CFOs See Digital Driving Growth

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New York — Nearly threequarters
of chief financial officers at top media companies
said that despite current profit
pressures, digital media and
mobile offerings will drive future
growth in the entertainment
industry.

According to an Ernst &
Young study to be released on
June 25 — Poised for Digital
Growth: Preserving Profitability
in Today’s Digital World — 73%
of the CFOs at the top 75 media
companies said that despite
falling prices for content,
there are opportunities in new
products and bundling existing
services.

Ernst & Young estimated that
unit prices for online music and
video will fall about 25% between
2009 and 2012. That is on
the heels of a 55% decrease in
music prices and a 12% decline
in video prices between 2006
and 2009. Total home video
and music end-user spending
is expected to total $28.5 billion
in 2010, a 21.7% decline from
$36.4 billion in 2006.

“Revenues are dropping due
to the unbundling of media and
the reduction of per unit pricing,
challenging CFOs to identify
innovative ways to reach
their financial objectives,” Ernst
& Young Global Media & Entertainment
Leader John Nendick
said in a statement. “However,
as the demand for digitally delivered
entertainment continues
to increase significantly,
CFOs feel optimistic about revenue
potential.”

As prices decline, consumption
is rising. The number of
U.S. households with both
broadband connectivity and at
least one 3G mobile device has
quadrupled during the past five
years, according to the report.
Worldwide, the rise is more
than 600% during the same
time frame. Global penetration
of households with broadband
is expected to reach 27% by the
end of 2010, and 3G penetration
should reach 55% by the
end of the year.

Ernst & Young estimates the
number of digital media users
will rise to about 2.2 billion by
2011, more than double that of
2007.

“CFOs see growth in new distribution
channels, products
and services,” said Howard Bass,
Ernst & Young senior partner,
Global Media & Entertainment
Advisory Services. “Publishers
and similar content companies
are embracing the fact there are
almost 2 billion digital media
users to leverage their content
and core products and services
to the Web, mobile devices and
electronic gaming globally.”

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