Europe
Media
30 January 2009
media@db
Something for everyone
Paul Reynolds
Research Analyst
(44) 20 754 76539
paul.reynolds1@db.com
Mark Braley, ACA
Research Analyst
(44) 20 754 59904
mark.braley@db.com
Patrick Kirby
Research Analyst
(44) 20 754 73560
patrick.kirby@db.com
Deutsche Bank AG/London
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factor in making their investment decision. Independent, third-party research (IR) on certain companies covered by DBSI's research
is available to customers of DBSI in the United States at no cost. Customers can access IR at
http://gm.db.com/IndependentResearch or by calling 1-877-208-6300. DISCLOSURES AND ANALYST CERTIFICATIONS ARE
LOCATED IN APPENDIX 1.
Periodical
Euro Media Sector Performance
30/1/09
F M A M J J A S O N D J
55
60
65
70
75
80
85
90
95
100
105
DJ STOXX 600 MEDIAE - PRICE INDEX
DJ STOXX 600 E - PRICE INDEX
Source: Thomson Datastream
Table of Contents
BSkyB Pg 03
Mediaset Pg 12
Yell Pg 13
Global Markets Research Company
From an investment perspective, Media offers something for everyone at present:
traditional defensives (eg professional publishers, Vivendi), cyclicality (TV
broadcasters and ad agencies), stressed balance sheets (Informa, Yell) and now,
even some growth (BSkyB). In this environment, it has been refreshing for us to
talk about investment and a growth initiative in the context of a results release
(BSkyB HD announcement), as opposed to having to focus on cost cutting in the
face of weakening revenues, which is the theme of most Media results at present.
We retain a very clear stance on the sector. Even if in some instances company
update statements are indicating trading has been better than expected at the end
of 2008, this is historic: the call is about what happens (ie how bad things get)
over the next six months. Advertising datapoints for 2009 are deteriorating rapidly,
especially in TV, and at a worse rate than consensus anticipated at the start of this
year. France, Germany, Spain and the UK, for example, are under extreme
pressure. In the US, corporate results provide an interesting pointer: Colgate
Palmolive this week indicated that it reduced A&P spend in Q4 2008 – partly
because the cost of media has come down and partly because other competitors
have reduced marketing spend. FMCG ad spending has remained relatively
resilient up till now, but now looks to be coming under increased pressure.
Although valuation on the sector overall is more favourable now, compared to
three months ago, we remain cautious on cyclicals; in general we favour visibility,
strong balance sheets and dividend yield. We are buyers of BSkyB, Reed Elsevier,
Vivendi and UBM. We think it is too early to buy ad agencies for recovery. We are
sellers of TV broadcasters, with the exception of Mediaset (see below).
BSkyB (Buy) – 10% upgrade for 2011
H109 earnings were ahead of DB/consensus and highlight the economic resilience
and operating leverage of the Sky model. The new HD initiative is a variable cost,
success-based investment, with clear pay back, and is being launched from a
position of strength. We think the product has genuine consumer appeal and will
act as a “Trojan Horse” to allow Sky to upsell more triple play services which will
in turn lower churn. Effectively, it adds a new leg to the BSkyB growth story. Sky
trades on a one multiple point premium to media peers on 7.5x 2010E EV/EBITDA;
on our estimates, this falls to 6.6x by 2011. We think the valuation premium
should be higher than this given the group’s growth prospects and limited
exposure to structural risks.
Mediaset (Buy) – our only major Buy in European TV
Interview comments by Pier Silvio Berlusconi, deputy Chairman, are supportive of
the Buy case on Mediaset. MS will close FY08 with an increase in adspend (DB
0.1%), outperforming the rest of Europe by some margin. We expect the
downturn in Italy to be less pronounced than in other European markets. Italy
currently appears to be experiencing a shallow ad recession in which TV will
outperform, just as it did in 2001-3. We see MS's robust market position (65% ad
share) in the largest ad sector (TV share 50%+), as stronger than its peers. This
gives it pricing power when this is waning in other markets. MS's healthy 8% yield
and 6.5x 09E EV/EBITDA on trough earnings is attractive.

Table of Contents
BSkyB ................................................................................................. 4
Seeing the next leg of growth in HD.........................................................................................4
Sky H109/Q209 results .............................................................................................................5
The HD set top box subsidy initiative........................................................................................9
Mediaset........................................................................................... 13
Yell .................................................................................................... 14
Q3 and 9m results due February 5th ......................................................................................14