Media companies making an impact

Growth Business identifies five innovative companies intent on dramatically transforming – and dominating – their particular niche of the media sector.

Media is easily one of the most dynamic, highly rated and important sectors in the UK. It’s also on something of a roll.

Over the past few years it has detached itself from the technology and telecommunications sectors it used to be lumped with, (the ‘TMT’ moniker proved a massive drag for investors and entrepreneurs alike), witnessed a resurgence in crucial advertising income, worked out how to extract solid profits from the internet, and enjoyed the very welcome attention of investors big and small, all of whom are intent on exploiting the next upward curve.

That activity is rising is easy for all to see. For instance, last year alone there were no less than 430 M&A media deals in the UK, worth a cool £9.8 billion.

On the London Stock Exchange, media is the sixth highest rated sector and almost 30 companies have floated in the last 12 months, raising close to £350 million.

Future growth will obviously depend on the continuing health of UK plc, but the upshot for ambitious leaders in this area is that if you have the right plan in the right niche, you should be able to take advantage of sentiment in the sector.

Orca Interactive, CEO – Haggai Barel

‘Our market could be worth $17 billion and we have a unique position’

Technological changes always throw up opportunities for media ventures. For Orca Interactive, it is the changes in communications technology.

Quite simply, Israeli-based (but London- listed) Orca is betting its house on consumers in many countries choosing IPTV (internet protocol television) as their preferred means of entertainment delivery. Why? Because IPTV can deliver television, video-on-demand, digital video recording, and all manner of data and communication services down your phone line.

Says Barel, ‘it is a fantastically exciting and proven technology. The consumer gets better service, more control, wider choice, and all the content providers have another distribution channel for their content.’ But more importantly, he adds, IPTV allows the telecommunications providers (especially the fixed-line behemoths like BT) to get back to the cutting edge of the communications game at a time of crucial technological convergence. For the first time, he argues, they have a product to take on the cable suppliers, those redoubtable operators that have stolen a march on them in recent years by bundling telephone and broadband services with cable TV services.

Orca’s USP is that it has a prime position in the middle of this IPTV industry, supplying the ‘middleware’ product. This is basically the system integration solution that enables the content providers, encoders and video server companies to connect to a consumer’s newfangled set-top box via the phone network/internet.

The other unique feature, according to Barel, is that his company is the only middleware venture of any scale. It has signed deals with leading global partners such as Nortel, ZTE and (most impressively) IBM. It also has a clutch of companies using its products; either selling subscriptions to consumers or trialing its technology in many territories. More importantly though, Orca has proved that its product has the ability to handle seriously large numbers of subscribers. In a recent simulation it connected 500,000, the biggest successful global test to date.

With the support of IBM, a strong order backlog and a total of 25 trials or tenders worldwide, Barel remains convinced of his firm’s future success. ‘In the next three years this industry could be worth $17 billion. It could be much, much bigger thereafter and we are ready.’

The Local Radio Company, CEO – Richard Wheatly

‘The small local radio stations are neglected by the big players, they’re not regarded as sexy enough’

Richard Wheatly, Local Radio’s ebullient chief executive, is putting his experience in the radio and advertising industry to good use. Credited for reinventing Jazz FM, which went from being on its knees in 1994 to being sold to the Guardian Media Group for £45 million in 2002, he believes he can apply an innovative model to local radio stations to make them as successful and profitable as national ones.

‘I believe it’s good to be [contrary and counter-intuitive], as it offers more opportunities,’ he comments. ‘The bigger players only look on a national level. The small local radio stations were – and still are – neglected, they’re not regarded as sexy enough.’

Floating on AIM last May, the company has acquired 28 local radio stations and won two new radio licences.

Each station retains its local content, but a number of processes, such as programming procedures and accounting have been centralised, creating cost savings.

Local Radio has also established a national sales division, which represents all the company’s stations as well as 70 other local radio channels, simplifying the process for advertisers by producing a single invoice – and of course, giving them national scope. Moreover, utilising proven income-generating ideas from his Jazz FM days, Wheatly is organising live music events and CD/DVD sales to bolster revenues and support for Local Radio’s stations.

Wheatly anticipates further consolidation in radio but is positioning the company as a unique, powerful second tier radio group capable of competing with the big nationals. Few would bet against him blazing a second groundbreaking trail in this medium.

Electric Word, CEO – Julian Turner

‘By creating a network of peers in niche subject matters, the cross-selling opportunities are immense’

Electric Word is a highly specialised and peerless publishing outfit. Rather than depending on the advertising market to survive, the company, led by enthusiastic chief executive Julian Turner, has built a business that almost wholly relies upon subscription income from its target audience.

Through a mixture of organic growth and choice acquisitions, Turner has built up a portfolio of newsletters, books, websites and conferences that target professionals working in the health, fitness, education and local government sectors. In many instances, the publications keep their target audiences up to date with legislative, legal, policy and product changes, and are thus pitched as ‘must have’ products.

‘Building a subscription business in this arena is the perfect model. It provides substantial revenue streams, we get high repeat sales and, by effectively creating a network of peers in niche subject matters, our cross selling opportunities are immense,’ says Turner.

Currently 75 per cent of Electric Word’s revenues are derived from the educational field. This division grew from a turnover of £65,000 in 2000 to £3.9 million in 2004 thanks largely to the PfP Publishing acquisition in 2003, which added nine new products to the portfolio.

The company is profitable, but Turner has ambitious plans for the future. ‘We’re seeking further prospects in specialist consumer publishing and want to do more online and more globally, though I wouldn’t count out an acquisition that would offer an add-on service.’

Air Music & Media, CEO – Mark Frey

‘We have a direct route to market and a great opportunity to enhance our margins’

Mark Frey describes his company, budget music CD and DVD specialist Air Music & Media, as a ‘neat and simple’ business with a ‘good record of growth’ and a ‘decent’ position in its market.

But the company’s growth in its niche market has been explosive. In two years, profits have risen from £800,000 to £4.4 million.

Almost all of this growth came from acquisitions – a new business has been added to the Air Music empire every year since 2001. The last, and most important, was that of Redworth, which cost £27 million.

Says Frey: ‘Until Redworth, our business was focused on selling budget, easy-listening music compilations and DVDs to wholesale distributors. But now we have a direct route to market – and a great opportunity to enhance our margins.’

In all, Air Music has developed and acquired more than 100,000 tracks of music and 1,000 films. This is a substantial asset at a time when its retail clients are making real inroads into the easy-listening market (recent research has shown the major multiples now hold 23 per cent of the budget compilation music market). The Redworth acquisition will help stave off competition, as it distributes its products to retailers using a “one-stop-shop” approach when supplying CDs, cassettes, videos, DVDs and computer software. With the games industry to gun for and opportunities overseas, Air Music hits all the right notes.

Cello, Chairman – Kevin Steeds

‘This is a great time to be consolidating in the marketing services field’

Kevin Steeds brought his buy-and-build marketing company Cello to AIM last November, easily securing £15 million from an array of eager investors. This money was used to fund the acquisition of three marketing services businesses while a fourth was added soon after the shares started trading.

The backers of Cello recognised that in Kevin Steeds they had not only an entrepreneur with a sound business plan, but one with tremendous experience of his own particular business niche and partnered by another high profile media player.

For those unaware, Steeds is the ex-finance director of Incepta and the former non-executive chairman of high-flying Media Square. Ably assisting Steeds is chief executive Mark Scott, Martin Sorrell’s one-time operations director and one of the founders of Lighthouse Global Network, the marketing services business sold to Cordiant for over $600 million.

Following all the recent deals, Cello’s operation consists of a healthcare medical research agency called Insight Medical Research; a leading Scottish brand advertising outfit called The Leith Agency; and Target Direct, a direct and database marketing business focused on the charities and ‘grey sector’. Navigator, the last acquisition (for £3.6 million), will be closely aligned with Target.

Says Steeds: ‘We believe this is a great time to be consolidating in the media sector, as long as you can offer value and expertise.

‘In all, we have only spent around £12 million in hard cash putting together four businesses that have annual sales of almost £40 million, no debts, and which are very profitable. We will be cautious and careful and won’t overpay for anything we buy, but it’s fair to say we are really going places. We are catching the curve at the right time.’

Related: Cello agrees to MedErgy deal

Leslie Copeland

Leslie Copeland

Leslie was made Editor for Growth Company Investor magazine in 2000, then headed up the launch of Business XL magazine, and then became Editorial Director in 2007 for the online and print publication portfolio...

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