FORWARD TO normal
strategy+business|Winter 2020
Entertainment and media companies are building business models that are resilient to the enduring changes in consumer behavior ushered in by COVID-19.
DAN BUNYAN and VIKRAM DHALIWAL

In recent years, the global entertainment and media (E&M) industry had experienced steady growth amid a series of disruptions. Between 2015 and 2019, overall spending on E&M grew at a 5.8 percent compound annual growth rate (CAGR), according to the new PwC Global Entertainment & Media Outlook. With each passing year, consumers, especially those in emerging markets, spent more, propelling impressive investment in burgeoning new segments such as virtual reality, podcasts, and esports. At the same time, ongoing structural shifts spurred digital platforms and distribution models to garner a larger share of overall revenues.

Then came 2020.

A uniquely disruptive phenomenon, COVID-19 hit the E&M industry particularly hard. As the global economy shrinks for the first time since 2009, the Outlook forecasts that the US$2.1 trillion global industry will contract in 2020 by 5.6 percent. The Outlook offers reason for hope, however. Spending is anticipated to bounce back smartly in 2021, and the industry will post a 2.8 percent CAGR through 2024, roughly equivalent to the long-term trend (see chart, next page). But it’s likely to be a K-shaped recovery, in which some sectors rise and others fall. As consumers and businesses adapt in parallel, the industry is being reshaped before our eyes.

Whether as the result of a vaccine or effective therapeutics and testing, the world will learn to live with coronavirus, learn to suppress it more effectively or learn to manage the health of those who become infected. But the entertainment and media industry won’t revert to a world that looks anything like 2019 even when the pandemic is past — for two main reasons. First, the industry is in a constant state of evolution, and trends tend to accelerate rather than slow down. Second, and more important, the crisis has wrought changes to consumer behavior that are likely to stick. In many instances, crises pull the future forward, compressing a few years of projected growth (or shrinkage) into a few months. Here’s one example. As recently as 2015, global cinema box office revenue was three times that of the SVOD (subscription video on demand) sector. In 2019, the two sectors reported equivalent sales. But by 2024, we project SVOD revenue will be twice the size of cinema box office revenue.

In other instances, crises can sap the momentum from trends that seem powerful. Some sectors will notch gains as they claw their way back to where they were before COVID-19. But crises can also create entirely new opportunities or suddenly make business models that lacked traction before the crisis seem more compelling.

Rather than going back to normal, we may be going forward to normal. And that normal will be a state in which recent changes in consumer behavior become entrenched and gain in strength. Consumers of E&M products and services will be more likely to be at home, will engage in different ways, and will expect and demand more of the user experience. The entertainment and media businesses that thrive will be the ones that are resilient to those changes and that have the agility and capabilities to capitalize on emerging opportunities and markets. It used to be conventional wisdom in the E&M industry that proprietary content or distribution channels were the main drivers of the ability to win in any given market. Both still matter immensely. But in 2020 and beyond, companies must have the capacity to meet consumers where they are, and to match up their offerings with the personal and emotional consumer needs that are most salient. Now the winning formula is content combined with distribution, trustworthiness, the ability to offer new experiences, and the data muscle to manage analytics and recommendation engines.

Lasting changes

It is always dangerous to make predictions, especially when we are still learning about the full impact of COVID-19. But the experience of the first several months of lockdowns leads us to believe the consumer changes brought on by the pandemic, which can be grouped along three main dimensions, will endure. Each of these dimensions has legs going forward, regardless of how the COVID-19 response develops, because of the way it speaks to powerful human needs and wants. And each has an important influence on the growth trajectory of E&M sectors (see chart below).

• How people live. People are spending much more time at home — whether they are at work or at leisure. As the boundaries of the world around consumers continue to shrink, people will invest more closer to home, and they will invest more in themselves. Some of this behavioral change has been thrust upon consumers by the pandemic. At many of the largest employers, offices aren’t slated to open until well into 2021. Large public gatherings are not in the offing. And we won’t see a rapid snapback. The more people stay and work close to home, the more services and products adapt to the new situation, and the more compelling those offerings become. Even in the absence of concerns over health, people will access more goods, services, and experiences at home.

• How people discover and engage at home. Craving large amounts of content — for excitement, diversion, information, or immersion — and facing a wider choice than ever, consumers want to navigate and consume content seamlessly. The challenge of creating that experience is growing more acute. Amid the proliferation of “all-you-can-eat” streaming models, people are often overwhelmed by choice. Companies will have to become more adept at developing recommendation engines fueled by artificial and human intelligence. The nature of engagement will also change, as consumers invest more in personal growth and well-being delivered to the home. At root, consumers spend money in order to meet their needs and wants. Much of that spending was previously directed externally: on clothes, travel, and out-of-home dining and entertainment. Unable to get away, people are now more likely to invest in engagement. Beyond entertainment, they will seek experiences that offer connection, self-care, and self-improvement.

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