MUMBAI: New and non-traditional market entrants seeking to establish a foothold in the U.S. entertainment and media (E&M) market will trigger merger and acquisition (M&A) activity, according to PwC.

With the strong valuations for content owners and recent changes in online gaming regulations combined with tremendous corporate cash reserves and uncommitted private equity (PE) investment capital, PwC believes the catalysts are in place to fuel E&M deal activity during 2012.

PwC?s US entertainment and media transaction services partner Bart Spiegel said, "The lines between media and technology are blurring as technology companies are quickly changing the media landscape and challenging existing business models of traditional E&M companies. Additionally, the expected IPOs from social media companies may allow them to exert greater E&M market influence. With increasing interest from non-traditional E&M players, E&M companies will need to be more aggressive in pursuit of deals as new market entrants increase competition for prime companies."

In 2011, total completed and disclosed E&M deal value increased to $52 billion from $27 billion in 2010, based on Thomson Reuters data. However, 2011 included $27.3 billion in value related to the Comcast and NBCU transaction. When excluding this mega deal, completed and disclosed deal value remains flat year over year, however average deal value increased 25 per cent from $128 million in 2010 to $160 in 2011.

Total E&M deal volume decreased 14 per cent from 801 deals in 2010 to 687 deals in 2011.

Furthermore in 2011, US E&M companies were also active in M&A abroad. For US E&M companies buying overseas, completed deals with disclosed value increased 28 per cent to 46 deals ($5.4 billion) from 36 deals in 2010 ($4.5 billion) spearheaded by large publishing and broadcasting acquisitions.

In addition, there are 31 announced and pending US outbound deals as of December 2011 with a total expected deal value of $5.3 billion with $4.1 billion attributed to a music acquisition.

PwC?s US entertainment and media transaction services leader Thomas M. Rooney said, "Content acquisition has risen to the top of the agenda with the accelerated adoption of digital media consumption and the rise of over-the-top services. Companies are primed to seek out domestic and international targets to expand their libraries and push their content internationally as the shift to digital unfolds." In addition, the continuing transition to digital media consumption is changing the landscape and delivery of consumer advertising, which could lead to M&A activity in the advertising sector.

According to PwC, international TV and cable markets will continue to present attractive M&A opportunities for US networks to expand their footprint via acquisitions or collaborative partnering. For vertically integrated companies with both content and distribution, this allows another outlet to monetise their library and formats for international consumers.

In addition, PwC expects recent legislative changes surrounding online gaming could present untapped business opportunities for both corporate and financial buyers due to the substantial estimated size of the U.S. online gaming market. Even more significant are the potential partnerships online gaming offers with social media.

"The legalization of online gaming could be a real game changer in 2012 if state regulators move rapidly to establish online gaming regulations. Land-based casino operators, gaming manufacturers and suppliers, and social media are all watching these developments closely and will move aggressively to stake a first-mover advantage in this potentially lucrative market," added Spiegel.

According to PwC future E&M M&A activity and industry considerations include:

Over-the-top (OTT) / Content providers ? As traditional distributors continue to absorb the cost and strain on their network due to increased bandwidth use of OTT services, they may be forced to evaluate alternative business models including bandwidth pricing models, vertical integration, digital lockers, a la carte programming options and partnerships with studios to modify current windows. In addition, content owners are seeking out partnerships with cable and satellite providers to allow exclusive OTT access to cable and satellite subscribers. Non-traditional media companies are and have been looking to increase spending on future content acquisition and development to establish themselves as major players in the E&M sector.

Digital Lockers ? In addition to OTT access, consumers continue to explore their content storage options to store their music, movies and various downloaded content via digital lockers. This allows for remote access to personal content that can be viewed through multiple media devices from smart phones to personal computers or tablets. As consumer interest grows for digital lockers storage, companies are positioning themselves to meet consumer demand and generate new revenue streams.

Video games ? PwC anticipates that the video games segment growth will be driven by online, social media and wireless gaming and expects valuations in these categories to remain strong based on the increasing willingness of consumers to spend on downloadable content and micro-transactions. Increased bandwidth and access to social media along with consumer demand will continue to drive acquisition of niche developer studios and smaller publishing companies with online and social media gaming expertise. Liquidity by the big players is also expected to drive M&A activity in 2012.

Divestitures/spinoffs ? Not unlike other industries, E&M companies have historically and will continue to evaluate strategic changes to their portfolios as the industry continues to evolve. Sellers, especially those preparing for divestitures and spin-offs, will need to thoroughly vet every aspect of the asset from financials to operations to ensure there are no surprises or potential issues that could derail their strategy and damage shareholder value.

IPO market ? While volatility in the equity markets has created limited visibility into the IPO market, PwC expects the E&M offerings will be led by social media companies in 2012. IPO-generated cash may lead to increased M&A activity in the social media arena or other E&M subsectors as they continue to grow their customers? social media interaction via gaming, content and content distribution.