Monday, February 28, 2011

Investing in the Media and Entertainment Business

I did not know that private equity firms and venture capitalists take creative businesses seriously. Only recently was it made known that private equity investors took interest in fashion houses. Which other creative business could become a target for investment and growth? It turns out most of the media and entertainment businesses may appear appealing to savvy investors. This is what I learned last Friday at the MBA—Media and Entertainment Conference (MEC) organized by the best business schools in the US: Columbia Business School, The Wharton School, MIT Sloan Management School, Duke The Fuqua School of Business, and NYU The Leonard N. Stern School of Business.

The conference took place on Friday February 25, 2011 at Columbia’s Low Library. McKinsey & Company, Goldman Sachs, and AOL were the underwriters of the event while a great number of MBA students from the aforementioned schools took charge of the logistics. Throughout the day, great discussions unfolded and hundreds of other MBAs and many professionals were able to participate.

The main point of the keynote address by Leslie Moonves, President and CEO CBS Corporation was that content is key, especially now that digital technology is enabling the industry to transform structurally. This struck me as an interesting point of differentiation between this conference and the one on the Retail Industry I attended a few weeks ago also at Columbia University. There I learned that retail/fashion/design brands are using digital technology as a means of distribution and a new way to interact with their customers. At the MEC I heard from those who own distribution channels and who invest in new digital technology to transform these channels while they also strive to develop proprietary content. What type of content? Anything that is based on good writing, such as films, TV series, books—after all CBS owns the esteemed publishing house of Simon & Schuster. What a remarkable moment this is: media companies capitalize on inexpensive productions (such as reality shows) that bring spectatorship numbers up while creative companies (fashion, design, advertising) experiment with new content to take advantage of the new digital technology. One wonders for how long these two industries will be approaching what seems to be the same target, whether the two will merge under a new order or whether yet a third type of business will spring up to dominate both directions.

Content is the driving force either for those who produce it and wish to increase its reach or for those who have been facilitating its distribution. Content was the catalyst behind the acquisition of The Huffington Post by AOL, a business transaction that took place just days before the conference and as a result stirred an exciting discussion between Arthur Minson, CFO of AOL, and John Martin, CFO of Time Warner.

Content is what impels Contour Venture Partners, Canaan Partners, Warburg Pincus and Zelnick Media to invest in new ventures in the media business and not technology alone. Content is what inspires film financing, an area that most private equity investors avoid, unless they have a solid (low to zero correlation) strategy as Chip Seelig Jr. Partner and Managing Director, Dune Capital Management facetiously admitted. Apparently, the film industry remains the most elusive to investors. Even with a well thought out approach to content, a production does not always respond to the audience’s psychographic wants and often results to “flops” (creatively and financially speaking) mused Brent Stone, Partner ABRY Partners. Finally, the one industry where content itself remains elusive is the art market. “The Art Market in the 21st Century,” was the last panel but rather than crowning my day with new insights on the visual arts industry it sadly highlighted the discordance between the uninitiated (to art) public and the uninitiated (to business) art professionals. Except for the “black swan” of course: right now this would be Manish Vora, Co-Founder, former investment banker and driving force behind a major transformation that even the arts industry is about to face.

Next year, the conference will take place at NYU’s Stern School of Business. In one year’s time, a whole new generation of ventures will have come and gone with plenty of valuable lessons for those who find the creative fields to be an appealing investment. 

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