The CEO Imperative: M&E industry investments are center stage as uncertainty builds

Historic government stimulus to address the pandemic supported markets and emboldened M&E industry investment 

According to the EY 2022 CEO Outlook Survey of more than 2,000 CEOs, including 90 M&E CEOs, the vast majority (86%) of M&E companies have been impacted by the pandemic. And while one in five (21%) M&E CEOs say that their industry has been fundamentally reshaped for the worse due to consumers radically — and permanently — changing behaviors, the impact of the pandemic also accelerated performance in subsectors that were already benefiting from disruption. Streaming and video games, for example, experienced significant growth throughout 2020 and much of 2021. Operationally, M&E CEOs ramped up digital transformation initiatives to improve efficiency, lower expenses and power through the effects of the pandemic.

Yet, despite the turmoil the pandemic wrought, aggressive government financial support of the economy underpinned a boom in capital markets, creating a powerful catalyst for M&A and organic investment across the M&E industry. Over the last two years, there have been blockbuster mergers; growth-driven, bolt-on acquisitions; and an unprecedented proliferation of special purpose acquisition companies (SPACs).

M&E companies have also made heavy investments in content and new service launches. Further, for media subsectors that have felt the impact of the pandemic more acutely, there has been ample capital to help bridge reopening and survival. Movie theatres, for example, were able to endure the near total shutdown of the box office for over a year by deftly accessing financing.

As 2022 began, the strategic backdrop remained vibrant. However, with military conflict erupting in Eastern Europe and inflation rates climbing fast, headwinds are beginning to blow, ratcheting up uncertainty for CEOs and leadership teams.

Geopolitical tensions force M&E CEOs to adjust strategic investments

As per the media and entertainment industry trends identified in the CEO survey, 41% of M&E industry respondents said geopolitical tensions are forcing them to shift portfolio investments. It’s important to note that this survey was conducted between November and December 2021, prior to the war in Ukraine. Since 24 February 2022, there has been a corresponding sharp rise in macro uncertainty and market volatility.

Of the 41% altering their investment plans, 56% have stopped or delayed a planned cross-border investment. International expansion is a core element of the growth thesis for many major media companies. For example, streaming is a global market. The lack of clarity on market conditions and stability is a challenge for M&E CEOs, at least in the short term, as they make investment decisions. M&E CEOs must balance the international growth market opportunity with the associated business and capital risk.

Geopolitical tensions also have M&E CEOs rethinking their supply chains, with 60% saying they have adjusted or are planning to adjust their global operations or supply chains. Of those making changes, one-third (33%) are adjusting because of geopolitical risks. We expect this percentage would be much higher if the survey were conducted today, in another example of accelerating media and entertainment industry trends and intensifying headwinds.

Another top risk to future M&E growth strategy is the acceleration of climate change impacts and increasing pressure to embed sustainability into product and service innovation and delivery. Media and entertainment industry trends show that financial disclosure requirements for environmental, social and governance (ESG) are set to significantly expand, too. In response, M&E leadership teams are making great strides in building out robust ESG policies and action plans. 

Capital and growth strategy focuses on digital transformation in the media and entertainment industry, to accelerate organic growth

M&E CEOs need to invest to secure future opportunities. For nearly half (49%), investments in digital transformation and existing businesses to accelerate organic growth and value creation are critical to their plans. 

M&E companies need to improve customer-facing technologies and experiences to drive engagement and respond to shifting consumer preferences. This industry trend holds true in all media subsectors, including entertainment, advertising, cable, publishing, sports and live events, and information services. Specific focuses are on data and analytics capabilities to enhance decision-making and employee technology enablers, such as collaboration tools to support emerging hybrid working frameworks.

There has been a slight shift in the CEO capital allocation approach to longer-term investments in new growth options that may become important in the future if they succeed. Examples include experimentation with non-fungible tokens (NFTs), augmented and virtual reality (AR and VR), as well as metaverse concepts. The advertising subsector is also piloting innovations that include new measurement methodologies and technologies.

There’s a strong belief by 60% of M&E CEOs that investors are extremely supportive of well-articulated investments. CEOs are placing increasing emphasis on delivering a roadmap for returns on major investments, most notably in streaming.

To protect and improve profit margins, 30% of M&E CEOs surveyed say they plan to leverage digital platforms to increase customer interactions, building on a long trend of infusing technology deep into the customer experience. Already, the media and entertainment industry trend is about direct-to-consumer transition to provide media companies with new pathways to increase and monetize engagement. More than a quarter (27%) indicate they will use technology and automation to replace higher-cost labor roles and improve scalability. For these M&E CEOs, their underlying motivation is to reduce expenses and unlock capital to redeploy into growth initiatives.

As M&E CEOs look ahead to growth expectations over the next five years, 27% expect their strongest source of growth to be using data effectively to develop new products and services; 26% say it will come from developing innovative delivery systems and channels for interacting with customers.