Silverwood Partners’ Take on IBC 2009

Posted by Joe Zaller
Sep 25 2009

 Specialist investment bank Silverwood Partners today issued a note called “IBC 2009 Perspectives.”

I thought it was an interesting take on the show and on the industry, and it’s worth sharing.

 

September 25, 2009 – IBC 2009 was an active show that reflected the transformative changes taking place in the media technology industry. We would like to share our perspectives from the event.

1. Challenging Environment in Broadcast Technology.   Broadcast customers are losing revenue from their traditional business as advertising dollars are being siphoned off to online alternatives. Concurrently, the broadcast industry is moving toward a lower cost, file-based infrastructure, with high-performance technology available at a fraction of traditional cost. Neither trend is good for the pricing power or the margins of incumbent companies. Some have cut costs to outpace the revenue decline; some have found other revenue streams. Many traditional vendors have enjoyed a stable business environment, with high margins, for years, and some will find it difficult to make the necessary business adjustments.

2.  DTV and HD Shifts Nearing Completion.  The Digital TV transition and the HD transition are substantially complete, and have in each case provided a boost to the broadcast technology industry.  The related capital investment has masked the underlying poor fundamentals of the industry.  As the stimulus from these trends abates, broadcast technology suppliers will be increasingly exposed to the fundamental weakness of demand in the industry.

3.  Revenue Flow vs. Work Flow.   As the influence of the online medium grows and media outlets proliferate, broadcasters are being forced to focus on monetization and revenue generation rather than primarily workflow and program delivery.  Traditional broadcast technology buyers are inexperienced with the technology framework of the online medium.  Such buyers are actively seeking assistance in solving immediate and unfamiliar problems that involve not just the technology infrastructure but also the business model.  Related customer inquiry is driving acquisition interest within the sector.

4.  Abundance of Acquisition Opportunities – Importance of Differentiation.  The recent economic disruption has exacerbated the structural changes in the broadcast industry and has driven many companies to look at strategic alternatives.  For well-capitalized companies this is a favorable time to look at acquiring competitive and complementary technologies. Large companies are evaluating many transaction opportunities and are being highly selective in their acquisition strategies. It is important for prospective sellers to understand the value and differentiation represented by their business or technology, and to directly relate the distinction to a prospective buyer’s specific objectives.  

5.  Unique Opportunity for Smaller Technology Companies.  Historically, decision makers behind key technology purchases at large customers reflexively avoided smaller suppliers and principally sourced key technologies from large, well-known companies.  In the current environment, smaller, innovative companies can be more responsive to the rapidly evolving needs of media technology customers.  With the broadcast business model changing as a result of, and as a response to, fundamental technology shifts there is a unique opportunity to capture a leading position in a rapidly growing market.  

Silverwood is actively involved in a number of transactions for companies that were exhibitors at IBC, and we have an informed and current perspective on transaction structuring, pricing and feasibility.

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