Impact of Coronavirus on M&E Industry

1. SGA Whitepaper SGA Whitepaper April 2020 April 2020 M&E INDUSTRY IMPACT OF CORONAVIRUS ON

2. CONTENTS 1 Introduction 3 Linear TV: steep uptrend in consumption but cord-cutting may be on the cards 2 4 3 VOD/OTT platforms: the upsides and expected challenges 6 4 Advertising spending: a clash of contrasts 7 5 Hollywood & event organizers: a saga of setbacks 9 6 The professional sports industry is in a lurch 11 Gaming industry feels the ripples: but the game is still on! 7 12 8 What consumers want - changes in viewing behavior and consumer preferences 13 What does the future look like for M&E companies? 9 14 SGA Whitepaper | April 2020 www.sganalytics.com 2

3. INTRODUCTION The Media & Entertainment (M&E) industry in the US has been deeply impacted by the Coronavirus pandemic. In this SG Analytics Whitepaper, we will examine the impact of the pandemic on various segments of the M&E industry. With consumer spends shifting drastically, the impact of the Covid-19 situation on the M&E industry can be far-reaching. Given the nature of the work, the operations of M&E industry demand large groups of people to engage with each other. The COVID-19 pandemic has taken a drastic toll on events, cinemas, stadiums, entertainment parks, broadways etc. The industry has been destabilised as major events and shows have gotten cancelled; film, media and broadcasting companies have started to run into huge losses as large-scale music events such as Coachella have gotten postponed and film makers are coerced into pushing the movie release dates further. It is estimated that the global film industry could lose more than $5 billion due to the pandemic. It is estimated that the global film industry could lose more than $5 billion due to the pandemic. SGA Whitepaper | April 2020 SGA Whitepaper | April 2020 www.sganalytics.com www.sganalytics.com 3 3

4. LINEAR TV: steep uptrend in consumption but cord-cutting may be on the cards Much like the surge in viewership being experienced by the streaming platforms, Linear/broadcast TV is also witnessing a steep rise in consumption, as more and more people choose to isolate themselves in their homes. As per Nielsen, the Coronavirus outbreak led to an increase in the consumption of traditional media as well. According to Nielsen, the TV ratings will go as high as 60% during the current, extraordinary times owing to stay-at-home TV viewership. Most watched TV shows in the week March 9-15, 2020, by number of prime time viewers 12 10.76 10.44 10 9.9 8.89 8.74 8.55 8.31 8 8.14 7.75 7.47 6 4 2 0 NCIS (CBS) 60 Minutes (CBS) Democratic Presidential Debate (CNN) Young Sheldon (CBS) The Voice (NBC) The Bachelor (Tuesday 8 PM, NBC) FBI (CBS) Blue Bloods (CBS) The Bachelor (Monday 8 PM, NBC) American Idol (ABC) March 9-15 (2020) Source: https://www.usnews.com/news/business/articles/2020-03-17/tv-ratings-illustrate-hunger-for-news-on-coronavirus-threat SGA Whitepaper | April 2020 www.sganalytics.com 4

5. According to Tony Hall, BBC Director General, “We are already seeing new ideas coming through which might provide innovative new ways of producing TV in these uniquely challenging times.” According to Nielsen, linear TV recorded an upsurge of 17% in South Korea while the Coronavirus infections spiked. In the US, the Seattle area reported a similar situation. Based on a Nielsen report, television viewership shot up by 22%, as on March 11, compared to the week before. The same day in New York, the total television use increased by 8% since majority of the population had started to work from home. However, it would be too simplistic to coin the current situation as ‘good’ for the M&E industry as clearly, this surge in viewership is driven by an extraordinary pandemic related trend which will not be sustainable in the long term. Content gap and recession woes will loom large for linear TV companies in the coming future, much like the OTT platforms. Also, due to the worldwide economic crisis and drastic changes in consumer spending patterns, there will be a negative impact on advertiser confidence and the media spends which are consumer discretionary. Currently, viewers are craving for feel-good, humorous and light content in order to balance out the negativity generated by the pandemic related headlines. Dark and challenging content has taken a back seat for now. Even though broadcasters like BBC in the UK and RTL and NDR in Germany had to cancel live audience shows, a lot of new ideas for production are pouring in. Users watching Online/Linear TV amid COVID-19 Outbreak 53% France 31% 35% Germany 21% 32% 39% Australia 30% 32% U.K 32% 42% U.S 42% 0% 10% 20% 30% 40% 50% 60% Linear TV Online TV Source: https://www.digitalinformationworld.com/2020/04/the-impact-coronavirus-is-having-on-entertainment-consumption.html According to a New York Times report, Warner Brothers has stopped production of more than 70 Television series. Majority of late-night talk shows that amount for a big chunk of profits for broadcasters have gone dark. Not just that, ‘Sports Programming’ that has billions of dollars’ worth of advertising revenue and television subscriptions linked to it, will take a drastic hit. SGA Whitepaper | April 2020 www.sganalytics.com 5

6. VOD/OTT PLATFORMS: upside for sure but challenges remain With social distancing being practiced worldwide, self-isolating individuals are now indulging in binge watching, leading to an exponential increase in viewership for VOD/streaming platforms. However, this upsurge, touted as being ‘short-term,’ is offset by some very real challenges. Due to TV shows and sports events being called off, streaming platforms may face an imminent scarcity of content. OTT platforms like Netflix, Amazon Prime, Hotstar etc. are experiencing a unique situation in the wake of the Coronavirus pandemic. As per a New York Times report, Netflix felt the Coronavirus heat and had to suspend the production of all its scripted films and series in the US & Canada for at least 2 weeks. In the coming next 4 months, viewers were excited about the rollout of new streaming platforms such as HBO Max, Peacock and Quibi, whose launch dates have been moved owing to the pandemic. SGA Whitepaper | April 2020 www.sganalytics.com 6

7. ADVERTISING SPENDING: a clash of contrasts The Coronavirus pandemic has unleashed indiscriminate chaos on advertising spending as well. As bottlenecks in supply chain escalate and revenues become scarce, brands have decided to cut down advertising spend. In the present-day backdrop where viewers’ preferences have shifted from sitcoms and dramas to sports coverage, the big buck broadcasters are deeply concerned. With the industry facing an imminent postponement or cancellation of nearly every major sport event, media giants are facing a grave conundrum as sports programming brings in massive advertising dollars and fuels TV subscriptions. According to Kantar Media, advertisers spend nearly $2bn on live games and tournaments around this time of the year. ESPN is set to suffer a loss to the tune of $481 mn in NBA tied advertising. The news of the postponement of the Tokyo Olympics is being tracked closely by NBC and its parent company Comcast as advertisement commitments to the tune of $1.25bn might be on the line. A flip perspective to the Coronavirus pandemic would be the television ad market retaining its strength, as viewers are stuck at home watching news; this is fuelling the perception that while the ad spending may take a temporary hit, largely, media companies are viewing the situation favourably. According to the Wall Street Journal, Publicis Groupe’s Zenith said that owing to the Coronavirus pandemic, it would lower its prediction of 4.3% increase in global ad spending in 2020’. CEO of New York Times, Mark Thompson, states that the publisher expects its Q1 digital advertising revenue to drop by 10%. SGA Whitepaper | April 2020 www.sganalytics.com 7

8. COVID-19 impact on news channels and their prime time news viewers (in Millions) 4.4 Fox News 2.2 39% CNN MSNBC 2.9 42% Source: https://www.newsweek.com/ratings-skyrocket-cable-news-amid-wall-wall-coronavirus-coverage-1493836 The consumption of video is expected to witness an upsurge, but the impact would be hard to measure since the trend would be spread across the spectrum – live, VOD, streaming etc. It is observed that some brands are transitioning their advertising spend from linear to OTT – this is especially true for cases where the sponsors had initially decided to advertise in ‘live sports’ events. SpotX, an ad serving platform, states that while travel and hospitality brands have drastically reduced or completely halted their spends - There has been an increase of 16% in online ad inventory. SGA Whitepaper | April 2020 www.sganalytics.com 8

9. HOLLYWOOD & EVENT ORGANIZERS: a saga of setbacks The Coronavirus pandemic is taking its toll on the US film industry and event organizers. With famous celebrities like Tom Hanks, Idris Elba, Charlotte Lawrence etc. contracting the virus, industry brethren have started to take Coronavirus seriously and are beginning to embrace social distancing and adhering to the nationwide lockdown while suspending all production. All this has culminated in a climate of fear and uncertainty for event organizers as well as the media broadcasters. Share of adults who support media events being cancelled or postponed due to COVID-19 as of March 2020 100% 90% 80% Share of respondents 70% 51% 48% 60% 46% 46% 50% 38% 40% 30% 20% 10% The U.S. government shutting down movie theatres Movie studios postponing all upcoming movie premiers Upcoming music concerts being postponed by all concert venues Restrictions on public events such as concerts and plays at entertainment venues All entertainment venues cancelling upcoming events Source: https://www.hollywoodreporter.com/news/americans-split-movie-theaters-should-close-coronavirus-1283753 The bevy of cancellations and delays for events and premieres are expected to set into a motion a derailment that will be witnessed well past 2020. The threat of a looming recession is bound to amplify the troubles that are being forecasted by major giants. An immediate fallout of the pandemic is visible for the frontline workers of theme parks and events who are being handed pink slips instead of being paid. With movie theatres being shuttered in key cities like LA & New York, it is forecasted that a yet greater number of jobs will take a hit. SGA Whitepaper | April 2020 www.sganalytics.com 9

10. The North American box office recorded an all-time low of $55.3 mn, its lowest since September 2000. The stock price of AMC Entertainment, one of the major M&E companies, plummeted 19% to $2.60. Similarly, stocks of Cinemark Holdings’ and Imax slipped dramatically by 31% and 18% respectively. The share of AMC Entertainment 30% 31% 20% 19% 18% 10% 0% $2.60 AMC Cinemark Holdings Imax Major media & entertainment companies Major players like Universal, Disney, MGM, and Paramount Pictures are scrambling to shuffle release dates for big buck films (Fast and Furious 9, Mulan, James Bond – No time to die, A Quiet Place Part II) which is expected to impact marketing and promotion costs that will run into millions of dollars. An interesting development in the middle of this crisis is the announcement made by Universal Pictures that it will allow for new releases to be directly available on cable, VOD platforms, and customer rentals. This unprecedented move poses a grave danger to an already struggling theater industry comprising cinema chains like AMC, Regal Cinemas etc. Universal’s latest move is the first of its kind where major releases will be simultaneously available for viewing on other platforms. It remains to be seen if this move heralds a new and unprecedented practice in Hollywood that will have unparalleled impact on other industry counterparts. Another aspect relates to the impact of the pandemic on the bigger entertainment players with diversified businesses. For example, Disneyland Amusement parks are set to remain locked worldwide. Disney also announced that it will be suspending its cruises. According to Barclays, Disney is set to bear a cost of $20- 30 mn for every day its domestic parks are closed. It is predicted that the fallout of the outbreak will impact Disney’s balance sheet steeply. Nearly 45% of Disney’s operating income last year comprised revenue from theme parks, cruises and consumer products. Owing to the threats posed by the Coronavirus pandemic, large scale events like annual awards, premiers and other events face an uncertain future as well. Some of these include The Tribeca Film Festival, The National Association of Broadcasters Conference. Cannes Film festival has been postponed owing to the grim pandemic situation. SGA Whitepaper | April 2020 www.sganalytics.com 10

11. THE PROFESSIONAL SPORTS INDUSTRY IS IN A LURCH Owing to the looming threat posed by the Covid-19 pandemic, the professional sports industry in the US is forced to suspend the seasons of both National Basketball Association (NBA) and National Hockey League (NHL). Major League Baseball (MLB) and Major League Soccer (MLS) seasons were delayed or suspended by 2-4 weeks initially. If the condition of the pandemic worsens, organizers will have to unfortunately cancel the event altogether. While some organizations had planned to play in an empty arena, the idea was later shelved by every major league in the US. Finding the perfect broadcasting slot for such prominent sports events is not an easy task. In the event of the cancellation or postponement of such mega-scale events, not only the scheduled coverage might be disrupted, but the impact is felt across the associated advertising arrangements, promotional events & sponsorship deals. The cancellation of the sports events bodes an imminent disaster for the media broadcasting companies specially. Owing to the shift in consumer preferences from sitcoms and drama to live sports consumption, these companies heavily depend on live sports programming for advertising revenues as well for notching TV subscriptions. These companies have increasingly turned to live sports to stay competitive against the streaming platforms. According to a CNBC report, the Coronavirus outbreak could result in a loss upwards of $1bn for the broadcasters of NBA, NHL and MLB. SGA Whitepaper | April 2020 SGA Whitepaper | April 2020 www.sganalytics.com www.sganalytics.com 11 11

12. ONLINE GAMING INDUSTRY FEELS THE RIPPLES: but the game is still on! The impact of the Covid-19 outbreak on the online gaming industry has been significant. Several gaming companies have announced delays and interruptions in game launches, conferences and hardware manufacturing. Annual gaming events and conferences The famous E3 go-to gaming conference, an annual event for the video game industry since the 90’s, had to be cancelled. Similarly, the Games Developers Conference scheduled for March 2020 was also postponed after key games studios dropped out of the event. These included Microsoft, EA, Sony, etc. Electronic arts (EA) had to suspend all live gaming competitive events. Other events that got cancelled include Overwatch League, Call of duty League events. Hardware As a lot of gaming companies such as Nintendo rely on China for their hardware manufacturing, the effects of the Coronavirus pandemic were felt quickly as production began to get delayed. Production delays for Nintendo left the Japanese market in a lurch resulting in shortages of switch consoles, accessories, games etc. The famous VR Headset, Oculus Quest also faced a back-order situation and the situation may not change anytime soon. Online Games As people are confined in their homes and are opting for multiple forms of entertainment, we see an upsurge in online games. Due to the large-scale self-isolation, we are seeing higher engagement rates across digital and media. However, on a long enough timeline, online games are far more favourably positioned to come out stronger from this crisis than TV, music, video, and other formats that may be hit hard by recession. Reasons for this include: (i) Online games have extremely high engagement rates with sessions much longer than traditional long form videos (ii) Online games are turning into ‘socialising destinations’ as more and more people self-isolate (iii) Due to the pressing need for social distancing, online events are picking up and are being fashioned into ‘live online worlds’ (iv) Online games are not held up by traditional hiccups such as ‘production delays’ (v) No distribution bottleneck owing to online distribution For most businesses, this change in behaviour has wreaked havoc - but for online games, this is proving to be a windfall. Game streaming sites such as YouTube gaming or Amazon Twitch have witnessed a surge in usage and activity as paid subscribers for this category are on the rise. While the Covid-19 crisis keeps people indoors, video gaming is on a record high. According to a Verizon report, there is a 75% upsurge in online gaming owing to the pandemic compared to a 20% increase in the web traffic and 12% increase in video consumption. According to US-headquartered Cowen Inc., “we expect video game sector fundamentals to fare far better than the market average during the current COVID-related extraordinary measures, and during any possible resulting recession.” While TV networks had resorted to live sports streaming to give competition to streaming platforms, the advent of the pandemic has caused the sports-entertainment business to come to a grinding halt resulting in an increased user appetite for Esports, amongst scores of isolated sports consumers. SGA Whitepaper | April 2020 SGA Whitepaper | April 2020 www.sganalytics.com www.sganalytics.com 12 12

13. WHAT CONSUMERS WANT - changes in viewing behaviour and consumer preferences As more and more people are staying home due to nationwide lockdowns, a significant upsurge is seen in platforms like OTT, SVOD/VOD, linear TV and gaming. Individuals are consuming more and more online forms of entertainment in these times of crisis. As for linear TV and OTT platforms, people prefer to consume light, humorous and feel-good shows, breaking away from the ongoing trend of strong and dark content. According to BBC News – Head of UK Operations, Morwen Williams, ‘people want to watch light content right now.’ Users are demanding price reductions for OTT platforms like Netflix and Apple TV+ as it was announced that they would be reducing streaming bitrate in the EU for at least 30 days. Decision to switch off HD content has surfaced due to increase in web traffic and growing load on the network infrastructures. COVID-19 Impact: Most popular services among first time subscribers 39% 20% HULU 28% DISNEY+ 39% 39% COVID-19 IMPACT NETFLIX 20% APPLE TV+ 13% 28% 13% Source: https://www.marketwatch.com/story/netflix-in-the-age-of-covid-19-streaming-pioneer-may-have-new-edge-on-competition-2020-04-07 SGA Whitepaper | April 2020 www.sganalytics.com 13

14. WHAT DOES THE FUTURE LOOK LIKE FOR M&E COMPANIES? Currently, as with most industries, M&E firms face an uncertain future and it’s still unclear how long it might take for the situation to start normalizing. The release of Congress’s 883-page bill, ‘CARES Act’ – the $2 trillion Coronavirus stimulus package has somewhat relieved every segment of the M&E industry, including films, radio, TV, news and more. As the M&E industry is heavily driven by out-of-home venues, in-house employees and freelancers, the pandemic is having a dramatic effect on the industry. According to CEO and president of Avid Technology, Jeff Rosica, things will bounce back to a “new normal” where the M&E industry will function differently than in the past. The M&E industry is predicted to stabilize way faster than other industries. According to Rosica, companies and individuals shouldn’t over-react and must act smartly in helping the community finding new ways of working and ensuring business continuity. SGA Whitepaper | April 2020 SGA Whitepaper | April 2020 www.sganalytics.com www.sganalytics.com 14

15. About the Authors Supriya Dixit Head of Marketing Supriya is a behavioural and data-led strategic marketing professional with over 13 years of successful leadership experience in various functions of Marketing across FMCG, Edtech, Social Network and E-Commerce in both B2B and B2C domains. She holds a double Master’s in Management from IE University, Madrid and Symbiosis, Pune. At SG Analytics, Supriya heads Global Marketing and leads all growth marketing and branding strategies & initiatives. Rajesh Vishwanath Delivery Lead, Analytics Rajesh has over 16 years’ experience in delivering analytics solutions for clients across functions such as sales and marketing, audience engagement, digital and social media. He has significant experience in engaging with clients in US and Europe across sectors including M&E, Healthcare, CPG, TMT, and BFSI. Rajesh has a Master’s degree in Statistics. Sumeet Ranglani Client Development and Relationships Sumeet Ranglani is responsible for client development and relationships at SG Analytics. Sumeet has worked for more than 3 years with business leaders in the Media and Entertainment industry. Sharing Insights Watch and enjoy our corporate videos THE CEO SPEAK: Success Mantra of a Research & Analytics Firm Click on the above titles to watch the videos RESEARCH | ANALYTICS | TECHNOLOGY New York | Seattle | London | Zürich | Pune | Hyderabad About SG Analytics For over a decade, SG Analytics has been one of the leading global research & analytics firms. with offices in USA, UK, Switzerland, and India, servicing scores of customers across the globe. We are the partner of choice for Fortune 500 companies across several sectors. We have been recognized as the “Best Employer” by the World HRD Congress in 2018. For further information, please visit our website:sganalytics.com Join the conversation This document makes descriptive reference to trademarks that may be owned by others. The use of such trademarks herein is not an assertion of ownership of such trademarks by SG Analytics (SGA) and is not intended to represent or imply the existence of an association between SGA and the lawful owners of such trademarks. Information regarding third-party products, services, and organizations was obtained from publicly available sources, and SGA cannot confirm the accuracy or reliability of such sources or information. Its inclusion does not imply an endorsement by or of any third party. 15 SGA Whitepaper | April 2020 www.sganalytics.com Copyright © 2020 SG Analytics Pvt. Ltd. 15