Contact: Scott Denne
Super Bowl ad prices continue to rise each year, and that masks the symptoms of the sporting world’s concussion. Sports had previously blocked television audiences from completely heading to the sidelines in favor of video on demand, video games and other forms of media; no longer is that the case. Yet networks continue to increase investments in sports – the NFL just sold a package of Thursday Night Football games next fall for $450m, up from $300m last season. This comes during an exodus of subscribers from the sports-industry’s flagship network, ESPN. And as networks, teams and leagues look for ways to stanch the losses, we expect to see increasing investment in technologies that enable them to keep those audiences.
Time may not be on their side (always good news for bankers). Our surveys suggest acceleration in linear TV’s declining audiences. Only 35% of respondents to one of our 2015 consumer surveys reported seeing a TV ad in the previous week. In a separate survey, 8.4% said they had altogether canceled their traditional TV service, while another 16.7% said they are ‘somewhat’ or ‘very’ likely to cancel within the next six months – the highest level to date on both figures.
Increasing fan engagement was the logic behind the heavy investments into daily fantasy sports. The two leading companies in that space – FanDuel and DraftKings – raised more than $700m combined, much of it from networks, sports leagues and team owners. Although those bets don’t look set to pay off, the lure of free cash isn’t the only way to keep fans interested. We recommend the sports industry’s heavy hitters start acquiring and investing in areas that are beginning to change how fans interact with sports.
The first is the technology and talent that power mobile apps. Buying and developing apps gives teams, leagues and networks a direct link to their fans today. Broadcast signals and ticket stubs don’t generate data. Apps do, and having such data will ultimately make their audiences more valuable, and help them find ways to grow and keep them. The second area is in emerging categories of virtual and augmented reality. Madison Square Garden Company, owners of the New York Knicks and Rangers, has already made two venture investments in virtual reality – NextVR (along with Comcast) and Jaunt (alongside Disney). A ringside seat to the growth of these technologies would help sports grow within the next generation of media, rather than succumbing to it, as might happen within the current one.
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Contact: Scott Denne
Spotify’s acquisition of The Echo Nest deals a blow to competitors and brings with it technology to help the company expand beyond its subscription-focused business model. The Echo Nest’s algorithms integrate user preferences, digital analysis of songs and context from around the Web to build playlists for online and mobile music apps.
Spotify was an early customer and now it’s going to own the service that powers personalized radio for its competitors, including iHeartRadio, MOG and Rdio. In addition to a potential poke in the eye of its rivals, the deal takes Spotify’s ad capabilities from rudimentary (homepage takeovers and banner ads) to targeted. The Echo Nest recently launched a service that enables advertisers to target audiences based on how and what they listen to.
Advertising is an increasingly viable method of supporting digital radio as mobile marketing takes off, and this deal gives Spotify the tools to expand those capabilities. For example, last quarter Pandora Media saw a 42% year-over-year jump in its mobile ad revenue per listening hour. As the mobile ad market grows and Pandora tunes its product offerings, it now gets more than half of its revenue from mobile ads – an area where Spotify doesn’t (yet) have a product.
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Contact: Tejas Venkatesh
Its IPO plans may not have materialized, but high-performance hardware designer Corsair is continuing to add to its product capabilities. In its first-ever acquisition, Corsair has reached for Simple Audio, a maker of streaming systems that enable consumers to remotely listen to music stored on computers and mobile devices. With audio being an integral part of gaming, the deal adds complementary audio products to Corsair’s stable of headsets, speakers and memory modules.
Corsair should also be able to use its worldwide distribution channels to drive sales of Simple Audio’s products. Terms of the transaction were not disclosed but the target described it as a ‘multimillion-dollar’ deal. According to a press release from Young Company Finance, which tracks and reports on early-stage high-growth companies in Scotland, Simple Audio generated about $2.1m in revenue for the nine months ended September 2012. The company only started selling its products in January 2012.
Corsair designs high-performance DRAM modules and other gaming peripherals for personal computers, with a focus on gaming hardware. The low-margin DRAM business accounts for more than two-thirds of its revenue. The company was on track for an IPO before pulling its paperwork in May 2012, citing poor market conditions. For the year ended March 2012, Corsair generated a top line of $480m, with a gross margin in the mid-teens.
For more real-time information on tech M&A, follow us on Twitter @MAKnowledgebase.
Contact: Brenon Daly
With the passing of Steve Jobs earlier this week and all the deserved praise for the late Apple impresario, we can add one more tribute from the world of M&A: Jobs is the central figure in what’s probably the most accretive tech deal ever done. Remember that it was the purchase in December 1996 of the company that he founded after initially getting fired from Apple (NeXT Computer) that brought Jobs back to Apple.
So viewed that way, the once-and-future king at Apple only got to play that role because Apple acquired NeXT for some $400m. Without that deal, there’s every chance that Jobs wouldn’t have returned to Infinite Loop, and that the company would have simply continued on its path toward irrelevance in the PC Era. Instead, Job worked his magic, introducing computers, music players, phones, tablets and other products that customers may not have known they wanted but found they couldn’t live without.
To get some sense of the impact of Jobs’ return to Apple, consider this: when Apple acquired NeXT, shares of the company were in the single digits. They closed Thursday at $377. Under Jobs’ watch, shares rose almost 6,000%, giving it a current market valuation of $350bn. Apple currently enjoys the richest market cap of any company on the planet. And all that came from a deal that was part IP and part HR.
by Brenon Daly
Earlier this year, rumors were flying that Apple was putting together a bid – valued at more than $500m – for cloud storage startup Dropbox. That speculation obviously didn’t go anywhere, but it looked a whole lot more credible in light of Monday’s introduction of Apple’s online storage and synching offering, iCloud. The service, which will be free for up to 5GB, will be available in the fall.
On the face of it, Apple’s new service looks mostly like a convenient and efficient way to move iTunes into the cloud. Viewed in that rather limited way, iCloud appears to compete most directly with Google and Amazon, which have both launched online music storage offerings in recent weeks. But as is the case with most of what Apple does, there’s much more going on.
In addition to automatically storing and synching media files such as music, photos and movies, iCloud will keep up-to-date documents as well as presentation and other files. In other words, the uses for iCloud are pretty much exactly the same reasons why some 25 million people also use Dropbox. Is this yet another case of a Silicon Valley giant initially looking to buy but then opting instead to build?
-Contact Thomas Rasmussen
When SanDisk released its dismal earnings this week, dismayed shareholders hastily headed for the hills. The exodus caused SanDisk’s stock to plunge 25%. In the fourth quarter of 2008, the flash memory giant lost $1.6bn, pushing its total loss for the year to $2bn. This red ink from operations was exacerbated by the company’s $1bn of acquisition-related write-downs stemming from its $1.5bn acquisition of msystems in July 2006. In the days following the dire news, SanDisk has been trading at a valuation of around $2.2bn. That’s a far cry from the $5.6bn that Samsung offered for SanDisk in September.
To put the decline in perspective, SanDisk’s three largest outside shareholders – Clearbridge Advisors, Capital International Asset Management and Capital Guardian Trust, which collectively own more than 15% of SanDisk (as of September 30) – suffered a paper loss of more than $700m since the day Samsung walked away from the proposed deal. Given this, we wouldn’t be surprised if shareholder ire forced SanDisk to reconsider its strategic options this year. On its earnings call this past Monday, the company reiterated that its board is indeed open to deal with any interested parties, which begs the inevitable question: Who might be willing buyers?
With private equity largely stymied and longtime partner Toshiba repeatedly stating that it’s not interested in a deal, Samsung is still the most logical fit. It has the cash, has shown a willingness to pay a solid premium, and would integrate well with SanDisk’s overall portfolio of products. In addition to its valuable intellectual property assets (which would eliminate those ugly royalty fees) and flash and solid-state drive lineup, SanDisk would instantly give Samsung the second-largest share of the music player market, behind only Apple. Perhaps it’s time for SanDisk CEO Eli Harari to brush up on his Korean, or at least learn how to say ‘please come back’ in that language.
-Contact Thomas Rasmussen
The over-hyped world of online video is going through massive turmoil at the moment. While most investors and companies agree that online video is likely the future of broadcasting, no one has been able to make any money from it so far. And it’s likely to get even harder due to tighter venture funding, the closed IPO window and next-generation Web 2.0 entrants such as Hulu and even Apple’s iTunes. These factors have left the online video players scrambling toward any exit, no matter how cheap.
Consider the case of CinemaNow, which was picked up by Sonic Solutions for a mere $3m last month. The portal never managed to turn a profit and had estimated revenue of less than $4m. Yet it secured five rounds of funding (totaling more than $40m) and brokered partnerships with major studios, VCs and strategic investors. When CinemaNow went to investors begging for another round a few months ago, it found that there was no money to be had and a quick exit became the only alternative. That’s a common occurrence these days, and may well have driven rival MovieLink to sell for a paltry $6.6m to Blockbuster last year. (Expect more of these types of deals next year. According to corporate development executives who completed our annual M&A outlook survey, lack of access to VC will be the major catalyst for deal flow in 2009.)
If this sounds eerily familiar, it’s because a similar situation played out during the music industry’s awkward and reluctant switch to digital a few years ago. Several startups, even major ones backed by large studios, tried to become the distributor of choice. Yet, many of those went away in scrap sales or had the plug pulled on them (Viacom’s Urge, Napster and Yahoo’s music service, to name just a few high-profile failures). We’re now left with just a handful of dominant distributors: iTunes, RealNetworks’ Rhapsody, Amazon and, to an increasing extent, MySpace’s heavily funded music effort. Many of these companies are likely to also dominate online video. In fact, add in Google and Microsoft, and you have a list of the companies that are likely to be buyers for the few remaining online video startups.
Recent online video M&A
||Number of deals
Source: The 451 M&A KnowledgeBase
Finnish cell phone giant Nokia launched its mobile file-sharing Ovi application last week, coming quickly on the heels of the rollout of Nokia Music and other high-profile offerings. Much like Google and its Android and Chrome products, Nokia used technology that it acquired to form the core of its recently launched products. Specifically, its file-sharing technology came when it picked up Avvenu late last year.
And more M&A may be in the cards. Nokia recently told us that it is bullish on making further acquisitions to boost its service offerings. The company is aiming to evolve from strictly a mobile handset maker to a service-oriented handset maker – and strategic acquisitions are expected to play a big role in this transformation. (Of course, Nokia isn’t the only hardware company looking to do deals to get out of its core commodity market and into a more profitable – and defensible – service offering. PC maker Dell has spent some $2bn over the past two years increasing its service portfolio, buying companies offering everything from storage to email archiving to remote services.) What services could Nokia look to add and what companies might it acquire to do so?
With its music, games and mapping services well established, Nokia’s lack of a video service is strikingly curious. We suspect the company will quickly move to fill this gap. Two potential targets come to mind. Startups kyte and Qik both specialize in mobile video, and have already gotten a lot of interest from big mobile companies. In fact, kyte has drawn money not only from large telcos such as TeliaSonera, but also from Nokia’s own investment arm, Nokia Growth. Another venture that was recently brought to our attention is a startup called ZoneTag. It’s a Yahoo Labs startup that does location-based photo tagging. The software was developed for Nokia phones with the support of Nokia research and we hear the two divisions have a very good relationship.
Nokia’s recent mobile software acquisitions
|June 24, 2008
|June 23, 2008
|January 28, 2008
|December 4, 2007
|October 1, 2007
Source: The 451 M&A KnowledgeBase *Official 451 Group estimate
Just a few days after we speculated on a Napster sale, BestBuy said it will pay $121m, or $2.65 a share, for the digital music service. This is an 80% premium from where the company was trading before the offer. After factoring in Napster’s cash and short-term investments, BestBuy paid just $54m, or 0.45 times Napster’s trailing twelve month revenue. A bargain by all means, but it remains to be seen whether BestBuy can do what Napster has failed to do for the past four years: Turn a profit.
Napster, once hailed as the king of digital music, has fallen on hard times. Its stock is down 35% this year alone, and 55% from its 52-week high set in October 2007. Resulting shareholder ire forced the company to announce last week that it is seeking strategic alternatives to boost value, and it has hired UBS Investment Bank to lead the effort. Who might acquire the house that Shawn Fanning built?
Since relaunching as a legal music service in late 2003, Napster has been unable to turn a profit. The company pulled in $125m in revenue for the trailing 12 months ended June 30 from about 708,000 paid subscribers. Despite increasing revenue 15% year-over-year, the company had a negative EBITDA of $12.3m and subscriber count decreased from last quarter’s total of 761,000. The switch from stagnation to a drop in subscribers for the first time means that Napster will be unable to keep growing revenue. Consequently, that makes it doubtful that it will be able to achieve profitability. Nevertheless, with $36.9m in cash and $30.7m in short-term investments, Napster is an attractive target at its current valuation of $62.25m.
We previously speculated that SanDisk would attempt to acquire a proprietary music service of its own. But given its financial woes, as well as reported takeover negotiations with Samsung, we do not think it will bite. We believe Napster’s fierce competitor RealNetworks, the majority owner of the Rhapsody music service, is the most likely acquirer. Amid growing competition from Apple, which unveiled its iTunes 8 and a new line of iPods this week, and with digital music newcomers Amazon, Nokia and a few promising startups making waves, this is a much more plausible proposition. Last year Rhapsody picked up Viacom’s Urge, which had been struggling despite its high-profile association with MTV and Microsoft. RealNetworks has the cash, and has repeatedly told us it is bullish on acquisitions that spur growth. Given Napster’s current valuation and similar deals, we estimate that it will fetch around $80-100m in a sale.