I am excited by a report in yesterday's Variety on Sony's deal with SK Telecom of Korea. The new arrangement further expands Sony' s digital distribution of film content in Korea by adding a mobile element. Under the deal, SK Telecom will reportedly have the right to distribute a limited number of full-length films (including the Spiderman series) and television programs directly to mobile phones. (Sony already has a deal for day and date Internet releases of films in that market.)
As all of us in the digital media business recognize, mobile distribution is the next wave of expansion in direct distribution of content, and the mechanism which shows the most potential to give consumers the content they want, when and where they want it. This is the key to making money in the new digital entertainment environment.
Personally, I'm not sure that I'd want to watch an entire Spiderman film on my cell phone, but that is just a hardware issue. Lately, I've been watching some content on my son's Sony PSP, and it's really not bad for a mobile experience. The screen quality is great, although the speakers still leave a lot to be desired. You really need a headset to get any kind of decent sonic experience. But, the point is that hardware continues to improve, and as always, the availability of first-rate mobile content will provide the economic motivation to continue those technological developments.
Technology drives content, which drives better technology. Sony is really the only company in the world that plays a major role on both sides of that equation, so it makes sense that it would take the lead in that process. Kudos to Sir Stringer for continuing to take advantage of his company's unique market position by encouraging bold moves such as the SK Telecom deal. As the record companies have learned, this is not the time for timidity in the face of advancing technology. Among the major entertainment companies, I think Sony is perhaps the most courageous player on the field right now.
Tuesday, January 29, 2008
Saturday, January 26, 2008
Live Nation's Sale of Theater Biz Further Sharpens Its Music Focus
This week, Live Nation sold its theater business to Key Brand, a private investment group. (Check out the Variety coverage here.) The deal divests Live Nation of virtually all of its legit theater assets, and launches Key Brand as a solid niche player in that industry. This is a great example of a strong company further focusing its business on the assets that are making money.
Live Nation has firmly established itself as not only the leader, but really the only major player in the live music business. As anyone in the music industry will tell you, concerts are now the economic center of the music business. It used to be that concerts were used to promote music sales. Now, the roles are reversed -- recorded music is created as much for marketing tours as for profit. Live Nation is the company that has capitalized perfectly on this paradigm shift.
Live Nation separated itself from Clear Channel's broadcast assets in 2005 and has never looked back. The current move away from theater is a further refinement which allows it to fully exploit its dominant position in live music. LN can now focus virtually all of its attention and assets on the business where it makes (and will probably continue to make) the most money. This is smart and a great example of a solid business divestment strategy.
Most often, we think of companies divesting assets in order to pay down debt. In this case, divestiture is a key component to Live Nation's growth strategy. Think about this in your own business. What business activity could you stop doing that would open the door to further growth in the remaining areas?
Live Nation has firmly established itself as not only the leader, but really the only major player in the live music business. As anyone in the music industry will tell you, concerts are now the economic center of the music business. It used to be that concerts were used to promote music sales. Now, the roles are reversed -- recorded music is created as much for marketing tours as for profit. Live Nation is the company that has capitalized perfectly on this paradigm shift.
Live Nation separated itself from Clear Channel's broadcast assets in 2005 and has never looked back. The current move away from theater is a further refinement which allows it to fully exploit its dominant position in live music. LN can now focus virtually all of its attention and assets on the business where it makes (and will probably continue to make) the most money. This is smart and a great example of a solid business divestment strategy.
Most often, we think of companies divesting assets in order to pay down debt. In this case, divestiture is a key component to Live Nation's growth strategy. Think about this in your own business. What business activity could you stop doing that would open the door to further growth in the remaining areas?
Thursday, January 24, 2008
Independent Film is a Great Business
I just returned from this year's Sundance Film Festival and I am more enthusiastic than ever about the economic potential of the independent film industry. While the number of film sales at Sundance seemed to be down a bit from some prior years, I am more excited by the people I met and the energy in the air.
In the hotel hallways and theater lobbies, there was almost constant chatter of new projects, better business models and great new ideas for marketing and distribution. In fact, the slightly slower sales activity seems to reflect a more businesslike and reasoned approach to the industry. Rather than getting caught up in the emotion of the moment and atmosphere, buyers are really thinking about how to make money with a film, and that bodes well for the long term health of the business.
What I like about the independent film business right now is that it gives investors and producers a chance to control their risk while still making excellent films with huge upside potential. There is hardly another business with a more favorable risk-reward equation. Of course, this only works if each film is approached with solid business fundamentals in mind. That doesn't mean that creativity needs to be sacrificed; it only means that the project needs to make sense on a business level, as well as creatively.
Advances in technology are allowing filmmakers to produce stunning movies for much less than in prior years. At the same time, the public is hungry for creative and edgy films coming from filmmakers who are not locked into the studio system. (This is very evident from this year's Oscar contenders and their performance at the box office.) Also, with exhibitioners now starting to take advantage of digital technology, distribution will become even more cost-effective; and online distribution and home theater systems are creating even more demand and economic potential for quality content.
This combination of factors could not be better. It is a great time to be in the independent film industry. I am personally experiencing the benefits in my own business and I think it only gets better for the foreseeable future.
In the hotel hallways and theater lobbies, there was almost constant chatter of new projects, better business models and great new ideas for marketing and distribution. In fact, the slightly slower sales activity seems to reflect a more businesslike and reasoned approach to the industry. Rather than getting caught up in the emotion of the moment and atmosphere, buyers are really thinking about how to make money with a film, and that bodes well for the long term health of the business.
What I like about the independent film business right now is that it gives investors and producers a chance to control their risk while still making excellent films with huge upside potential. There is hardly another business with a more favorable risk-reward equation. Of course, this only works if each film is approached with solid business fundamentals in mind. That doesn't mean that creativity needs to be sacrificed; it only means that the project needs to make sense on a business level, as well as creatively.
Advances in technology are allowing filmmakers to produce stunning movies for much less than in prior years. At the same time, the public is hungry for creative and edgy films coming from filmmakers who are not locked into the studio system. (This is very evident from this year's Oscar contenders and their performance at the box office.) Also, with exhibitioners now starting to take advantage of digital technology, distribution will become even more cost-effective; and online distribution and home theater systems are creating even more demand and economic potential for quality content.
This combination of factors could not be better. It is a great time to be in the independent film industry. I am personally experiencing the benefits in my own business and I think it only gets better for the foreseeable future.
Saturday, January 12, 2008
Capturing Value in Creative Companies
Buying a creative company is very tricky. Successful creative enterprises can be very attractive targets. The profit margins can be outrageously high. The work can be exciting and high profile. The culture and work environments are often exhilarating.
On the other hand, it is really easy to overpay for a creative enterprise -- and I don't mean by just a little bit. Sometimes a buyer can pay multiples of the company's real value if he or she doesn't understand what's being purchased.
As I mentioned before, a really valuable creative company can't be judged just by its revenues and profits. You need to look behind the curtain and figure out why customers find it so attractive. You also need to evaluate the company's ability to continue to satisfy its customers and attract new ones. This can't be based just on the work of one or two people, but must rely on the company's proven systems, culture and management.
One good way to evaluate this is through general industry research. Talk to people in the business about your target company. Ask them what they think of it. If they do business there, ask them what they like and dislike about it.
After the external analysis, do an internal evaluation. Ask yourself (and the sellers), what would happen if...? Understand how the company actually creates its products and serves its customers, and how that would change if certain people left or if the industry landscape changed. This process will not only help you understand how much value you can actually capture in the sale, but it will be a first step in developing better strategies and systems going forward.
The lesson here is that you can't buy a creative enterprise based on typical financial due diligence. The real story is not in the numbers. The financial performance gives an indication of the company's proven potential and current status, but that can change quickly. The good part is that the changes can be positive, as well as negative. A creative company with good momentum and performance has the ability to quickly rise to even greater heights. So, while the volatility creates some risk of overpayment, it can also result in some incredible home runs.
On the other hand, it is really easy to overpay for a creative enterprise -- and I don't mean by just a little bit. Sometimes a buyer can pay multiples of the company's real value if he or she doesn't understand what's being purchased.
As I mentioned before, a really valuable creative company can't be judged just by its revenues and profits. You need to look behind the curtain and figure out why customers find it so attractive. You also need to evaluate the company's ability to continue to satisfy its customers and attract new ones. This can't be based just on the work of one or two people, but must rely on the company's proven systems, culture and management.
One good way to evaluate this is through general industry research. Talk to people in the business about your target company. Ask them what they think of it. If they do business there, ask them what they like and dislike about it.
After the external analysis, do an internal evaluation. Ask yourself (and the sellers), what would happen if...? Understand how the company actually creates its products and serves its customers, and how that would change if certain people left or if the industry landscape changed. This process will not only help you understand how much value you can actually capture in the sale, but it will be a first step in developing better strategies and systems going forward.
The lesson here is that you can't buy a creative enterprise based on typical financial due diligence. The real story is not in the numbers. The financial performance gives an indication of the company's proven potential and current status, but that can change quickly. The good part is that the changes can be positive, as well as negative. A creative company with good momentum and performance has the ability to quickly rise to even greater heights. So, while the volatility creates some risk of overpayment, it can also result in some incredible home runs.
Wednesday, January 2, 2008
Digg - Buyer or Seller?
I'll get back to the discussion of deal points soon, but I saw an article in Business Week today that I really wanted to comment on. The article addresses the rumour about Digg.com being up for sale this year, as well as the other rumour that Digg might be buying a couple of competitors. Digg CEO, Jay Adelson gave BW a fairly open interview. He essentially denies that Digg is buying or selling, and focuses more on the company's relationship with Microsoft and plans for international expansion.
In reality, I imagine that Digg is both a buyer and seller if the right deal comes along. I think that's true for almost every company that's growing.
Digg is supposedly valued at around $300 million right now. If a strategic buyer offered substantially more than that, I'm sure Digg's management would think hard about taking it. The founders certainly don't need the money, but the landscape for digital media, social networking and other related Internet businesses is constantly changing. There is always risk of a disruptive change dramatically shifting the values of Internet companies in unpredictable ways.
And although Adelson says that Digg doesn't have enough of a war chest to go on a buying spree (as attractive as that might be), there are always creative ways to approach a transaction. In my experience, if there are two motivated and realistic parties, there is a deal to be made.
I'm not into making predictions, but I wouldn't be surprised to see some M&A activity involving Digg this year. It is a great company and this seems like the right time for management to make some moves. Digg is a top candidate to be the next major player in the digital media space, and that means some bold action might be appropriate.
In reality, I imagine that Digg is both a buyer and seller if the right deal comes along. I think that's true for almost every company that's growing.
Digg is supposedly valued at around $300 million right now. If a strategic buyer offered substantially more than that, I'm sure Digg's management would think hard about taking it. The founders certainly don't need the money, but the landscape for digital media, social networking and other related Internet businesses is constantly changing. There is always risk of a disruptive change dramatically shifting the values of Internet companies in unpredictable ways.
And although Adelson says that Digg doesn't have enough of a war chest to go on a buying spree (as attractive as that might be), there are always creative ways to approach a transaction. In my experience, if there are two motivated and realistic parties, there is a deal to be made.
I'm not into making predictions, but I wouldn't be surprised to see some M&A activity involving Digg this year. It is a great company and this seems like the right time for management to make some moves. Digg is a top candidate to be the next major player in the digital media space, and that means some bold action might be appropriate.
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