Booz and Company: Defining new media's winners

Previously, winners were defined by their strengths in content development, packaging, and distribution—all key for an entertainment world characterized by scarcity. However, the digital era is characterized by unprecedented levels of consumer choice, ubiquity, and interactivity. To succeed in this more dynamic environment, companies need new skills. "Ten key developments will shape the strategies of leading media and entertainment companies, providing vital perspective as to how companies need to orient their growth agendas and prioritize their capability-building efforts," explained Karim Sabbagh, a partner and the Global Practice Leader for the Communications, Media & Technology at Booz & Company.

Although most companies have cut costs in the past year, ongoing structural changes in the industry will require continued vigilance. While most companies have expended much of their recent cost-related effort on how well they operate, they can achieve more substantial savings by focusing on what activities they undertake and how these activities are executed. This shift will require management to focus on areas that can drive both efficiency and effectiveness, especially workflow redesign and automation (in both sales and editorial), outsourcing and shared services, and procurement. It will also require the development of new content models that rely more on variable than fixed costs, and better align costs of content with revenue generation.

A "Darwinian divide" is on the horizon for media companies in emerging markets. "The recession, as well as structural changes caused by digital technology and excess advertising inventory, has changed the dynamics of the industry in mature media markets," noted Gabriel Chahine, a partner at Booz & Company. The victors are those companies that have a diversified revenue mix, leading positions or brands, and strong cash flow. The vulnerable are companies that are shackled with entrenched cost structures and excessive debt, those that rely too heavily on advertising-driven models, and those with insufficient top-line revenue. "Players in emerging markets may not yet be experiencing the same challenges—but they can look to their counterparts in mature markets for signs of what to expect, as well as what to avoid, as the shift to digital accelerates in their home markets," he added. At this point, digital advertising constitutes only 2% to 3% of overall advertising in regions such as the Middle East and India. Management continues to focus on traditional businesses because they are expected to demonstrate double-digit growth over the next two to three years. Nevertheless, media consumption patterns and the habits of connected users in developing markets are quite like those in developed countries. The difference lies in scale: Internet and broadband penetration remain low. However, given the leaps in connectivity occurring in these countries, media companies in emerging markets can be expected to experience the Darwinian divide sooner than many have expected.


Media and entertainment M&A activity will continue to increase as long as the economy remains stable and credit is available. Media M&A activity has been accelerating steadily since the summer of 2009. The Middle East saw several international media players (including the News Corporation, the BBC, CNN, Yahoo, and Eurosport) scouting for partnership and investment opportunities. Emerging markets can serve as an exciting platform for them to monetize their deep content libraries as well as deploy their existing capabilities to create high-quality, relevant, customized offerings.

The traditional value chain of marketers, agencies, and media companies will continue to evolve, unravel, and be reconstituted in more heterogeneous combinations. As the battle for advertising share intensifies and more of marketers' money moves toward digital, the traditional lines of responsibility in the sector have blurred. Large, category-leading media companies are developing "media as service" strategies to support direct relationships with major clients and deliver an expanding range of marketing solutions. "At the same time, major marketers will continue to develop their own media assets, especially in digital," commented Jayant Bhargava, a principal at Booz & Company. Media companies need to figure out how they can turn this development into a positive—either by using their skills to develop "private-label" media offerings for marketers or by using their integrated media properties to enhance the value of marketers' own media.

Media sales and marketing teams will need to go beyond basic advertising placement in order to drive breakout growth. Marketers' spending on below-the-line programs is now two to three times greater than their spending on paid media. Even as spending on online advertising ebbs and flows, spending on consumer promotions and shopper marketing programs has continued to accelerate. Tapping into this additional spending will require new go-to-market approaches in which media and entertainment companies work directly with marketers and their agencies to integrate manufacturers' content into branded experiences for shoppers, including at retail.

Media metrics to measure spending effectiveness, with a greater emphasis on results, are evolving across the marketing mix. Today, media metrics are still focused on inputs (for example, impressions, reach, and engagement) rather than outputs (such as impact on brand equity or sales lift). Marketers still require more output- and results-focused metrics to better manage their media mix or to increase digital spending. "Media companies have an opportunity to leverage their digital audiences to build deeper engagement, deliver greater insights, and provide measurable results," Sabbagh said.

Analytic approaches to content decision making are gaining traction, beginning in digital and ultimately influencing traditional media. Editors and programmers have significantly more insight into consumer interests and behaviors than ever before. Search traffic, social networking, and blogs now provide a 24/7, real-time window into what resonates with audiences. The digital platform enables editors and others to more precisely measure (and perhaps even anticipate) content appeal more accurately than any other medium. Editorial can benefit, as advertising already has, from more sophisticated analytics. We expect to see media companies incorporating data on consumers' Web behavior to help editors and other executives make better decisions about content development, how broadly to cover stories, and how to present those stories (video, audio, text, or interactive media).

Social media outlets are becoming important distribution hubs for content. "Social media are enabling new monetization and distribution opportunities for entertainment and information offerings at compelling levels of scale," explained Chahine. They are also important to publishers as channels for driving media consumption. Publishers are recognizing that social media are a critical source of traffic to their digital sites, in some cases as important as search engines. Because of this, more entertainment, news, and information publishers will focus on "social media optimization" as a new capability for growing their audiences.

Mobile is emerging as another high-growth platform for media companies, thanks to the rapid penetration of smartphone devices and growth of applications. In many emerging markets, mobile offers a much more popular platform for content distribution than the Web does. The Middle East, for instance, has nearly four times as many mobile users as desktop Internet users. The mobile content and advertising market is estimated at close to $1bn, nearly 10 times the size of the desktop Internet market. "The race is therefore on to build digital relationships with consumers, deliver winning experiences, and grab a position of greater influence within this rapidly evolving ecosystem," said Bhargava. Media companies need to evaluate how to position themselves for greater growth in this medium through the right mix of mobile-focused organic investment, partnerships, and acquisitions.

The rapid expansion of online video, along with new "tablet" devices and readers, will compel media and entertainment companies to regain control of the customer interface. E-book sales showed a compound annual growth rate of 57.8 percent between 2002 and 2008, and Forrester Research expects sales of e-readers to double in 2010, bringing cumulative sales to 10 million by year-end. This explosive growth is compelling publishers to revisit how they think about monetizing and designing their offerings for these new platforms, as well as their role in digital distribution. Their strategies need to take into account consumers' unmet needs for convenience and mobility, the benefits of flexible pricing for content, and the value of a more dynamic and personalized digital media experience. "As companies look to make money from these new platforms, they must understand how to develop attractive applications, how to create a user interface that consumers find compelling, and how their brands can best be positioned in an interactive environment," commented Sabbagh.

The global recession is accelerating a permanent change in the media and entertainment landscape. Even in emerging markets, growth is not expected to return to pre-recession levels. Media companies need to focus on the quality and relevance of their content. This period could act as a catalyst for a shift to digital media and open new avenues of growth. Even in emerging markets, growth is not expected to return to pre-recession levels. Media companies need to focus on the quality and relevance of their content. This period could act as a catalyst for a shift to digital media and open new avenues of growth. In the Middle East, the digital map is largely unexplored: Many categories have no declared winners. Moreover, continued growth in traditional businesses provides a high level of stability, making it easier for media players to dedicate resources to venturing into new growth areas.