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The Changing Landscape of Entertainment: Challenges and Strategies in the New Multimedia Era

Explore the evolving world of entertainment as highlighted by industry insights and data. Discover the impact of new technologies on media consumption trends, financial performances, and strategic decision-making by entertainment moguls.

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The Changing Landscape of Entertainment: Challenges and Strategies in the New Multimedia Era

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  1. The New Multimedia:What are the stories and the stories behind the stories in this new world of entertainment? How do reporters keep up with changing technologies and still meet their deadlines? David Lieberman USA Today June 6, 2005

  2. “Follow the money.” W. Mark Felt

  3. Conventional wisdom pre 2002 • Entertainment is a growth business • U.S. consumers want more, more, more • Satellites and other technologies are opening overseas markets • We can control the Internet • Upshot: We’ll be rolling in dough after we strike synergistic mega mergers and invest in new technologies, networks, etc.

  4. But then came…

  5. Realization #1: Mega mergers didn’t pay • Most big deals delivered as little as a 3% return on invested capital the year after they closed, and only as much as 7% after 10 years. • That's not good enough: Companies have to generate 7% to 9% just to service their debt and attract investors.

  6. Most entertainment companies still are just marginally profitable or in the red 2004 Net Profit Margins In 2003 = 6.8% In 2003 = -62.1%

  7. Realization #2: There’s a media glut

  8. Overseas sales are up…but not as much as executives expected • China still has import caps on movies • DVD and music piracy are rampant • Local musicians and TV shows in many countries gaining popularity over imports from the U.S.

  9. Consumers don’t have a lot more time to spend on media Source: Veronis Suhler Stevenson

  10. Make more movies? Production is already high

  11. Ticket sales have hit a ceiling

  12. Costs are rising faster than B.O. sales

  13. The DVD boom enabled studios to look the other way

  14. But that may end soon.

  15. Create more TV networks? • We already have more than 340 national programming services • Broadcast ratings continue to fall -- down 1.6% in 04/05 • Cable ratings are flattening…new networks are cannibalizing old ones

  16. Produce more music?

  17. Realization #3: New technology may be more foe than friend

  18. DVRs will cut ad viewing Source: PriceWaterhouseCoopers

  19. Then there’s the Internet… • 41% of users in the United States are online an average of 10 hours or more per week. • U.S. Internet Users Watch TV 5.2 Hours Less Per Week Than Non-Users Source: UCLA World Internet Report

  20. No wonder Wall Street has lost confidence in entertainment companies

  21. Wall Street’s new message: Pay us…now! • "Enough is enough. We keep waiting for the cash to come in. When it does, it seems they always have to make new growth acquisitions. And the real return to investors hasn't been that great.“ Mark Greenberg, Invesco Leisure Fund mgr. • "We hit a crisis, and the only way out is for the companies to pay out their capital." Morgan Stanley analyst Richard Bilotti • "Generally speaking, media companies just (throw) it all away. They've never been interested in maximizing shareholder return." Bruce Greenwald, professor of finance and asset management at Columbia Business School

  22. What’s a mogul to do?

  23. The response so far: • Viacom spun off Blockbuster, began paying dividend, now making plans to split in two • Disney increased its dividend and bought back stock • Comcast abandoned $54 billion bid for Disney • Cox Communications went private

  24. And now… • Invest modestly in new media. • Lots of saber rattling to frighten potential competitors. • Turn to Washington for help.

  25. Expectation: New media is where the growth is – but legacy media still have more good years left. Consumer and ad spending, in billions Source: Sanford C. Bernstein

  26. A skeptic’s guide to new multimedia products and services • Who really wants it? • Who pays…and how much? • Consumers? (Mainstream or just early adopters?) • Advertisers? • Whose ox gets gored…and how will they retaliate? • Price war…or price fix? • Lobby lawmakers for help? • Acquire?

  27. And finally… • Does anyone have a clear competitive advantage? • Captive consumers (e.g. monopoly) • Proprietary technology • Economies of Scale • If not, it won’t be long before competitors – including legacy media companies -- move in and take away the profits.

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