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2008 Media M&A Heading For A Drop

PricewaterhouseCoopers just released a new report on merger and acquisition activity in the media and entertainment space and the outlook is grim.

Bottom line: media M&A activity this year will be weak, down from the past couple of years.

The good news is that 2008 M&A activity was strong — a total of $150.8 billion in deals.

But each successive quarter last year got weaker and weaker. And one reason so many big deals got done in 2008 is that over $100 billion of those deals were pending from the end of the previous year — in the works and ready to go. The fact that the total transaction volume dropped 200 deals to 1,000 deals completed in 2008 further points to the direction we're heading.

That said, media and entertainment are still a far more active M&A sector than other industries. Last year deals in this space comprised over 16 percent of total deal value, compared to just 6 percent the year before. So, relatively speaking, the space is holding up pretty well. One factor driving deals is the convergence of media and technology, which is causing old media and new technology companies to constantly reinvent themselves and keep the deals moving. Last year Internet related deals comprised 21 percent of all activity, and I wouldn't be surprised if that number is higher this year.

M&A activity this year has some major factors working against it. For one thing, unlike last year, this year there's only a meager $6 billion in backlog deal. Also, private equity funding in the fourth quarter dropped of dramatically (down to $43 billion this year from $100 billion in the year ago quarter). And in 2009 fundraising is expected to further drop off. One ray of light -- the relatively strong performance of cable companies like Comcast means they're more likely to take advantage of the trough to snap up some deals.

One thing's for sure-- companies are still looking to sell as they focus in on their core competencies. Take Time Warner and its AOL division -- it's made it very clear that it's looking for a buyer. The question remains when the credit markets will loosen to help fund those kinds of deals.

You can read the full PWC report here.

In two weeks I'll be reporting from the Montgomery Technology Conference in Santa Monica, where private equity firms and media giants will meet with hundreds of startups, hoping to drive some transactions. Montgomery, a boutique M&A firm that specializes in new media acquisitions (it helped Disney buy Club Penguin).

We'll see if Monty can help buck the declining M&A trend.

Questions? Comments? MediaMoney@cnbc.com

  • Working from Los Angeles, Boorstin is CNBC's media and entertainment reporter and editor of CNBC.com's Media Money section.