Arthur D. Little (ADL) today announced the findings of its five-year forecast of the financial flows within the global media marketplace. It predicts that markets will continue to see a rush of consolidation and vertical integration among traditional media companies as offline advertising revenues and consumer spending stagnate while online advertising and consumer spend rises. The key to future profitability is to participate in this consolidation and aggressively diversify into near-core segments.
In “Consolidate, Diversify, or Perish,” ADL’s Technology, Information, Media, and Electronics (TIME) Practice examines how markets around the world have responded to the digital transformation of the media industry. US companies have historically enjoyed higher profitability and revenue growth than their European peers due to greater investment in video – however, in order to offset the decline in traditional news & print, many European companies have diversified aggressively into online segments, and for some, online revenue now accounts for 50% of their total revenue. In the mid-term, ADL predicts stronger revenue growth for most European players compared with US companies.
A major trend driving the media industry’s digitalization is the rise of the ‘hyper-connected’ consumer, who prefer to access content as a service via multiple screens rather than own it. These consumers are often also producers, editors and aggregators of content via platforms such as YouTube and Instagram. This increased engagement with online media has enabled companies to analyze consumer behavior and produce more targeted, and more profitable, content and advertising. ADL predicts that such personalized targeting will also begin to enter the offline advertising value chain.
However, the report also identifies challenges for companies seeking to diversify online. Major positions have already been taken in video and music streaming by new players such as Netflix and Spotify. Content owners and producers are also in a strong position – with premium content becoming more expensive as competition increases, they become attractive acquisition targets.
Clemens Schwaiger, Global Head of Media in Arthur D. Little’s TIME Practice, said: “As the digital market expands, traditional companies have an opportunity to redefine themselves as content creator, aggregator and distributor. However, those companies that fail to consolidate quickly enough face long-term competitive disadvantages.”