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Media & Entertainment: The challenge for CFOs is to stay on top

Media & Entertainment: The challenge for CFOs is to stay on top

That a revolution is under way in how the public consumes content is no longer front-page news. But just how far it has come following the launch of Apple’s iPad last year is well illustrated by the story of a family friend of George McDevitt, group CFO of media-services company, Atex.

The neighbour of McDevitt is a traditional newspaper man, who subscribes to several daily and weekend broadsheet titles. He’s also just been bought an iPad. “He’s turned around and said he’ll never buy a physical paper again,” says McDevitt.

For a 50-year old newspaper diehard to so vehemently turn his back on the traditional world of print is a good illustration of how far the media landscape has changed.

Neither is it just the newspaper industry. The success of innovative new content-delivery businesses, such as Swedish music-on-demand company Spotify and North American online-TV and film business Netflix, proves that consumers are hungry for new ways of consuming content.

For £9.99 a month, Spotify provides subscribers access to a library of over 15 million songs, delivered on demand to their computers, smartphones or tablets; while for $7.99 a month, Netflix provides unlimited access to on-demand TV and films. The former has 1.5 million paying subscribers, the latter, 25 million.

Change is afoot, and traditional media and entertainment empires are still working out how best to react. For CFOs, this presents many challenges – not least, choosing which horses to back. “These are investment decisions that people are making in the future,” says McDevitt.

Crystal ball gazing

Predicting that future, however, is notoriously difficult and is something borne out by the story of one of the most savvy media barons of his generation - Rupert Murdoch - famously backing a three-legged horse when he bought Myspace for $580 million in 2005. Six years after he signed that half-billion-dollar cheque, Myspace was sold for a sum reported to be in the region of $35 million, while Facebook went on to become the darling of the social media world, with 750 million unique users and a valuation estimated at anywhere between 15 and $50 billion.

PricewaterhouseCoopers’ 2011 CEO Survey illustrates the problem well. “Few industries come close to entertainment & media for the current pace and scope of change in customer needs and habits,” it says. The report goes on to discuss how consumer spending on digital content is expected to grow at a compound annual growth rate (CAGR) of 17.1 percent until 2014, while that of non-digital spending will grow at a far more leisurely 3.0 percent.

Again, it’s worth looking to News Corporation. Rightly or wrongly, Murdoch threw a stake in the ground just over a year ago when he backed the decision to lock all content produced by The Times behind a subscriber pay wall. So far, more than 100,000 people have subscribed. But, while the figures are respectable, the rate of uptake has slowed from an original 12,500 a month to the current 7,000 a month.

The gamble News Corporation has entered into is whether or not consumers are still willing to pay for content, given the vast swathes of material that can be found for free. McDevitt, for one, is optimistic.

“You talk about revenue pressures in the industry, but I see it from a glass-half-full perspective – I see huge opportunity,” he says. “In the traditional print industry you really were restricted to what you could distribute in a traditional context, whereas now you can make this stuff available instantly in whatever format. Content is available to a much, much wider audience.

“The people of today – my kids – they’re not going to wake up one day and think, ‘I want less content’.”

Yet, while this is true, and News Corporation’s gamble with paid online content seems, at worst, to have justified its continuation, the jury is still out on what the correct long-term strategy is.

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Tags change managementmedia and entertainment

More about AppleBBC Worldwide AustralasiaBT AustralasiaErnst & YoungErnst & YoungFacebookNetflixPricewaterhouseCoopersSpotifyTechnology

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