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Investing Your Company's Way Out of a Recession
PricewaterhouseCoopers



by Michael D. Kelley, Principal (michael.d.kelley@us.pwc.com)
U.S. Entertainment, Media & Communications Advisory Practice - PricewaterhouseCoopers LLP, New York

On a recent visit to New York, a colleague stayed in a hotel that not only charged for Internet access but blocked all free outside wireless connections. Since a restaurant across the street offered complimentary wireless access, he stopped by there every morning and night instead. Given what most economists consider a recession, the reaction to tap consumers for new revenues without offering value in return is a shortsighted, short-term and often a losing proposition. Giving customers what they want is more than a timeworn adage – it’s the key to surviving hard times. Opportunities abound to generate new revenue streams other than from the consumer. 

So ignore the standard reaction to squeeze or cut back. Instead, step up and seize the investment opportunity – like some investors are currently snapping up real estate. Fortunately, and fortuitously, the economic downturn is matched by an uptick in digital technology – a multiplicity of platforms offering fresh options to reach your customers. Digital and mobile distribution will jump from 5% of global entertainment and media revenues in 2007 to 24% in five years, according to PricewaterhouseCoopers’ Global Entertainment and Media Outlook: 2008-2012. To capture your share of this explosive growth, consider the following 3-step process: 
     1. Listen. Many companies that conduct focus groups often hear only what they want to hear, so dig deeper and really listen. Don’t try to change people. Learn how they use media and react to new forms of digitally-delivered advertising, then adjust your strategy and/or offerings accordingly. Also, invite other revenue providers (like your best advertisers) to participate so you can better understand consumers’ needs and leverage your content or reach.
     2. Collaborate. Content creators, telecommunications providers, tech firms and even advertisers reach hundreds of millions of customers. But no single company in any sector has a complete customer profile. Successful new enterprises work together, examining the full spectrum of consumers’ needs and preferences. Wireless Internet provider Clearwire’s agreements with Sprint, Intel, Google, Comcast, Time Warner Cable and Bright House Networks represent one example of a forward, customer-focused approach. 

Another is the recently launched Hulu.com, the joint venture between NBC Universal and News Corp, in which PwC was involved. During the development phase, Providence Equity Partners invested $100 million in Hulu. This landmark agreement presages the next wave in the equity market: established companies spinning off start-up ventures and selling off minority stakes to other players – either those in the value chain, financial entities, or the latest new investor on the block, consumer brands. Partners share risk, raise vital capital and accelerate launch beyond the time-consuming development cycles typical not just of Hollywood but of so many big conglomerates.

     3. Experiment. Shake up old business models and try new things. We all know music is one of the most threatened forms of content. But hold on, as free downloads are not only surging but will spread to other forms of content as consumers cut discretionary spending. Nokia has responded by striking a novel agreement with Sony BMG and Universal to provide a year’s worth of free music downloads to consumers who buy and use specific Nokia mobile devices.

The upside of free downloading is that people are increasingly willing to both submit personal demographic information and accept new forms of advertising. Access cuts both ways, and the boon to advertisers – and connected content providers – is limitless. Advertisers are now taking advantage of these unprecedented opportunities to target niche audiences, not just online but in live multi-media events like “American Idol’s Live! Tour 2008,” sponsored by Kellogg’s, Bravo’s “Top Chef Tour” and the Jonas Brothers’ “Burning Up Tour,” supported by Burger King.

Yet while digital technology is fast altering the entertainment and media landscape, one bedrock element remains rock solid: branding. People treat their favorite brands as friends. Savvy companies are realizing that the traditional view of loyalty programs as balance sheet liabilities is outdated. Look instead at your loyalty program as an invaluable, intangible asset that you can mine to increase reach, revenue and profitability. Don’t alienate your best customers by nickel and diming them like that hotel did.  Give them more – and strengthen their loyalty to your brand in an increasingly cluttered media marketplace.

Reexamine your current models. Use your core competency and creativity to tailor content to reach consumers in new platforms. Forge partnerships with companies whose strength in distribution complements your strength in content, or vice versa. Content is still king, only now it shares its crown with access. And as everyone knows, two heads are better than one.

Michael D. Kelley is a Principal in the U.S. Entertainment, Media & Communications Advisory Practice of PricewaterhouseCoopers LLP, New York (michael.d.kelley@us.pwc.com).

© 2008 PricewaterhouseCoopers LLP. All rights reserved. "PricewaterhouseCoopers" refers to PricewaterhouseCoopers LLP or, as the context requires, the PricewaterhouseCoopers global network or other member firms of the network, each of which is a separate and independent legal entity. Before making any decision or taking any action, you should consult a competent professional adviser.

 
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