Page 42 - Intangible value

IS IT POSSIBLE TO INVEST IN INTANGIBLE VALUE?
CO-FOUNDER, MANAGING PARTNER TIMO ARGILLANDER / IPR.VC MANAGEMENT OY
Intangible value creation has great potential but, as Ali-Yrkkö and Pajarinen write in their article, measur- ing its economic signi cance is very dif cult.
This article looks at intangible investments from the point of view of the media. According to Ali-Yrkkö and Pajarinen, over one fth (22%) of intangible capital in the USA consists of art, entertainment and copy- rights. Their share in Finland, Sweden and Germany is only around a few per cent. In other words, it can be concluded that companies in the United States have managed to commercialise the media much better than European companies. In principle, internet and digital distribution open up new opportunities for me- dia content producers even in small countries, but are we able to take advantage of these opportunities?
According to the consulting company PwC, the worldwide market of digital media and entertain- ment was $616 billion in 2013 and will grow to $994 billion in 2018. The supply and demand of digital- ly distributed content increase, and at the same time entirely new types of content, such as content formed by data materials, are created. The problem that established media companies have is the move from the healthy pro t margins in the old business model to digital media, which has smaller pro t margins. The slow speed of this change gives the new digital media companies an advantage in mak- ing use of the growing digital market.
It has been stated in different contexts that it is more dif cult to nd nancing for contents than it is for physical investments that provide collateral value. The Finnish content sector usually operates as a subcon- tractor carrying out project business, without develop- ing any rights of their own that could be copied.
At the same time, the technical distribution platforms in media have become popular with investors, both in
Finland and internationally. As a consequence, a lot of media technology companies have been created, a great deal has been invested in them and their valua- tions have soared as investors have been looking for the next great breakthrough.
In other words, the technology in the media attracts investments, but the content does not. However, the development is at a turning point in the USA, where operators such a Net ix and Amazon have started to invest heavily in content, whereas previ- ously they were more like technological platforms. Disney, which invests in its content rights more than its competitors, is the most successful of all of the large media companies.
With regard to investors, there has been less com- petition in investing in content than there has been in investing in technology, and the appreciation of content has not increased as opposed to investing in technology, which seems to be showing signs of becoming a bubble. The content business is also easily scalable, as even international distribution and the copying of contents through digital chan- nels is almost free. The greatest and perhaps least known bene t from investing in content is related to fast circulation of capital. Especially in the TV and lm business, the majority of the revenue is re- ceived within 1–2 years of publication. Because the investment starts to return soon in models based on royalties (in normal investing in capital, there will not be revenue until several years later), the return on investment will be high.
The dif culty of measuring intangibility and its val- ue in money easily drives investors away from media content investments. Investors should see content business as a scalable area that provides good rev- enue and whose operation and principles are worth familiarising oneself with.
The author is building an IPR.VC Fund specialised in media contents
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