Digital to Become Primary Source of Media, Entertainment Revenues

NEW YORK: A new Ernst & Young study predicts that by 2015, 57 percent of revenues for media and entertainment companies will come from digital activities, as compared with 47 percent this year.

The findings come from a survey, conducted with Oxford Economics, of 550 media and entertainment executives globally in the first quarter of this year. The Digital Leadership Study Series indicates that there is a gap between reality and the promise of new technologies to drive revenues, "reanimate legacy offerings" and deliver new services. Ernst & Young identified a number of areas in which media and entertainment companies need to rethink their strategies against a backdrop of digital transformation.

One key aspect to overcoming the challenges of the digital era is being agile—anticipating and quickly responding to changes in customer demand. Agility also means being able to "fail forward"—learning quickly from mistakes and moving forward. As an example, the study cites Netflix and its 2011 misstep over a planned separation of its DVD-by-mail service and unpopular rate hikes. Ernst & Young said that the company’s acknowledged mistake and agile response "is destined to become a textbook case study" of failing forward.

Companies must also understand how to manage digital growth, "including properly pacing investment in legacy products and services as they ‘sunset’ or evolve." This will entail accepting greater risks—64 percent of respondents are investing in digital staff faster than the pace at which digital revenues are increasing. Also, half of respondents said they would accept short-term revenue losses as they move forward on the digital curve. The report also underscores the importance of rolling new digital products, enhancing existing ones and reimagining business models. Central to companies’ success with new services will be personalization, anytime, anywhere access and unique content.

"Only the most agile M&E organizations will be able to keep up with the extraordinary pace of technology change," said Guy Wanger, deputy and Americas technology industry leader at Ernst & Young.