Significant new accounting and other business issues are confronting media companies in an economically uncertain, increasingly competitive marketplace. A recent survey of 125 media executives attending a panel on such issues, sponsored by KMPG, underscores just how weighty and complex they are.
Attendees of the Feb. 12 KPMG panel discussion, “Defining the Digital Future,” in New York, said they are fixed on effectively integrating, streamlining and restructuring what they have. That may leave little time or inclination for deal making, at least during the first half of 2001.
Mario Dell’Aera, partner-in-charge of KPMG’s New Media/Internet Group, who participated in the panel discussion, talked about the issues explored by the panel and survey.
EM: What are the dominant business risks or issues for hybrid media companies created by new media and more traditional media players?
Mr. Dell’ Aera: They include privacy and security concerns. Also, [there is concern about providing] some level of accountability to the customers to assure they have a well-secured site that is doing what it promises. This will evolve, and some of these situations will be tested. There are breaches we don’t necessarily hear about. But sometime someone will set a precedent for some of this.
EM: Were there other issues raised during your panel discussion or survey responses?
Mr. Dell’Aera: Many of the respondents to our survey felt that the integration of assets to achieve profitability and more precise accounting are more important than they were six months ago. The markets are using more of a razor’s-edge precision to evaluating companies. The complexity of deals that have been structured can come back to bite the participating companies, so they have to pay more close attention to traditional metrics.
Because of what has happened to many companies’ stock price, they are thinking about repricing their stock options or relying less on the use of stock to pay for services.
Companies also appear to be doing more outsourcing of things like accounting, bookkeeping, legal and technology.
Most companies are focused on restructuring, cost reductions, work force and space reductions, scaling down infrastructure and better integrating their operations.
EM: What are some of the companies you surveyed doing that represents something new?
Mr. Dell’Aera: There is a fairly significant move to mobile applications and commerce. We found that 30 percent of the executives we surveyed said they would make a significant investment, and an additional 34 percent were going to make a moderate investment in the mobile or the wireless areas.
EM: How aggressively will new media companies pursue acquisitions this year?
Mr. Dell’Aera: Only 30 percent of the executives we surveyed at our conference had a formal approach or standard methodology for evaluating acquisition targets.
EM: So they don’t seem to be focused on acquisitions right now?
Mr. Dell’Aera. Right. But, even when they were, it was this land-grab approach, as opposed to a profitability approach, and that requires understanding of methodology, scoring integration, culturally-moving past the financial metrics to consider factors like speed to market, product development. It’s just not numbers. I believe there will be a change in approach toward acquisitions when they start making them again-namely a profitable model, seamless integration, speed to market, immediate impact.
EM: You have devised what you call a P-to-P formula, which stands for “take the path-to-profitability now, or prepare-to-pray.” What do companies need to do to get there?
Mr. Dell’Aera: The first thing is to hold on. If you can weather the storm, you’ll probably be fine nine months from now. In my mind, that means re-evaluating everything. There are a lot of things that were going on that were experimental. There’s less of that going on now. Alliances that occur today have concrete plans for generating profits. They’re not just swapping stock. It’s coming up with a plan that is ruthlessly pursued and markedly achieved on a month-to-month basis.
EM: How concerned are you about deal making slowing down this year?
Mr. Dell’Aera: I’m not worried about it slowing down. I’m very bullish that new investments are still coming in at a very high pace, although not at the record pace of last year. Venture capital is still there. There is a lot of business money coming in, especially in the wireless space. And I think you’ll see content start to come back by next year.