Newsletter: Moore Media 360 (May 2022)

26 May 2022 / Insight posted in Newsletter

Welcome to the latest edition of Moore Media 360, which is our collection of topical content from our member firms and clients from around the world.

While this edition focuses on a number of topics, its spotlight is on Environmental, Social, and Governance (ESG). Here, we look at the different elements of ESG and question what part they play across the media and creativity sectors. How far has the ESG agenda woven itself into the fabric of the creative process and what can the industry do to ensure it is fully absorbed? Alongside the environmental, social and moral importance of getting ESG right, we also explore whether ESG is set to become an indicator of value when it comes to M&A.

The last couple of years have centred around Coronavirus. While the virus is still present, the war in Ukraine has dominated the headlines and everyday life. We would like to take this opportunity to send our best wishes to everyone affected by this situation.

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Diversity and inclusion opportunities for the advertising sector

Chloe Davies (Head of Social Impact, Lucky Generals) shares her invaluable insights on the topics of diversity and inclusion in the advertising industry. Here, she outlines her views and challenges us all to proactively address the inequalities that persist across our business and social settings.

Demonstrating the power of the Moore Global Media Group collaboration capabilities

Matias Tejero, CEO of Moore Tejero Argentina, shares his experience in the preparation of a global proposal for a leading media house. This proposal had a very short deadline of 10 days with 14 countries from the Moore LATAM, Asia Pacific, Africa and Middle East regions sharing their credentials. This collaboration was also additionally complicated as it occurred at the start of the 2022 Chinese New Year holiday. The quick response and the availability of Moore partners over this time demonstrated the power of the network to support clients’ needs. In this video, Matias takes you through this very positive experience.

Lessons from the oldest intern in town

Mark Denton (Coy! Communications) takes us back in time to the early 1970s when he started out as a young intern in an advertising agency. Fast forward to 2022 and with over 40 years in the industry under his belt, Mark returns to the world of internship in advertising. In this fascinating and humorous interview, Mark explores the differences in experience, the impact of collaboration on creativity output and pushing boundaries, and why viewing advertising as a ‘young person’s business’ is a limiting perspective.

It's never too early to organise your music business

 

KEY CONTACT: Donna Branston | Partner, DMCL LLP

Once you’ve started directing effort and funds toward earning income as a musician, congratulations, you’re in the music business!

Many musicians put off organizing the business side of their career until they have to, only to realize how many opportunities they missed to save money along the way. So, no matter how overwhelmed you may feel about tax planning or the grant application process, meeting with a lawyer from our entertainment group as early as possible is a good idea for understanding the big picture and keeping more money in your bank account.

If you’re just starting out in the music business, here’s some of what we’ll discuss with you:

Business structure

Incorporating your business is a step that warrants a conversation with a professional. Yes, it involves additional compliance and costs, and at the outset of your career the costs outweigh the benefits, but once you’re gigging more and earning more per appearance, it’s a smart move.

You’ll be able to run expenses through the corporation, like new instruments and gear, which you can write off so you pay less tax. Also, as an incorporated company, you’ll be personally protected against any claims made against you by club owners, record labels or anyone else.

Our team can take you through the ins and outs of incorporating and get you set up for a long run.

Expense tracking

Generally speaking, when you’re starting out in the music business, you’ll spend more than you earn. This is called a “business loss,” and a big mistake a lot of musicians make is not taking full advantage of these losses, which you can claim against other income from your day job, or carry forward so you get the tax benefit when you are making money down the road.

The best way to do this is to track and report all of your expenses. We can help you determine what expenses you should be tracking.

Income tax and GST/HST

You’re required to register for GST/HST when you hit $30,000 in gross sales (business income before expenses). As a musician, your gross income includes royalties and advances, so you can hit the threshold without being aware.

Once you are registered, you have to collect GST/HST on taxable revenue at the rate set out in the province where you are performing. But the money you spend in GST/HST on business expenses is subtracted from what you collect in GST/HST, so you wind up owing less per period. If you pay out more GST/HST than you collect, CRA will issue you a cheque for the difference.

We can set you up for GST/HST collection, and make sure you have what you need to remit on time (the penalties for late filing add up quickly!).

Cash planning and budgeting

Touring is expensive and fraught with unforeseen expenses like vehicle and gear repairs, weather-related problems, cancelled gigs and more. As well, recording costs can also get away from you if you’re not careful.

This is why planning a tour or an album should include a budget with a contingency amount. It’s a valuable exercise that will help you to stay financially focused.

We can give you template worksheets to reconcile money you earn/spend on the road, settlements, grant funding and more.

Chasing your dream of being the next <insert your favourite artist here> is a great thing. Hit all the right organizational notes, contact your Moore Global advisor, and you’ll be in a much better financial position every step of the way.

ESG elevating the word of film, TV and advertising

Jenn McCabe and Tamika Mitchell share passionate views on the way movies and advertising are taking the topics of diversity and placing it in the mainstream of engagement through these creative channels. So many clients are embracing ESG as an opportunity to revitalize their boardrooms, create new product revenue streams, open up new opportunities for young people and at the same time do good for the planet. The creatives will lead the way and bring ESG into the mainstream of our commercial and social world.

Future of theatre in the West End

As theatre continues to emerge from the challenge of Covid, Mark Twum-Ampofo, Head of Theatre at Moore Kingston Smith, looks at some of the enduring changes for the industry which have come out of the last two years and the trends we expect to see going forwards. With an emphasis on Theatre’s strengthened resilience, how will the sector be impacted by the challenges ahead as the government pulls back some of its support to focus on rebuilding the economy?

ESG - DA HUA

 

KEY CONTACT: Joe Zhou Long | Partner, Dahua

Platform symbiosis and competition

Since 2021, China’s major media platforms have continuously expanded their ecological boundaries and made great efforts to move forward in the fields of user ecology, content and industrial integration with an unexpected speed and innovation ability. The construction of content ecology is undoubtedly related to the future of the platform. The report found that:

  • At present, the overall creation volume of all short video platforms (including Xiaohongshu) has maintained a good growth momentum, and WeChat public official account is full of creativity.
  • With the long-term ecological integration, the creators of various platforms have also developed a representative content style;
    In terms of popular content, the content orientation of each platform is basically consistent with its inherent label;
  • At the same time, the “long tail effect” reflected by the corresponding account expressiveness of creators at different levels will soon be “finally solved” with the counter attack of the tail account;
  • It is worth mentioning that the central account of Xiaohongshu is released more actively, and the interactive quality of its works is also better. It can be seen that the “flattening” of Xiaohongshu’s content power is also unique in the whole new media ecosystem.
Creative ecology and trend

In the past year, with the precipitation of user content consumption scenes, the development trend of “keeping the foundation and seeking innovation” in the content industry has been consolidated, mainly in three aspects:

  • First, “content-based”. At any time, users prefer high-quality works that shine in front of them. Homogeneous non original content will gradually move into the trap of “aesthetic fatigue”, and the rise of “Pan-knowledge” works also explains this phenomenon. “De entertainment” is already the potential demand of users. Therefore, the speed of high-quality works becoming popular is also increasing;
  • Second, the “return of form”, the entertainment carrier has developed from the previous graphic image to the current video, and the trend of symbiotic development has sprung up again recently; Video works have developed from the previous long video to the current short video, and now the short video also shows the trend of “becoming longer”;
  • Third, the “leap to the new”, the boundary of new media has begun to melt, and both personal authentication and enterprise authentication accounts are developing in the direction of the layout of the whole platform; The account operation is more professional, and the head account also complies with the industry trend to reach more cooperation with MCN institutions;
  • Finally, content creators are more keen to hear the “new” dance, pay close attention to the hot spots, and the virtual human IP extended from the concept of “meta universe” may become the next tuyere.

The growing importance of ESG in M&A

 

KEY CONTACT: Paul Winterflood | Corporate Finance Partner, Moore Kingston Smith

Where are we now?

The focus on ESG is embedding itself in the psyche of consumers and investors and there is a real pressure on companies to actively contribute to the world outside them in a positive way. While before, this focus on social responsibility may have felt more of an add-on, it is now becoming an integral part of the functioning of a business. As a result, not having a comprehensive ESG policy in place that has been fully absorbed by the company can have a negative impact on the value of your business going forward, and this impact is only going to grow.

Where is the focus?

As people-led businesses, it is no surprise that the ‘S’ part of ‘ESG’ currently plays the most significant part in the media and creative industry. Having a diverse and inclusive workforce, including at board level, speaks volumes.
With climate change big on the public and political agenda, there is also significant pressure on businesses to offset their carbon footprint; demonstrating this is the regulation that requires all large unquoted companies to disclose their emissions in their financial statements.

Governance, meanwhile, perhaps because it’s less transparent, has had less of an impact on the way businesses are viewed – aside from where significant failures have led to huge reputational damage like in the case of Bell Pottinger.

Where is the pressure coming from?

Brands have a clear eye on ESG – it’s not just about what they are doing themselves but also what their suppliers and consumers alike represent. As a result, the pressure on agencies to meet certain ESG expectations, both themselves and in their own supply chains, is being driven by them through procurement.

We are increasingly seeing criteria put in place that agencies need to meet in order to be included on the pitch list, making ESG a differentiator that can give an agency the competitive edge. So, if you’re not where you should be with regards to this, the flow of work is likely to slow, which has a direct impact on the saleability of your business. This chain of events will become increasingly common as the criteria being applied increases.

Which acquirers focus most on ESG?

Institutional investors, such as pension schemes, will be at the heart of the change, forcing businesses they invest in, such as private equity houses, to meet high ESG standards. Private equity houses will therefore be at the helm of bringing ESG higher up the agenda when scoping out acquisitions.

Compelled by their investors to find assets that have conformed to certain criteria, we have already seen some examples of PE houses and PE backed businesses, as well as other trade acquirers, overlooking businesses and citing all male senior teams or significant numbers of oil companies on the client roster among the reasons. While these have been few and far between, there is no doubt that the acquirer spotlight on this will strengthen and, within five years, we predict that there will be a direct correlation between ESG and perceived value, especially given that the majority of transactions have PE involvement currently.

What will the future impact on valuations be?

M&A is very much cyclical by nature and ESG is being drawn up into this. If an agency is not reaching the right standards and is consequently being omitted from pitch lists, their client roster reduces and they lose value. Similarly, if an acquirer were to prioritise ESG and, upon due diligence, found a business lacking in this area it could compound their reasons for not going ahead with the sale; the withdrawal of a potential buyer takes with it the heat from a deal, making the business less competitive in the market.

As a result, businesses considering sale should not be lulled into a false sense of security that active engagement in ESG is superfluous to the process. The focus on ESG is only getting stronger – at present you can create value by hitting the right mark but, within five years, it will significantly impact both valuation and saleability if you don’t.

French advertising market recovers in 2022 with increased focus on ESG

 

KEY CONTACT: Christoph Schlotthauer | Managing Partner, Moore Coffra

Market recovery with digital advertising as the front runner

This year, the advertising market (including historical media, digital media, trade fairs, exhibitions, direct marketing, etc.) will slightly exceed its 2019 level with a total of approx. 34 billion euros, according to forecasts by the French market research firm KANTAR. This corresponds to an increase of almost 9.5% compared to the previous year and a plus of 0.4% compared to 2019.

Last year, digital (display, search, social media) grew by 20.2% compared to the year before reaching a total of 8.2 billion euros. For the first time, digital alone overtook the combined total of the five historic media (press, outdoor advertising, television, radio, cinema), which grew by almost 16% last year to 7.9 billion. In 2020, their respective levels were almost similar, at 6.8 billion euros.

With growth of 17.3% in 2021, only small screen TV is doing better than pre-Covid, with 3.55 billion euros in net advertising revenues, according to the Unified Barometer of the Advertising Market (BUMP). Within the historical media, radio has been the second least affected by the last two turbulent years. With a total of 686 million euros in net advertising revenues in 2021, radio performance grew by 10.1%, only 4% lower than in 2019.

As for the press, which was heavily affected by the healthcare crisis in 2020, it rebounded by 13.5% in one year to reach 1.83 billion euros (but still -10.4% below 2019). Within this segment, the free press has decreased by another 4.2% in 2021 to 188 million euros, which represents a decrease of 30% in the last two years.

For its part, outdoor advertising has surpassed the €1 billion euro mark in 2021, growing by 21.6% in one year. Along with cinema, this is the medium that has been most affected by the crisis, but it is in the process of regaining momentum.

ESG advertising amounted to 3.5 billion euros in France last year

A new era has begun in French advertising: ESG (Environmental, Social, Governance) is now becoming a top priority for advertisers, advertising agencies and the media. In 2021, ESG campaigns already accounted for 11% of gross investment in the entire French advertising market, for all media types combined, according to KANTAR. 2,136 out of a total of 52,298 active advertisers have integrated ESG aspects into their advertising, including major brands as well as SMEs.

With this major upheaval, and with more to come, many advertisers have changed their advertising practices. As one advertising agency executive explains, “in five years, we have gone from a world where only 10% of advertising assignments were dedicated to ESG aspects to one where 90% of assignments include ESG aspects”. Regardless of the sector, there is hardly a campaign left that does not consider ESG issues.

The legal dimension obviously plays a major role in this trend, as advertisers choose to increase their ESG advertising expenditures, with the French Climate and Resilience Act as well as the Mobility Orientation Act further amplifying this phenomenon.

New legislation puts pressure on ESG compliance in the automotive industry

Legislation enacted in recent years is having a lasting effect, particularly on automotive advertising. Since last March, car manufacturers have been required to indicate the carbon dioxide emission class (using a coloured scale, similar to the one already used for years on household appliances) of the vehicles promoted in their advertising campaign. Car manufacturers must now also promote active mobility, carpooling, and public transport through mandatory statements to be inserted throughout their advertisements: “Prefer walking or biking for short distances,” “Think about carpooling,” and “Take public transportation every day.” In August, fossil fuel advertising will be banned altogether.

As a result, car advertising nowadays must comply with more than thirty compulsory statements. This presents real practical difficulties for manufacturers, as advertising for their products is becoming less and less clear and effective. Some brands now advertise almost exclusively electric or hybrid cars. This is a trend that will continue to accelerate. According to some estimates, the share of advertising investment in electric and hybrid vehicles will reach 60% in 2022 and 70% in 2023.

In addition to legal obligations, consumer aspects are now extremely important to advertisers. For almost half of 15- to 24-year-olds, companies’ commitment to social and environmental issues is a decisive factor in their consumption decisions. Climate change will spare no one, and this trend has not escaped brands.

But the backlash against false brand statements and greenwashing can be swift and severe. Thus, it remains crucial to strike the right tone in ESG advertising: not to moralize or adopt a soothing discourse.

British Arrows Awards

Congratulations to our clients, award winners at British Arrows Awards 2021-22

Moore Kingston Smith and Kingston Smith Barlevi would like to congratulate all our clients who recently received awards at this year’s British Arrows Awards. The 2021-2022 awards were held on Thursday 31 March (at the JW Marriott Grosvenor House, London), and recognises innovation, bravery and artistry of moving image advertising.
It’s our privilege to work with and support these outstanding production companies whose work both defines and drives the creative industry in London and beyond. As sponsors of the ‘Production Company of the Year’ Award, Graham Tyler, partner of both Moore Kingston Smith (London) and Kingston Smith Barlevi (Los Angeles) presented the award to Biscuit Filmworks.

Please join us in congratulating all the nominees and winners from the awards, 19 of which we are privileged to say are our clients!

About British Arrows
For over forty years, British Arrows has been championing, awarding and celebrating the innovation, bravery and artistry of moving image advertising. In that time technology and media have changed beyond all recognition but the essential aspects of craft have remained constant. Talent, dedication, innovation, and professionalism have never gone out of fashion, and it is these skills that we will focus on, honour and support throughout the year.

Click here for further information.

Media accelerates into the future – fuelled by private equity

 

KEY CONTACT: Damian Ryan | Corporate Finance Partner, Moore Kingston Smith

As the longer-term winners and losers of the global pandemic continue to play out, the media sector has become increasingly attractive to private equity, with a very strong end to 2021 already looking likely to be eclipsed by a bumper crop of big investments this year.

PE money already invested in media in Q1 2022 is up by 119% in comparison to Q1 2021, demonstrating a trend that is likely to fuel further high quality output and technological innovation across the buoyant industry and its diverse ecosystem of sub-sectors ranging from ‘mediatech’ to support services such as agencies.

This fresh appetite for PE investment has been stirred by a happy confluence of factors, not just the clear resilience and adaptability media businesses have demonstrated in the face of the multiple challenges thrown at them over the last two years.

While the pandemic accelerated PE’s disillusionment with traditional retail channels and brought new uncertainty and risks to investing in the hospitality sector, this historically uncertain period saw the rapid rise of stay-at-home media as a major cultural force, something that looks set to have changed behaviours irreversibly.

With streaming audiences’ demand for new content driving high profile investment by the tech giants, and better tech delivering ever-more compelling experiences, potentially the strongest overriding driver of PE interest is that media companies have fundamentally changed too.

They now more closely resemble tech businesses, coming equipped with strong data processing platforms, first and zero-party data gathering capabilities, reoccurring revenue streams and consequently less of their traditional reliance on creative individuals and the associated risks around a single point of failure or a sudden departure.

While the world came to terms with a new 2D normal working life of diving from one chat room to another, positioning us all at the heart of a daily digital content production experience of our very own, PitchBook Data Inc research reveals that the media industry deal count increased by 30% from 2020 to 2021 while capital invested into the media sector by PE houses increased by 116%.

Across multiple deals over £1bn, the largest in Q3 2021 was Apollo Global management’s acquisition of Yahoo for £3.6bn, and in Q4 2021 was Next Generation Media Company acquisition of Moonbug for £3bn via its financial sponsor of The Blackstone Group.

The upswing in PE interest and its seismic impact on the sector continues in 2022, and may well be a deciding factor in the UK government’s plans to push ahead with the privatization of Channel 4. While its expressed intention to make the broadcaster more able to compete with the likes of Disney and Netflix may be missing the point, a strong return will be an attractive reason to come to market now in itself.

The lasting impact of consumers’ fast-tracked adoption of new platforms, behaviours and consumption models is still to be revealed, but the Knight Foundation report mapping media consumption on to demographic information hints towards permanent shifts, including 40% of Gen Z respondents intending to consume the same amount of online video post-pandemic as during the lockdown periods.

Clear winners, such as TikTok which doubled its user base (WARC), point towards the attraction of dynamic formats driven by tech innovation for potential PE investment, while lavish traditional blockbuster movie-making and TV production remains ascendant as the streaming services mature from their initial customer acquisition phases and need to increase pricing.

It all signals a golden age for the production of high-quality content, with the end-users benefitting as standards and technology continue to develop at pace. Not every media model can rise with the tide though: ad dependent media will no doubt struggle unless it is highly ranked in its particular market.

PE focusing on media investments in 2022 and beyond raises some exciting prospects with the potential to continue to change the landscape across the sector hugely. Let’s hope the cost of this fuel doesn’t display the same volatility as that of our fossilised friends.

With thanks to Dylan Sweeney (Corporate Finance, Moore Kingston Smith) for research support on this article.

Media and creativity summit series

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