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A Sky High Valuation For EBC

DMG Entertainment, a US-based global entertainment company, appears to be betting on a new cycle of value creation at Taiwan broadcast group EBC, 62% owned by private equity firm Carlyle.

Much of the value creation could come from exploitation of EBC’s IP, library and production across China and other global markets.

While EBC produces and aggregates a decent amount of local variety and entertainment content, its main star is a popular news business that helps drive audience share and revenues.

EBC’s kids offering also remains popular but its entertainment and variety channels trail others in relevant segments across Taiwan, including those from market leader Sanlih.

DMG’s bet is a big one, valuing EBC’s business at almost 13x Ebitda.

EBC generates about NT$1.4 billion (US$45 million) a year in Ebitda. This valuation is high, irrespective of the intrinsically cash-generative nature of Taiwan’s top pay-TV content and distribution assets.

Two recent transactions which saw TVB sell its Taiwan cable channels business, the most recent of which occurred earlier this year, valued the channels business at an average of 9-10x Ebitda.

EBC has a 23% market share in Taiwan, according to research and consulting firm Media Partners Asia (MPA). This is based on viewership as well as combined advertising revenues earned by its pay channels and subscription fees it collects from operators, in a market which has 86% pay-TV penetration.

The market for pay-TV broadcasters in Taiwan is mature and somewhat saturated, expected to grow at only a 2.3% CAGR over the next five years, approaching close to a US$1 billion in combined ad sales and affiliate fees, according to MPA.

However, this analysis excludes licensing and syndication, currently small but growing for EBC today. It has potential to grow on a potentially more meaningful level across China, Southeast Asia, North America and Europe in the future.

Regulatory snag

The deal requires regulatory approval, always tricky in recent times as illustrated in private equity firm MBK’s long process to sell leading cable MSO, China Network Systems (CNS).

The CNS process commenced in 2010 and finally ended with a sale to Taiwan telco Far Eastern this year, following a couple of false starts with highly attractive bids complicated by ties to China.

DMG has a partner in China, the Shenzhen-listed DMG Entertainment & Media, whose chairman, Xiao Wenge, has a Chinese military background.

Taiwan government regulators are carefully evaluating the structure of the deal, as well as the shareholding of various entities.

DMG, run by the US-based Dan Mintz, is known for Iron Man 3 and its recent acquisition of a stake in comic book publisher Valiant Entertainment.

EBC currently owns and operates four platforms, comprising eight channels across key genres, including news, variety, movies, children and drama.

Ad sales contributes close to 70% of sales generated by EBC, while affiliate fees across pay channels represents about 25%.

The company’s news business remains highly profitable, driven by a high level of ad sales which contribute ~45% to total EBC ad revenue, followed by variety channels at about 28%.

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