In 2022, media and entertainment companies experience a familiar landscape influenced by consumer behavior dynamism, technological innovation, competitive intensity, and industry reshaping. Mix in the continuing effects of the pandemic on business conditions and the workforce, an inflationary economy, and a charged social and political landscape, and company leaders are steering through unpredictable terrain.
Here are five trends to watch in the year ahead as the industry works to reframe its future.
1. Content distribution gets (more) complex
Investment in new original content shows no sign of slowing as we move into 2022. Content is the fuel that drives consumer interest and engagement across platforms – streaming, broadcast and cable networks. How the content reaches consumers, however, often involves a complicated decision-making process.
The direct-to-consumer (D2C) pivot will continue to be the primary strategic priority for the industry in the coming year. Operators and investors alike are focused on subscriber growth and retention as the key performance indicators for services where switching costs for consumers are minimal. Despite their rapid growth over the last two years, most D2C services operated by media companies remain unprofitable and consume cash, devouring resources from the overall enterprise.
The capital intensity associated with streaming highlights the importance for media companies to harvest the financial benefits of the linear ecosystem. Even as cord cutting gradually shrinks the universe of traditional video subscriptions, broadcast and cable networks remain cash flow engines. To avoid a dislocated unwinding of the legacy pay-TV environment and its valuable monthly subscriber fees and advertising revenues, network owners must continue to direct fresh content, including sports, to their linear channels to keep viewers engaged.
In the year ahead, operators (especially those without the scale or capital resources to go truly “all in” on streaming today) will be faced with challenging decisions around programming their streaming platforms to drive growth, while also remaining profitable but structurally declining linear businesses to generate cash flow. This is a tricky balancing act.
Acting on these decisions will require sophisticated modeling and disciplined business planning that spans creative and executive priorities to achieve the optimal mix of growth and financial outcomes.
2. Simplified and customized experiences take center stage
In 2022, consumers will continue to seek out unique experiences and ubiquitous access to entertainment content. Companies that solve the discoverability puzzle and aggregate content in a more intuitive and accessible way will rise to the top.
Consumers expect effortless interactions throughout the end-to-end customer journey, from sign-up to usage and billing. Accordingly, we will see more companies participating in the streaming value chain. Network owners, broadband providers and connected TV manufacturers will be taking steps to simplify, optimize and integrate layers and compatibility tools across platforms to improve the user experience.
Content discovery is becoming increasingly difficult for consumers as they bounce between streaming services searching for new series and old hits among the avalanche of available programming. Tech-savvy companies that harness valuable viewership data to give customers more of the content they want will enjoy a competitive advantage. In 2022, streamers playing catch-up will refine their recommendation engines based on demonstrated subscriber preferences and usage history, and tailor their marketing – in-platform and over external channels – to make consumers aware of all the viewing options.
Bundling can also enhance the consumer experience. The scaled digital-native streamers provide a variety of integrated offerings to their video subscribers – shopping, gaming, devices, and other digital services. Media companies with diversified businesses or innovative partnerships with third parties – including in the digital asset arena (e.g., non-fungible tokens, or NFTs) – will aim to create their own “flywheels” that provide a portfolio of offerings to their streaming subscribers, driving new sign-ups and adding stickiness to the D2C revenue model, extending the life of the customer relationship.
A deep lineup of desirable programming is table stakes for the streaming game. In an environment where consumers are juggling a growing collection of services and switching costs are low, media companies need to deliver an experience that keeps subscribers connected and engaged.
3. Movie night will return to the theatre
The effects of the pandemic on the movie business have been severe. Cinema owners struggled to remain open as moviegoers stayed away because of virus concerns and limited availability of fresh film product. While the emergence of the Omicron COVID-19 variant is adding uncertainty, there are signals pointing to a constructive path forward for the box office in 2022.
In 2021, 13 films grossed over $100 million according to Box Office Mojo, down from over 30 in 2019. Nonetheless, results in 2021 indicated an enduring audience appetite for “blockbuster” features as reopening across the country gained steam, prompted in part by the distribution of effective vaccines. Looking ahead, a robust slate of long-anticipated tentpole movies should help drive the recovery in theatre admissions.
A change that will hold in 2022 is the abbreviation of the exclusive theatrical window to approximately 45 days and, for some mid-size films, a day-and-date release approach that enables consumers to view new movies in the theatre or at home. After a difficult series of negotiations between theatres and studios, the movie industry appears to have aligned on an approach that preserves the attributes of the theatrical window while acknowledging the reality of streaming popularity.
The shorter first-run window will allow studios and theatres (and creative talent) to reap the benefits of successful major releases – namely the huge ticket sales that take place on opening weekend and the following several weeks, plus the ability for studios to leverage marketing spend in support of a film’s premiere into future distribution windows, specifically fast-following D2C availability.
4. NFTs have entered the media chat
Excitement is building around NFTs as a vehicle for media companies to expand engagement with their content and IP and may provide a future monetization model as the market matures.
Early adopters are purchasing NFTs linked to sports, art, collectibles and more, acquiring one-of-a-kind digital assets that are easily tradable and whose ownership and authenticity are recorded via blockchain technology.
To join the action, media companies are forming relationships with NFT technical specialists and marketplaces to develop offerings that enable consumers to participate in an entirely new way with their favorite characters, movie and TV show scenes and other content. NFTs allow media industry players to create cross-platform consumer interactivity anchored in proven IP and to build new communities by extending the consumer relationship into emerging digital areas.
In 2022, the media and entertainment industry will undertake plenty of NFT innovation and experimentation. The economic return of these efforts is unclear; today, NFT projects in the media and entertainment space are essentially marketing investments meant to power engagement and to access fans – especially those active in crypto – eager to deepen their association with popular content. In the future, media companies could generate royalty income related to secondary sales of NFTs… perhaps in transactions tied to activities taking place in the metaverse.
5. M&A remains a popular item on the menu
Over the last 12 months, the media and entertainment industry saw the biggest players execute on a variety of transactions – landscape-shifting megamergers, bolt-on acquisitions of smaller studios including properties located in international markets that produce localized content, targeted deals for niche IP assets that can be leveraged to create fresh programming, and innovative joint ventures meant to accelerate global streaming growth on a capital-efficient basis.
In 2022, the consolidation of studios and networks will continue as companies seek to build the content, capabilities and scale needed to battle the digital-native behemoths who reap the benefits of tremendous financial and operational advantages.
After deal headlines fade, management teams will face the heavy lift of integration, right-sizing and realigning front office operations, IT systems and corporate infrastructure to achieve ambitious efficiency goals. Cost savings realized through integration will fund future growth investment and boost profits, a key objective as the industry transitions from the stable, high-margin linear world to a streaming ecosystem that drives less-profitable revenue (for now).
Robust conditions in private and public capital markets are enabling companies to sell non-core businesses and other corporate assets that no longer fit their evolving growth strategies or capital allocation priorities. Accordingly, asset divestitures will be a key trend in 2022 as well. Activist investors will play a role in some of these transactions, serving as another catalyst for change.
The media and entertainment industry has always been a whirlwind of strategic activity as companies build, renovate and tear down business portfolios in response to market developments, and 2022 will be no different. These five trends indicate that the media industry is poised for another year of exciting change, as companies drive innovation, tackle new challenges and capture opportunities to position themselves for growth. EY