Entertainment and Media: Markets and Economics Franchise Valuation

Valuation

Valuation in Theory Twitter, February 2014

Employing a well known theorem: $240M/0.016 = $15.0B www.msnbc.com/id/21458486/

Facebook A fortuitous bet by Microsoft. 2015 valuation is as much as $224B. Apx 1,500% return in 7 years. $104B IPO At $38/sh $224B

The Discounted Stream of Profits Model Is So 20th Century Aswath Damodaran (Stern School of Business, NYU, March 7, 2014) A couple of weeks ago, Facebook announced that it was acquiring WhatsApp for $19 billion. That sounded like an astoundingly high price to pay for a company with 55 employees and very little revenue in the most recent time period. While WhatsApp's messaging service has almost 450 million users, growing significantly by the day, the business model for WhatsApp, which emphasises that it accepts no advertising and charges users $1/year (after an initial year of free service) seems incapable of delivering the earnings that you would need to sustain the price paid by Facebook. Or is it? Facebook is valuing the increased user base. Facebook knows almost a billion phone numbers. How do we translate that into increases in the value of Facebook (not of WhatsApp)?

$135 Million Klimt, to Ronald Lauder http://www.nytimes.com/2006/06/19/arts/design/19klim.html?ex=1308369600&en=37eb32381038a749&ei=5088&partner=rssnyt&emc=rss

Uncertainty in Valuation: Valuation is a forecast

Sometimes the forecast is incorrect. Yahoo Valuation Yahoo! 2004 Gross Revenue: 3.60 billion Yahoo! 2004 Net Income: 0.84 billion Microsoft Price: $45B Yahoo! Revenue about $7B in 2008 If Yahoo! were essentially the same company in 2008, we’d expect ($7B/$3.6B)$0.84B = 1.63B profit per year. $45B offer = 27.6 times earnings! But, in first quarter 2008:

Markets Move Quickly to 2012 Yahoo was once the leading internet company but has been forced to watch as relative upstarts like Google (NASDAQ: GOOG) and Facebook race past it. Things have gone downhill for Yahoo ever since it unwisely rejected a $45 billion buyout offer from Microsoft (NASDAQ: MSFT) four years ago. Its current market valuation is now just barely over a third of the generous Microsoft offer. Unwise in retrospect. Was it unwise at the time?

Valuation Matters http://www.techcrunch.com/2006/10/09/google-has-acquired-youtube/

Valuing “The Right” Viacom had the value of the Google purchase as a foundation for its claim. http://mashable.com/2007/03/13/viacom-youtube/

That Viacom Lawsuit Real lawsuit for damages? Gambit for establishing bargaining position? Warner Music – YouTube, 2005, revenue sharing arrangement. A share of the ad revenues Warner “channels” set up on YouTube.

6/23/10 -- Safe Harbor Defense

Google Inc has settled a landmark copyright lawsuit in which Viacom Inc accused the Internet search company of posting its programs on the YouTube video service without permission. The settlement ends seven years of litigation that drew wide attention from Hollywood, the music industry and Internet companies, and which tested the reach of a federal law designed to thwart piracy while letting people find entertainment online. "This settlement reflects the growing collaborative dialogue between our two companies on important opportunities, and we look forward to working more closely together," Google and Viacom said in a joint statement "Content providers and service providers are finding it more constructive to work together rather than litigate," said June Besek, a Columbia Law School lecturer and intellectual property specialist. "Content providers need a Google to filter material, and Google needs content to attract people to its websites.“ In April 2012, Google announced a licensing agreement with Paramount to bring nearly 500 movie titles such as "The Godfather" trilogy and "Ferris Bueller's Day Off" to YouTube and Google Play in the United States and Canada.

A Bid that Seemed Too High *

This is Vertical Integration

Realized Market Valuation http://www.nytimes.com/2010/08/06/sports/baseball/06rangers.html

NHL 2009,2014 – Value Seems Disconnected From Income Team/Principal Owner Value ($M) Income ($M) New York Rangers/Cablevision Systems $ 263 -6.92 Dallas Stars/Thomas Hicks 254 5.63 Toronto Maple Leafs/Larry Tanenbaum 241 13.84 Philadelphia Flyers/Comcast-Spectacor 262 3.55 Detroit Red Wings/Michael Ilitch 266 -3.70 2014 1,300 1,100 1,000 570 625 420 750 800 360 330 370 580 400 825 451 365 565 425 475

Baseball 2009, 2014 Note the large variance of the valuations.

National Football League (2009,2014) Spectacular brand new city owned stadium 2014 3,200 2,400 2,600 2,100 1,800 1,850 1,750 1,225 1,700 1,450 1,500 1,250 1,120 1,100 1,400 1,350 1,375 1,300 1,160 1,330

MLB vs. NFL (2009) The interesting comparison is the variance, not the mean.

Basketball 2009,2014 Franchise values have exploded. New $24 billion television contract 2014 2,500 2,600 2,000 810 915 1,250 1,150 910 1,700 1,000 920 1,175 700 850 900 800 875 1,300 855 940 Basketball 2009,2014

Not Just an American Thing Manchester United: English Premier League Soccer: Revenue - $225million: Value - $1000m (2002) And Manchester United can count a world-wide fan base of over 50 million zealots recruited to the cause. The Manchester United Food & Beverage Group (MUFB) has opened a restaurant in the Chinese city of Chungdu. Eventual plans could see up to as many as 100 restaurants opened in the Asia market over the next ten years. MU branded football (soccer) restaurants selling shirts, posters,videos and novelty gifts - as well as food - are planned for Singapore, Malaysia, Hong Kong, Thailand, Taiwan, South Korea, the Philippines, Indonesia, Japan, India and Brunei with the stated aim of cashing in on the lucrative interest many Asian nations (estimated at 17 million fans) hold for the English game.

World Football: 2010,2014 2014 2,810 3,440 1,331 1,850 691 856 3,200 868 850 580 514 … 307 483 326 599 863