Global entertainment and media outlook 2010–2014

Viewpoint

Seven success factors in

the new digital value chain
The migration away from traditional forms of media distribution and consumption and towards digital
platforms is changing the underlying commercial dynamics of the E&M industry. Historically, E&M’s
profitability as a sector was supported by the high costs of content creation and content distribution,
which represented high barriers to entry. The migration to digital production and distribution has
lowered those barriers—making the overall E&M market more competitive and putting downward
pressure on profit margins.

Combined with the increasing pace of migration, these commercial pressures mean companies have
no time to waste in identifying, pursuing, and occupying their optimal and rightful positions in the digital
value chain. In the past five years, much of the E&M industry’s collective experience on business
models, revenue streams, and organizational structures has been torn up.

A new value model

Companies are now experimenting and innovating in their
business models at an unprecedented rate, as they seek to “I basically think that
reassemble the pieces into a viable model — one that movies are going to be
successfully positions them in a sustainable, defensible, and, stored in one location at
ultimately, profitable place in the new value chain. your home and you can
just transmit them to any
Social and consumer dynamics are at the heart of this pervasive media that you own,
industry change—and media companies ignore these buy-side whether it be a laptop or a
trends at their peril. Time-starved individuals want both to use PC, or your TV or your cell
multiple, connected devices and to have personal experiences,
phone. You can just push
often with others. The explosion in media choices also means
individuals face a growing set of trade-offs between the a button and the movie
availability, quality, and price of content. shows up on whatever you
send it to.”
Free may mean lower quality and convenience, while paid may — 28-year-old, Los
mean higher-quality, more personalized, and more engaging Angeles, US
content services. A polarization will emerge between these
options. At the same time, many people will continue with
traditional habits such as reading a physical book or newspaper. Companies need to maintain these
 legacy revenue streams while investing in their digital services and creating complementary and
synergistic relationships between their physical and digital offerings.

As these dynamics progressively transform the industry, media companies must make it a priority to
establish clarity about their role or roles in the new industry value chain and their relationships with the
other participants. Possible choices include competing with other companies in some areas and
partnering with them in others.

The critical success factors

To optimize their positioning, our view is that two important dimensions that media companies should
focus on are scale and diversification. At the same time, desirable content, a cohesive strategy, and
stringent execution will — as ever — remain prerequisites for success.

Taking these attributes as “given”, we have identified seven success factors we believe will play critical
roles in enabling and facilitating each organization’s transition to its optimal place in the new digital
value chain. These are:

1. Strategic flexibility. In practice, the ability to identify and realize opportunities for diversifying
revenue whether by service, model, customer, geographic market, and/or maturity of proposition.

2. Delivery of engagement and relationship with the customer through the consumption
experience. For example, in cinema or DVD rental, the relationship defined around experience with
film across platforms, which was previously defined by channel.

3. Economies of scale and scope. Driving synergies hard between different activities in
conglomerates and using digital standards to exploit scale.

4. Speed of decision-making and execution, with the appetite to experiment and fail. Requiring the
inspiring and empowering of individuals, the devolving of more accountability, and the streamlining
of governance to accelerate decisions.

5. Agility in talent management. Attracting and retaining key talent and then aligning and
incentivizing individuals to deliver the strategy through objective setting, rewards, and performance
management.

6. Ability to monetize brand/rights across platforms. For example, music labels that monetize
music events, independent producers who go into talent management, and broadcasters who go
into Web TV, leveraging the expertise, branding, and customer data they own and/or can collect.

7. Strong capabilities in partnership structuring and M&A targeting and integration. Amid greater
competition for strategic assets than ever before.

As the new digital value chain takes shape, media companies that exhibit these seven characteristics
will be well-placed to diversify their revenues, increase scale when appropriate, and reshape their
operating models. All these capabilities will help them secure a successful positioning in the industry’s
digital future.

pwc.com/outlook 
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