Media and entertainment businesses face an unprecedented array of challenges as big tech companies move into content creation and distribution. To survive and prosper, established players need to guard their core business while forging a path to unlock new revenue streams through innovation, says Accenture’s Gavin Mann.
“If we want everything to stay the way it is, everything must change.” As Tancredi Falconeri tries to convince the old Sicilian aristocracy to adapt and take a hand in shaping the new Italy (from Giuseppe Tomasi di Lampedusa’s The Leopard).
There is no doubt that the media and entertainment industry is experiencing a period of extraordinary revolutionary change. Internet companies have played the major role in driving this. New types of distributors have emerged and have empowered consumers to expect something different. On the demand side, the growing purchasing power of the ‘digital native’ generation – which looks to the internet to meet its entertainment needs – is adding to the pressure on big media.
Growth from established revenue streams of media and entertainment businesses has therefore stalled. While their digital revenues are increasing, this is still from a small base. And this is all happening at a time when new entrants such as Netflix and Amazon, and potentially Google, Facebook and Apple, are eating into their market share. Studios are no longer in a position to act as effective gatekeepers of their content, and networks are losing their brand power in an everything-on-demand world.
Those new entrants are increasingly setting the benchmark against which consumers judge established companies’ performance. The term Accenture uses is “liquid customer expectations” to describe the phenomenon whereby the best-in-class experience available on any device or type of service bleeds into consumer expectations across all service providers. If Netflix provides the best subscription video-on-demand experience, or Uber, the easiest to use mobile App, pay TV customers expect their provider to deliver something similar – in addition to the equivalent of the best-in-class linear channels experience and a best-in-class broadband and mobile phone service.
“You need whatever you provide to work as well as Amazon, as Uber, as Facebook,” says Gavin Mann, managing director, global broadcast industry lead at Accenture, “Platforms with the biggest budgets continue to raise the bar. There is no finish line and service providers must get used to continual change. For organisations not used to this pace of change – meaning most businesses – that is disruptive.”
With traditional distribution channels in decline, media and entertainment companies need to find the key to unlock the value of their content assets in the digital world.
However, unlike the new disruptors such as Netflix and Amazon, broadcasters and traditional media companies also have to maintain and nurture the steady reliable cash flow that comes from their legacy businesses and established customer bases.
“Media companies face a macro-level challenge and a macro-level opportunity. The difficult part is how to change their culture and operating model and embrace the change in the way that will be necessary over the coming decade while continuing to grow their legacy business, which remains very important and is in many cases still very strong and will be around for a significant period of time,” says Mann.
To address this, Accenture has proposed a four-step plan to enable media companies to evolve their core businesses while freeing up cash to invest in the new: transform the core; grow the core; scale the new; and finally, know when to make what the company describes as a ‘wise pivot’.
Transforming and growing the core
For Mann, media companies must in the first instance work out how to take costs out of their core business and at the same time develop a clear understanding of how to grow revenue from linear distribution.
It is however vital for established players not to try to overreach themselves by dismantling their core business before they have fully built out a new one to put in its place.
“It is very important to decouple the new from your legacy business. We don’t recommend overhauling that business. You can invest to take some cost out of it but putting the whole thing on a new platform is fraught with risk and very expensive,” he says.
A far better approach, he says, is to make small-steps improvements to the core platform where the risk is relatively low and focus effort on innovation in new areas that can be built on independently of the existing business. “If the core platform is really complex, it may be possible to leave it in a black box and to innovate around that, but don’t jump into performing open heart surgery on your core business,” he cautions.
This advice extends to all aspects of organisational change and creating a workforce capable of taking on the challenges wrought by digital disruption.
“Again, you need to decouple the old from the new. There are some skills that will still be required for some time to come, but there is clearly a whole new need to create a culture that enables creative and constant innovation, including a need to be able to fail safely,” says Mann.
Embracing data science – sometimes a challenging task in an industry led by creative people – along with diversity will also be key to getting the most out of the media and entertainment workforce, he suggests.
Broadcasters can start to grow by experimenting with new revenue-generating ideas that sit on top of their core linear business. “There are ways to extract even more value out of this very significant business,” he says.
Above all this means gathering and making use of data. Enhancing existing linear revenues from advertising through the judicious application of data analytics will enable media companies to better understand their audience, placing them in an advantageous position relative to competitors.
For Mann, “passion for the customer across the entire organisation” will be of crucial importance in delivering results. But delivering a best-in-class experience and being able to innovate in ways that delight customers will lean heavily, inevitably, on data.
Mastering the use of algorithms that help companies bring their audiences together with the content that pleases them will be one of the key survival skills for media companies in a fast-changing and increasingly globalised business. Mann cites UK broadcaster Channel 4 as an example of a company that has successfully adjusted to the growing centrality of data, while the BBC is praised for myBBC’s long-term coherent vision of reinventing public service broadcasting through data, transforming its relationship with its audience by building one-to-one connections to deliver a more personalised experience.
Broadcasters with the courage to develop the habit of logging on among their audience base are building an asset for the future, says Mann.
There is no point in putting the future of the business in jeopardy because of an untested fear of alienating a section of the audience that is already inclined to complain about any change, he suggests.
Scaling the new
Developing this kind of flexible mindset and the ability to execute the necessary changes will not be enough on its own for broadcasters and media companies with geographically-defined markets and revenue streams that are being targeted by trillion-dollar internet giants with global reach. Media companies need to tack to adjust to the headwinds they face by making the most of their advantages to develop new business models alongside the core business.
“Global-scale platforms are extraordinarily difficult to compete with directly,” says Mann. For this reason, he says, media companies will have to be more open to partnerships, and more creative about structuring those partnerships in ways that deliver value for the participants.
Such partnerships are likely to take the form of “loose couplings that enable participants to tap into another scale”, says Mann. There is no one-size-fits-all formula for success. Media companies will have to be inventive in working out how to share data with third parties that do not compete directly in the same market, to the mutual advantage of all concerned.
He points to ‘data cooperative’ initiatives in the US and in Europe that seek to lay the groundwork for media companies to operate at greater scale by enabling cross-publisher audience targeting and independent posting for advanced audiences – meaning advertising buyers can consistently target market segments across participating television publishers – without the sellers having to pool their inventory.
Forging partnerships to deliver scale is only one part of the battle to fuel growth, however. Media companies must also prove they have an ability to innovate in new areas. Ultimately, they have to try out new revenue streams and figure out what works.
“They need to demonstrate that they can deliver a good return on capital invested. Innovation is important for growth. Just being cost-efficient doesn’t drive up the share price – but it can release necessary funding to fuel innovation and create a culture of innovation to deliver new revenues,” says Mann.
Media companies’ core revenues may be larger than digital revenues overall, but new revenues will grow faster. CEOs are becoming more proactive in tackling the disruptive forces that are changing their industry. But many still struggle to pivot their organisations to new opportunities decisively or sustainably. Some companies remain overly focused on their core business such that they are unable to pursue new opportunities. Others neglect their core business in a dash to the New, leaving them on thin ice or short of the investment capacity they need. Getting it right is a balancing act,” says Mann. “Data can help you know if you are making the right moves. You can test and learn.”
Those new revenue streams are the acorns from which the oak trees of tomorrow will arise. Media companies that work through the trial and error stage of experimenting with different revenue-generating ideas will ultimately be better-placed to know when to make a ‘wise pivot’ away from the old core business and build on what was previously an experimental sideline to create a ‘new core’.
Anticipating this point of inflection is a transformational journey that involves rethinking the operating model, skills, technologies and core KPIs. Mann believes that broadcasters and other established entertainment businesses run the risk of being complacent because of the inherent strength of their core business. After all, in video distribution, linear TV continues to deliver audiences and big recurring revenues. But for how much longer?
“I think, in relation to video, that people take comfort from their legacy business. Linear TV still has a long future ahead of it and there is uncertainty about how things will evolve,” says Mann.
However, he adds, broadcasters also need to provide a plausible story to investors who are aware of the industry’s direction of travel and know that developing a growth strategy requires a different mindset to protecting an existing cash-generative business. Convincing investors that they have a meaningful growth story is therefore crucial. Only companies that are in a position to invest for growth will be able to withstand the competitive onslaught of big tech on the sector.
“Companies without an innovation story that don’t change their culture to be in a position to innovate will see shareholders lose confidence that they can continue to be high performers,” he says. “You can’t change overnight. While the bottom is not about to drop out of linear TV it may drop out from underneath those for whom the sole plan for the future is to stick with linear TV.”
To prosper, businesses need to anticipate that tipping point in advance of it occurring and to make the necessary preparations.
The advice proffered by Tancredi Falconeri to his uncle holds good for media and entertainment companies addressing the challenges presented by the fast-evolving digital video ecosystem. To stay in place and preserve their legacy, they need not just to embrace change but to lead it.
“People overestimate the pace of change in the short term but highly underestimate it in the long term,” says Mann. “Right now there is a healthy linear business, but in 10-15 years this could be an IP-only industry. At some point the broadcast signal will be switched off, and we’re not talking about the distant future.”
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