Accentures Global Media and Entertainment High Performance Study 2011

Reshaping the business for sustainable digital growth

Why a new operating model is needed for high performance in tomorrows digital Media and Entertainment industry

Executive summary

Reshaping the business for sustainable digital growth

Fueled by rapidly rising consumption and rebounding capital markets, the past year has seen Media and Entertainment companies worldwide accelerate their change programs across several dimensions, in response to the pervasive impact of digital disruption. At the same time, they have gained renewed confidence as their focus shifts from survival to competition and growth.

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However, M&E companies know their industry remains in a state of flux that will continue for the foreseeable future. To keep pace amid this ongoing and sweeping change, while also building sustainable and profitable businesses for the future, companies need unprecedented operational agility. Yet many are still less than halfway along their transformation journey.

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Those that fail to reach the ultimate destination of sustainable profitability are likely to face extinction. But for those that win this race, the prize is bigger than ever before.

Adapting to the new normal

As companies press ahead with their digital transformation initiatives, there are strong signs that a fully-fledged new normal is now emerging. It is a world where the formerly distinct roles of content, services and applications in the overall consumer experience are increasingly indivisible. A world driven by new devices and mass technology. These dynamics are increasingly apparent across all segments. But, given the sharp variations between different geographies and industry sectors, it is clear that the overall industry migration to the new world will take some time. Classic media will live on while the world of broadband media fully establishes itself. For companies, this is not simply a one-off transition from analog to digital; its a new business model. The move to delivering personalized digital services to each consumer does not mean M&E will stop being a

mass-driven industry. The change in focus from the mass-market audience to the audience of one actually involves a shift from mass media to mass technologywith the source of companies economies of scale moving to technology platforms, as a way to manage the costs and impacts of fragmentation and operational complexity.

each individual is no longer an aggregation of a separate reader, viewer and listener, but a single entity choosing and consuming content experiences across multiple platforms. This individuals behaviors add up to the DNA of the digital consumer. The second DDigital Monetizationremains a major challenge, and an area of uncertainty for many players. What is clear is that M&E companies will run a diverse portfolio of revenue models, thereby capturing multiple revenue streams, but also obliging themselves to face further operational complexity.

Harnessing the 3Ds

On their transformational journeys, M&E companies need to cross the frontier from early-stage industry responses to more sustainable and profitable business operations in the new digital ecosystem. To take this step, companies must consider harnessing three fundamental drivers that we have termed the 3Ds: the Digital Consumer, Digital Monetization, and Digital Supply Chain. Todays consumers expect to choose and consume the content they want, in the way they want, wherever and whenever they want. This means that

Maximizing returns
The third DDigital Supply Chain underpins and empowers the other two, thus enabling the M&E company to achieve its ultimate imperative: maximizing the return on investment in content and operations. By supporting and enabling multiplatform

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distribution, the supply chain opens up new areas of growth, at a time when consumers are increasingly prepared to pay for content experiences, and when online advertising represents a huge global opportunity. However, the complexities are equally unprecedented. Multiplatform operation is no longer an option, but an imperative: mobile is seen as having the biggest growth potential by the industry as a whole, TV is second, and tablets are lagging a little way behindbut are already leading the way in publishing. Companies must find an economically viable trade-off between multiplatform services and interoperability across devices, while simultaneously customizing content for every platform and consumer experience. This is a tough call.

operate in isolation, high performers are rapidly evolving their traditional positioningand new collaborative ecosystems will continue to emerge, driven by the need to achieve economies of scale, leverage skills and compete against new players. As companies adapt and reshape for the new reality, implementing a series of point solutions aimed at specific operational issues will not be enough to deliver sustainable high performance. What is required is an holistic approach supported by mastery over the effective execution of strategy.

rethinks the traditional vertical orientation around channels, and shifts the polarities to a horizontal focus on key capabilities in the digital value chain. This means that each horizontal layer becomes a competitive asset and a potential focus for differentiation, innovation and collaboration. In our view, this model unleashes the full commercial potential of a companys content assets, while also providing improved governance over its value drivers, and supporting the innovation, operational excellence and organizational agility needed to adapt quickly to changes in the competitive landscape. Andtaking account of the continuing resilience of non-digital contentit also provides a pragmatic structure for maximizing digital revenues while leveraging classic media even more effectively. We believe that this model will characterize the industrys future high performers. Please read on to find out why.

The route to sustainable high performance: the 3D Operating Model

Accenture has developed a solution that will help enable the M&E company of the future to achieve sustained success in the digital new normal. The Accenture High Performance 3D Operating Model

The collaboration imperative

A function of the increased complexity is that as each multiplatform content providers supply chain can no longer

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Research methodology and sample

North America South America Europe APAC

40 10 38 42

Figure 1: Accenture's Global Media and Entertainment High Performance Study 2011 respondents by country

For the fifth successive year, the Accenture Global Media and Entertainment High Performance Study has researched the views of 130 leaders and decision-makers in the Media and Entertainment industry worldwide, spanning broadcasting, publishing, filmed entertainment, portals, interactive gaming and music. The industry breakdown of the respondents is shown below. As with previous studies, we have refined and expanded the research program in the light of knowledge built up in previous years, with a view to deepening the insights gained across all segments of the industry.

The qualitative study on which this report is based includes interviews with 130 C-Level executivesincreased from 102 in the previous year in order to improve our coverage of all segments, particularly portals and publishers. The respondents are all executive leaders in six M&E industry sectors. They are based in 18 countries, with 42 (or 32.3%) of the interviewees located in Asia Pacific, 50 (38.5%) in the Americas, and 38 (29.2%) in Europe/ Middle East.

Key areas of focus in this years interview program included companies approach to the three key industry drivers of the digital consumer, digital monetization models, and digital supply chaintogether with the impacts of these factors on digital operating models. This report presents some of the key findings from our 2011 study, and goes on to draw out the principal implications for Media and Entertainment companies seeking to achieve high performance in an increasingly digital environment. For further information about this report, please register at www.accenture.com/MandE_High_ Performance_Study_2011
Portals Portals, Social Networking, Internet Companies, Advertising 18%

Publishing 30%

Broadcasting 30%

Entertainment Music, Gaming, Film 22%

Figure 2: Accenture's Global Media and Entertainment High Performance Study 2011 respondents by industry.

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Pervasive digital disruption and growing market opportunity

In recent years, all segments of Media and Entertainment have experienced accelerating change across several dimensions, all rooted in the pervasive impact of digital disruption. This change has seen consumers migrate rapidly to new modes of digitallyenabled, multichannel consumption behaviors. The result is a world in which 35 hours of content is added to YouTube every minute,1 nearly half of televisions shipped with screens of 40 inches or larger have integrated networking,2 and Facebook is used by 1 in every 13 people on earth.3 Video is the fastest growing mobile application; by 2015 video is predicted to account for two thirds of all global mobile data traffic.4

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More challenges 26%

More opportunities 48%

Far more challenges than opportunities More challenges than opportunities 4% 22% More opportunities than challenges 40%

About the same 26%

Far more opportunities than challenges 8%

Figure 3: Do you see more challenges or more opportunities for your business in the next 12 to 24 months?

No area of the industry has been immune from the digital transformation driven by these new consumer behaviors. This change encompasses every aspect of the industry value chaincontent technologies, delivery channels, access devices, revenue models, marketing techniques, advertising paradigms, rights acquisitions and management, cross-sector competition, market fragmentation, talent and skills.

Insatiable consumption of content

Media and Entertainment companies have embraced this multidimensional change, racing to redesign their strategies for the digital ecosystem and deliver the content experiences that consumers want and will pay for. These strategies are fueled by rapidlyexpanding global consumption for media and entertainment content in its many forms. While the growth curves and dynamics vary by segment and geography, this market is not going to go away any time soon. In our research, this insatiable consumer consumption of content is reflected in confidence voiced by respondents that they foresee more opportunities than challenges in the next 12 to 24 months (see Figure 3).

The positive impact of rising demand is increased still further by continuing growth in the traditional drivers of global spending on media and entertainmentGDP, population and disposable wealth. These forces are seeing content consumption grow as never before in an expanding array of markets, and the momentum is building all the time. The capital markets appreciate this potential: in 2004, the top 15 publicly traded internet companies were worth a collective US$262 billion; in 2011 the figure was US$667 billion.5

1 Morgan Stanley: Ten Questions Internet Execs Should Ask & Answer November 16, 2010 Web 2.0 Summit, San Francisco, CA 2 IDC, Worldwide and U.S. Consumer 2011 Top 10 Predictions, January 2011, IDC #226734 3 http://www.digitalbuzzblog.com/facebook-statistics-stats-facts-2011/ 4 Cisco Visual Networking Index (VNI) Global Mobile Data Traffic Forecast Update 2011 5 Morgan Stanley: Ten Questions Internet Execs Should Ask & Answer November 16, 2010 Web 2.0 Summit, San Francisco, CA

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[The key will be] strong content backed by a very strong customer insight.
Head of Digital Marketing, music company, India

Do not know To a very limited extent To a limited extent 2 3% 22%

To a large extent 55%

To a very large extent 18%

Portals 17%

Entertainment 21%

Broadcasting 26%

Publishing 33%

Figure 4: To what extent do you believe your operating model is primed to enable your business to compete successfully?

Embracing changeamid increasing confidence

Consumers continuing voracious appetite for content experiences has seen Media and Entertainment companies reach a level of confidence higher than in several yearscertainly since before the global economic and financial crisis. Showing courage and determination, companies have worked hard and kept investing even in the downturn, pressing ahead with their customercentric initiatives, while also improving their ability to operate more commercial models concurrently and manage a more complex and sophisticated supply chain.

Global economic recovery and the revival in advertising have sustained the industrys momentum, and the future looks significantly brighter than it did two years ago, encouraging companies to invest in digital capabilities. As our research shows, 84% of respondent companies increased their levels of investment in the digital supply chain in 2010with almost a third (31%) increasing it by more than 25%. As a result of this committed investment, companies across the industry have taken some significant steps on their digital transformation journey, and believe they are now well-positioned to competealthough they accept there is much more change to come. As Figure 4 shows, 73% of respondents in our research study think their operating models are primed for

success to a large or very large extent. The minority who are less confident are dominated by publishers and broadcasters. These findings suggest that the industry as a whole is no longer afraid of the digital future, and that the game is moving from survival to competition and growth. Last year, cross-sector competition was regarded as the top challenge facing companies in the coming 12 to 24 months; this year, it is identifying the monetization models needed to harness new revenues. Again, this suggests the mood is shifting from caution to optimism, as the industrys growth potential becomes visible again, and appears higher than ever before.

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It is already fairly stable It will be stable in 1224 months with current business models It will be stable in 1224 months with some revenue redistribution across value chain 14% 4% 2

It is still changing rapidly with significant revenue redistribution across value chain 80%

Figure 5: Do you believe the Media and Entertainment Industry is becoming more stable or is continuing to change?

Continue to change significantly for the forseeable future 85%

Will be relatively stable for the next 1224 months 15%

Portals 87%

Entertainment 93%

Broadcasting 64%

Publishing 97%

Figure 6: Given your view of future industry change, do you believe that your business will continue to change significantly?

Much more change to come

At the same time, Media and Entertainment companies fully recognize that their industry is a long way from reaching a stabilized situation. As Figure 5 shows, four out of five believe that the industry is still in a state of flux, with significant further redistribution of revenues yet to take place across the value chain over the next two years. Companies also know from experience that the pace of change creates major pitfalls, which have impacted successful global leaders and newer digital entrants alike. As reported in the global news media, UK broadcaster ITV sold Friends Reunited in 2009 for 25m, having agreed to pay a total of 175m

for it four years earlier.6 And in February 2011, News Corp revealed a US$275 million write-down on its MySpace acquisition and the related Web businesses. Given the continuing pace of change, companies know they must balance their growing confidence in their digital capabilities with rigorous management of ongoing change and the resulting risks. The vast majorityincluding over 90% in publishing and entertainment expect that significant change will continue for the foreseeable future, meaning they will have to continue changing and adapting (see Figure 6).

Reshaping for the new environment

So Media and Entertainment companies are on an ongoing journey as the digital ecosystem expands. To reach their destination, they will need unprecedented operational agility that enables rapid ongoing reshaping of their business in response to continuing change, the sheer pace of which means an approach of wait and see is not an option. Instead, with much of the current digital industry built on wooden foundations rather than rock, companies move now to identify and build a new basis for sustainable success in the future.

6 http://news.bbc.co.uk/1/hi/8186840.stm

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Execution of digital strategies demands a new operating model

To adapt to the new environment, companies across all Media and Entertainment segments have identified and launched new strategic programs and ramped up their investment in digital initiatives and digitallyenabled services and capabilities.

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Analog, offline company

Digitization Process

Integrated, file-based digital enterprise

Not started <10% 4% 12% 1025% 16% 2650% 25% 5170% 22% >70% 21%

Figure 7: How far along are you in terms of the migration from an analog, offline company, to an integrated file-based digital enterprise (e.g. from production to distribution to access management)?

Identifying new monetization models 39%

Speed and ability to transform your digital operating model 23%

Providing a better digital consumer experience 22%

Competition from new players 20%

Cross-sector competition 15%

Declining demand 7%

Other 8%

Figure 8: What is the top challenge(s) that your company faces, or expects to face, in the next 12 to 24 months?

Some incumbents have implemented highly successful strategies in the digital space. High-profile examples include Disney, whose CEO Bob Iger was quoted in October 2010 as saying: I have tried to keep two obvious philosophiesFirst, that our current business not get in the way of adopting new technologies. And, second, that our business belongs on these new platforms.7 At the same time, other players have come in as new digital entrants with successful strategieswitness Netflixs drive to make its movie streaming service available on as wide an array of set-top boxes and handheld devices as possible.

Only halfway along the journey

However, as we have already highlighted, our research shows that companies know the industry is still a long way from reaching a stable state. Digitallydriven changeand the need for companies to adapt to itwill continue for the foreseeable future. In this context, most companies know they are still less than halfway along their journey to a digitally integrated file-based enterprise. As Figure 7 shows, only 43% believe they are already over 50% of the way to full digitization, while 32% are less than a quarter of the way there. That said, some companies have already built end-to-end digital supply chains, as illustrated in the accompanying information panel about Warner Bros. Such pioneers aside, most companies face a need to execute the rest of this journey while continuing to respond to ongoing profound change in the

Warner Bros.: digital end-to-end A good example of digital supply chains in action is Accentures collaboration with Warner Bros. to help transform its core media production and distribution capabilities into a single, totally integrated digital operation. This project made Warner Bros. one of the first studios in the world to move its entire film and television production, postproduction and distribution to an entirely digital endto-end-process.

7 http://kara.allthingsd.com/20101009/when-you-wish-upon-two-web-stars-ceo-bob-iger-talks-about-the-next-digital-direction-for-disney-2/

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[The] most important competitive edge for us must be the creativity of our products. Gathering customer intelligence as much as possible is another key to help define a better strategy.
General Manager, Product Operations Centre, gaming company, China

environment, and in the face of a number of severe challenges that have yet to be addressed. As Figure 8 shows, the most pressing of these challenges in the next 12 to 24 months are identifying new monetization models and generating the speed and ability to transform their operating models to capitalize on future opportunities. There is as yet no clear or agreed view of precisely what these opportunities will look like or how they will best be leveraged. What is clear is that the industrys world changed dramatically as a result of digitization, accelerating the rate of change during the downturn, with several factors underpinning rising demand into the future.

The new normal is coming but will not arrive overnight

Signs of this new world emerging are all around us. Broadband and interconnected devices are spreading exponentially, with global media tablet shipments alone expected to exceed 44.6 million in 2011, a leap of over 160% from 2010's 16.9 million.8 And an Accenture survey9 published in January 2011 projected that consumer purchase rates for personal computers and mobile phones (excluding smartphones) will decline by 39 percent and 56 percent respectively in 2011 compared with 2010, as consumers switch their spending to newer alternatives offering a better content experience. These alternative devices include not just tablets but also 3D TVs (sales of which are expected to rise by 500% in 2011), eBook readers (up 133%) and

smartphones (increasingly saturated, but still up 26%). At the same time, the advent of the multipolar world where spending power and talent are distributed more evenly around the worldis seeing a billion new and more mobile consumers hungrily accessing content via ever more devices. These advances are early signs that a fully-established new normal is now emerging: a world driven by new devices and mass technology, where the agility to adapt to constant change while delivering personalized content experiences will be a prerequisite for sustained high performance in any segment of Media and Entertainment. Personalization of the consumer experience for millions of individuals requires companies to become more agile and efficient in serving the new, mobile, digital consumer and his or

8 IDC, Worldwide and U.S. Consumer 2011 Top 10 Predictions, January 2011, IDC #226734 9 Accentures Consumer Electronics Products and Services Usage Report 2011, available at https://microsite.accenture. com/landing_pages/EHT/Documents/Accenture_GlobalConsumerTech_2011.pdf

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22%

Today <10% 47% 1025% 31% 2650% 11%

5170% >70% 3% 8%

47% Two Years From Now <10% 17% 1025% 36% 2650% 28% 5170% 6% 13% >70%

Figure 9: What is your companys share of digital revenue today, and what proportion of your revenue do you expect to achieve from digital income two years from now?

her social network. This intensifies the need for a new digital operating model based on an end-to-end digital value chain, to enable completely new business and monetization models with the required level of integration between content, applications, services, devices, and connecting channels. However, while the dynamics of this new world are increasingly apparent, and while there is no doubt the momentum behind digitization is both unstoppable and growing, the industrys complete migration to this new world will take time. As Figure 9 shows, only 22% of companies say that they currently get more than a quarter of their revenues from digital sources. Even in two years time, less than half expect to be in this position.

Not a transitionbut a new business model

The implications are clear. As digital revenues gain momentum over a period of several years, they will account for a progressively rising proportion of companies revenues. But in the meantime, classic media will live on, while the new normalthe reality of ubiquitous, always-connected broadband mediaestablishes itself. This means that what companies are facing is not simply a transition from analog to digital, but an imperative for a new business model. Until recently, the industrys concerns over the difficulty of monetizing digital content were often summed up as switching analog dollars for digital pennies, a phrase originally coined and later updatedby NBC CEO Jeff Zucker. Given the fact that classic and broadband media will co-exist

for the foreseeable future, it is now increasingly clear that this concern is a distraction. So companies need to press ahead with an operating model equipped to serve both classic media consumption and personalized broadband consumption at high levels of efficiency. This model will require new ways to achieve economies of scale, as media increasingly equates to technology, and mass media comes to equal mass technology. The move to personalized services does not mean Media and Entertainment will stop being a mass-driven industry. Instead, the reorientation around the audience of one actually involves a shift from mass media to mass technology, with the source of economies of scale moving to technology platforms rapidly adopting new themes such as mobility, cloud or analytics to manage the costs and impacts of fragmentation and increased operational complexity.

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Constant innovation and digital distribution will be most essential.

Executive Director News, broadcasting company, Malaysia

Towards a high performance digital operating model

To do this, the high performance Media and Entertainment business of the future will remove embedded barriers, enabling it to do more with less, and to redefine itself as a leaner, more agile and more innovative organization, ready and equipped to exploit digital opportunities in an integrated way across channels. To build such an operating model, companies need to challenge the basis for the existing channel-focused silos within their business. Legacy structures based around separate content delivery channels can hinder key capabilities for the digital world such as digital customer centricity, cross-channel content monetization, and integrated rights acquisition and management.

Companies are already under pressure to define clearly how they will transform themselves to harness digital opportunities. The capital markets are reducing the future growth premium allocated to those Media and Entertainment companies that are failing to set out a compelling vision for their own digital transformation. Successful execution of digital strategies in Media and Entertainment and winning over skeptical investors to believe in those strategiesrequires companies to adopt a new and different performance anatomy.

operational issuessuch as repurposing selected pieces of print content for Internet and mobile formats. It is increasingly clear that this type of piecemeal approach will not deliver sustainable high performance in the long term. Confidence in the viability of the current operating model does nothing to ensure its sustainability. Instead, what is required is a combination of an holistic approach to set the context for all actions, with mastery over effective execution of overall strategy to sustain momentum and competitive advantage over time. So, what factors will shape the design of the new, sustainable high performance operating model? We will now examine the drivers behind the model and go on to show what it will look like.

Not piecemealbut holistic

Some Media and Entertainment companies are trying to implement their digital strategies though a series of point solutions aimed at specific

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The drivers behind a new high performance Media and Entertainment operating model
To cross the frontier from early-stage industry responses to more sustainable and profitable business operations in the digital ecosystem, M&E companies need to consider creating an operating model specifically designed and oriented to achieve two things. First, it must maximize the key broadband media revenue drivers in the digital era efficiently and effectively. Simultaneously, it must also support traditional classic media for as long as necessary.

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Digital Consumer

Digital Monetization

Agile Enterprise

Digital Supply Chain

Figure 10: The agile enterprise and 3D drivers

As Figure 10 illustrates, we believe that these imperatives can only be achieved by an agile enterprise that successfully harnesses three drivers, which we have termed the 3Ds: the Digital Consumer; Digital Monetization; andunderpinning them both the Digital Supply Chain.

The Digital Consumer

Transformational change in consumers behavior and expectations around content consumption have been gathering pace for several years. Consumers expect to choose and consume the content they want in the way they want, wherever and whenever they want. As a result, each individual is no longer an aggregation of a separate reader, viewer and listener, but a single entity choosing and consuming content experiences across multiple platforms. In expressing this individuality through their behavior, digital consumers exhibit a number of shared characteristics which together add up to the DNA of the digital customer. These include amplified social engagement and interactivity, multichannel and multiplatform usage (including rising mobility), and demand for real-time interaction and information.

Consumers are also super-global and hyper-local in their content consumption habitsboth hungry for world news and global applications, and also strongly focused on their local environment. Yet, despite these shared characteristics, every digital consumer remains a unique individual with unique DNA, creating a far more diverse and varied consumer landscape than in the past.

An early stage of the customer-centric journey

The companies interviewed in our study are fully aware of the need to deliver the new personalized digital experiences that consumers wantbut most are some way from building the integrated view of the digital customer needed to execute this objective. Over half of our respondents (52%) say the transition from mass audiences to individual

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[Its about] innovative customer relationship management. We need to invent something new for our customers, in order to be ahead of the competition.
Chairman, film company, Germany

Increasing Integrated View

Insufficient for our needs Fragmented 8% 31%

Consistent but by business unit only 14%

Somewhat integrated 38%

Fully integrated 9%

Figure 11: To what extent do you believe your company has an integrated view of your digital customer?

customers remains a challenge for their businesses. And, as Figure 11 shows, only 9% of executives feel their company has a fully integrated view of their digital customerwith the vast majority believing there is room for improvement in the integration and consistency of the view of digital customers across the business. Asked to name the most complex issues their business faces in managing to shift from mass audiences to individual consumers, executives cite a wide range of concerns. Culture and skills are seen as the most difficult issue (cited by 22%), closely followed by operational (21%), technical (21%), commercial (18%) and organizational (16%) barriers. The fact that so many issues are perceived as presenting relatively equal challenges underlines the need for a new operating model to tackle all of them holistically.

Seeking immersive experiences

These findings indicate a pressing need to improve customer centricity and understanding to keep up with changing consumption behaviors. In particular, the combination of social networking and mobilityenabled by better broadband connectivity and lower cost/higher performance devicesis fundamentally transforming the landscape of the consumer experience. Crucially, consumers no longer see communications technology as a tool for one-to-one transactional conversations with a specific purpose. Instead they want to immerse themselves in an ecosystem of content, applications and services with a myriad of usesincluding networking, making friends, gaming, buying goods, and accessing information and home entertainment such as video and music.

For the first time, the digitally-enabled Media and Entertainment industry has the capabilities and technologies required to fulfill these needs, supported by consumers own readiness to buy the devices that make it possible. Global smartphone shipments are expected to overtake desktop and notebook PCs combined in 2012.10 And between 2000 and 2008, the average consumer increased his or her spending on electronics devices by 7 percent a yearwhile companies reduced their IT hardware spending per employee by 3 percent.11 This increase reflects consumers ongoing appetite for new consumption experiences, as illustrated by surging take-up of tablets, eBook readers and smartphones worldwide.

10 Morgan Stanley: Ten Questions Internet Execs Should Ask & Answer November 16, 2010 Web 2.0 Summit, San Francisco, CA 11 Accenture Institute for High Performance: Can Enterprise IT Survive the Meteor of Consumer Technology? By Robin Murdoch, Jeanne G. Harris and Glenn Devore, September 2010. Drawn from: Employment Status of the Civilian NonInstitutional Population, 1940 to date, 2009 edition, Bureau of Labor Statistics, US Department of Labor; Historical Sales Data Details, Consumer Electronics Association, 2010; and Worldwide IT Spending Historical Databook, IDC, 2010.

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Other 5% New Consumer Segments 8%

New Platforms or Distribution Channels 65%

New Products and Services 42%

New Monetization Models 34%

New Content 27%

New Geographies 21%

1st Choice 49%

2nd Choice 16% 17% 25% 9% 25% 10% 17% 7% 14% 4 4 5%

Figure 12: In terms of opportunities, what is the most important source of revenue growth for your company in the next 12 to 24 months?

Digital Monetization
Asked to identify their most important sources of revenue growth in the next 12 to 24 months, our respondents point to new platforms or distribution channels, followed by new products and services (see Figure 12). These sources will form the core focus of the new sustainable operating models digital monetization strategy.

46%

42%

However, while this focus may be common across companies, it is important to stress that there is no single right answer to business and monetization models. As Figure 13 shows, M&E companies in the future will operate a combination of several monetization models and revenue streamsa portfolio of revenue models. These will often include the classic ones, but the new models will need to be more than just a re-platforming of existing models. This diverse blend of concurrent revenue streams will add further complexity to their operations, by cutting across the traditional focus on channels.

Maximizing returns on content investment

The ultimate imperative is to maximize the return on investment in content and operationsa need made all the more urgent by the high and often rising costs of content creation and acquisition. Key attributes for achieving this include a strong, focused and integrated capability in content rights management, and the ability to target and repurpose this content in differing ways and contexts to deliver a compelling experience across platforms. The complexity is further increased by the evolution of the concept of content itself to encompass a combination of applications, services and content.

21% Next 2 Years 16% 15% 14% 7% 5% 6% 6% 4% 5%

Today

3% 4% Affiliate

2% 2% Other

1% 1% Brokerage

Ad Supported

Subscription

On Demand

Merchandising/ Physical Sales

Licensing

Freemium

Figure 13: Which of the following are the most prevalent business models for your business today, and which will be the emerging ones in the next two years? (Ranked and top 3 selected)
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Strong and established 23%

Rights management processes and capabilities in place but requiring improvement 41%

No fully consistent model but moving in the right direction 29%

Not a strategic imperative 7%

Portals 16%

Entertainment 24%

Broadcasting 34%

Publishing 9%

Figure 14: To what extent do you believe that your company has an integrated view of the Rights Management processes and capabilities serving all your Business Units?

Traditional

Approach

Digital Multimedia

None and not planning to launch in next 12 months None but planning to launch in next 12 months <20% digital/multimedia with no plans to increase in next 12 months <20% digital/multimedia with plans to increase in next 12 months 2 4% 9% 34%

2050% digital/multimedia with no plans to increase in next 12 months

2050% digital/multimedia with plans to increase in next 12 months 4% 30%

>50% digital/multimedia 17%

Figure 15: In your organization, how far advanced is your transition from traditional advertising to digital or multimedia (bundle of off-line and on-line) advertising?

Again, most companies have some way to go to achieve the required capabilities. Take integrated rights management, which is a critical enabler for effective monetization of digital content. As Figure 14 shows, only 7% of the companies in our research think an integrated view of rights management is not a strategic imperative. But most of the remaining 93% are still in the early stages of a deep transformation journey to achieve this: only 23% of companies say they already have an integrated view of rights management across business units, while 70% acknowledge that what they do have requires improvement. For those companies that get this right, the prize on offer is increasingly clear. The advent of the smartphone and tablet-enabled world means paying for content experiences is no longer a dirty word. For example, mobile app revenues are expected to

reach a global total of US$12.3 billion in 2011, up by 149% on 2010. More generally, consumers hunger for content experiences is turning the consumer marketplace into a demand-pull environment (see information panel), with offerings and charging models advancing apace: witness the New York Times recent launch of a paywall for its website, allowing users to view a maximum of up to 20 items for free per month, but charging for more extensive online, smartphone and iPad content access.

on the Internet is still undervalued in terms of ad spend, creating a US$50 billion global opportunity.12 However, harnessing this opportunity will require companies to understand and leverage the implications of new digital advertising modelsand the related performance marketing logics and techniques that underpin them. Our findings underline once again that most companies have a long way to go to implement the required capabilities. Taking multimedia advertising as an example, Figure 15 shows that less than one in five of our respondents (17%) say their business now gains more than 50% of its advertising revenues from digital/multimedia sources. Almost half of the interviewees say digital accounts for less than 20% of their advertising business. However, companies are keenly aware of the need for progress, voicing a strong commitment to increasing the proportion of their ad revenues derived from digital.

Optimizing advertising models

While content charging models are increasing, advertising remains key with some 46% of respondents believing that this will continue to be their most prevalent revenue model. While advertisers in the digital world need to be sold to more proactively (see information panel), analysis by Morgan Stanley suggests that media time spent

12 Morgan Stanley: Ten Questions Internet Execs Should Ask & Answer November 16, 2010 Web 2.0 Summit, San Francisco, CA

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For me I feel it has got to be mobile and tablet. Monetization is key, it is about charging for something that used to be free.
Sales Operations Director, broadcasting company, US

Percent that collaborate Portals 65% Entertainment 48% Broadcasting 64% Publishing 77%

Why collaborate? For all the reasons displayed here 37% To achieve economy of scale 30% To leverage skills 17% To compete against new players 15%

Other

Figure 16: Is collaborating with competitors something you might do, or might do more of, in the next 12 to 24 months?

Consumers and advertisers swap roles

In the digital world, the traditional commercial dynamics of consumers and advertisers have been reversed, intensifying the need for new monetization models. In the analog world, customers had to be won over to agree to participate in content experiences (whether sold or provided free), and advertisers would readily pay to be a part of those experiences. But in the digital world, consumers are hungry for content experiences, and have become demand-pull participants and buyers. In contrast, advertisers now demand much greater accountability and measurability of outcomes than in the analog world. As a result, advertisers are much harder to win over, and advertising opportunities need to be sold to them proactively through an advertiser-centric approach.

The Digital Supply Chain

In the years to come, even the most traditionally-minded Media and Entertainment business will have no choice but to operate via Internet and mobile as well as physical channels and high performers will operate via a far wider range of platforms. As a result, every participant in the industry has an absolute need for an efficient, integrated and rigorously managed end-to-end supply chain for acquiring, managing, repurposing and delivering personalized digital content experiences to consumers across multiple platforms. Crucially, changing industry and consumer dynamics mean these supply chains can no longer operate in isolation. Our research shows that 70% of companies believe the digitalization of the supply chain is significantly impacting the way they operateboth internally and with business partners

and collaborators. Given this rising degree of integration with third parties, it is very difficult for any single organization to fulfill the entire need for specialized capabilities all along the value chain.

New integrated ecosystems

This imperative means that entire collaborative value chains and ecosystems will emerge in and across all segments of M&E. As Figure 16 shows, most companies are planning to step up their collaboration with competitors, driven by a range of potential benefits including the ability to achieve economies of scale, leverage skills more effectively, and compete against new players. In essence, fragmentation of markets and demand is transforming the economies of scale required to remain profitable and competitivecreating a need for new alliances, capabilities, skills and talent.

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The [key will be the] ability to reach our audience unimpeded by other people's gateways. We want to ensure that there are no barriers to a unified content approach.
Managing Editor, TV Platforms, broadcasting company, UK

Mobile/smartphone 35%

TV/connected TV 32%

PC 19%

Tablet/netbook 13%

Figure 17: Please rank the content consumption device you believe your customer will prefer in the next 12 to 24 months.

As the momentum behind collaboration grows, new alliances are now emerging almost every week: recent initiatives include the "broad strategic partnership" announced between Nokia and Microsoft; Warner Bros. decision to stream The Dark Knight on Facebook; and retailer JC Penneys use of Facebook as an online sales platform.

Seizing the mobile revenue opportunity

As new collaborative digital supply chains emerge, they share a number of critical success factors. Access to content is clearly vital, together with linkage on one side with customer interactivity, and on the other side with the understanding, control and ownership of the customer as a unique individual consuming content across different channels and devices. This requirement is growing with the escalating penetration of new devices. As Figure 17 shows, the rapid rise of smartphones means executives believe that mobile devices will be their customers preferred platform for digital content consumption in the next two years. TV is also expected to maintain strong relevance thanks to the spread of Connected TV. Tablets

still in their early stages of adoption will have less relevance in the short term across M&E as a whole. But drilling down into the segmental responses, we find that publishing companies believe tablets will be their consumers favorite consumption device within the next 12 to 24 months, cited by 36% of publishing respondents. Furthermore, as Figure 18 shows, mobile is regarded as the digital supply chain distribution channel with the greatest potential to drive growth, again followed by TV. As these findings show, while mobile is undoubtedly the main driving force, TV/connected TV are resilient and will remain relevant, and tablets are a promise not yet at scale (except in publishing). The technology platform suffering the most is the PC.

22 Accentures Global Media and Entertainment High Performance Study 2011

Radio 8% Online: Social Media 37% Online: Streaming 35% Video over IP, IPTV, OTTV 33% Online: eCommerce 29% Online: Portals 22% Online: Search Print 16% 16% Bricks & Mortar Retail 10%

Mobile/Wireless 54%

Traditional TV 41%

2% 2% 1st Choice 25% 2nd 3rd Choice Choice 17% 12% 23% 6 11% 10% 16% 11% 8% 14% 13% 8% 16% 2% 1% 9% 5 12% 11% 3 9% 10% 4 3 9% 6 5 6 6 4

Figure 18: Which of the above distribution channels offer the highest growth opportunities for your company over the next three years?

Other 1% Control of end-user access 17% Industry standards and regulations 13%

Interoperability across platforms and devices 36%

Customized content for each platform 32%

Figure 19: Which of the above do you believe are the most important supply chain capabilities required to succeed in a multiplatform context?

by managing additional multiplatform complexity

As the dynamics of the multiplatform environment continue to evolve, the ability to deliver content experience to consumers across multiple platforms remains key. This brings additional complexities for the content supply chain, which is critical for creating the end-to-end visibility on revenue and costs needed to gauge profitability. This visibility is needed across all platforms, and throughout all stages of the supply chain, including creating content, buying rights, and reformatting it for different platforms.

When we asked our respondents to name the most important supply chain capability for success in a multiplatform environment, interoperability across platforms and devices came top, narrowly ahead of customized content for each platform in second place. Achieving these two conflicting objectives in a profitable and sustainable way demands a trade-off that further increases the complexity of multiplatform delivery models. It also demands multiple new skill sets, boosting the need for collaboration and lending greater urgency to the search for economies of scale.

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The new high performance Media and Entertainment operating model: shifting the polarities from vertical to horizontal
Innovation really is key, all across the business sectors: services, marketing, strategies, distribution, channels, action models. Innovation is essential for success.
Head of Strategic Marketing, broadcasting company, Italy

24 Accentures Global Media and Entertainment High Performance Study 2011

Consumer

Devices Platforms Channels

Consumer Delivery Channel 1 Digital Monetization Agile Enterprise 3Ds Innovation Digital Consumer Business Model and Brand Management

Consumer Delivery Channel 2

Consumer Delivery Channel 3

Consumer Delivery Channel 4

Advertising and Sales Content Planning, Production and Control Content Distribution Rights Management

Digital Supply Chain

Enterprise Management

Figure 20: The High Performance "3D Operating Model" for the Media & Entertainment company of the future

The three drivers we have described the digital consumer, digital monetization and digital supply chainrequire Media and Entertainment companies to adopt an entirely new operating model to enable and sustain high performance in the industry. The new model will need to re-think the traditional vertical orientation around channels, and shift the polarities to a horizontal focus on key capabilities in the digital value chain serving multiple channels. We have applied our insights into industry dynamics, operating models and technology to design a model that meets these requirements. We have called it the 3D Operating Model, and its key elements are illustrated above. In our view, adopting such a model will become a prerequisite for industry high performance in the coming years. Media and Entertainment companies traditional vertical focus on delivery channels and platforms hinders the free flow of digital content through and across the organization, and hampers

the optimization of revenues and profits though multichannel exploitation. In our view, the shift from vertical silos to horizontal layers represents the best option for enabling and empowering new revenue models without complete organizational re-platforming, while still leveraging the best of the traditional channels. In the horizontally integrated 3D Operating Model, each layer plays a specific role in the digital value chain, and represents a critical capability and key value driver in achieving multichannel digital consumer-centricity. While the exact make-up and requirements for each capability will vary depending on company-specific factorssuch as the target consumers, legacy product range, and the nature and latency of the content moving through the digital value chainthere are principles that will help shape each layer.

Pervasive benefitssupporting strategic execution

The 3D Operating Model will enable improved governance over the organizations key capabilities and value driversby exposing them more clearly in the operational layersand support a greater focus on innovation in each layer. It will also provide added flexibility in seeking out potential economies of scale and alliances for each distinct layer, and not necessarily across all of them at the same time, thus reducing execution time and complexity. In fact, if implemented and integrated effectively, this model has the potential to increase overall effectiveness and agility, supported by greater simplification and standardization throughout the business. This in turn will enhance scale synergies, boost operational efficiency, and enable smarter and more joined-up resource allocation and sharing of assets and knowledge. Also, by becoming a distinct center of expertise in its specific capability, each of the layers will be able to highlight
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Internationalization

Marketing and Customer Interaction

challenges and opportunities in skills development and exploitation, both within its own focus area and shared across the organization.

1| Continuous innovation
As the transformation to digital gathers pace, nobody can afford to stand still or rest on their laurels. So innovation must become a managed business process in the same way as order processing or accounts payable. The 3D Operating Model helps to support and drive innovation because it is designed from first principles to be agile and continually results-oriented. Each layer supports and focuses on innovation that can be leveraged across the entire company and throughout the ecosystem. The horizontal structure means the model also supports double-sided innovationfocused on product and services on one side, and on cost and efficiency of operations on the other one. The two are closely linked: ongoing innovation to reduce operational costs is vital to support organizational agility and free up funds for investment in content and services. Cost innovation is likely to include outsourcing of non-core activities to enable a sharper

focus on branding, content services and consumer experiences.

2 | Internationalization
Digital content distribution enables global reach and revenues at marginal incremental costsso internationalization is a route to increased cashflow and margins. This may involve local revenue-sharing partnerships, leveraging the strength of established local brands and distribution. As such partnerships underline, internationalization does not imply losing local connections. People consumersare local, and emotions are localized. While exploiting mass technology enables and requires scale, the benefits can be leveraged at the local level. Again, the 3D Operating Model provides added agility and competitive advantage by enabling each layer to be internationalized independently from the others, thus enhancing and speeding the execution of alliances and in-fill acquisitions.

to achieve agility
In turn, this combination of improved strategic governance and flexibility with operational efficiency and effectiveness improves the companys ability to adapt quickly and accurately to changes in the value chain, the competitive environment, consumer demands or the companys positioning. Given the industrys expectation of continued and accelerated change, this agility will be vital in executing digital strategies quickly and effectively within a shifting and evolving digital ecosystem.

and High Performance

As the 3D Operating Model illustrates, two overarching capabilities are also needed to achieve superior execution and high performance: firstly continuous innovation, and secondly internationalization.

26 Accentures Global Media and Entertainment High Performance Study 2011

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Some key strategic and operational questions

In Accentures view, the 3D Operating Model planned, designed and implemented from an holistic perspectiverepresents the appropriate approach for pragmatic and successful execution of strategy in M&E. It is inspired by the concept of harnessing the maximum driving force from the key industry drivers (the 3Ds), and aligning and integrating the fundamental performance capabilities.

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Effective Payment Models Top priority 23% An important priority 27% Low priority 30% Not a priority 19%

Optimizing Enterprise Management (shared services, cloud) 20% Dynamic Brand Management 24% Maximizing Rights Exploitation 33% Multimedia Advertising 28% 43% 23% 6% 33% 17% 17% 42% 25% 10% 42% 25% 13%

Ownership of the Consumer and Superior Interaction 38% Digital Performance Marketing 25% 54% 15% 6% 41% 12% 8%

Efficient Content Planning, Production and Control 45% Mastering Multiplatform Digital Distribution 52% Innovative Business Model 48% 42% 9% 2 35% 8% 5% 39% 10% 5%

Figure 21: In the next 12 months, which of the above capabilities do you consider a priority to enable your company to compete successfully in the digital world?

In this way, the 3D Operating Model enables concurrent operation of classic and broadband media, thereby reaping the optimal benefits in terms of future revenues, sustainable business models, and increased innovation and execution agility. When asked, our respondents confirm that while there is a clear vision of which capabilities they need to evolve to compete successfully in the new digital worldan innovative business model, multiplatform distribution, and efficient content planning, production and control, to name but a few (see Figure 21)there is also awareness that all of these are required to compete effectively in the new ecosystem. In Accentures view, the 3D Operating Model that we have outlined will characterize Media and Entertainment high performers in the years to come. But the journey toward this model raises many strategic and operational uncertainties and challenges. Here are some key questions for M&E executives to consider:

Which capabilities will be most critical for acquiring a rising share of revenues in the multiplatform world? To what extent is your organization evolving to reflect the huge transformations that are taking place in the marketing, advertising and rights management areas, just to mention a few? How is your company preparing itself operationally and financially to manage continuous innovation in products and services? How will your company reduce operating costs while improving decision-making and boosting speed of response to achieve increased agility? Do you believe we are moving towards a future dominated by global M&E conglomerates, or will niche/local players still have a role? Where will your business fit in?

Call to Action
Our research and industry experience both indicate clearly that high performing Media and Entertainment companies will shift from legacy vertical, channel-oriented structures toward the type of horizontallylayered operating model we have described in this study. However, it is equally clear that the precise implications and challenges of executing such a model will vary between different segments of the industry; between different geographies, due to variations in local behaviors, legislation and infrastructures; and even between different businesses in the same market segment.

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About the Media & Entertainment Group

Achieving excellence in engaging and interacting with consumers is the content industry's new battleground. While Media and Entertainment companies have made significant steps to reinvent themselves from a technical perspective, they are facing new challenges around their operating models. Our M&E practice helps clients determine the right digital business model and optimize future revenue growth through a multiplatform approach. Its home page is www.accenture.com/mediaandentertainment. For more information on this study and what Accenture can do to help you reach high performance in your business, please contact the authors and contributors: Marco Vernocchi Next Page Global Managing Director Accenture Media & Entertainment Robert E. Sell Managing Director Accenture Communications & High Tech North America Alwin Magimay Managing Director Accenture Media & Entertainment APAC Carlo Iacoboni Senior Manager Accenture Media & Entertainment

32 | 2010 Mobile World Congress

Copyright 2011 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture.

About Accenture
Accenture is a global management consulting, technology services and outsourcing company, with more than 215,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the worlds most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.

This document is an informed point of view based on research, opinion and experience, and should not be considered as professional advice with respect to your business.