What are the most significant growth opportunities for media and entertainment companies today? What are the most significant risks or threats that they face? The EY Global Media & Entertainment sector team has identified and assessed ten areas of upside and risk for the industry.
Read on to find ways companies in this industry can respond to the shifting environment.
1. The business model is evolving
Disruption is sweeping through the media and entertainment (M&E) industry, powering the invention and rapid expansion of new business models and leading to uncertainty about the durability of well-established ecosystems. Consumers are expecting media and entertainment providers of all types to deliver choice, convenience and value, all wrapped inside personalized, customized experiences that are available on demand and on a cross-platform basis — and with limited advertising and strong data protection.
2. M&E companies need to adapt to new realities
Intensifying competition for viewers and advertisers, combined with ongoing declines in subscribers, is putting pressure on topline performance at many M&E companies. At the other end of a margin squeeze, costs are escalating — especially in the critical areas of content and talent.
Unsurprisingly, the mantra of cost cutting has reared its head again as a key priority for management teams; however, the solution today is more holistic and nuanced than simple brute-force reductions. What the M&E industry requires is a new level of operational excellence — the kind of strategic expense reduction that delivers short-term results and long-term efficiencies.
3. New advertising currencies are on their way
As the lines blur between linear and digital media, advertisers are developing new currencies to better understand and target consumers. Audiences are fragmenting across video platforms — from live TV to time-shifted and connected TV (over-the-top video, streaming media players, connected digital video recorders), and from desktop to mobile and immersive videos (augmented reality, virtual reality and wearables).
With this fragmentation, advertising models are also evolving new forms, including programmatic, native, vertical, 360 degree and addressable ads. Audience measurement — the key piece in the puzzle and critical to understanding consumers — has become more complex and continues to lag.
4. Customers are empowered and crave new experiences
In the traditional M&E model, creativity, distribution and monetization were linear. For the most part, consumers were passive, waiting for content that was made available at a time dictated by others. Digital has created a new world order that is more atomized, disintermediated, complex and, above all, dynamic. As a consequence, M&E consumers are more empowered. They have steadily rising expectations around how products and services should be delivered.
Just a few years ago, consumers were delighted to be able to stream a movie or TV show on multiple devices. Now, a consumer expects personalized experiences across their daily life, from mobility and financial services to communications and entertainment.
5. Companies need to mitigate cyber risks
Every click, view and download results in massive amount of data being created every day. This data offers M&E companies a real competitive advantage, however, this same data is a magnet for cyber criminals.
M&E companies need to take a four-step, risk-based approach to cybersecurity:
- Prioritize: Identify and prioritize the assets that matter most to the organization.
- Plan: Improve processes to plan, protect, detect and respond to cyber threats.
- Protect: Consider the impact of security breaches that third parties present and develop a supplemental plan addressing these potential gaps.
- Preserve: Develop a continuous improvement plan that enables management of constant change efficiently and effectively.
6. There’s a battle on for the best content
The rapid proliferation of video distribution platforms and a corresponding uplift in engagement metrics, subscription fees, advertising revenue — or a combination — has created an intense competitive landscape for developing and acquiring the best content.
With so much content available across many distribution alternatives, M&E companies need to think of innovative strategies to enable consumers to find compelling programs to watch. We expect AI and machine learning technologies to be leveraged by M&E companies to dissect viewing patterns from multiple perspectives to build personalized recommendations into consumers’ digital interaction. Also, the importance of network collaboration with distribution “frenemies” will increase, curating content relevant to specific platforms.
7. Both horizontal and vertical scale are key
The rise of global social, video, advertising and e-commerce giants — with their user bases measuring in billions, tremendous financial resources, market-leading growth rates and appetite for risk — is creating a new competitive reality. This “winner takes all” backdrop is powering a strong sense of urgency across the M&E sector to respond strategically.
M&E leaders view inorganic action as the fastest way to gain heft, increase share, rationalize the marketplace, quickly add new capabilities, reshape existing asset portfolios and futureproof their business models. According to EY research, the top rationales for M&A in the sector are “enhancing product and service portfolios” and “gaining market share,” indicating strategic imperatives of scale and scope.
8. The marketplace is accelerating
As new technologies accelerate how supply and demand intersect in all industries, the dynamics of M&E marketplaces — for both consumers and advertisers — are becoming “superfluid,” placing new pressures on all parts of the ecosystem to move more quickly.
The dynamics of programmatic transactions are now expanding to other aspects of the business, which increasingly embrace data and automation. As digital dynamics are increasingly infused into all media (even traditional), the opportunities to accelerate superfluidity will continue to grow.
9. Technology is reinventing the tax model
US tax reform represents the biggest change in taxation in more than 30 years. Multinational M&E companies must respond to its wide-ranging implications. Yet tax reform is really an inflection point in what has become a much wider conversation about the future of the tax function. In the year ahead, companies and tax executives will need to explore how they engage with regulators and how they manage reporting to take advantage of new technologies.
10. International operations are key
Globalization is critical to M&E companies looking to build scale, open new markets and remain competitive. Although we see the rise of economic nationalism and the prospect of higher trade barriers, at the same time, a suite of enabling digital technologies is rendering borders less relevant. Today’s M&E companies must be more open than ever to the opportunities of growing their international operations.
