Is entertainment forever or just temporarily changed? Will numbers that point to a Q3 recovery come to fruition? Will readers stay with the digital products they’re using now?
Many words could be used to describe the current COVID-19 crisis: tragic, disruptive, and crazy, Girish Menon, partner and head of media and entertainment at KPMG in India, told INMA. “But probably the one word that really captures what is happening is uncertainty. None of us really know what is going to happen or how it’s going to play out.”
During a members-only Webinar Tuesday, Menon shared key takeaways from KPMG’s recently launched point of view on India, “COVID19: The Many Shades of a Crisis, a Media and Entertainment Sector Perspective.”
“The worry is that nobody knows how this is going to bounce back,” Menon said. “When will cinema houses reopen? Will they be allowed by the government to operate in the same manner as they have done in the past? Will the public trust be there for them to come back and consume content in the same way they did in the past?”
Looking at the long-term strategy is important, he added. “When we all get back to business, is it business as usual? Or are we experiencing certain fundamental shifts in the way consumption is happening? This may potentially impact how businesses will operate.”
Menon focused on how the crisis is affecting the media and entertainment sectors.
“The longer the lockdown extends, the longer it takes for organisations to come back to any sense of normalcy,” he said. The economic impact is being felt globally, and the Indian economy — like all countries — remains under continued pressure.
“There are serious challenges and financial stress that most organisations are facing. India as an economy was under stress even before COVID. We were already thinking of 2021 as a tough year, and most sectors were seeing those implications. COVID has pushed that down even further.
“The worry is that we are probably at risk for even a contraction in the economy even this year. The general sense is that it’s going to be a pretty flat situation this year, though India is still doing slightly better than a lot of economies in the world.”
Changing consumption models
Audience consumption is altering and realigning across the media and entertainment sector due to COVID-19.
There is a sense of pent-up demand, but that recovery likely is going to be long-term, he siad. “The opening of the out-of-home entertainment is going to take a while, and it’s going to be a slow process.”
The other end of the equation, at-home entertainment, is where the increase in consumption levels is enormous — as much as two to three times from pre-COVID.
“News in particular is also seeing a significant growth in consumption,” Menon said. TV viewership, for example, of news has gone from 7% to 15% in India.
“The question really is, is this going to result in habit formation? Is this going to sustain over time once lockdown is over? The general sense is that there is definitely going to be a bump up of consumption of at-home entertainment. We’ve probably established a new normal, and I think that is a fundamental shift of consumption patterns which organisations will need to keep in mind.”
How can publishers monetise?
While consumption in some sectors may be up, the big question is how publishers can monetise that. Advertising is having a major contraction with recovery timelines being delayed.
India’s GDP contraction, unemployment, and income pressures have all impacted growth. Key advertising sectors have scaled back on spending, while supply chain issues have been disrupted.
“Quite obviously [these sectors] will come back, but the question is, how long will it take for them to come back?” Menon asked. “What this means is that Q1 obviously is wiped out in a lot of ways, but Q2 we should see pick-up happening as the economy starts opening up again. Q3, at least in our assessment, might see a very strong rebound because that’s when we should see manufacturing to be back in full swing.”
He added that IPL budgets may get realigned for the third quarter; 2021 and 2022 will likely still be feeling the effects of this crisis.
What does it mean for publishing segments?
At the broad level, Menon said TV has seen the lockdown effect with viewership and consumption growth. Other entertainment segments have had various positive and negative impacts.
- TV: Viewership, consumption, and subscription growth. Yet there is low ad spend monetisation, difficulty producing fresh content, and the growing threat from digital.
- Digital, OTT, and gaming: Multiplier effect on user base and engagement metrics, and lockdown has created new habits. Subscription pick-ups are a healthy long-term indicator, but there is also low monetisation due to the drop in ad spend.
- Print: The print news genre has seen significant pick-up, especially on digital platforms, and they have strong credibility with the public. However, distribution challenges have caused a drop in circulation, and companies are burning cash with operational spend and ad revenue drops.
- Films, events, and theme parks: Abrupt standstill that could take a while to return to normalcy.
“The problem is low monetisation, and I think they key concern for TV providers is the long-term effect of digital,” Menon said. The habit formation that’s happening over the last couple of months, the worry is will the effect of digital be sooner rather than later, and I think that is what broadcasters are trying to figure out.”
Subscription models are also seeing a pick-up in consumption, many motivated by various incentives and offers. There is still a monetisation challenge here, but Menon believes that is short-term and should pick up over time.
With print, the consumption has gone up, and hard news is particularly valued by consumers due to high credibility, Menon said. “News is an essential commodity, an essential service.”
News publishers have continued to work but are hampered by advertising losses and even subscription challenges. “While digital consumption is growing, monetisation is a challenge. And it’s a puzzle we’ve all been trying to solve for a while.”
A whole new world
“What does this mean as we go forward?” Menon asked. “I think one fundamental thing is we always believed that media as a sector is inelastic to any shocks. Whether the economy is good or bad, media consumption never seems to drop off. I think what we’re starting to see change is that it’s no longer inelastic. As we move down the income strata, clearly individuals and families will be prioritising saving over consumption, and this may mean pulling back on media and entertainment spends.”
Key themes of this new world publishers are navigating include:
- Media and entertainment sector consumption is no longer income inelastic.
- India vs. Bharat dichotomy to widen with longer recovery path for weaker economic sections.
- COVID hotspots will behave differently with longer recovery path. Fear psychosis and social gathering aversion will affect outdoor entertainment, though pent-up demand among some may provide respite. At-home entertainment will see an upswing due to habit formation.
- A digital future: India’s “digital billion” trajectory likely to accelerate due to COVID. There could be increased advertiser interest as engagement metrics settle into a new normal, and the penetration of subscription-based digital models is likely to accelerate.
There are several important imperatives media companies need to think about in this “new world.”
- Cash is king and profit is queen. With uncertainty on pandemic resolution timelines, cash conservation is a priority, and monetisation pressures may linger. This means cost management and optimisation and lowering operating leverage.
- Building supply chain resilience. An emphasis on building content banks, realignment of supply chain processes to improve turnaround speed and efficiencies, and incorporate remote working models. Social distancing implications of content creation are also a concern.
- Managing people. Communications around employment, salaries, roles, etc. as well as labour supply gaps and migration challenges. Performance monitoring and incentivisation under remote working models.
- Technology takes centre stage. Investing in business continuity plans through tech, harnessing cloud and remote working solutions, and a greater emphasis on predictive analysis.
- Business strategy in a disruptive environment. Innovations are needed in customer offerings and outreach given the shifts in consumption and pandemic restraints. This means tracking growth opportunities while balancing a conservative mindset.
“There’s a huge uncertainty around all of that,” Menon said.
The social distancing impact on being able to produce content such as video and live is something publishers need to think about until the lockdown restrictions are lifted. Publishers with deep libraries are seeing more traction, and he felt that was a real priority. Also, publishers with a deep investment in technology prior to the pandemic have been better able to navigate the disruption, he said.
“Knowing and analysing your data far more deeply in a predictive manner rather than a post facto analysis is going to be a particular element of businesses as they continue with technology.”
Menon pointed out the information he discussed was more of a short- and mid-term focus on strategy in response to COVID, but that’s not how business is successfully run. “You need to start thinking about where are your customers, what are the risks and opportunities, what are the challenges? And how do you build a strategy that will help organisations out of this current situation and come out stronger?”
A big part of that larger strategy centres around monetisation, customer acquisition, engagement, and retention. Publishers need to have a balance around profitability and cash so they don’t lose track of growth opportunities while being conservative in the short term.
One thing that COVID has shown, Menon said, is that it’s easier for larger organisations to protect their business than smaller ones. “Building scale for the long term is particularly critical.”
News as a genre
Menon discussed overall news,and the unique set of circumstances publishers are currently facing. He identified several opportunities:
- TV news viewership share doubled to around 15%, with 13% new viewers.
- Online news consumption surged across platforms, seeing a 22% increase in user base and around a 40% increase in time spent.
- There’s a higher credibility factor for traditional news brands.
He also outlined several challenges:
- Print is facing major circulation constraints due to lockdown, which is impacting readership.
- Monetisation across models is significantly impacted.
- High operational cost of news as an essential service.
- Cash flow pressures and concerns about survival, particularly for smaller organisations.
- Monetising digital continues to be a challenge.
“On the one hand, there is a significant consumption opportunity,” Menon said. “But at the same time our news is facing very significant challenges.”
What does all this mean for news organisations when it comes to operational imperatives? Menon discussed several of the most key factors.
- Managing cash flow and bottom lines.
- Strategic user engagement initiatives to sustain viewership/readership, and a focus on brand building.
- Monetising greater user and advertising interest, and taking advantage of the opportunity to increase prices post-COVID and the opportunity to challenge advertiser mindset.
- Solving the digital conundrum, with an emphasis on building an integrated traditional + digital strategy for growth.
- Inorganic opportunities to scale and partner.
Cost and cash flow are critical because news publishers tend to have a fairly high fixed cost page, therefore lowering operating leverage is essential. He admitted publishers haven’t figured out a solution to the digital conundrum of monetisation, but said this needed to be a high priority: “Think of a more integrated traditional and digital business, rather than separate.”
The digital conundrum
Menon focused on this multiple times because of its importance, he said. “I think the simple reality is news is probably the most difficult digital business to monetise — and not just in India. I think globally news organisations have struggled to find out the best way to monetise digital.”
He offered several areas to address as a strategy for the digital conundrum:
- An integrated approach to digital is needed. Traditional organisations can no longer afford to look at digital as a separate, non-priority business. On the other hand, digital cannot survive without the branding and network benefits of traditional businesses.
- An emphasis on brand and engagement versus content. Content is not a differentiator in digital, and cross-platform user engagement is key to survival.
- There’s no “one-size-fits-all” strategy. A monetisation strategy needs to be tailored to each brand, market positioning, and demographics. Digital pricing is critical, especially for print publishers. Look at potential alliances and partnerships with others.
- Focus on localisation and personalisation. Know your customer across all platforms, and use data well for engagement and monetisation.
“Whoever has been successful in terms of scale has been fundamentally successful because of the user engagement that they’ve been able to double up and the network effects they’ve been able to get out of it,” Menon said.
“We need to start thinking very aggressively in terms of pricing our news products. Most of us tend to go down the path of focusing on ad spend, but I think pricing the digital product is extremely important.”
In conclusion, Menon said the timeline for ending the lockdown and recovery is very uncertain, so flexibility and adaptability are required.