Bundling and forming alliances are two strategies media and entertainment executives say they are pursuing to find profitable growth in a changing industry, according to a survey by EY.

A new Evolution of M&E report notes the industry is looking for new models now that spending big on content to attract subscribers is no longer acceptable to investors.

In an increasingly direct-to-consumer industry, 90% of executives surveyed said their business transformation efforts were being designed and implemented with the customer in mind.

Data is the key to understanding customers and their behavior. In the survey, 65% of respondents say that accessing data and improving the visibility of data is a top opportunity in the next 12 months. Somehow, just 58% of M&E companies say they fully use available data to inform decision-making. About half of respondents said building or enhancing customer data capabilities is not a critical priority for their organization, the report said. 

In terms of making moves, executives see bundling as a way to improve engagement and retention.

“In a DTC world where consumers have the power to sign up and churn off streaming services at will, M&E companies are highly focused on increasing engagement with their content and platforms to strengthen the customer relationship,” the report said. “According to our research, 52% of M&E executives are prioritizing the launch of bundled offerings. In streaming, this includes consolidating distinct streaming services into a single app populated with a more robust content offering and delivered at an attractive relative price. The trade-off of building a supersized streaming app, with associated savings in technology and marketing spend, is the potential cannibalization of distinct, overlapping subscriber bases that exist today.”

And in an environment where interest rates are rising — depressing earnings and making mergers and acquisitions activity more expensive — companies are turning to alliances.

Over 50% of the executives EY talked to said forming partnerships is necessary to realize their long-term goals. 

“We are seeing a proliferation of commercial agreements, joint ventures and alliances across both large and small M&E companies looking to build capabilities or enter new markets on a quick and capital-efficient basis,” the report said.

EY concluded by saying disruption is fueling the media and entertainment industry.

“By embracing reinvention, focusing on the customer, prioritizing disciplined business execution and remaining strategically nimble, M&E companies will be well-positioned to achieve sustainable and profitable growth,” the report said.  ■

As we move into 2021, media and entertainment leaders will be operating in a landscape that has been permanently changed by the pandemic. U.S. consumers have adopted new habits and preferences while the forces buffeting the industry have increased in intensity. Here are five trends to watch in the year ahead as we shift — eventually — into a post-COVID world.

Industry Under Renovation

EY research released in January 2020 found that 50% of media and entertainment executives believe they can no longer rely on traditional business models to drive future growth, highlighting the imperative for strategic and operational reinvention.  

The impacts of COVID-19 accelerated and amplified long-running secular changes, including streaming growth, cord-cutting, fading movie attendance and an increased focus on the price-value relationship by media consumers. COVID-19 also resulted in shorter-term cyclical shocks. Lockdowns and travel restrictions walloped virtually every business that relies on the physical aggregation of people. Industry executives are responding by taking bold steps to reposition their companies to align with new market realities.

Looking ahead, the sweeping restructuring actions already announced by several media majors will take hold throughout the industry. A primary motive is cost reduction, of course. However, the changing nature of the industry is forcing companies to rethink how they are structured and how they go to market.

The steps taken by media and entertainment companies to streamline their operating models for efficiency and effectiveness will remain on center stage as the entire industry plots a course through disruption.  

Time to Partner Up

Consolidation catalysts for media and entertainment companies are clearly defined. Most notably, they include the strategic necessity to acquire content to fuel streaming growth and the tactical reality that increasing size enables efficiencies and unlocks incremental investment capital. However, the window may be closing for studios and network owners hoping to sell to larger players in media or adjacent sectors due to questions around feasibility and demand. 

Media competitors that lack mega-scale face a crucial choice: attempt to forge ahead alone through turbulent waters or move rapidly to tie up with a similarly positioned peer to improve competitive and financial positioning. They must also set their strategy while navigating the uncertainty arising from the pandemic.

In 2021, we will likely see further combination activity involving midsized and smaller network owners and studios, motivated by the need to create a bigger platform to fund the investment in content, marketing and technology required to make the pivot to a direct-to-consumer model.  

Connection Has Value

Cable companies are achieving record results from their high-speed data offerings as consumers rely more than ever on fast internet connectivity for work, school and entertainment. Pay TV packages, once the cornerstone of the subscriber relationship, are being deemphasized in favor of broadband speed tiers and other connected services. According to EY’s 2020 Digital Home study, 40% of respondents purchase internet-only packages from cable companies, up 8% year-over-year, further reinforcing the market dynamics.

Going forward, cable companies will seek to expand more deeply into the household by deploying a broader suite of products that build on the core internet connection, including in adjacent “smart home” areas such as home security, a variety of connected devices – thermometers, doorbells, appliances — and potentially telehealth applications.

Embedding further into the household makes good strategic sense for cable companies as wireless providers begin to roll out 5G networks at scale.  

Live Events Return, Differently

In-person events will see a robust return in 2021 as the human need for shared experiences remains uniquely powerful. We are already seeing this at selective sporting events where limited crowds are back in stadiums cheering for their teams. Even so, absent a fully distributed vaccine for COVID-19, mitigation strategies will be required as fans return. This will change the dynamics for events — and will potentially open innovative new channels to enhance the consumer experience.  

Business conferences will continue to utilize digital platforms to extend reach and include remote participants who remain wary of business travel. Music venues will push ahead with creative audience layouts to encourage attendance, while also promoting interactive options. Owners of large stadiums will utilize their vast capacity to design ticket blocks that meet social distancing guidelines. Theme parks will promote safety measures and offer attractive deals to drive admissions.  

While serving as a bridge to a full reopening, these solutions also will keep audiences engaged and establish new multichannel, customized connections — mobile and powered by sophisticated data analytics — that will become part of the consumer value proposition.

Gaming, Esports Level Up

Esports and video gaming will build on a user base that multiplied in size during the pandemic. When sporting events were shuttered, teams, leagues, athletes and promoters embraced esports competitions involving simulations of “IRL” [in real life] events to maintain fan engagement and fill broadcasting slots. From auto racing to basketball, to cycling and even horse racing, millions tuned into virtual events, opening a wide new consumer engagement pathway that we expect to grow in 2021.  

Meanwhile, video game revenues have almost doubled over the last five years. New game launches from publishers — combined with the growth of in-game microtransactions and advertising — are leading to another record year for the industry. Upcoming releases of next generation consoles and the launch of gaming cloud streaming services will further stoke demand well into 2021.

Success in 2021 will depend on industry leaders adapting strategies to meet unforeseen market opportunities and threats. With disruption as the constant, the only way to survive and thrive in exceptional circumstances is to build systemic agility and execute at lightning speed. In 2021 and beyond, companies will be successful not because they are better at predicting the future but because they can better orchestrate a wide-ranging ecosystem of in-house talent and external partners and pivot in a timely, confident manner. 

Applications enabled by the Internet of Things (IoT) could help media companies unlock revenue possibilities and make accessing new platforms and content easier, according to a new study by consulting firm EY (formerly Ernst & Young).

EY’s report – Internet of Things: Human-Machine Interactions That Unlock Possibilities – states that the potential for IoT in media is expansive, enabling providers to create deliver and tailor content for new platforms and to measure the context of media consumption through analytics.

The media and entertainment industry already is using IoT to some extent, according to the report, via inertial, motion and image sensors used in animation, gaming, video images, camera stabilization, sports and 3D.  

 “Armed with meaningful insights about consumer behaviors and preferences, M&E companies will be able to use data to deliver highly personalized, contextually relevant entertainment experiences to help people reimagine their experiences on devices they already own,” Chris Gianutsos, EY executive director, Media & Entertainment advisory services, said in a statement.

"To fully exploit the potential of IoT, there’s also an opportunity to expand to platforms that may not be considered part of the entertainment ecosystem or even exist today," he added. "Think about having news and information delivered on household appliances or video streaming in self-driving cars. We expect this will dramatically redefine consumer expectations in the near future.”

Those sensors also could provide data on consumer habits, preferences and the context in which media is consumed. Better data also could help address measurement deficiencies, like the duplication of unique users across platforms, and enhance what marketers know about their audiences.

“In an IoT world, media companies will be able to understand what a person is watching, as well as measure how, where, why and with whom consumers are viewing content,” said partner and EY global media & entertainment advisory leader Howard Bass said in a statement. “This new level of insight and context provided by smart devices will allow M&E companies to deliver targeted advertising that is relevant to a person’s mood, physical activity or location in real-time. IoT will not only improve the content experience for consumers, but it will also encourage the advertising industry to completely redefine its measure of success.”

There are risks to IoT, mainly regulatory hurdles, legal precedents, intellectual property rights, lack of connectivity standards and lack of IoT scale to reach critical mass, the report said. The biggest challenges are around privacy and cybersecurity, as protecting personal privacy and information will become increasingly difficult as more data is accumulated and more devices are connected.

“IoT is both disruptive and inevitable,” Gianutsos said. “For M&E companies to be successful, they will have to address risk and quickly innovate to respond to evolving customer needs and deliver rich content experiences. Only then will the M&E industry find real value in its IoT investments.”

Driven by high-margin high-speed Internet and commercial services, cable operators are expected to generate some of the largest profit margins in the media & entertainment industry in 2015, according to a report from accounting giant EY.

In its report, Spotlight on Profitable Growth, EY (formerly Ernst & Young) predicts that earnings before interest, taxes, depreciation and amortization (EBITDA) margins will reach 40% in 2015 for cable operators. Cable networks, which have been battered over fears of competition from over-the-top video services, nevertheless will post EBITDA margins of 36% according to EY, fueled by gains in digital licensing revenue and higher affiliate fees, partially offset by advertising declines.

Satellite TV services like Dish Network and DirecTV (recently acquired by AT&T) are expected to show lower margin growth, about 25%, in 2015, EY says.

TV broadcasters, expected to grow EBITDA margins 21% in 2015 should benefit from continued consolidation in the industry, particularly through higher retransmission consent fees, digital distribution growth and international syndication, EY says.  

Other segments within the media & entertainment sector tracked by EY should fare as follows: interactive media, 34%; information services, 30%; electronic games, 28%; conglomerates, 28%; film and TV production, 14%; consumer publishing, 13%; and music, 13%.

Overall the Media & Entertainment segment is expected to grow EBITDA margins 28.3% in 2015, compared to 27/8% growth for the S&P 500 Index.

"The evolution of the M&E industry continues to focus on the exploitation of digital distribution and finding new and innovative ways to reach and interact with the consumer,” said EY Global Media & Entertainment Leader John Nendick in a statement. “With surging demand for content, M&E companies are growing their profitability through multiple consumer offerings, better knowledge of consumer tastes and preferences and continued international expansion."

Bouyed by high-margin broadband and commercial business products that continue to make up for a declining video business, cable operators continue to lead their media peers in terms of profitability, according to a report issued earlier today by consulting firm EY (formerly Ernst & Young).

According to the report, cable operators will lead the sector with 2014 EBITDA margins of 41%, followed by cable networks (37%), interactive media (36%), electronic games (29%), conglomerates (26%), satellite television (26%), publishing and information services (21%);  television broadcast (19%); film and television production (12%); and music (11%).

“We are seeing that digital is very much driving profits now, instead of disrupting it. Companies are figuring out how to monetize the migration of consumers to a variety of digital platforms, and this insatiable demand for content is fueling growth throughout the industry,” said Global Media & Entertainment Leader John Nendick in a statement.

In an interview, Nendick said while the sample used in the report included international as well as domestic cable operator and networks. And he added that EBITDA, which is more a measure of efficiency, does not include capital expenditures, which could affect the bottom line.

“Our experience to date has been to date that while there has been some minor subscriber reductions, or cord shaving, it hasn’t really moved the meter in terms of overall performance,” Nendick said in an interview.

Other highlights from the report include:

•  Cable networks are seeing growth in affiliate fees, international syndication and digital

licensing which is spurring EBITDA margin growth making it the second most profitable

industry sector.

•  Interactive media companies are driving their margins through innovation in search and

online video advertising combined with growth in premium video subscriptions.

• Electronic gaming companies are seeing growth in profitability from the increasing

number of users on digital platforms.

• Conglomerates are using their ability to spend on premium content to attract large

audiences and create a barrier to entry for smaller players.

• Satellite television companies are maintaining cost controls to counter slowing

subscriber growth, however rising programming costs will adversely affect the sector’s

profitability.

• Newspapers and magazines continue to see declining advertising and subscription

revenues. While digital revenues are growing, this only makes up a very small portion of

overall revenues.

• Television broadcasters’ ability to reach a large, albeit shrinking, audience continues to

be valued by advertisers. Consolidation among broadcasters is expected to help them

sustain increases in retransmission fees.

• Film studios are driving their profitability through increasing revenues from digital

platforms and investments in franchise-based films and higher-margin television shows.

• The music sector is driving record growth in profitability from the expansion of licensed

digital subscription and streaming services, growth in music publishing and rising

smartphone and tablet penetration in emerging markets.