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Investing in the media07/06/2006. Source: IVCJ.
 Do private equity investments in the media make good sense? Ynon Kreiz, Benchmark Capital's general partner of its European funds, has industry experience with the Saban Capital Group and is co-founder of Fox Kids Europe, the European children's entertainment company. In this IVCJ article, Kreiz relates his views on the factors making for smart investing in the media industry.
IVCJ: What are the significant changes that have taken place in the industry over the past few years and how do they affect how investors look at the industry?
Kreiz: The most important evolution is the convergence of the Internet with mobile and wireless technologies, which has markedly changed the way people consume and access media. As a result, the likes of Google and Yahoo are nowadays considered media companies - not just Internet companies. Music services have, too, dramatically changed and are affecting the way the industry is developing. The new technologies are enabling platforms that have brought forth exciting new concepts. One clear example is the development of in-game advertising for video games. Since many platforms are connected to the Internet, the idea was to merge advertising into the games themselves. Investors funded these technologies and suddenly a new form of media was created that can provide high product recognition and a potentially very significant source of revenues.
IVCJ: What factors are most important when evaluating media companies as investments?
Kreiz: Every company is different - with diverse triggers and drivers. But, in all cases, growth potential is critical. Growth potential is, of course, a key factor to be considered in analyzing any company - whatever its industry. What is unique to the media sector, though, is its heavy reliance on quality management and the abilities of the people that will execute the company's strategy. A critical factor is the ability to manage talent and creative people. It is a very people-driven industry where relationships are essential and the creative side is the industry's true lifeblood.
IVCJ: Are first-time entrepreneurs less likely to succeed in attracting investment?
Kreiz: Because management is such an important part of the equation, venture firms feel more comfortable with individuals that are known quantities and that have established a track record of success in the industry. This is not to say that first-time entrepreneurs cannot succeed in attracting capital. However, the strong preference of investors for experienced managers presents a challenge for first time entrepreneurs.
IVCJ: How do the potential rewards of investing in media companies compare with other industries? And what about risk?
Kreiz: The potential of media companies is favorable in my mind. What I like about the industry is that the opportunities tend to be very scalable. You can commercialize a good idea across many different countries and formats by the very nature of the media industry where you reach people en masse. This is where opportunities can leverage themselves. I don't necessarily think that the media industry is more risky where there is good management and the ability to execute properly. The flip side is that the creative aspect is hard to evaluate. It's an industry where the opportunities which you judge are based less on cash flow and more on ideas.
IVCJ: Is the rapid technological change experienced by the industry likely to continue? What does this mean for investors?
Kreiz: Yes, technological change - most notably the mobile-wireless revolution - will continue at a fast pace. The challenge for investors is to keep up with rapidly moving developments and recognize which companies have the capabilities to take advantage of new technologies.
IVCJ: What are the most promising media industry segments from an investment viewpoint?
Kreiz: I cannot specify any particular area. Opportunities need to be examined on a case-by-case basis. At Benchmark, for example, we've made several investments in the media sector including areas such as consumer media, video games, sport channels and music publishing, so there's no particular area of focus. Although we committed significant capital to our latest investment in Setanta, a leading platform for sport channels in the UK, Europe and the US, I wouldn't say that the whole sport segment is attractive. But we've been able to identify a specific company within the sector that is particularly interesting and has very high growth potential. So you must look at the individual company and not the segment.
IVCJ: Which industry trends will continue strongly over the next few years?
Kreiz: Media in the traditional sense of the word will become broader. Broadband wireless enabling people to communicate will become ever more important to the sector as a whole. Another trend sure to be strengthened is the personalization of media consumption. People will receive specific tailor-made content literally in the palm of their hand. The form, type, and media in which they consume their content is a derivative of this revolution.
This article first appeared in the Israel Venture Capital & Private Equity Journal (IVCJ). IVC Research Center publishes the Israel Venture Capital & Private Equity Journal, a quarterly review of trends and developments in the Israeli-related venture capital industry. IVCJ, distributed worldwide, is dedicated to provide wide-range coverage of Israel's venture capital industry. For more information please visit www.ivc-online.com
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