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1 In our analysis the terms “market expectations” and “market optimism” are used interchangeably.
They are represented by changes in the total future value of the broadcasters in our peer set.
See enterprise value call-out box for an explanation of our future value calculation
2 Between August 4, 2015, to February 10, 2016, the value of the Dow Jones Media Index fell
from $811 billion to $640 billion
2 | The Future of Broadcasting V
In this year’s edition we have identified four key industry themes.
B R O A D C A S T E R S A N A LY Z E D I N O U R P O V CO M P O N E N T S O F O U R P R O P R I E TA R Y F I N A N C I A L A N A LY S I S
Value Performance
EV = CV
Value + FV
Performance
Enterprise Value = Current Value + Future Value
EV = CV + FV
Enterprise Value is the sum of Current Value is the value of Future Value represents the
Enterprise Value = Current
market capitalization plus net Value + Future
the firm, or groupValue
of firms, today. market’s expectation of a firm
debt—intuitively, it’s what you It is calculated by dividing profit- (or group of firms) to grow above
Enterprise
would pay ifValue is thetosum
you were of
purchase Current Value or
ability (NOPAT is the
Netvalue of
Operating Future
current Value represents the
operations.
market
a listed capitalization
company. It is plus net
comprised Profit After Tax) by cost of capital
debt—intuitively,
of two components: it’s what you (WACC or Weighted Average Cost -
would pay if you were to purchase ability (NOPAT
of Capital). or Net Operating current operations.
a listed company. It is comprised
of two components: (WACC or Weighted Average Cost
of Capital).
5 Our peer set has remained broadly the same over the last 5 years with the exception of changes that
were necessary due to M&A activity
The Future of Broadcasting V | 5
SECTION 1
SECTION 1 |
| Value
ValuePerformance—SVA
Performance—SVAInsight
Insight
The media industry has outperformed other industry sectors in terms of returns
The media industry
generated has outperformed
for shareholders over the other
past 5industry sectors
years (see in terms
Figure 1) withofbroadcasting
returns
generated for shareholders over the past 5 years (see Figure 1) with broadcasting
specifically seeing an increase in future value significantly above other industry
specifically seeing an increase in future value significantly above other industry
segments (see Figure 2).
segments (see Figure 2).
Banking
Banking 1.59 1.59
OilGasOilGas
1.39 1.39
1.0
1.0
2010
2010 2011
2011 2012
2012 2013
2013 20142014 2015 2015
FIGURE 22 || Future
FIGURE Futurevalue
valueasasaapercentage
percentageofofenterprise value
enterprise 2012
value vs 2015
2012 vs 2015
6 As measured by Compound Annual Growth (CAGR), which is used throughout this analysis to represent
annual growth rates
7 Over the past six months, the Pay TV industry has lost about 500,000 subscribers, according to analyst
Craig Moffett. While small in comparison to the total number of subscribers (100 million), this loss still
marks one of the worst periods in cable history. Until 2010 the industry had never experienced a quarter
of net subscriber losses
8 As represented by our broadcasting peer set.
9 Current revenue and margin growth is based on average year on year growth from 2012-2015
Netflix
Advertising DirecTV Content-led
Peers Peers
TFI
ITV
RTL
Antenna3
Median
1.27x
Nippon ProSieben
Cable Televisa
MediaSet CBS
Disney
Comcast
Liberty Global
Operating margin
8 | The Future of Broadcasting V Accenture Video Solution 3
Fostering a culture of creative entrepreneurship is key—and success depends
on a careful cultural balance of creativity, with focused business skills to maintain
commercial viability.
Some broadcasters in the peer set have FIGURE 7 | ROIC for peers with growing content revenues
traditionally produced content, but others Peers with
(>20% of growing contentinrevenues
total revenue 2014) (>20% of total revenue in 2014)
have developed content strategies more
recently. ITV, for example, has made a ITV
substantial investment in original content,
creating a B2B “movie-studio” model CBS
2014
(see case study on page 10). This move
RTL
has helped increase the contribution
of ITV’s international business, as a Disney
proportion of total revenue, by 19 percent 0 10 20 30 40 50 60 70 80 90 100
over the last five years.
Peers adopting a content strategy — Group 3 outperformed others
Adopting a content strategy has been
popular in the US for many years, where GROUP 1 GROUP 2 GROUP 3
cable networks completely transformed FY 12/2012 FY 12/2012 FY 12/2012
their business by moving into content 13.3% 21.1% 16.4%
production and licensing. Recently, this FY 12/2013 FY 12/2013 FY 12/2013
approach has gained traction in Europe, 13.7% 21.0% 20.8%
where it is considered a less risky option TTM 03/2015 TTM 03/2015 TTM 03/2015
15.1% 19.3% 21.4%
than digital for generating revenue. A
broadcaster setting up a digital service, Notes: Group 1: TF1, Nippon TV, Televisia, Antenna 3, ProSieben; Group 2: Comcast, Canal+,
such as an OTT platform, has no guarantee BSkyB, DirecTV, Mediaset, Netflix. Source: Bloomberg, Accenture analysis.
that it will attract sufficient viewers to
pay off the sizeable up-front investment financial rewards, these rewards are not commercial subsidiary of the BBC, the
in technology that is needed. A broad- without significant investment. In-house division aims to produce content for
caster moving into content production, production capabilities require the very third party media companies (as well
however, will spread investment across DNA of an organization to change. A shift as continuing to serve the BBC itself),
different strands of content and have to content production requires companies and represents a strategic response
numerous options of broadcasters and to embrace risk taking, experimentation to significant shifts in the content
platforms as prospective buyers. As we and (some) failure. production market in recent years.
observed in our Pulse of Media 2015
report, broadcasters are enjoying a Fostering a culture of creative entrepre- Reinvigorated investment in content has
content “renaissance.” neurship is key—and success depends also led to the creation of new content
on a careful cultural balance of creativity, kingdoms beyond Hollywood. Increasingly
Our research shows that content revenues with focused business skills to maintain Brazil and India are becoming content
now account for more than 20% of commercial viability. Companies must hubs, with a wealth of content being
total revenues for those peers deploying establish an operating model which created for consumption locally and
content led strategies, and that content- develops this culture, and within it the around the world. Globo and Televisa are
led broadcasters10 achieved higher levels right talent, skills and processes to obtain good examples of broadcasters who are
of return on invested capital (ROIC) than a competitive edge in content-making. focused on original content production
those who relied on advertising revenues Although already established, the BBC and that have emerged as “export giants.”
alone (see Figure 7). is one such organization revisiting its These broadcasters are emerging as real
approach to in-house production, through challengers to the Netflix expansion
While our analysis has shown that a the creation of a new division, BBC strategy.
shift to content production can provide Studios. Operating as a wholly-owned
10 We define content-led broadcasters as those who earn 20% or more of their revenue from content
production and licensing The Future of Broadcasting V | 9
CASE STUDY | Content-led broadcasters
ITV
933
Five years ago ITV, a UK-based 857 68%
broadcaster, was heavily reliant
712
on advertising income, with 69 439
612 369
percent of its revenue coming 554 271
from advertising. This dependence
226
left it vulnerable to the 2008 183
revenue.
2010 2011 2012 2013 2014
Falling revenues accelerated a
International UK
change in strategy for ITV, which
sought to rebalance its revenues FIGURE 8 | ITV Studio revenues 2010-2014
and reduce its reliance on UK Source: ITV Annual reports 2014
advertising income. In the last
five years, the broadcaster has ITV’s content strategy is centered and geographies in order to achieve
made a considerable investment on the assembly of a large portfolio sustainable scale. Fox Studios, for
in its production arm, ITV Studios, of successful series and formats instance, has increased the number
acquiring eleven production with wide appeal. The broadcaster of TV series it produces from
companies as well as UTV’s generally showcases new programs 27 to 43 over the last five years.
television business, UTV Media and formats on local linear Consequently, these broadcasters
in October 201511. By investing channels before licensing them are likely to continue placing their
in content, ITV has been able across multiple platforms in the premium content on as many
to increase the contribution of UK and abroad. devices and platforms (including
its international business as streaming services such as Hulu,
a proportion of total revenue Thanks to the international success NOW TV and Sling TV) in as many
by 19 percent over the last of shows such as Hell’s Kitchen regions as possible.
five years. Boosted by these and I’m a Celebrity…, ITV sold
investments, revenue (UK and 36 formats around the world Other broadcasters have also been
international) from ITV Studios last year and has become the turning to content strategies to
has grown by 68 percent over the largest independent producer diversify their revenue streams
same period (see Figure 8). Today, of unscripted content in the US. away from advertising. RTL, a major
eight years on from ITV’s original European broadcaster, has invested
“content led recovery plan,” More examples in content by acquiring American
their Net Advertising revenue Content-led broadcasters are production company 495 and
vs. non-Net Advertising revenue making their shows and formats a 25 percent stake in Corona
stands at 51:49. widely available across devices Television, a new UK-based drama
producer.
INDUSTRY THEME 2
2015 $2,574mn $180bn
Consolidation for scale
drives M&A activity
The value of media-sector M&A deals FIGURE 10 | Number of media deals by segment
in 2015 hit $180bn, exceeding the
TARGET
combined value of transactions
Cable/
completed over the preceding four Satellite TV Broadcasting Publishing Radio TV Content Telecom
years (see Figure 9). This upswing Cable/
75.7(26) 17.0(7) 38.4(21)
in deal value was propelled by the Satellite TV
creation of two new broadcasting Broadcasting 6.8(6) -(11) 2.3(10)
behemoths—AT&T/DirecTV and Charter
ACQUIRER
12 Enders analysis report: From MCN to next generation media company Part 1: Funding
The Future of Broadcasting V | 13
The Direct to Consumer model also provides INDUSTRY THEME 4 These services often referred to as “skinny
access to growing audience bases that may bundles” offer lower price entry points and
never have considered traditional models.
Diversification of are a timely bid by broadcasters to retain
MCNs are an example of the increasing business models the growing customer segments labelled
popularity of D2C model. MCNs provide TV viewing on traditional platforms is “cord cutters” or “cord shavers.” Specifically
direct access to growing markets at a declining at an accelerated pace. In the they permit consumers to pay lower
lower cost, enabling millions of previously UK average viewing per person per day subscriptions in exchange for a limited
unobtainable eyeballs to be reached. has fallen from 232 minutes in 2014, to selection of perceived high quality channels
Enabling access to audiences through the 220 minutes in 201513. Conversely, OTT that can be consumed on connected
use of a D2C platform (e.g. YouTube) means and IPTV are gaining traction driven by devices whenever and wherever the
niche content creators no longer need to increasing broadband penetration and consumer chooses.
negotiate with operators or distributors changing content consumption behaviors.
and can look for associated revenue While starting from a small base, OTT While margins associated to “skinny
streams (e.g. advertising). revenue growth is projected at 19% CAGR bundles” are significantly smaller than
to 2019, compared to 4% for Pay TV14. traditional cable packages, OTT services
In order to support D2C offerings, At IBC 2015, Time Warner Cable Media provide much richer audience data allowing
broadcasters must think about how to predicted that 50% of its revenue maybe better understanding of preferences and
manage new capabilities such as data generated by VOD in less than five years.15 more targeted advertising opportunities.
analytics and consumer marketing, and However, the major factor in determining
choose between building capabilities In the past, broadcasters have viewed the success of OTT services will be the
in-house versus outsourced solutions. In OTT as a threat to traditional revenues. extent to which cable companies are able
the new D2C world these new capabilities Despite changes in viewing patterns to access new audience bases and gain
are core. The ability to market content and a strong consumer demand for OTT scale, and of course, the extent to which
successfully is an increasingly key factor in services broadcasters have been slow to traditional revenues are impacted. One
determining success, especially with long offer these services themselves in fear of factor that may play to their favor is their
form content. This requires the knowledge cannibalizing core revenues. Where OTT broadband infrastructure. Comcast states
and skills to market in a way that ensures services are offered they have been limited that data used through accessing their new
visibility to, and connection with, target to full cable subscribers, for example stream service will not count against data
audiences. This is not a capability broad- Comcast and the Xfinity TV Go app. caps as it will be routed through bandwidth
casters have, and as with technology skills that is not being paid for. Comcast is also
(see page 12: Acquisition for technology), This trend looks set to change. Faced with testing what it calls usage-based pricing,
fostering a consumer-first marketing the option of cannibalizing their own or charging higher broadband prices to
organization necessitates a cultural shift. revenues or allowing others to cannabalize customers who go over a set monthly
their revenue streams, broadcasters have usage limit.
Likewise, the ability to analyze the data chosen the former. In the UK Sky has
being collected through D2C propositions launched the OTT service Now TV. AT&T and T-Mobile have trialed similar
can have a significant impact on revenue Similarly, Dish TV in the US has launched initiatives—T-Mobile’s “Binge On” offers free
and costs. The success of the Netflix House the pay light OTT service Sling TV, and data for some online video (also referred to
of Cards series through the use of analytics Comcast has recently announced the as zero-rated) that is not counted towards
to understand consumer preferences was launch of a new streaming cable TV a customer’s limited-data plan. While the
build upon Netflix’s technological prowess service, Stream. Stream will let Xfinity FCC has been quick to initiate discussions
and ability to analyze and process large internet customers pay $15 a month on with these carriers to ensure net neutrality
amounts of audience data. These skills are top of their internet bill to watch shows regulations are upheld, these offers could
widely sought after across industries globally. from around a dozen networks on tablet, pan out to be a key differentiator to com-
To fully take advantage of the D2C proposi- laptop and smartphone. peting services such as Netflix and Sling TV.
tions requires broadcasters to optimize scarce
resources and redefine operating models. 13 OFCOM
14 Accenture Research PwC’s Global M&E Outlook, 2015–2019; SNL Kagan’s Multichannel Database
15 http://www.ibcce.org/
14 | The Future of Broadcasting V
SECTION 2 | Value Themes—
Opportunities for value creation
Our value analysis has identified three important financial trends. The widening gap
between future value and performance makes the search for fundamental growth
ever-more pressing. Broadcasters have—with some success—turned to content
strategies to improve performance.
At the same time, broadcasting organizations have sought to create value through
increased M&A activity and consolidation in the industry. But it is unlikely that
these initiatives alone will be sufficient to close the gap between expectations and
performance. We have identified three opportunities for value creation, which we
believe will help broadcasters in their search for new sources of fundamental growth.