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Flexibility key to success

Ernst & Young releases media exec survey

It’s fast becoming a “give it to me now” world for consumers demanding information and entertainment.

That’s the conclusion of a survey of more than 200 finance execs from major media and entertainment companies released today by Ernst & Young. Those execs believe the winners in coming years will be the most nimble companies.

“The media and entertainment industry is striving to meet the ‘anywhere, anytime’ content demands of today’s consumer,” said study author John Nendick, who heads Ernst & Young’s global media and entertainment operations. “With the rapid pace of change, companies that will succeed are those that adopt more flexible business models and quickly identify new distribution channels.”

“Spotlight of an Industry in Transition” study emphasizes that rapid adoption rates, coupled with the increased frequency of the introduction of new technology, has narrowed the time horizon for companies to adjust their strategies. Nendick noted it took a full decade for VCRs to penetrate 50% of the U.S. market, but only six years for DVD players to reach the same level.

He also pointed out the proliferation of delivery choices is making it more difficult for companies to embrace new biz models — at a time when growing online and broadband capacity have evolved as great equalizers of content.

Though execs are identified as participants, their comments in the study are anonymous. One predicted consumers will soon see the consolidation of platforms into a single mobile device for video, voice, music and email.

“Virtually everything will go mobile because that’s how people want to consume,” another said.

The study’s findings contrast significantly with a similar survey conducted by Ernst & Young in 2004. In that survey, 75% of CEOs and other industry leaders said digital video recorders would be the “primary driver” for industry change; the new study finds 86% believe changing content and distribution models fill that role over the next two to three years.

In the 2004 study, more than half the respondents selected cable operators as the most likely market winners; two years later, 77% of participants point to Internet media providers as the most likely victors.

The execs also expect major growth in mobile content, online music and gaming revenues while contending that traditional venues such as multiplexes provide the aura and excitement needed for new content.

“A big theatrical release is important to create awareness of a filmed product so we can leverage all the other revenue streams for that product,” one exec noted.

Study found profit margins during the 2002-06 period were the largest at interactive media firms at 51%, followed by satellite TV at 38%, electronic games at 23%, cable nets at 19%, both TV broadcast and cable operators at 14%, congloms at 11%, film-TV production at 9% and both publishing and music at 6%.

Study also showed execs believe interactive, wireless and Internet companies are well positioned to be agile in getting new products to market. But several noted well-established congloms — with access to a broad variety of content — also can succeed.

“We think there’s a lot of value to being a diversified conglomerate because we look out five to 10 years, not one to two years,” one noted.

Nendick also said chief financial officers have to deal with a much more complex job description. “CFOs are playing a strategic role in all phases of transactions, from assessment to post-integration,” he added.

Study’s released as part of the launch of Ernst & Young’s Global Media & Entertainment Center in Los Angeles, staffed by about 200.

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