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Media & entertainment’s journey of virtualization

Proxima
Feb 5, 2014 9:46:00 AM

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Media and Entertainment's journey of virtualization

Business has changed - driven by globalization, technology and changing consumer habits.  Executives have had to rapidly adapt their business models, products, and distribution channels in response to these groundswell changes.  But the implications of these unstoppable forces don’t stop there.  Another impact is that suppliers today are providing an ever-increasing proportion of business activities, many of which used to be delivered by direct employees and internal operations.

This externalization of these activities, and therefore costs, is known as ‘Corporate Virtualization’.  And here’s the rub - while executives have successfully adapted their business models to the changing external market, many have failed to adapt their internal operating models fast enough or far enough.

To better understand the challenge brought about by Corporate Virtualization, let’s take a step back for a moment.

In 2012, sales from digital media overtook physical media for the first time ever.

Media & Entertainment businesses lacked both the internal knowledge and capability in the rapidly evolving digital space, and as a result much of this transformation was driven by external specialists, resulting in the on-boarding of long lists of third party suppliers: change consultants, auditors, digital thought leaders, digital content specialists, digital marketing agencies, process engineers, systems engineers, technologists – you name it.  All were brought in at some point to digitize an increasingly outmoded industry. Some who didn’t get the right advice (or didn’t take risks) quickly receded into financial distress, with a series of businesses losing major sources of their historical revenue streams between 2011 and 2013. Some have even disappeared from the landscape altogether.

Today, 55% of the annual revenues of the average Media & Entertainment business are directed outside the organizations. The suppliers are numerous, fragmented across hundreds of areas of specialism, and dispersed both regionally and globally, presented a new host of challenges for these companies. We have found that there is often little understanding or capability of how to effectively deal with this externalized ‘value delivery’ machine.  Given the rate at which many companies were forced to respond to the digital boom, it should come as no surprise that time for strategic thinking and careful planning was a luxury many couldn’t afford.

During this frantic rush, many executives began losing visibility into the lines that defined where their operational control ended and where suppliers’ started. Sources of insight, knowledge, innovation and market expertise began to originate more frequently from the suppliers. Salaries became invoices. Today, Media & Entertainment businesses spend, on average, only 23% of revenues on their own people.

So here’s the good news.  There is a large opportunity for Media & Entertainment businesses to improve both the value this new ‘extended enterprise’ can achieve and how corporate and functional objectives are successfully met.

We’ve seen some great examples of this already. Digital is now firmly incorporated into marketing operations.  There’s been a dramatic move into social media advertising (did you know 81% of people use a smart phone and television simultaneously?; and 20% of media spend in 2013 was on developing integrated multi-screen campaigns -  a number that is expected to reach 50% in 2016).  Media buying now happens in real-time.  And the accurate measurement of media effectiveness is finally possible.  This impacts the consumer and drives revenues. All are being created and executed by external providers. 

We’d be very interested to hear your stories of how the extended use of suppliers is helping shape a better world for your business.

Please leave comments using the box below if you would like to join the conversation.

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