Piracy, technology, brand concentration, fighting for advertising dollars and a new consumer relationship are to be the hallmarks of commercial success in the international media markets in the near term, according to international consulting group McKinsey & Co.
Michael J Wolf, McKinsey’s Director and Global Leader – Media & Entertainment practice, outlined these challenges at Friday’s the London Media Summit 2004 organised by the London Business School in association with CNN and Deloitte.
In a knockabout, amusing presentation, Wolf emphasised that few media groups were generating profits currently and that a new tough approach was required to rebuild shareholder value. Although the tipping point – when TV channel income from advertising fell below 50% – was some way off, five key trends were emerging within media groups’ strategies to counter ad revenue decline.
Number one was a marked rise in aggressive competition for advertiser’s dollars. Audience fragmentation and the advertiser’s trend to ‘up’ their mix of below-the-line media spend have left agencies sharing a smaller cake with what’s left flowing to low risk, conservative programme slots. Next was a move from simply owning the content or the means of delivery to owning the audience and the opportunities that give rise to direct merchandising and long term revenues.
Technology was the third new and major influence – from the ability of viewers to skip ads with TiVos, to the enhanced ability to connect interactively with audiences, as evidenced by the 100m registered users of Everquest in China. Wolf used the now tired sounding expression ‘lean back or lean forward’ technologies by way of illustrating the diversity of ways now being employed to engage with viewers.
He then moved onto IP and the risks of piracy before concluding with his fifth trend; brand concentration. Wolf said more funds would go into developing the best top brands at the expenses of lesser ones. That development would include enhancing the quality of the output and cited HBO as a prime example of where quality led to profitability.
:SP: Clearly McKinsey clients are primarily the current Media Majors, the huge organisations that currently control the output and access to the media, not the fast moving, smaller media companies that some feel are coming up to out manoeuvre and potentially bite them. We’re somewhat confused by his view of brand remaining important when anyone who has lived with a PVR for any period of time knows full well that viewers couldn’t care less where the content comes from. These comments also don’t take into account the thinking around the Long Tail. As to the final point on raising quality – we heartily applaud any thing that brings higher quality to the viewer.