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The Future of Broadcasting

Issue III
Strategy Delivers
By Francesco Venturini, Charlie Marshall
and Egidio Di Alberto

A new DNA for broadcasters?

The recent years of the broadcasting sector have been

the most turbulent in its history. Deep economic
recession plus the rise of broadband and online video
players and evolving consumer behavior has sparked a
chain reaction from industry players and their shareholders. For some its meant decline, for others rebirth.
At the core of the turbulence has been a fundamental
shift in broadcasting economics. Simply put, audience
numbers alone no longer necessarily translate into
revenue following the traditional equation. Advertiserfunded models are seeing budgets carved up and spread
across new media, with knock-on effects on pricing.
Subscription-funded models have to deliver better
content and new services just to hang onto their
customers and defend ARPU without huge increases
in subscriber acquisition costs.

The Future of Broadcasting III 1

Our first edition1 in the Future of

Broadcasting series2 saw the markets
clear preference for pay broadcasters
subscription-based models over the
advertiser-funded models of the free
to air broadcasters. In that survey, only
one pay broadcaster fell below the
industry average for total returns to
shareholders in 2007 (TRS) vs. seven
free-to-air broadcasters.
By the time of our second edition in 20113,
enterprise value across the sector had
increased significantly (up 44% from the
end of 2008 to the beginning of 2011).
Both pay and free-to-air broadcasters
had enjoyed something of a value recovery
but, for free-to-air, this appeared more
cyclical than the result of any structural
or strategic response to market conditions.
However, what was an emerging trend
then has now been roundly confirmed
by our most recent Shareholder Value
Analysis for the year 2012. The distinction
between pay and free-to-air business
models is becoming less and less relevant.
Rather, investors are looking for all
broadcasters to embrace more sophisticated strategies, adapted to an era of
constant change in the quest to become
more resilient, future-proofed businesses.
And so, in 2012, we have seen the
greatest dispersion of value yet across
business models. In our peer set, there are
now more free-to-air broadcasters than
pay broadcasters with TRS over the
industry average. The question is why?

Simply put, whether a broadcaster is

free-to-air or pay no longer accounts
for differences in investors perceptions.
The distinction made now is between
strategies that are reinventing business
and operating models and successfully
embracing innovationand those that
are trying to preserve a long-gone status
quo, in denial about the speed and
pervasiveness of industry changes
confronting them.
What we see is that strategies forged
in the industrys most difficult hour
are beginning to deliver. Broadcasters
pursuing a combination of radical actions
are seeing light at the end of the tunnel.
They are:

Aggressively targeting fixed indirect

cost bases

Nurturing new IT skills and business

capabilities to accelerate time to
market and foster a new service culture
An interesting side effect accompanies this
re-imagining of business and operating
models. Broadcasters DNA is evolving to
suit new environments. Consumers are at
the heart of this evolution.
Broadcasters that built their success on
advertising business-to-business (B2B)
models are beginning to acquire businessto-consumer (B2C) characteristics in their
DNA. They are moving their models online,
exploring multi-device linear and nonlinear services and features and recognizing that in a world where access to
distribution is no longer a guaranteed
privilege, understanding audiences as
consumers is a prerequisite to success.

Re-engineering processes to create

more compelling content, leveraging
local creativity but in the context of
global appeal while reducing cost
per minute

On the other hand, some broadcasters

were born with business to consumer
DNA. Denied the privileged distribution
access of their FTA competitors, they
had to roll out their own distribution
platforms into consumers homes. They are
Reinventing content and brand
lifecycles to drive growth in expanding now addressing new B2C arenas that go
beyond broadcasting into the wider
secondary markets and on new
communications space, at the core of
non-linear platforms
which lie triple play and multi-device
Diverting resources to develop new
propositions. And it is their innovation
revenue models, customer relationships that is spurring others on.
and innovative distribution platforms,
recognizing that traditional distribution
networks, such as terrestrial or satellite,
no longer provide the same barrier to
entry as in the past

1 The Future of Broadcasting: Sustaining Shareholder Value and High Performance in a Changing Industry.

As in previous years our analysis is grounded in our Shareholder Value Analysis (SVA) of key players in the
global broadcasting industry. Our work around the world with broadcasters and other media, entertainment and consumer technology companies (most of which are now in the video content space) allows us
to build on the groundwork of the SVA to draw a set of moment in time conclusions about this rapidly
evolving sector.

3 The Future of Broadcasting: A New Storm is Brewing. 2011.

2 The Future of Broadcasting III

So while responses to the most difficult period

in the industrys history have redressed some
deep-seated complacency by spawning new
business models and sparking innovation,
the challenges of the future are no less acute.
A new battle for sustainability is about to
start. Constant reinvention will be required.
This is todays Future of Broadcasting.

The Future of Broadcasting III 3

Figure 1 | Accentures Value Creation Roadmap

Increasing spread,
the difference
between RDIC and
WACC, creates value

Magnifying positive
spread by growing
revenue also
creates value

4 The Future of Broadcasting III

Cost of Capital

Value of the
discounted cash
flows to shareholders
or Economic
Value Added (EVA)


Total Return
to Shareholders

Value performance

The Accenture value creation roadmap

is based on the core indicator of Total
Return to Shareholders (TRS). TRS measures
the value of stock plus dividends correlated
to the efficiency of operations and the
effectiveness of long-term investment
decisions and strategies. With the additional assessment of the ratios of current
enterprise value and future enterprise value
we are able to draw a picture of both the
sector and specific companies current
value and the inherent growth potential
of investments in the sector.

On an aggregated level the average of the

peer set is at a TRS of 0.92, with the pay
TV average at a TRS of 1.16 and the FTA
average at 0.85. A more detailed look
at the TRS shows that five out of nine
companies outperforming the industry
average are FTAreflecting very mixed
performance. This dispersion in industry
performances arises from those businesses
that are making progress in tailoring their
business models to major industry themes
and those that are proving slower to adapt.

The analysis at the heart of our perspective

focuses on the period from the start
of January 2011 to the end of November
2012. For benchmark purposes, we also
refer back to 2007 before the economic
downturn struck the media industry.

The Enterprise Value trend from 2007 to

2012 shows the industry back to 2007 EV
levels. Since 2008, the broadcast industry
has grown at 10.9% CAGR. The average
Enterprise Value per company of the peer
set is back to a strong $14.3bn (January
November 2012) from $9.45bn in 2008.

In 2012 the dispersion trend between

segments had reached new heights,
creating a new order among the 18 major
listed broadcast companies of the peer set.

TRS analysis further strengthens our

view on sector recovery. The analysis
of the more recent period from January
to November 2012 shows an overall

improvement of TRS performance.

Whats behind that? Besides a number
of steps forward in pushing content
online and making it accessible through
multiple devices, its better than expected
cost structure optimization.
That success in cutting costs balances the
decline in advertising prices (CPM/CPP)
driven by advertising budget reductions
and audience fragmentation, as well as
byinvestments in premium content to
retain existing audiences on main channels
or chase new audiences with new thematic
channels. A marginal increase in OPEX to
revenue ratios from 2010 to 2012 across
the segment indicates that cost-cutting
programs are compensating for falling
revenues. Moreover, the modest increase
in the overall OPEX to revenue ratios over
the past three years is remarkable, as
broadcasters have borne the additional
costs of launching non-linear offerings
online, which entail additional technical
capabilities, operations and TV rights.

The Future of Broadcasting III 5

Figure 2 | Total Return to Shareholders (TRS), 201111/2012

CBS, 1.81


TWC, 1.40
Virgin, 1.39


ITV, 1.27
DirecTV, 1.17
Televisa, 1.05


RTL, 1.05
BSkyB, 1.01


ProSieben, 1.00
Industry Avg., 0.92


Canal+, 0.85
Nippon, 0.83
TF1, 0.53

Jan 11

Mar 11

May 11

Jul 11

Sep 11

Nov 11

Jan 12

Mar 12

May 12

Jul 12

Sep 12

Nov 12

Pay TV Segment
Emerging Media Segment
Free to Air Segment

Source: Accenture analysis

Antena 3, 0.44
Netflix, 0.38
Ten Network, 0.28
Mediaset, 0.27

Figure 3 | OPEX/Revenue Ratio, 20102012






TTM (01/2012-11/2012)

Free to Air Segment

Source: Accenture analysis

6 The Future of Broadcasting III


Pay TV Segment

Emerging Media


Netflixthe whole story

The SVA results for Netflix, representing the emerging media segment in our 2013
point of view, do not tell the whole story. Its stock price jumped from 56.0 $/share
at 01.10.2012 to 189.37 $/share at the beginning of March 2013. This strong
performance turned the poor TRS of 0.38 (as assessed in our SVA for the period
beginning of January 2012 to end of September 2012) to an impressive 1.62 for
the period beginning of January 2012 to beginning of March 2013.
Netflix seems to have regained investors faith in the OTT success story. That has been
helped by growing broadband infrastructure and the proliferation of tabletsboth
positive for its business model. On the basis of these favorable circumstances Netflix
has clearly understood what strategic cards to play to further grow its subscriber base.
Its low-price subscription model with only one tariff for streaming customers has
attracted cord-cutters and the increasing focus on original content, such as its
successful TV series House of Cards and Arrested Development, further fuels this trend.
This recipe has led to an additional two million US customers in Q4 2012 alone,
to achieve 27.1 million US streaming subscribers in total by the end of the year.
Strong international expansion has led to an additional 1.81 million customers
in 2012 catering to a total subscriber base of
more than 33 million in 40 countries, raising
high barriers to entry for new entrants and
significant economies of scale, securing
competitive advantage in the race for
online video profits.

The Future of Broadcasting III 7

8 The Future of Broadcasting III

Industry themes

While the value of the sector is back at its

pre-crisis level, the road to get there has
been far from straight over the last two
years, suggesting that this recovery is
more cyclical than structural.

The analysis of future vs. current value

highlights that improvement of current
operations and a focus on structural cost
base efficiency have driven industry value
to this point.

Financial markets and analysts expect that

progress to slow.

Figure 4 | Total Enterprise Value, 200820124

CAGR 21.2%
CAGR 1.4%











Source: Bloomberg, Accenture analysis

4. In 2007 these companies were included: Antena 3, BSkyB, Canal+, CBS, DirecTV, Dish TV*, ITV, Mediaset, Nippon Television, ProSieben, RTL, Sky Italia*, Sun TV*,
Televisa, TF1, Time Warner Cable, Tokyo Broadcasting*, Netflix.
From November 20082012 these companies were included: Antena 3, BSkyB, Canal+, CBS, DirecTV, ITV, Mediaset, Nippon Television, ProSieben, RTL, Televisa,
TF1, Time Warner Cable, Ten Network**, Virgin Media**, Netflix.
SVA Panel: Pay Segment includes BSkyB, Canal+, DirectTV, Globo, Time Warner Cable, Virgin Media. FTA Segment includes Antena 3, CBS, iTV, Mediaset,
Nippon Television, ProSieben, RTL, Televisa, Ten Network, TF1. OTT Pure Players includes Netflix.
Notes: Enterprise Value = sum of market capitalization and net debt (total debt less total cash.) The below chart displays the summation of enterprise values of the
peer set as on month end date and hence values may not match the previous side. Previous financial period net debt has been used for the corresponding enterprise
value computation.
The Future of Broadcasting III 9

November 2012



With consumers continuing to favor linear

TV and, for the time being, broadcasters
retaining privileged access to the most
attractive local and international content,
the established underlying value drivers of
broadcasting appear resilient in the near
term. However, a number of structural
trends will increasingly threaten

the dominance of traditional models.

Investors questions remain largely
unanswered. Among other things, they
want to know how broadcasters will
make use of online, retain large audiences,
secure the right content and drive
strategies to increase advertising and
reduce costs. And the answers are

urgently required because the pace of

change is accelerating, driven by three
major themes:

1. Emerged media
2. Contents kingdom grows
3. Advertisings power shifts

Figure 5 | Current/Future Value Split, 200820125













Current Value CAGR: 17.3%

Present value of current cash flow perpetuity.

Source: Bloomberg, Accenture analysis

Calculated from:
Free Cash Flow from Operations





Future Value CAGR: 3.7%

Present value of incremental cash flow expected from:
Growth of current markets
Improved market shares
New revenue streams
Major restructuring of ops
New markets

5 Current Value: Present value of current cash flow perpetuity. Calculated from: Free cash flow from operations, WACC.
Future Value: Present value of incremental cash flow expected from: Growth of current markets, improved market shares, new revenue streams,
major restructuring of ops, new markets.
Notes: Values may not match due to rounding.
Current Value = sum of present value of current operations, based on NOPAT divided by the WACC, NOPAT taken from latest period.
Future Value = sum of enterprise value less current value.
10 The Future of Broadcasting III


Industry Theme 1

Emerged media
For the majority of its existence, the
broadcast industry enjoyed relative
stability, with very little change to its main
revenue driverlarge audiences driving
advertising. Subscription propositions did
little to derail that certainty as they too
offered specific viewing, at a specific time,
on a specific channel. However, the arrival
of Netflix, just a few years ago, raised
some searching questions about both the
long-term sustainability of traditional
business models and the exact shape
of those required for the future.
As Netflixs popularity, and share price,
continued to rocket, so did the growth
of similar providers (e.g., LoveFilm, Hulu)
who threatened to take audiences and
revenue from broadcasters. While ultimate
success for these comparatively small
companies against the established giants
of broadcasting seemed unimaginable, the
experience of the music industry showed
how comparative minnows could very
easily disrupt a market and fatally weaken
the dominance of the big fish.

Fast forward a few years, and while the

likes of Netflix, LoveFilm and Hulu have
not taken over the industry, they have
become established players, achieving
economies of scale and carving out a clear
niche in the video space. As the future of
broadcasting continues to evolve, it is
unlikely that a global set of stand-alone
OTT providers will emerge as a significant
competitive threat because the broadcasters reaction to such propositions has been
fast and decisive. However, the impact of
these new players has nonetheless been
transformational: they have played a
critical role in changing the rules of the
game and spurning innovation in what
had become a complacent industry.
As broadcasters have sought to avoid the
fate of their music industry counterparts,
they have accelerated delivery of their own
online propositions and fundamentally
altered their strategies to suit a fastchanging marketplace. Not only have the
majority of broadcasters launched their

own online servicesin Italy, Mediaset has

more than one million subscribers for its
on-demand service and Canal+ has
launched a standalone service on top of its
on-demand OTT offering for subscribers
but they have also explored more
pronounced departures from their
traditional core business:

The BBC6the original linear broad -

caster in the UKis releasing some
programming online before it is
broadcast on traditional channels
a radical departure.
ITV, also in the UK, is seeing the
majority of its revenue growth from
online, pay and interactive activities
(up 26% vs. 2011), exceeding the
100 million mark7.
Launch of YouView in the UK, which
is a hybrid TV service providing access
to Freeview television as well as
on-demand content delivered via
a broadband connection.

Figure 6 | Net growth trends in USA of Hulu Plus and Netflix streaming subscribers (millions and %)



Hulu Plus

+1.5 (+138%)


+3.3 (+16%)


Netflix streaming

Source: e-Media Institute on Hulu and Netflix data. Note: Net growth of full-subscriptions (excluding free trials).
6. 2013 40hrs of programming will be released through online iPlayer before its linear broadcast [Radio Times, 8 Feb 2013].
7. e-media, 11 March 2013.
The Future of Broadcasting III 11

Now TVSky UKs internet and OTT TV

servicewill now offer premium
soccer on the platform on a pay per-view basis. This is the first time
premium soccer has been made
available without requiring a Pay TV
New entrants are not the only ones
impacting the competitive landscape for
incumbent broadcasters. With distribution
networks no longer a barrier to entry,
non-traditional players are also getting in
on the action. Google is investing heavily
in YouTube8 and has plans to launch its
first pay-per-view content in 20139. Telcos
are also investing in video. Orange, for
example, has acquired Dailymotion, the
worlds second largest online video portal.
Broadcasters new non-linear strategies
are having a positive impact on shareholder value. However, the rise of emerging
media players continues to fuel fears of
cord cuttingwhere viewers permanently

sever ties with high-cost subscriptions in

favor of cheaper (or free) online alternatives. While this phenomenon is still
nascent, figures from the US show a
marked decrease in households with cable
subscriptions (see Figure 7) and low
growth in satellite subscriptions (+1%)
against double-digit growth for IPTV and
other streaming services10.
While broadcasters have been able to
effectively respond to the emerging media
threat, they cannot rest on their laurels.
They must continue to innovate, especially
as even larger players (e.g. Google, Apple)
are targeting the increasingly powerful
viewer and their impact could be even
more disruptive. Simply replicating library
VoD propositions is not going to keep the
viewer sufficiently engaged. New services,
new features, new access propositions will.
The key to broadcasters long-term success
will be to boldly go one step forward,
leveraging their newly acquired confidence

in understanding and managing the online

world and its rules. This additional step
requires them to make the online Overthe-Top proposition an intrinsic part of
their core business, blurring the boundaries
between traditional TV and on-demand
services. Seamlessly integrating
on-demand linear and non-linear viewing
into a single entertainment proposition
will mean providing consumers with a
redefined entertainment serviceone that
combines the power of broadband and
traditional broadcast networks.
Operationally, this will require significant
effort to develop new B2C capabilities
and accelerating time to market. It will
also accelerate experimenting with new
advertising and monetization models
without the fear of compromising
traditional advertising revenues. The
latter is especially important as it becomes
increasingly apparentas we explore in
Industry Theme 3that linear advertising
volumes are unlikely to return to historical

Figure 7 | Total cable video customers in USA (millions)















Source: NCTASNL Kagan

9. e-media, 8 February 2013.
10. e-media, 11 January 2013.
12 The Future of Broadcasting III






Industry Theme 2

Contents kingdom grows

Where broadcasters once held power,
with exclusive command over the viewing
experience, consumers now rule. They
want to be in control of what they
consume and when they consume it
creating their own new digital experiences
across channels and devices, planning
their own entertainment schedules, and
finding new ways to interact with content
itself. When you combine this viewing
flexibility with the sheer volume of
programming now available, consumers
ability to be more selective about what
they are watching has dramatically

As viewers dismiss less compelling fare,

super premium content pulls further
ahead, providing its owners with a
competitive edge. Examples include the
Twilight film franchise, whose fan base
scoops up whatever merchandise they can
get their hands on, the global success of
television formats (e.g. The Voice, X Factor,
and Americas Next Top Model), or
the telenovela Avenida Brasil which
commands 65% market share in its
viewing slot (and also happens to be
exclusively aired on linear television)11.

Discovery and Viacom are industry players

that have successfully delivered on
strategies developing both content and
channel brands. Their combined Enterprise
Value (EV) has grown by a CAGR of 23.2%
from December 2008 to November 2012
and both companies total enterprise value
has more than doubled over the past four
Investors value Discovery and Viacom for
their ability to grow future cash flows.
The future value of these companies has
grown at 103.2% CAGR from December
2008 to November 2012. As of November
2012, investors attributed nearly 60% of
Discoverys value to its future value. This
confidence stems from Discovery and
Viacoms ability to create global program
brands that translate into local programs.

Figure 8 | EV Discovery + Viacom, 200811/2012









November 2012








Enterprise Value ($bn) CAGR: 23.9%

Source: Accenture analysis

The Future of Broadcasting III 13

The power of the right content is also

highlighted by some of the big bets now
being placed. For example, Netflix has
invested in content deals estimated at
$2.5bn in 2013, up from $300m in 201012
and, more importantly, developing original
content, with four productions to be
released in 2013. Hulus video offer has
increased by 40% from 201113 with 60,000
episodes spanning 2,300 television series
now available. In the UK, BT has acquired
rights for 38 English Premier League

games (at a cost of 736m) and recently

announced its acquisition of ESPNs TV
channels business in the UK and Ireland.
The bidding war with Sky for Premier
League games resulted in a 70% increase
in revenue vs. the previous package14.
While airing popular programs has always
been a key success factor in the broadcast
industry, changes in viewing habits and
increases in supply have meant ownership
of appealing local and international
content becomes even more critical.

Our recent Online Video Consumer

Survey15, shows a growing appetite for
local content (see Figure 10). Therefore the
ability to transmit it to viewers on
whatever platform they choose (whether
proprietary or a third party) will separate
leaders from laggards in the industry.
For those not in a position to play at
similarly high stakes, success will hinge on
very focused management of the content
assets they do possess, as highlighted in
the content optimization section below.

Figure 9 | Current/Future Value Split-Discovery, 200811/2012













November 2012
November 2012



Current Value CAGR: 11.5%

Current Value CAGR: 11.5%

Source: Accenture analysis





Future Value CAGR: 132.2%

Future Value CAGR: 132.2%

Figure 10 | What online video services do you use more often?




Local/national online video services


International online video services

Source: Accenture Online Video Consumer Survey 2013

12. Netflixs sky-high stock the real House of Cards, Globe and Mail, 5 February 2013.
13. e-Media Institute, 1 January 2013.
14. BT to buy ESPN UK and Ireland Channels, BBC News, 25 February 2013.
15. Accenture Online Video Consumer Survey 2013.
14 The Future of Broadcasting III


Industry Theme 3

Advertisings power shifts

While major broadcasters in Western
Europe saw advertising revenues rebound
in 2010, after significant decreases in
2008 and 2009, estimates for 2012 and
201316 point toward further erosion in
traditional television advertising.
However, when looking at total media
advertising spend in Western Europe
forecast to grow by 2.6% in 2012 and
0.6% in 2013it is clear that spend is
being shifted to different channels, most
significantly to online video. On a global
scale, the numbers contrast even more
starkly. Emerging markets are set to push
growth in global advertising spend to
4.5% in 2012 and 3% in 201317.
While the shift in advertising spend could
also arguably be correlated to operational
issues, such as poor sales effectiveness,
ineffective commercial product packaging
and pricing pressuresone of the industry


Audience share
Advert share
Power Ratio

key indicators, the power ratios, for the

major broadcasters remain flat over the
same period. This reinforces the view that
broadcasters face an ever-decreasing
structural advertising market and that
advertising dollars are being diverted to
more effective and engaging media
Although broadcasters cannot rely on
traditional advertising for future revenue
growth, the shift in spending pattern does
present an opportunity and stresses the
importance of developing meaningful
online, multi-device propositions. However, to maximize their ability to attract
this spend, broadcasters will need to
update their commercial offers to create
comprehensive and sophisticated advertising packages that span both linear and
non-linear viewing.

Initially, much of the advertising revenue

that migrated online came from print and
other relatively low-reach media. While
TV audiences fragmented as a result of
the greater availability of more video
from more sources, TVs share of revenues
remained constantthough subject
to greater competition. Slightly increased
power ratios and wider channel
propositions in response to fragmenting
audiences helped broadcasters to
maintain revenues. However, the impact
of the financial crisis reduced the
overall size of advertising budgets and
all broadcasters revenue declined as
a result. That cyclical downturn will
only improve slowly. Whats more,
advertising budgets will increasingly
flow online away from mainstream TV.
The net impact is that even with the same
audience and power ratios, broadcasters
revenues will face further decreases,
so power ratios will not be sufficient
to protect broadcasters from wider and
structural industry changes.






2010 2011 2012 2013e
Audience share 22.9% 22.8% 22.8% 22.8%
Advert share 45.9% 46.3% 46.7% 46.3%
Power Ratio 2.00 2.03 2.05 2.03


Audience share 28.5%
Advert share
Power Ratio





2010 2011 2012 2013e
Audience share 24.5% 23.6% 22.7% 22.1%
Advert share 44.3% 42.5% 42.0% 41.9%
Power Ratio

16. Company Data, Morgan Stanley Research, 8 January 2013.

17. Media & Internet, Morgan Stanley, 8 January 2013.
The Future of Broadcasting III 15

Broadcasting Moves Forward

Drivers of future value

Figure 11 | From television to video

Revenue diversification
transmission vs.
distribution vs.
Scope of business
local vs.

subscribers vs. viewers
vs. users

Source of content
production vs.
commissioning vs.

Access platforms
proprietary vs.
third party

From Television to Video

Video services
linear vs. non-linear,

Intellectual properties
finished programs vs.
formats vs.

channels vs. programs
vs. characters

Delivery platforms
broadcast vs.
Business platforms
TV vs. non-TV

16 The Future of Broadcasting III

A testament to the speed of change in

the industry is how the categories we have
looked at in our previous analyses in the
Future of Broadcasting series (FT vs. PAY,
Linear vs. Non-linear), are no longer a
reliable guide to longer-term performance.
If that is the case, its useful to look at
what high performers have done or
communicated to the market over the last
few years that might account for their
success. While they all cook with different
recipes, they use some of the same staple

They are creating and/or

aggregating more compelling
content, leveraging local creativity
while increasing operating margin
per broadcasted minute
Building families of complementary
FTA channels to maximize reach while
fully utilizing content rights and
minimizing cannibalization

Fully monetizing FTA reach through

innovative advertising formats and
targeting regional shares of the total
TV advertising market

Generating carriage revenues from

packages offered by distributors

Activating additional revenue streams

through basic pay channels distributed
through third-party platforms

Reinventing content and brand

lifecycles to drive growth in
secondary markets and on new
non-linear platforms

Growing their international production

business to capture scale efficiencies
and to secure essential content rights
to: defend against technology attack-
ers, internationally diversify the revenue
mix, facilitate online strategies as online
exploitation rights are easier to secure
for own content

Accurately planning the use of broad-

casting windows to increase the value
of third-party brands and regulate terms
of trade in ways that maximize their
share of third-party party producers
distribution and extension revenues
Using content rights in adjacent
businesses (like games, live shows,
sponsorships), and leveraging TV brands
and unsold advertising inventory to
cross promote

Nurturing new IT skills and B2C

capabilities to accelerate time to
market and foster a new service

Harnessing analytics to build consumer

insights and detailed understanding of
customer behavior and preferences

Designing and creating user interfaces

that enhance appeal and maximize
services stickiness

Launching innovative forms of content

distribution to provide traditional viewers
and customers with modern and enhanced
user experiences based on the TV-asYOU-like principle

Investing in sophisticated, linear and

non-linear multi-device broadband

Creating powerful local brands

associated with a clear value
proposition that stimulate adoption
and, most of all, loyalty to the service
(YouView, SkyGO, Premium Play, to
name a few)
Developing partnerships with device
manufacturers to build new services
and explore new digital platforms (e.g.,
Samsung SmartTV, Microsoft Xbox), in
the attempt to maximize the reach of
new digital services, making them an
integral part of common user behavior
and ultimately protect their business
from emerging media.

Creating new offering and pricing

models (e.g., Skys Now TV) to target
new groups of consumers while avoiding
cannibalization of the traditional and
mainstream TV services customer base

Developing digital customer interaction

through, for example, self-care online
chat and social networks (mostly
Facebook and Twitter)
High performers will focus on a subset
of those growth themes, largely
determined by their core capabilities.
However, what they have in common
is a formula to reinvent their role in TV.
They are reverting to the basic concept
of television, which is not broadcasting per
se but providing entertainment. In doing
so, they are creating new shows, stories
and characters. From those, they are
building relevant brands and experiences
that fit consumers lifestylesdelivering
them seamlessly through leading-edge
technologies and business services.
The idea of television is being stretched
in multiple directions. New approaches are
picking apart and rebuilding traditional
vertically-integrated business models
based on one distribution technology
(antennas) and one device for access (TV
set). As a result, industry value drivers
will be a much more articulated set of
variables than in the past.

The Future of Broadcasting III 17

With an understanding of the drivers of future

value, the next challenge for broadcasters is to
identify the operational changes required that
will help deliver on the promise.
We examine these in the Value Themes section
that follows.

18 The Future of Broadcasting III

Value Theme 1

Content optimization
In the new, consumer-driven world, access
to content, rather than distribution, will
become the critical differentiator. Content
is the most complex and essential asset
on broadcasters balance sheets. Complex
because of the number of options for its use;
essential because it is a lever for differentiation and a barrier against competitors.

balance between capital invested in content

and its returns.
Content performance management covers
three related aspects: A. profitability model,
B. planning and control cycles and C. how
responsibilities are managed. Each requires
specific activities:
A. Introduce product/rights centric profitability models with a hierarchy of program/
channels/genre P&Ls that add up into the
companys P&L and define a set of consistent rules to allocate costs and revenues,
reflecting the impact of each revenue and
cost line item.

Already the most expensive asset, trends

suggest content will become even more
expensive. Premium content, such as
US movies, will become scarcer as major
studios output falls. Online disrupters are
shifting the focus to TV products such as
seriesboth back catalogues and original
programmingincreasing the degree of
competition and therefore the price.
What this means is that the way content
use is planned, executed and controlled will
make a big difference to value creation.
The alignment and integration of TV rights
management and financial planning and
control (content performance management)
will therefore be key to preserving the

B. Analyze the profitability of the product

portfolio to drive editorial decisions.
Product-centric profitability analyses over
actual data from the recent past should
feed strategic and editorial planning.
P&L budgeting should then be informed by
a product profitability budgeting phase and
result from the application of P&L structure
and allocation rules mentioned above.

Figure 12 | Emerging Value Levers

B2C: Viewers/Subscribers/Users

C. Establish a new profitability mindset for

content decision makers, making managers
responsible for asset utilization and price/
cost variance.
To maximize content performance, rights
management needs to be consistent and
tightly integrated with improved financial
performance management. And rights
management has a critical role to play
across the lifecycle of all content. It can
support editorial planning by optimizing the
match between content requirements and
acquisition. Early involvement of rights
management can help drive an end-to-end
brand strategy for each program that
would help broadcasters better identify,
manage and plan for all revenue stream
opportunities. Integrated commercial,
editorial, financial and procurement
planning can help allocate capital for
content sourcing consistently with
planned cost structures and revenues.
The rights management function can
also help adopt consistent contractual
frameworks that align with revenue
generation opportunities associated with
the release window for any content.

B2B: Advertisers/Broadcasters/Non-TV Businesses

Business Analytics

BB Channels
& Access


Rights Procurement


Strategic Planning

Video Commercialization


Content/Editorial Planning


TV brands


Production and Commissioning

Rights M

TV Distribution and Marketing

targeted advertising and formats

ial Pla n nin

The Future of Broadcasting III 19

Value Theme 2

Becoming an agile enterprise

The Enterprise Value/Invested Capital ratio,
shows that investors have increased the
premium on invested capital for those
companies that have downsized their
operations (iTV, Pro7, RTL, Televisa). A
major initial move in this direction has
been the disposal of non-core assets
(also visible in the decrease of the goodwill/revenue ratio, from 2009 to 2012).
Examples include ITVs sale of Friends
Reunited and Screen Vision and Prosiebens
series of divestments following a previous
phase of international M&A activity.

The second major move towards becoming

more agile is cost reduction. Opex ratios in
the broadcasting industry have remained
relatively stable in the period between
2011 and 2012. In a context such as the
broadcasting industry, characterized by
high operating leverage, this means that
important cost transformation and optimization programs have been carried out,
targeting both direct and indirect costs.

However, going forward, focus and

strategic attention need to shift from
direct costs, which are the easiest component to tackle, and content costs (which
need to take place in the context of a more
profound content optimization program as
outlined above) and switch to operations
costs. And that will require a more
profound change in operating models.

Figure 13 | Invested Capital vs. Enterprise Value/Invested Capital RationFree-to-air, 1/20111/2012




Enterprise Value Thresholds (USD bn)

Peer Avg.
(Latest) ~ 3,632


Peer Avg.
(Latest) ~ 1.7x


Antena 3

Ten Network

Source: Accenture analysis

20 The Future of Broadcasting III






There are a number of areas that will

need to be addressed to drive that

Streamline advertising sales

Advertising sales operations will
transform by consolidating online and
traditional sales forces and integrating
commercial packages. Technology will
also be critical to integrate with media
agencies in order to better exploit real
time inventory sales and decrease high
back-office costs arising from processes
such as order management, invoicing
and reconciliation.

Consolidate Engineering
and IT
Engineering and IT are, in most broadcasters, treated as separate departments
tasked with different business objectives.
However, the increasingly IT nature of the
traditionally more hardware-based arena
of production engineering (especially
in the areas of asset management,
newsroom systems and playout) and the
increased importance of new distribution
networks (broadband) and services (OTT)
is driving a profound change. It highlights
the importance of service-oriented
architecture to increase time-to-market,
requiring IT to gain experience of broadcasting environments and engineering
to equip itself with more IT skills.

Modernize operating models

Adopting cloud technologies

Broadcasters operating models have

remained substantially unaltered for years.
But change in the industry means a new
approach is needed. Developing a new
approach will require attention to:

Experimentation and the ability to launch,

trial, retire or extend new services quickly
without committing to significant upfront
investment is increasingly important.
That means adopting cloud technologies,
software as a service and data center
virtualization to decrease capex and opex
and focus on time to market and agility.

The traditional equation between audience shares and advertising revenues is
being challenged. Hefty cuts to content
budgets clearly present a catch-22, and
in a new world where content offers are
becoming richer and more pervasive, the
need to maintain local creativity and
differentiation becomes a vital source of
competitive advantage. Local production
is key but it has to achieve new levels of
efficiency and productivity to lower cost
per minute. Both technology and better
operational planning present opportunities to increase asset utilization (labor and
studios), reduce idle and downtime and
minimize the recourse to external capacity
to manage peaks.
An industrial approach to all non-core,
(HR, finance and administration, some
areas of technology). Costs can be reduced
through partnership with specialized
providers regulated by clear service level
agreements, or in some cases (i.e., large
conglomerates), using a shared service
model to capture economies of scale
and scope.

Make customer operations

more responsive to both
customer and company needs
The customer operations function is
at the heart of customer interactions
and accounts for between 3% (leaders)
to 10% (laggards) of ARPU and has a
substantial impact on SAC (Subscriber
Acquisition Costs). Becoming more agile
in customer operations means changing
the approach so that the need for
customer interaction is reduced rather
than making the interactions themselves
more efficient. The focus therefore needs
to be on the end-to-end process rather
than increasing the efficiency of specific
activities. Furthermore, outsourcers
incentives should be aligned by moving
from a price-per-call to a price-per-customer model, so that the outsourcer bears
the risk of rising call volumes. Finally,
customer operations can be improved
from the outset by deploying predictive
analytics to increase the relevance of
sales activity. More targeted offers that
respond to specific customer preferences
and behavior will help to drive offers that
are right first time and will require much
lower levels of expensive ongoing support.

The Future of Broadcasting III 21

Optimize content
As weve seen, the right content
has never been more important. It is
fuelling competition and high prices.
So proactively managing content cost
and returns is key to value creation.
Agile organizations are those that instill
content optimization as a systematic
series of processes and activities. They
innovate workflows to tightly integrate
commercial, editorial, production,
procurement and financial planning
so they can react quickly to external
discontinuities and lessons from performance analysis. Agility in managing
content requires some searching
questions, for example:
Is the extent of commissioning to
third-party producers consistent with
profitability targets? Commissioning
very often turns into the localization
of costly, tried and tested international
formats. High performers are moving
to a more efficient use of creative and
production resources to shift the balance
of internal productions over total broadcast time (excluding news and sport
programs), from 30/40% to 50/60%.
Is the rush to acquire rights and
prevent online disrupters from securing
exclusive content consistent with
capital efficiency targets? Our SVA
suggests that this approach might be
counterproductive. The Net other Asset/
Revenue ratio has grown significantly
from 2010 to 2012 as a likely consequence of over-acquisition of TV rights.
At the same time, the stability of the
amortization/revenue ratio, where
revenues are stable, suggests that all
such content remains, on average, largely
underutilized and confirms the risk of
overdependence on acquisitions.
22 The Future of Broadcasting III

What is the optimum shape and size of In summary, becoming agile

the product portfolio? Profitability may
means being stronger, leaner
rely on just a few programs from two or
and smarter:
three genres, raising the question about
what to do with the low-margin (if not
Integrating the digital world
loss-making) part of the portfolio. What
into core TV functions
is essential and warrants subsidizing?
How many brands generate value
after the local broadcast window
(distribution and extension)?
Is this in line with potential?

(advertising, engineering),

use of resources
(saturated production,
shared back-office,
responsive customer
operations, virtualization
more services, fewer assets);

attention to
content performance.

Value Theme 3

Distribution: Breaking down the barriers

Forces creating turmoil in the broadcast
industry are also the value drivers of the
future. Distribution is moving from
proprietary networks to a more open
set of (IP-based) Over-the-Top standards.
Consumption is moving from a narrow set
of devices to an array of large and small
screens. The game for operatorsnew and
establishedis simultaneously to move
with the times and protect core models.
Lateral movements are taking place across
the value chain. Operators like Netflix
are extending up the chain to enter the
professional content business. Telecom
businesses like Verizon are building

broader capabilities and services than

just voice and broadband, to create
high-speed communications platforms
that bring a wealth of possibilities to
consumers and content providers alike.
Free-to-air broadcasters, like the public
service broadcasters in the UK, are
forming consortia to buildand control
new IP-based aggregation services
(YouView). Meanwhile, established pay
TV operators, like Comcast, are battening
down the hatchesby rolling out new
services on new platforms at breakneck
speedin an attempt to preserve the
sanctity of their vertically integrated
one-stop-shop models.

Figure 14 | Lateral movements across the value chain

In such a fast-moving market, pinning

strategies on a focused outcome in the
medium term is increasingly difficult.
One of the major obstacles to certainty
is determining what the TV platform
or platformsof the future will look like.
The most urgent question to address is
the degree to which platforms will be
openi.e., platforms on which third-party
content and service providers can forge
their own relationships with consumers
or closedi.e., where content and service
providers still sell to the platform owner,
who controls all retail and consumer
activity. This question lies at the very heart
of integrating linear and non-linear in the
new world of broadcasting.

Value Chain


Includes music, movies, news, sports,

television programs, and video
production and adoption to web video
(user generated and professional)

Right Dealers


Content management
Content aggregation
Content scheduling
Content transcoding
Content presentation
Standards conversion



Provides the video distribution

Next-gen wireless



Render content:
2-way IP communication
Integrated media ingestion

(OTT TV/Linear) through

consumer electronics

Incumbent Digital Operators

Become the best one-stop-shop platform for consumers and content
providers (E.g., Sky Communications, Virgin Mobile, DirecTV, Canal+)

Digital Operator Challenges

Become a new platform: flexible, valued-led proposition
for consumers; better services for third parties (content and
services providers) (E.g., BT, TalkTalk, Verizon, Telstra)

Traditional Content
Protect existing business models; Continue experimenting
on new (E.g., Disney, Discovery Network, iTV, HBO)

New Content Entrants and Platforms

Take rapid, global advantage
(E.g., YouView, YouTube, Apple, Netflix, Amazon)

Content distributors may not have content

as a core business.

Next-Gen Distributors

Market Segments & Strategy

Existing player, core area

Existing player, core for some

Develop strategy for premium content

distribution (E.g., Vodafone, EE)

New entrant, core area

New entrant, core for some

The Future of Broadcasting III 23

There are a number of scenarios along the

spectrum of open to closed, including:

Additional platform questions include:

Perfect competition at the platform

services layer and barriers to entry
on proprietary devices
Controlled devices (e.g., proprietary
set top boxes) preserve a sophisticated
user experience but open up competition
for content provisioning by having
a standards-based platform where
onboarding of content providers is
a service differentiation.
Perfect competition on devices and
barriers to entry on proprietary
Making life easy for consumers to access by
being present on all main third-party party
devices but restricting the experience to
a single-party content proposition.

Will it be hardware-basedlike the

set-top box estate that dominates
todays pay TV worldor software/
applications-basedlike the Overthe-Top models that are emerging
in content and internet services?

Will it still be predominantly about

entertainment content or will a new
raft of services emerge that enable
activities, such as managing household
energy consumption and personal
finances, and/or focused more heavily
on new forms of social and gaming

Whatever its direction, we believe

that the fundamental nature of the
TV platform is shifting. As the market
becomes more crowded, TV platforms
will tend, at varying speeds and extents,
towards opening up.
We also expect to see platforms become
more focused on service provision. That
means both to content providers (such
as CRM, analytics engines, advertising
platforms) and to consumers (such as
seamless integration across devices
and more advanced search and curation
services). This shift will need to be
managed carefullywith the devil
residing in the detail of implementation.

Figure 15 | TV Platform as a Service

The Consumer
Access to easy-to-find TV content that they want
to watch, when they want to watch it, where they
want to watch it.

The Content Provider

Rapid access through wholesale/retail agreements
to a growing subscriber base with all of the associated
benefits of an established TV broadcaster.



content across linear and OTT

Seamless integration and content ubiquity
Content discovery and curation services

relationship management and billing

Content delivery network
User analytics and feedback
Business services

TV Platform as a Service

Pay TV Channels

Free TV Channels

Content and Services Consumption Layer

24 The Future of Broadcasting III

Next Generation
OTT Providers

Social Applications


24 The Future of Broadcasting III

The Future of Broadcasting III 25


Our latest Shareholder Value Analysis and analysis of

industry trends show the industrys turbulence calming.
The dynamic that was causing major uncertainty is now
driving change in a more positive direction. Broadcasters
that have identified the individual consumer as the
target audience are now embracing more sophisticated
strategies to engage an atomizing audience with new
digital experiences. Investors are rewarding their efforts.
When it comes to introducing innovative
TV experiences, consumers are showing
renewed trust in the traditional broadcasting segment. In our 2013 Online Video
Consumer Survey conducted on an annual
basis, TV broadcasters were voted the
most trusted source for a video over
internet service on the TV Screen (see
Figure 16). This is a major change when
compared to our 2012 Online Video
Consumer Survey, where telecoms and
internet service providers were rated as
the most trusted for introducing innovative
TV experiences. The strategies and efforts
broadcasters have put into bringing their
innovative TV experiences to life now seem
to be paying off.

Emerging media is bringing innovation and

a renewed sense of mission to the industry.
But it is also responsiblein partfor a
shrinking traditional advertising market
and decreasing subscriber numbers.
Broadcasters have reacted well to innovative players like Netflix by launching their
own on-demand offers, leveraging their
core strength: content. Now broadcasters

need to continue down this challenging

path to build loyalty from future generations of consumers and therefore future
targets for advertisers. But creating
compelling traffic on new VOD platforms
requires going one significant step further:
seamlessly integrating linear and nonlinear content as the core of new customer

Figure 16 | Preferred internet provider for TV video service

Traditional TV broadcaster


Telecoms/ISP/ broadband company

A brand new Internet brand/company
TV or gaming console manufacturer


Source: Accenture Online Video Consumer Survey 2013

26 The Future of Broadcasting III


26 The Future of Broadcasting III

The Future of Broadcasting III 27

Driving this continuous change agenda

opens up the opportunity to redefine what
is core and non-core for broadcasting
operations, and shifting operational focus
to broadcastings strategic core dimensions.
Our analysis shows that investors value
those broadcasters that are investing in
content as a lever for differentiation and a
barrier against competitors. But managing
the content proposition is becoming more
complex, competitive and costly. Traditional
distribution networks no longer provide a
barrier of exclusivity. Content performance
management will therefore be key to
preserving the balance between content
investments and returns. Furthermore,

integrated commercial, editorial, financial

and procurement planning can help allocate
capital for content sourcing consistently
with planned cost structures and revenues.
Capital and operational efficiency around
content is all to the goodbut for longterm value, broadcasters must get bolder
with commissioning decisions and seek to
exploit the increasing power of content
both globally and locally. And while the
magic of creating powerful content will
remain an art more than a science, better
management information and subsequent
decision-making can de-risk investments
that previously relied more on luck than

While we see a growing number of

broadcasters taking a more holistic
approach to content management, there
is also a set of players undertaking
continuous cost transformation and
optimization programs, targeting direct and
indirect costs by integrating and optimizing
advertising sales, consolidating engineering
and IT departments and streamlining
non-core functions. These transformation
efforts will not only compensate for
flagging revenue but also free up capital
for content production and innovation.

The importance of the modernization of broadcasting operations

and the continuing trend towards agility will grow in light of
the constantly increasing complexity of the broadcasting sector.
Consumption moving to an array of devices, lateral movement
across the value chain from all players and the fundamental shift
of digital TV platforms towards opening up will provide growth
opportunities. Theyll be taken by those who can innovate on the
back of a flexible but proven value proposition. For those that
cannot, turbulence looks set to continue.

28 The Future of Broadcasting III


Dominik Michaelis

Bouchra Carlier

Francesco is the global broadcast lead within

the Media and Entertainment (M&E) business
practice of Accentures Communications,
Media & Technology (CMT) industry group.
A broadcasting trendsetter with more than
15 years industry experience, Francesco is
known for shaping transformational strategies enabling major broadcasters to compete
more effectively in the fast changing
landscape in the multiplatform digital era.
From content creation to distribution, he
helps clients develop strategies for digitally
convergent products and services. A
Communications, Media & Technology
industry stalwart with strong financial
acumen, he has been instrumental in
shaping cutting-edge financial deals
within the media industry.

Dominik is a Senior Manager in Accentures

Media & Entertainment industry practice.
He has more than 10 years experience
working with commercial and public
broadcasters. His focus is on end-to-end
digital transformation ranging from media
sales optimization to distribution strategy
development. Dominik also works closely
with clients from the print, e-Commerce
and collecting society segments in
German-speaking countries.

Bouchra is a Senior Manager within

Accenture Research, a global organization
devoted to Business and Strategic analysis.
Bouchra leads Media and Entertainment
high performance research globally. She has
more than 15 years experience within the
Communications Media & Entertainment

Francesco Venturini

Jennifer Watson

Egidio Di Alberto

Charlie Marshall
Charlie is Accentures Management
Consulting Lead for Media and Entertainment
in EALA. He is based in London and works
across several of our key broadcast clients
in the UK and globally. His recent work
has covered many aspects of strategic,
operational and technology transformation
in broadcasting.

Egidio is a Senior Manager in Accentures

Strategy practice. He has over 10 years of
experience working with clients across the
Media & Entertainment industry, including
public and commercial broadcasters, pay TVs
and publishers. His primary focus has been
transformational projects, mainly pursuing
business evolution in response to the
digitalization trends and opportunities
offered by emerging markets, to help
clients remain market leaders.

Jennifer is a Manager in Accentures Strategy

practice. She has experience working with
clients across the Media & Entertainment
industry, including television, print, and radio.
Her primary focus has been in helping clients
develop growth strategies specifically new
product development & launch, pricing and
bundling strategies, as well as profitability
optimization to remain market leaders.

The Future of Broadcasting III 29

About Accenture Digital Services

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