In order to buy a company you need to value it. That’s not so easy in the media business, these days.
Lots of folks refer to multiples, of cash flow or revenue or whatever, as a way of determining future value. You project the expected future performance of the company, factor in the cost of capital, and calculate a price. Excel does this very well.
But any such formula for pricing a company relies on a degree of certainty about the nature and value of what the company does. At media industry conferences the overwhelming sense is one of uncertainty about this. Will print finally go away? To what extent will search be supplanted by social? Are apps replacing the browser? Will virtual events supplant or enhance live events? How media products are consumed and used has become entirely unpredictable. There’s plenty of agitated debate, much of it legitimate, but none of it conclusive. The only thing anyone can agree on is that the media business will have to continue to adapt.
So, how can you value a media business today? Any valid projection of future value of a business requires you to make good assumptions about the shape of that business six months, a year, and five years from now. That’s pretty hard to do in the media business.
While I’m not about to throw away the spreadsheet, I think any valuation of a media property these days needs rely on qualitative factors:
- What are the attributes of the market served?
- How deep are the relationships between the media company and the audiences/content consumers and suppliers/advertisers?
- How plugged-in and adaptable is the talent pool of the company?
I happen to believe that strong, innovative media companies will take advantage of this state of continual flux. They will adapt and prosper. Weaker, more static, media companies will go away. Figuring out which is which can’t be done in Excel.