Industry Trends and Media Valuations
2013 Media Industry Tax Conference
May 15 - 17, 2013
Wild Dunes Resort
Isles of Palms, South Carolina
FASB Accounting Topics STILL Underway
 ASC 840 – Accounting for Leases requires lessor to set up an asset and the
lessee a liability. Requires testing for Fair Value impairment - Another
Exposure Draft.
 ASC 320 Investments – Debt and Equity Securities – SEC Suggested
Additional Changes
 ASC 825 Financial Instruments – provide guidance on measuring the Fair
Value of financial assets and liabilities and recognizing impairment - Now
a Proposed Accounting Standards Update.
 AICPA Practice Aid (Working Draft) Valuation of Privately-Held Company
Equity Securities Issued as Compensation – Still in Draft, Not Updated
Since 2004
Time Spent with Media (2009 - 2012)
% Time Spent vs. % Ad Spend
50%
% of Total Media Consumption Time or Advertising Spending
43%
43%
40%
30%
27%
25%
~$20B
Opportunity
in USA
19%
20%
16%
11%
10%
8%
8%
0.5%
0%
Print
Radio
TV
Time Spent
Internet
Mobile
Ad Spend
Source: eMarketer.
Note:
Print includes newspaper and magazines. $20B opportunity calculated assuming Internet and Mobile ad spend share equal their
respective time spent share. Source: eMarketer 3/13.
4
Advertising Revenue by Segment
100.0%
90.0%
80.0%
5.6%
5.9%
5.8%
5.9%
5.8%
6.0%
6.1%
6.3%
6.3%
6.2%
6.2%
6.2%
6.3%
9.2%
8.9%
9.2%
9.2%
8.9%
8.7%
8.3%
8.0%
7.7%
7.3%
7.2%
7.1%
6.8%
11.7%
11.5%
11.2%
10.7%
9.6%
8.9%
8.4%
7.9%
12.2%
11.8%
20.3%
19.2%
18.2%
22.3%
16.4%
17.9%
18.7%
13.1%
13.1%
12.6%
70.0%
60.0%
33.4%
32.7%
31.7%
31.3%
30.3%
29.3%
28.0%
26.3%
24.2%
50.0%
40.0%
4.6%
6.2%
8.4%
10.8%
13.1%
3.5%
15.1%
3.2%
3.1%
2.9%
35.7%
36.3%
37.9%
37.9%
38.6%
38.1%
37.7%
37.4%
37.9%
39.4%
40.9%
41.2%
42.1%
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
Magazines
Radio
Outdoor
30.0%
20.0%
10.0%
0.0%
Television
Internet
Newspapers
5
Source: eMarketer and Wall Street Research.
TV Broadcast – Political Spending
POLITICAL SPENDING (1999-2012E)
($ in millions)
$3,500
$3,000


$3,200
Odd Year CAGR: 20% (1999-2011)
Even Year CAGR: 15% (2000-2012)
$2,500
$1,707
$2,000
$1,500
$1,400
$1,100
$1,000
$500
$2,250
$2,135
$612
$527
$379
$225
$119
$61
$789
$580
$0
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011E
2012E
SPENDING BY CATEGORY (2012E)
U.S. Senate
4.9%
Issues 4.9%
Presidential
16.4%
State/Local
22.3%
Note:
CAGR is based on the specific even/odd year periods of the data range presented.
U.S. House
3.1%
Party/PACs
48.3%
6
TV Broadcast – Spectrum Value
Spectrum Value:
 2008 – 700mhz spectrum auction averaged $1.28 per Mhz per pop
 2011 – Verizon purchase of AWS spectrum (1700/2100mhz) from SpectrumCo and Cox averaged $0.69 per
Mhz per pop (was $0.46 in 2006)
 2013 Estimate – Average 700mhz spectrum value of $1.65 per Mhz per pop based on AWS appreciation
Implied License Values as Telecom Spectrum:
 New York Market: $1.65 per pop x 27.0 mil. population x 6 Mhz of spectrum = $267.3 mil. license value
 Los Angeles Market: $1.65 per pop x 22.0 mil. population x 6 Mhz of spectrum = $217.8 mil. license value
 Chicago Market: $1.65 per pop x 11.5 mil. population x 6 Mhz of spectrum = $113.9 mil. license value
Traditional Broadcast License Values assuming 2% Market Revenue Share, 30% Margin, and 9x Multiple:
 New York Market: $59.0 mil. license value
 Los Angeles Market: $66.0 mil. license value
 Chicago Market: $41.0 mil. license value
7
Source: Bond & Pecaro Inc.
4/9/2015 2:37:15 AM
Radio – Broad Reach
Radio has consistently reached a large audience across age groups; the change in usage of new technologies (iPods,
digital downloads and satellite products in autos) remain a risk to station owners.
Average Daily Reach of Five Media
Medium
TV
80.0%
Radio
75.0%
Newspapers
52.0%
Magazines
50.0%
Internet
0.0%
35.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
Average Weekly Reach of Radio
Age Demographic
12+
92.0%
18+
92.3%
18-34
92.2%
25-54
94.2%
35-64
94.2%
65+
50.0%
86.8%
60.0%
70.0%
80.0%
90.0%
100.0%
8
Source: Intermedia Dimensions and Arbitron.
Newspapers – Industry vs. Google
USA TOTAL NEWSPAPER PRINT + ONLINE REVENUE vs. GOOGLE USA REVENUE
$16
$14
Quarterly Revenue ($B)
$12
$10
$8
$6
$4
$2
$0
Q1:06
Q4:06
Q3:07
Q2:08
Q1:09
USA Total Newspaper Print + Online Revenue
Q4:09
Q3:10
Q2:11
Google USA Revenue
Source: Demand Media
Note that Search = ~50% of USA Online Ad Revenue ($15B based on Q2 run rate) in 2011 vs. <5% in 2001; Display = 23% of Online Ad Revenue
($7B) in 2011 vs. 62% in 2011.
10
Cable Programming – U.S. Cable Programming Network Revenue
The basic cable programming business in the U.S. is ~$48 billion in size based on 2011 reported data from SNL Kagan.
$50,000
3.9%
Total Cable Industry Revenue
45,000
40,000
35,000
11.8%
30,000
25,000
20,000
15,000
9.2%
10,000
5,000
0
2001
2002
2003
2004
Advertising Revenue
2005
2006
2007
Affiliate Revenue
2008
2009
2010
2011
Other Revenue
From 2001 to 2011, basic cable programming revenue (including affiliate revenue, advertising and other
revenue) grew at an estimated 10% CAGR, faster than virtually all other traditional media subsectors.
11
Source: Wall Street Research and SNL Kagan.
Cable Programming – Industry Revenue Mix
MAJOR NETWORKS AFFILIATE vs. ADVERTISING REVENUE BREAKOUT
100%
5%
7%
49%
38%
3%
0%
2%
8%
8%
56%
53%
36%
39%
AMCX
CMCSA
30%
80%
70%
60%
67%
50%
40%
20%
1%
46%
69%
55%
27%
33%
DIS
NWSA
45%
0%
TWX
VIAB
Total Advertising
CABLE PROGRAMMING INDUSTRY REVENUE MIX – 2011
Advert.
Revenue
42%
Other
Revenue
3%
DISCA
SNI
Total Affiliate
Other
TOP 10 – 2011E SUBSCRIBER FEES
Network
Affiliate
Revenue
55%
ESPN/ESPN HD
ESPN 3D
3net/Discovery 3D
TNT
Disney Channel
NFL Network
FOX News
ESPN2
USA Network
TBS
2011
Subscribers
100,800,000
400,000
400,000
101,700,000
99,900,000
61,900,000
99,200,000
100,700,000
101,800,000
102,800,000
2011
Affil. Rev.
Per Sub
$4.69
2.63
1.25
1.16
0.94
0.81
0.78
0.62
0.60
0.57
12
Source: Wall Street Research and SNL Kagan.
Growth
2010
2011
2012
2013
Longrange
Outlook
Cable Networks
9.8%
8.9%
10.6%
10.0%
8.5%
Cable MSOs
9.5%
7.4%
10.6%
9.2%
5.0%
Magazines
1.1%
-0.8%
-2.2%
-2.2%
1.2%
Newspapers
-6.3%
-7.5%
-6.0%
-3.9%
-1.7%
Outdoor
5.2%
5.0%
5.8%
6.2%
6.0%
Radio
7.0%
-0.2%
3.4%
1.0%
2.0%
Television
11.2%
1.8%
9.3%
1.2%
3.5%
Profitability
2010
2011
2012
Longrange
Outlook
Cable Programmers
40.8%
41.3%
40.9%
40-43%
Cable MSOs
33.4%
36.2%
34.2%
32-35%
Magazines
17.4%
13.4%
12.9%
12 15%
Newspapers
23.0%
22.7%
22.4%
10-15%
Outdoor
10.0%
16.0%
16.9%
20-22%
Radio
27.1%
26.7%
28.3%
28-30%
Television
36.7%
32.0%
35.8%
35-40%
Recent Transactions
 Cable Programming – Very Little Activity. Last major deals were NBCU
channels to Comcast and Travel Channel to Scripps. Outdoor Channel in
play and Board to vote on prospective purchaser.
 Cable MSOs – Cablevision sold Optimum West (formerly Bresnan) to
Charter for $1.6 bil., reportedly 8.9x CF. Suddenlink recapitalization and
Wave and Atlantic Broadband deals were the other large transactions.
Remaining deals are mostly smaller systems. Multiples ranged from 6.08.9x CF. Larger deals 8.0–9.0x CF.
 Magazines/Newspapers – Surprising level of activity. A number of
acquisitions by Warren Buffet and Berkshire Hathaway. Spin-off of former
Media General and Freedom newspapers. Multiples have recovered into
the 4-5x CF range. Time Warner magazine spin-off underway.
Recent Transactions – Ctd.
 Outdoor – NextMedia sale to Lamar in Nov. 2012 last big transaction. Smaller
deals are occurring with multiples firming up recently. A few small like-kind
exchanges. A number of large outdoor companies are converting to REITs.
Deals have been between 6.0 - 7.0x CF.
 Radio – Activity has slowed since 2012. Few deals have occurred. Cox Radio
exchange. A few non-commercial transactions. Few large market deals.
Multiples have declined slightly. In the 6.5 – 9.0x CF range.
 Television – Numerous large transactions: Sinclair purchase of Fisher,
Barrington, and Newport properties. Nexstar purchase of CCA and Newport
stations. LIN Media purchase of NewVision properties. Largest single station
deal was Journal purchase of Landmark Media station in Nashville. Some
minor stations and low-power stations being bought by spectrum speculators
– NRJ and OTA. Multiples stable in the 8.5 – 10.5x range.