The future of entertainment

A recent article in The Economist cites that Microsoft will pay US$69 billion in cash for the acquisition of Activision Blizzard, a video-game developer in what represents a huge bet on the future of entertainment. It should be highlighted that this is the biggest acquisition ever made in the video-game industry. In addition, it is the biggest ever made by Microsoft and is more than twice the size of the LinkedIn’s purchase in 2016 of US$26 billion.

The Covid-19 pandemic has indeed accelerated many of the trends of the past 5 to 10 years, including the outsized growth in digital media consumption and consumers’ ability to access content from just about anywhere. Amid recurring Covid-19 surges, people sought more media and entertainment at home, while often avoiding larger in-person events. Streaming services and TV channels also saw huge spikes in consumption amid pandemic lockdown measures.

Another emerging trend has been the metaverse. The idea of living in a metaverse has only increased as commerce, culture and multiplayer role-playing games have converged in virtual worlds. The point here is that there has been so much disruption in media and entertainment. In fact, television and video delivery platforms are becoming increasingly complex as viewing preferences move towards a world in which content is available on-demand.

The development of the internet has also seen the growth of online video platforms, which has given rise to changing behaviours of viewers around the world, as well as new competitors to traditional TV players.  Despite the changing trends and disruptions, TV is still the most widespread content-based medium.

According to our research, newspapers and magazines declined at a compound annual growth rate of 5.8%, between 2010-2015. This was largely due to print budgets migrating online and the strong growth in interactive advertising. Throughout this time, TV advertising has remained stable, driven mainly by economic factors and quadrennial events (elections and sports competitions). Brand advertisers have also remained loyal to the medium and perceive television as an effective tool in achieving their marketing goals.

We recall that in late 2020, the Government of Zimbabwe made a move to liberalise the electronic media landscape when it issued six new television licenses.  Amongst successful applicants was Zimpapers Television Network (ZTN), which was awarded a free-to-air television network license by the Broadcasting Authority of Zimbabwe (BAZ). ZTN owner; Zimpapers Limited remains focused on investing in digital platforms in response to a shift in consumer behaviour following the pandemic. Going forward, we opine that costs from the commercial printing division will likely go down as the company embraces full digitalisation. The broadcasting division is also set to benefit from demand for content amongst consumers as they prefer accurate and reliable information on the economy, politics and social issues that affect them. We like the stock. Based on our estimates, Zimpapers is currently trading at an undemanding Fwd PER of 12.9x versus a peer average of 49.2x. We rate the Zimpapers BUY!

 

Batanai Matsika is the Head of Research at Morgan & Co, and Founder of piggybankadvisor.com. He can be reached on +263 78 358 4745 or batanai@morganzim.com / batanai@piggybankadvisor.com

 

 

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