EY: The Mood Is Lifting In Australia's Media Sector, So Prepare For A Round Of Mergers & Acquisitions

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Proposed changes to regulations scrapping cross media ownership restrictions will fuel mergers and acquisitions in Australia, according to EY analysis.

The existing “two out of three” rule, preventing one company from owning a TV licence, a radio licence and a newspaper at the same time, is being increasingly questioned by the Coalition federal government.

A change in the rules, put in place in 1987 under the Keating government, could see newspaper companies merge with or being bought by television networks and run alongside radio stations.

EY Media and Entertainment Leader David McGregor says confidence is lifting in the Australian market and setting the scene for further M&A activity to drive top line growth and innovation in digital.

“Media and entertainment companies remain focused on containing costs and improving their business models, while at the same time driving investment in new digital businesses,” he says.

“The potential loosening of media ownership rules would enable consolidation among major industry players and sharpen their focus on digital transformation to meet future consumer demand.

“The big push for these companies is to become more integrated across multiple channels while remaining nimble. This is driven largely by consumer demand for content anywhere, any time via any device.”

Against the backdrop of possible major regulatory change, the media sector has arguably been undergoing the most rapid and significant transformation of any industry.

“This disruption to business-as-usual is continuing to prompt the search for partners and consider the potential for acquisitions to drive growth,” Mr McGregor said.

“Media companies that previously operated as a portfolio of disparate businesses are rapidly learning how to leverage complementary assets to tell a more compelling story, particularly to advertisers.

“Digital technologies are both a threat and an opportunity in this context. It’s a case of change yourself or be changed by others.

“Many media and entertainment companies are navigating the transition between being purely B2B companies to B2C. This is an ongoing journey that requires a continuous focus on innovation, building new digital skill sets, while balancing the need for core efficiency.”

Globally, media and entertainment companies are feeling more confident than ever before, according to a world survey of senior executives conducted by EY for the 10th Capital Confidence Barometer: Media & Entertainment.

The Barometer is a survey of senior executives from large media and entertainment companies which gauges corporate confidence in the economy, identifies boardroom trends and provides insight into companies’ capital agenda.

The report found that globally, executives’ confidence in the availability of credit and financing is at its highest level in five years, which provides a solid platform for deal-making and has resulted in media and entertainment companies significantly increasing their borrowing from the previous year.

Eighty-five percent of respondents believe credit availability is either stable or improving, and 52% of respondents indicate it is improving, compared with 36% one year ago. Thirty-five percent of executives indicated they have debt-to-capital ratios greater than 50%, which is up from 17% the year before.

Perhaps the greatest indicator of the industry’s confidence in credit and financing availability is that 51% of executives plan to use debt as their primary source of deal financing during the next year, compared with only 21% one year ago.

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