PricewaterhouseCoopers European Media Leaders Summit

Transcription

1 PricewaterhouseCoopers European Media Leaders Summit London, November 2008 Summit Summaries Facing up to the downturn: economic and structural challenges put the onus on investment 1

2 Facing up to the downturn: economic and structural challenges put the onus on investment The global Entertainment & Media (E&M) industry is bracing itself for the deepest and possibly longest recession in living memory, coinciding with structural disruptions from the widespread shift to digital technologies. Speakers at the European Media Leaders Summit stressed the scale of the challenges facing the industry - but also voiced confidence that, given the right strategies and continued investment in innovation, companies could emerge stronger and fitter from the economic downturn. Marty Pompadur, formerly executive vice president of News Corporation and now a consultant to the company, pulled no punches when asked how deep and dirty this recession would be for the media industry. Unfortunately I think it s going to be pretty deep and pretty long, he replied. I m not usually into doom and gloom. But as I look at what s going on globally, and particularly in the areas I m most familiar with the United States, Europe and the Middle East it s very, very ugly. It is also taking a toll on the emerging markets, although you do have to look at each market separately. Anthony Fry, Senior MD of Evercore Partners, added that the crisis was I m not usually into doom and gloom. But as I look at what s going on globally, and particularly in the areas I m most familiar with the United States, Europe and the Middle East it s very, very ugly. It is also taking a toll on the emerging markets, although you do have to look at each market separately. Marty Pompadur Consultant to News Corporation happening on two fronts. On the one side you have the normal and predictable cyclical downturns that afflict the economy from time to time, except on this occasion on a much larger scale, he commented. But against that in the media industry we re also facing very substantial structural changes. And that combination is going to test the mettle of every media executive during the next 12 to 18 months. Proven durability More positively, these and other speakers also stressed the proven durability of the E&M industry in weathering economic storms. Phil 2 European Media Leaders Summit 2008

3 On the one side you have the normal and predictable cyclical downturns that afflict the economy from time to time, except on this occasion on a much larger scale, he commented. But against that in the media industry we re also facing very substantial structural changes. And that combination is going to test the mettle of every media executive during the next 12 to 18 months. Anthony Fry MD, Evercore Partners Stokes, UK E&M leader with PricewaterhouseCoopers, pointed out that the industry s growth historically tends to outpace GDP. There are even some segments where the people who work in them declare them to be recession-proof, one being cinema, said Stokes. The segments that struggle much more as we ve seen recently are things like holidays, new cars, white goods, and luxury items. Consumer spending on E&M does tend to hold up better and recover faster. Peter Smith, president of NBC Universal International, also sounded a positive note. This is an industry that can go through turbulence and come out at the other end a lot stronger, he commented, adding that intelligent cost control would be key. Cancelling Christmas parties and making small tactical cutbacks is not the order of the day, said Smith. I think it s about intelligent cost-cutting and fundamental shifts in the way you do business. It s going to be a two-to-three year cycle, and it s businesses that make innovative cuts now or over the next year that will come out the other end a lot better-placed. Strategies in response So, what strategies are companies adopting? Daniel Sandelson, partner and head of media at law firm Clifford Chance, said they were responding in a variety of ways. There s a renewed focus on bringing an updated broadcast model to emerging markets and capitalising on the potential growth and enrichment of the audience there, he commented. That s happening in Eastern Europe and starting in Africa. The second focus This is an industry that can go through turbulence and come out at the other end a lot stronger...i think it s about intelligent cost-cutting and fundamental shifts in the way you do business. It s going to be a two-to-three year cycle, and it s businesses that make innovative cuts now or over the next year that will come out the other end a lot better-placed. Peter Smith, president NBC Universal International PricewaterhouseCoopers 3

4 If I have a single largest fear, it is that the current economic climate would disproportionately drive industry complacency or inertia or a slowdown in the natural innovation cycle. Brian Sullivan, managing director, Customer Group, BSkyB area is companies moving up and down the value chain and getting more vertical integration between their different businesses. Reflecting these proactive responses, several speakers stressed the need to keep investing in order to be ready to capitalise on the eventual recovery. Other speakers echoed this danger. Brian Sullivan, managing director, Customer Group, BSkyB, commented: If I have a single largest fear, it is that the current economic climate would disproportionately drive industry complacency or inertia or a slowdown in the natural innovation cycle. Investing for the upturn Many speakers stressed that companies are determined not to let this decline in investment happen. Matthieu Coutière, vice president, research and projects with Vivendi, commented: We have decided to continue to invest, both for the French content and also for foreign content. We believe the content industry will grow more or less in line with GDP possibly a bit more because people have more free time. Tony Cohen, CEO of FremantleMedia, added: One of the lessons from the downturn in 2000/2001 is that a downturn is the last moment when you should cut back your development expenditure, because when the market comes back you ll have nothing in the cupboard to sell. So we ll be doing the exact reverse. John Cresswell, COO, ITV, agreed. In tough We have decided to continue to invest, both for the French content and also for foreign content. We believe the content industry will grow more or less in line with GDP possibly a bit more because people have more free time. Matthieu Coutière, Vice president, research and projects, Vivendi 4 European Media Leaders Summit 2008

5 economic conditions it s tempting to cut investment, he said. But at ITV we ll continue to keep investing every penny we can in content and on screen. It s what drives our business, and it s the last thing we will cut. However, Patrick Svensk, CEO of Zodiak Television, put the emphasis on proven winners: Especially in the times that we re going into, I think we have to focus on the Triple-A, the flagships, the productions that really make a difference, that broadcasters and viewers need to have and tune into. John McMahon, president and managing director, Europe, Sony Pictures Television International, added that broadcasters were already focusing more strongly on proven winners. In the current economic climate, broadcasters are more wary in commissioning new productions and this is where production companies are seeing the most dramatic impact on their businesses. In a lot of markets, broadcasters are more risk averse because if a show is not a success, the impact on them in today s market is going to be that much greater than it was a year ago. Opportunities in recession However, the downturn brings opportunities as well as risks not least for potential acquirers and growth investors, with valuations falling dramatically. Paul Fisher, partner at Advent Venture Partners, added: In venture capital, we re looking to back entrepreneurs in highly disruptive businesses. And all the things we re talking about show this is actually a great time to be starting and growing disruptive, early stage businesses. Crevan O Grady, partner with 3i, highlighted a further seam of opportunity in buyouts. It s not just private equity-owned businesses that have taken on leverage over recent years, but corporate businesses as well, he commented. So we see an opportunity to acquire businesses that are coming out of larger, possibly over-leveraged or heavilyleveraged businesses. In tough economic conditions it s tempting to cut investment. But at ITV we ll continue to keep investing every penny we can in content and on screen. It s what drives our business, and it s the last thing we will cut. John Cresswell COO and finance director, ITV PricewaterhouseCoopers 5

6 Especially in the times that we re going into, I think we have to focus on the Triple-A, the flagships, the productions that really make a difference, that broadcasters and viewers need to have and tune into. Patrick Svensk, CEO, Zodiak Television Summing up the wider market opportunity, Adam Valkin, executive vice president, digital media and new business at Endemol, pointed out that the pressure on incumbents has been intensified by the downturn. We are entering a very challenging time for business in general, but certainly for incumbent entertainment companies, that need to invest in technology, innovation, and new concepts - and have to integrate digital activities into their core business. This is tough to do. Now they have to do this in an environment of potentially contracting advertising revenues and other economic challenges. The companies with the courage, expertise and sense of timing to navigate these waters will be in good shape. We are entering a very challenging time for business in general, but certainly for incumbent entertainment companies, that need to invest in technology, innovation, and new concepts - and have to integrate digital activities into their core business. This is tough to do. Now they have to do this in an environment of potentially contracting advertising revenues and other economic challenges. The companies with the courage, expertise and sense of timing to navigate these waters will be in good shape. Adam Valkin, executive vice president, Endemol For full agenda and speaker details, visit 6 Entertainment & Media Summit 2008