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Supply Shock

How COVID-19 Will Remake the Media and Entertainment Industry

I remember hearing my parents talk about the gasoline shortages of the 1970s. They’d tell us stories of long queues and of strangers syphoning the gas in people’s cars while they slept. They said road trips were out of the question; you just couldn’t risk going too far. Gas stations were running out of gasoline, and you could get stuck on the road. I couldn’t imagine the world they were describing, but I could feel their anxiety.

They were anxious because everything had changed suddenly and unexpectedly, and it never really went back to what it was like before the crisis. It all changed because of a supply shock — an unexpected event that suddenly increases or decreases the supply of a commodity or service (or all commodities and services). An unexpected event like an oil disruption or, in our case, a global pandemic.

The oil embargo of 1973 caused the supply shock — and eventually led to a recession.

Specifically, that oil embargo caused a negative supply shock — when decreased output causes higher prices. Add to that a weak economy, and the vicious spiral that came next makes sense. Increased production costs led to increased prices and decreased demand. Eventually, companies slowed production and laid off workers. In the end, the crisis resulted in a recession that included both high unemployment rates and high prices. And it’s happening again right now.

COVID-19 is causing the current supply shock — and it’s hurting the entertainment industry.

For the first time in almost 50 years, the real economy is experiencing a negative supply shock, and this time around, COVID-19 is the cause.

As the spreading pandemic keeps people indoors because they’re either sick, afraid, or being forced to shelter in place by government order, media and entertainment players are facing threats and opportunities that will remake the category landscape. To survive and thrive during and after this crisis, companies in the space will have to have a better understanding of the following:

  • What do audiences want?
  • What do audiences need?
  • How has their behaviour changed?
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You can’t film a movie on Zoom.

Although the crisis is playing out in unique ways, businesses in the entertainment and media industry are not immune to the influence of the pandemic and the rapid change it’s driving.

Executives have had to adjust business operations, as industry workers are no longer able to safely go to the office, studio, set or arena — that’s where the supply shock comes in again.

Without actors, directors, sound engineers, camera operators, etc., you can’t make new productions. We’re already seeing delays for movies, shows and series, along with the cancellation and postponement of competitions and events like Eurovision, the Premier League and the 2020 Summer Olympics.

To complicate things, some media and entertainment companies are also facing a demand shock — a sudden, unexpected decrease in demand — as ticket sales have gone off a cliff and brand partners move to decrease expenses and cut advertising spend.

But content is still king. And even more so now.

There’s another side to this story, though, for media and entertainment companies. People have more leisure time on their hands but fewer options competing for their attention. It’s created a void, and audience demand for in-home entertainment is exploding. Internet use has increased by 70% and streaming by at least 12%. Linear television is growing across markets. In the UK, viewing is up 20% YoY since the lockdown began on 24th March. In Spain, it’s up by 35%.

This sudden increase in demand could help industry players overcome the threats presented by the COVID-19 crisis, but to achieve this, they first have to attract larger audiences and then find new ways to monetise their engagement. Given pre-existing market dynamics and the difficulties of holding audience attention in a crowded marketplace, this won’t be easy to do.

Over the last few years, the media and entertainment industry has been in a never-ending spiral of disruption. During this time, we’ve seen:

To make matters worse, these trends overlapped with a shift in the competitive landscape. Companies in the industry suddenly found themselves competing against non-traditional players like telcos, social media platforms, and tech giants (e.g., Amazon, Apple, and Google). The new entrants to the industry were banking on the idea that content was king and could drive customer acquisition, stickiness, and recurring revenues.

To attract audiences, new and old companies in the industry participated in content arms races. And with high-quality content and choice in abundance, audiences began to change their behaviours yet again. In this new world, most players in the media and entertainment industry have found it difficult to retain audiences, experiencing seasonal and premeditated churn. The problem is that content became the only way these companies could differentiate their offerings, and audiences have learned to follow the content.

The interaction between the disruption of the media and entertainment industry and the COVID-19 crisis will likely deepen the potential impact of both. The delays, postponements, and cancellations of the crisis have ground the new content supply chain to a near halt.

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A supply shock is an existential threat to an industry where content is king.

We’re already seeing the effects of this in the sports category, as fans try to fill the void left by professional leagues gone on hiatus. To get their fix of competitive content, fans have turned to live sports substitutes like watching classic matches, original sports series, and esports.

While audiences in most other categories may not be scrambling to find substitutes yet, it’s just a matter of time before they do. When the crisis hit and people suddenly found themselves locked indoors, there was enough new content that was ready for release to satiate audience appetites. Eventually, though, it will all be consumed, and audiences will no longer have a reason to pay for as many subscriptions as they did before the crisis (a trend we’re already seeing in the sports category).

How do media and entertainment companies compete during a new content drought? Are there opportunities beyond content they should be considering?

A human-centric approach is key to relevancy and survival.

To defend against the threats the industry is facing, media and entertainment companies will have to gain a better understanding of the people they serve. Some companies have been doing a version of this for years. Netflix, for example, has leveraged what it knows about its customers’ preferences and behaviours to create new series and improve content distribution. By taking a human-centric approach, they can identify and unlock hidden value, developing solutions that address unmet needs and draft off of emerging behaviours.

Social distancing and shelter in place policies are hard for people. They’re scared, lonely, and bored, and many are turning to content to help fill the void. In times like these, distractions become an essential part of a routine that enables people to maintain their mental health and wellness. It’s no surprise, then, that in-home content consumption has spiked.

In-home content consumption has not only become a substitute for other forms of entertainment and leisure — like live events, museums and travel — but has also become a conduit for socialising with people inside and outside the home. People are joining friends online for virtual movie nights and game nights, and they’re even exploring virtual museums and attending virtual concerts together. Looking at behaviours like these, entertainment and media companies can enable new forms of connection.

By understanding the mental state and needs of their audience members through the behaviours people are already demonstrating, media and entertainment companies can play a bigger role than content creation and distribution. That doesn’t mean these companies should stop creating and distributing content. In fact, they should lean into these capabilities. Companies in adjacent categories are already doing this. Daybreaker, for example, is live streaming its morning raves with over 2,000 people from around the world joining the party for $15 per ticket. By considering both their core competencies and evolving consumer behaviours, media and entertainment companies can develop new uses for the content and capabilities they already have.

Author: Stalyn Almanzar, Associate Director, Business Transformation, R/GA London, is an entrepreneurial problem-solver, pairing business and design tools to develop breakthrough innovations in the form of new business models, products and customer experiences across digital and physical touch points.

Business Transformation is R/GA’s consulting practice, designed to help the C-suite innovate. We answer clients’ most pressing innovation challenges by creating transformation imperatives which fuse human-centered problem solving with business rigor to identify new opportunities and bring them to market — fast.

For more information, please contact David Toma, Executive Director EMEA, Business Transformation, R/GA.

Vision & Analysis Article

We hone in on specific sector problems, identifying the key themes and business imperatives shaping companies — and track the ways in which the fluctuating global economy feeds through to that community. With commentary from our subject matter experts, we surface high impact ideas and human-centered innovations that can lead to network effects for the industry-at-large.

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