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The media sector is a significant and growing part of the UK economy, currently impacted by numerous challenges posing both opportunities and threats, as it deals with the double impact of structural change and a recession.

Best estimates show that it accounts for 4% of the UK economy as a percentage of GDP, making it comparable in size to the pharmaceutical and construction sectors.

Our latest forecasts show that media will grow by 2.5% over the next two years, faster than the economy as a whole. It is therefore an important part of the UK's economic turnaround.

There are some considerable divergences within the media sector, with some parts of the industry performing better than others over the past decade.

This means that successful businesses have been able to diversify by opening up more routes to market which, in turn has led to more revenue opportunities.

Digital migration remains the biggest challenge

The biggest change facing media is the move to an online world – it is said that the average living room now has more connected devices than scatter cushions.

Business models need to be adapted in order to respond to a rapidly changing environment, as people are now consuming media in different ways from even five years ago.

This has been keenly felt by newspaper publishers. The recent National Readership Survey showed that the percentage of adults who read a daily newspaper has fallen 30% since 1978, marking a real shift towards online news.

Other parts of the media sector have not been immune from the digital changes sweeping across the globe, with some well-known businesses struggling to adapt, while others have thrived.

Online development poses challenges as to how media businesses can make their digital offerings profitable in their own right. Consumers have generally not warmed to paying for online content, particularly whilst there are so many free sites.

The move to apps, coupled with simple micropayment solutions, has made the paying online somewhat easier for consumers, generating revenue from the resulting volume of small transactions. However, placing the right value on content remains a conundrum.

The other huge opportunity is the ability to "go global" as a result of the reduced cost distribution methods it affords. Coupled with social networking, some sub-sectors of consumer media are really benefiting with the right product offerings.

Business-to-business offerings where the content is of a must-have nature and high up the value chain, have also thrived.

Strong management has become the most important factor

The pressure to diversify income streams whilst controlling costs has led to a measure of M&A activity in the sector in recent years.

This has been characterised by larger, more mature companies acquiring more youthful, specialist businesses (particularly those with a strength in digital media) in order to expand their offerings.

This has helped reduce concentration risk– one of a number of factors that banks take into account when evaluating funding. However, the strength of management has become the most important factor in supporting an acquisition.

That said, with equity markets depressed and share prices low, it has recently become more difficult for quoted companies to use their paper to acquire other businesses without diluting their own shareholding.

To keep M&A momentum, it has been even more important for companies to have strong banking relationships, along with appropriate headroom within their debt facilities to allow for further acquisitions and diversification in what is a fast-paced market place.

Despite the challenges facing the sector, there are a number of steps that media businesses are taking to ensure they can continue to capitalise on the sector's growth.

Successful businesses are very mindful of the new knowledge and skills that they require to face the changing technological landscape and are focusing on making the right new hires and training their current staff. 

Additionally, it will be no surprise that sound financial management including appropriate use of bank funding is essential. Financial management in the media sector has improved considerably over the last decade with businesses far more conscious of their cash flow, whilst building business models more around contracted revenues. 

A strong and balanced senior management team with a good mix of skills, knowledge and experience is key.

In a rapidly changing sector, it is those companies that embrace change and strategically focus their businesses through the current economic climate that will succeed.

Banks within the UK remain supportive to media companies, and we expect there will continue to be plenty of opportunities available to those who are prepared to seize the opportunities in 2012 and beyond.

Keith McLagan is lead relationship director and Chris Loring is relationship director on the technology, media and telecom team at Lloyds Bank Corporate Markets.