Key themes

Despite ongoing economic uncertainty, the past year has seen global sales of tablets and smart devices reach record levels once again, underlining the growing revenue opportunities from digital delivery of entertainment and media (E&M) content and advertising to increasingly connected, and particularly mobile, consumers.

Digital opportunities are now well understood by media companies, advertising agencies and advertisers themselves: the industry is approaching the ‘end of the digital beginning’ as rising comfort levels with digital mean that it is becoming business-as-usual. Although the ‘fog’ experienced in the past few years around strategic options is lifting, there is more to be done: today’s challenge is in the implementation of those digital strategies.

In the face of sweeping change and uncertainty, the E&M industry has spent the past few years seeking effective business and operating models for the new world, through a cycle of constant experimentation, ongoing innovation and targeted analysis of the results. This will continue. But with digital now at the core of business-as- usual, PwC believes that experimentation and execution are no longer sequential but will proceed in parallel, enabling E&M companies to press ahead into the ‘digital new normal’ with confidence.

E&M companies need more than ever to understand consumer behaviours and motivations in order to engage with and immerse consumers in their connected, multi-screen environment. Data analytics tools are required to mine the mass of customer data; however the development of such tools may be triggering consumer fears over risks to their privacy. PwC believes that avoiding this will require a shift of industry mindset from ‘customer ownership’, towards facilitating a position where the customer is ‘in control’.

Companies will find that giving consumers more control over how their personal data is used may deliver higher benefits back to consumers, encouraging them to volunteer even more information, as well as providing better value for advertisers and higher rewards for media owners. Businesses need to aim for a win-win model in which the medium, the advertiser and the consumer all collaborate and benefit. Ultimately, the only person who ‘owns’ the customer – and the customer’s data – is the customer him or herself.

E&M companies need to identify the role or roles they will occupy as new structures emerge across the digital value chain, and work collaboratively with other providers with complementary capabilities. According to the Outlook, these roles could include:

• acting as the online destination or physical auditorium that hosts the customer experience (the ‘venue’)
• aggregating and filtering consumers’ content requirements (the ‘community curator’)
• providing exclusive content (the ‘content monopoliser’)
• being the ‘device developer’
• acting as the consumer’s trusted content companion across devices (the ‘digital services champion’)
• being the third-party specialist supporting experimentation, innovation and execution (the ‘ideas generator’)
• Some bigger companies may decide to play more than one of these roles. But size alone will not be a measure of success, and some media organizations may respond by tightening their focus to a narrower range of activities.

For creative and media agencies, the rise of unpaid or earned media reflects an innovative new fusion of advertising, content and analytics, and presents an opportunity for sweeping change in their roles and business models. Advancing socialization is feeding into the widely-accepted concept among agencies and advertisers of “bought, owned and earned” advertising. A fourth category is emerging -- “managed” advertising, (the orchestrated use of social media, such as engagement via bloggers).

Everything that agencies do for their clients now has an embedded digital component and opportunities are emerging for agencies to act as digital marketing and brand consultants, guiding their clients with insights into opportunities around the aggregation of data, socialization and content – particularly as the historical distinction between traditional and digital disappears.

While the journey to put digital at the heart of the organization brings clear benefits, there are barriers along the way. One of the biggest is content rights and royalties, an area where many companies are burdened by rigid, complex legacy bespoke systems that can have direct impacts on their bottom line.

For example, E&M companies need to know when the rights to their content in any country are about to expire, because if they don’t renew the rights they’ll diminish in value. So they need a system that supports rigorous rights management in real time.

But this has become more challenging, for three reasons. First, rights still often vary by platform. Second, payment schedules vary by format. And third, the sheer number of contracts required for all content channels and formats is making the whole exercise ever more complex.

Piracy is a further key area to be addressed. It remains a growing problem in many markets, and legal moves to tackle piracy are continuing.

Irrespective of the legal position, the widespread mindset in many countries is still that piracy is not a crime. But most consumers who commit piracy do so because easy and cheap opportunities arise, or because they cannot get the content any other way. Companies and regulators need to encourage people to shift away from casual criminality and towards the legitimate end of this spectrum.

One way to do this is by reducing the barriers to legal availability through, for example, new windowing strategies. But such approaches are still rare.

A more fundamental issue is that consumers intrinsically do not understand why content rights matter, a knowledge gap that may critically undermine efforts to introduce new windowing and revenue models. Closing this gap requires education.

However, measures to justify and enforce rights invariably raise the question of Internet freedom versus the right of content owners. This tension will continue, as will the related debate over regulation, as media regulators struggle to keep pace with industry and consumer change, and seek to switch from regulating yesterday’s world to regulating tomorrow’s.

The technology to deliver the enterprise with digital at its core is here now. The main challenges are around leading and marshalling the talent and innovative culture needed to make it a reality.

To find and retain the talent they need, E&M companies will have to meet the distinctive priorities and needs of the Millennial generation, who are “loyalty-lite” yet regard training and development and work/life balance as more important than financial rewards, and have preconceptions about how technology should be used in the workplace.

Intrinsically linked to talent is the need to develop a culture of innovation: not just in technological terms, but also in the way people collaborate and approach problems.

However, E&M companions face competition for innovative digital development talent from “pure” technology companies, which tend to pay higher salaries. E&M companies need to overcome this barrier by being better employers, and leveraging non-financial attractions.

To date, many E&M businesses have developed digital as an adjacent operating group, with separate infrastructure, solutions and staff. But in the ‘new normal’, PwC believes that companies need to move away from this siloed approach, instead embedding and integrating their digital operations into the main enterprise, and driving improvements in three key areas: profitability, by reducing operational costs through common platforms and integrated business processes; scalability, gaining greater agility to grow and flex the business; and innovation, through integration, automation and talent. 

To realise these benefits, companies will have to tackle challenges around rights, royalties and piracy – areas where many E&M companies are often burdened by rigid, complex, bespoke legacy systems.  There are additional issues in leading and marshalling the talent and culture of innovation needed to make digital implementation a reality, particularly in meeting the distinctive employment needs and expectations of the Millennial generation.