Media Industry Challenging Times


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Balancing short-term cost management with long-term digital transformation. A report from Accenture (2008).

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Media Industry Challenging Times

  1. 1. Media & Entertainment Group Managing through Challenging Times Balancing short-term cost management with long-term digital transformation By Greg Douglass
  2. 2. Executive overview The recent news that the economy in the United States—and, most likely, in much of the rest of the world—entered a recession in December 2007 came as no surprise to most observers in the media and entertainment industry. In a period when companies have already At the same time, it's important to remember been rocked by major trends such as the that, throughout every economic cycle move to digital and the growing dominance that the media and entertainment industry of the online world, the current global has experienced in the past few decades, financial crisis has pushed many companies one thing continues to remain true: into survival mode. Immediate attention great content, great operations and great to cost control is an urgent imperative. companies will usually win the day. This is still an exciting time for a large portion of this industry, and significant opportunities exist for savvy executives to help their companies not only cut costs, but also proactively transform their operations to pull away from the competition during the downturn. Managing Through Challenging Times 1
  3. 3. Costs are the number one issue on Such transformation includes new Research and analysis conducted by the minds of many CFOs and CEOs in advancements in outsourcing and Accenture1 have found that with a the media and entertainment industry managed services, both in the front fully digital supply chain, media com- with whom we are speaking today. In and back offices. Digital transforma- panies can manage and serve an ever- the short term, companies must take tion of a company's assets is also increasing range of channels with the advantage of every opportunity to essential. With more cost-efficient, same or fewer additional resources. make their cost structure smaller and end-to-end digital supply chains, more agile, focusing on predictability, companies can more effectively With a fully digital business model, flexibility and reduction. In the deliver content anywhere in the world the elimination of physical media medium and long term, the key is to and to any device. Managed-services provides significant financial savings truly transform a company's cost solutions in this area can help com- on a recurring basis. Based on management capabilities, not just panies variabilize their cost structure Accenture analysis, media and slash spending. and remain competitive in today’s entertainment companies have the environment. Digital transformation potential to realize savings of up to efforts can also help companies 40 percent of their operational costs maximize their advertising yields. by migrating to a fully digital environ- ment. (See Figure 1.) 2 Managing Through Challenging Times
  4. 4. Figure 1: Potential estimated cost savings from digital transformation (Source: Accenture analysis) Physical media costs 30% to 50% 30% to 40% Vendor tape activity 80% to 90% 30% to 40% Physical storage costs 25% to 35% 30% to 40% Data storage costs 25% to 35% 30% to 40% Potential savings as high as Potential total savings in a fully digital environment Accenture also believes that a key and channels. Communications com- Previous recessionary periods have to successfully managing through panies need the high tech and media seen people turn to entertainment, challenging times in the media and firms to drive new offerings. The reading and other forms of enrichment entertainment industry is forging new media and entertainment companies and diversion more than ever. kinds of business models and partner- need great communication links and Responding to these needs with com- ships that cross industry sectors, high-speed mobile broadband links to pelling content, while simultaneously from communications to high tech make their content available to more streamlining their operating models, to software. Even, or especially, in people and to deliver a great user offers companies real competitive economically volatile times, companies experience. The high tech firms rely advantages. Based on Accenture's across related sectors must think on those links to make their devices experience and research in the media creatively about how to bring multiple function even better. and entertainment industry, we perspectives and capabilities together, believe that a combination of short- focused on the customer. Convergence We believe that an integrated vision term tactical moves and longer-term has made these industries more for these industries and how they can operating model enhancements to dependent on each other for success cooperate is essential. Now is not the improve strategic repositioning can than ever before. High tech companies time to go into protectionist mode. help a company stay on the path to rely on media companies and the tele- Now is the time to reach out to cross- high performance even in tough times. communications operators for content industry partners and start to build bigger bridges together—to pool resources to do great things. Managing Through Challenging Times 3
  5. 5. Distinctive characteristics of the downturn in the media and entertainment industry Every industry is unique in the particular ways it experiences the trauma of a recession. In media and entertainment, a strong dichotomy exists. On the one hand, media and entertain- On the other hand, these companies In Europe, on the other hand, tremen- ment companies make money through also generate significant revenues by dous competition is emerging in the consumer engagement with their selling advertising, and that part of the content distribution space. Cable TV, content. In this realm, we’re seeing a business is in a severe recession. This IPTV operators, satellite TV operators tremendous uplift in the number of downturn is affecting the printing and and, most recently, digital terrestrial people going to the box office, publishing sector especially hard. television are all competing for the watching movies, spending time in Subscription rates and ad rates for the same customers. Programming costs front of the television, downloading newspaper industry, for example, have are also on the rise, which is putting video-on-demand films and so forth. dropped dramatically over the last severe strain on many companies. three to four years. The entertainment industry has Media and entertainment executives successfully weathered previous Different parts of the world are also attuned to more subtle dimensions of economic downturns because of feeling the effects of the downturn the downturn are also looking at how people's needs for entertainment and slightly differently. In North America, economic challenges affect the escape, and there are some indications for example, the content creation availability of workforce talent. At the this trend will continue. A study business—predominantly movies and top end of management structures, recently released from NATPE and television shows—continues to be stiff competition for talent is occurring E-Poll Market Research2 found that strong. However, the content distribu- in some parts of the world as senior consumers are saying even today that tion portion of the business is under executives in the industry move from they will cut back elsewhere—on eating pressure, both online and in physical company to company. Experienced out, shopping and vacations—before stores, primarily because of ad revenue and knowledgeable people are being they’ll give up entertainment spending decline. aggressively wooed as companies try such as cable/satellite service, DVD to rescue their digital efforts that have rentals and going out to a movie. So the content part of the business, while under stress, is currently performing adequately. 4 Managing Through Challenging Times
  6. 6. struggled in recent years. At the same In some industry sectors today, keeping Given these distinctive characteristics of time, there is a dearth of talent at lower an eye out for bargain acquisitions is the media and entertainment industry, levels of many media and entertainment a key part of our counsel to corporate Accenture believes that a key to staying companies. In positions where com- executives. The benefits of scale, on track for high performance dur- panies once expected to be operating broader geographic reach and access ing these challenging times is a dual with talent that had five to seven years to scarce resources will continue to strategy focused on rethinking and of experience under their belts, desks make acquisitions an attractive source reshaping corporate operating models. are being occupied by people with only of future growth. The acquisition of Cost transformation—meaning dramatic two to three years of experience. Those troubled companies or the purchase improvements in the ability to manage are operating deficiencies that don't of assets out of liquidation offers the costs and improve operational excel- show up on a spreadsheet, but they still potential to leapfrog the competition. lence, not simply slash spending—is hurt. It's one reason why companies essential. are looking for external talent through Due to the current severe constraints an outsourcing or managed services in the capital markets, the media and provider. It's a way to gain immediate entertainment industry is unlikely to and ongoing access to deep experience experience large-scale mergers or and resources. acquisitions. A situation more likely to occur is that large companies with strong cash balance sheets will use that strength to make strategic, pointed acquisitions to enhance their overall portfolio. Managing Through Challenging Times 5
  7. 7. The importance of cost transformation A distinctive characteristic of effective cost management today in the media and entertainment industry is that initiatives are turning to both the back office and the front office. In the back office, especially in with advertising orders. The biggest this creates investment constraints the printing and publishing sector, cost opportunities, however, are in the that many companies cannot over- companies are looking to aggressively traditional back-office areas, where come. Why would companies make a move as many of their back-office outsourcing, shared services and multi-million dollar investment if they functions as they can into an out- managed services approaches can help were not sure of ever recouping or sourcing environment. This means reduce the costs of production and profiting from that investment? looking for strong outsourcing rights acquisition, thereby decreasing collaborators in finance and account- the overall cost of programming. New managed-services offerings ing, in applications and technology and strategies that let companies take infrastructure, as well as in areas such Interestingly, we’re seeing a move to cost out of the movie and television as procurement and HR transactions. outsourcing and to managed services production process can help here. in the front office or revenue-generat- The value proposition for digital media Broadcasters, for example, are ing side of media and entertainment services—a managed-services finding opportunities for better cost companies, as well. For example, one approach to content management management in production- and of the challenges that the movie and and distribution—is that a media or broadcasting-related application television studios face is that they entertainment company needs to outsourcing, including application must invest tens or hundreds of mil- supply basic content only once. Then maintenance and development. Order lions of dollars in a film or television the provider manages the rest of the management is also coming under show before they actually receive one end-to-end process according to a closer scrutiny at many companies as dollar of revenue from it. Especially in set of business rules proper for the they seek to reduce the costs associated today’s risk-averse economic climate, content company. 6 Managing Through Challenging Times
  8. 8. Such a managed-services strategy We are also seeing the music industry, In the broadcasting sector, Accenture can lower risk, cut costs and provide which has been under severe stress has been working with companies a more effective way to distribute over the past five to six years, move to in an area called "integrated broad- content across multiples screens this same type of cost cutting as well. casting," which enables broadcasters and devices. Based on Accenture These companies are looking to a to automatically and systematically experience, moving to a file-based managed-services model where they schedule and program an entire week’s production and post-production pay based on usage—by the number of worth of scheduling and automate the process gives studios the potential to files distributed and the number of playout. This kind of solution reduces cut up to 20 percent of the cost out digital files stored. This model allows a significant amount of overhead of making a movie or television show. them to move to a variable cost struc- in broadcasting production. When Those savings make it more attractive ture and remain more competitive. implemented, one person on one to invest in producing the content, and machine can program the entire 24X7 they help generate more revenue on programming for a network. This kind the back end. of streamlining has a tremendous impact on the cost structure and also positions a company to emerge from the current downturn in a strong operational position. Managing Through Challenging Times 7
  9. 9. 8 Managing Through Challenging Times
  10. 10. The digital transformation imperative Taking a long-term view of cost management moves media and entertainment in the direction of what Accenture refers to as "digital transformation." The existing operations of most media For example, Accenture is teaming with than 130 senior executives in the media companies are ill-equipped to service Warner Bros. Entertainment to help and entertainment industry, asking them these new channels in an economic or transform its core media production and how quickly and aggressively they are timely manner. Legacy operations have distribution capabilities into a single, moving to transform their business into limited ability to scale and can rapidly totally integrated digital operation. This a digital environment. become overstretched by the increased initiative makes the company one of the operational effort needed to deliver first studios in the world to move its Each year, the research results show a tailored digital content. To serve new entire film and television production, more aggressive movement into the channels profitably, the seismic shift post-production and distribution to an digital domain, with more money, time under way in digital media consumption entirely digital end-to-end-process. This and resources being directed to move needs to be mirrored by fundamental work will bring Warner Bros. the scale the organization toward a fully digital changes in the way media companies needed to serve an expanded set of environment. At the moment, the create and deliver content. In simple distribution channels in a way that situation is one that might be called terms, nothing short of a pervasive strengthens customer relationships, "analog dollars and digital cents." That digital transformation will do. improves delivery efficiencies and is, companies still continue to make the provides stronger security for copyrighted vast majority of their profits from We envision a fully-integrated digital content. The project will enable the traditional, analog media and entertain- environment for production, post-pro- company to advance toward high ment products while they may make duction and distribution, supported by performance by significantly reducing mere cents on the dollar from their a flexible, automated infrastructure its reliance on physical media, cutting digital efforts and endeavors. Accenture that enables new business models to its physical media costs up to 40 percent. research shows that executives are drive growth while significantly aware that this situation is changing. reducing costs. Both our experience and research The day is not too far off when the suggest that this transformation is now situation will be reversed—it will be a an inevitable, inexorable part of the matter of digital dollars and analog media and entertainment landscape. cents. So now is the time to invest in Over the last three years Accenture has this future, even as costs come under conducted an annual survey of more severe scrutiny. Managing Through Challenging Times 9
  11. 11. Today, the digital advertising industry has turned upside down. It’s now a situation where companies are looking to squeeze as much profit as they can out of the ad space that they sell or populate. Digitizing a company's supply chain What's needed instead is a way to any given point in time. In the media can produce dramatic results. As noted, streamline the advertising model to and entertainment industry, companies media companies can potentially save maximize results. In the early days need to develop a similar type of capa- up to 40 percent of their operational of digital advertising it was all about bility. There are opportunities to become costs by migrating to a fully digital putting as many ads in as many places much more sophisticated when it comes environment. Digitization can espe- as possible, and filling up inventory in to digital advertising pricing and the cially help companies in the struggling numerous portals. Today, the digital creation of inventory online. Companies printing and publishing industry, helping advertising industry has turned upside can optimize or do yield management them develop digital competencies and down. It’s now a situation where around the pricing associated with processes in sales, advertising, editorial companies are looking to squeeze as digital advertising in an effort to gener- content and distribution. much profit as they can out of the ad ate every dollar of potential revenue space that they sell or populate. they can out of this environment. Digital transformation offers important possibilities in the area of advertising, One important related development as well. In spite of the pressure on ad has been in "yield management" in the revenues, the fact remains that compa- digital advertising space. This is similar nies have to advertise or they risk going in many respects to how the airline under entirely. We have seen high- industry manages its yield. Airplanes profile cases of companies that tried have a fixed number of seats, so the to slash their advertising budgets too airlines constantly move and shift the severely, resulting in dramatic declines prices based on perceived capacity at in revenue. 10 Managing Through Challenging Times
  12. 12. Managing Through Challenging Times 11
  13. 13. I WILL COLOR HER CLOTHES BLUE 10 Managing Through Challenging Times
  14. 14. Conclusion: Taking the long view of high performance In challenging economic times, people look for entertainment and information more than ever. That means that media and entertainment companies who are committed to developing great content, but also to transforming their cost structure and capturing the benefits of fully digital operations, can meet their short-term cost reduction needs while also positioning themselves for longer-term competitive differentiation. If one takes a long view of industry Certainly there are competing strate- This kind of openness is also a way to trends, it becomes apparent that media gies and points of view out there. encourage innovation and the growth and entertainment companies must Some companies have decided to forge that comes from it. Even in difficult also reach out to their brethren in closed ecosystems where they seek to times, innovation must be on the minds related industries—communications, control the content, device and even of board-level executives. Driving cost high tech and software companies in the communications link. Other com- efficiencies in the near term is essen- particular—to forge innovative kinds panies have decided to be more open tial. At the same time, driving out cost of partnerships based on new business with both the content and distribution while still positioning a company for models. This is an insight Accenture channels. Many of the companies seek- competitiveness and long-term profit- sees every day, as we bundle our ser- ing to control things too closely are ability will be the key to achieving high vices and offerings across these related under severe pressure. The great tides performance in the years ahead. sectors of media, entertainment, pub- of change appear to be pushing com- lishing, communications, software, high panies toward an open, collaborative tech and electronics. model. 1 Accenture, "Embracing the fully digital ecosystem: Digital transformation in the entertainment industry," 2 National Association of Television Program Executives (NATPE), "Can the Entertainment Industry Survive the Recession?" 24 October 2008, Managing Through Challenging Times 11
  15. 15. This document is an informed point of view based on research, opinion and experience, and should not be considered as professional advice with respect to your business. Copyright © 2008 Accenture About the Author About Accenture All rights reserved. Greg Douglass is the Global Managing Accenture is a global management Accenture, its logo, and Director for the Media and Entertain- consulting, technology services and High Performance Delivered ment Industry Practice at Accenture. outsourcing company. Combining are trademarks of Accenture. Greg lives in Dallas and graduated unparalleled experience, comprehen- from the University of Texas with a sive capabilities across all industries Bachelor of Science degree. He has and business functions, and extensive more than 17 years of consulting research on the world’s most and management experience across successful companies, Accenture the telecommunications and media collaborates with clients to help them industries, having worked on projects become high-performance businesses including new business and product and governments. With more than launches, systems integration, business 186,000 people serving clients in over process development, business process 120 countries, the company generated outsourcing and strategic convergence net revenues of US$23.39 billion for planning. He focuses on developing the fiscal year ended Aug. 31, 2008. Its and implementing innovative solutions, home page is working closely with a global team specializing in the convergence of Communications, Media and Entertainment, and High Tech products and services.