A firm that has raised money to invest in the media and entertainment world says arguments about Brexit are irrelevant for this sector, given the global appeal of UK brands and events.

For the past two years since the UK voted to leave the European Union, readers could be forgiven for thinking from the comments of the chattering class that the only industry that earns money for the country is banking.

Without trivialising the issues, however, a useful sanity check comes when one learns about the sheer size of the country’s media and entertainment sector, which means not just pop artists, news channels and films but all the festivals, production companies, technologists and writers who generate earnings not just within the country but on a global stage. The top 100 UK media companies (a term covering a vast field) generated a total of £87 billion ($116.5 billion) of revenue (source: Station12). There are plenty of large quoted firms but it is the unquoted sector that offers a particularly tempting proposition because it is relatively opaque and under-researched.

This is the argument of Patrick Bradley, owner and managing partner of Station12, a UK-based private equity investment group geared towards the media, entertainment and events space. Bradley, who has toiled in areas such as music production and has a background in investment, works with colleagues to sift through deals to find a handful that could prove valuable propositions over the medium term. He recently spoke to this news service.

“Consumers around the world are currently consuming more and more content and/or experiences, whether in the form of audio visual content, music, gaming, live events, education or knowledge – and consumers are now willing to pay or subscribe to enjoy these. We invest in the businesses owning or delivering the content and services to the sector and it is these businesses that the larger conglomerates buy to protect their market position,” Bradley said.

“We think that investors are beginning to understand how large and valuable this sector is, that the UK is a world leader and that it has significant export potential. Creativity has no connection to whether we are in the EU or not. The world will not stop buying British music, watching British films and television, reading our authors, playing games developed here or accessing British education,” he said.

“Content is king right now – new technology means consumers can access and stream content easily, creating new platforms such as Netflix and Amazon Prime. This has lead to huge growth in demand for new content, as consumers are looking for quality unique programming – and which of the platforms need to acquire in order to secure subscriptions from consumers. We are investing in the businesses that supply this content – the rocket fuel for platforms from ITV to Netflix,” Bradley continued.

Station12 is raising money in its Media, Entertainment and Knowledge Fund; it recently held its first closing with deadlines for subscriptions falling on 31 March and is now in a wider retail offering phase. Investors must put in at least £10,000, but on average it is getting subscriptions of £50,000. The fund is structured to put money into Seed Enterprise Investment Schemes and other EIS structures, carrying income tax, capital gains reliefs and some other reliefs. The fund can rise to up to £10 million in size over two years. It targets a return of £2.50 (before performance fees) for every £1 invested gross of tax reliefs within four to six years.

Bradley thinks he has hit on a rich seam of gold, and he may well be correct. When one considers how fictional characters such as James Bond and Harry Potter have made vast fortunes for creators and producers (in Ian Fleming’s case, his early death in 1964 meant that the film-makers and heirs to his literary estate made the really serious money), the financial logic is clear even at a less spectacular level of entertainment. And the long tail of agents, producers, technicians, distributors and arrangers are part of the story.

There are several media and entertainment funds around. One such fund, launched in the autumn of 2016, is the Edition Fund. Another player, operating in the venture capital sector, is Rooks Nest Ventures.

Investing in the space is about as far from 'passive' as one can imagine – this involves considerable research and time on the road.

“My experience has come from working operationally in the sector as well as then going on to be an investor. Like all things in life, knowledge is a key tool in mitigating risk and having been involved operationally across the sector and built companies from the bottom up as an investor, I think I and the team have both a unique and a very valuable set of skills. These skills can only be obtained by working in the sector,” Bradley said.

Bradley, a qualified lawyer (a background that comes in handy) has worked in and around the sector for over 30 years. He worked at PolyGram (now Universal Music), seeing it absorb a host of labels. Bradley has worked with Universal Studios, in private equity, and at Ingenious Media, becoming CEO of its venture capital business. His investments there touched global names and brands such as the Spice Girls, American Idol and Top Gear Live, to name a few.

Other team members at Station12 include Kelvin Reader (principal) and Fabio La Franca (business development). Station12’s advisory board is chaired by Lord Chadlington. (Lord Chadlington is described by the group as “a serial entrepreneur in public relations, integrated healthcare and corporate crisis management”, creating Shandwick, the PR firm, subsequently selling it to the Interpublic Group of Companies in 1998, and is now part of Huntsworth.)

Station12 adopts a number of tests for what investments it likes and avoids. For example, it will look at a pre-money valuation between £4 million to £20 million, assuming an average shareholding of 20 per cent; there must be a clear path to making a profit, with high sales growth. Station12 wants a seat on the board, and expects to exit on a multiple of earnings before interest, taxation, depreciation and amortisation. The target for each investment is more than seven times the cash multiple. The organisation is also prepared to invest alongside partners, and likes firms that can continue after a founder steps down – continuity is important.

Structurally sound

In the recent past, some investors who put money into film-related funds designed, so it turned out, purely to be tax avoidance schemes came unstuck. Bradley pointed out that the use of EIS and SEIS structures, which are legally robust, and with a clear underlying exposure to real investments, spoke for itself.

“We have always operated S/EIS as it was intended – supporting genuine new businesses who are trading for profit and where there is a risk of loss of capital. We welcome the new [UK] rules which will go a long way to excluding those operators who have sought to allow investors to cashflow or access tax breaks in structured products, which have diverted funding away from genuine start ups that should be receiving the funding,” he said.

That the scale of the overall market is large cannot be denied. A report by Barclays, the UK bank, earlier this year showed that the UK’s entertainment and media sector is forecast to be worth £72 billion by 2021 (citing data from PwC’s Global Entertainment and Media Outlook 2017-2021 report, up from £62 billion in 2016). The biggest contributor to growth will be advertising, accounting for a third of total revenue by 2021. Consumer spending on Netflix and other internet on-demand video revenue is set to overtake spending on cinema admissions by 2021.

Walt Disney Co, for example, last December agreed to buy the majority of 21st Century Fox’s business for $52.4 billion to help it compete with the technology companies which are tempting audiences away from traditional TV networks.