Media CFOs Eye Promise of Digital, Mobile

Almost three-quarters of chief financial officers at major entertainment and media companies say digital and mobile represent the industry's biggest growth opportunities, despite a challenging business climate.

CFOs say they are finally seeing measurable growth in digital revenue even as declining sales from traditional media and the economic downturn combine to leave overall industry revenue stagnant, according to a new Ernst & Young report.

Figuring out how to manage that shift while maintaining pricing is the difficult balancing act they face. "Revenues are dropping due to the unbundling of media and the reduction of per-unit pricing, challenging CFOs to identify innovative ways to reach their financial objectives," said John Nendick, global media and entertainment leader for Ernst & Young. "However, as the demand for digitally delivered entertainment continues to increase significantly, CFOs feel optimistic about revenue potential."

But they can't be happy with the downward pricing trends. The consulting firm estimates that by 2012, the average per-unit price of video and music content will decrease by almost 25% from the per-unit price in 2009. That's on the heels of a 55% and 12% drop, respectively, in the prices of music and video between 2006 and 2009.

Total home video and music spending this year -- including digital and physical products -- is estimated at $28.5 billion, down from $36.4 billion four years ago.

The Ernst & Young study, which surveys CFOs at 75 global media and entertainment companies, also revealed that executives have aggressively adopted cost-cutting measures to offset contracting revenue and view technology as a way to produce content faster and more cheaply.

More than two-thirds of CFOs consider that emerging media platforms, such as e-books and mobile content, will have the greatest impact on the industry in the next two to three years. Underscoring the rise of digital media, Ernst & Young projects that 27% of households worldwide will have broadband connections by the end of the year and 55% will have 3G devices by year's end.

The firm's index of digital media users, growing at an annual rate of 32%, is expected to reach 2.2 billion by 2011 -- more than double the total for 2007. To keep up with new media trends, CFOs say getting real-time information on where consumers are heading will help their companies better adapt product offerings, keep pace with current demand and anticipate future trends.

But the report warns that even as companies experiment with new business models, "they need to focus on maintaining revenues in the areas that have been their mainstay in decades past. CFOs cannot forsake traditional earning in their quest for the digital jackpot."

Executives surveyed in the Ernst & Young study spanned companies including News Corp., The New York Times Co., ABC, Facebook, Hulu, Interpublic, Major League Baseball, Sony Pictures Entertainment, and Warner Music Group.

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