Weathering Turbulent Times—Part 3

London Online begins with Day 2 of keynotes, conference sessions, and news about product developments on the exhibition floor. Information Today, Inc.’s roving video crew will continue to conduct on-the-spot interviews, so look for highlights of these interviews on this blog as we focus on state of the industry.

As in yesterday’s blog, two information industry experts shared their insights about the past year and what lies ahead, and today, we continue our report on the state of the industry from a financial perspective along with an industry analysis.

The commentary from our panel of experts has been excerpted from the front-page article in the December issue of Information Today, which is also available at www.infotoday.com.

Scott Peters
Managing Director
The Jordan, Edmiston Group, Inc.
In the third quarter of 2009, there were 466 M&A transactions worth $16.4 billion across the media, information, marketing services, and technology sectors, as tracked by The Jordan, Edmiston Group, Inc. (JEGI), the U.S.-based media investment bank. Two markets actually saw growth in M&A activity in 2009 over 2008—the mobile and education sectors.

However, overall transaction volume fell 30%, while deal value declined 42% through 3Q versus the same period of 2008. While the number of announced deals is on par with 2005–2006 levels, the total deal value is on pace with 2002–2003 levels.

The key catalyst that drove the downturn in the M&A market was the virtual shutdown of the credit market starting in the summer of 2008, as U.S. total debt reached an all-time high of 368% of GDP at the end of 2008, according to Ned Davis Research, Inc. By comparison, the debt-to-GDP level stood at 265% before the Great Depression and had trended in the 160% to 180% range for most of the 20th century. In short, the country was overleveraged, and as a result, banks were hesitant to lend. …

Reheating Sectors Drive M&A
The most active M&A markets covered by JEGI have been Education Information, Technology & Training; Marketing & Interactive Services; Mobile Media & Technology; and Online Media & Technology. Together, these four sectors accounted for 337 deals or 72% of the transactions announced and 87% of deal value ($14.2 billion) in the 3Q.

Given strong growth forecasts for online advertising in the years ahead, interactive and mobile categories continue to see active M&A. According to Rob Norman, CEO of GroupM, global internet advertising will climb 11% to $64.7 billion in 2010, accounting for 15% of all global measured ad spending, up from a 13% share in 2009. Meanwhile, global mobile advertising is expected to climb 19% to $3.3 billion in 2010.

A recent Yankee Group Research, Inc. report estimates that nearly 7 billion U.S. smartphone application downloads will generate $4.2 billion in revenue by 2013, up from $343 million in 2009. With the number of U.S. smartphone users set to quadruple to 160 million by 2013, the Yankee Group describes the anticipated market growth as a gold rush. …

M&A Outlook
JEGI expects the following dynamics to influence an M&A market recovery: M&A activity will build on marketplace confidence; M&A valuations will continue to grow stronger; credit markets have begun to rebound; strategic companies that must reinvent/retool models will acquire; and private equity firms will be preoccupied with overleveraged portfolios.

Overall, the M&A market has begun to turn, and JEGI anticipates healthier deal activity for the balance the year, especially in the fast-growing media and information sectors, with strategic acquirers leading the way.

John Blossom
President, Senior Analyst
Shore Communications, Inc.
After a whirlwind of economic adjustments in 2009, enterprise publishers, content technology companies, and their clients are hoping that the belt-tightening this year will set the stage for renewed economic health in 2010.

On the media side, the rapid acceleration of online content consumption and the rapid shift of advertising budgets to online venues spells good news for online revenues, but it also means that sinking traditional print revenues will be less likely to carry online publishing efforts that are not mature enough to manage their futures on their own. Micropayments, subscriptions, and other premium access models will try to fill the gap, but the success of premium mobile content-serving applications suggests that consumer spending on content may not all go to traditional publishers. At the same time, steps by business and scholarly publishers to leverage social media as a publishing platform will become far more serious in 2010. …

In the enterprise markets, parallel trends are challenging publishers that are seeing librarians with budgets already cut to the quick having to adjust to reshaped enterprise priorities. The other shoe to drop for enterprises will be a continuing reprioritization of collection acquisitions and more emphasis on consortium purchases and project-oriented content acquisition and billing.

Enterprises are also focused more on integrating content from multiple disciplines into services that can drive their revenues from product and service innovations more effectively. Much of the excitement in enterprise publishing will be with content integration and visualization services that aggregate content from multiple sources into decision-making platforms, making advanced search, categorization, and collaboration tools. It’s no longer about just searching in the enterprise: Search is now an editorial and data harvesting tool that feeds sophisticated display and analytics applications. The rapid rise of enterprise-ready cloud computing services underscores the importance of publishers being able to curate a wider array of content to support decision making. …

While Apple has gained attention in 2009 from the success of its iPhone, expect 2010 to be a year in which Google becomes more of a clear successor to Microsoft as a default global publishing platform in the enterprise and media markets. With its web-centric approach and long-term view of who needs to be served by content technologies, Google is well-positioned to challenge the world as a new kind of cloud-oriented content juggernaut in 2010. … If you thought the “Content Nation” activated by social media demonstrated impressive power in 2009, wait for a turbulent 2010 that will begin to expose just how much the center of power in publishing has shifted into the hands of audiences everywhere.

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