In my previous posting, Investing in entertainment: A Myth, I shared my takes on investment in entertainment in Malaysia. The grants or soft investment provided the government, in my opinion, probably would be a good start. However, to label them as the main mode to spur the industry perhaps would be too soon.
I think it is about time to have venture capitalists and private equity firms to step into the multi-billion entertainment industry. They should be able to identify suitable investee companies whose entertainment related projects meet their investment strategy.
Despite the introduction of Bank Simpanan Nasional's Creative Investment Loan and MyCreative Ventures, they do not fit the functions played by venture capitalists and private equity firms. In fact, the inception of such modes is not widely available to private investors, high net worth individuals or even general public to assess uncapped upside potential growth in the industry. The circulation is still in the disbursement mode.
On the same note, two weeks ago, I met several venture capital firms weighing up on the feasibility to set up a dedicated fund to invest in media or perhaps telecoms as well. The discussion is still on going especially in relation to investment criteria, business model and fund structure that general public might be interested in.
In essence, media sector will include film production, live entertainment (concerts), television production, general media investment, cinema, advertising & marketing services, broadcasting, enabling technologies, fashion, online media, music and outdoor advertising.
Ideally, the fund structure should offer a minimum investment, say RM10,000 that suitable for personal and private investors. The fund should be invested in unquoted companies or private companies in the Asia region. Normally, the realisations of investment in entertainment may reach up to 3 to 3.5 years in which the investors will not have access to their capital from the date of application.
At this stage, I would not too keen on, not against, crowd funding platforms especially that based in South East Asia or Asia region. Wujudkan, Patungan.net, PitchIn, 8squirrels, ToGather.asia, Firecracker and Spark Facility, ArtisteConnect.com, +嘖嘖 zeczec, Nboon.com and ZaoZao. Although crowd funding platforms offer specific projects like ZaoZao on indie fashion start up in Hong Kong, the essence of social and philanthropic is not yet a trend, unfortunately.
By now, you should know that investment in entertainment and media is viable. But how?
Normally high net worth individual won't face much problems getting access to private equity firms or funds provided by their bankers. Private equity firms often seek at minimum USD one million for their portfolio. Well it is also depending on the type of transaction they are in.
It could be just a minority or majority transaction. It may only involve in growth capital, mezzanine, divesting, management buyout or recapitalization. Therefore, you need to find the private equity firms that suit your investment target and style.
Screening the private equity firms is not similar to normal stock screening. You might need to rely on the information provided by the firms, word of mouth, the management team information or perhaps your personal assessment on their previous and current investment performance. I guess you could apply your fundamental analysis on the firms and technical analysis on their portfolio, if available.
Other criteria that I think you should look at as well, are including:
i. Earnings before interest, taxes, depreciation and amortization (EBITDA) as it would reflect the cash flow of the funds,
ii. the firm's portfolio as it would align with your expectations and needs,
iii. revenue criteria would describe the revenue range targeted by the firms,
iv. average investment size would indicate the average amount invested by the firm in a single company,
v. geographic location
Many private equity firms that invest in entertainment are based in the States and Europe such as 21 Partners (Italy), Abry Partners (Boston), CVC Capital Partners (London), Sandler Capital Management (New York) and TPG Capital (Fort Worth). Firms like CVC Capital Partners, Carlyle Group and India Value Fund have a strong presence in Asia and Australia. They invest in broadcasting, publishing, online media, broadband, radio and film studios.
Alternatively, you could just buy media and entertainment stocks like Viacom, Time Warner, Disney and CBS on NASDAQ. On Bursa Malaysia, they don't have a Media sector. Thus, you need to find media companies under Trade/Services sector like Media Prima on the Main Board. Asia Media and Catcha Media Berhad on ACE Market are media companies, in my opinion.
If you are not confident with your stock screening and selection, you might want to subscribe to sector funds dedicated to media and entertainment sectors. The good news is they save you a lot of time in picking the media stocks, diversification and direct access to media stocks. However, the bad news is your choices are limited.
I came across with Fidelity Select Multimedia (FBMPX) that have about 60 media stocks and PowerShare Dynamic Media Portfolio (PBS) consists of almost identical list of media stocks. And if you want to tap into Bollywood market, you might want to have a look at India's Reliance Media & Entertainment Fund and Sundaram Entertainment Opportunities Fund. These two funds have a quite impressive run this year.
In short, there are a few ways to invest in entertainment such as via private equity firms, media stocks and funds. However, with limited choices, you might want to weight out the best option reflecting your investment style and target. You should have, at least, a screening criteria in place though. Choose wisely.
