Inside the Media C-Suite, Issue No. 48

It’s a considerable idea.

One conclusion may be that some of the highest-paid corporate executives on Earth might just know what they’re doing. 

This was the thesis in a subsequent article that asked the billion-dollar question: Can managing failure be a corporate strategy for legacy studios? 

Yes, as it turns out; a lucrative one. Particularly so for M&E’s highest-paid CEOs and the private equity investment firms they will likely step into at the end of their present contracts.

Hollywood Studios’ Failure to Plan May Be Planning to Fail

The costs of competing on a level playing field might be too high for legacy Studios when technology, and creative tenacity, are finally closing the gap between artists and audiences.

Let’s Get Started

The article above did ruffle a few feathers. 

First, institutional investors that we speak with regularly count the likes of Disney, Warner Bros. Discovery and the Paramount Group among their anchor portfolio assets and they are now being called to answer a dreaded question from their own investors:  Why?

Second, the boards of directors at the top of those publicly-listed media conglomerates are being told to provide the answers.

The result has been fascinating to watch. This headline from CNN Business perhaps said it best:  Major shakeup at Disney: Board chair is out. New CEO is coming soon. We expect some interesting press releases from several of the others soon enough. 

Vantage

Our view from the bridge between this industry and its investors offers both vantage and advantage. The vantage is, by definition, a point of view. We call it perspective. From a slight distance, we can observe the behaviour of those Media Majors as the largest objects in our industry’s environment. 

Landmarks, one might say. 

For many in the industry, particularly those in “Hollywood”, living and working within the orbit of these massive objects has created a sense of relativity. As with much of “tinsel town”, that reality may be artificial. 

Those landmarks are becoming increasingly unreliable as points of reference for navigating a path into the future of the entertainment business. This is as true for investors as it is for those on the inside.

For most of the industry’s creative working class, particularly in Los Angeles County, that decaying false sense of security is matched only by the suspension of disbelief. The result can easily be catastrophic for those pessimistic enough to see it coming and do nothing about it.

That’s the point of pitching pessimism; getting the majority to do nothing about the perception of impending doom while those in command secure their positions and quietly prepare for a different outcome.

Its subterfuge, and we are watching it happen.

Our Take

Pessimism is, at its heart, a political distraction.

The flip side to catastrophe, however, is opportunity. 

Yes, this sounds like optimism. But we leave the CEOs to descend into Oliver James’ version of cultural pessimism. The way we see it, their reality is not necessarily the reality. 

Certainly, it’s not ours. And while one may perceive our perspective as optimistic, we prefer to think of it at opportunistic.

Ad-Vantage

Our vantage point allows us to observe both the big picture and to see the silver linings at the same time. While we watch the results of a catastrophe mindset at the Media Majors, we see something remarkable growing in the widening space between them and the audiences they reap. 

And, if you listen carefully enough, we can all hear it too.

It’s the sound of money flowing into good ideas, such as sport, media-tech, live events and direct-to-consumer entertainment platforms. What it’s flowing away from, rapidly, are legacy media companies. 

The sound is heard most prominently in the pauses between contradictory statements being spun out of corporate communications departments at those publicly-listed media conglomerates. As CFOs lament the decline in ad revenues, CEOs talk of capturing more. Mixed messages to be sure. But the sound of money is still there in the background.

The CFOs and CEOs both know the money is there. They hear it too. Yet, they also feel it slipping through their fingers.

In fact, as ad revenues to the Media Majors have steadily declined, advertising spend has steadily increased globally year-on-year for the past decade and is expected to breach US$1 trillion by end of next year. Significantly, that same ad spend is expected to exceed spending by consumer audiences on access to content for the first time … ever. The combination of audiences and advertisers will push total revenues to the global Media & Entertainment industry beyond US$2.9 trillion by 2026. 

Significantly, an increasing percentage of that revenue is diverting away from the Media Majors and into emerging media and entertainment companies.

Just Catching Up?

We’ll help you get up to speed.

The executive power word for this issue is: Mindset. 

Pessimism is an easy sell to large audiences, giving rise to the idiom, “Misery loves company.” It’s nonsensical objectively, but it’s perfect common sense. For politicians and neo-philosophers, pessimism sells.

However, for those that don’t buy into it, it opens a world of opportunity that creative minds are pre-disposed to exploit. And they are doing just that. The “world” in this case is literal, not figurative. Which offers a convenient venue for those grounded in reality such as professional investors. 

The disadvantages presented by a pessimistic mindset are strategically important in this regard. They tend toward reactionary efforts expended to achieve the status quo ante in the face of systemic change and commercial disruption. Recognition of this offers a signal for professional investors to pull their money out before the figurative, “Fade to Black”. 

Like energy, capital must flow somewhere. 

Where does it tend to go? Into new companies that are disrupting the old. The opportunity mind-set, seizing on good ideals, is what builds companies that CEOs eventually take control of. This building process is where value is created and what investors in growth are keenly in search of. 

This is the realm of the entrepreneur. 

Few industries are as well endowed with the creative, technical and intellectual talents for entrepreneurialism as the Media & Entertainment industry. This is expressed in the growing attraction from professional investors into next-generation sports content, media-tech that offers greater audience experience and direct-to-consumer platforms that open those audiences to more choice in entertainment and information. 

All it takes, really, is the right mindset and enough money to survive the ascent. 

What It Means

A lot.

People are inherently social and inherently prone to enjoy story-telling. For over a century, the Media Majors have moulded people into proprietary consumer audiences and controlled access through proprietary cinema distribution, broadcast licenses and cable networks. 

As a result, the United States remains, for now, the most lucrative media market on Earth with a total population of just over 300 million people. Lucrative, that is, to the Media Majors.

However, over the past two decades, expanding access to high-speed internet connection has created a global consumer audience numbering 5.6 billion. This emerging audience is always on-line, always consuming content and collectively spending more money than ever before. It is an irresistible force as much as the Media Majors have been the proverbial immovable objects. 

What happens when they meet?

The pessimist would predict catastrophe. But in the world of physics, and money, the irresistible force simply goes around the immovable object. By analogy, the Media Majors are merely obstacles.

The Creator Economy

If you roll-out a globally connected, cheap and high-capacity data network (a.k.a. the Internet) you eliminate the very mechanisms for control over the consumer audience, or access to them. What has resulted is the rise of Social Media, which attracts its audience with user-generated content. No broadcast licenses are required. No tent-pole production budgets are necessary. None at all.

The combination of Social Media and video streaming has offered a business model that rivals, if not overwhelms, traditional media’s revenue streams. With streaming comes direct-to-consumer distribution of traditional film and television formats. With Social Media comes user-generated content. This combination of content delivery has billions of people tuning out of legacy media channels and into a digital cornucopia of entertainment content.

Creatives who have maneuverered well during this transition have earned well as a result. Celebrities with large fan-bases accessible through Social Media and direct-to-consumer channels have attracted advertisers away from traditional television to the tune of billions of dollars a year. That revenue has, in turn, been invested by some back into the next-generation of Media & Entertainment.

These “capital influencers” are at the heart of a “creator economy” that Goldman Sach’s predicts will double in size to a US$500 billion market for ad-sponsored, user-generated and direct-to-consumer content over the next few years. It’s a business model that is now gaining traction for every type of content, from podcasts to video shorts to feature-length films and documentaries. 

Revenues being diverted from legacy media companies by emerging creatives are increasingly being re-invested back into the next-generation of Media & Entertainment. Together with professional investors, the creator economy is rapidly becoming mainstream at a scale and pace that renders the Media Majors simply incapable of adapting to.

Well-established corporate and capital strategies are, however, perfectly adaptable to this new generation of media and entertainment entrepreneurs. 

A large number of Free, Ad-supported Streaming Television (FAST) platforms are consolidating into meaningful private equity opportunities. As are a growing number of experienced content producers increasingly freed from the subject-matter and format constraints of legacy media companies. 

The Joe Rogan Experience has already remodelled the traditional interview format as a universally accessible pod-cast. Welcome to Wrexham has demonstrated the convergence of sport and entertainment as value creation strategy. 

We are more than optimistic about what comes next.

Looking Forward?      

Preparation is the Key.

Here are a few articles to get you moving in the right direction.

Creatively Disrupting Hollywood

For the Hollywood Studios, disruption is bad; very bad. But for everyone else in the Media & Entertainment industry, it is long overdue and badly needed.  Particularly for the two most important groups:  Audiences and Investors.

The Battle of the Balls: Why Sport is Poised to Leave Audiences Breathless

Sport is entertainment on steroids. With over US$2.5 trillion in annual revenues to fight over, the competition has only just begun. Big money, Hollywood’s legacy Studios and the next-generation of media entrepreneurs have all joined the fight.

Are Cancelled Series a Symptom of Deeper Issues in Hollywood?

As broadcast television suffers from cord-cutting and global streamers struggle to combat subscriber attrition, executives are cancelling television Series in what may be a monumental case of the left hand not knowing what the right hand is doing.