KPMG, the global auditing, advisory and management consultancy, believes all trends suggest more M&A activity is coming to the media sector in 2014.
During the first nine months of 2013, the global media market hosted 854 completed transactions, worth a total value of $27.6 billion, (£16.9 billion) according to KPMG. The company does not include the cable and telecoms deals within the sector, so omits the biggest media acquisitions of 2013, Liberty Global’s £23 billion (£14 billion) acquisition of Virgin Media.
The three biggest deals according to KPMG were NBC Universal’s acquisition of ComCast for $16 billion (£9.8 billion), UK private equity company BC Partners buying German academic publisher Springer Science & Business Media for $4.4 billion (£2.7 billion), and Warner Music Group’s $765 million (£468 million) acquisition of Parlophone.
However, KPMG tracks deal activity falling when compared to the first three quarters of 2012, in which 933 deals worldwide were completed, at a value of $46.08 billion (£28.17 billion).
David Elms, head of media at KPMG, believes the relative sluggishness has created a "pent-up demand" for M&A activity in the media, which is likely to trigger more and bigger deals next year.
He said: "The pace of change across the media sector is now so rapid that many businesses cannot adapt through a natural process of evolution – creating a market-leading proposition organically is becoming more difficult; companies need to make bold changes in strategy.
"Together, these factors will mean that, in 2014, businesses that have been following a 'wait and see' position on M&A, are likely to have to 'act or get left behind'."
Elms also suggests more examples of new market entrants eclipsing traditional media owners, before they have time to change strategy might occur.
He notes Instagram, which was launched in 2010, was acquired by Facebook for $1billion in 2012 and Snapchat, launched in 2011, has reportedly already rejected a $3 billion (£1.8 billion) buyout offer from Facebook. Similarly, digital music service, Spotify has been making headlines with multi-billion dollar valuations.
He said: "Many traditional media companies, such as print-based businesses, have been wounded by the significant migration to the digital delivery of media content. This in itself is also likely to drive M&A activity, competition commission permitting, and it is surprising that further activity has not taken place sooner."
The search for original TV content among newer, but maturing, TV content providers such as Netflix and Hulu is also expected to act as a catalyst for M&A activity.
Elms said: "Many of these businesses are moving from offering 'secondary' content – TV content and films that have previously been broadcast – to offering 'primary' content to secure a competitive advantage. This could result in these TV content providers acquiring producers of content. Furthermore, this strategy could lead to a convergence between businesses in other parts of the media sector including radio and print media.
"This type of content-focused convergence is driven by a desire to create sophisticated communities of customers. Targeting such communities is not a new concept, but technology is making it an increasingly achievable ambition.
"For example, newspapers are offering their 'communities' of readers links into financial services, and radio stations are offering TV channels – boundaries are increasingly being broken down. A consequence is that business models need to be able to change rapidly to remain relevant to consumers. Again, this need is likely to stimulate interest in M&A."
Elsewhere, PricewaterhouseCoopers which includes telecoms in its audits, values the media deals during the first three quarters at $77.1 billion (£47.1 billion), up from $49.8 billion (£30.4 billion) during the same period in 2012.
Merger and acquisition deals were up 55% for the first nine months of the year compared with 2012, according to PwC's latest study.
Some of PwC’s Top Ten deals this year include Liberty Global paying $16.3 billion (£9.9 billion) for Virgin Media, Dish Network buying LightSquared for $2.2 billion (£1.3 billion), Charter Communications buying Optimum West for $1.6 billion (£978 million) and Gannett paying $2.1 billion (£1.3 billion) for Belo Corp.
Through the end of the third quarter, private equity deals represent about 20 percent of total mergers and acquisitions in the entertainment, media and communications industries, according to the study.
PwC’s report stated: "With use of mobile data surging, the need for more efficient mobile networks is driving M&A and investment in mobile network technologies and operations."
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