The fact that there is a public debate about the maturation of digital media is a fair sign that real change is afoot. That one of New York’s most prominent angels is branching out from his collective of founders to a mega fund is another, reasonably symbolic, clue.
To be clear, this isn’t about finality or absolutes, and we should especially not think in that fashion in a field such as digital media and its technologies – a field that is forever transforming. We should, however, consider the subject of maturity in its relative sense, in comparison to points of reference: a time, a sector, a different pace, perspectives that always evolve.
Media, as a segment, has always been unique (and fortunate) in its public relations. After all, it’s perhaps the only sector that reports on itself. The challenge then is to sift through the noise and vested interest. To help us out, we can rely on the cold, disinterested financial markets.
Here’s what we have observed:
(1) There has been venture capital consolidation, leading to fewer individual points with bigger and possibly less adventurous pools to deploy.
(2) There is an increased emphasis on revenues and earnings (as distinct from pure potential and option value), accentuated by post-IPO flagship properties that have been penalized as the operation has not kept up with the optionality.
(3) A significant portion of M&A activity has consisted of smallish “acqui-hires” that take out the upside of willing sellers before the startup has hit its theoretical stride.
(4) Cash accumulation by some of the largest competitors continues, and sometimes the cash is even sent back to shareholders through dividends or buybacks.
(5) Many of the sector leaders have underperformed relative to analyst growth expectations in the latest reporting period.
With this backdrop, a number of predictions are in order. Think of these as New Year’s forecasts if you like, considering the season, but more truly they’re observations for the visible future.
- With maturation in the underlying assets, look for maturation in the way these are funded. As we climb up from small and early venture equity to mid-stage to late-stage to growth equity, buyout finance, and even debt capital, look for all of these follow-on pieces to increase in prominence and traffic. Some of the sector linchpins are already tapping the bond markets and securing debt ratings, which reminds us that media was at one time a borrowing sector (when it was old enough).
- Look for greater business emphasis on volume, capabilities and capitalization. While it pays to be small, nimble, and agile – able to navigate sharp turns in periods of high volatility and find plenty of new openings into which to dive – when the terrain is calmer and the openings narrower, this value proposition can start to lose its charm. Look for dominance (if not survival) to overtake iteration as buzzword of choice in our vernacular.
- In the strategic community, look for M&A activity to take place based on the integration of disparate parts. We have already observed the confluence of media and commerce, of finance and technology, of media and finance, and obviously media and technology. Look for these combinations to continue and for strategic directions to be set on an increasingly integrated field, where the distinctions will be blurrier between retailer and media outlet, between hardware and software company, and, most notably, between information and money flows.
- In keeping with the motifs of size, capital and integration, look for hardware to assume a more central place in the imagination of founders and the strike zones of buyers and investors. In comparison to software, this realm is more capital intensive, longer cycled, and difficult to “pivot” – which is alright when the turbulence is diminished and the money is perhaps more patient.
- Lastly, look for traditional media to garner increased attention from new media. This sub-segment that was at one time the only segment had been of late forgotten. As the breathlessness for novelty subsides and competition for market share and revenue intensifies, traditional media will be revisited and its audience and communities recognized for untapped value.
There are two overarching themes in these assorted observations and the handful of forecasts presented: On one hand, convergence and overlap (of sectors as well as capital sources); and, on the other, a progression from an era that was arguably defined by its financial ventures to one that is more highly strategic in nature.
Seeing these parallel patterns from another angle still, we note a transition from the more or less speculative gambit to a market that is structured, calculated, and framed within a narrower band of potential outcomes. We are seeing, in short, that digital media is verging on adulthood at last.