COVID-19 has radically transformed patterns of customer demand, ways of working, and operating models in the media, entertainment, and communications (MEC) industry, introducing a host of obstacles and headwinds for industry leaders. In this three-part blog series, we’ll delve into the industry-specific changes and challenges—and, more importantly, arm you with insight into what’s next for the industry and how you can harness those opportunities.
Companies in the media and entertainment space are facing significant headwinds due to COVID-19. Lockdowns and stay-at-home orders have had a particularly strong impact on companies that depend on physical spaces to generate revenue, including theme parks, cinemas, theaters, cruises, hotels, and sports venues.
Companies that do not rely on a physical space have also taken a hit due to plummeting advertising revenues: Digital ad spend is down 33 percent, and traditional media is down 39 percent, according to Chief Marketer. Live sports are on pause, as is the ad revenue that typically accompanies them. At the same time, the possibility of COVID-19-related delays to U.S. presidential campaign spending—which usually drives revenue significantly for all platforms—or more modest campaign spending is placing pressure on advertising revenue for media companies.
In this turbulent market climate, the winners in the media and entertainment space will be those that use subscription-based streaming content as their primary distribution path. Companies with broadband video and gaming will follow closely behind. Demand for streaming services is skyrocketing in response to social distancing and quarantine measures. Yet, these services require increased data connectivity and lower latency to support the sudden rise in demand. Consider the case of Italy, which has seen a 700 percent increase in Netflix usage alone.
Streaming providers in Europe have responded by lowering the quality of their video to reduce the burden on European infrastructure. With a recession looming, however, the increase in subscriptions could slow as families make cuts to their budgets and weigh whether they need multiple streaming services.
Increased Supply Chain Turbulence
Distance learning, video conferencing, cloud services, and streaming content are all critical aspects required to keep society—and the economy—moving forward during this time. There’s no doubt that technology companies have been struck by supply chain challenges, particularly those with dependence on China. Nevertheless, technology devices such as phones, tablets, computers, and gaming consoles are in high demand during a time when most people are homebound. Even more significantly, technological services, software, and platforms are lifelines for most companies who have had to adapt to remote work quickly. Companies like Zoom, Webex, and Microsoft Teams are poised to maximize the opportunities stemming from increased remote work and a high dependence on technology to enable it. For example, Zoom reached an average of 200 million daily users in March as employers moved to work-from-home models—twice its daily average three months earlier.
Industry Valuations
While the MEC industry has previously been siloed into the three categories that make up its acronym (media, entertainment, and communications), recent acquisition activity has recently blended it into a category comprised of single pure-play players and cross-capability ones. Verizon, for example, acquired core assets to strengthen its telematics capabilities as well as its wireless network offering with back-end dark fiber and spectrum holdings. AT&T bought DirecTV and Time Warner to bolster media creation and distribution, and Comcast bought Sky to bolster international content creation and distribution. T-Mobile is merging with Sprint, Altice bought Cablevision and Suddenlink, Charter bought Time Warner Cable, and Dish bought Boost Mobile. As a result of a recent flurry of acquisition, below is a look at current outstanding long-term debt:
- Verizon – $105B
- AT&T – $153B
- Comcast – $104B
- Charter – $75B
- Altice – $24B
- T-Mobile – $11B
- Disney – $38B
- Netflix – $14B
- BT – £21.5B
In the broadband space, larger U.S. companies are faring better than the market overall. While the broadband business has lost only 20-25 percent year to date (YTD), media has been hit a bit harder at a loss of 40-50 percent YTD, with Netflix bucking the trend with a 0.67 percent gain YTD and a decline of 11.5 percent year over year. The graph below provides a useful visualization of this data:
Given the market challenges and long-term debt prevalent in the industry, companies are focused on revenue generation and cost-cutting activities to get them through this difficult time. We recommend that organizations focus their attention on the following key areas:
- Crisis management and business continuity (e.g., supply chain, call center support, and response management)
- Operational effectiveness (e.g., ensuring the same level of support customers would normally have had while reducing costs where possible)
- Optimizing the virtualized workforce (e.g., tools and secured work environments that ensure that customer and company data is safe)
- Customer impacts (e.g., shifting people to online or app-based self-serve support channels and sales channels)
- Post-response strategy (e.g., how to get the retail/sales network back online ASAP, especially in enterprise and B2B sales).
Stay tuned for the final installment in this three-part series, where we’ll explore predictions for the industry as it adapts to market shifts resulting from COVID-19.
For more insights on the impact of COVID-19 for the MEC industry, please see part one and part three of our series.
