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The Spanish Media and the financial turmoilThe case of PRISA

Juan Luis Manfredi Sánchez, Ph.D.IE School of Communication

Mechelen UniversityApril 2009

Juan Luis Manfredi Sánchez, Ph.D.IE School of Communication

Email: [email protected]://ciberdemocracia.blogspot.com

Main characteristics of the Spanish Media Companies

(1) There are public and private audiovisual operatorsThere is no more State-owned press, but the weight of the institutional and political advertisement makes it determinant in the growth and decline of media

(2) The multimedia groups are consolidatedThere is an increasing trend into the mergers and acquisitionsLower players, the same marketThe market moves every 2-3 years in the search of stabilityThe market is dynamicE.g. Telefónica comes in and takes out several times without a clear strategy

Juan Luis Manfredi, [email protected]

ciberdemocracia.blogspot.com

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Most important examples are:

•Grupo Correo + Prensa Española → Vocento•Vía Digital + Canal Satélite Digital → Digital Plus•Planeta buys Antena 3 and Onda Cero Radio•Unedisa mergers Recoletos•PRISA launches Cuatro TV•Mediapro launches La Sexta

(3) The audiovisual divisions are the heart of the companies and the content providersPrint media were the kings, and now they are more reference press than influence press




(4) New players are changing the face of the Spanish marketThe lack of transparencyScoop! No limits to IPO and exchangesThe DDT challenge

(5) The lack of financial strength in comparison to banking, energy or services

• Most of the print media are family business• TV and radio are guided by state-boundaries and indications (licenses, authorizations and certifies)• These companies lack of industrial liasons, corporate strategy or marketing (CRM)• It means dependency on national financial health (GDP) and certain political friendships (political parties)




Vocento, Antena 3 TV, Tele 5, PRISA, and Recoletos are public owned companies but their financial results are irregular

Other projects like Quiero TV or Diario 16 closed

Now, the group Zeta is in troubles




PRISA share value declines more than the average in the last five years




Vocento’s behavior is similar from the beginning




Crisis, what crisis?

Crisis, what crisis?

(1) Less incomes from advertisement (it is related to GDP and real economy)(2) The financial crisis is affecting especially to media companies(3) The inflationary spiral: soccer and F1 racing(4) Less promotional issues but more investments in marketing and promotion(5) Some companies adapt to new times(6) The lack of management: tangible assets, audiovisual rights, and new investments




The international trend is based on mergers and acquisitions

The bigger, the more power

But the facts are sacred and they confirm that the strategy fails

We can now remember Vivendi and AOL Time Warner… and learn numerous lessons

We foresee no more than 10 big media groups in the international arena, as well as national champions allocated at specific markets/languages




Did Messier’s strategy created value for the shareholder? No, it didn’t.

(1) Decreased value through diversification in unrelated areas

(2) Decreased value through re-investing cash into lower return business

(3) Decreased return due to investments made chasing after national or personal pride issues

(4) Other reasons than profitability: political reasons and the national champions

What will happen with PRISA?




Who is PRISA?




El País

It is the reference press in SpainFounded in 1976The newspaper is leader in the Spanish market:

• 430,000 (M-F) and 780,000 (weekend) daily sales• 29% of the market• Sells 100,000 more than the follower• 2 million daily readers

Javier Moreno (about 40 years old), the current director, is not journalistTwo challenges:

• Elpais.com is not leader at all• Global Spanish Press reference




Unión Radio

It is the reference radio stations in SpainShareholders: PRISA + Godó (family business) + Grupo Latino de Radio1,235 stations and 28M audience Where? Spain, USA, Mexico, Colombia, Costa Rica, Panama, Argentina and ChileThe current strategy is trying to expand to Portugal and more Latin-American countries




The most important one is Cadena SER: • 4,59M daily audience• 41% of audience



4,5982,107

1,7111,13

0,5080,43

0,3020,2730,252

0,1630,069

0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5

SER

Cope

OCR

RNE R1

Catalunya Radio

Punto Radio

Canal Sur Radio

Rac 1

Radio Euskadi

Radio Galega

Euskadi Irati


Cuatro TVAnalogical TVAudience: urban, young peopleNational Spanish team and Euro 2008

Localia100 local stations in 43 big cities20M audience annuallyAgreements with NBC, Disney, National Geographic, BBC and Discovery

Digital PlusMature market50% of the market and about 2M subscribersThe thematic TV reachs the 12% of the total audience

How to get finance? Monthly subscription (EUR)

Why did I choose this case?PRISA is (was?) the most important private media group in SpainIt has been created from family business (Polanco) and it has become the leader in audiovisual, print, radio and educationIndeed, a very good example of multimedia integrationThe audiovisual division leads the business

From 2000 to 2008, it was the “wonderful decade”:• 2000 Sogecable, the audiovisual division, goes public• 2003 Digital Plus appears after the merger of Vía Digital and Canal Satélite Digital• 2005 Cuatro, new analogical TV license• 2004-2008 International expansion: 15% of Le Monde, 35% of Media Capital (Pt), and Grupo Latino Radio




Let see how the company was only three years ago.

Olympic Games and World Championships mean always cash for media companies…

And the crisis was neither in NINJA’s mind




How were the earnings distributed?




Where did the $$$ come from?




The magic years end, the EBITDA falls and the problems appear



The data are in M EUR


The print media division is the worst oneThe decline of the EBITDA shows the crisis of print media in Europe and USA




And the perfect storm is coming…

And it is not this one




PRISA has big financial debts > incomes and tangible assets

The current debt ascends to 4,800M EUR

300M EUR are annually financial interests

The current stock market price is 600M EUR

To compare, in 2007 some operations were made:• ZETA group was put for sale for more money and had less tangible assets and brands

• Unedisa bought Recoletos for 1,100M EUR • Vocento bought the free-daily Qué! 139M EUR (and it loses money!)




Other elements to consider:

(1) The decrease influence and the lower sales of the print media, especially El País

(2) The mature market of Digital Plus

(3) The shareholders would like to sell the audiovisual division to avoid the total devaluation of the stockThe stock loses about the 80% after the launch

(4) PRISA’s Sogecable takeover bid




PRISA’s Sogecable takeover bidSogecable is the audiovisual company from PRISA group




And after the takeover…




And after the takeover…



PRISA100%


The takeover establishes the initial price: 27,98EUR per share

According to Spanish Law, if you obtain more than the 51% (=total control), you have maintain the bid for all the other shareholders

And, then, the financial crisis comes and most of the shareholders accept the bid

It increases the difference between the share value (financial economy) and the cash (real economy)

Only Telefónica’s sell means 650M EUR!




The first measure has been the launch of financial instruments to about 2,000M EUR

It is the worst time to ask for help and financial aid in the international markets

Why? To avoid the hurry and to try to sell Digital Plus after the turmoil

There are 10 candidates to buy assets, but no more than 4-5 are real offers




More problems: The initial price of Digital Plus is 3,800M EURThe price is based on book value (accounting method), but not on the market value (economic creation value)

The market knows that Digital Plus will be sold after the crisisTelefónica’s and Vivendi’s offers are now about 1,900M EUR

The price should never be under 2,500M EURWhy? Otherwise, the opportunity cost and the EBITDA will not resolve the financial crisisThe current price is not real and it will decrease because they are losing premium contents (soccer)




Who will be the new financial partner?We have seen the structural weakness of the media companiesThe print division would like industrial companies to support the debt and to add new economical sources, far from media industryThe current crisis and the hurry could encourage other players to send offers

Here appears another problem: accepting newcomers far from media companies, PRISA would lose the identity and Polanco’s family business will not survive, but the company!

Please, remember the NYT’s caseJuan Luis Manfredi, Ph.D.

[email protected]


The most serious candidates to buy assets are the following***:• Carlos Slim: recently, he purchases the 6,4% of The New York Times• Rupert Murdoch: he buys the The Times and The Wall Street Journal, so why not?• Telefónica: to develop a more competitive triple play offer

***Do you remember the political friendship?Carlos Slim’s and Rupert Murdoch’s offers has been supported and intermediated by past prime ministers

Telefónica is controlled the golden share




Other mid-term measures to reduce the debt will be the put up for sale of other non strategic assets like the following:

• The print industrial plants• Localia (indeed it is closed)

What about the net present future?• 39 banks give credit long term credit: 1,950M EUR to be paid in 2013• To sell assets• To sell stock to industrial companies or to riskier capital funds • To confirm the debt and to let banks to own the company




Some lessons

(1) The Spanish audiovisual market is not transparent and there are not clear strategies

Nobody knows what will happen to historical family business media groups: PRISA and ZETA

Telefónica (golden share!) is still the national champion thanks to its financial power

(2) About the contentsThe pay-per-view is sustainable only thanks to soccerThe current systems has been broken due to newcomers and digital technology (it is cheaper)




(3) The digital challengeCurrently, the digital income add up an average of 5-10%PRISA’s recognized incomes were only 1%

Could the digital kill the PRISA star?It is well-known that Juan Luis Cebrián, CEO, misunderstood the digital challengeElpais.com is not the leader at the digital world, despite its analogical leadershipWhere are the readers? Reading the competitors newspapers, blogs, tv, radio and others newcomers

PRISA didn’t develop a strategic plan for the digital lifeDo they have time now?




(4) New economies of scalePRISA has been reorganized in January 2008Two general managers: operations and business unitsEl País will merger the digital and the print newsroomsDo you think this is a good decision?And, what about the other business units?

(5) Specialization and niche strategyIs it possible to apply long tail strategies in the media groups?How can mass media and micro media live together?




Questions? Answers?

Ideas?

Thank you very muchPlease, let continue the discussion!

[email protected]


THANK YOU VERY MUCH!