Media, Communications Executives Bullish on Digital Revenue, M&A...

An annual KPMG survey found a weakened outlook among sector executives on the U.S. economy and job creation though.

NEW YORK - Nearly seven out of every 10 U.S. media, entertainment and communications executives expect their companies will be involved in a merger or acquisition over the next two years, with 58 percent predicting their company will be involved as a buyer and 10 percent seeing their employer as a seller, according to a new survey.
The annual Communications and Media Industry Business Climate Survey by audit, tax and advisory firm KPMG also found that 94 percent of those surveyed expect digital revenue to grow this year, up from 83 percent in 2010. More than a third anticipate increases of more than 10 percent.

The KPMG survey was conducted in May and June among 101 executives at companies in the media, entertainment and communications fields.

Digital and international growth opportunities are expected to drive deal activity. In the study, 53 percent said new technology and products will be the most important drivers of alliances, mergers and acquisitions, while product synergies were mentioned by 38 percent and access to new geographic markets were highlighted by 35 percent.

"Given the pressure on communications and media companies to evolve to grab market share or be left behind in the shift to digitally-based services, it makes sense that M&A remains a key tactic for many," said Paul Wissmann, KPMG's national sector leader for communications and media. "Recent large acquisitions in the communications and media industry and numerous smaller acquisitions of digitally strategic companies increase the pressure on all companies wanting a part of the digital value chain."

Wall Street observers have highlighted though that most entertainment industry conglomerates have stayed away from major acquisitions and instead focused on returning value to shareholders via dividends or stock buybacks.

In this year's survey, more executives also predict larger increases in digital revenue. KPMG found that 37 percent expect their companies to boost digital revenue by more than 10 percent, up from 31 percent in the 2010 survey. Also, 21 percent, compared to 15 percent in 2010, look for a seven percent to 10 percent digital revenue increase, and 20 percent expect a four to six percent improvement.

Nearly three-fourths of executives told KPMG that they also expect overall revenue to be up at their companies one year from now. Respondents mentioned new business opportunities driven by convergence, such as mobile commerce, as key growth drivers over the next year.

KPMG's survey found that 44 percent ranked new distribution methods and devices, including tablet computers, as one of the top three growth drivers over the next three years, 43 percent cited social media platforms, and 37 percent ranked online advertising as a top-three driver.
"It's clear from our survey that communications and media executives are more optimistic and their companies are placing bets that now is the time to position and invest for growth, despite an uneven economic recovery," said Wissmann. "They're focused on investing in technology and products through both organic growth and mergers and acquisitions to beat the competition and grab emerging opportunities."

General economic and jobs sentiment has weakened this year though, according to KPMG.
More respondents now believe that the U.S. economic recovery won't take hold until 2013. Last year, the prediction was for a recovery to become clear in 2012.

Also, 47 percent of the communications and media executives questioned predicted their companies' headcount would grow over the next year, down from 57 percent in the 2010 survey, while 23 percent expect their company to cut headcount over the next year. Looking back, only 34 percent said their firms actually increased jobs, while 49 percent said their company cut headcount in the past year. KPMG said 34 percent said headcount will never return to pre-recession levels.

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