Steve Tindall: Is the Mediaworks/QMS merger a good thing?

In November 2018 MediaWorks and QMS Media Limited entered into a heads of agreement for a proposed merger of QMS’s out-of-home, production and digital media assets and MediaWorks’ radio, TV and digital business. 

The transaction is subject to agreeing final binding terms and approval is expected to be completed by the end of June 2019.

The proposed merger would see QMS merge its local out-of-home, digital media and production businesses into MediaWorks. In return, QMS will receive 40 percent share of the company in the expanded MediaWorks business, with funds managed by Oaktree Capital Management, L.P retaining the majority.

If it is to go ahead, the merger would be the first in this market to combine out-of-home, radio, TV and digital as a destination for advertisers. It is claimed the merged entity, which will retain the MediaWorks name, will be the biggest media company in New Zealand in terms of overall audience and advertiser reach. 

MediaWorks’ most recent financial result showed a net loss of $5.7m for the year to December on revenues of $300.2 million.

The primary customer (advertiser) perspective
Yes

The advertiser needs the New Zealand media business to be financially healthy to continue to invest in content that connects with the consumer that the advertiser can utilise. Equally healthy competition creates both consumer and customer choice ensuring value in performance and price is maintained. 

GroupM believes that they will have a more holistic go-to-market sales solution however this will probably manifest in the longer term as they don’t have that now representing three media channels.

The motive behind the merger seems to be Oaktree reducing its risk in a loss-making company. Oaktree is a ‘builder’ type venture capitalist rather than a ‘stripper’, but it has failed to move MediaWorks into a positive financial position.

If this is correct then the merger is more about identifying synergies across the business and reducing duplication, some of which is likely to come from the sales arena. In an already complicated media marketplace that is increasing daily, without the resources to create a holistic ‘sell’, dealing with the new company and preserving advertiser investment value is likely to become more problematic. Advertisers that employ media agencies with a high market share (e.g. GroupM) with a sophisticated investment skill set, are likely to gain market advantage within the communications/media arena as they may try to increase price across their estate using market share leverage.

The media agency
For higher market share agencies – Yes

If the above points are correct and the holistic sell does materialize, then advantage for agencies will be through ease of trade in contact points and fulfilment through automation and streamlined processes. This will, however, be difficult to take advantage of for agencies with low market share.

For the merged MediaWorks of the future, the higher share media agencies will become more critical to their business development and therefore be higher on MediaWorks’ customer prioritisation. Greater value for the primary customers is likely to be created or made available through larger, deeper and more integrated holistic negotiations across multiple properties incorporating media commodities, partnerships, alliances, data exchange, through the line activation etc.

The consumer
No

If this is a reduction in risk for Oaktree and a strategy for financial growth through an efficiency play, it is hard to see any consumer benefit in enhanced content delivery in TV, radio or online, or indeed additional or improved real estate and plant within their outdoor assets

MediaWorks people (sales)
In the short term – No

If the new entity maintains all the same people, then that won’t constitute a holistic sell as status quo will remain. If they do create efficiencies through a holistic sell, this will require a different type of sales operation with individuals with different skill sets than they currently employ. A holistic three channel sell still hasn’t been achieved. This will create the strain of change in the organization in terms of upskilling and most importantly culture.

  • Steve Tindall is the chief investment officer at GroupM

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