Follow the money: M&A in online media

As if the growing importance of online media needs to be reaffirmed, the media investment bank Jordan, Edmiston Group released a report last month looking back at M&A activities in media in 2008. In the report, it estimates that in the next several years, “88 cents of every dollar in media industry revenue growth will stem from four sectors: database and information, b-to-b online media, consumer online media and interactive marketing services.” If their prediction comes true—and it seems likely so—traditional media’s sales growth engine is essentially dead. Another point I read from this is that even though M&A activity has dried up a lot in 2008 (and the group predicted that 2009 won’t get much better, either) compared to the previous two years, there are still bright spots and deals to be done, especially for the strategic buyer. For example, CBS’ $280MM all-cash deal to acquire last.fm, as well as its acquisition of Wallstrip, a financial video blog website and production business, were prime examples for traditional media companies to snap up others to “plug in” gaps in their business models. Deals like these are more likely as traditional media are put under more and more pressure just to maintain their revenue stream. There might also be a competitive pressure for them to “step up” to the game, especially in an environment that has become very difficult for many major players in both television and print. On the other hand, there are plenty of targets (e.g. Pandora, LinkedIn... and the list goes on and on.) that were funded by VC and angel money. One might speculate that those funders might be looking for a way out and get their cash back—that is, unless they see even greater price appreciation potential down the road… but whether they’re willing to weather this recession out and hold on to their investments in a wild-paced industry is another question.