EY: Sustaining Digital Leadership

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Digital Leadership Study Series from EY’s Global Technology Center and Global Media & Entertainment Center Report No. 2 Sustaining digital leadership! Agile technology strategies for growth, business models and customer engagement

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A report released by EY finds companies are willing to suffer short-term revenue pain in the hope of making longterm gains in the shift to digital models.

Transcript of EY: Sustaining Digital Leadership

  • Digital Leadership Study Series fromEYs Global Technology Center and Global Media & Entertainment Center

    Report No. 2

    Sustaining digitalleadership! Agile technology strategies for growth, business models and customer engagement

  • Contents5 Balancing growth and risk

    15 Creating a virtuous circle of customerengagement

    25 Rethinking products and business models

    35 Innovation at the center

    43 Methodology

    44 Sources

    45 Acknowledgments

    46 Contacts

    The customer has never before had so much power to shape media and entertainment. Yet fast-changing digital technologies are making new forms possible all the time and customers dont have preferences on tomorrows inventions.This intersection of customer power and rapidly advancing enabling technology is fostering a time of unprecedented opportunity and risk for companies.

    Pat HyekGlobal Technology Industry LeaderEY

    Developing and delivering content remains at the core of what media and entertainment companies do. New technologieshave simply redefined many elements that are integral to these businesses, from the creative process to the intimacyof relationships with customers.We see leaders across all media subsectors embracing digital technologies to drive growth in their businesses.

    John NendickGlobal Media & Entertainment LeaderEY

    2 / Digital Leadership Study Series

    Note: all statistics referenced in this report are from EYsDigital Leadership Study Series global survey, unless otherwisenoted and all dollar amounts are US dollars, unless otherwiseindicated. The full explanation of survey methodology appearson page 43.

  • Sustaining digital leadership! / 3

    Welcome to Sustaining digital leadership!, the second volume of ourDigital Leadership Study Series. The four chapters of this report offerresearch, analysis and insights to support media and entertainment(M&E) and enabling technology companies as they continue theirjourney of ongoing digital transformation.

    The leaders of that transformation tell us that continuous innovation,without fear of failure but rather learning from it, is the open secret tocapturing the tremendous growth opportunity that digital affords M&E.This is primary among the many more detailed insights on the followingpages. All were gleaned from executives at more than 550 companiesresponding to our in-depth survey, nearly two dozen executiveinterviews and our own analysis of articles and reports from secondarysources (for full methodology, see page 43).

    But continuous innovation in the rapidly evolving M&E landscape is not for the faint-hearted. It requires proactively balancing growthand risk, creating a radically intimate relationship with customers(whether businesses or consumers) and reimagining products andbusiness models. In all these areas, our report focuses on lessonsoffered by digital leaders those M&E companies already drivingmore than half their revenue through digital and most advanced intheir use of the transformative digital technologies: smart mobility,social networking, cloud computing and big data analytics (for a fullexplanation of how digital leaders were identified, see page 43).

    We hope Sustaining digital leadership! will enhance your own strategicthinking as your organizations meet, and overcome, the challenges ofdigital transformation.

    Sustaining digitalleadership!Agile technology strategies for growth, business models and customer engagement

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    There is no map, and charting a path ahead will not be easy.We will need to invent, which means we will need to experiment.1

    Jeffrey P. BezosOwnerThe Washington Post

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    65%of digital leaders say they areprepared to cutlegacy mediainvestments tosupport digitalefforts.

    Chapter 1

    Key strategy highlights Innovate and rebalance. Focus on new products (i.e., content and services) to drive growth even if it means disrupting legacy businesses. Evolving existing products may not be enough.

    Create a diversified portfolio of offerings and business models to manage risk and increase opportunities for success.

    Speed is imperative: launch and learn rather than learn and launch.

    Invest in technologies for managing digital-related risks.

    Use big data analytics to get a more detailed understanding of both business-to-business (B2B) and business-to-consumer (B2C) customers, and hone content and services based on their preferences.

    Manage technology partnerships and investments wisely to accelerate digital transformation.

    Balancing growthand risk

    Note: throughout this report, products refers to media and entertainment content and services.

  • The opportunities and risksM&E companies have extraordinaryopportunities to drive top- and bottom-linegrowth by leveraging transformative mobile, social, cloud and big data analyticstechnologies to develop new content,expand distribution and reinvent businessmodels. But digital technologies are alsounleashing disruptive change that, if not carefully managed, can underminegrowth strategies and competitiveness.The challenges of that disruption have been aptly illustrated by acquisitions

    of newspapers and magazines at historicallylow prices, including The Washington Post.As Amazon, Inc. founder Jeff Bezos, TheWashington Posts acquirer, commented:There is no map, and charting a pathahead will not be easy. We will need to invent,which means we will need to experiment.

    Born-again and born-digital routes to market leadershipAs digital redraws the M&E playing field, it has created two routes to marketleadership.Born-digitalcompanies,

    Figure 1: Managing growth

    Innovate andrebalance

    Make a step change to digital

    Create a portfolio of opportunities

    Diversify offerings and business models

    Penetrate new markets

    Assimilate digital technologies

    Launch and learn rather than learn and launch

    Be opportunistic and agile

    Know when to persevere or shut down a failing product/service

    Understand and monitor risks

    Gather data about what matters

    Integrate data across the business

    Provide real-time analytics that support decision- making

    Incorporate data into the product and service offering

    Assess your in-house resources and how they align with your strategy

    Choose technology partners that can help:

    Simplify your digital workflow

    Drive change in legacy systems and processes

    Embracerisk

    Leverage dataand analytics

    Manage technologyrelationships

    Managingsustainable growthin the age of digital

    Source: EY analysis.

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    As digital transformation sweeps through the media andentertainment (M&E) world, the challenge of managingsustainable growth has become a complex balance of soundbusiness practice and risk-taking.

    Digital growth for M&E companies is driven by innovative ways to exploit their IP.

    John NendickGlobal Media & Entertainment LeaderEY

  • such as Facebook, are leveraging theirtechnological and entrepreneurial expertiseto make the leap into M&E. Born-againcompanies like the BBC and ThomsonReuters are reinventing their business forthe digital age, while building on corestrengths, such as their brands, talent andcustomer relationships. Whether companiesare born-digital or born-again, the path to sustainable growth requires a keenunderstanding of fast-changing customerbehaviors, the willingness to act boldly andthe ability to accept and manage risks.

    Though there is no one size fits all modelfor digital success, our research revealedfour focus areas for achieving digitalleadership: innovating and rebalancing theportfolio of products and business models,embracing risk, leveraging data and analyticsand managing technology relationships whether they involve partnerships orinvestments (Figure 1, page 6).

    Innovate and rebalance As Figure 2 (below) suggests, making astep change to digital is key to success.Among digital leaders, 58% believe newproducts and services will be among thegreatest drivers of growth, compared with45% who expect growth from evolvingexisting products (Figure 3, page 8). Theyalso recognize that digital growth may disruptlegacy businesses. Almost two-thirds of digitalleaders (65%) are prepared to cut legacymedia investments to support digital efforts,compared with 48% of other companies.

    Because the digital future is unpredictable,its important to position these newproducts within a balanced portfolio ofopportunities, providing diversified paths to growth. Leading M&E companies aremaximizing the likelihood of success byplacing multiple bets, quickly terminatingfailing ventures and ramping up those mostlikely to succeed.

    Figure 2: Prioritization of investments in evolving existing products/services versusdeveloping new ones

    Percentage of respondents

    70%

    65%

    60%

    55%

    50%

    45%

    40%

    35%

    35% 40% 45% 50%

    Social networking/social media

    Advertisingand measurement

    Filmed entertainment

    Publishing and information servicesEnabling technology

    Music*

    Broadcast and cable networks

    Digital leaders

    Interactive gaming

    55% 60% 65% 70%

    Existing

    New

    Our analysis suggests industry segments in the colored bubble are leading innovation because they place greater emphasis on developing new products than on evolving existing ones.

    *This result suggests the music subsector, initiallyreluctant in digital transition, has adapted based on those early experiences as it now scores among the most focused on new-product development.

    Source: EY analysis.

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    Partnering is one area where successful M&E companies demonstrate the power of shared leadership. Our researchshows that digital leaders partner more, accelerating time-to-market with technology-enabled innovation, while sharing risk and expense.

    Tom ConnollyGlobal Media & Entertainment Transaction Advisory Services LeaderEY

  • Born-again companies are learning to act like technology start-ups, fundingexperimental opportunities in innovativetechnologies or hunting for logical acquisitions.Assimilation of mobile and social technologiesis vital, as users continue shifting tosmartphones and tablets. For example, NBCUniversals acquisition of Stringwire,which distributes live video feeds created on users smartphones,2 may help theestablished broadcaster leap into thefast-growing field of user-generated socialmedia news content. In the UK, The Sunnewspaper bundled print subscriptions with mobile device access to all content for one price including exclusive videoclips of European football for the ardentfans within its audience.3,4

    Diversifying business models is necessary tofuel growth, as traditional revenue sourcesdwindle. With print advertising in decline,periodicals, such as The New York Times, are deriving more revenue from digitalsubscriptions by creating paywalls and other monetization schemes aroundtheir online content.5 Micropayments areexpected to quickly grow in importance;

    today, only 5% of media executives seemicropayments as the biggest contributorto growth, but that percentage is expectedto double within three years, while buy-to-own and rental diminish.

    The digital era offers new opportunities for geographical expansion as well. But itcan also intensify international competitionby enabling small start-ups and disruptivetechnologies to rapidly acquire a globalfootprint as with music-streamingcompany Spotify, which originated inSweden in 2008 and has quickly extendedits services to 24 million users in 28 countries,including 6 million paying subscribers.6

    Embrace riskDigital leaders accept and actively managethe strategic, operational and reputationalrisks of digital transformation, recognizingthat standing still poses even greater threats.Only 28% say theyre unwilling to take majorrisks as they engage with digital, comparedwith 39% of others; 70% say theyre willingto accept short-term losses as they move upthe digital learning curve, compared with47% of others (Figure 4, page 9).

    Develop new products/service offerings

    Get to market faster with new or evolved products

    Evolve existing products/service offerings

    Develop new monetization/revenue stream

    Enable international expansion

    Improve our understanding and knowledge of the customer

    Enable a more direct relationship with the customer

    Exploit new distribution models

    Improve understanding of your organizations performance

    Digital leaders

    58%

    46%

    45%

    30%

    29%

    28%

    26%

    23%

    13%

    Note: percentages shown represent digital leaders who ranked each choice first, second or third.

    Source: EY analysis.

    Figure 3: In what ways will technology drive growth for your organization? (Rank the top three)

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    If we as an industry think that encrypting the bits better, making disks view-only and preventing consumers from making copies is the way to increase revenue, we will fail.

    Mitch SingerPresident of the Digital Entertainment Content Ecosystem (DECE)

    A broad multi-faceted strategy and technology platform for identifying and securing business critical information, systems, digital assets and their lifecycle is critically important to M&E companies long-term growthand profitability.

    Howard BassGlobal Media & EntertainmentAdvisory Services LeaderEY

  • Because speed is essential in fast-changingdigital markets, digital leaders launch andlearn rather than learn and launch: 46% saygetting to market faster is among their top priorities, compared with 38% of others.Recognizing the importance of digital, 64%of M&E companies are investing in digitalstaff faster than digital revenue is growing, and many are rapidly reintegrating digitalskunk works* back into their core businessoperations.

    Managing risk in the digital world meansbeing opportunistic and alert to shifts inaudience preferences and technologytrends. Even born-digital music servicePandora was taken by surprise and had toquickly increase its mobile efforts as itslisteners shifted from PCs to smartphones,as Founder and Chief Strategy Officer TimWestergren told us in our first report.7

    Digital intensifies the impact of operationalrisks, such as system failures and cyber-threats, as shown by attacks attributed toSyrian hackers that briefly disabled The New York Times website and also affectedother companies, including Twitter.8 Digitalleaders are clearly focused on these risks:

    78% are making greater investments incybersecurity, network security, encryptionand other related systems, compared with58% of other companies. Further, 75% haveestablished units dedicated to fightingdigital threats. And, recognizing that theubiquity of social media means reputationaldamage can spread more quickly, 68% ofdigital leaders actively monitor socialnetworks for risk.

    Leverage data and analyticsMobile, social and big data analyticstechnologies can enable M&E companies torespond more quickly to shifts in customerbehavior and market trends. In fact, bigdata analytics may directly drive newgrowth opportunities because companiescan develop content with greater confidencethat it will match audience preferences. Forexample, Netflix made an early commitmentto funding two seasons of its first exclusiveseries, House of Cards, after its analysisshowed that subscribers watched othercontent starring Kevin Spacey or directed byDavid Fincher. In a speech, Spacey reportedthat Netflix said, Weve run our data, and ittells us that our audience would watch thisseries. We dont need you to do a pilot.9

    Figure 4: As you engage new technologies to transform your business, what risks areyou willing to accept?

    80%

    60%

    40%

    20%

    0%

    Reduce investments in legacy media

    products to support new media efforts

    Accept short-termrevenue losses as theymove up the learningcurve for new media

    Change the mix of freeand paid products toencourage digital use

    65%70% 72%

    48% 47%

    61%

    Digital leaders Others

    Source: EY analysis.

    *A small group working on innovative or otherwise secret projects within a larger organization, but unhampered by bureaucracy.

    Sustaining digital leadership! / 9

    Note: the use of analytics, and insight derived from analytics, represents one of the larger areasof transformation for technology and M&Ecompanies. Analytics are used to describe andimprove business performance. Yet we are in theinfancy of the era of analytics. Both technologyand M&E companies have a steep learning curve to climb in understanding how they can leverageinsights from customers, and consumertechnologies, to drive value-added content and services.

    Weve seen that a big win for companies on digital transformation journeys is to drive more integration of systems, which enables them to simplify digital work flows.

    Kevin PriceGlobal Technology Industry Advisory Services LeaderEY

  • Figure 6 (page 11) shows that most M&Ecompanies havent yet extensively exploitedbig data analytics. As expected, thoughdigital leaders are further along than others:26% are deploying second-generation* or later big data analytics solutions forcustomer engagement, compared with only 9% of other companies. And while thebenefits of analytics in B2C markets may be most obvious, they can be equally vitalto B2B companies as the Reed Elsevierdigital transformation journey story onpage 22 attests. To quickly respond tomarket shifts, leading M&E companies are analyzing data in real time, gatheringinformation across business functions andmultiple sources, such as social media,smartphones and in-store visits. Amongdigital leaders, 70% have the resources,tools and processes they need to enableeffective sharing of data and insight aroundthe organization, and 77% say they canaccess relevant data in real time (Figure 5,below).

    Manage technology relationships andinvestments wisely To compete in fast-changing digitalenvironments, leading M&E companies aremaking informed decisions about when tobuild, buy or partner to develop solutionsthat can accelerate their own digitaltransformation.

    Our research shows that most M&Ecompanies prefer in-house development.For example, most (64%) agree with the

    statement that, We rely on our in-houseskills and processes to collect, store, and analyze data, and act on the results.This appears to be particularly true for born-digital companies, which often viewtechnological innovation as a core strengthand competitive differentiator.

    Yet companies that choose to partner withthe right technology supplier may enjoysignificant advantages in reducing time to market, risk and expense. Partnering can also help overcome the challenge ofacquiring the digital talent to get projectsdone quickly. Digital leaders recognize this: 51% see alliances with technologypartners (and other M&E companies) as a strategic priority, compared with 30% of others (Figures 7 and 8, page 11). They also place significant emphasis oninteroperability (38%) and reliability(26%). Given the importance of digital,M&E companies in general look fortechnology partners that have trusted and well-established brands (53%) and are seen as technology leaders (39%).

    Many M&E companies also use mergers andacquisitions to accelerate digital growth. For example, the need to compete in anincreasingly digital advertising market was an important driver in the announcedmerger between agency giants PublicisGroupe and Omnicom and even beforethat announcement, Publicis Groupe, inparticular, had acquired several digitalmarketing companies.10

    Use of analytics offers M&E companies the ability to make real-time decisions and create compelling engagement with their customers. Successful M&E companies must move their customer analytics beyond hindsight, beyond insight and onto foresight identifying targets with the highest probability of success.

    Mark BoraoGlobal Media & EntertainmentAdvisory Services EY

    Figure 5: How digital leaders and others rated their organizations use of big data

    We can access relevant datain real time, where appropriate

    We have resources, tools andprocesses to enable effective

    sharing of data and insightaround the organization

    77%

    57%

    70%

    58%

    Digital leaders Others

    Source: EY analysis.

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    *Throughout this report, second-generation denotes technology deployments that incorporate lessons learned frominitial deployments and go beyond to achieve more advanced functionality.

    The need for partnering between technology and M&E companies is profound. Companies will find that a successful transition to digital requires an M&E company to be technology-driven and to even act more like a technology company.

    Guy WangerGlobal Technology IndustryAssurance Services LeaderEY

  • Figure 6: At what stage of development is your company in employing big data to helpachieve your customer engagement business goals?

    50%

    40%

    30%

    20%

    10%

    0%

    Not deploying Studying/piloting Beginning deployment/

    first generation

    Second-generationdeployment or later

    8%

    39%

    42%

    11%

    Advertising and measurement

    Filmed entertainment

    Broadcast and cable networks

    Publishing and information services

    Interactive gaming

    Music

    Social networking/social media

    Enabling technology

    Average of all respondents

    Source: EY analysis.

    Figure 7: Percentage of respondents who identify building alliances with M&E andtechnology partners as a strategic priority for digital transformation

    Digital leaders

    Others

    51%

    30%

    Source: EY analysis.

    Figure 8: Percentage of respondents, by segment, who identify building alliances withM&E and technology partners as a strategic priority for digital transformation

    Digital leaders

    Interactive gaming

    Broadcasting and cable networks

    Publishing and information services

    Filmed entertainment

    Social networking/social media

    Enabling technology

    Music

    Advertising and measurement

    51%

    40%

    40%

    34%

    30%

    25%

    25%

    14%

    51%

    Source: EY analysis.

    Sustaining digital leadership! / 11

    When M&E transactions are motivated in part by the need to onboard talent that is digital technology savvy, the ability to energize and retain key talent emerges as a big factor in the ultimate success of the transaction.

    Joe StegerGlobal Technology IndustryTransaction Advisory Services LeaderEY

  • Starcom MediaVest explores the impact of social media on advertising

    As social media seizes a growing share ofadvertising, Starcom MediaVest Group isexploring the impact by investigating how to meld the use of traditional media withservices such as Twitter.

    In April 2013, the company announced amultifaceted relationship with Twitter. Inpart, the deal focuses on buying Twitteradvertising for the agencys clients. Butanother key element is a social TV labthat explores the relationship betweenTwitter and TV, according to Lisa Giacosa,a senior vice president at StarcomMediaVest (which is part of the globalmarketing and advertising holdingcompany Publicis Groupe).

    Jointly staffed by Starcom MediaVest and Twitter, the lab will explore ROI andchanges in audience behavior resultingfrom using Twitter and TV together,whether during major live events orscripted TV shows. It used to be thatyoud gather around the water cooler andtalk about what you watched on TV lastnight. That conversation is now happeningin real time, via social tools, such asTwitter, Giacosa says.

    Big data analytics will be key tounderstanding and then using theinformation. What excites us is the abilityto move more quickly, create personalizedexperiences that are responsive to thealways-on data feed and then optimize thoseexperiences in real time, Giacosa says.

    Starcom MediaVest also is collaboratingwith ShareThis, a service that trackssocial-media activity, to enable mediaplanners to include social-media metricsas they evaluate publishers to determinehow to allocate media ad spending.

    BBC sharpens online focus

    A little more than two years ago, theBBCs top managers realized the companysonline presence needed an overhaul. Our site was comprised of almostanything the content divisions would throw over the wall, explains John Tate,Group Director of Policy & Strategy at the British broadcaster. It was sort of asprawling commons. It wasnt integrated, it didnt look right and the navigability was suffering.

    To force editorial and program managers to sharpen their focus and rationalizecontent, the BBCs top executive at the time, Director-General Mark Thompson,ordered cuts to the digital budget. Whatreally pushed this was the director-generalsaying, Youve got 25% less resources, and I want you to maintain the reach of the site. Its a rather brutal method, but it forced us to get more organized and tomake choices, Tate says.

    The result was a single integrated site with10 clearly delineated products, includingnews, sports and weather, all designed foraccess across four types of devices: PCs,smartphones, tablets and connected TVs.Dubbed the 1-10-4 strategy, the initiativecut the number of web pages by about25% and made it easier for viewers to findcontent.

    The BBCs website not only operates moresmoothly, but it also remains among theworlds most heavily visited websites.11

    We feared our trajectory would slip, Tate says, but we have held our own.

    DigitaltransformationjourneysIn our in-depth interviews withthe senior executives overseeingdigital transformation journeys at approximately two dozenM&E and enabling technologycompanies, we came acrossmany striking stories. Here arefour we found aligned with thetheme of Balancing growthand risk.

    12 / Digital Leadership Study Series

  • TheStreet, Inc. remodels withopen source

    Financial news site TheStreet is in themidst of a sweeping two-year technologymigration to open-source software andcloud computing, designed to help thecompany reduce cost, while more quicklysupporting new services and devices.

    The migration was initiated as part of abroader corporate restructuring by CEOElisabeth DeMarse, who joined the born-digital company in 2011. We took thecompany down to its studs, and part ofthat involved taking the technology downto its studs, she says, adding that thecompany also replaced most of itstechnology team.

    TheStreet saved $1 million by switchingfrom on-site servers to a public cloudservice, and further cut costs by moving to open-source content management andvideo platforms. Next, DeMarse plans toreplace an expensive proprietary databasewith open-source software. Besidesreducing cost, she expects TheStreet willalso be able to add new features morequickly. Moving to open source is a hugedeal. For publishers, a legacy technologystack is really a millstone around theneck, she says.

    DeMarse is encouraging her technologyteam to focus first on designing forhandheld devices, as the audience rapidlyswitches to smartphones and tablets.Especially for financial news, it willincrease consumption because people willbe checking their phones, while theyre atgrocery stores and dry cleaners, shesays. For example, she explains that thecompany is moving away from a sushibox home page to a scrolling list of newsitems more easily viewed on smartphonessmall screens.

    Embracing streaming andsharing as a model for growth

    Movie production houses have seen DVD sales decline for several years. Butthanks to a cloud-based technology calledUltraViolet, which stores a digital versionof a purchased disk, home entertainmentsales have staged a comeback in the firsthalf of 2013. In the US, Blu-ray growthoffset DVDs decline, resulting in acombined increase of 2% over the first half of 2012.12

    UltraViolet is a cloud-based rights-management system from the DigitalEntertainment Content Ecosystem(DECE), a consortium of movie and TVproducers, retailers and consumerelectronics companies. Cloud servicesmake consumers feel confident buyingdigital content because they know theycan always access it from the cloud. Theyno longer have to personally manage itacross their own devices, says MitchSinger, President of the DECE.* Whomanages my digital life? I dont want to doit, and thats where the cloud comes in.

    A growing range of studios and retailers,including VUDU, Barnes & Nobles Nookand Best Buys CinemaNow service, offerUltraViolet. The technology providesconsumers with value-added services theydidnt get with purchased disks: they cancreate cloud-based libraries of the filmsand TV shows they buy (even previouslypurchased disks), view their collections on any device and even share the filmsinstantly with family and friends.

    At the same time, UltraViolet provides to its member companies data on usersbuying habits, which can ultimately helpshape decision-making regarding futurecontent and formats.

    By creating a service that caters todigital users changing preferences and allowing for sharing, which is a keydifferentiator from other on-demandservices, I think weve got the platformthat will stimulate growth, says Singer.

    *Mitch Singer is also Chief Digital Strategy Officer

    of Sony Pictures Entertainment.

    Sustaining digital leadership! / 13

    The customers voice used to be visible only in the past tense customers spoke through transactions. But the conversation became much richer and went from past tenseto present tense as it moved away from the cash register andinto social networks. Today, we live in a world that is really not just past and present but future as well, because intention signals have become part of the conversation.

    J.P. RangaswamiChief ScientistSalesforce.com

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    Being mobile, we rely heavily on data analysis to drive design because we have to earn our keep every few seconds with microtransactions. Nick EarlSenior Vice President and Head of Development, EA MobileElectronic Arts Inc.

  • Key strategy highlights Establish radical intimacy with your customers, based on trusted,direct relationships and 360-degree profiles of their anytime/ anywhere preferences and behaviors whether mobile, social, online, at home, in theaters or at work.

    Set in motion a virtuous circle of customer engagement and innovation to rapidly connect with B2B or B2C customers, listen to them, adapt or expand your offerings based on customer input, andre-engage. Recognize this is a journey, especially for companies starting without trusted customer relationships.

    Build up the skills, tools and agility to analyze accurately and act rapidly on a growing mountain of customer data.

    Share customer data and analysis across the organization, with dashboards and other tools delivering the right information to the right people in real time.

    Make data-driven customer response your driver of innovation.

    Use your customers preferences and behavior as your blueprint for curating new content and service distribution back into their personalized digital spheres balancing direct and indirect channels.

    Do it again from the top, as new interactions with trusted B2B or B2C customers generate new data and insights.

    Sustaining digital leadership! / 15

    Creating a virtuouscircle of customerengagementTechnology empowers customer-centricinnovation and growth

    Chapter 2

    85%of digital leaders say direct customer relationships are acurrent or near-term priority.

  • Five million people tell us where they are every day, so we have living, breathing heat maps of the way people move through cities all over the world. When they do a mobile search, we harvest their intent. And when we do it right, they love the ads we send them.

    Dennis CrowleyCEOFoursquare

    Figure 1: Virtuous circle of customer engagement

    These transformative technologies let bothB2B and B2C M&E companies captureunprecedented insights into their customersand engage with them in new ways. Thecustomer relationship is no longer a one-way street, or even a two-way street: it isevolving into a virtuous circle of customerengagement and innovation. Today, leadingM&E companies connect with customers,listen to their feedback, adapt or expandtheir offerings and engage anew startingthe process all over again.

    The opportunities these four transformativetechnologies make possible is giving rise to many new kinds of competitors and,therefore, an increasingly crowded M&Elandscape. That raises the pressure on M&Ecompanies to make advantageous use ofthe technologies to create radicallyintimate, direct customer relationships because if you dont do it, someone elsewill. Todays digitally empowered customersexpect personalized, anywhere/anytimeaccess to content and services. If customers

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    Listen actively,gathering digitally enabled

    customer data frommultiple touch points

    Create a direct, intimate relationship with customers

    Gather relevant data in real time

    Focus on integration across channels

    Keep big data tools up-to-date

    Share analytic insights widely

    Make sure data is accurate and reliable

    Focus on building the right analytic skills

    Develop your curation strategy

    Communicate with customers through whatever media they use

    Integrate social media into all customer-related activities

    Use cloud to support anytime/ anywhere access

    Analyze, innovateand curate,

    applying actionableinsights from big data

    analytics

    Re-engage continuously,employing mobile, social and cloud technologies

    to complete the virtuouscustomer engagement circle

    The virtuous circle of customer engagement and

    response

    Source: EY analysis.

    Smart mobility, social networking, cloud computing and bigdata analytics together are revolutionizing the relationshipbetween media and entertainment (M&E) companies andtheir customers.

  • find your experience lacking, anotherexperience is just a click away. Ourcustomers have much more choice todayacross the spectrum of content they need to run their businesses, and theyremore confident in their ability to identifytrustworthy sources, says MichaelParlapiano, Global Head of Strategy & BusinessDevelopment, Financial for Thomson Reuters.So while they trust their traditional contentproviders, they are also able to quickly getcomfortable with new sources and willmigrate to them if it benefits their business.

    No wonder that our research shows 85% of digital leaders agreed that developingdirect customer relationships is a toppriority now or in the next 23 years(Figure 2, below). Of note, this is a casewhere other respondents were not farbehind the leaders, with 83% agreeing.Among companies that derive the majorityof revenue through B2B content and services,a somewhat higher percentage agreed thandid B2C companies (82% versus 75%). And90% of companies whose revenue splitsmore evenly between B2B and B2C agreed.Direct customer relationships enable M&Ecompanies to set in motion a circle ofengagement that puts customer experienceand customer-driven innovation at thecenter of their business, driving everythingfrom real-time improvements in servicesand products to changes in the way they are delivered and branded.

    This virtuous circle consists of three closelylinked phases (Figure 1, page 16). LeadingM&E companies:

    Listen actively, gathering digitally enabledcustomer data from multiple touch points

    Analyze and curate the information, applying actionable insights from big dataanalytics

    Re-engage continuously, completing the virtuous circle by employing mobile, social and cloud technologies to deliver new and enhanced products and services

    Listen activelyThe virtuous circle begins with listeningacross all channels to capture the multitudeof data points available in the digitalenvironment. This includes monitoringtrending sentiments on social networks,counting click-through rates, identifyingcustomers mobile locations and pinpointingthe moment at which most viewers stopwatching a video (among a cornucopia ofpossible customer interaction data points).

    Social networking service Foursquare, for example, collects location data fromcustomers smartphones when they chooseto check in, and uses the data to target ads as well as recommendations for localservices. Says Foursquare CEO DennisCrowley: Five million people tell us wherethey are every day, so we have living,breathing heat maps of the way peoplemove through cities all over the world.When they do a mobile search, we harvesttheir intent. And when we do it right, theylove the ads we send them.

    Sustaining digital leadership! / 17

    Source: EY analysis.

    Figure 2: Which of the following statements best describes your company? Developing direct relationships with end customers (bypassing indirect channels)

    ... is a top priority for ourcompany today

    ... will become a top priorityfor our company within the

    next 23 years

    ... is sometimes a focus ofour company, but is not

    routinely a priority

    ... is not at all a priorityfor our company

    49%

    43%

    36%

    40%

    10%

    13%

    4%

    4%

    Digital leaders Others

    As advancing technology and telecommunications innovation drives continuous M&E product evolution, maintaining unique, compelling and personalized content is becoming table stakes the basic cost of doing business.

    David McGregorAsia-Pacific Technology, Media and Telecommunications Market LeaderEY

  • Our journalists are required to have a social media strategy for every story they publish.

    Elisabeth DeMarseCEO TheStreet, Inc.

    Cloud technology is doing even more than instilling M&E companies infrastructure withgreater flexibility and speed atlower cost. Its changing the way consumers think about owning media.

    Alex Bender West Region Technology Industry Leader EY

    This listening becomes the basis of radicalintimacy, a term we are using to describethe 360-degree customer views that digitalleaders are developing. Notably, 57% ofdigital leaders say listening to and analyzingcustomer interactions is a top strategicpriority for digital transformation, comparedwith 48% of other M&E companies. Digitalleaders are also better able than other M&Ecompanies to listen and respond tocustomers via mobile devices and online:49% say they can capture and act oninformation about customers throughmobile channels most or all of the time,compared with 44% of other M&Ecompanies; for online, the figure is 61%,compared with 48% (Figure 3, below).

    M&E companies can build customerintimacy by integrating information acrossthese multiple channels. Digital leaders aremoving aggressively to achieve this: 81%say they are integrating data across two or three channels today to obtain a fullcustomer profile, compared with 64% ofother companies; 59% aim to integrate dataacross all channels within three years,compared with just 36% of other companies(Figure 4, page 19). Among industrysegments, music and gaming companies arefurthest along: 47% and 49%, respectively,expect to integrate data across all channelsin three years.

    Analyze, innovate and curate Using big data analytics, leading M&Ecompanies are extracting insights fromcustomer data and using those insights to drive innovation in products, services and distribution models. Music-streamingcompany Pandora, for example, analyzesmillions of items of user feedback tocontinuously improve the personalizedplaylists that are at the heart of its service(see Digital transformation journeys, page 23).

    Digital leaders are significantly ahead ofother M&E companies in using big dataanalytics to improve product and servicedevelopment: 41% are employing second- orlater-generation analytics for this purpose,compared with only 11% of other companies(Figure 5, page 20). Sharing big data and insights across the organization isfundamental to producing results. Seventypercent of digital leaders say they have theresources, tools and processes needed to doso effectively today (Figure 6, page 20).

    Still, its clear that big data analysis presentschallenges, even for digital leaders. Ensuringdata accuracy and reliability was cited(Figure 7, page 21) as one of the biggestobstacles to achieving big data goals by aneven higher percentage of digital leaders(49%) than other companies (39%).

    Figure 3: To what extent can your company capture and act on information aboutcustomers, through each of the following channels? (Percentage who say all of thetime or a majority of the time)

    Source: EY analysis.

    18 / Digital Leadership Study Series

    Digitalleaders

    Others

    Online Mobile Social

    Digitalleaders

    Others Digitalleaders

    Others

    86%

    61%69%

    44%

    68%

    55%48%

    70%

    52%

    75%

    49%

    78%

    In three yearsToday

  • This makes some sense, in that the digitalleaders are further along in their use of bigdata tools in the first place and they areusing a more numerous and complex varietyof sources.

    In addition, 39% of digital leaders say theyare not yet obtaining insights from theiranalysis of customer data (Figure 6, page 20).

    The insights gained from analysis drive theprocess of curation determining how tochange content, identifying exactly whichcontent to incorporate into enhancedofferings and deciding how to customizeand personalize those offerings across themultiple available digital channels anddevices to best re-engage with eachcustomer.

    Digital leaders believe it is particularlyimportant to incorporate data from mobiledevices and social networks into productsand services. Nearly three quarters of digitalleaders (74%) say it is very or extremelyimportant to enhance their content andofferings using knowledge of customersspecific locations, compared with 50% ofother M&E companies; 68% of digital leaderssay it is very or extremely important to incorporate social network interactionsinto the product development process,compared with 52% of others (Figure 8,page 21).

    Re-engage and respond continuouslyTo complete the virtuous circle, M&Ecompanies use mobile, social and cloudtechnologies to re-engage customers withenhanced content and services. Amongdigital leaders, 70% consider it very orextremely important to use social mediaas a sales and distribution channel (Figure8, page 21). In a separate question, 62% ofdigital leaders say it is very or extremelyimportant to use cloud computing tostreamline customer access to their productsand services across multiple devices.

    Big data analysis is helping companiessegment customers into smaller groupsbased on clearer understanding of theircharacteristics and behavior. For example,one market research firm identifies mediacustomer segments, such as socializers,technophobes and wired for work.1

    M&E companies also have more optionswhen it comes to selecting the bestdistribution channels and devices forreaching each audience segment. Our core business is telling stories, says Mitch Singer, President of the DigitalEntertainment Content Ecosystem (DECE)The technology lets us ask how best todeliver that story to consumers who want to engage in it whether in theaters for a big-screen experience, or delivering 50 or60 story arcs like Breaking Bad in a morepassive experience at home, or whether its video-on-demand or a subscriptionservice like Netflix.

    Figure 4: To what degree are you integrating customer data across channels to obtain afull customer profile?

    Not integrated Today 0% 24%across channels In three years 0% 5%

    % change 0% 79%

    Integrated across Today 39% 40%two channels In three years 16% 26%

    % change 59% 35%

    Integrated across Today 19% 11%all channels In three years 59% 36%

    % change 211% 227%

    Integrated across Today 42% 24%three channels In three years 25% 34%

    % change 40% 42%

    Digital leaders Others

    Sustaining digital leadership! / 19

    Digital technologies enable far more direct customer interactionsthan ever before, leading to newopportunities to build trusted relationships the DNA of successful companies. Leadingcompanies see every customer interaction as an opportunity to build trust.

    Howard BassGlobal Media & EntertainmentAdvisory Services LeaderEY

    The ability to quickly share data and insights across the businessis essential to gain the greatest benefit from big data analytics.

    Robert DeMaineGlobal Technology Industry AnalystEY

    Source: EY analysis.

  • Increasingly, M&E companies arestrengthening customer relationships byengaging via multiple channels, bothtraditional and digital. M&E companies areadvertising and distributing content both viaTV and social-media services, such as Twitterand are trying to better understand howaudiences use the two channels together. Arecently created metric, the Nielsen TwitterTV Rating, showed that tweets caused asignificant increase in ratings while showswere on the air in 29% of the shows studied.2

    As customers shift to smartphones and tablets, M&E companies are quicklyincreasing emphasis on mobile devices.Among digital leaders, 83% expectincreased use of their offerings via tabletsand 77% expect greater use viasmartphones. In contrast, only 46% expect

    increased use via PCs and 40% expectgreater use via TV. Responding to the trend,far more digital leaders (30%) than othercompanies (10%) are already deployingsecond-generation or later mobiletechnology for customer engagement (Figure 9, page 21).

    Illustrating the vast potential for discoveringnew ways to use digital media and mobiledevices alongside more traditional channels,The Walt Disney Company has been staginga second screen live revival of The LittleMermaid in movie theaters, inviting childrento break the rules by bringing their iPad tothe movies. During the film, the youngaudience can play along using a new iPadapp that helps keep them engaged withinteractive games and trivia questions aboutthe movie and its animated characters.3

    Figure 5: At what stage of development is your company in employing big data to helpimprove product and service development?

    Figure 6: For each of the following statements regarding your organizations use of bigdata, rate the extent to which you agree or disagree.(Percentage of respondents who agree/strongly agree)

    Note: percentages do not total 100% due to rounding.

    Source: EY analysis.

    Source: EY analysis.

    20 / Digital Leadership Study Series

    Digital leaders

    Others

    13%4% 42% 41%

    36%8% 46% 11%

    Studying/piloting

    Beginning deployment/first generation Second generation or later

    Not deploying

    We have resources, tools andprocesses to enable effective

    sharing of data and insightaround the organization

    We are not yet obtaininginsight from the analysis of

    customer data

    Customer data is sharedacross multiple channels

    70%

    58%

    39%

    41%

    58%

    52%

    Digital leaders Others

    Digital creates new ways for M&E companies to reach and delight their customer whether youre delighting business customers with high-quality information that responds to their needs, or delighting audiences with first-rate entertainment. Becoming something they know and trust is what helps drive growth.

    Martyn WhistlerGlobal Media & EntertainmentLead AnalystEY

    Digital transformation is driving M&E companies to re-examine almost every aspect of their business, including the core value of their products and services and how best to address their audience.

    Ian EddlestonGlobal Media & EntertainmentAssurance Services LeaderEY

  • Figure 8: For each of the following statements, how important is the use of socialnetworking to your organization? (Percentage for very/extremely important )

    Figure 7: What are the biggest obstacles to achieving your big data goals?

    Figure 9: At what stage of development is your company in employing mobile technology to help improve customer engagement?

    Note: percentage that ranked each statement among the top three obstacles.

    Source: EY analysis.

    Source: EY analysis.

    Note: percentages do not total 100% due to rounding.

    Source: EY analysis.

    Sustaining digital leadership! / 21

    Lacking data analysisskills and/or tools

    Determining ROI from ourbig data efforts

    Creating a data strategy thatensures data is delivered to

    the right people at theright time so they can take

    appropriate action

    Ensuring data is accurateand reliable

    25%

    26%

    22%

    32%

    38%

    34%

    49%

    39%

    Digital leaders Others

    We use social networks topush messages to customers

    We actively monitor social networks formention of our brand, products and services

    and to understand customer sentiment

    We engage in real-time interactionin social networks to provide customer

    service, including issue resolution

    We incorporate social networkinteraction with customers as part of

    our product development process

    We use social networks as a channelfor the sale and distribution of our

    products and services

    64%

    51%

    70%

    49%

    68%

    50%

    68%

    52%

    70%

    51%

    Digital leaders Others

    Digital leaders

    Others

    17% 52% 30%

    38%6% 47% 10%

    Studying/piloting

    Beginning deployment/first generation Second generation or later

    Not deploying

    Cloud services make consumers feel confident buying digital content because they know they can always access it from the cloud. They no longer have to personally manage it across their own devices.

    Mitch SingerPresident of the Digital Entertainment Content Ecosystem (DECE)

  • Big data drives Reed Elseviersgrowth

    While our survey data shows that a mere11% of M&E companies have progressedbeyond initial deployments of big dataanalytics to second-generation or laterprojects, Reed Elseviers history is steepedin big data analytics. According to KumsalBayazit, Head of Global Strategy, big dataanalytics is an integral part of the productsand services Reed Elsevier delivers tocustomers, a key tool driving customerinsights, an accelerant of product innovationcycles and a critical element helping todrive growth in emerging markets (amongmany other uses).

    The company serves professionalsubscribers in disciplines including scienceand health, law, risk analytics and financialservices. In each area, Reed Elsevier appliesanalytics to content to create new value. It used to be only editors would be able toanalyze content, but now you can do a lotthrough machine learning using big datatechnologies and algorithmically generateinsight from the content you have, explainsBayazit. She notes that big data analyticsis used by the risk analytics service to helpcustomers identify tax or prescription fraud.In the legal discipline, Reed Elsevier cananalyze decision patterns to assess how a judge views a particular point of law.

    In terms of customer insights, Bayazit says,Its important to connect the dots on whatthe customer is buying from you, what theyare saying to your marketing departmentfrom a satisfaction perspective, what theyare saying to your sales team and whattheir interactions are with customer service.The more you can mine that data, thericher your understanding of the customerexperience.

    Bayazit believes a big advantage of big data technologies is accelerating productinnovation because you can try outsomething by test driving it on real contentand get results within hours. You see if it works or not, and then improve youralgorithms or your approach. So it definitelyspeeds up time-to-market and innovationcycles. In emerging markets, it helpsmatch the right local and global content to best meet the needs of professionals in each country.

    IBM tunes in to customerpreferences

    Steve Canepa, General Manager of IBMsGlobal Media & Entertainment Industrypractice, believes that for M&E companiesto succeed in the digital era they mustshift from a mass-marketing model todelivering content that matches whatindividual customers want. This meanscreating a process that leverages big data analytics to build a more nuancedcustomer portrait, tailors content andstreamlines content delivery acrossmultiple channels.

    Faced with a deluge of content from many sources, people will gravitate towardwhoever can provide the experience thatis most in tune with what they actuallywant, says Canepa. Were at the veryearly stages of understanding these newconnected audiences and using thatunderstanding to shape contentdevelopment, he adds.

    IBM has attempted to address this challenge with a standards-basedtechnology framework for M&E companiesthat analyzes data from different sources,automates content development anddistribution work flows and enables multichannel distribution.

    Last year, IBM worked with a client todetermine the impact of movie trailersbroadcast during the Super Bowl. Beforethe game, IBM built audience profiles byanalyzing five million blog posts and onebillion tweets over several weeks. Then,during the game, it analyzed 12,000tweets a second, mapping them againstspecific audience profiles to gauge theimpact of trailers. We could tell ifaudience intent to see a movie was goingup or down while the trailer was airing, in real time, says Canepa.

    22 / Digital Leadership Study Series

    Weve built a world-class business-intelligence function and unified all of our customer databases. The goal is not only to acquire and retain subscribers,but to build better products by understanding who our customers are, what they do, where they do it and how they do it.

    Marc FronsChief Information OfficerThe New York Times Company

    DigitaltransformationjourneysIn our in-depth interviews with the senior executives overseeingdigital transformation journeysat approximately two dozenM&E and enabling technologycompanies, we came acrossmany striking stories. Here are five we found most alignedwith the theme of Creating a virtuous circle of customerengagement.

  • Customer-focused and media-agnostic

    Reflecting how technology is transformingalmost every aspect of marketing, Ogilvy & Mather in 2011 dissolved itspioneering worldwide digital advertisingunit, OgilvyInteractive, and distributed the responsibility for digital throughoutthe firm. Every single employee withinour organization 22,000 people isaccountable for digital, says BrandonBerger, Chief Digital Officer at the agency.

    Ogilvys clients are increasingly looking for a single media-agnostic partner who cancreate an idea and apply it across the rightmix of traditional and digital channels,Berger adds. Digital has created so muchopportunity, and so much complexity, hesays. I almost think about every channelnow as a platform to engage consumers. No matter what somebody does whetherthey are sharing photos on a social-mediasite or writing an online restaurant review we can insert our message there.

    As technology becomes even morepervasive in consumers lives,sophisticated big data analysis will beneeded to understand their behavior how they will react using their handhelddevices when they see a provocative in-store ad, for example. Gaining a deeperunderstanding of customers through this data could enable agencies, working as trusted advisors to their clients, to devise more sophisticated ways to buildlifetime brand loyalty. Our job is to comeup with the creative ideas, the strategy and ultimately the execution acrosschannels, he says.

    Analytics help Pandora close the virtuous circle

    Amid a growing crowd of competitors,streaming-music service Pandora believesit can stay ahead by using big dataanalytics together with in-houseexpertise to understand what customerswant and deliver personalized content.

    Most Pandora users listen to thecompanys free, ad-supported service,which creates and delivers personalizedplaylists based on user preferences.

    Pandoras analytical process includes theMusic Genome Project, in which Pandoramusic analysts analyze the characteristicsof individual songs, adding the informationto a huge database. The service matchessong characteristics to user preferences to determine which songs are included ineach users playlists.

    Pandora then continually refines the song selection based on user feedback.We have more than 30 billion pieces offeedback from listeners songs they likeand dont like, says Tim Westergren,Pandoras Founder and Chief StrategicOfficer. We have a whole team of peoplewho do nothing but look at that data andmake adjustments and improvements tomake the playlists better.

    Delivering a really good, personalized radio service is incredibly hard, he says.Of all the things that we do here, nothingmakes a bigger difference to our businessthan making the playlist a little bit better.

    To target advertising, the company alsouses other listener-supplied information,such as their ZIP codes, age and gender.Customization defines our business notjust the streaming radio but the advertisingbusiness too, Westergren says.

    Readers are at center of Forbescontent shift

    After a long career in this business, itbecame clear to me that digital publishinghad broken the traditional model of creatingcontent, from an economic perspective. Itjust costs too much to create the content. Itwas also broken from a social perspective,says Lewis DVorkin, Chief Product Officerat Forbes Media. The reinvented modeldriving Forbes today includes a data-focused orientation around what customers(aka, readers) want.

    Data flows through our newsroom toeditors. Data flows to reporters. Data flowsto everybody, DVorkin says. A tellingstory illustrates related cultural change.Initially, writers were embarrassed by andresisted a public page-use counter that leteveryone see how many readers visit eacharticle page. But DVorkin felt the countersprovided important data writers could useto shape ongoing coverage. As Forbestraffic grew to 55 million unique visitors(according to internal statistics*) from 15 million three years ago (and page viewsper visitor increased 15% over that period),there came a day when the counter wasoverwhelmed and stopped working. Whenthat happened, all publishing stopped. Noone wanted to publish if they couldnt seehow they were doing. So we had changedthe ethos from being embarrassed by it toit being a feedback loop that helped themunderstand how their work was viewed.

    Another cultural shift was the elimination of five or six rounds of content editing.Explains DVorkin: We shifted to a cultureof hire smart people and let them hit thepublish button. This approach buildsaudience around their knowledge and whothey are. It works because theres strongmonitoring and oversight by editors,producers and readers, and the web is avery self-correcting medium. If they dontget it right at first they will find out veryquickly. Unusually for a news site, morethan 50% of Forbes monthly traffic comesfrom articles that are more than 30 daysold. Because the news analysis we providelives on far longer than breaking news, weare able to monetize old content in a verypowerful way, DVorkin notes.

    Sustaining digital leadership! / 23

    *Forbes.com internal statistics are from Site Catalyst, part of Adobe Systems Inc.s Marketing Cloud and oftenreferred to as Omniture after its originating company (acquired by Adobe in 2009).

  • 24 / Digital Leadership Study Series

    This is a company that is willing to radically change its business to stay competitive. We went from being a domestic DVD company tolargely a global streaming company in three years. And in the last year, weve also gone from being a licensor of content from others toa major producer of original series and films.Jonathan FriedlandChief Communications OfficerNetflix, Inc.

  • Chapter 3

    Key strategy highlights Establish your place in the ecosystem. Re-evaluate strategies, marketposition and competitive strengths and consider making far-reachingchanges to remain successful.

    Decide how to acquire or build your digital portfolio and whether todivest non-core businesses.

    Turn product innovation into a continuous process, using mobile,social, cloud and big data analytics technologies to hone products tocustomer preferences.

    Incorporate unique content, personalization and anywhere/anytimeaccess into products to attract paying customers.

    Focus on fast-growing new channels, such as mobile streaming.

    Exploit the power of brandwidth to extend your reach into newdigital channels.

    Diversify revenue sources (e.g., adding micropayments), althoughsubscriptions and advertising may remain fundamental to growth.

    Rethinking productsand business modelsRethinking business strategies in anincreasingly crowded, rapidly evolvingdigital world

    Sustaining digital leadership! / 25

    Social networkingcompanies expecttheir role as contentdistributors toincrease

    22%in the next 23 years.

  • Figure 1: New business models

    The race to digital transformationAcross the M&E landscape, a new race isafoot. As established M&E companies seekto become born-again by creating digitalproducts and services, born-digitalcompanies, such as Facebook and Twitterare extending their reach in traditional M&Esectors, such as advertising. Whether born-again or born-digital, these companies are pursuing a common goal: to createsustainable business models in markets thatare being transformed by mobile, social,cloud and big data analytics technologies.

    As technology demolishes barriers to entry,creating an endless flow of new competitorsand distribution options, M&E companiesare continuously rethinking how they grow revenue and attract customers. Our research reveals four imperatives forcompanies across all industry sectors:establishing your place in the digitalecosystem, rethinking products for digitalaudiences, optimizing market distributionand penetration and reassessing revenue-generation and pricing strategies.

    Establish yourplace in the

    digital ecosystem

    Confirm that you are focused on the right business and audience

    Accept the blur of content creation and distribution

    Make the decision to build, acquire or divest

    Turn product innovation into an ongoing process

    Ensure your content stays unique and compelling

    Put personalization at the center of your content offerings

    Gear up now for anywhere/anytime access

    Set the right balance between direct and third- party distribution

    Focus on fast- growing new media channels

    Recognize the power of brandwidth

    The traditional model still matters

    Revenue streams will diversify

    Small payments can have big payoffs

    Pay-on-demand will rise in some sectors

    Freemium models should not be overlooked

    Rethink yourproducts for thedigital audience

    Optimize yourpenetration and

    distribution

    Reassess revenueand pricingstrategies

    Adopting new business models

    amid rapid change

    Source: EY analysis.

    26 / Digital Leadership Study Series

    To stay ahead in the fast-changing digital world, media and entertainment (M&E)companies are reassessing thefundamentals of their business from corporate strategy to products, distribution channels and pricing models.

    M&Es new digital landscape demands global use of cloud content and service delivery arrangements.* However, cloud infrastructure is borderless, while tax jurisdictions are not. As a result, we often encounter surprising and still evolving cloud tax risks that affect every business aspect, from profit margins to partnerships to compliance burdens to brand reputation.

    Channing FlynnGlobal Technology Industry Tax Services LeaderEY

    *EYs global Cloud Computing Tax Guide details complexservice and content arrangements in over 80 cross-border business arrangements. It can be accessed via:ey.com/cloudtaxguide.

  • Figure 2: To what extent is your firm a content developer, content distributor, content packager or content access provider (today and in 23 years)?

    Source: EY analysis.

    Establish your place in the digital ecosystem Ever since Apple Inc. opened the iTunesStore in 2003,1 forever changing the musicindustry and the way digital products aredistributed, digital transformation hasspread across the entire M&E ecosystem.Game developers, for example, are diminishingreliance on shrink-wrapped products tied tospecific consoles, or no longer sell them;instead, theyre using the cloud to provideanywhere/anytime access to users viasmartphones and tablets, along with PCs.

    As digital continues to reshape M&E,companies are reconsidering their businessstrategies and preparing to make far-reachingchanges. This includes identifying the corevalue in your products and services, re-evaluating which business you want to be in and examining how best to address yourtarget audience. Faced with a decline in printadvertising, Reed Elsevier shifted emphasisat its Reed Business Information division

    from advertising-driven B2B and B2Cpublications to paid information services for business audiences, believing they willprovide a more reliable revenue stream.2

    Other companies are blurring the traditionalboundaries between content developers and distributors as they seek new ways toattract customers and drive revenue. Forexample, Netflix, Amazon and YouTube areexpanding from distribution into developmentof original video content. Other companiesare shifting into distribution: digital leadersexpect their roles as content distributors toincrease by 9% within three years, and thereis an even bigger increase (24%) amongsocial networking companies. Some socialmedia companies are seeking to boostadvertising revenue by distributing otherforms of M&E content, a trend exemplifiedby Twitters recent deal to distributeNational Football League video clipsaccompanied by ads from sponsors Verizon and McDonalds.3

    Content Today 30% 32% 36% 32% 21% 36% 37% 25% 25% 25%developer 3 years 30% 31% 35% 31% 21% 35% 36% 27% 26% 26%

    % change 0% 3% 3% 3% 0% 3% 3% 8% 4% 4%

    Access Today 14% 15% 11% 14% 22% 11% 13% 15% 17% 12%provider 3 years 14% 15% 11% 15% 21% 13% 13% 12% 15% 13%

    % change 0% 0% 0% 7% 5% 18% 0% 20% 12% 8%

    Technology Today 17% 16% 12% 13% 17% 13% 16% 16% 18% 31%enabler 3 years 17% 16% 12% 14% 15% 11% 17% 17% 15% 31%

    % change 0% 0% 0% 8% 12% 15% 6% 6% 17% 0%

    Content Today 20% 22% 19% 22% 22% 23% 17% 21% 17% 15%distributor 3 years 21% 24% 18% 22% 23% 25% 17% 22% 21% 16%

    % change 5% 9% 5% 0% 5% 9% 0% 5% 24% 7%

    Content Today 13% 11% 12% 14% 12% 11% 13% 16% 15% 11%packager 3 years 13% 10% 12% 13% 13% 12% 15% 15% 16% 11%

    % change 0% 9% 0% 7% 8% 9% 15% 6% 7% 0%

    Broadcast/ Publishing/ SocialDigital Advertising/ Filmed cable information Interactive networking/ Enabling

    Total leaders measurement entertainment networking services gaming Music social media technology

    Sustaining digital leadership! / 27

    Global M&E companies are already used to the business impact of different jurisdictions approach to intellectual property protection and artistic rights. But they may be unprepared forthe tax implications of serving products and services from the cloud, across many jurisdictions.

    Alan LuchsGlobal Media & EntertainmentTax Services LeaderEY

  • As technologies, such as cloud/SaaS and mobile platforms lower barriers to entry, they create new opportunities but also new and often non-traditional competitors.

    David NicholsAmericas ITTransformation Practice LeaderEY

    Once companies determine where toposition themselves within the M&E valuechain, they must decide how to build theirportfolio and how large it should be. Oneoption is to sell non-core businesses whileinvesting in digital in-house development and acquisitions; Reed Elsevier divesteddozens of print titles while acquiring otherbusinesses, including Mendeley Ltd., whichprovides a social networking service foracademic research.4 Another approach is to retain profitable traditional media to funddigital expansion. As Bob Carrigan, formerCEO of information provider IDG, reportedly

    said, We manage print for profit and digitalfor growth.5 Many companies are usingM&A to expand mobile capabilities, a trendexemplified by Twitters acquisition ofmobile advertising firm MoPub.6

    Rethink your products for a digitalaudienceNew opportunities and competitors continually emerge as cloud computing andmobile and social platforms reduce barriersto market entry. To respond, M&E companiesmust make product innovation a continuousprocess.

    Figure 3: Digital leaders are far ahead in using second-generation mobile, social, cloudand big data analytics technologies for product development.

    Figure 4: In the digital age, how will you ensure customers pay for digital products and services? (Percentage of respondents who selected each choice among their top three)

    Source: EY analysis.

    Supplemental/premium content 51% 46% 54% 55% 50% 44% 42% 61% 52% 49%for a fee

    Create unique content 61% 62% 55% 51% 61% 67% 61% 64% 73% 58%

    Affinity programs 50% 58% 44% 55% 40% 47% 62% 48% 44% 59%

    Other 3% 4% 3% 1% 3% 7% 1% 6% 2% 3%

    Anytime/anywhere 63% 61% 62% 63% 78% 67% 52% 58% 67% 58%access

    Personalization 64% 67% 65% 66% 53% 61% 76% 59% 60% 72%

    Broadcast/ Publishing/ SocialDigital Advertising/ Filmed cable information Interactive networking/ Enabling

    Total leaders measurement entertainment networking services gaming Music social media technology

    50%

    40%

    30%

    20%

    10%

    0%

    Mobile Social networking Cloud Big data analytics

    49%

    16%

    46%

    17%

    43%

    12%

    41%

    11%

    Digital leaders Others

    28 / Digital Leadership Study Series

    Source: EY analysis.

  • Based on our research, digital leaders arefar more advanced than other companies inusing transformative mobile, social, cloudand big data analytics technologies to driveiterative development of products honed to customer preferences and behavior. For example, 41% are using second-generation or later big data analyticssolutions for product or servicedevelopment, compared with just 11% of other companies (Figure 3, page 28).

    Provide anywhere/anytime access now! M&E companies see unique content,personalization and anytime/anywhereaccess as the three most important ways to persuade customers to pay for digitalproducts or services (Figure 4, page 28).

    The emphasis varies by industry segment:the percentage of companies that viewunique content as one of the biggest driversis highest among social media companies(73%), publishers (67%) and the musicindustry (64%). Personalization is mostfrequently cited among companies in theadvertising, film, gaming and technologysegments, and is emphasized more by B2Bcompanies (71%) than B2C (61%). M&Ecompanies also understand that customerswant access to content wherever they are,on any device, at any time; 63% believe it isamong the top ways to ensure customerswill pay for products. The proportion is even higher among publishers (67%),broadcasters and cable networks (78%)and social media companies (67%).

    Figure 5: What is your revenue split by channel (today and in 23 years)?

    Source: EY analysis.

    Mobile streaming 11% 13% 18% 8% 9% 13% 10% 11% 10% 9% 12% 33% 10% 12% 20%

    14% 15% 7% 14% 14% 0% 12% 16% 33% 15% 15% 0% 15% 15% 0%

    19% 20% 5% 29% 29% 0% 26% 25% 4% 38% 35% 8% 8% 9% 13%

    14% 14% 0% 11% 11% 0% 10% 13% 30% 10% 11% 10% 17% 17% 0%

    12% 12% 0% 8% 7% 13% 9% 8% 11% 12% 10% 17% 9% 11% 22%

    14% 12% 14% 11% 12% 9% 16% 14% 13% 7% 7% 0% 25% 20% 20%

    Online (non-mobile) streaming

    Total Advertising/measurement

    Filmed entertainment

    Broadcast/cable networks

    Publishing/information services

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    Broadcast

    Online (non-mobile) downloads

    Mobile downloads

    Print/physical media (CD/DVD)

    9% 8% 11% 10% 9% 10% 10% 8% 20% 5% 5% 0% 8% 8% 0%Events, concert ticket sales

    Mobile streaming 11% 13% 18% 14% 18% 29% 12% 13% 8% 16% 16% 0% 13% 16% 23%

    14% 15% 7% 15% 18% 20% 11% 11% 0% 17% 17% 0% 14% 16% 14%

    19% 20% 5% 9% 10% 11% 18% 21% 17% 14% 16% 14% 10% 11% 10%

    14% 14% 0% 18% 17% 6% 12% 13% 8% 15% 16% 7% 17% 15% 12%

    12% 12% 0% 16% 17% 6% 11% 11% 0% 16% 15% 6% 16% 18% 13%

    14% 12% 14% 16% 13% 19% 18% 16% 11% 8% 8% 0% 13% 10% 23%

    Online (non-mobile) streaming

    Total Interactive gaming

    Music Social networking/social media

    Enabling technology

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    Broadcast

    Online (non-mobile) downloads

    Mobile downloads

    Print/physical media (CD/DVD)

    9% 8% 11% 8% 5% 38% 15% 12% 20% 11% 8% 27% 7% 7% 0%Events, concert ticket sales

    Sustaining digital leadership! / 29

    Digital is allowing our brand to be much more global. The Wall Street Journal is now available in nine languages, and thats only possible because of digital.

    Raju NarisettiSenior Vice President, StrategyNews Corp

  • Optimize distribution and marketpenetration Technology opens new distribution channels and content delivery methods thatrepresent attractive revenue opportunities.

    As audiences shift to tablets andsmartphones, M&E companies expectmobile streaming to provide the greatestgrowth. Among all companies, theproportion of revenue generated by mobilestreaming is expected to rise 18% in threeyears, while the proportion from print andother physical media diminishes by 14% and concert ticket sales and other eventsdecline 11%. The anticipated mobile-streaming growth rates are even higheramong broadcasting (33%), gaming(29%), enabling technology (23%) and

    publishing (20%) companies (Figure 5,page 29). A growing number of cloud-based services from a diversity of companiesincluding Apple, Amazon and Best BuysCinemaNow are using streaming (bothmobile and fixed) to deliver movies andother content.

    M&E content producers must also decide whento directly supply their audiences and whento distribute via third parties. Although usingdistributors can help reach a larger audience,it also brings the risk that major digitaldistributors may own the customerrelationship. M&E companies should strivefor a balance that maximizes growth andprofitability, while enabling them to maintainaccess to customers and customer data aswell as control over digital rights management.

    Micropayments 5% 10% 100% 1% 10% 900% 8% 11% 38% 8% 11% 38%

    2% 3% 50% 0% 1% 4% 3% 25% 1% 0% 100% 0% 1%

    28% 27% 4% 39% 32% 18% 23% 31% 35% 38% 35% 8% 29% 29% 0%

    20% 19% 5% 17% 10% 41% 8% 15% 88% 19% 18% 5% 21% 11% 48%

    5% 5% 0% 7% 4% 43% 3% 1% 67% 0% 4% 11% 8% 27%

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    Virtual goods sales

    Subscription

    Pay-on-demand/buy-to-own

    Freemium

    27% 21% 22% 18% 23% 28% 35% 17% 51% 29% 17% 41% 15% 19% 27%Pay-on-demand/rent

    Micropayments 6% 7% 17% 2% 9% 350% 5% 6% 20% 6% 15% 150%

    7% 8% 14% 9% 13% 44% 16% 13% 19% 7% 4% 43%

    8% 8% 0% 0% 3% 5% 3% 40% 0% 0% 0%

    20% 20% 0% 19% 19% 0% 13% 14% 8% 38% 34% 11%

    21% 27% 29% 38% 23% 39% 24% 27% 13% 17% 23% 35%

    1% 7% 600% 8% 2% 75% 6% 8% 33% 4% 3% 25%

    Advertising

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    23 %Today years change

    Virtual goods sales

    Subscription

    Pay-on-demand/buy-to-own

    Freemium

    37% 23% 38% 23% 28% 22% 30% 24% 20% 28% 21% 25%Pay-on-demand/rent

    Figure 6: What business models most contribute to your organizations growth (today and in 23 years)?

    5% 10% 100%

    12% 13% 8%

    2% 3% 50%

    28% 27% 4%

    20% 19% 5%

    5% 5% 0%

    27% 21% 22%

    Advertising 12% 13% 8% 17% 20% 18% 15% 17% 13% 11% 15% 36% 11% 14% 27%

    30 / Digital Leadership Study Series

    Source: EY analysis.

    1% 11% 1,000%

    Our goal is to move as much as possible of our infrastructure into our cloud, so that we can create a continuous experience across users devices.

    Michael ParlapianoGlobal Head of Strategy & Business Development, FinancialThomson Reuters

    Total Advertising/measurement

    Filmed entertainment

    Broadcast/cable networks

    Publishing/information services

    Total Interactive gaming

    Music Social networking/social media

    Enabling technology

  • Well-known M&E companies can capitalizeon the power of brandwidth leveragingtheir brand equity to exploit new channels.Consumers are being overwhelmed by atidal wave of digital information andentertainment of widely varying quality.Brands help consumers find content they trust.

    ESPNs brand recog nition has helped thecable TV channel expand into distributingsports content online and extend the reach of its video content via mobile andfixed streaming.7

    Reassess revenue-generation and pricing strategies Pressure on traditional business models has forced M&E companies to re-examinepricing strategies and develop new ways to generate revenue.

    Many publishers, for example, that hadhoped digital advertising would offset lossesin print advertising are now recognizingthey need other ways to fill the revenuegap. Some, such as The New York Timesand The Wall Street Journal, are expandingdigital subscriptions.8

    In fact, our research indicates that thetraditional subscription model, reapplied to digital, is expected to remain a bedrock of growth even as M&E companies diversify into other revenue-generating methods.Among all M&E companies surveyed, 27% believe subscriptions will remain thegreatest driver of growth in 2-3 years (Figure 6, page 30). Thats only slightlyless than today (28%).

    All industry sectors expect that micro-payments will increase in importance(Figure 6). Some industry segments in which micropayments are little usedtoday expect significant jumps: 11% ofbroadcasters and 10% of advertising agenciesexpect micropayments will become thebiggest growth driver within three years,compared with just 1% today in bothsegments.

    Certain industry segments also expectgrowth in other models, such as pay-on-demand and freemium, in which companiesoffer some content or features free butrequire payment for others. Fifteen percentof film companies expect pay-on-demand/

    buy-to-own to be their biggest growth driverwithin three years, compared with 8% whosee it that way today. A number of gamingcompanies are moving to freemium: 7%expect freemium to become the biggestgrowth driver within three years, comparedwith just 1% today.

    Diversifying revenue amid a changingadvertising marketThough global advertising spendingcontinues to grow, there is increasingpressure on ad revenues at traditional M&E companies.

    The fastest media advertising growth isexpected in digital, especially mobile.9

    However, the number of M&E companiescompeting for advertisers spending isgrowing even faster, as technologies, such as cloud/SaaS lower barriers to marketentry. This increased competition putspressure on the prices M&E companies can charge for advertising, particularly in segments, such as publishing.

    Digital advertisers also expect more thanjust brand recognition from their adspending. They began looking for moreconcrete results, such as lead generationseveral years ago, and are now progressingtoward outcomes-based models as quicklyas they can figure out how to measure therelationship between digital marketingcampaigns and subsequent sales. As aresult, ad spending is becoming moretargeted, a trend likely to continue with thegrowth of new advertising technologies,such as programmatic buying.

    All of this means that M&E companiesshould continue to diversify revenue streams,adding sources, such as micropayments and digital subscriptions. In addition,companies that rely on advertising shouldcontinue focusing on technology to targetadvertisements and deliver measurableresults. Roughly half as many digital leaders(7%) believe advertising will be the biggestdriver of growth in 23 years, comparedwith 14% today; in contrast, more digitalleaders believe the biggest drivers willbecome micropayments (10% comparedwith 6% today) or freemium (13%compared with 6% today).

    Sustaining digital leadership! / 31

    Diversifying into multiple pricing, revenue and distribution models, and then being prepared to shift emphasis based on differing customer preferences in each region, will be a long-term critical success factor for M&E.

    Jean-Benoit BertyEMEIA Technology, Media and Telecommunications Market LeaderEY

    The M&E world is moving rapidly through lead-generation models and into outcomes-based models. So for example, automobile advertisers say it wont be just how many people clickedon a website or came throughthe dealership itll be how many incremental cars this ad actually helped to sell.

    Howard BassGlobal Media & Entertainment Advisory Services LeaderEY

  • 32 / Digital Leadership Study Series

    A flexible paywall boosts digital revenue

    Like other newspapers, News CorporationsThe Wall Street Journal (WSJ) seeks toconvert online news grazers into payingdigital subscribers.

    To drive digital revenue growth from both subscribers and advertisers (whilecontinuing to attract new readers), theWSJ dynamically allocates some of itscontent behind a paywall available only topaid subscribers, while other content canbe freely accessed by anyone.

    Raju Narisetti, Senior Vice President,Strategy for News Corp, says this modelprovides several advantages over thealternative metered-content model, whichallows readers a specified, limited numberof free articles each month before theymust pay for access. For example, the WSJcan decide each day how many of its storiesto make freely available, based on factors,such as advertiser demand. If additional adimpressions are needed, more content canbe placed outside the paywall, where itgenerates more traffic. We are in a muchbetter position to deal with advertisingebbs and flows, Narisetti says.

    Narisetti says the WSJs model also avoidsnewsroom pressure to generate high-impact stories early in the calendarmonth, something he says is a danger with the metered model. The success of a meter model is entirely dependent ontrying to get you to hit the meter early inthe month, he says.

    Digital has helped the WSJ broaden itsgeographical reach by producing local-language online versions for regionalmarkets that cant justify the cost ofproducing print editions, Narisetti adds.Digital is allowing our brand to be muchmore global than print ever did, he says.

    Baidus mobile acquisitions

    In 2011, Baidu, Chinas largest internetsearch company, realized that it needed tofundamentally rethink its business modelfor the fast-growing mobile market. Weneeded to radicalize our thinking. Mobile isparamount, and it is different enough fromthe PC-based internet that it warrants aseparate focus, says Kaiser Kuo, thecompanys Director of InternationalCommunications.

    Key to Baidus strategy is the idea thatmobile users access the internet via alimited number of entry points, such asapps, search, maps and location-basedservices. Baidu wants to dominate thoseentry points and is using acquisitions to move more quickly in the fiercelycompetitive Chinese internet sector. Anacquisition provides a ready-made productwith an established brand; you get tomarket faster with less uncertainty, Kuo says.

    The Q313 $1.9 billion purchase of 91Wireless Websoft, a large app store andmobile game operator, established a keystronghold at one of these entry points.Today, the main way people access themobile internet is through applicationsfrom an app store, Kuo notes. Baidu alsobought a 59% stake in group-buying siteNuomi Holdings, Inc., which Kuo sayscomplements Baidu Maps within the firmslocation-based services strategy byhelping users find the best nearby deals.

    Baidu is also the default search engine onmany smartphones in China, which helpeddrive the companys mobile sales to 10% oftotal revenue for the first time in Q213.10

    DigitaltransformationjourneysIn our in-depth interviews with the senior executives overseeingdigital transformation journeys at approximately two dozenM&E and enabling technologycompanies, we came acrossmany striking stories. Here are four we found most alignedwith the theme of Rethinkingproducts and business models.

  • Mandalay offers new mobilecontent distribution model

    Before the rise of app stores like those foriOS and Android, mobile carriers believedtheyd be the ones selling content toconsumers and taking a percentage of thesale. But today, carriers are sidelined inthe mobile content market estimated at $26 billion in 201311 growing to $65 billion in 2016.12

    Mandalay Digital Group is trying to getcarriers back in the game. Weve built atechnology platform that allows carriersthe opportunity to get back into marketingand selling content to their customers,leveraging carrier billing and in-app billingtechnology. Thats good news for contentand media providers, because it providesthem with new revenue opportunities viaanother distribution platform, says PeterAdderton, CEO of Mandalay Digital.

    Mandalay Digital offers a range of mobileservices, as well as software that is installedon smartphones. The services generate newrevenue for carriers: Mandalays offeringsinclude an app and content store thatdivides revenue from customer purchasesamong the content publisher, the carrierand Mandalay. Adderton believes thisapproach has the potential to broaden themobile content market to people withoutcredit card or other accounts that are therequired payment mechanisms for themost popular app stores, which could be akey to unlocking emerging-market revenue.The ability that a carrier has to bill thatcustomer, whether they are prepaid orpostpaid, opens up a whole new market,says Adderton. In addition, the carriergets to collect the all-important dataabout subscriber purchasing behavior.

    Mandalays approach also includes asearch tool whose results can focusaround an artists or media companysbrand. It combines results across manycontent formats on a single brand-orientedpage. If you search for a specific celebrityor brand, it renders a real-time page forthat brand that could include songs, musicvideos, ring tones and wallpapers that youcan buy. We believe in a brand engine, andnot a search engine, Adderton concluded.

    Keeping viewers tuned in withsubscription-based content

    While TV viewership and revenues remainsolid at Discovery Communications, thecable content provider acknowledges thatchange is imminent as viewers in increasingnumbers change to digital formats.

    To keep viewers tuned in, Discoverysdigital media offerings have expandedthrough Discovery Digital Networks,offering original online programming, suchas DNews (updated several times daily), in addition to ongoing