How COVID-19 Affects The Media Industry?

The media industry has experienced the effects of COVID-19, with some companies shutting down parts or most of their business. Equity markets have reflected these impacts, with media industry average stock prices dropping nearly 40% from peak to trough. Some subsectors have fallen steeper than the media average, such as movie theater operators and live event companies, while tech-oriented companies have fared better.

Market behaviors that have changed and potential impacts on the industry include:

●Viewership disruption. TV and streaming services are both up dramatically. Nielsen has reported the total estimated number of minutes streamed to TV was up 85% for the first few weeks of March, when compared to 2019. That’s good for traditional networks and streamers alike, but monetization of this surge, from higher ad revenue and/or subscriptions, is a key challenge for them.
●“Cord cutting”, however, may accelerate beyond the 6.5% drop in 2019 (per eMarketer), as rising unemployment and a worsening economy shift people towards lower cost streaming alternatives and cancellation of sports (a key driver for pay TV) reduces the pay TV value proposition. As such, companies will need to speed up their development of direct-to-consumer capabilities.
●Ad revenue. Ad spend is strongly correlated to GDP, and past recessions have resulted in declines of 7-15% according to KPMG analysis. With a larger forecast GDP decline projected by many economists, an even steeper drop in ad revenue could occur.
●Event attendance. More than 20,000 live events have been suspended in the last few weeks due to “social distancing” mandates and consumers might continue to avoid mass gatherings after COVID-19 restrictions are lifted. One trade publication estimates the concert industry could lose nearly $9B, if events remained on pause for the rest of the year. Companies will need to scenario plan around different time horizons, future levels of attendance and production costs, due to higher safety protocols.
●Production delays. Most movie and TV production has been paused, which is creating a potential gap or “dark period” that companies will need to address in terms of content and distribution strategy, potentially launching direct to home movies and reviving archive content.

Companies are still focused mostly on near term issues – addressing liquidity, cash burn, and other solvency issues. Building liquidity is essential, but companies should also be working on their recovery game plan to be ready to compete in a new reality.

To better position for near term survival and long term success, companies should consider their strategic response across three coordinated actions:

Resilience – Immediate actions that preserve cash, give confidence to customers and employees and ensure business continuity - the “Four C’s” (Customer, Cash, Cost, Capital):
●Customer examples: proactive contract or subscription renewals, guaranteed price locks, early content releases, longer free trial periods
●Cost examples: model cost and cash flow of tent pole events based on changes in ticket pricing, attendance and incremental costs such as safety and security

Recovery – Performance improvement actions to make it through a likely recession and maximize options in the face of uncertainty:
●Re-allocating resources towards direct to consumer or digital offerings
●Consolidating silos and common functions (ad sales, production, marketing, etc.)
●New Reality – Actions resulting from assessing new opportunities that arise as customer and market disruption settles into a ‘new reality’, such as:
●Opportunities to inspire confidence and accelerate the return to large live events and experiences through safety protocols and other measures
●Opportunities to reach expanded audiences through direct to home content releases at the same time as launch in theatres and / or on other platforms
●Potential for expansion of audiences through combined live and virtual experiences

As we have seen in prior recessions, companies that proactively plan for the future outperform their peers during the recovery phase. Media companies that focus on moving from short term challenges to recovery and preparing for the new reality, will emerge in the best position.

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