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16 May 2018

Growth benefits generations

May issue editorial by James Mawson, editor-in-chief

Author: James Mawson, Editor-in-chief

The world has enjoyed a remarkable period of economic growth for as long as most people still working have been alive. A glance at the annual percentage growth in global gross domestic product (GDP), according to the World Bank, shows positive change in every year bar one (2009) since 1961. Demographic change, globalisation and technology have combined to make more people wealthier than ever before. Arguments about the value of GDP as a metric or relative inequality aside, it has been a boon for many people.

Rising GDP and population growth in most countries has been a positive tail wind for the media industry, too. A look at the main US-based media companies’ market capitalisations over the past 20 years of the internet would seem to assuage the initial fears of their demise or disruption by the new economy.

A glance back to 1997-98 and AT&T was $75bn then compared with $230bn at the end of February, Time Warner was $18.2bn versus $74bn now, Disney was $54.3bn ($165bn now), Verizon $58bn ($200bn), Lionsgate/Starz $72m ($6bn), Cox $729.7m ($34bn, according to Recode analysis), and Comcast was about $25bn but is now about $184bn. Their corporate venturing groups, where active, are some of the largest and most respected in any sector and have been part of the large value creation seen by their parents.

But what of the techies? Apple was $2.7bn in market cap when Steve jobs returned in 1997 but in late February was at $908bn and is widely expected to reach $1 trillion. Google had just been launched in 1997 and was $794bn in February, while Amazon had floated then at a $438m market cap and was $736bn recently, and Facebook was probably not even an idea in Mark Zuckerberg’s head but is now worth about half a trillion dollars.

Add in Microsoft, as its $26bn LinkedIn purchase in 2016 pushes it further into media, and these five companies are worth about as much as the rest of the US media sector. Then factor in Chinese techies’ market caps. Tencent was launched in 1998 and is also worth more than $500bn. Similarly, Baidu and Alibaba and Toutiao are reshaping the media landscape arguably more than most traditional media companies.

The value creation in media has been flowing mainly to new groups while the established have also risen, just less dramatically.

Richard Waters at the Financial Times last month argued that while the stock market values of Amazon, Google parent Alphabet and Microsoft were all within a percentage point of each other, at close to $740bn, “there has been no shortage of analysts available and willing to make a case why each of these companies is on course to hit the $1 trillion mark sooner rather than later”.

He added: “A platform shift is under way in the tech world, and it is being led by companies other than Apple. The mobile revolution that was touched off by the iPhone is 11 years old. The computing era is coming into sight. It is one that depends heavily on the cloud, with artificial intelligence (AI) the driving force behind the next generation of advanced applications.

“Between them, Amazon, Microsoft and, more recently, Google, have seized leadership in this area [from a US perspective]. Led by Google, these companies have also developed the strongest capabilities in AI. It is not clear who the biggest winners in the AI era will be, or where the most value will be created. But there is a good chance that, before it is over, it will give rise to at least one trillion-dollar tech company.”

While it can hardly be said that traditional media companies have been left behind by the past 20 years, the next few decades could see them in a different league from those that do grasp the AI mantle, which creates different strategic challenges for all parties.

Japan-based SoftBank, using its near-$100bn SoftBank Vision Fund,  has pushed hard into the tech platforms that could drive and benefit from AI and the general push towards singularity – a moment when machines reach a level of intelligence that exceeds that of people.

Separately, Naspers, a South Africa-based media company that invested in Tencent a few years after its formation, is now arguably more of a diversified e-commerce, media and education company given some of its recent investments. Its valuation might still fail to include all its underlying assets, but compared with its R132.5m (now $10.7m) market cap at its April 1994 flotation, Naspers at R1.34 trillion now is exponentially more valuable.

The importance of venture to strategic decision-making means one thing is clear – there will be more activity. Bob van Dijk, CEO of Naspers, for the GCV Powerlist 100 nomination process, said: “Naspers looks to invest in entrepreneurs around the world that are building leading businesses addressing big societal needs. Naspers Ventures, led by Larry Illg, has invested in several new segments for us doing just that. The new areas of investment include education, food, health and agriculture, and continued investments in some of these segments will help to build the future of Naspers.”

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