Chief financial officers at major media and entertainment companies like Disney, Liberty Media, Microsoft (NASDAQ: MSFT) and Time Warner are downplaying economic uncertainty and are setting themselves into the starting blocks for new growth. The focus this time: digital, an Ernst & Young report says.
CFOs of media & entertainment giants are looking to expand, mostly in their existing/core markets. (Source: Ernst & Young)
With digital media platforms--not just for online video but gaming, music, film and reading--growing at an estimated 17 percent CAGR (compound annual growth rate) between 2010 and 2017, and data consumption (25 percent) surpassing device penetration (20 percent), CFOs are setting their priorities accordingly.
"Internally, most media and entertainment companies (64%) are expanding digital staff faster than digital revenue is growing," a MediaPost story noted.
Further, 59 percent of film and 58 percent of broadcast executives said they are investing in digital staff faster than digital revenue is growing.
And, perhaps most important, CFOs are keen to get insights on their customers through better data analytics. Only 33 percent of respondents said their companies are doing a good job of using data to generate new business. But 52 percent of CFOs say their companies are good at using data to determine production rights and content investments.
Ernst & Young interviewed 50 CFOs in 10 geographies, spanning eight M&E subsectors. Most companies in the study reported more than $1 billion in annual sales. Slightly more than half of the companies are U.S. based. Respondents were kept anonymous in the report.
So, how will M&E companies grow? Most CFOs aren't interested in throwing money to the wind: 72 percent said they are focused on existing or core markets. Some 67 percent are looking for "bolt-on" deals that will help them expand geographically in existing businesses--look at Telstra's pending acquisition of online video management provider Ooyala, or thePlatform's strategic alliance with Verizon Digital Media Services, deals that give the smaller companies a global boost.
Still, 50 percent said they are also looking to invest in new business, while 64 percent are eyeing emerging markets, too.
Either way, the increasing valuation of both M&E companies and digital providers makes it an anything-goes game.
Higher-valued companies need to "more aggressively pursue acquisitions in the future--which they need to do as both an offensive and defensive strategy," said Farokh Balsara, Ernst & Young media and entertainment sector leader. "Companies need to expand to grow. If they don't, they could become targets."
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