As the calendar turns to 2023, media and entertainment (M&E) leaders are taking decisive action to achieve ambitious growth plans and position their companies for future success as the industry continues its ever-evolving transformation. The business of content creation, distribution, advertising, and monetization is more fluid and uncertain than ever before, and media companies are racing to adapt. Here are major trends to watch in the M&E industry in the year ahead as competition intensifies and the stakes rise.
Streamers bundle up to brave the elements
If we’ve learned anything in the past few years, it’s that long-term success in streaming requires establishing a durable subscriber relationship. Building on the long and successful legacy of the cable TV model, nearly all media companies that are active in the direct-to-consumer (DTC) arena today are now aiming to offer consumers a bundled offering of streaming content and other services.
Along with boosting sign-ups and reducing churn — thereby increasing subscriber lifetime value — bundles allow media companies to improve efficiency in marketing spend and technology investment. Consumers benefit by paying a lower all-in price compared to à la carte buying.
Initially, streamers offered “soft” bundles, with separate DTC services packaged together for a favorable monthly rate. Going forward, media companies will fully integrate distinct streaming services into one application, creating a true “hard” bundle of content.
To further strengthen the DTC customer relationship and raise switching costs, media companies are looking to attach other services to their streaming bundles, replicating the success that some of the large, digital-native platforms have had linking the video subscription to e-commerce, music, fitness and other lifestyle offerings.
Streaming companies that lack content scale today and choose not to engage in a bundling strategy risk being marginalized in a market where the consumer holds the power to cancel at any time and is being trained by the industry to seek out a good deal. Owners of stand-alone DTC services will need to double down on their niche offering and core customer base to remain relevant.
Regional sports media is changing the channel
Regional sports network (RSN) revenues are facing significant pressure as subscriber counts decline due to consumer cord-cutting and loss of carriage from pay TV operators, who are choosing to drop the networks rather than pass along pricey affiliate fees to customers.
Professional sports teams and leagues are looking ahead to the expiration of existing RSN rights deals. They have concerns about the durability of a critical source of team income, given the financial stress in the RSN landscape. This dynamic is a major focus for teams that rely heavily on RSNs to support fan engagement throughout lengthy regular-season schedules.
To address the potential for disruption, teams and leagues are studying — and in some cases, executing on — transactions to purchase RSNs and position the business for transition to DTC streaming. RSN ownership would also enable creative bundling opportunities. Offerings could include discounted game tickets and concessions, exclusive fan experiences, team-branded merchandise, NFTs and tie-ins with sports betting — all geared to motivate fans to sign up for the DTC service.
However, acquiring an RSN and making the pivot to streaming comes with considerable risk. DTC pricing must be high enough to offset current payments for rights fees while also being affordable enough for subscribers to discourage churn in the team’s off-season or during periods of poor team performance. This may require multiple pro teams participating in a streaming venture together to facilitate a year-round programming schedule.
Movie theaters look for more action
Despite the tangible momentum gained for the big blockbusters at theaters this year, studios and exhibitors are working through a recalibration of the movie business. Box office revenue is over 30% below annual totals in pre-pandemic years, according to BoxOfficeMojo.com.
Studios are reviewing which genres “work” economically for theatrical releases versus a straight-to-streaming approach. Action, superhero, horror, family-friendly, rom-com and so on all bring different budgets, marketing plans, potential audience breadth and, ultimately, monetization opportunities for studios. Studios are basing release plans on a corporate agenda that is now centered on maximizing DTC — ultimately determining that some films are best suited for a streaming release.
In response, theater owners will need to recalibrate their business and financial models to account for less film product flowing through their multiplexes while staying nimble enough to capture the returns from the mega blockbusters. Strategically, some exhibitors are restructuring their balance sheets and shrinking theater portfolios to align with current market realities.
Studios can assist too, by managing release calendars to ensure that a steady supply of films hit theaters in the right cadence. This will help support the operations of exhibitors and enable them to deliver a positive customer experience to moviegoers.
Metaverse is on the long-range radar
While the excitement around NFTs and visions of a metaverse-driven future may have cooled in late 2022 as macroeconomic factors took center stage, media companies continue to prepare for the next age of interactivity. Investment areas include strategic planning, research and development, consumer research and technology, with a goal of maintaining optionality as the metaverse comes into view.
Media leaders are studying how consumers will access content, engage with advertising, transact and socialize within an immersive internet experience. Blockchain-based digital assets, including NFTs, are expected to be a key element of the media value chain in the metaverse, enabling digital identity, asset ownership, royalty tracking and payments, and providing offline linkages to “IRL” experiences.
Today’s experimentation will become the business plan of tomorrow and the revenue generation beyond. To execute, media companies will stay on the path of taking purposeful steps, appointing dedicated metaverse champions and supporting them with technology, finance, legal and creative talent to frame out scenarios and drive innovation.
For 2023, all signs point to another year of excitement and change for the M&E industry. These trends — and many others influencing the industry — will require leaders to make bold moves to survive and thrive during this era of great disruption.
The views expressed in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.
