Coronavirus and the Media Industry: Twilight Zone
By Lorenzo Zanni, Head of Insight & Analysis, IABM
Thu 12, 03 2020
The global epidemic of COVID-19, commonly known as coronavirus, is changing the world in 2020. Known to have started in China, it is rapidly spreading throughout the globe due to its highly contagious nature. It is influencing people’s lives, straining healthcare systems, rattling financial markets and paralyzing business activity. Governments are moving to mitigate the impact of this dramatic black swan on the lives of their citizens as well as on their economies. The virus is taking the world by surprise, disseminating uncertainty as many of its characteristics are still unknown to scientists.
The broadcast and media industry, like any other sector, has felt the negative impact of the virus, particularly when it comes to events, advertising revenues and media technology investment. Let’s have a look at each of these effects:
As mentioned earlier, coronavirus is an extremely contagious disease that spreads easily through physical contact. As a result of this, a string of trade shows in various geographies have been cancelled to safeguard the safety of the potential participants. Everything started with Mobile World Congress (MWC), the largest exhibition in Europe – it is held in Barcelona. After a series of participants like Facebook, Amazon, Cisco and Intel pulled out, MWC decided to cancel the show planned for the end of February. In mid-March, another large and well-known exhibition - South by Southwest (SXSW) - was cancelled after the city of Austin declared a local disaster that prevented the show from happening. MipTV, an event focused on the television industry, was also cancelled at the start of March. NAB Show was cancelled on 11 March after a series of major exhibitors pulled out of the exhibition. Other events such as Cabsat, CCBN and Prolight+Sound were rescheduled or postponed. IABM has kept track of the number of cancellations as you can see from the chart below. The impact of this virus on the events industry is unprecedented and huge as the number of cancelled exhibitions shows. As a further testament to this, Informa, the world’s largest exhibition company, has postponed or cancelled over 120 events with more than £400m revenue impact at the time of the writing. Putting aside the impact on the events industry, the media technology sector is feeling the pressure on business activity from the virus as well. Media technology is an international sector that has historically focused on high-value, C-level sales that are better conducted face-to-face. Media technology trade shows are not only an extremely valuable vehicle for closing deals but also a place for discussing future technology roadmaps with customers openly, particularly at a time when technology is changing so rapidly and unpredictably. Losing access to all of this is undeniably damaging and will prevent some deals closing as well as some important discussions taking place.
Advertising revenues are highly correlated with the performance of the economy. In other words, if macroeconomic performance is up, advertising investment made by brands is likely to go up too. If performance is down, it is likely to plummet as a result. As the world has become more globalized, countries’ macroeconomic performances have gradually grown more connected. This has made the world better and more prosperous; but has also increased its volatility and inherent risks. The better response to risk and volatility is diversification, which is why several commercial broadcasters such as ITV have tried to diversify their revenues away from advertising and towards other funding sources such as subscriptions and content licensing. However, advertising still accounts for a large share of the media industry’s revenue. The impact of coronavirus on countries’ macroeconomic performance is and will be real and extremely damaging. The virus is affecting economies in multiple ways. To put it briefly and simply, the virus affects both demand – people staying at home and consuming only necessities – and supply – through the lack of demand as well as through increased uncertainty. In the media industry, this is leading to a sharp decrease in advertising spending. In March, ITV warned investors that advertising spending would drop by 10% in April as a result of decreased spending by advertisers, specifically mentioning that the travel industry was postponing several ad campaigns that had been scheduled. Not to mention the postponed or cancelled sporting events, which drive the largest advertising investment due to their capacity to reach engaged audiences at scale. Expect this trend in advertising revenues to continue as the world grapples with the virus.
Media Technology Investment:
The two trends mentioned above along with the general climate of uncertainty and disruption will very likely negatively affect investment in media technology. Events not happening may prevent some deals from taking place as discussed earlier. Broadcasters exposed to declining advertising revenues will experience greater financial pressure, which would result in lower budgets for media technology investment as well. Moreover, the cancellation of sports events is set to greatly impair the revenues of broadcasters that deliver them to viewers. These broadcasters have spent huge sums of money on rights and technology infrastructure to enable these events – most of this investment may be already a sunk cost. This is not a good time for disruption as many media technology suppliers are in the middle of a transition to as-a-service models – see our Adapt for Change report for more info on this – which is significantly affecting their cash flows. However, from another, more positive perspective, this could be the best time for this external shock to happen as the industry is more dependent on software revenues than it has ever been before according to IABM data. In fact, the impact of the virus on demand will arguably be greater for hardware manufacturers who are seeing their supply chains being disrupted by the virus and highly rely on trade shows to drive sales. Suppliers in the middle of the transition to as-a-service models may push their next-generation software products more aggressively to compensate for the decline in legacy offerings.
These are issues that the industry needs to face in the upcoming months, as the virus continues to spread worldwide. However, this is a dynamic and resilient industry that has the strength to adapt to these changing dynamics. Below, we have included some of the positives of this crisis for the broadcast and media industry:
Temporary Move to Virtual:
People will not stop meeting other people for conducting business. The face-to-face element of interactions, particularly in an industry like media technology where high-value technology discussions are essential, will remain key. However, the whole industry needs to temporarily adapt to this moment of disruption and go virtual. Fortunately, there are a lot of conferencing tools like Zoom to conduct virtual business meetings in an effective way. People will use them if they are forced to do so by the virus. As an example, Microsoft has seen a 500% increase in Microsoft Teams meetings in China after the outbreak. Of course, it will be easier to conduct demos for software providers. For those that have the possibility to do so, it could be worth experimenting with SaaS selling models like free-trials as well – again, see our Adapt for Change report for more info on this. We do not see virtual as a substitute for trade shows but rather as a powerful complement to them. More reliance on virtual should help suppliers have more continuous relationships with their customers as well. A more proactive digital presence by suppliers through tools like webinars and customer surveys should at least partly compensate for the lost time at events. As mentioned earlier, the industry is more reliant on software than it has ever been, which makes this a good time for making a temporary move to virtual.
Greater Demand for Entertainment:
Earlier, we have talked about how advertising revenues will likely be hit by the macroeconomic crisis created by the virus. This does not really apply to subscriptions. Subscriptions are a more stable and predictable revenue source which comes directly from consumers. Yes, consumers will be hit by the decline in business activity but expect governments to intervene to mitigate the socio-economic fallout of this situation. Italy provides a good example of this. The Italian government has launched an initiative of “digital solidarity” to incentivize cultural, educational and entertainment businesses to provide their services free of charge during this critical period. Companies like Amazon have adhered to this initiative. Also, expect consumers to drastically shift their consumption preferences during this period and view digital entertainment products more as necessities as they increasingly spend more time at home. This does not apply to all types of subscriptions but mostly on those that rely on scripted content – as noted earlier, sports may be strongly hit by the cancellation of events. If we look at the revenue sources of media technology suppliers, subscriptions are also more likely not to be hit by the more uncertain economic environment compared to large license fees and deals.
Virtual Media Technology Trends:
Coming back to media technology investment, although uncertainty will impair spending as in most other sectors, some broadcast and media organizations may be forced to take a more digital approach to cope with the increased risk of physical contact. We have often highlighted how media technology buyers have been inclined to take a “wait-and-see” approach when investing in new technologies such as cloud and IP. In some sectors, there has been some aversion to the risk of investing in new technologies due to their potential impact on current operations. Risk preferences may shift radically as a result of this external shock. Technologies such as cloud are key to successful direct-to-consumer models and enable workflows to be conducted remotely. As direct-to-consumer benefits from the greater demand for entertainment and physical contacts are minimized worldwide, more investment could go into virtualizing operations. This transition is not going to happen overnight as it is a complex one. However, the current crisis may push some technology buyers to accelerate their move to safeguard their employees and effectively continue their businesses.
The coronavirus crisis is going to change business in 2020. The broadcast and media industry will be affected by the shock created by this but could take some actions to adapt to it. There is no way to be sure of the real effects of this crisis but in a time of such uncertainty it is worth looking at the glass half full and understand how we can all make the most out of the current situation.
The IABM Business Intelligence team would like to take this opportunity to wish everyone good health – and a speedy recovery if you are unfortunate enough to be affected by the coronavirus.
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