Media, entertainment and knowledge is a Cinderella sector according to Patrick Bradley, managing partner of specialist venture capital firm Station 12 Asset Management.
The Top 100 Media and Entertainment companies in the UK have a combined revenue of GBP96.3 billion, representing an 11 per cent increase from last year.
Bradley explains that the media, entertainment and knowledge sector is an international success story driven by overseas sales, but one where emerging businesses can struggle to find investment, enduring a lack of independent early stage capital.
Station 12 was established in 2014. Bradley had spent 30 years in the sector having previously been a founder and CEO of a venture capital arm of a specialist media investor and before that held operating roles at PolyGram and Universal Studios.
After initial fund raising and research, this year saw Station 12 launch the Media, Entertainment and Knowledge Fund, targeting assets of GBP10 million fund over two years and split into an SEIS and EIS structure. The fund is aimed at high net worth investors who want to be in this space but also who want the benefit of allocating capital while mitigating tax.
The fund anticipates initial round sizes of GBP750,000 EIS, which represents later stage investments and the GBP150,000 SEIS, for seed and start up. For every £1 invested, 25p is invested into the SEIS opportunities and the balance into the EIS, thereby managing the risk profile of the fund. Minimum investment in the fund is GBP10,000.
“The first thing to say is that we are specialists and specialism mitigates risk,” Bradley says. “We stick to our knitting and have a strong operational background.”
Bradley says that he would dispute the claim that it’s a risky sector. “The UK is a leading player in the media, entertainment and knowledge sector and the world consumes what comes out of this country, whether leading entertainment and media or as one of the top countries in the world for education and learning,” he says. “The scale comes out of the international exploitation. We only invest in goods or services people are paying for - so monetisation has to be present.”
He says that the sector is growing very rapidly and appears to be mostly Brexit proof, with the caveat that some impact may be felt in the education part of the equation due to visa and free movement impacts.
“We think about what we do or what our kids do and everyone is a micro investor in this space anyway,” he says, referring to the growth in use of screens in all their formats for receiving information, education and entertainment.
The two key focuses for the portfolio are content and experience, with Bradley citing the example of Netflix, which is spending another USD8 billion on its platform.
“We are investing in companies that are providing their content, the UK production sector being the source of successful shows like The Crown,” he says.
An example of a firm in which they have invested is Parade Media Group, a media and entertainment company that specialises in the development, production, co-production, financing and marketing of premium lifestyle and factual entertainment to a global audience.
“They sell content into a global market, with demand driven by the proliferation of platforms seeking unique and compelling programming,” Bradley says.
“Right now, investors are beginning to recognise this sector and how valuable and global it is, with the UK at its heart. Technology and consumer behaviour is driving this boom in value – with consumers now ready to subscribe and pay for quality – be it music, film, TV or learning online. Even newspapers are beginning to scale their subscriber base as readers value comment and analysis.”
“This is the first time I have seen bigger investors beginning to realise that it is enormously valuable and that we are a leading player in the UK.”
There has also been an uptick in the music industry, Bradley says, with the impact of streaming services such as Spotify with their ‘as much as you can eat for a monthly fee’ business model but now shifting to looking to invest in new artists, a long way behind what is happening in tv and film, but with enormous potential for growth.
With the lack of funding in the sector, Station 12 receives a high volume of approaches for investment but filters it down to looking at 50 deals on which it would act on just between eight and 12.
The firm targets pre-money valuations of between GBP4 million and GBP20 million, assuming an average shareholding of 20 per cent.
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