Looking towards a New Reality: How media companies prepare for the future

Understanding alternative industry scenarios

Michelle Wroan

Michelle Wroan

Office Managing Partner, Los Angeles, KPMG US

+1 213-955-8657

In my previous blogs I introduced a coordinated series of actions that media businesses can take in response to COVID-19 to address challenges and impacts, build resilience, and begin to plan for recovery. In this piece, I will focus on the development and evaluation of future scenarios that can be used to inform decisions about the business and operating models media companies will use to succeed in the “New Reality.”

To determine these actions, businesses should start with scenario planning to help understand alternative industry scenarios, recovery paths and end states, from short term to medium and long term.

Scenario Planning

In the past few months, COVID-19 has accelerated digital disruption in media and may have permanently altered how audiences interact with media. While many streaming services experienced a spike in subscriptions, the long- term impact is yet to be seen, as consumers weigh price sensitivity and content fatigue in piecing together their entertainment choices.  Meanwhile, as movie theaters in some parts of the country slowly start to reopen, and with most live events still on hold, consumers are still re-evaluating where they are most interested in viewing entertainment.

Given the high level of uncertainty, it makes sense to utilize data and analytics to develop multiple unique future-state scenarios—and consider how they would play our over different timeframes. Typically, scenario planning involves four steps:

  1. Gather existing and updated inputs
  2. Develop and refine views on cause and effect between uncertainties and potential drivers
  3. Define and refine two to five plausible future outcomes with boundary conditions formed by extrapolating key dimensions of uncertainties out to their extremes
  4. Create and refine potential response to scenarios

Once scenarios are identified, businesses can then consider which actions they need in order to meet the demands of a “New Reality.”  

Potential future outcomes for the Media landscape

In the 6 months since COVID-19 hit the economy, a number of likely scenarios have already begun to take shape within the media landscape. For example:

  • Continued theatrical release delays and the success of premium video on demand (PVOD) releases will permanently shift economic models for studios, who will limit or skip theatrical windows for distribution;
  • Cord cutting will continue to accelerate and players will shift strategic focus and content to streaming platforms, which will be the cornerstone for future growth;
  • Ad spend recovery will take years, forcing ad agencies to reduce headcount and companies reliant on ad revenue to seek alternative revenue streams;
  • The availability of live sports content will fluctuate as sports leagues continue attempting comebacks in various formats (e.g. no crowds), with frequent game and season cancellations or postponements due to outbreaks; and
  • Continued remote working through 2020 and beyond, with greater need for IT investment to bridge remote working gaps.

Resulting considerations for the industry

Planning for these scenarios will require businesses to explore many options. For example:

  • Accelerate direct-to-home release of films via streaming and PVOD platforms; assess implications
  • Monetize library content (as existing content libraries for streamers dry up)
  • Optimize and adjust portfolio to capture new opportunities based on change in consumer behaviors
  • Deepen relationships with streaming providers and strike new deals to sustain revenue continuity
  • Consider an operator point of view around potential re-opening timelines (e.g. geo footprint, pricing, solvency)
  • Account for potentially slow, non-linear return of customers to theatres and venues as well as consumer sentiment
  • Reset the film performance forecasting process and leverage data and analytics, multiple data sets
  • Prioritize investments in animation, unscripted and other “socially distant”-friendly content production
  • Identify opportunities to integrate more user-created content (e.g. at-home game shows)
  • Assess the cost versus benefits to outsource or lease capital-intensive components of production
  • Preserve cash, improve working capital, reduce discretionary spend
  • Seize opportunity to evaluate support functions verses benchmarks, and transform the operating model
  • Assess profitability across content, customer segments and geographies, and be prepared to exit or divest non-core assets

Through the scenario planning process, media companies can identify how to best respond to the market conditions such as those listed above and beyond.  In doing so, media companies will be best positioned in how to not only recover today but succeed in the “New Reality” of the future.

Learn more about how technology, media and telecommunication companies are playing a crucial role in addressing the COVID-19 challenge.