Prisa Financial Turmoil

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Information about Prisa Financial Turmoil

Published on May 3, 2009

Author: juanluis1977



Current situation of PRISA, the Spanish media group (April 2009)

The Spanish Media and the financial turmoil The case of PRISA Juan Luis Manfredi Sánchez, Ph.D. IE School of Communication Mechelen University April 2009 Juan Luis Manfredi Sánchez, Ph.D. IE School of Communication Email:

Main characteristics of the Spanish Media Companies (1) There are public and private audiovisual operators There is no more State-owned press, but the weight of the institutional and political advertisement makes it determinant in the growth and decline of media (2) The multimedia groups are consolidated There is an increasing trend into the mergers and acquisitions Lower players, the same market The market moves every 2-3 years in the search of stability The market is dynamic E.g. Telefónica comes in and takes out several times without a clear strategy Juan Luis Manfredi, Ph.D.

Most important examples are: •Grupo Correo + Prensa Española → Vocento •Vía Digital + Canal Satélite Digital → Digital Plus •Planeta buys Antena 3 and Onda Cero Radio •Unedisa mergers Recoletos •PRISA launches Cuatro TV •Mediapro launches La Sexta (3) The audiovisual divisions are the heart of the companies and the content providers Print media were the kings, and now they are more reference press than influence press Juan Luis Manfredi, Ph.D.

(4) New players are changing the face of the Spanish market The lack of transparency Scoop! No limits to IPO and exchanges The DDT challenge (5) The lack of financial strength in comparison to banking, energy or services • Most of the print media are family business • TV and radio are guided by state-boundaries and indications (licenses, authorizations and certifies) • These companies lack of industrial liasons, corporate strategy or marketing (CRM) • It means dependency on national financial health (GDP) and certain political friendships (political parties) Juan Luis Manfredi, Ph.D.

Vocento, Antena 3 TV, Tele 5, PRISA, and Recoletos are public owned companies but their financial results are irregular Other projects like Quiero TV or Diario 16 closed Now, the group Zeta is in troubles Juan Luis Manfredi, Ph.D.

PRISA share value declines more than the average in the last five years Juan Luis Manfredi, Ph.D.

Vocento’s behavior is similar from the beginning Juan Luis Manfredi, Ph.D.

Crisis, what crisis?

Crisis, what crisis? (1) Less incomes from advertisement (it is related to GDP and real economy) (2) The financial crisis is affecting especially to media companies (3) The inflationary spiral: soccer and F1 racing (4) Less promotional issues but more investments in marketing and promotion (5) Some companies adapt to new times (6) The lack of management: tangible assets, audiovisual rights, and new investments Juan Luis Manfredi, Ph.D.

The international trend is based on mergers and acquisitions The bigger, the more power But the facts are sacred and they confirm that the strategy fails We can now remember Vivendi and AOL Time Warner… and learn numerous lessons We foresee no more than 10 big media groups in the international arena, as well as national champions allocated at specific markets/languages Juan Luis Manfredi, Ph.D.

Did Messier’s strategy created value for the shareholder? No, it didn’t. (1) Decreased value through diversification in unrelated areas (2) Decreased value through re-investing cash into lower return business (3) Decreased return due to investments made chasing after national or personal pride issues (4) Other reasons than profitability: political reasons and the national champions What will happen with PRISA? Juan Luis Manfredi, Ph.D.

Who is PRISA? Juan Luis Manfredi, Ph.D.

El País It is the reference press in Spain Founded in 1976 The newspaper is leader in the Spanish market: • 430,000 (M-F) and 780,000 (weekend) daily sales • 29% of the market • Sells 100,000 more than the follower • 2 million daily readers Javier Moreno (about 40 years old), the current director, is not journalist Two challenges: • is not leader at all • Global Spanish Press reference Juan Luis Manfredi, Ph.D.

Unión Radio It is the reference radio stations in Spain Shareholders: PRISA + Godó (family business) + Grupo Latino de Radio 1,235 stations and 28M audience Where? Spain, USA, Mexico, Colombia, Costa Rica, Panama, Argentina and Chile The current strategy is trying to expand to Portugal and more Latin- American countries Juan Luis Manfredi, Ph.D.

The most important one is Cadena SER: • 4,59M daily audience • 41% of audience 0,069 Euskadi Irati 0,163 Radio Galega 0,252 Radio Euskadi 0,273 Rac 1 0,302 Canal Sur Radio 0,43 Punto Radio 0,508 Catalunya Radio 1,13 RNE R1 1,711 OCR 2,107 Cope 4,598 SER 0 0,5 1 1,5 2 2,5 3 3,5 4 4,5 5 Juan Luis Manfredi, Ph.D.

Cuatro TV Analogical TV Audience: urban, young people National Spanish team and Euro 2008 Localia 100 local stations in 43 big cities 20M audience annually Agreements with NBC, Disney, National Geographic, BBC and Discovery

Digital Plus Mature market 50% of the market and about 2M subscribers The thematic TV reachs the 12% of the total audience How to get finance? Monthly subscription (EUR)

Why did I choose this case? PRISA is (was?) the most important private media group in Spain It has been created from family business (Polanco) and it has become the leader in audiovisual, print, radio and education Indeed, a very good example of multimedia integration The audiovisual division leads the business From 2000 to 2008, it was the “wonderful decade”: • 2000 Sogecable, the audiovisual division, goes public • 2003 Digital Plus appears after the merger of Vía Digital and Canal Satélite Digital • 2005 Cuatro, new analogical TV license • 2004-2008 International expansion: 15% of Le Monde, 35% of Media Capital (Pt), and Grupo Latino Radio Juan Luis Manfredi, Ph.D.

Let see how the company was only three years ago. Olympic Games and World Championships mean always cash for media companies… And the crisis was neither in NINJA’s mind Juan Luis Manfredi, Ph.D.

How were the earnings distributed? Juan Luis Manfredi, Ph.D.

Where did the $$$ come from? Juan Luis Manfredi, Ph.D.

The magic years end, the EBITDA falls and the problems appear The data are in M EUR Juan Luis Manfredi, Ph.D.

The print media division is the worst one The decline of the EBITDA shows the crisis of print media in Europe and USA Juan Luis Manfredi, Ph.D.

And the perfect storm is coming…

And it is not this one Juan Luis Manfredi, Ph.D.

PRISA has big financial debts > incomes and tangible assets The current debt ascends to 4,800M EUR 300M EUR are annually financial interests The current stock market price is 600M EUR To compare, in 2007 some operations were made: • ZETA group was put for sale for more money and had less tangible assets and brands • Unedisa bought Recoletos for 1,100M EUR • Vocento bought the free-daily Qué! 139M EUR (and it loses money!) Juan Luis Manfredi, Ph.D.

Other elements to consider: (1) The decrease influence and the lower sales of the print media, especially El País (2) The mature market of Digital Plus (3) The shareholders would like to sell the audiovisual division to avoid the total devaluation of the stock The stock loses about the 80% after the launch (4) PRISA’s Sogecable takeover bid Juan Luis Manfredi, Ph.D.

PRISA’s Sogecable takeover bid Sogecable is the audiovisual company from PRISA group Juan Luis Manfredi, Ph.D.

And after the takeover… Juan Luis Manfredi, Ph.D.

And after the takeover… PRISA 100% Juan Luis Manfredi, Ph.D.

The takeover establishes the initial price: 27,98EUR per share According to Spanish Law, if you obtain more than the 51% (=total control), you have maintain the bid for all the other shareholders And, then, the financial crisis comes and most of the shareholders accept the bid It increases the difference between the share value (financial economy) and the cash (real economy) Only Telefónica’s sell means 650M EUR! Juan Luis Manfredi, Ph.D.

The first measure has been the launch of financial instruments to about 2,000M EUR It is the worst time to ask for help and financial aid in the international markets Why? To avoid the hurry and to try to sell Digital Plus after the turmoil There are 10 candidates to buy assets, but no more than 4-5 are real offers Juan Luis Manfredi, Ph.D.

More problems: The initial price of Digital Plus is 3,800M EUR The price is based on book value (accounting method), but not on the market value (economic creation value) The market knows that Digital Plus will be sold after the crisis Telefónica’s and Vivendi’s offers are now about 1,900M EUR The price should never be under 2,500M EUR Why? Otherwise, the opportunity cost and the EBITDA will not resolve the financial crisis The current price is not real and it will decrease because they are losing premium contents (soccer) Juan Luis Manfredi, Ph.D.

Who will be the new financial partner? We have seen the structural weakness of the media companies The print division would like industrial companies to support the debt and to add new economical sources, far from media industry The current crisis and the hurry could encourage other players to send offers Here appears another problem: accepting newcomers far from media companies, PRISA would lose the identity and Polanco’s family business will not survive, but the company! Please, remember the NYT’s case Juan Luis Manfredi, Ph.D.

The most serious candidates to buy assets are the following***: • Carlos Slim: recently, he purchases the 6,4% of The New York Times • Rupert Murdoch: he buys the The Times and The Wall Street Journal, so why not? • Telefónica: to develop a more competitive triple play offer ***Do you remember the political friendship? Carlos Slim’s and Rupert Murdoch’s offers has been supported and intermediated by past prime ministers Telefónica is controlled the golden share Juan Luis Manfredi, Ph.D.

Other mid-term measures to reduce the debt will be the put up for sale of other non strategic assets like the following: • The print industrial plants • Localia (indeed it is closed) What about the net present future? • 39 banks give credit long term credit: 1,950M EUR to be paid in 2013 • To sell assets • To sell stock to industrial companies or to riskier capital funds • To confirm the debt and to let banks to own the company Juan Luis Manfredi, Ph.D.

Some lessons (1) The Spanish audiovisual market is not transparent and there are not clear strategies Nobody knows what will happen to historical family business media groups: PRISA and ZETA Telefónica (golden share!) is still the national champion thanks to its financial power (2) About the contents The pay-per-view is sustainable only thanks to soccer The current systems has been broken due to newcomers and digital technology (it is cheaper) Juan Luis Manfredi, Ph.D.

(3) The digital challenge Currently, the digital income add up an average of 5-10% PRISA’s recognized incomes were only 1% Could the digital kill the PRISA star? It is well-known that Juan Luis Cebrián, CEO, misunderstood the digital challenge is not the leader at the digital world, despite its analogical leadership Where are the readers? Reading the competitors newspapers, blogs, tv, radio and others newcomers PRISA didn’t develop a strategic plan for the digital life Do they have time now? Juan Luis Manfredi, Ph.D.

(4) New economies of scale PRISA has been reorganized in January 2008 Two general managers: operations and business units El País will merger the digital and the print newsrooms Do you think this is a good decision? And, what about the other business units? (5) Specialization and niche strategy Is it possible to apply long tail strategies in the media groups? How can mass media and micro media live together? Juan Luis Manfredi, Ph.D.

Questions? Answers? Ideas? Thank you very much Please, let continue the discussion!


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