Media
Selective rotation
The European media sector outperformed the broader market by 9% in 2008, the
first time since 2000 the sector has outperformed. We believe the sector should
continue to benefit from its status as an ’early cycle’ mover, and set out key ideas
for 2009.

The media sector is beginning to benefit from its ’early cycle’ mover status
We upgraded the media sector to Overweight in September, highlighting that it tends to
rerate early in the cycle – typically nine months ahead of the depths of a recession. The
sector outperformed the broader market by 14% in 4Q, and by 9% in 2008.
We reiterate our Overweight on the media sector
We forecast a 14% FCF yield for the sector in 2009, giving the sector the second highest
yield in the market. The sector is now 44% below its 2007 peak, and its trailing P/E of 8x is
below that reached in 1990 and close to that achieved in 1980. Balance sheets are in
reasonable shape (we estimate 2009 sector average is 1.7x net debt/EBITDA), and a
’survivor bias’ has meant that the sector’s composition has changed: structurally challenged
business models (free TV, consumer publishing, directories) now account for just 20% of the
sector’s market cap.
Sector themes in 2009
We believe key themes will be a focus on quality of business model, refinancing risk,
valuation and susceptibility to earnings downgrades. The latter is a concern: consensus 2009
EPS forecasts have fallen nearly a third from where they were in mid 2007, but show just a
2% yoy decline vs our forecast for a 8% decline (note that currency moves boost sector EPS
in 2009 and cushion operational downgrades).
Our bull and bear ideas for 2009
Our four bull ideas are WPP, Wolters, BSkyB and Publicis. Our four bear ideas are
Thomson-Reuters, Mediaset, TF1 and ITV. We also like Informa, UBM and Lagardere.

Contents
Executive summary 2
We reiterate our Overweight recommendation on the media sector and believe the
sector will continue to benefit from its status as an ‘early cycle’ mover. We set out
our key ideas for 2009.
Themes and screens 4
2008 was an annus horribilis for the sector, and while 2009 will undoubtedly be
difficult, we believe this is largely factored into share prices. A number of factors
suggest to us that the sector’s outperformance in 4Q can continue into 2009.
Key ideas for 2009 20
We cover around 30 stocks in the media sector (see Table 2 for a full list of stocks
and recommendations), and given this relatively large coverage universe we have
selected four bull ideas and four bear ideas for 2009 (see Table 8).
Changes to recommendations, target prices and forecasts 25
A credit perspective 26
Company profiles, updates and earnings previews 29
Company notes
Antena 3 - Still more downside 56
British Sky Broadcasting - Raise TP on lower football costs 60
ITV - Downgrade to Sell 70
Lagardere Groupe - Hidden value 76
M6 - Cutting our numbers 86
MTG - Forecasts lowered; Buy maintained 91
Pearson - Education will not be immune 98
Reed Elsevier plc - Aborted disposal - debt in focus 110
United Business Media - Currency benefits 121
Vivendi -Target price cut to €21.50 126
Wolters Kluwer - Back to the future 139
Appendix: industry data 151

Executive summary
We reiterate our Overweight recommendation on the media sector and believe the sector
will continue to benefit from its status as an ‘early cycle’ mover. We set out our key ideas
for 2009.
2008 in review: the sector outperformed for the first time since 2000
The FTSE European media index fell 37% in 2008; however the sector outperformed the broader
market (the FTSEurofirst 300) by 9% – the first time since 2000 that the sector has outperformed
the market. The sector performed particularly well 4Q, outperforming the market by 14%.
We believe the sector will continue to outperform in 2009 and reiterate Overweight
The media sector has one of the highest FCF yields in the market (we forecast a 14% FCF yield in
2009; see Chart 6), the sector appears cheaper than it was in the 1990s recession and close to
where it was in the 1980s recession (using trailing P/E), balance sheets are (for the most part) in
good shape, and a ‘survivor’ bias in the sector means that the investable market cap is of
surprisingly high quality. The upcoming earnings season will no doubt be marred by profit
warnings and an uncertain outlook, and we believe that consensus EPS forecasts have further to
fall, but we believe this is largely baked into share prices.
Our historical analysis suggests the media sector typically bounces nine months ahead of the
depths of a recession, and on that basis we believe the recent outperformance of the sector will
continue into 2009.
Key ideas and themes for 2009
Our screening of the media sector indicates a number of ideas for 2009, and we have identified
four bull ideas and four bear ideas.
Our bull ideas are WPP, BSkyB, Wolters Kluwer and Publicis, each of which we rate Buy. Our
analysis suggests that now is the right time to add some cyclicality to portfolios, and we believe
the global agencies (which we regard as cyclically exposed but structurally sound) as the best
way to do this. WPP’s and Publicis’ multiples look relatively cheap (see Table 2 and Chart 28),
and we are (hopefully) close to trough earnings forecasts. We view Wolters as a beaten-up
defensive that should benefit from the regulation of the global economy and could become
involved in sector consolidation. BSkyB is regarded as a consumer cyclical, but we believe it will
prove to be more resilient than the share price currently discounts, and should benefit in 2009
from downward revisions to estimates of the cost the Premier League.
Our bear ideas are Thomson-Reuters (TRIL), Mediaset, ITV and TF1, each rated Sell, except for
TF1 (rated Hold). We believe that TRIL will suffer as estimates are cut for its Markets division, and
that further downgrades may materialise as management announces additional restructuring
charges. In our view, Mediaset, TF1 and ITV are all variations on the same theme – domestic
advertising markets are under cyclical pressure, audiences are fragmenting due to structural
trends, consensus EPS forecasts remain too high, and earnings multiples are high.
Notable mentions go to Informa, UBM and Lagardere – each screens well and we rate each ‘Buy’.
Reed, Pearson and Vivendi each screen reasonably well and certainly neither Reed nor Vivendi
look particularly expensive at these levels, but we reiterate Hold recommendations. In the case of
Reed, we are concerned that new CEO Ian Smith faces a number of specific challenges (see the
note on page 110 of this report). For Pearson we are concerned that the valuation does not allow
for an operational slip, which may happen in 2009 given the growing funding crisis in the US (see
page 98). For Vivendi, we recognise the attractive valuation, but are concerned that KPIs will
deteriorate further in 2009, and see no catalysts (see page 126).