertising and market, Internet software and services, publishing and more. That meant a 3% increase over 2009.

The number of completed media and entertainment deals whose value was disclosed rose 8%, compared to 6% for the broader U.S. market, according to PwC.

However, total completed and disclosed deal value fell from $37.2 billion to $33.5 billion.

Some of the year's biggest deals had no Hollywood tie-ins. According to Thomson Reuters, a $2 billion General Electric deal for part of Vivendi's NBC Universal stake - a step needed for Comcast's acquisition of a 51% stake in the entertainment company that is set to close Friday - was the fourth-largest media industry deal last year. Mexican broadcaster Televisa's acquisition of a stake in Spanish-language media powerhouse Univision Communications ranked eighth with a $1.2 billion deal value. Two cable deals also made the top spots as Liberty Global earned $4 billion by selling its stake in Japanese broadband firm Jupiter Telecommunications in a deal that ranked second in size for 2010, and Cablevision's $1.4 billion takeover of small cable operator Bresnan Communications ranked sixth.

The number of film industry deals declined from 55 in 2009 to 44 last year as film deal value fell from $4.4 billion to $1.4 billion. Broadcasting went from 38 deals valued at a combine $2.3 billion to 28 valued at $4.1 billion, and cable went from 31 deals valued at $16.5 billion to 25 valued at $7.1 billion.

So far in 2011, PwC already counts more than 200 deals and $24 billion of deal value for announced and pending M&A activity, including the Comcast- NBC Universal combination.

"As the entertainment and media industry accelerates its transition to mobile access and dynamic content, cash reserves and improved debt financing conditions will allow companies and private equity firms to execute on M&A strategies focused on content offerings and to reach key audiences amid an increasingly digital environment," said Thomas Rooney, U.S. entertainment and media M&A leader at PwC, about the sector's deal outlook. "With the growing influence of new media touch points, entertainment and media companies may also take advantage of strategic M&A plans to expand into new geographies and acquire new technologies. Companies must determine how they are going to reach their audiences in an increasingly digital market."

Among hot sectors of future M&A activity, PwC mentioned international opportunities, video games, social media and a possible renewed look at combining content and distribution due to the Comcast-NBC Universal deal.

"Expect traditional media companies to keep a close eye on what comes out of the NBC Universal joint venture between Comcast and GE during 2011, now that the FCC has approved it," PwC said. "A vertically integrated market participant could impact future M&A trends."

In the gaming space, PwC expects further consolidation "as major publishers seek to supplement their portfolios with developers that show a continued ability to bring to market new hit games and games that transition well across platforms."