Research

Study: Media CFOs Eye Digital Deals

Ernst & Young Report Shows Fears About Economy Have Waned 8/11/2014 11:00 AM Eastern
TakeAway

Acording to Ernst & Young, media chief financial officers, encouraged by a growing economy, are shifting their priorities away from cost-cutting measures and more toward growth by acquisition in the digital space.

Despite Time Warner's high profile rejection of 21st Century Fox's recent takeover advances, major media companies are shifting their focus from cost cutting to growth initiatives in the digital space, including mergers and acquisitions, according to a recent report.

 

According to a survey of chief financial officers at 50 top media companies like Time Warner, Univision and Fox by accounting giant Ernst & Young -- It’s Showtime! Digital drives the agenda, data delivers the insights -- CFOs are no longer worried about the global recession and are well-positioned to grow their companies through capitalizing on digital opportunities and through investments in technology, digital talent and infrastructure, as well as acquisitions and other deals. Only 26% of senior executives surveyed said global economic uncertainty would be a challenge during the next three years, compared to 62% two years ago, showing a dramatic decrease in concern over the economy.

 

“The CFOs told us in no uncertain terms that the economy is no longer an obstacle and now is the time for media and entertainment companies to invest in growth and focus on building their businesses," said Ernst & Young Global Media & Entertainment Leader John Nendick in a statement. "The industry is now poised to deliver on the promises it has been making the past several years but has been unable to achieve because of the economy. The CFOs recognize the recession is over and it’s showtime.”

 

But despite renewed optimism about the overall economy, the CFO's still see challenges ahead, according to the report. Among the greatest obstacles over the next three years: technology and platform disintermediation (64%), and an inability to persuade consumers to pay fair value for content (58%). Still others identified structural and regulatory uncertainty (42%) and reductions/reallocations of marketing budgets (26%) as major challenges for the future.

 

CFOs also are are placing significant emphasis on data to improve decision-making, systems and processes -- 59% of CFOs feel their companies successfully use data to respond to and upsell existing customers, but  only 33% said their companies do a good job of using data to generate new business. And while only 39% of CFOs believe their organization is good at sharing data, 58% indicated that sharing data between business units would improve their organization’s overall effectiveness.

 

Other key findings in the study include:

 

  • About 74% said their top priorities are the evolution of digital and online distribution, followed by cost reduction and business efficiencies (34%), creatively differentiating content (32%), extending brands globally (32%) and growth in new market segments (30%)
  • Emerging markets are no longer the top geographic focus for growth; 72% of M&E companies indicated their focus is on existing/core markets.
  • About 72% said interactive media businesses were the best positioned to evolve and thrive in the future, followed by cable television networks and channels (42%), conglomerates (36%), film and television production (30%) and content and information services (30%).
  • The top actions identified to make companies more effective are attracting/retaining talent (58%), improved IT capabilities (42%), deeper understanding of market trends, customers and competitors (38%) and getting new products to market faster (30%).
  • CFOs prefer deals that give them either complete or majority ownership (61%) instead of making investments or having a minority interest (34%).
  • The average deal value during the first half of 2014 was $939 million, compared with $220 million in 2013 and $157 million in 2012, with cable operators driving the rise.

 

“Recruiting and retaining talent is a significant concern for almost every CFO we surveyed, said EY’s Global Media & Entertainment Advisory Services Leader Howard Bass on a statement. "All agreed that talent, as well as establishing better collaboration between teams and different business units, are the most important factors for efficiently running their companies. The right talent means finding people who have the technical skills but are also digital savvy.”

 

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