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Telecommunications industry

Media and Entertainment Industry Faces Rapid Changes Driven by Digital and Broadband Technology Adoption

Strategic Insights

— 2 min read

The global media and entertainment industry is undergoing significant transformations driven by the rapid adoption of digital and broadband technologies. Executives from top global companies, including The Walt Disney Company, Viacom, Inc., Time Warner, Inc., and others, participated in a study by Ernst & Young, highlighting the industry's challenges and opportunities in the face of technological advancements.

Key Takeaways:

  • **Building the right management team is crucial**: 75 percent of executives cited building the right management team as a major internal challenge to success, highlighting the need for technology-savvy managers to navigate the industry's changing landscape.
  • **Digital video recorders (DVRs) are a game-changer**: More than any other new technology, DVRs are expected to disrupt the industry's status quo, with 6.5 million households in Europe and 24.7 million in the US expected to have DVRs by 2007.
  • **New technologies are driving industry-altering changes**: The introduction of new technologies is occurring at an increasingly rapid pace, with no slowdown in consumer adoption (figure 1).
  • **TV advertising is under threat**: The rise of DVRs is threatening traditional television advertising, with approximately 12.5 percent, or about $4 billion, of TV advertising at risk.
  • **Electronic game software has the fastest growth in profitability**: Electronic game software has experienced the fastest growth in earnings before interest, taxes, depreciation, and amortization (EBITDA) profitability of any media and entertainment industry sector.
  • **New management skills are essential**: Executives emphasize the need for technology and financial skills in future management teams, with 47 percent citing these skills as critical for success.
  • **Television broadcasting is facing challenges**: Despite being one of the most profitable segments, television broadcasting is seen by executives as the most challenged to thrive and grow in the future.
  • **The music industry is struggling**: The music industry, which has been hard hit by piracy, now has the lowest profitability margins of any segment in the industry.
  • **Cable operators are expected to thrive**: Cable operators, which have performed well in the US market, are seen by executives as likely to thrive in the years ahead.

Statistics:

  • **$214 billion:** Combined annual revenues of the media and entertainment companies represented in the study (FY03).
  • **$340 billion:** Combined market capitalization of the companies represented (FY03).
  • **6.5 million:** Number of households in Europe expected to have DVRs by 2007.
  • **24.7 million:** Number of US households expected to have DVRs by 2007.
  • **12.5%:** Percentage of traditional TV advertising at risk due to DVR adoption.
  • **$4 billion:** Estimated value of traditional TV advertising at risk due to DVR adoption.

Sources:

  • Ernst & Young LLP
  • William Mutton, Global Communications, +44-20-7980-0532, william.mutton@uk.ey.com
  • Nicole Thomas, U.S. Communications, +1-213-977-3348, nicole.thomas@ey.com

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