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Private equity firm with Disney roots mines media disruption for opportunities

➤ Blurring lines between the media and technology sectors are creating investment opportunities in the theatrical exhibition industry.

➤ Large, stable markets offer pockets of growth ripe for investment as nascent technologies reshape legacy business models.

➤ Nontraditional, event-driven uses of theater spaces and new, monetizable products will drive new investment opportunities.

Shamrock Capital Advisors LLC, one of the longest-running investment houses in the media and entertainment business, grew from the 1978 family investment fund for Roy E. Disney, nephew of Walt Disney. Today, the firm's areas of investment focus include data analytics as well as technology and advertising for the theatrical distribution sector. Shamrock also recently launched a fund dedicated to acquiring the copyrights and royalty streams of existing content across film, television and music.

S&P Global Market Intelligence sat down with Shamrock Capital partners Michael LaSalle and Andrew Howard to discuss the investment trends in the content, distribution and exhibition businesses. What follows is an edited transcript of that conversation.

S&P Global Market Intelligence: What is driving Shamrock and other private funds to invest in the media and technology industries?

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Shamrock Capital partner
Andrew Howard
Source: Shamrock Capital

Andrew Howard: With disruption, hopefully, comes a ton of opportunity. I think you're really seeing it across both landscapes, but the media stalwarts are responding to the growth and enterprise value creation and the data accumulation from the technology guys.

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Shamrock Capital partner
Michael LaSalle
Source: Shamrock Capital

Michael LaSalle: There's a little bit of a race to scale right now. [Some companies are] in a position to have to get enough scale where you can be a stand-alone company that has an offering directly to consumers. That was the entire thing that drove the Disney-Fox deal. Also with AT&T, Time Warner and DIRECTV, and why Comcast is in there trying to play to everyone. They're trying to figure how to get enough scale because the consumer is not going to buy 32 different subscriptions to piece together a bundle. If you can't get that big, it's a different position where you are going to be totally reliant on third-party platforms to monetize your content.

Within your sectors, what are some of your most important investment criteria?

Howard: One of the key things is a large, growing market, and sometimes you have to peel back the onion to really see that type of growth. Take theatrical exhibition. When you start peeling back the onion you can find some nice investment opportunities, which we have been successful in doing, whether it be 3D between 2008 and 2012, cinema advertising from 2013 to today, to research and analytics. There's opportunity in a large, stable market where some parts are growing. So specifically, [the investment strategy] really starts with a company's management team, then it goes to a large, growing market, and then it is really the fundamentals of your business plan and making certain the unit economics really play out.

Why do you think tech-focused companies are showing so much interest in the theatrical industry?

Howard: For Silver Lake Partners in particular, [which invested in AMC Entertainment Holdings Inc.] they're partnering with the largest global player in the space. So they're not just thinking of it as going to a movie theater to see a movie, they're thinking about it as a global distribution channel. When you have something like Disney and Fox coming together, they are going to have to work very closely with AMC, the largest chain, because of the heft that they carry. And there are many ways AMC will extend their business, whether it be in the lobby, or whether it's thinking about gaming, whether it's thinking about interactivity with [artificial intelligence] and [virtual reality].

So you think alternative content experiences like augmented reality, virtual reality, sporting events and other nonfilm experiences will be important to the future of theatrical exhibition?

Howard: No one's cracked it yet. They've been talking about it now for 20 years because at the end of the day you're only filling seats 30% of the time. So if I could just move the needle, boy am I going to make an impact on the bottom line. That's not lost on them. I don't know if AR or VR or seeing a live sporting event will take hold, but I do believe that there's room for a date night. I do believe millennials will spend if they're given a great experience. I do think there's a lobby you could do so much in. if you're going to see "Star Wars," you should be coming out and having a pop-up box there with the opportunity to buy a lightsaber or download the music. What you're really thinking about is a different use of that [space].

You recently started a fund to acquire existing content and intellectual property. What is the strategic motivation there?

LaSalle: Whether you're talking about film, television or music, 20 to 30 years ago there were very specific distribution channels you could monetize in, and there were people taking economic rent along the way because the distribution channels were very fixed. Now there are multiple ways to monetize. There's a broader shift to the value being in the content versus in the distribution ecosystem. But equally important on that fund, that is a really inefficient market when there are people who want to sell, whether it's their royalty streams or the actual copyright, and there's not a robust market of buyers and sellers. It's a very cottage industry, a very insider industry, and our team has a unique network of relationships to not only know and be a party to that marketplace but then because the data that they have you can have unique insight into what the real value of it is.