“Media is, in some ways, an old-fashioned word,” according to Ian Priest, head of Chime Ventures, the corporate venturing unit of a UK-based advertising services group, in a conversation recorded by publisher Imperica.
But it is lucrative and undergoing change, which is encouraging a large number of corporations to set up venturing units both for strategic reasons and to capture part of the financial returns on ofer.
Private equity firmVeronis Suhler Stevenson’s (VSS) mid-term forecast for the US media, entertainment and commications sector estimated aggregate revenues would reach $1.185 trillion this year, up from $1.076 trillion at a 5.6% growth rate.
The fastest-growing sub-sectors included pure-play consumer internet and mobile services (18.1%), public relations and word-of-mouth marketing (14.6%), broadcast television (9.3%) and business and professional information and services (6.4%), VSS said in its April report.
Traditional media, such as newspapers, are expected to struggle, VSS added, as technol-ogy and the internet affect busi-ness models and offer new and different services.
As VSS said: “The first decade of the 21st century saw major digital media disruption for operators. The industry evolved, converged, transformed and flourished over four economic cycles as advertising dollars targeted ever[-more] fragmented platforms and audiences.”
Firms
This disruption has encouraged 21 media groups to set up cor-porate venturing units since the start of last year, with a further 13 launched in 2010, according to Global Corporate Venturing (see table of the top 75 most influential units with a media sector-focused parent).
But while the US remains the largest media market, more than a third of the corporate venturing programme launches have come from parents based in Asia or in emerging markets, especially China and Japan, including NetEase, Baidu, Tencent and Gree.
And even established US media groups, such as Disney, have followed the fast-growing markets by effectively relocating their corporate venturing units to Asia or, in the case of venture pioneer International Data Group (IDG), concentrating its commitments in the Far East.
The returns available and speed of growth have made such a focus lucrative and strategically important as corporate venturing has effectively helped act as a catalyst for growth.
Many of the recent programme launches have come from parents in turn backed by corporate venturing groups, including search engine Yandex in Russia, social network Facebook, online games developers Zynga and Nexon and internet services provider Mail.ru, and/or received private equity backing, including market research company Nielsen, which this month started raising a fund.
Exits
Part of the money for the corporate venturing programmes, or quasi-programmes if the angel investments of chief executives of the listed firms, such as Reid Hoffman at LinkedIn, are taken into account for the strategic insights they offer, has come from the proceeds of parents floating on stock exchanges.
While more than half the main initial public offerings (IPOs) of media companies over the past two years have struggled in the after-market and traded below the flotation price at the end of the first week of September, the companies and shareholders selling on the first day of trading reaped about $25bn (see table).
Of particular concern to the so-called Sand Hill Road community of venture investors based in the US is the share price performance of the popularly-dubbed Horsemen of the Internet – Facebook, Zynga and Groupon – whose stocks have fallen by between half and more than 75% since opening trading despite often seeing large first-day price rises, or pops.
The fourth horseman, social messaging company Twitter, has yet to have its IPO and fund managers are privately betting Facebook will buy it before a listing if the list company’s stock price settles down and the private company develops into a threat.
Part of the concern among venture investors has been the three listed horsemen had all raised late-stage private rounds of funding at prices above the current trading levels.
Facebook’s December 2010 sale was at $20.85 a share, Groupon at $7.90 a share and Zynga at $14 a share, against current trading levels of $18.98, $4.27 and $2.88 respectively as of September 7.
The three companies had attracted the most attention for the valuations placed on their businesses but were not alone as media groups were feted by investors looking for internet 2.0 stocks to back (see related content on “febrile times”).
The downturn in sentiment has already helped encourage the merger of two of the listed companies, Tudou and Youku in a $1bn merger that closed last month.
As well as providing cash to companies to begin ven-turing programmes, that so many of the recent media IPOs have had corporate backing has given a fillip to their parents.
Behind the scenes, South Africa-based media group Naspers has been one of the biggest winners from the IPOs as it indirectly held stock in Zynga, Facebook and Groupon through its shares of Russia-based internet group Mail.ru (see profile).
Naspers’ corporate venturing unit, MIH, again ranked by Global Corporate Venturing as most influential in the media sector, has ridden one of the greatest share price rises over the past decade by holding on to its investment in China-based Tencent, which this month was trading at $243 per share compared with $4 for much of its early years.
Naspers owns about 34% of Tencent, which has a market capitalisation of about $57bn, after investing $32m in the Chinese company in 2001 by buying the holding of its former corporate venturing backer, IDG.
Investments
Naspers’ own share price has suffered from what the company describes as a conglomerate discount as it trades below its sum-of-parts, but the strong cashflows it generates through its pay-television and internet subsidiary have been partly reinvested in corporate venturing.
Naspers’ recent deals include investing $90m in the latest round of India-based online retailer Flipkart and selling a minority stake in Brazil-based games operator Level Up Interactive to Tencent.
The interconnected world of internet 2.0 investing has seen a top-tier group emerge, with Tencent backing US-based social photo network SumUp’s $2.15m round earlier this month alongside Facebook personnel, while Iconiq Capital, a multi-family officefor individuals such as social network Facebook co-founder Mark Zuckerberg, was another investor in Flipkart.
The US still dominates corporate venture investing as media groups outside the country still look to America for many innovations – about two-thirds of deals are for US-based entrepreneurs.
Global Corporate Venturing tracked 176 deals worth an aggregate $2.6bn in the media sector in the 12 months to August. This was more by volume than in the prior 12-month period’s 150 deals but lower by value as Face-book’s pre-IPO round raised $1.5bn to take the aggregate total to $4.15bn.
The top 10 investments in the September 2011 to August 2012 period were made up usually of such later-stage rounds (see table). However, seed and series A rounds still comprised about a third of all investments in this period where the stage was disclosed.
Although such early-stage rounds can be backing entrepreneurs at very different stages of development and profitability, corporate venturing units in emerging markets have been in general looking earlier for deals and prepared to be more involved than many counterparts in Europe or the US that have relied on becoming limited partners (investors) in venture funds, including Bertelsmann and Reed Elsevier committing to Seedcamp.
As Japan-based games group DeNA said of its $36m Incubate Fund: “Our motto is ‘first round and lead position’. We are always the first outside investor for entrepreneurs and always act as the lead investor. Four of us have incubated and launched over 50 start-ups [in] the past five years.”
People
The global disruption caused by the impact of technology on the media sector has led to a number of significant personnel moves, including the relocation John Ball, head of Disney’s Steamboat Ventures affiliate – known locally as Si Wei – to Hong Kong from the US.
The vibrant Asia market has seen people moves, with Xiaoming Wang leaving China-based games developer Shanda’s 18Fund to join Playcool.
She left after her boss, Joe Zuo departed in December. And while Zuo said Fund18 was still operational, Shanda has been building its Shanda Capital unit under Wei Yang since the start of last year despite the departure from that group of Jing Wu, who joined financial services firm Citics private equity unit.
The successful corporate venturing units have been a magnet for recruiters, with Zhenyuan Chen joining the China officeof venture capital firm Kleiner Perkins Caufild & Byers in May last year from a role as senior investment director at Tencent’s $1.5bn Industry Collaboration Fund.
But while Asia has garnered most attention, the US has continued to see activity.
Cable operator Comcast expanded to the west coast from the east after merging its ventures unit with the Peacock fund and effectively shuttering its European operation, while Shane O’Neill, chief strategy officerat cable operator Liberty Global and head of its LGI Ventures investment unit, left at the end of last year.
But the industry has also seen the untimely departure of Antonie Roux, head of Naspers’ internet operations and MIH corporate venturing unit, who died at the end of June (see obituary).