Disruption in the Swiss Digital Media Industry

A new wave of acquisitions is on the horizon for the Swiss online and media industry

On 17th of August the fundaments of the Swiss media industry were shaken by the announcement of Ringier. The 182 year old Swiss publishing giant plans to join forces for marketing its online advertising with the SRG, the public broadcaster of Switzerland, and Swisscom, the national, overall market dominant telecommunication provider. Though not yet approved by WEKO, the Swiss antitrust enforcement, this eruption changed the landscape of the media industry overnight. A considerably efficient market of digital business models with a distinctive border between public and private enterprises will soon be turned into an oligopoly. Ringier, Swisscom and SRG, on the one side and Tamedia, the strongly growing digital media house, on the other side.

M&A activities in the Swiss digital & media industry to come

Out of a number of market participants, including companies like the well respected NZZ, the privately held AZ Medien, or the internationally minded Goldbach Group, Tamedia has shown over the course of the past years a significant appetite and talent to acquire a comprehensive portfolio of digital companies. It is fair to say, Tamedia developed a convincing and overall consistent digital portfolio, collecting companies, with a significant market share in their segments. For a market, the size of Switzerland, M&A professionals have been remarkably busy during the past years. Just the below shown selection of some of the most relevant transactions in the Swiss digital media industry from 2007 – 2015, already sums up to a minimum amount of CHF 1.6 billion.

Growing digital media business models and the veterans of the industry

In the struggle for digitisation, the media industry is ahead of other verticals. Still essential questions regarding business model innovation, content monetisation and market disruption are more guesses than best practice. With scepticism, curiosity and great interest, the sometimes even disruptive business models of Netflix, Amazon Prime / Fire TV, Google TV, Apple TV, Bild.de and Disney (et al.) are observed and discussed among executives and industry experts. Drivers in the market are:

from print to online
from download to streaming
from picture / text to video
from transaction to subscription
from linear to non-linear usage
from fixed usage to mobile usage

In this course of change, reframing the value chain is a bigger challenge for mature corporations than an agile style managed firm. In this sense, the announced joint venture may also be seen in the light of market consolidation, which could suggest, the involved companies feel hitting the efficiency frontier in their aspiration for digital innovation. Consolidating is among the all-time-stars, when firms feel to fail (or being close to failing) delivering real innovation. However, the market is not settled yet. Especially on the media side, the next volcano might be just about to burst. “DisneyLife” will bundle content from iconic Bambi to cool Captain Buzz Lightyear to a first-of-its-kind streaming service. By bundling books, music and its hit animated and live action movies, including the complete Pixar catalogue, Disney Corp. will go beyond the challengers of the past month like Netflix and will be the biggest media company, streaming its content directly to the consumers online. It is the explicit objective of DisneyLife to increase value extraction by bypassing the traditional gatekeepers on the last mile to the consumers, which are cable-, satellite- and telco operators. A nasty detail for European media operators is: DisneyLife will launch in the UK market but not touch US customers for now. Also, Disney will expand the service across mainland Europe in 2016, targeting France, Spain, Italy and Germany. Switzerland with its good fibre infrastructure and high ARPU-legacy is just on the way…

Quo vadis?

For the remaining market participants, the rules of engagement have changed. The initiated market consolidation will force other market participants also to consolidate. Already Tamedia announced to increase its share and potentially take over Zattoo, a Swiss based online TV (OTT) company by 2021. Yet, the B2C business cases of the Cable- and telecommunications operators for media content may get under pressure, if Netflix, DisneyLife and Amazon start to offer premium content to (also) Swiss consumers in a price range of CHF 8 – 14 per month. This pricing scheme is aiming below the floor of the established pricing scheme for comparable high quality content in Switzerland and will open Pandora’s box of the competition race. Returns will quickly diminish and margins erode. Local players will need to consider well, how to protect the exclusivity of the TV related customer relations.

The sharks may be already waiting!

A number of new entrants and start-ups from the past years might be yet to weak to engage in the acquisition game and may even become targets themselves. IP on technology successfully demonstrated new business models or significant share of market niches will make them attractive appetisers for the international sharks in the PE industry. The central geographic position of Switzerland in Europe and a high ARPU in the Swiss market make Switzerland an attractive strategic environment but also promising domestic market. This is by far not unprecedented. In 2007 and 2014 the titans from Tiger Capital and KKR touched base in the Swiss digital and media industry by acquiring jobs.ch – a start-up, targeting the Swiss market only and a minority share in Ringier. Backed up is this interest of PE firms by the positive trends for media companies on the capital markets. Observing the Euro Stoxx Media Index, we see a gain of 14% in 2015 so far. Herewith it outperformed the European capital markets by roughly 4%. Source for this growth has been the on-going digitisation. According to PwC the global market for internet advertising will grow from 2014 to 2019 by more than 12% p.a.. The forecast from PwC is exciting, understanding that this would lead to an annual volume of advertising spending on the web in the region of US$ 240 billion. Herewith, web advertising might take the lead in the advertising industry and leave the second place to TV.

Second will be first loser?

Not necessarily! As IP on premium content is the one key to success, strong customer relations, utilising new technologies can be the second key. ProSiebenSat1 – the popular German media group, consequently focussing on digital business models, mobile applications, social media, gives good example to interact with the audience, and an active investment strategy to engage with start-ups as driver for innovation. Just now, the corporation has risen its mid term prognosis and puts its shares on “buy”. This also might increase the appetite of the big fish in the pond.