) -- As the economy started to rebound in 2010, innovation in mobile, e-commerce, gaming and online advertising helped propel M&A and investment in the digital media sector.

A total of 235 digital media transactions worth about $7.7 billion were recorded year-to-date, according to investment bank

Petsky Prunier

. In comparison, 182 digital media deals with a value of $4.9 billion were completed in 2009.

While 2010

lacked the splashy IPOs

expected from firms like




, it was ripe with exciting M&A.

Electronic Arts


paid $400 million to purchase social gaming start-up





bought content farm

Associated Content

for $100 million and


(GOOG) - Get Report

spent $179 million for widget-maker



To gauge what to expect in the digital media space next year,


spoke with two folks from New York-based boutique investment bank

Gridley & Co

: Linda Gridley, president and CEO, and Pratik Patel, vice president.

This transcript has been edited for length and clarity.

TheStreet: What industries within digital media do you expect will be hot next year?

Linda Gridley: First, content. Expect to see further integration of content and commerce like what

digital lifestyle newsletter


has done.

Second, the e-commerce world. Whether or not


made the right decision

to walk away from Google's offer will play out. It's going to be interesting to watch what's going on with designer discount shopping sites like

Gilt Groupe


Rue La La

. Those genies are out of the bag and you're going to see more from them in terms of capabilities and broadening out their market positions.

Third, there are many interesting smaller social marketing companies that we believe will get acquired into broader marketing solutions. There are very few larger ones such as

Buddy Media

that have the stature to remain independent and grow successfully

Lastly, mobile -- the business of mobile is changing the in-store shopping experience by offering price comparisons at the point-of-sale. Mobile started out in 2010 with a huge bang, and then you didn't see much from a transaction perspective after Google's acquisition of




(AAPL) - Get Report

buy of

Quattro Wireless

. As people unlock the power of mobile, you'll see a lot of interesting things happening.

What's the future of the local space? There was so much buzz this year for location-based mobile applications like Foursquare.

Pratik Patel: Products like Foursquare are still very niche, and I think that will change. The trail of data that these companies are collecting is very interesting. If I check in at five locations, I've left these breadcrumbs of where I've gone. This could lead to companies like Foursquare powering a recommendation engine. As recommendations get smarter, people will begin to find it more valuable.

Along with personalization will come more loyal incentives. Foursquare already gives people badges and discounts for checking-in to certain locations.

What are some of the top digital deals you'd like to see in 2011?

Linda Gridley: I'd like to see some of the traditional media guys make bigger moves, but I'm not sure if this is going to happen in 2011. I don't know if having

advertising industry executive Randall Rothenberg go to

Time Warner's


magazine division Time Inc.

as its first digital officer or

former Yahoo! M&A chief Andrew Siegal go to

Conde Nast

is a signal that things will change.

On the other hand, you'll see Google and


(AMZN) - Get Report

get into new things in a smart way. I'd love to see Amazon buy Gilt ... that would be really exciting.

It'll be interesting to see what companies like Twitter and Facebook do ... they have all raised a lot of money but haven't really used it for M&A purposes.

Pratik Patel: We're going to keep seeing small acquisitions, for example a 5-to-20 man team that fits into a broader roadmap. We saw this when Facebook acquired check-in service

Hot Potato

. There will always be big deals, but large companies are just seeing these small teams faster.

What buzz words characterized the digital media sector in 2010? What will define 2011?

Linda Gridley: 2010 was the year of the "Internet entrepreneur." "Social." "Commerce." "Mobile." "New York."

Pratik Patel: I think 2011 is going to be the year of "personal." You'll see a lot of companies in mobile, on the traditional web and e-commerce go towards the personal experience. Amazon has already done a really good job of this with personal product recommendations. I wouldn't be surprised if Google made acquisitions in this area. As


(NFLX) - Get Report

moves more into television, they'll start recommending shows you might like, too.

Valuations for digital media start-ups are increasing, with some startups like Groupon and Twitter in the billions. Do you think we're entering into another Internet bubble?

Pratik Patel: People talk about bubbles, but they don't talk about fundamentals. Groupon,


and Facebook have real revenue. This wasn't necessarily the case in the 90s when people were investing with the promise of revenue.

Also, a lot of these companies getting funded are just a small percentage of the start-ups out there. The VCs will pay up for companies with a good product, vision and team. It's people chasing really quality assets that have real fundamentals to them.

Do you think we're likely to see more digital media IPOs in 2011?

Linda Gridley: This was the biggest disappointment of the year. Going into 2010, a lot of people had filed and interviewed bankers. Despite the fact that Facebook says it's OK not to be public, too many VCs and private equity guys need liquidity. If the IPO market comes back, you'll see a lot of them.

--Written by Olivia Oran in New York.

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