Media Strategies - Coping With The Challenges Of The Downturn

Article by Geoff Robertson from Media Zest and Jonathan Kemp from Shed Productions

Quoted Business speaks to the finance directors of two Aim-listed media companies, Media Zest and Shed Productions, to find out about the challenges they are facing and their outlook on the future.

With share values crashing, the outlook for many quoted companies is uncertain. The media sector not only has to contend with worse falls than the market generally, but companies which are dependent on advertising for their revenues are finding times particularly tough. Advertising budgets are often among the first to be cut during a downturn.

Aim-listed media business MediaZest occupies a developing niche within the advertising sector in digital point-of-sale displays, so is at the sharp end of retailers' decisions on advertising spend. Winning new business and collecting cash are the two key challenges currently facing the company according to chief executive and finance director, Geoff Robertson.

"It's very up and down at the moment depending on whether individual clients see the value in MediaZest's offer to help them in these difficult trading conditions," says Geoff.

The company provides technical and creative digital media solutions to retailers to engage and attract consumers, such as standalone networked displays, holographic displays, interactive displays, image projection, directional sound technology and audio systems. Their challenge, Geoff explains, is to get buy-in to these new and innovative digital pointof- sale products.

Opportunities for the taking

"Expanding the number of sites to support our business model is difficult in the current market, but there are opportunities," says Geoff. "It depends how retailers are reacting to the downturn. Some are simply battening down the hatches and won't try anything new. Others are taking the opposite approach and looking for alternatives to traditional methods to do something big to attract new customers and gain market share."

Once clients have invested in the technology, they can re-use it for future campaigns leading to repeat business. He says there is a growing trend towards retailers sharing the costs by getting together to work with suppliers to invest in and use technology to improve sales and branding.

This year, clients including O2 and Foot Locker have used MediaZest technology at multiple retail sites. But a number of other projects which they expected to complete in the first half of 2008 have been delayed by clients.

"People are paying more slowly and cash collection is key," says Geoff. "And when the banks aren't paying on time, you know times are difficult."

Improving cash flow with invoice discounting

MediaZest incorporates Touch Vision, a business that counts among its customers more than a dozen educational institutions. "The education sector is less affected by the general economic downturn as the public sector is still paying on time," says Geoff. "Although margins in this market are tight, Touch Vision provides countercyclical revenue streams to the retail business. It also enables us to increase our scale, which in the audio-visual supply and installation market is essential to gain the best discounts available and to allow operational efficiency in our engineering function," says Geoff.

In February 2008, Touch Vision entered into an invoice discounting agreement with its bankers. This has generated further working capital to fund the growth of the business.

"It has been extremely successful in reducing the time lag between payment to suppliers and receipts from customers and we are now negotiating to provide a similar facility for MediaZest Ventures, which should help our cash flow situation," explains Geoff.

Share price challenge at Shed

Cash collection is not such a major issue for independent film production company, Shed Productions. Instead, echoing the sentiment of many in the industry, finance director Jonathon Kemp says the share price is their biggest challenge at the moment. The company finds that, like many others, Shed is to some extent tarred with the same brush as ITV, even though the company is not advertisingled to the same degree and the majority of its commissions come from the BBC. Shed specialises in contemporary, original drama and factual entertainment programming such as prime-time hits Waterloo Road, New Tricks, Supernanny and Who Do You Think You Are?.

Low multiples

"Most media businesses are currently trading at huge discounts and low multiples," Jonathon says. He explains: "We're currently on a multiple of four compared to around eight on flotation. This makes acquisitions, especially sharebased acquisitions, hard as we can't offer sellers a high multiple or we dilute our own earnings."

Shed has used debt finance for past acquisitions, but Jonathon says that debt has become both more expensive and increasingly hard to find. Also, continuing to use debt for acquisitions would eventually push the gearing beyond a level at which both management and investors would be comfortable. Plus, they are finding few acquisition opportunities available. "There's not a great deal coming to the market at the moment. I've seen only 3 or 4 information memoranda this year compared with at least 30 last year. Companies are reluctant to come to the market as they know it will be hard to get the valuation they want with media companies so lowly valued at the moment."

Confident for the future

Aside from the pressure on the share price, Jonathon says the underlying business is performing well, both from organic growth and through its recent acquisitions. Shed retains control and ownership of the programme rights for all its productions and has a growing library of programmes. The company also generates substantial additional revenue streams through exploitation of the ancillary and secondary rights in its programme brands through Outright Distribution, a wholly owned distribution arm.

Despite current economic woes, Jonathon is upbeat about future prospects. He says the company is "de-risked" to a large extent by having a good spread of business, with four production companies producing a good mix of programmes plus the distribution arm.

"It helps that the BBC is a major buyer and its budgets are protected for the next few years at least. There is still the same demand from broadcasters for good prime time programming so commissions are continuing at pretty much the same level as the last few years."

Shed has also made acquisitions in the US, and while they are a small player in US industry terms, they see huge growth potential. "One of the good things about the US is that broadcasters pay for productions on a value rather than a cost-plus basis – fees are based on ratings success."

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