Executive summary

“The audience of one”
The move from mass markets to niche audiences will create challenges for media businesses, but the underlying driver will be a desire for more content and choice. There are huge opportunities for European media companies that can identify new market niches and provide highly targeted services that reflect their audiences’ interests. The explosion of multi-channel TV is proving hugely profitable for many satellite and cable TV operators. Magazine publishing is also experiencing healthy growth from products that home in on special interest topics. But most media companies have only just begun to realise the potential of digital technologies. The next few years will see media companies competing to offer more choice and products that consumers will be able to customise to their own requirements.

Convergence in the home
Convergence – the delivery of telephony, data and television through a single digital channel – is finally set to realise its potential. The widespread adoption of high-speed broadband is already making the Internet a major distribution channel for music, movies and other entertainment products as well as for news and information. But the application that will capture consumers’ imaginations and create a major media business based on convergent technology is Internet TV.

Appearing in Europe later this year, Internet TV will offer viewers unprecedented choice over what they watch, and absolute control over when and how they watch it. As a result, traditional media advertising techniques are becoming less effective. But paid-for applications, such as video-on-demand, combined with revenue-generating interactive services such as television commerce, have the potential to turn Internet TV into a major global business.




Profits on the move
Europe’s appetite for mobile devices shows no sign of abating. Yet uptake of rich multimedia services has so far been limited, and the level of consumer demand for these applications remains uncertain. However, some products in the pipeline look promising: mobile music videos in particular would be a logical step on from the success of downloadable MP3. Operators are also developing celebrity gossip channels and “micro TV” for use on mobile devices. The success of any of these applications will depend
on developing services that are easy to use and compatible with a range of mobile devices.

New business models
The shift from mass media platforms to specialised, targeted distribution channels will continue to restrain growth in advertising revenues in traditional print media and network broadcasting. This will prompt more European media companies to replace advertising revenue with subscription-based business models. Yet with so much content already freely available from the Internet, most consumers will only be prepared to pay extra for unique media products. European media companies must focus on building trusted brands that offer the most enticing, high-quality content in the market. Meanwhile, advertisers will seek to increase their penetration of new media markets, through Internet, games and interactive TV advertising.

Restructuring and an increasing role for private equity
Most European businesses continue to shy away from acquisitions, but media currently stands out as an industry where deal volumes are recovering and confidence is growing. The number of European media transactions is expected to grow to 110 in 2005, up 14% on the previous year, according to PricewaterhouseCoopers. Private equity firms are playing a major role in this activity. They accounted for almost a third of all media deals in 2004, and six out of eight of the largest deals were private equity-backed. Many of these deals have been concentrated in the UK, but across Europe a number of sectors – such as professional publishing, business information services, local newspapers and radio broadcasters – stand to benefit from further consolidation.

With their financial resources, management focus and growing media know-how, private equity firms are expected to play a major role in the sector over the next five years. It is clear that traditional print and broadcast players are facing competitive threats. This study examines the measures some are taking – often with the involvement of
private equity firms – to overcome and profit from these new challenges.

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