San Francisco Overhead 1973

San Francisco Overhead 1973

Another weekly image from the family archive.

Not on this trip myself but it was only four more years until I visited San Francisco for the first time. This batch of images are completely mixed up because there are no dates on the slides. All the slides in this batch are duplicates and may have been taken by someone else. There are about four or five images of SF from the air as the aircraft circles the city and lands but this is probably the most spectacular one. Certainly a very nice day.

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Media M&A Reports

Investment advisory firm Jordan Edmiston reported their Q1 2011 review of M&A activity a few weeks ago (JEGI):

M&A transaction value for the media, information, marketing services and technology sectors reached $12 billion in Q1 2011, representing a 16% increase over Q1 2010. The first quarter of 2010 had seen an 83% surge in deal volume and a nearly seven time increase in transaction value over Q1 2009 levels. So, 16% growth in Q1 2011, off a large prior year base, reflects a healthy continuing M&A environment.

The interactive and technology markets accounted for an even greater share of activity, with the B2B and B2C Online Media & Technology, Marketing & Interactive Services, and Mobile Media & Technology sectors accounting for 75% of total deals in Q1 2011 vs. 70% in Q1 2010. The average deal size for these sectors rose as well, from $28 million in Q1 2010 to $47 million in Q1 2011.

Looking at the Top 10 Deals:
The interactive markets accounted for 7 of the 10 largest deals of the quarter, including the only multibillion dollar deal announced – eBay’s acquisition of GSI Commerce for $2.4 billion.

The other six announced interactive deals in the top 10 included:

• Walgreen acquired Drugstore.com, an online retailer of health and beauty products, for $409 million;
  
• Tencent of China acquired RiotGames, a developer of premium online games, for $400 million;
  
• Salesforce.com acquired Radian6, a social media monitoring company, for $326 million;
  
• AOL acquired Huffington Post, an online news and opinion web site, for $315 million;
  
• GSI Commerce acquired Fanatics, a network of sports e‐commerce sites, for $277 million; and
  
• Nordstrom acquired HauteLook, a private, limited‐time e‐commerce site, for $270 million.

Interestingly, two of the largest transactions of the quarter took place in the consumer publishing market, which has been a relatively quiet sector over the past few years:

• Hearst Corporation’s acquisition of Lagardère’s magazine portfolio for $651 million; and,
• Apax Partners’ acquisition of Yellow Media’s Trader Corp., a producer of consumer shopper publications, for $745 million.

The remaining deal in the top 10 for Q1 2011 took place in the fast‐growing healthcare market:

• inVentive Health, owned by private equity firms Thomas H. Lee and Liberty Lane Partners, acquired i3, a pharmaceutical services company, for $400 million.

Additionally, Marlin & Associates also circulated their deals overview for June 2011 which takes a wider view of activity and has some nicer graphs if you like that sort of thing (Marlin).

Thomson Reuters to Divest Health Business

Thomson Reuters announced their intention to divest their $450mm healthcare business yesterday. The business provides data, analytics and performance benchmarking solutions and services to companies, government agencies and healthcare professionals. From their press release:

With leading assets and solutions such as MarketScan, Advantage Suite, Micromedex, CareDiscovery and ActionOI, coupled with expert services and analysis, the Healthcare business provides its customers with solutions to identify savings, improve outcomes, fight fraud and abuse and more efficiently manage their healthcare operations.

The Healthcare business in 2010 had revenues of approximately $450 million and an operating margin comparable to the company’s consolidated margin of 19.3%. Following adjustment for this divestiture by removing Healthcare’s results from ongoing businesses, no material impact is expected to the company’s previously announced 2011 outlook. The company expects the divestiture to close before the end of the year.

This divestiture will result in a realignment of the company’s existing Intellectual Property and Science businesses into a single operating unit of the Professional division. Both are global and support scientific research, discovery and innovation. Details related to the realignment can be found in the “Investor Relations” section of the Thomson Reuters website. Thomson Reuters will provide restated historical financial information on its website, which reflects this realignment and which excludes results from the Healthcare business, early in July and its second quarter reported results will reflect these changes.

Potential acquirers are likely to include private equity backed companies but operating companies interested in the business will include IMS Health, Wolters Kluwer, Reed Elsevier and others. With an operating margin close to 20% and revenues of $450 mm the acquisition is likely to be expensive.

Sunshine on the Amazon

I have a confession: I don't own an eReader. This isn't because I don't like the idea but I've still got lots of non-read paper books to get through. I do read significantly on my iPhone and it is only a matter of time before I succumb. While I have the Kindle and Nook apps on my phone I've not felt compelled to use them. Mrs PND on the other hand has been devouring Kindle books on the iPad since Christmas and here again a confession: I purchased my first Kindle book on her iPad last weekend. Why, because the deals were just too good.

With publishers' participation, Amazon launched their Kindle sunshine deals promotion with 650 deeply discounted eBooks and if you look through the Kindle best seller list and you will see how many of the current top Kindle titles are selling for $.99, $1.99 and $2.99.

What this price promotion will tell publishers will be interesting to see. To me the current list of book titles is reminiscent of the deep back catalog music CD's that have been priced for years at $4-9. It took music publishers a long time to get to discounting pricing but once they did it became a profitable way to reissue many older titles.

Obviously pricing strategy to trade publishers could be thought of as an oxymoron and at the least pricing for eBooks has been fraught with friction between the publishers and retailers. This discounting program will give both retailers and publishers more data points from which to really develop their pricing policies. Book pricing is so often an additive exercise versus one derived from real market data. Unfortunately, what this research might reveal is that pricing in the $2.99 range represents the highest point of the demand bell curve.

As a few commentators have been saying for a long time (myself included), how are publishers going to manage their cost structures when optimal pricing for eBooks is in the $2.99 range. Interestingly, print pricing in the $34.95 range probably never represented the top of the demand bell curve either, but in the eBook world maybe we are starting to see real actionable data for the first time. Whether trade publishers are prepared for world where pricing is much lower (but perhaps demand is much higher) is a different story. In music of course, that industry did not appear to use market data effectively and have continued to hang on to first release pricing of $12 or so. Importantly, the music publishers never considered piracy a component of demand whether book publishers will or not is to be determined.

Here some interesting charting from Laura Hazard Owen at PaidContent: