(Vancouver – 15 January 2010) Canada’s media and entertainment companies are being forced to accelerate the pace of change as their core businesses come under assault, according to the latest sector report conducted by Ernst & Young.
“Consumers are now demanding content anywhere, anytime and through any device,” says Neal Clarance, leader of Ernst & Young’s Canadian media and entertainment practice. “As consumer behaviours and technology continue to change, Canadian companies need to listen to their customers and adapt to changing desires. The biggest challenge will be in creating differentiated value that consumers are actually willing to pay for.”
Lessons from change reveals the series of actions the industry is taking to position itself for success in the face of compounding factors including the digital revolution, declines in advertising and consumer spending, and growing consumer expectations for free online content.
When asked what kinds of opportunities are most attractive for investment, global media and entertainment companies responded:
Big challenges still looming
Media and entertainment companies are still being affected by vanishing consumer credit availability and job worries that have resulted in a drop in discretionary spending — including DVD sales and specialty channel subscriptions. As a result, companies are rethinking the timing of relaunching or repricing services or products.
“Companies will continue looking at innovative ways to increase revenues and reduce costs in 2010,” says Clarance. “A good example is what music companies have done, in making substantial profits from licensing songs to video game makers for titles like Rock Band and Guitar Hero — providing them with all new revenue streams.” Movie studios are also seeking additional revenues as the market changes. DVD sales — a potent revenue and profit source for the industry — are slowing because of the format’s maturity and lower consumer spending. Likewise, video game sales — once thought recession resistant — have fallen and ad revenues continue to decline. As consumers become more fragmented, advertising is becoming more targeted to reach the right audiences.
The tipping point of a TV revolution
According to Clarance, one area to watch for 2010 is web-enabled television, which may finally have found the right application after several missed attempts. Mobile television is estimated to be a US$1.7-billion opportunity, and with viewership expected to double in the next four years, mobile devices could evolve into the most popular medium for consumers to access entertainment.
“In exploring new digital territory, companies should be cautious with investments, as they may take longer than expected to become profitable,” cautions Clarance. “Buzz is not the same as profit, and it has proven difficult to turn developments like user-generated content and social networking into sustainable revenue generators.”
In 2010, media and entertainment companies should keep a careful balance between rushing into the next new thing and missing a wave of opportunity. Those that reshape their businesses to compete in the digital age through acquisitions and new distribution channels have the potential to position themselves for a strong and sustainable future. But now is not the time for companies to make non-strategic or expensive investments.
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