Micropayment model is the future – says Lord Grade

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Pay-as-you go TV provides the future for content providers, according to Michael Grade, speaking in the half-yearly technology, media and telecommunications (TMT) sector report, The Wire, from Clearwater Corporate Finance.

The former chairman of the BBC and ITV argues that television’s future lies in the growth of the micropayment model, where consumers purchase content in a way akin to music through iTunes. With industry regulator Ofgen saying that 35 per cent of adults now watch catch up TV online, it is evident that the way that content is consumed is changing and providers must adapt.

Michael Grade said: “The great leap forward over the next few years will be in the technology of communication, rather than in the tools that we use to access it.

“What content owners are struggling with, and this is true of the music business too, is monetising the digital highways and its content. If you download an app for 99p you don’t even think about it. With micropayments you will simply have an account with your provider – the model couldn’t be simpler.

“Take the example of missing an episode of Downton Abbey. You say to yourself ‘here’s a chance to watch it on the train for £1.25. You wouldn’t even think about it. Or you’re sitting at home and there is nothing on TV tonight. I know, let’s watch that episode for Spooks we missed for 25p.

The micropayment model is beginning to take off with ITV preparing to launch its own scheme as it looks to reduce its reliance on advertising revenue and increase revenues from its content.

Michael Grade was speaking in the wire, a report into M&A within the TMT sector by leading mid-market corporate finance firm, Clearwater. The report found that interest in the UK TMT sector has continued to rise in recent years with deals up from 132 in 2009 to 223 in 2011. Deal values have also increased with 25 deals over £100m in 2011, compared to just 14 in 2010.

The report has identified software as the leading technology sub-sector that is driving M&A activity, followed by wireless technology, Software as a service (SaaS), Cloud, IT services and social media. Private equity has increased its interest in the sector, with equity-backed deals accounting for 24 transactions in 2011, compared to 21 in 2010 and only 15 in 2009.

Carl Houghton, partner and head of the technology sector team at Clearwater, said: “Corporates need to move out of their comfort zone to invest in the assets which are driving the technology sector or risk being left behind. However, this does create risk for them as they do not have track records in integrating the skill sets provided by these smaller assets.”

Notable deals for the year included Penta Capital’s £60m investment in London-based cloud services company, Six Degrees Group, and Palatine Private Equity’s backing of management buyout of leading IT managed service provider, Selection Services.

Read the latest edition of the wire here.