Special Report – Sun Valley Over Shadowed

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A week long long treat at the Sun Valley, Idaho. Wow! Sounds amazing doesn’t it ?

For the past twenty odd years or so the meet-up had its glitz and glam. Since 1983, the Sun Valley Conference has been sponsored by the media investment-banking boutique Allen & Co. It is called a ?summer camp for moguls.?

At the first meeting, only 35 businessmen were present, but this number grew rapidly as the location turned out to be an ideal place for a short vacation combined with some private business discussions.

These days, the meetings have expanded and a few hundred participants attend each year in July. This includes the wives and children of the invited members, who can amuse themselves with tennis, hiking, biking, kayaking, golfing, or a variety of other activities. Since at least half of the guests are billionaires instead of millionaires, most of them come flying in on their own business jets. During the event, presentations are given about a variety of (economic) topics.

It?s the kind of place where a passing interest can blossom into a deal, according to LeCour, the investment banker.? ?You get all these powerful people to go on a retreat in the mountains together,? he said. ?It?s perfect for trading and transactions.

As amazing as it sounds, its not going to be all fun and games for the tycoons.? As media moguls gather in Sun Valley, Idaho, this week, they expect to spend less time ogling hot, young tech businesses and more time discussing how they can preserve their own.

Not so Usual

Investment bank Allen & Co.’s annual media and technology conference swings into action Tuesday as the balance of power between the media and tech industries, which has been tipping for years, heads for a full-on flip.

As mentioned the meet up is all hoity toity and major media players would brace the situation with their presence.? True to their stature they would go to Sun Valley eager to court promising start ups. Now, those onetime start-ups are upending traditional forms of distribution, forcing media companies to shift focus toward protecting their turf.

“Two years ago, people would have come to Sun Valley saying, ‘We have to get better in digital, ” a longtime attendee said. “Now they are saying, ‘Digital is important and we’d like to make money.’ ”

Several attendees said they don’t expect to be buzzing about a new attendee as they have in past years, when little-known companies that emerged into household names, such as YouTube, made their Sun Valley debuts.? Those big names once went to Sun Valley eager to court promising start-ups. Now, those onetime start-ups are upending traditional forms of distribution, forcing media companies to shift focus toward protecting their turf. Several attendees said they don’t expect to be buzzing about a new attendee as they have in past years, when little-known companies that emerged into household names, such as YouTube, made their Sun Valley debuts.

On the plate

This years Sun Valley has a lot on its plate, ranging from selling, buying and strategy discussions.

?I talk to some bankers inside of big media players and they are seeking to refine their models and shed some things that they once thought they needed to own,? said Anthony LeCour, a New York-based media investment banker formerly at LaidLaw & Co. who is now a consultant. ?We?ll see a lot of deal-making and it?s not going to be all monster deals. There will be a lot of small, sweet spots.?

Shedding weight

This year for a change the moguls are planning on shedding some weight. The top on the selling list is Hulu.

Hulu

Hulu’s controlling owners are exploring a sale of the venture as they rethink their digital strategies and focus on maintaining profits in their core businesses.

Hulu has reached out to 10 to 12 potential bidders through its bankers, a person familiar with the process said this month. Google Inc., Yahoo Inc. and Microsoft Corp. have met with Hulu bankers Morgan Stanley and Guggenheim Partners, said the person, who wasn?t authorized to speak publicly.

Discussions with eight to 10 potential buyers, including Google Inc., Yahoo Inc. and Microsoft Corp., are under way and will continue at the conference informally this week, people familiar with the matter said.

Hulu, which scuttled an IPO that had been projected to value the company at $2 billion, is an asset likely to appeal to a large company like Mountain View, California-based Google, according to Shahid Khan, chairman of MediaMorph Inc., a New York-based media advisory and venture firm.

?There?s a big move towards premium programming, which is what Hulu has,? Khan said. ?Google is the best candidate to buy Hulu. They can monetize it a lot better, they have a strong ad team and much better ad technologies. Plus, they have a lot of cash.?

Google?s founders, Sergey Brin and Larry Page, and its chairman, Eric Schmidt, are on the list of Sun Valley?s attendees.

G4

NBC Universal has been in talks to sell G4 to Ultimate Fighting Championship, the mixed-martial-arts league, people with knowledge of the situation said last month. The channel may fetch as much as $600 million in a sale, according to analysts including David Joyce of Miller Tabak & Co. D?Arcy Foster Rudnay, a Comcast spokeswoman, declined to comment.

Comcast, which in January acquired control of NBC Universal from General Electric Co., might consider selling other cable networks in addition to G4, according to Khan.

?They have a lot of genre overlap as a result of the acquisition,? Khan said. ?They are going to have to do a lot of rationalization of the networks.?

Acquisitions

Takeovers of technology and media companies globally climbed 38 percent in the first half to $51.1 billion from the $37 billion announced a year earlier.

Overall, concerns about stock markets and slowing economic growth are taking a toll on deal-making, with takeovers in June tumbling to the lowest level in eight months. Still, media stocks have been holding up. The Standard & Poor?s 500 Media Index has gained 15 percent in the first half, compared with 5 percent for the S&P, which is down 1.8 percent from its April 29 peak this year.

AMC

AMC Networks Inc., spun off from Cablevision Systems Corp., could become a takeover target for other media companies or private equity firms, said Tom Eagan, an analyst at Collins Stewart LLC in New York.

?A larger media company with a bigger ad sales force could probably take advantage of AMC,? Eagan, who predicted a takeover could occur in 2012 at the earliest, said last week.

Others

California-based pioneer of digital- video recorders, may be of interest for a company such as Google or Microsoft, according to Janney Montgomery Scott LLC.

In the cable industry, Insight Communications Inc. has hired Bank of America Merrill Lynch and UBS AG to explore strategic options including a possible sale.

Cable billionaire John Malone, a Sun Valley regular who is expected to attend again this year, is trying to buy the bookstore chain Barnes & Noble Inc. Malone?s Liberty Media Corp. offered $1 billion in cash for the company in May.

Conversation turners

This year, the name expected to spark much conversation is Netflix Inc., the online and by-mail movie and TV-show rental business that media companies are grappling with.

Major media companies, such as CBS Corp., have struck deals with Netflix in the past year. But executives who will attend the conference expressed concern that Netflix’s streaming-video service, which has more than 20 million subscribers, could eat into their businesses.

There’s little evidence so far that consumers are substituting Netflix for traditional cable service. But media companies fear that Netflix could push consumers in that direction, jeopardizing the tens of billions of dollars a year that the companies earn from distributors.

Netflix in March said it purchased an original series, “House of Cards,” that will air first on its service. The company is considering buying more original content and picking up current series, people familiar with the matter said.? Netflix executives in the past have said their company doesn’t compete with traditional television service because Netflix doesn’t offer sports, news and current seasons of TV shows. But at a conference earlier this year, Netflix CEO Reed Hastings said the company will face competition from cable companies’ online video offerings.

Mr. Hastings isn’t expected to attend the Allen & Co. conference, but Netflix Chief Content Officer Ted Sarandos will, a company spokesman said.

Dimming gold

All said and done, the topic which will overshadow the meet up would undoubtedly be the new tech ?blings.?

Tech companies, including games site Zynga Inc. and deals site Groupon Inc., in recent weeks have announced plans to go public with valuations expected to be in the tens of billions of dollars, fast approaching or even dwarfing the market values of old-line media businesses.? This makes those giants nervous as they are afraid they might loose their grip.

To make it more clear lets delve deeper into the tech-market.

Investors have developed a lust for the latest technology IPO and apparently ditched some of their former darlings.

Amid the heavily hyped chatter on IPO?s from Zynga, LinkedIn and Facebook, veterans such as Apple and Google were conspicuous laggards during the second quarter. The Nasdaq Composite index ended the quarter in negative territory, compared with gains for the rest of the market.

“The reality is Apple and Google are large-cap growth stocks, but they’re not trading like such at the moment,” said Paul Bard, director of research at Renaissance Capital, an IPO investment-advisory firm. “Investors aren’t treating them as growth stocks. Instead, they’re placing their bets in this new wave of Internet companies.”

Investors in LinkedIn are paying about $21 for each dollar of the social-networking website’s estimated 2011 revenue. Yet they are paying less than $6 for each $1 of expected revenue at Google and Apple.

The buzz over the latest crop of tech newcomers has been palpable. LinkedIn ended its first trading day with a stock-market value of about $9 billion. On Friday, Zynga filed paperwork with regulators for a $1 billion IPO, although the final amount could be considerably different (for more details on the IPO check the post Zynga: the untold story). Facebook is aiming for a stock-market value of more than $100 billion, placing ahead of the likes of Cisco Systems and Hewlett-Packard.

It seems hype for one is hinder for the other.

Abandoned

Mr. Mark Luschini chief investment strategist at Janney Montgomery Scott said “They’ve been sort of unsponsored, if you will, almost orphaned in the marketplace,” (referring to the tech giants) I think people are looking at these things as if they’re some sort of old-world victim of some new-age technology that make these franchises no longer viable. But I think it’s just the opposite.”

Cheap

By one measure, tech stocks are at their cheapest compared with the rest of the market in almost 20 years.

For the past four months, the price-to-earnings ratio of the tech sector has been below that of the S&P 500, according to estimates compiled by UBS. That’s the first time that has happened since 1992. As of last week, the S&P 500 was trading around 12.4 times one-year forward earnings, and tech was fetching 12.1 times, UBS estimates. Apple stock is now fetching about 12 times earnings. Google is trading at about 13.8 times. Intel and Microsoft have P/Es of less than 10.

Jonathan Golub, chief U.S. equity strategist at UBS, thinks now is the time to jump into tech stocks, pointing to a number of tech names he calls “unusually cheap.”

Phil Orlando, equity strategist at Federated Investors, says investors now have a rare chance to buy some formerly expensive stocks at reasonable valuations.

“The cheapness is an opportunity to buy,” Mr. Orlando says

Earnings

Burt White, chief investment officer at LPL Financial in Boston, notes that the tech sector’s earning are not pleasing to shareholders. “That’s not what we expect from tech,” Mr. White said. “The market is just concerned that it’s not going to get the growth rate from tech that we thought we would.”

Investors are regularly willing to pay top dollar for earnings if they think a company has significant growth potential. But with that seemingly not the case for former high-fliers like Cisco and Hewlett-Packard, their shares are among the worst performers this year among the 30 Dow Jones Industrial Average components.

Cisco has slid 22% through Friday, H-P has dropped 12% and Microsoft has lost 6.8%. U.S. markets were closed Monday for the Independence Day holiday.? “If growth doesn’t materialize, these valuation multiples can come crashing down,” Mr. Bard says. “But if growth materializes, history has told us that somewhere down the road the multiples will normalize to levels of more mature grow

People are wondering who to blame. Are the big corporations to blame as they have not been innovative enough or are the investors to be blamed as they are have started to create a superficial bubble, which might engulf the whole tech sector.

International views

Arabiangazette.com spoke to tech experts around the globe regarding the Sun Valley get together and the overall gloom hanging over it.

Jeanne a tech manger from Singapore told us that she was optimistic about the weeklong summit. ?the tech sector has not been performing well, hopefully all the big guns under one roof could come up with a profitable solution.?

?My stocks have not been doing well for a while? a tech investor from California Mario (name changed) spoke to arabiangazette over the phone. ?all of us are expecting some good news coming out of this week long get together. The biggies have to revamp their strategy and make our investments worthwhile.?

“This is just a phase. Investors will understand that there is always stability in the veterans”? Rahul a Tech analyst from India told us.”The market will correct itself.”

This get together is of vital importance to the tech and media sector. Some might even go the extent of saying that the growth and survival of some of the giants are at stake.

While the sunbathing might be done by the families the moguls be brainstorming on how to not get burnt.

Source: Wall Street Journal, BBC, Bloomberg

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