The following is a contributed piece from Stephen Blume, vice president of finance at Symphony MediaAI. Opinions expressed are author's own.
Historically, media and entertainment CFOs were seen as leaders who managed spending, always looking for ways to cut overhead. But those views are becoming obsolete.
Media and entertainment CFOs today are preparing for tectonic shifts in consumption as the pandemic winds down.
The pandemic accelerated trends toward convenient, in-home streaming services that delivered a variety of choices. Many media and entertainment companies acquired new customers without much cost. But now, retaining those viewers’ subscriptions will require fresh content and affordable pricing options.
Media and entertainment companies also need to make sure they’re defining their streaming strategies. Not all of them are going to have the same reach as Netflix. Serving niches and developing unique offerings will be important to remain competitive in the space.
These shifts are why six out of ten CFOs report that the demands of their role have increased since the onset of the pandemic, making real-time forecasting and predictive analytical capabilities a necessity.
Technology as differentiator
The CFO’s position in media and entertainment has grown increasingly complex. Ad-supported video on demand (AVOD) and other direct-to-consumer models have complicated revenue management and data analysis workflows built for traditional licensing and distribution revenue streams. “Binge and churn” subscribers and overall customer churn have shifted organizational focus to KPIs like customer lifetime value (CLV).
The good news is that revenues are not likely to drop as this complex ecosystem reacts to the end of the pandemic. However, they are going to grow at a much slower pace since streamers pulled in so many subscribers last year. That unfortunately also means that customer acquisition costs are likely to increase as media and entertainment companies fight for their share of the market through promotions and pricing or through mergers and acquisitions, with the latter of which we’ve already seen start with the deals between Amazon/MGM and Warner Bros./Discovery.
This increasingly complex, competitive and data-driven media and entertainment industry demands that CFOs assume more strategic roles in their companies. They can – and should – develop new skills to deliver strategic value in a landscape that’s very different than it was even five years ago. Increasingly, that involves a commitment to emerging technology.
According to Ernst & Young, 58 percent of media and entertainment executives are prioritizing process automation to optimize “low-value but necessary activities in labor-intensive corporate functions.” Gartner further reported that 75 percent of CFOs expect to spend more time and effort implementing artificial intelligence (AI) technology in 2021 than previous years.
Much of the media and entertainment industry has already migrated their infrastructures to the cloud and integrated advanced analytical capabilities into their products. Think of streaming platforms, content algorithms and subscriber behavioral tracking. By leveraging those same capabilities, CFOs can accelerate financial intelligence. Those with the aptitude to navigate datasets for new perspectives and insights can identify revenue opportunities, risks, and operational efficiencies that might not otherwise be visible.
Finance teams can leverage AI to reduce operational overhead, scale data analysis, and improve decision quality with continuously available intelligence. AI-powered insight also puts finance teams in a position to deliver value to stakeholder functions like marketing, distribution, product development and customer experience.
According to IBM, CFOs at the highest-performing organizations are better at utilizing AI and analytics to perform tasks like profit analysis, planning, and reporting. Providing real-time, predictive, and highly accurate data significantly increases the CFO’s value when it comes to informing strategic business decisions.
Disruption brings opportunity
According to a Financial Management Magazine survey, CFOs are pivoting from stabilizing companies during the coronavirus pandemic to reconstructing revenue streams. For many companies, tech and data investment are proving indispensable as they rebound; replacing legacy systems is reportedly the most common IT priority among M&E executives in 2021.
Subscriptions shifted from a primary source of revenue to one of many potential moneymakers. AVOD is projected to grow at an 11 percent CAGR by 2025. Streaming platforms are competing with traditional studios, claiming three of the eight pictures nominated for best films in the 2021 Academy Awards.
At the same time, new challenges for media and entertainment CFOs related to customer retention and expansion, contractual and legal matters and distributor and licensing fees have also arisen. The pandemic accelerated the social and economic trends fostering these changes.
A Conviva study found that Americans spent 44 percent more time watching streaming content in Q4 2020 compared to a year earlier. And at the end of 2020 Netflix noted that of its more than 200 million subscribers globally, 37 million had joined in 2020 – including more than 8.5 million new viewers in the fourth quarter alone. More recently, however, Netflix reported weaker-than-expected revenue growth for the first quarter of 2021 due to lockdowns easing and stiffer competition in the streaming space. The numbers show that even the most successful media companies need every tool possible to keep fickle post-pandemic customers.
Data-driven insights enable CFOs and their companies to determine the content that receives the most viewers and then analyze those viewers in precise ways to determine, for instance, how many viewers prefer which genres and leading actors and other analytics. Armed with AI to sort through mounds of data and generate those insights, CFOs can take control of discussions regarding actor payments and royalties, licensing distribution, and advertiser fees. Taken a step further, these insights will make it easier for CFOs to track emerging growth indicators. They can, and should, be paying attention to not just churn rates, but also customer lifetime value, average revenue per user, average revenue per content and total hours spent on their service offering.
Time to act
Industry conditions have created immense opportunity for CFOs who can leverage their data to produce forward-looking insights. Bringing the same analytical capabilities to media and entertainment companies’ finance functions will speed time-to-insight and ensure the revenue streams across the entire business – marketing, content creation, product development and more – are aligned. It also creates an opportunity to find opportunities for growth.
CFOs still need to fulfill the role of allocating company resources, but now they can drive more meaningful investment discussions. They simply need to adopt the right technology to get them where the insight goes.