Seventy-Three Percent of Global Media and Entertainment CFOs Say Digital and Mobile Content are Greatest Future Revenue Opportunities Despite Current Profit Pressures

NEW YORK, June 17 /PRNewswire/ -- CFOs from 75 of the world's largest media and entertainment companies are optimistic about revenue potential from the Internet and mobile devices in spite of declining revenues, according to Ernst & Young's 2010 global media and entertainment CFO study.  The report, Poised for digital growth: Preserving profitability in today's digital world offers insights from CFOs on the future of digital distribution, the Internet, mobile devices and the impact on their companies.

"The phenomenal proliferation of digital entertainment among consumers continues to challenge media and entertainment companies," said John Nendick, Global Media & Entertainment Leader for Ernst & Young LLP.  "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. However, as the demand for digitally delivered entertainment continues to increase significantly, CFOs feel optimistic about revenue potential."  

Given the discrepancy between increasing consumption of digital content and falling revenues, CFOs surveyed agreed that the industry must determine if and how much they can bundle media content and then settle on appropriate pricing. Ernst & Young analysis indicates 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. This would be on the heels of the 55% decrease of the price of music and the 12% decrease of the price of video between 2006 and 2009.  Currently, the average per unit price of music is US$3 and US$6 for video. Additionally, total home video and music end-user spending for 2010, including digital and physical products, is estimated to be US$28.5b compared to US$36.4b in 2006.

"CFO's see growth in new distribution channels, products and services," said Howard Bass, Senior Partner, Global Media & Entertainment Advisory Services, Ernst & Young LLP. "Publishers and similar content companies are embracing the fact there are almost 2 billion digital media users to leverage their content and core products and services to the web, mobile devices and electronic gaming globally."

Digital media consumption is set to continue at a rapid pace. The number of US households with both broadband connectivity and at least one 3G mobile device has quadrupled during the past five years, and increased more than 600% on a worldwide basis, according to the report.  Global penetration of households with broadband is predicted to reach 27% by the end of 2010 and 3G mobile devices are predicted to reach 55% by the end of this year. Ernst & Young's index of digital media users, which is increasing by an annual rate of 32%, is expected to reach 2.2 billion by 2011 – more than double than in 2007.

Other notable insights from the study include:

• CFOs surveyed were definitive in their approaches to reducing costs and improving profitability.  These executives have reduced their costs to the lowest levels possible, and are beginning to outsource more activities to yield significant savings.  
• Fifty-six percent of CFOs indicated that process improvement would be the greatest opportunity for savings during the next one to two years. Technology was frequently identified as a way to produce content faster and less expensively.  
• CFOs believe companies need to assess the business-heavy costs such as content production, acquisition and distribution, and increase shared processes for finance, IT, research, call centers and even content development – inside and outside their companies.
• Sixty-six percent of CFOs consider disruptive business models, such as ebooks and mobile content, to have the greatest impact on the media and entertainment industry during the next two to three years.
• Interactive media companies currently have an EBITDA margin of about 42% and a five year EBITDA CAGR of 24%.  This growth rate is 7% larger than its nearest competitor, satellite television, and is more than double most of the other sectors.
• Transaction activity was down significantly in 2008, mainly due to the economic environment. In 2009, the number of deals has shrunk, but the average value of the deal has skyrocketed – higher than during the boom days of 2006 – due to a number of very large deals that drove that large dollar value per deal.  

About the study

The CFOs we interviewed represent leading global companies with combined annual revenues of approximately US$300b. They broadly span the media and entertainment industry in sector, size and geographies.  

About Ernst & Young's Global Media & Entertainment Center

Whether it's the traditional press and broadcast media, or the multitude of digital media, audiences now have more choice than ever before. For media and entertainment companies, integration and adaptability are becoming critical success factors.  Ernst & Young's Global Media & Entertainment Center brings together a worldwide team of professionals to help our clients achieve their potential – a team with deep technical experience in providing assurance, tax, transaction and advisory services.  The Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues.  Ultimately it enables us to help our clients meet their goals and compete more effectively.  It's how Ernst & Young makes a difference.

About Ernst & Young

Ernst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

Ernst & Young refers to the global organization of member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit www.ey.com

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SOURCE Ernst & Young