The Art of Valuing Media Brands8/22/2004 8:00 PM Eastern
Brands can be enormously valuable to the right kind of owner in the right markets. But valuation of media and entertainment brands is one of the more challenging tasks. It is an art and a science. The companies that succeed understand brands and how to tap their hidden value.
The concept of a brand is simple. A brand sets a product apart from the generic run of the mill. But it is difficult to untangle a distinct value that increases demand and makes customers willing to pay more from a product’s other attributes.
What’s clear in theory can be challenging in practice and requires a mixture of experience, facts and circumstances. While it can be relatively easy to predict, based on abundant sales data, that a branded soft drink could sell for a certain price over a comparable generic soda, with media and entertainment brands, it’s harder to find comparable unbranded products. As a result, the future emotional impact of the brand is more difficult to predict.
The brand of an entertainer — what sets him or her apart from others in the public’s mind — may change markedly over time as the star’s on- or off-screen image evolves. A celebrity brand may sustain diminished value as a result of negative publicity associated with events surrounding them (e.g., Martha Stewart). And brands of professional sports teams can go through the same swings of fortune as their lineups change.
Such unpredictability makes the value of media and entertainment brands somewhat uncertain. Unlike the logo on a box of detergent, these brands tend to be attached to particular persons or to creative organizations, which can lose their touch and just as mysteriously get it back.
Another media and entertainment wild card is the way in which technology creates methods to exploit brands, both old and new. A strong entertainment brand can make money in all kinds of formats — from theatrical releases and toys to clothes and CDs. But this rich mix can be highly unstable.
New entertainment media coming into the consumer market can help brands or hurt them, especially if they make piracy easier. Technology-driven products like cell phones with video-viewing capabilities usually have a greater impact on entertainment brands than on non-entertainment brands.
These uncertainties create plenty of work for experts who develop a reputation for spotting talent or concepts that can produce big returns or enduring value. But media and entertainment brand valuation is not all art and intuition. There is some science to it as well, with certain principles that can be applied.
When estimating a “reasonable” value for a media and entertainment brand, experts frequently consider the sources of brand strength — exclusivity, relevance, market recognition. Beyond being widely known and having market recognition, consumers have to know the brand for something that they value — and need — promising something that can’t be found elsewhere.
How do these principles, which apply to all brands, work in media and entertainment? Allan Adamson, managing director for Landor & Associates, says the Disney brand, for example, is still the strongest in the media and entertainment fields thanks to its well-differentiated relevance for families with children. Most studios, he said, don’t have very well-defined images, with Disney and Pixar being a clear exception.
Overall, Adamson says, network brands tend not to be as strong as those of the more narrowly focused cable channels such as ESPN, MTV: Music Television, Lifetime Television, Nickelodeon and Home Box Office (the latter, he contends, succeeds by defining itself as a more sophisticated alternative to regular TV).
Another form of exclusivity is franchise value — the value of exclusive rights to serve a particular market. This is a standard feature associated with sports teams and cable companies, and it may be highly valuable if consumers want the product or service and there are no competitors who can meet their needs outside the franchise framework (as satellite competes with cable).
Like other assets, a brand can represent different value to different types of buyers. The distinction rests on what different buyers can do to turn the brand into cash flow. This is the idea behind mergers that wed distribution with content. It is one reason why cable and broadcast firms have had an appetite for sports teams in recent years.
The implicit argument in a cable channel owning a baseball club is that it can better enhance cash flow from the team (as cable content) than the team would produce standing alone. A significant difference between fair market value and investment value is frequently the potential for synergies between a buyer’s new assets and the ones it already owns.
Consider the demand for content. Distributors have saturated the market and need content to distinguish themselves. The value of their franchises has eroded because of competition from other media — satellite encroaching on cable, cable encroached on broadcast TV — so they’re not as unique as they used to be. Owning the programming and owning the distribution is a great model.
On the other hand, skeptics say that a company that tries to cover too many bases, risks diluting its own brand strength. Whoever is right about the ideal form of a media and entertainment conglomerate, it’s fair to say that the prevailing view at any given time will have an impact on brand values.