A YEAR OF CAUTIOUS OPTIMISM

The impact of inflationary and recessionary economic pressures from the fallout of the COVID-19 pandemic, twinned with an unstable geopolitical environment, has been double-edged for the media industry — and the effects are not receding. This Report focuses on four significant trends impacting the media sector and how they are influencing the decision makers in many corporate boardrooms and investment committee sessions.

1. The return to a “new normal”

The industry saw a bounce back to a new normal that is providing new inroads for deeper consumer engagement and monetization. For example, we have seen the return to:

• Live events in music, theater, and sports (e.g., Rihanna’s Super Bowl music extravaganza).

• The deployment of gaming technology in the film industry, led by Epic Games Unreal Engine, that is supercharging virtual production and content creation.

• Privacy guards, regulation, and innovative technology across the retail and advertising industries (governed by actions taken by Apple’s AppTrackingTransparency [ATT] privacy-protection framework, Google’s cookie deprecation, and counter initiatives for OpenWeb and user identification products introduced by The Trade Desk, Microsoft, etc.).

• The explosive use cases around generative artificial intelligence (AI) (e.g., Microsoft/OpenAIs’ ChatGPT, Google’s Bard, Baidu’s Wenxin Yiyan, and image creators including Stable Diffusion and Midjourney).

2. Post-pandemic & fiscal aftershock

Media and marketing sectors have not escaped inflationary impacts, and there are three clear outcomes:

1. A reduction in consumer purchasing power.

2. A rise in costs for subscription media.

3. Increasing advertising costs in certain channels.

We are witnessing a deceleration in the growth of subscription models and the reintroduction of advertising-funded content. We have also seen a decade-long spending boom on content that is expected to slow. And, after much hype in 2022, we have watched a progressively beleaguered crypto-based marketplace and the fallout of the non-fungible tokens (NFTs) market.

Notwithstanding these disruptions, the media market shows strong signs of momentum and resilience. Traditional media players are further embracing the possibilities of digital, and new entrants continue to invest. Technology, media, and telecom (TMT) M&A activity shows no signs of abating, although with more scrutiny from regulators and investors’ test of resilience. Moreover, Web3 (aka Web 3.0, Web 3) has opened new opportunities for film and TV studios and streamers (e.g., the inspired Matrix collectibles and promotion from Warner Bros., CNN’s Vault, Viacom’s The Masked Singer), new platforms and gaming (the Metaverse’s Roblox shop and avatars, Epic’s Fortnite, and The Sims games and universe), sports owners (Manchester City building the first football stadium in the Metaverse), brands (Gucci and Nike supporting technologies like digital platforms SKNUPS and Swoosh, and the home of virtual creations, Doodles and Pudgy Penguins), and telcos (SK Telecom’s Metaverse brand “ifland”). And we’re just starting to see the innovations proliferate.

3. Application of new technologies & capitalizing on opportunities

Media, entertainment, and sport companies are capitalizing on new technologies in a variety of ways to improve their operations, reach new audiences, and increase revenue. The key question is: how will global media, sports, and entertainment players manage these macroeconomic and inflation-induced threats, capitalize on the opportunities, and meaningfully leverage new technologies to transform their businesses and their appeal to consumers? Our research shows multiple paths forward.

In short, our Report will show smart and swift launches, investment, and acquisitions will be the difference between prosperity and irrelevance. Here we offer insights into what those opportunities are, and where and how to use them.

Overall, technology is transforming the way media, entertainment, and sport companies operate, reach audiences, and generate revenue. By embracing these technologies, companies are better able to engage with their audience, offer unique and immersive experiences, and remain competitive in a rapidly evolving market.

4. Global vs. local

Media players are more global than ever, having made strong footholds in local markets, and this drives greater economies of scale. Content creators remain significant players in a world increasingly driven by global hits, whether or not the content is presented in the English language. Conversely, local publishers in all sectors are partnering or consolidating actively to defend their market advantage or adapting to double down on their local position, offering new formats and methods of engagement.

We know it has not been all rosy. Consumers are drawing up their purse strings and rationalizing their spending. Studios cannot afford to spend billions on content for niche audiences that garner awards only. Plus, there are heightened calls for privacy and/or cultural protectionism.

As 2023 unfolds, the media market is feeling cautiously optimistic, and we predict that the drama of the past few years is about to lay bare a new wave of activity and opportunities that expands into new territory (digital, physical, and the Metaverse) where corporate media and investors will have an important part to play.

Our Arthur D. Little (ADL) media and technology expert teams’ advice is fivefold:

1. Embrace new technologies around Web3 and including innovative technologies such as AI or machine learning, which augments current business workflows and efficiencies and helps to create meaningful experiences for consumers. Most businesses are now sufficiently conversant in blockchain to see the opportunity in digital assets, fractional ownership, new CRM models, and so on.

2. We think the media market is ready for smart acquisitions in areas that augment its positions and provide a competitive edge, these are primarily in more technical technology and data-driven areas. To strengthen market positions, we see the need for consolidation to provide scale globally (e.g., advertising technology) as well as the need for more regional partnerships (e.g., content and distribution).

3. In a heightened regulatory environment and with increased focus on customer data protection (e.g., European General Data Protection Regulation [GDPR], California Privacy Rights Act, Apple’s ATT privacy initiative, Google’s cookie deprecation policy), we see the need for media firms to prioritize data privacy and security, implementing the necessary technical safeguards to protect sensitive information.

4. Learn from major media players that are able to retain and deepen customers’ loyalty, through flywheel and 360-degree exploitation strategies (e.g., Disney is the master at this) and ability to diversify revenues beyond core offerings into untapped markets geographically and demographically.

5. Redesign content strategies to engage with audiences and remain competitive in a rapidly evolving market. Know your audience and embrace new formats, including podcasts, audio, influencer and social media, short-form, and originals. Part of the creator-led economy (TikTok, Twitch) allows brands to deliver messaging in a nonobtrusive, content-driven way. Influencer marketing has been around for years but is evolving, with an increased focus on micro-influencers, augmented reality (AR), and more precise metrics.

The Report looks at these global media trends and focuses on how they are impacting the major subsegments of the media, sports, and entertainment sectors.