The past few years have been among the most turbulent in the history of the broadcasting industry. Broadcasters have been driving industry value mostly through operational improvements and structural cost reductions. Today their focus should be broader. They need to develop more effective content performance management capabilities; improve enterprise agility; and create distribution capabilities in line with current trends such as open platforms and multiple kinds of screens.
The primary cause of the recent turbulence in the broadcasting industry has been a fundamental shift in broadcasting economics. Audience numbers alone no longer necessarily translate into revenue based on traditional equations.
Advertiser-funded models are seeing budgets carved up and spread across new media, with consequent effects on pricing.
Subscription-funded models depend on delivering better content and new services just to hang onto customers without requiring huge increases in subscriber acquisition costs.
Accenture has recently published the third edition of its “Future of Broadcasting” series. Based on a shareholder value analysis for the year 2012, the report discusses marketplace trends, how value is being created in the broadcasting industry and what new imperatives exist today to drive high performance.
The study found that the distinction between pay and free-to-air business models is becoming increasingly less relevant. Instead, investors are looking for broadcasters to embrace more sophisticated strategies adapted to an era of constant change in the quest to become more resilient, future-proofed businesses.
With consumers continuing to favor linear TV (traditional TV watching) and, for the time being, broadcasters retaining privileged access to the most attractive local and international content, the established underlying value drivers of broadcasting appear resilient in the near term. However, a number of structural trends will increasingly require different kinds of strategic actions from broadcasters.
Emerged media: Accelerating companies’ online presence. Although broadcasters have been able to effectively respond to the threat of emerging media, they cannot rest on their laurels. They must continue to innovate, especially as the influence of large Internet players becomes more disruptive. The key to broadcasters’ long-term success will be to boldly go one step forward, leveraging their newly acquired confidence in understanding and managing the online world and its rules.
Content’s “kingdom” grows: Offering more compelling and varied content. Where broadcasters once had exclusive command over the viewing experience, consumers now rule. They want to be in control of what they consume, when they consume it and how they interact with it. Although airing popular programs has always been a key success factor in the broadcast industry, changes in viewing habits and increases in supply have driven broadcasters toward ownership of appealing local and international content, and using analytics to create a more personalized viewing experience.
Advertising’s power shifts: Adapting to a changing advertising environment. Broadcasters cannot rely on traditional advertising for future revenue growth; yet the shift in spending patterns stresses the importance of developing meaningful online, multi-device propositions. However, to maximize their ability to attract this aspect of consumer spending, broadcasters will need to update their commercial offers to create comprehensive and sophisticated advertising packages that span both linear and non-linear viewing.
Looking more closely at the financial analysis conducted for this study in light of the industry trends just discussed, Accenture makes three important recommendations about how broadcasters can increase their future value.
Develop more effective content performance management.Already the most expensive asset to a broadcaster, content is likely to become even more expensive. Premium content will become scarcer as major studios’ output falls. Online disrupters are shifting the focus to TV products such as series, increasing the degree of competition and therefore the price.
This means that the way content use is planned, executed and controlled will become even more important to ongoing shareholder value. What Accenture calls “content performance management”—the alignment and integration of TV rights management with financial planning and control—will be key to preserving the balance between capital invested in content and its returns. Content performance management coordinates activities that include using profitability models centered on products and rights models; analyzing the profitability of the product portfolio to drive editorial decisions; and establishing a new profitability mindset among content decision makers.
Improve overall enterprise agility.Analysis of enterprise value/invested capital ratios shows that investors have increased the premium on invested capital for those companies that are becoming more agile in a number of ways—for example, those that have downsized their operations. A major initial move in this direction has been the disposal of non-core assets.
A second factor in becoming more agile is cost reduction. Opex ratios in the broadcasting industry remained relatively stable between 2011 and 2012. Because this sector is characterized by high operating leverage, important cost transformation and optimization programs have been carried out, targeting both direct and indirect costs.
However, in the future, attention will need to shift from direct costs (the easiest component to tackle) and content costs (which need to take place in the context of a more profound content optimization program as noted above) to operations costs.
Break down the distribution barriers.Many of the forces creating turmoil in the broadcasting industry are also driving future value. For example, distribution is moving from proprietary networks to a more open set of IP-based, over-the-top standards. Consumption is moving from a narrow set of devices to an array of large and small screens. The goal for both new and established operators is to evolve their business to take advantage of these trends while simultaneously protecting their core models.
One of the most important questions determining the future of the broadcasting industry is the degree to which platforms will be “open” (i.e., platforms on which third-party content and service providers can forge their own relationships with consumers) or “closed”—i.e., where content and service providers still sell to the platform owner, who controls all retail and consumer activity. Our analysis indicates that, as the market becomes more crowded, TV platforms will tend, at varying speeds and extents, towards opening up.
An innovation-driven industry
Accenture’s latest shareholder value analysis and consideration of trends show that the broadcasting industry’s turbulence is calming—for now. Broadcasters are embracing more sophisticated strategies to engage a fragmented audience with new digital experiences. Investors are rewarding the efforts of such innovators.
Emerging media is bringing creativity and a renewed sense of mission to the industry. But it is also responsible, in part, for a shrinking traditional advertising market and decreasing subscriber numbers. Broadcasters have responded to the threats from over-the-top competitors with innovations of their own. Now they need to build loyalty from future generations of consumers—who are also future targets for advertisers. But creating compelling traffic on new video-on-demand platforms requires going one significant step further: seamlessly integrating linear and nonlinear content as the core of new customer experience.
Managing the content proposition is becoming more complex, competitive and costly. Traditional distribution networks no longer provide a barrier of exclusivity, so content performance management will be key to preserving the balance between content investments and returns. Furthermore, integrated commercial, editorial, financial and procurement planning can help allocate capital for content sourcing consistently with planned cost structures and revenues. Better management information and subsequent decision making can decrease the risk of investments that previously relied more on luck than design. The importance of the modernization of broadcasting operations and the continuing trend toward agility will grow in light of the constantly increasing complexity of the broadcasting sector.
As media consumption moves to an array of devices and as digital TV platforms open up, growth opportunities will present themselves to those who can innovate on the back of a flexible but proven value proposition. For those who cannot leverage innovation, turbulence looks set to continue.