CFOs upbeat on digital biz

Optimism comes in the midst of declining revenues

The good news is that 73% of global media and entertainment chief financial officers believe that digital and mobile content will yield future revenue opportunities.

The bad news is that their optimism comes in the midst of declining revenues, profit pressures and a drop in the per-unit price of media.

That’s the gist of Ernst & Young’s 2010 global media and entertainment CFO study, which polled financial execs from 75 large media and entertainment congloms.

The study will be officially released on June 25.

“The phenomenal proliferation of digital entertainment among consumers continues to challenge media and entertainment companies,” said Ernst & Young’s John Nendick. “Revenues are dropping due to the unbundling of media and the reduction of per-unit pricing, challenging CFOs to identify innovative ways to reach their financial objectives.”

The paradox of increased consumption of digital content co-existing with falling revenues was not lost on the surveyed CFOs. They agreed the industry must find ways to bundle content and settle on appropriate prices for it.

The most sobering part of the report concerns an ongoing drop in per-unit prices for content. The analysis indicates that by 2012 the average per-unit price of video and music content will decrease by almost 25% from 2009. This would be on the heels of the 55% decrease of the per-unit price of music and the 12% decrease of the price of video from 2006 to 2009.

Currently, the average per-unit price of music is $3; for video it is $6. Total homevideo and music end-user spending for 2010, including digital and physical products, is estimated to be $28.5 billion compared to $36.4 billion in 2006.

But there are bright spots.

“CFOs see growth in new dis-tribution channels, products and services,” said Ernst & Young exec Howard Bass. “Publishers and similar content companies are embracing the fact there are almost 2 billion digital media users to leverage their content and core products and services to the Web, mobile devices and electronic gaming globally.”

Digital media consumption is set to continue at a rapid pace, per the study. The number of households with both broadband connectivity and at least one 3G mobile device has quadrupled during the past five years in the U.S. and increased more than 600% on a worldwide basis.

The Ernst & Young report adds that global penetration of households with broadband will reach 27%, and 3G mobile devices will reach 55% by the end of 2010. The company’s index of digital media users, which is increasing by 32% annually, is expected to reach 2.2 billion by 2011 — more than double the 2007 number.

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