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28 March 2024

Media industry optimistic about opportunities

Headcount reductions must be accompanied by process and organisational changes. (REUTERS)

Published
By Vigyan Arya

The media and entertainment industry has been facing challenges from within even prior to the global economic downturn. New platforms, newer means and their ever-changing consumers have been throwing challenges at the industry, which professionals believe, has prepared the media and entertainment industry. This was voiced by a majority of professionals surveyed by international auditing and marketing research company, Ernst & Young.

The firm has compiled a special report called 'Opportunities in Diversity' based on a survey of 1,000 top industry leaders from across the world, including the Middle East. The report opens with a reminder of challenges faced by the entertainment and media industry – on the fastest growing industries.

It states: "The industry is struggling to cope with the digital evolution amid an economic downturn. But, despite critics' shouts, many industry players are quietly optimistic about their prospects as compared with other industries and feel better prepared to take advantage of opportunities when the economy rebounds.

In the 1950s, experts were sure that television would kill radio. In the 1970s, cable TV was going to spell the end of free-to-air television. In the 1980s, video was going to shutter movie theatres, reminds the report. More recently, YouTube is being seen as dooming professional content. And piracy is causing alarmists to fear that it may destroy the entire industry.

But contrary to the common myth, the media and entertainment industry has thrived. It has remained resilient when compared to the broader economy even during the worst economic crisis since the Great Depression. Using Standard and Poor's S&P Global 1200 Index as a measure, during the 20-month period in the midst of the crisis-hit 2009, the media and entertainment index outperformed the broader cross-industry index by 4.2 per cent – with staggering volatility. Some media and entertainment companies' share prices showed a decline of up to 91 per cent, while others grew as much as seven per cent, reminds the report.

On the reality side of the survey, 84 per cent of media and entertainment respondents said they have accelerated their cost-cutting activities over the past year. "Media companies, that include agencies and media houses, are realising that headcount reductions must be accompanied by process and organisational changes if there are to be long-term gains in efficiency," said Ramzi Raad, Chairman and CEO, TBWA\RAAD, a Dubai-based multinational media company.

Speaking to Emirates Business about the challenges faced by the industry in the recent past, he said: "What's to come in the future cannot be a reflection of the past. The industry is growing so rapidly that we can only look at the future and plan ahead, rather than looking back, that's past and history."

For most companies, especially in the Middle East, capital expenditures have been relatively flat the past two years. In today's economy, capital projects need to generate immediate revenues. Some cable operators and direct broadcast satellite systems have been willing to spend when results are tied to revenue generation.

Orbit and Showtime, two of the biggest cable operators have unexpectedly increased their advertising and marketing communication budget, following the announcement of their merger, making them the largest cable operator in the Middle East. Even before the global economic crisis, risk management was high on media and entertainment's list of priorities. But as companies navigate the constantly shifting terrain of digital platforms, many are realising their risk assessment processes haven't kept pace.

Emerging markets may provide a means for media and entertainment companies to improve their profitability. As global economies like China, India and Latin America develop, consumers will have more access to technology and content. Media and entertainment companies are analysing opportunities afforded by changing regulations. Throughout the world, governments are using the advent of new media to take a fresh look at how they regulate media and telecommunications. There are efforts underway to boost broadband penetration.

In the UK, the government has launched a new initiative called Digital Britain. The effort will wire all UK homes and businesses with broadband at a minimum speed of two megabits per second by 2012. The goal is to position the UK as a leader in the global digital economy and spur growth in the digital and communications industries. The plan will be paid for by taxing those with access to provide access to those without. It also includes a small tax on all fixed phone lines. In exploring new digital territory, companies need to be cautious with investments, which may take longer than expected to become profitable or not become profitable at the rate expected.

Even the newest, seemingly successful digital business models may be already changing. Beginning in the late 1990s, a consensus had emerged that "information wants to be free." Newspaper publishers put their content online for all to view. A few newspapers tried to charge for content, but those experiments were quickly dropped. While online visitor and ad growth are impressive, the economics is less so. Publishers' online ad revenue growth has not made up for what they have lost in print. In a way, the online versions are slowly strangling print circulation.

The problem is that consumers no longer pay for much of the information they consume. According to a Pew Research Center study, more people got their news for free online than paying for a newspaper or magazine. Companies can't sustain a business if their content is given away. Newspapers are rethinking their online business models and may, in the near future, be charging for online news content. Some analysts believe it is the only way for newspapers to survive.

In this report, 44 per cent of media and entertainment respondents said that in the next 12 months, they will use M&A as a method to position their business to emerge stronger from the crisis than their competitors. As business models change, in-house talent needs to keep pace. Companies need to drive new models and understand how to capitalise in the digital media space. Yahoo! provides a good example of finding a balance between cost management and retaining talent in difficult times.

Cutting costs without putting a long-term plan in place may limit a company's ability to change its strategy. Careless cost-cutting may limit it's ability to respond when the economy recovers. Media and entertainment companies must keep a balance. Acquisitions and new distribution channels (if the pricing is right) can secure their future.

 

 

 

But while global expansion presents many opportunities, it also carries substantial risks. These include regulatory risks (ownership restrictions, taxes), IP risks (piracy, copyright, licensing and reuse), content risks (cultural norms and local tastes) and currency risks. Companies that do business in emerging markets need to ensure their risk management process addresses these risks.

Advances in technology and distribution channels, the rising importance of less-regulated emerging markets, and the growth of open source and online video content combine to make intellectual property protection a priority risk in the media and entertainment sector. Piracy and illegal distribution channels continue to expand in developing countries. The impact of piracy will continue to grow as bandwidth increases and more media assets are offered online, consumers become more comfortable accessing media content and products online, and the expectation persists that some or all of that content should be free.

If companies can successfully enhance the value of the fee-for-service alternatives through compelling pricing, ease of use, quality of product, service or overall experience, consumers may find pirated content less attractive. Attractive paid-content models – which allow companies to recover some revenue loss by inducing customers to pay for at least part of the content – have also started to emerge.

 

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