MediaTech Radar is a bi-weekly newsletter put together by IABM’s Head of Knowledge Lorenzo Zanni. It focuses on a spotlight topic in MediaTech and reflects on a series of past, present, and future business developments in the industry. In this edition, our spotlight topic is Supply Chain Disruption.
MediaTech Spotlight: Supply Chain Disruption
A spotlight topic in MediaTech…
- We recently published the results of the second iteration of our Supply Chain Disruption poll. The poll aimed to reassess the impact of the shortage of hardware components on the media tech industry. We received a total of 97 responses, 61% of which were completes.
- According to the poll, the percentage of media tech businesses saying that they are having moderate or severe issues with sourcing hardware components was 97%, up from 85% in April 2021. Worryingly though, most of that is fully imputable to the percentage of businesses saying that they are having severe issues, which increased from 40% to 63%
- In the new iteration, we measured the impact of this disruption on media tech businesses’ lead times, costs, and pricing. On average, lead times in the industry have increased by 74.1%, costs by 44.2% and pricing by 26.5%.
- Most media businesses have relied on stockpiling (65%) or redesigning products (63%) to mitigate supply chain bottlenecks.
- Most worryingly, 86% of media tech businesses we surveyed reported that current supply chain bottlenecks will have a moderate or severe impact on their financial sustainability if they persist for another 12 months.
- These results are consistent with the Harmonic case study we reported in our previous newsletter. For those of you that missed that, Harmonic CFO Sanjay Kalra said during the company’s FY 2021 earnings call: “Extraordinary supply chain costs related to the pandemic continued to depress margins in 2021 relative to prior year, with a sequential decline primarily reflecting high supply chain costs in Q4.” And: “Where possible, we continue to stock up on the inventory at higher-than-normal levels in anticipation of continuing supply chain challenges.” These statements are consistent with a deterioration in supply chain disruption and with stockpiling being one of the primary strategies to mitigate that.
- To add more evidence to this, Evertz’s CFO Douglas Moore talked about supply chain constraints during the company’s Q2 2022 earnings call in December 2021: “I would say it is exceedingly challenging, so it is getting more difficult as time passes on. Regarding procurement lead times and, in some cases, component costs, we have stockpiled quite a bit. If you look at our inventory, our raw materials are up quite substantially as we mitigate those risks associated with the challenges presented before us.”
- While stockpiling may be a viable strategy for large vendors such as those cited above, it may be more difficult for smaller media tech suppliers to adopt this procurement strategy. This made us think: will supply chain disruption be driving increasing consolidation in the media tech industry (particularly as, according to our data, it will jeopardize financial sustainability if supply chain issues persist)? Feel free to share your thoughts via email.
MediaTech Watchlist: Disney, Interactivity, Localization and more…
A watchlist of selected past, present and future business developments in MediaTech.
- Disney announced its Q1 2022 results on 9 February. The company beat revenue estimates and its stock rose by about 8% in after-hours trading. Analysts had started suspecting that the streaming market was approaching maturity, particularly after Netflix’s slowing growth disappointed investors. Total subscribers at Disney reached 129.8m, above expectations of 125m. However, losses in its Direct-to-Consumer (DTC) division rose by 27% compared to Q1 2021 to $593m.
- Back in 2021, Disney published its 10K FY 2021 report. The report showed that “Programming and production costs” in its Linear Networks division grew by 10% while the same item in its DTC division rose by 31%. Disney said that higher costs in its legacy division were driven by factors such as sports rights and the timing of sports events in 2021 (making up most of this expense) as well as “an increase in the average cost of programming reflecting incremental costs of health and safety measures.” In DTC, higher costs in Disney+ were instead driven by “the ongoing expansion including launches in additional markets.” This cost analysis shows that Disney’s investment in 2021 prioritized DTC (as expected), as its outlay in streaming was slightly over three times its expenses in linear. Legacy investment grew due to extraordinary circumstances though arguably Disney remains focused on streamlining it as much as it can, as previously reported by IABM research.
- By the way, Disney used the Oscar nominations in February as an excuse to test live streaming capabilities on Disney+. Also, it appointed Mike White to lead a new division focused on leveraging the metaverse for storytelling.
- A survey published by Hub Entertainment Research in February shows that time spent watching TV and movies has continued to decline as consumers spend more time on other activities such as gaming – though TV and movies still account for the single largest slice of the viewing pie (48%). Unsurprisingly, these results vary significantly by age group. Respondents aged 13 to 24 spend 57% across gaming, online videos and social (and only 25% on TV and movies). This makes sense and should be read in conjunction with the interactivity initiatives rolled out by media businesses in 2021, particularly in the sports sector. In the table below, we have tried to list some of these initiatives. If you are interested in why these businesses are investing in interactivity, have a look at our briefing on this.
- ViacomCBS unveiled its rebrand to Paramount in mid-February. CEO Bob Bakish said: “ViacomCBS screams that we’re two companies, and we’re not, we’re one company.”
- A few weeks ago, I wanted to watch a Spanish-language movie with Spanish audio and subtitles. The niche OTT platform I was using for accessing the film did not provide the option for Spanish subtitles, hence I wasn’t able to do so. While I wasn’t happy with this initially, I then remembered that localization is hard (and expensive, as Disney’s case study above illustrates). IABM covered this in a briefing last year focused on outsourcing globalization. Reading this article on our Knowledge Hub made me think about this topic again. The article describes the collaboration between Limecraft and ITV on streamlining subtitling production. The manual process for subtitling 1 hour of content used to take ITV about 8 hours. ITV and Limecraft streamlined this to bring the time taken to subtitle 1 hour of content down to half of that (in some cases) through the assistance of AI/ML. This highlights that localization is still hard (it cannot be fully outsourced to a machine), but it can be made more efficient with the help of algorithms – with humans editing their output.
- I’ll be visiting Mobile World Congress (MWC) 2022 on 1 March. If any of you are there and would like to set up a meeting about IABM, feel free to get in touch. I’m looking forward to coming back to a trade show after so much time.
Thank you for reading this newsletter. If there are topics you would like me to cover, or have information/ideas you’d like to share, please get in touch with me.
Lorenzo Zanni
Head of Knowledge
IABM
