Until recently, top entertainment chief executives were trying to keep technology at bay as a strategy to protect their traditional businesses. Now, most top executives believe technology and new devices, primarily tablets and smartphones, represent their greatest opportunities for growth.
Consulting firm Ernst & Young interviewed 34 chiefs of media companies as part of a comprehensive survey of their attitudes and priorities. The firm’s report, released Wednesday, found dramatic changes in thinking since the last study, conducted four years ago.
About half the CEOs and chief operating officers now predict that digital media will increase their companies’ revenues and profit margins by at least 10% within the next three years.
“Our biggest surprise was just how much these CEOs now are embracing technology,” said Howard Bass, senior partner for Ernst & Young’s global media and entertainment practice. “But they see that digital media is where the consumer is.”
About four-fifths of the executives surveyed said tablets would have the greatest effect on media changes during the next three years, with smartphones close behind. Two-thirds of respondents also identified emerging geographic markets as key to increasing revenue.
“We have reached this tipping point where the infrastructure now supports the delivery of high-quality content,” Bass said. “We have broadband connectivity, new devices and an ecosystem that creates good consumer experiences. All of this gives the media companies scale of distribution.”
Still, the challenge for media executives will be to maintain their companies’ high profit levels in an era when consumers expect services online for free or for very little money, while the expenses to provide content are increasing.
For example, in 2008, television networks spent $33.4 billion producing television content, according to the Ernst & Young report. By last year, the amount had topped $38 billion.
“We are still in the process of working through the evolution of online video and digital delivery,” Bass said. “We are in the early stages of learning how to monetize social media audiences, monetize apps and advertising for mobile devices.”
The shifts come as once-reliable sources of profits shrink.
“Replacing the DVD market is a huge challenge facing movie studios today,” Bass said. “Studio executives are busy trying to figure out the new secret sauce.”
But unlike four years ago, media companies now have access to more data to understand people’s consumption patterns, and there are more applications for their content.
Ernst & Young expects that consumers by 2015 will download nearly 20 billion mobile apps a year. Most people use three to five applications on a regular basis, while 20% of 18- to 29-year-olds use nearly 10 apps regularly.
Hard-hit old media sectors, including newspapers, magazines and music, are expected to see some benefits. By 2015, digital media is expected to generate 21% of total revenue — up from 11% on 2011 — for music, newspapers, books, magazines and home video, which includes online movie subscriptions and video on demand.
The report was the result of surveys conducted with 34 CEOs from global media and entertainment companies that cover various media and entertainment sub-sectors.
Among them were News Corp. Chief Operating Officer Chase Carey, Time Warner Inc. CEO Jeff Bewkes, DirecTV CEO Michael White, Liberty Media CEO Greg Maffei, DreamWorks Studios CEO Stacey Snider, Conde Nast CEO Charles Townsend, former New York Times Co. CEO Janet L. Robinson, Univision Communications CEO Randy Falco, Associated Press CEO Thomas Curley, Viacom Inc. CEO Philippe Dauman, Advertising group WPP CEO Sir Martin Sorrell, Interpublic Group CEO Michael I. Roth, Live Nation Entertainment CEO Michael Rapino, Time Warner Cable CEO Glenn Britt and Hulu CEO Jason Kilar.