Kate Bulkley, Media Analyst.

Media money: Does bigger mean better for the super-indies?

By Kate Bulkley

Broadcast News

For Broadcast July 12, 2007

Growing up can be tough, but it has plenty of benefits. If you're a super-indie you have probably already bought a couple of UK producers and it's likely you followed up by adding a distribution arm. Several have also started thinking digital. So what's next?

All3Media is leading the charge overseas. Backed by internationally inclined private equity owner Permira, the indie recently hired AOL Europe's Giles Spackman in a corporate development role. He will seemingly ramp up a strategy that began with the U78.3m (L53m) purchase of German independent production company MME Moviement.

MME sells to all the German broadcasters and its purchase starts an Endemol-like strategy of multiple markets for All3Media. (The Maverick deal Ð for an undisclosed price Ð was opportunistic for All3 and has a big earn-out component.)

The price paid for MME (an enterprise value of 11.5 x MME's 2006 operating profit or EBIT) looks pretty good set against the valuations being commanded by the listed UK super-indies. The 2007 enterprise value to operating profit for RDF is 9.5x, for example, and the price also looks good against those being commanded in recent deals such as the acquisition of Kudos and Princess by Shine.

The UK has become a seller's market: if you are a mid-sized indie and haven't been snapped up, then you are either overpriced or there is some other problem preventing a sale. Endemol's L3.4bn price tag equates to 18.8x the consensus estimated EBIT for 2007 Ð a bigger multiple because of its scale and reach.

So what's next for All3Media? Look to Marathon in France, which is for sale, as well as Einstein in Italy. English-speaking markets are attractive. Also, watch Beyond and DIC. Then there is the prospect of consolidation among the UK super-indies, a move made more likely by the maturation and "corporate-isation" of bigger indies, says Jonathan Norman, managing director of advisory firm Jefferies Long Acre. For All3Media in particular, getting bigger is the key to providing a reasonable exit in a reasonable timeframe for Permira.

How can children's TV turn itself around?

What would Bill and Ben, Postman Pat or the characters from Byker Grove think of all the commotion about kids TV?

They are programmes from the golden era of kids TV, before the junk food ad ban, before DVDs and merchandising strategies changed the face of TV for young people and before the arrival of dedicated kids channels and an influx of foreign cartoon programming.

At kids TV conference Showcomotion, a platform of possible solutions for fixing the beleaguered production sector emerged.

The good news is companies like Cartoon Network and Nickelodeon are ramping up their local UK production. The bad news is it is a trickle of money compared with that lost from banning junk food ads.

Tax breaks, quotas, subsidies and profit levies were all ideas advanced at the Sheffield conference, but few were fully embraced, except for tax breaks.

Fully embraced

One suggestion, from Paul Robinson, managing director of KidsCo, is to think outside the UK. The KidsCo model is deceptively simple but so far unproven: provide a channel to kids TV producers (DIC Entertainment is another investor) and share revenues.

The producer gets TV exposure and does not have to give up revenues from the sale of related merchandise (where a lot of kids producers can make big money) in exchange for a berth on channels looking to reap a big profit.

It all sounds good but there are some drawbacks: the model is better suited to producers with big and deep libraries than those looking for the commission to help pay for the programme in the first place.

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