How do you prepare for a post-pandemic era of business-as-unusual?

Authors

John Harrison

EY Global Media & Entertainment Sector Leader

Transformative leader with a passion for media and entertainment. Identifying the opportunities afforded by convergence and disruption. Executing strategies to succeed in a fast moving market.

Martyn Whistler

EY Global Media & Entertainment Lead Analyst

Keen observer of all things media and entertainment. Storyteller. Avid reader. Bluff traditionalist, impatient for the future. Fan of sports, occasionally sporty. Fan of the arts, rarely arty.

8 minute read 6 May 2020

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As COVID-19 permanently changes the media and entertainment habits of US consumers, industry executives must accelerate their transformation agenda.

At first glance, COVID-19’s impact on the media and entertainment industry seems to differ by subsector. Bans on gatherings around the world have shuttered virtually all live sports and events, movie box-office receipts are down to zero and almost all content production is on hold. Simultaneously, other parts of media are booming. With more than a third of the world’s population facing some restriction on movement and many forced to stay at home, there is record demand for video content, gaming and music.

Look a little deeper and the issues facing all parts of the industry are strikingly similar. Cash is king in a crisis. In the short-term, executives in all subsectors should focus on sustaining liquidity — riding out the economic shutdown through aggressive cost control, working capital management and, if needed, raising incremental capital. At the same time, management teams need to plan for recovery and think long-term about future business models in the new normal — whatever the new normal looks like.

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Chapter 1

Accelerating reinvention

Although the focus may be on the immediate crisis priorities, executives need to turn their attention to fast-tracking transformation plans.

Reinvention is more important than it’s ever been

Before the pandemic, about a third (34%) of leading media and entertainment executives agreed that they needed to reinvent their business or it would cease to exist in five years, while 50% stated that they could no longer rely on traditional business models to power future success. The ongoing crisis has forced industry leaders to activate transformation plans, shrink execution timelines and experiment at lightning speed.

Reinvent or disappear

34%

of leading media and entertainment executives say if they don’t reinvent their business, it will cease to exist.

Movies slated for box-office release in 2020 are instead launching direct-to-consumer on streaming services (or postponed into 2021). Studios are watching closely to understand the impact on revenue and audience engagement of moving theatrical release windows online, and what this change means for the monetization of subsequent release windows.

In sports, one of the hardest-hit of all industry subsectors, teams, leagues, athletes and promoters are embracing virtual events and esports as a way to engage fans and fill media slots. From auto racing and basketball, to professional cycling and even horseracing, audiences measured in the millions are tuning into virtual events.

In the back office, upheaval and innovation are even more stark. Companies are shifting en masse to remote working, dispersing administrative, creative and customer support into the home. An IT priority, noted by 48% of executives, is to improve productivity and reduce costs by developing more flexible solutions for employees. The related benefit is to enhance work-life balance, an important factor for today’s multi-generational workforce juggling complex needs and wants. In the current crisis environment, these plans have moved rapidly into execution mode at an unforeseen scale.

Time will tell what the lasting impacts of social distancing will be on the media and entertainment industry and its stakeholders. Moving to the far side of the pandemic will take us into a new era of business-as-unusual.

Ultimately, reversing any of these changes may be impractical and even undesirable. Time will tell what the lasting impacts of social distancing will be on the media and entertainment industry and its stakeholders, most notably customers and employees. Moving to the far side of the pandemic will take us into a new era of business-as-unusual.

Uncertainty replaces positivity

Despite long-standing disruption driven by emerging technologies, shifting consumer behaviors and intensifying competition from existing and new players, media executives were optimistic about the industry’s future at the time of our survey just six months ago. This positive outlook has been replaced by uncertainty, at least over the intermediate term. Despite the limited visibility, companies are beginning to take initial steps toward recovery.

The sporting event calendar is starting to reform. For example, the Tokyo Olympics is confirmed for summer 2021 and golf tournaments are scheduled in the US beginning in June — initially structured as made-for-TV events without fans on-site. All major sports leagues are exploring when and how to resume the action.

Executives are evaluating how to reopen theme parks, concert venues and movie theaters as part of a phased relaxation of social distancing rules. However, in China, where a handful of movie theaters resumed operations recently, ticket sales remain stubbornly low. A rebound in virus cases in China resulted in theaters closing again, indicating the uneven road ahead for the industry and society as a whole.

Whatever the nature and pace of recovery, in EY’s latest Global Capital Confidence Barometer, 89% of executives are clear — COVID-19 will severely impact revenue growth profitability.


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Chapter 2

Balancing now, next and beyond

Media and entertainment executives must ensure the sustainability of their business today while planning for an uncertain future.

Emphasis shifts to cost control

Executives across the industry are currently managing their business to optimize cash flow and maximize resiliency.

Some industry subsectors are more immune to short-term shocks, such as those with subscribers who are locked into contracts. However, for subsectors that rely on advertising or attendance revenue, the concerns are more immediate. They need to extend their liquidity runway to remain solvent while covering costs, making essential investments, and meeting tax and debt obligations.

Pre-crisis, a third (32%) of executives prioritized optimization of working capital as an efficiency priority, ranking it far down on the list of overall goals. Reality has changed, and all options are now on the table.

The impact of automation

46%

of leading media and entertainment executives identified process automation as the main driver of cost control.

Reducing headcount, as a relatively quick fix and short-term expediency, is also a key lever. Previously, managing the staffing expense was a priority for just 22% of executives who wanted to lower costs. Today, headcount actions are vital as executives look to achieve near-term stability through employee hours and salaries, as well as the appropriateness and impact of largescale furloughs.

Whether headcount returns to previous levels may depend on what the new normal looks like. In our survey, executives identified process automation as a key catalyst for driving efficiency. Automation was the number one priority for executives (46%) looking to control costs. This was reaffirmed in EY’s latest Global Capital Confidence Barometer, in which 40% of executives stated their plans to speed-up automation. Given that process automation doesn’t require wholesale finance transformation but can be achieved with some relatively quick fixes, now is the time for media executives to scale up and accelerate their ambitions.

Companies expedite operating model redesign

Prior to the pandemic, many industry executives were already redesigning operating models to enhance efficiency and effectiveness. These efforts are now moving forward on an expedited basis.

For many, the emphasis was on simplification of the enterprise. Fifty-five percent spotlighted the consolidation of internal segments and duplicative corporate functions, while the delayering of management and increasing the span of responsibilities was also a high priority. Transitioning certain functions to lower-cost shared service centers or outside the enterprise entirely via managed service or outsourcing relationships with third parties were also high on the list of planned actions when we surveyed the market. These initiatives are now more relevant than ever. Companies need leaner, more adaptive digital enterprises that can change and respond quickly. This means simpler organizational structures, efficient operating models – especially for core back-office and corporate functions – and an empowered management team that has greater responsibility and is less siloed.

With a return to normal unlikely, executives must plan for a new future

Steadying the ship is only part of the story; executives must also look to the horizon.

Trying to forecast supply and demand is difficult in these turbulent times. Although the outlook for future customer and consumer behaviors is unclear, a return to the “old normal” is unlikely. Will the crisis drive rapid, unruly, structural change in the industry? Or will it speed up the long-term trends already taking shape and well-known by market participants? As part of the EY Digital Home Study, 27% of all respondents and 43% of respondents aged 18–34 said their TV/content consumption habits will permanently change as a result of COVID-19 – if this vision proves accurate, consumer-led disruption will have an even greater impact on media companies than previously expected.

Almost all media companies have suspended their market guidance due to an inability to forecast the near-to-intermediate term with confidence in a fast-changing and unpredictable environment. Yet all stakeholders need some level of surety. It demands mapping out potential scenarios in hours not weeks, although existing strategic and financial planning tools and processes are rarely fit for this purpose.

Companies need to adapt or reinvent their approach and add to their toolkits. Examples of this include the use of predictive analytics to project sales and anticipate clients’ ability to pay, the shift in reporting cycles and tracking of new KPIs to better understand and meet the needs of the business, and the reprioritization of certain datasets to enhance the inputs that are critical for decision-making.

Once the future scenarios are mapped out, companies need to begin planning and executing against them — doing business in unusual times. A quarter (25%) of media and entertainment executives in EY’s latest Global Capital Confidence Barometer see the emergence from the shelter-at-home environment as an opportunity to grow market share as the shape of the recovery comes into view, and nearly half (49%) expect to execute M&A in the year ahead. These companies will be positioning strategy teams and the wider business to identify and pursue areas of innovation and competitive advantage in a post-pandemic world, focusing on development and growth opportunities, both organic and through acquisition.

Upselling as a priority

49%

of leading media and entertainment executives identify upselling to existing customers as their primary focus for growth.

Opportunities exist to strengthen engagement with core customers and upsell products and services

In EY’s survey of M&E executives, a priority for 49% of respondents was upselling to existing customers. The current crisis seems to present a unique opportunity for media and entertainment companies – especially those with subscription-based models – to further strengthen engagement and loyalty with existing customers, particularly in terms of supporting them through challenging economic times with attractive discounts or expanded service suites. Accordingly, companies should be thinking about how they invest and market their services and highlight their good deeds.

A quick look at the early information on media consumption during the crisis reveals that consumers are not necessarily paying for additional services. Unquestionably, there is a rise in overall consumption by a homebound population. However, much of this seems to be either with current service providers or with new providers delivering under promotional pricing frameworks. In EY’s Digital Household research, looking at the impact of the crisis on media services, as many as 60% of US households claim to have signed-up for free trials. As new streaming offerings continue to hit the market, companies must consider how to capture this unique opportunity to convert streaming trialists and build sustainable customer bases for new services.

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Chapter 3

Becoming an adaptive digital enterprise

With disruption as the constant, the only way to survive and thrive in exceptional circumstances is to build systemic agility.

Media and entertainment executives have long understood the necessity of reinventing their businesses to harness the potential of disruptive technologies and keep pace with changing consumer demands. Given the collision of unprecedented health, geopolitical and economic uncertainties, success will depend on building platforms that adapt to unforeseen market opportunities and threats. Companies will be successful not because they are better at predicting the future; rather, success will be powered by orchestrating a wide-ranging ecosystem of producers, service providers and customers to pivot in a timely, tested manner. Media and entertainment leaders will also be prepared with financial liquidity and exhaustive contingency plans to respond, stabilize, recover and then reimagine their growth in the beyond.

  • EY survey methodology

    • Survey of 358 media and entertainment executives (C-suite, directors and above)
    • Conducted: August – October 2019
    • Geographies: Worldwide weighted toward North America, Asia and Europe
    • Companies: Various segments based on revenue size (US$250m — over US$5b)
    • Methodological note: For each survey question and unless otherwise stated, executives were asked to select their top three preferences from a predefined list of options. For example, a result of 50% means it was selected as a top three preference by half of respondents.

Summary

In January 2020, EY professionals published the findings from a survey of leading media and entertainment executives. EY research highlighted the key operational and strategic priorities for reinvention of the enterprise. In today’s unprecedented crisis, these priorities remain not only relevant but essential – and implementation needs to accelerate.

About this article

Authors

John Harrison

EY Global Media & Entertainment Sector Leader

Transformative leader with a passion for media and entertainment. Identifying the opportunities afforded by convergence and disruption. Executing strategies to succeed in a fast moving market.

Martyn Whistler

EY Global Media & Entertainment Lead Analyst

Keen observer of all things media and entertainment. Storyteller. Avid reader. Bluff traditionalist, impatient for the future. Fan of sports, occasionally sporty. Fan of the arts, rarely arty.