Scoping the Impact of COVID-19: The Long-Term View (Part Three)

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.

The recent market downturn stemming from COVID-19 isn't likely to end any time soon. In an industry already saddled by debt, MEC leaders will have cost takeout and cash flow improvement in their crosshairs during the months ahead. With these factors in mind, we anticipate that a few key trends will shape the future of the MEC industry:

  • Reduced dependence on physical spaces. After eight or more weeks of remote work environments, leaders will need to consider whether they need to continue to invest in a full physical retail presence and physical real estate for back-office employees.
  • Increase in infrastructure investment to cope with higher demand and network usage. With demand throughout the day increasing due to remote work, online schooling, and a higher volume of streamed content, companies will have to invest in features like mid-splits, node management, and other broadband infrastructure. Wireless companies, for their part, will look to add backhaul to reduce the strains on wireless networks.
  • Accelerated cost takeout efforts. Because most of the industry has significant debt on the books while revenue generation is declining, leaders will need to find ways to transform cost structures to stay financially relevant.
  • Less investment in product innovation. With the focus on cost takeout and on keeping the network afloat, new product innovation could suffer as consumers look to meet basic needs rather than searching for break-through products.
  • Increased mergers and acquisitions. With companies struggling, stock prices deflated, and low-interest rates for loans, the market will be ripe for strategic acquisitions to strengthen positions in the industry. We may also see more media companies either merging for operational efficiencies or being acquired by multiple system operators entering the space at cheaper rates.
  • Prioritization of media retention. Retention of existing users and customers will only increase in importance as MEC companies strive to minimize the top-line impact of COVID-19. The emergence of new markets. With consumers urged or mandated to stay at home, there is potential for media consumption to continue to grow well beyond its initial spike. The newly remote workforce, for example, offers a potential expanded market; past studies have found that remote workers tend to watch three more hours of TV each week than non-remote workers.

Looking ahead

While COVID-19 creates significant challenges for the market today, it can also serve as a catalyst for transformation—one in which MEC organizations can reimagine their existing people, process, and technology strategies and emerge stronger when the seas are calm again.

  • M&A. Communications will continue to over-leverage and buy companies relatively inexpensively, whereas media and entertainment companies should either look to consolidate for economies of scale or become acquisition targets themselves. Telecom companies, while leveraged, have never shied away from strategic and big-splash acquisitions to stimulate excitement and planned growth. A declining market decline and low-interest rates create a perfect storm for leaders to target key companies that can bolster assets and market positions. One recent example: Apple’s acquisition of Dark Sky to enrich its play in weather applications.
  • Permanent remote work environments. While immediate actions will involve enabling teams in a minimum viable product approach to remote work, organizations should focus on designing a long-term, sustainable model. Leaders should consider guidelines, policies, regulations, security, and expense reimbursement policies when developing a permanent work-from-home strategy.
  • Crisis response. The COVID-19 pandemic is a stark reminder that “business as usual” is a fragile notion. MEC organizations can use the current pandemic as an opportunity to sharpen their crisis response capabilities. Specifically, they can consider developing a command center that empowers employees with the reporting structure, defined responsibilities, and decision-making authority to uphold business continuity, promote safety, and minimize disruption to the customer experience.
  • Asset-light environments. Many companies in MEC have legacy systems that have been cobbled together during acquisition after acquisition. These systems are costly to maintain, upgrade, and support and usually create high costs for development and outsourced support. MEC companies should focus on removing as much technical debt as possible to create “clean” environments that enable agility. Newer, cloud-based environments shift costly software development to configuration, reduce hardware requirements, and reduce the need for substantial support staff to maintain. Leaders can also assess opportunities to remove large back-end systems with high operating costs and shift coding to configuration.  
  • Automation. Operational efficiency is fundamental to business viability as organizations respond to COVID-19. By automating processes where possible, leaders can unlock increased efficiencies in their existing workforce models and constructs.

The COVID-19 global pandemic has rapidly introduced a new set of financial and operational obstacles while simultaneously transforming patterns of customer demand. Although the overall outlook on the crisis is bleak and uncertain from today’s vantage point, leaders should also perceive these challenges as a catalyst to transform their existing operating models, workforce strategies, and infrastructure. Only by turning current challenges on their head will MEC companies emerge more durable and be better positioned to compete in a redefined, post-pandemic world.

For more insights on the impact of COVID-19 for the MEC industry, please see part one and part two of our series.