How do you turn disruption into transformation?

Ten opportunities and threats for media and entertainment companies in 2019

The media and entertainment industry is squaring up to the challenges of shifting customer demands, technology innovation, regulatory and policy upheaval and a strategic reshaping of the competitive landscape. In the latest look at the biggest opportunities and threats facing the industry, EY Global Media & Entertainment Sector highlights the priorities for industry leaders and how they can respond.

1. Win the battle for content

The stakes are high.  Media and entertainment companies are placing bigger, more expensive bets on content as part of an escalating arm’s race against powerful, disruptive competitors. Spend on high end drama is topping $10 million per episode. In addition to developing original, exclusive content, media and entertainment companies are investing to lock in the best talent (on and off-screen) as well as in new formats and genres. The winners in the fight to attract and retain audiences will have more than deep pockets.  Success will require a clear strategy that is operationally real. Decisions about content acquisition and exploitation will leverage insights derived from data inputs sourced throughout the enterprise. Companies also will utilize a suite of intelligent, automated technologies to efficiently capture, customize and distribute content that satisfies audiences’ ever evolving appetites.

2. Choose open or closed models

Audiences lead the way where media and entertainment companies must follow. As consumption patterns change, companies are on a relentless treadmill, rethinking the tools and capabilities they need to reach audiences and make money. As companies increasingly seek to rebalance the business model from advertising and wholesale distribution to “retail” revenue streams, direct-to-consumer models will take center stage.

Many traditional media companies will need to build marketing muscle around customer acquisition, engagement and retention. They will have to create frictionless experiences around their content and brands, while ensuring that the level of differentiation is sufficient to compel consumer payment.  Even if media companies have these skills (many do not), they will need to evolve to compete. They will also need to understand the financial impacts of accelerating changes to content and monetization models, which will force tough, long-term decisions about investing in exclusives and originals to attract viewers, marketing their experiences and brands at scale to the right consumers, and generating revenue through subscriptions, licensing, advertising or some combination of each.

3. Expand the spotlight beyond Gen Z

Media and entertainment companies, have been laser-focused on Gen Z and Millennials, potentially at the risk of overlooking older generations. By 2020, for the first time in human history, the world’s population aged 65 and older will exceed the number of children under the age of five. Not only is this older age group large but they are affluent, tech-savvy, loyal and enjoy the most leisure time. It is a compelling mix.

To seize the opportunity media and entertainment companies must focus their attention (at least some of it) to understanding the unique features of this older demographic, creating products and services that appeal to their lifestyle and media consumption habits, reaching them with relevant marketing messages through the channels they trust.

5. Recalibrate for growth

Media and entertainment business models are in constant flux and many traditional companies are struggling to find their way in the new, fast-paced reality. After years of disruption, they face a dual dilemma – how to invest in today’s promising but cash-burning businesses while simultaneously navigating the shift from legacy operations that remain profitable but tethered to the past. This puts capital allocation strategy as a top priority. With the pressure to meet changing expectations, some are taking a step back to identify routes to long-term, sustainable growth. The conversations are difficult and require transparency from the teams in the trenches all the way up to the board.

8. Rethink advertising experiences and incentives

The current media landscape is caught between two very different forms of marketing: performance-driven marketing built in the native digital world defined by targetability and precision, and brand marketing built on scale and efficient distribution. Increasingly, marketers will need to strike a new balance to understand the precise math of these differing approaches to marketing. And, unfortunately, the evolving advertising market is not yet fluid to enable the calculations to move seamlessly between traditional, linear media and digital formats. While digital continues to ascend, there is still remarkable scale and importance on more linear experiences, which must be enabled for brands to achieve their goals.

10. Transact to transform

Media and entertainment M&A remains robust. The focus is on high-impact transactions that build convergence offerings and scale. In a disruption-led world, companies are keen to unlock and exploit content and distribution synergies, build a strong direct-to-consumer proposition and create international scale.

The challenge for media and entertainment companies lies in execution. To realize full potential in M&A, acquiring companies need to single out the specific drivers of value in a deal and understand how these drivers fit with the existing operations, and then implement an integration program designed and calibrated to achieve the desired outcomes.