SYDNEY — Despite last year’s near-worldwide B.O. slowdown and the financial straits of many exhibs, Australia’s Television & Media Services believes the time is right to become one of the world’s five largest cinema advertising contractors.
Last week, TMS lodged a takeover bid for Media Entertainment Group, valuing MEG, which operates in Australia, New Zealand, Fiji, Argentina, Singapore and Hong Kong, at $A40 million ($21.2 million), a 38% premium over its market capitalization.
TMS already owns nearly 20% of MEG, and is the largest shareholder alongside Kerry Packer’s Consolidated Press Holdings, which has 20%.
“We think cinema advertising, with its reach, its demographics and its recall (factor among movie audiences) is a very compelling medium,” says TMS chief exec Bruce Fink.
TMS subsid Val Morgan & Co. is Australia’s biggest screen advertising contractor, with operations in six other countries including the U.S., Argentina, Chile and Peru.
“With the advent of digital cinema, the medium will become more flexible, more exciting and more international,” Fink says, contrasting the electronic delivery of ads with the cumbersome, time-consuming practice of having to splice 35mm film ads onto platters.
Combining the two businesses would give TMS interests in 10 countries, offering cinema advertisers a “one-stop shop,” Fink adds.
Typifying the buoyant U.S. screen blurb business, Val Morgan USA doubled its revenues and saw a 47% upswing in earnings before interest and tax in the six months to Dec. 31.
That was driven by a doubling in the number of screens — now 4,000 — that Val Morgan USA services. Fink says there was little or no impact from screen closures.
“We are subject to the machinations of the advertising market, led by the broader economy,” Fink says, noting no downturn in U.S. screen advertising revs, but a slight softening in Australia, where the economy went into reverse in the December quarter.
A merger would create a virtual monopoly in Australia, but Fink contends that would not be anti-competitive. “Cinema advertising’s competition is TV, radio and newspapers; it is not MEG vs. Val Morgan,” he argues.
TMS had a preliminary meeting with the Australian Competition & Consumer Commission prior to making its bid for MEG.
TMS’ offer is conditional on 90% acceptance; it’s offering one of its shares for every five MEG shares.