Prisa Financial Turmoil

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: juan.manfredi@ie.edu
http://ciberdemocracia.blogspot.com

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.
Juan.manfredi@ie.edu
ciberdemocracia.blogspot.com

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


(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)

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


PRISA share value declines more than the average in the last
five years


Vocento’s behavior is similar from the beginning


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


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

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?

Who is PRISA?


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:
• Elpais.com is not leader at all
• Global Spanish Press reference

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


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


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

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


How were the earnings distributed?


Where did the $$$ come from?


The magic years end, the EBITDA falls and the problems
appear

The data are in M EUR


The print media division is the worst one
The decline of the EBITDA shows the crisis of print media in
Europe and USA


And the perfect storm is coming…

And it is not this one


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!)


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


PRISA’s Sogecable takeover bid
Sogecable is the audiovisual company from PRISA group


And after the takeover…


And after the takeover…

PRISA
100%


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!


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


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)

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

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


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


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)

(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
Elpais.com 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?

(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?


Questions?
Answers?
Ideas?

Thank you very much
Please, let continue the discussion!


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