Media Forum: Should SMG be broken up now?

campaignlive.co.uk, Friday, 28 July 2006 12:00AM

Does Scottish Media Group need to sell its assets while it can, Alasdair Reid asks.

You could always appreciate the reasoning behind Scottish Media Group's strategic expansion in the 90s - everyone could see that SMG had to evolve beyond its historical role (and its geographical territory) as the owner of the two Scottish ITV franchises. Some thought these were destined in the long run to be absorbed into the greater ITV, so if SMG was to survive the loss of its crown jewels it had to diversify.

Thus the acquisition of Primesight, Pearl & Dean and Virgin Radio. Here, it was hoped, was a UK cross-platform media company fit for the 21st century. A small, but perfectly formed, media conglomerate. But although it set up a group sales structure called SMG Access, the impression remained that it struggled to leverage its assets by striking multimedia partnership agreements with major clients.

The chief executive, Andrew Flanagan, has now paid the price for years of SMG underperformance - not least where the group's share price was concerned. In the ten years of his tenure (he took over in May 1996), the price has declined by 40 per cent. Last week, a group of powerful City investors decided they'd had enough.

Will SMG now be broken up? All of its assets, one could argue, are flawed in some way. Primesight is dwarfed by the likes of JCDecaux, Clear Channel, Via-com and Titan in the outdoor market, and Pearl & Dean is number two to Carlton Screen Advertising. Scottish Television is, well, just too Scottish. Virgin is perhaps the exception - it's up there with the leaders in its sector.

But some observers argue that even Virgin would be made to work harder by one of the consolidated groups in the medium - Chrysalis, GCap or Emap. Jonathan Barrowman, the head of radio at Initiative, concedes there has always been speculation about whether SMG would want to sell. But he argues that the Virgin Radio brand is so strong that SMG can quite comfortably continue to go it alone.

He says: "It's due in some part to the legacy of the broader Virgin brand that it continues to punch well above its weight, but it makes good use of that brand when it comes to selling itself to advertisers. The management and sales team there is excellent."

You could argue the same about the outdoor assets, Roy Jeans, the chief executive of Magna Outdoor, says: "The sales team is extremely good and it has done well recently because of the short-term issues faced by other media owners. It has also invested, increasing the number of six-sheets it has from 10,000 to 13,000 and also in Mega-fours. It has also increased the number of backlit sites from ten to 100 in the past year. All of which adds up to an impressive investment programme. It's a really good operation, delivering what advertisers want in the market."

Stuart Feather, the joint managing director of the Edinburgh media agency Feather Brooksbank, is able to offer a particularly Scottish perspective. He says it's imperative, for the good of the body politic north of the border, that SMG retains control of its ITV franchises. It must do anything that will help it to achieve that aim - and that includes thinking about selling assets: "A strong SMG is important for Scotland - and its diversification strategy was designed to keep it strong. It's a great shame that hasn't worked out over the past few years. The Scottish political system needs a mouthpiece - and that could be compromised if STV were constrained by the demands of a wholly consolidated ITV."

Chris Hayward, the head of broadcast at ZenithOptimedia, agrees that SMG now faces huge challenges. "It's true it occupies a strange position in the market," he says.

However, he would like to see it continue to fight its corner. He concludes: "I firmly believe in a cross-platform sell. The way media plans are conceived these days - built up from individual components - it makes sense for a media owner to be able to cover off as many of those component parts as possible. I think SMG has been quite astute in the way it has developed its media properties and its structure reflects that.

"The problem has perhaps been that, because its strongest properties - the STV and Grampian franchises - are in Scotland, the focus has continued to be on Scotland. To sell cross-platform across the UK on a comparable basis, it would have to ensure that the TV component was similarly provided for. It's a huge challenge."

NO - Jonathan Barrowman, head of radio at Initiative

"You can't fault SMG in my view. Radio as a medium is down currently but Virgin seems in good shape. I think you could find more quibbles with the ways that some of the other big brands in the radio market have been managed recently. SMG seem to keep doing the right thing. I can't imagine what someone else would do that would be better."

NO - Roy Jeans, chief executive, Magna Outdoor

"Primesight is a really good operation, delivering what advertisers want in the marketplace. So from a purely quality point of view I can't see there being a tremendous advantage in Primesight being sold. They are already punching above their weight in our view. And I can't see there being easy money to be had from the break-up of SMG."

YES - Stuart Feather, joint managing director, Feather Brooksbank

"The other assets are there to safeguard the ITV franchises. So if it was necessary to dispose of some of its traditional assets to protect its Scottish television properties, then so be it. SMG doesn't seem to have generated much in the way of cross-discipline benefits or savings. Not as much as was hoped."

NO - Chris Hayward, head of broadcast, ZenithOptimedia

"Though it has some nice pieces in the jigsaw, the picture is uneven. But having said that, it has been successful in my view and it has consistently punched above its weight so it would be perverse of me, especially given the fact that I believe, in principle, in the cross-platform sell, to argue that it should no be broken up."

- Got a view? E-mail us at campaign@haynet.com.

This article was first published on campaignlive.co.uk

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