Transcript Blog- The Global Impact of COVID-19 on the Media Industry

[StephStapes]

In this episode of Industry Insights by SAP, Josephine Monberg hosts Richard Whittington, Global Head of Media and Entertainment Industry Unit at SAP. Richard dissects the various aspects of the media industry and shares how the pandemic has impacted each one of them.

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Josie: (00:00) 
Welcome to the industry insights by SAP podcast series. My name is Josephine Monberg and I am your host. You are now listening to the COVID 19 special edition of our show. Welcome to our podcast.  
 
Josie: (00:18) 
We're doing these special edition episodes of a podcast where we're looking at how different industries are being impacted by COVID 19 today we are taking a closer look at the media industry and to do this I have with me in his virtual very cool home studio. Uh, Richard Whittington is, he's the global head of the media industry at SAP. Richard, thank you so much for being with us today.  
 
Richard: (00:48) 
Josie. Pleasure. Okay.  
 
Josie: (00:50) 
So Richard, before we get started and talk more about how media is being hit by COVID, can you tell us a little bit more about what it means to be the head of media industry at SAP?  
 
Richard: (01:00) 
Yeah, I mean it's actually a fun job, right? I mean, we have 25 industries that SAP media is one that probably touches pretty much 99% of the world's population. My job is really to look at the Lego bricks that as a Danish person and understand Lego, um, to look all the Lego bricks SAP has and how did I put those together with our teams to solve industry problems? Um, much like what we're experiencing right now with the COVID crisis. Um, and so I can spend a lot of time thinking about where the industry's going, trying to react to where it is and then trying to help customers move through some of the, some of the challenges and opportunities.  
 
Josie: (01:38) 
Yes. And for those listening interested in where I am, Richard alluded to it. I am in Denmark, in Copenhagen, so the home of Lego. And Richard, where in the world are you  
 
Richard: (01:51) 
Today I'm just South of Los Angeles at home. Like most people here in California trying to be socially responsible and socially distance. So working from a home office  
 
Josie: (02:01) 
and I'm know that we all appreciate everyone who's socially distancing right now so that we can get through this crisis, um, hopefully as fast as possible. Now let's talk a little bit more about the media industry. So what are you seeing right now? How is media being the media industry being impacted by COVID 19? I think  
 
Richard: (02:21) 
to answer that question, you really have to look at it in two kind of buckets. One is the content supply and secondly is the consumer reaction, right? So I think if you, um, and again, media is interesting industry cause there's many different segments. So you have filmed entertainment, you have TV streaming, broadcast book, publishing news, uh, music and advertising. Um, but if you really look at it in terms of let's use the film segment and TV and streaming as, as the proxy here, suppliers constrained right now. So we had this, there's a tremendous latency between an idea being hatched and a TV or a streaming service, uh, producing the content. Um, and so there was a lot of content that was being made. There's something in the region of 500 original TV shows were made last year, uh, in 2019. All of that has stopped overnight.  
 
Richard: (03:11) 
So, um, the creation of this content in with respect to, uh, films and movies and streaming shows have stopped. On the other side, news is increased because, um, people tuning in, trying to understand what's happening, um, whether that's, you know, a BBC or whether that's a Fox news as a full spectrum of points of view on what's happening. So news consumption is up. But really I want to focus a little bit on the production supply chain piece because you know, you have a situation, if you think about it, a production requires a lot of people. So you have social distancing issues, you have probably a lot of locations. So you have travel, you have consumption of food and services, all of that has stopped. So there's sort of two, so whats of that, first of all is what are those people doing for a living?  
 
Richard: (03:57) 
Um, secondly is how long is the supply chain of built up content going to last before we start? You know, there's a joke on the internet, right? Which is I finished Netflix. Um, and then the, the other aspect of that is how has that supply chain going to restart? And is there an opportunity to reimagine how we did that? And can we do that at a low cost point so we can build up more inventory if you think about it at a cheaper cost for, you know, the next crisis. Um, so I think we're on a really interesting pivotal point. I was reading some stuff over the weekend about how Hollywood's going to restart. And I use an example from actually from Disney, which isn't quite Hollywood, but it's the theme park. So in Shanghai they're opening this week. So what they'll do is they'll reduce the number of people that can come in.  
 
Richard: (04:43) 
They've marked on the ground where you can and you cannot stand. They're running the rides at a much lower capacity. They restaurants, um, have a lot more social space between tables, much like Sweden. I was watching that and I thought this is really creative. This is a good attempt. But you think about the economics underneath that you need more labor because you need more cast members because people are confused and you have to enforce the social distancing. You have different procedures. I mean obviously China has the QR health code, which is very culturally different than Europe. And the US uh, you have temperature checking. Um, and then you have basically a smaller revenue bucket coming in because you have fewer people. So the economics are going to be a bit messed up for, for a period of time. Whether it's production of content, whether it's theme parks or whether it's, you know, sports. Sports is another interesting example.  
 
Richard: (05:29) 
You know, much of the audience for sports is actually at the venue. There's obviously the TV aspect of it, but you know that I see a La Liga or the bonus league in Germany is thinking about reopening, but will people get the same excitement, um, from watching sports without a crowd. They're cheering it on, creating part of the theater of a sports performance. It was interesting over the weekend that UFC opened up here in the US with no crowds and it was deemed a success. We'll, we're yet to see, but it's not all doom and gloom. And what you're seeing is you're seeing things like Nascar doing I-CAR racing and you're seeing MLB, MLB pulled an audience of 22 million last weekend where they had real players playing virtual sports and fans watching that. So you'll see, you'll see some creativity because after all it's a free creative industry, but I think there's some significant challenges around creating enough content in the, in the supply chain.  
 
Richard: (06:22) 
Again, you've got some creative things going on. You've also got some other interesting things. So you have here in the US the launch of some new direct to consumer services like peacock, like HBO and max and their service. They are delaying their launches because they can't bring new original content to the launch. And on the other hand you have Disney with obviously a lot of kids out of school and a lot of people gravitating to feel good content. You have Disney plus hitting 54 million subscribers well ahead of their business plan, probably two to three years. They think. The interesting part is we get into how the consumer's changing is how many people will keep those services once the lockdowns off. How many people think, if you look at, um, the average number of subscription services in the US is about 3.5. As you look at an unemployment rate potentially of 20% hitting us.  
 
Richard: (07:13) 
You know, media is a very big discretionary spend where you see some contraction in the number of services that people will have. Um, what will keep people on those streaming services when you don't have fresh content? Will people like Disney who are pretty good at it or NBCU, uh, or other media companies really understand the difference between acquisition marketing and retention marketing. Um, you said a big spike in things like Peloton, which is another content company with people trying to wait for a month for the bike and then finding out that the content is archive content. But you've also seen, I mean, TV shows being done from home, right? Jimmy Kimmel, you're also seeing Peloton to live classes from home. It just becomes a question of does that sub professional, if that's the right expression content, have enough pull to keep people around as the lockdown as summer arrives. Um, I mean, Netflix saw a 30% bump in subscribers in March. Um, but also wall street journal did a survey that said 37% of Americans would drop one or more streaming services if they lost their job. So it remains to be seen the, the full kind of impact of, of COVID.  
 
Josie: (08:24) 
Mm. So it's really an industry that's being hit different degrees. Some has way more demands. I'm just always been like shut down. And the industry is always already being reimagined where I think other companies and other industries are just trying to respond. And then there's the recovery and then there's the reimagining whereas the media industries being is having to reimagine right now. But the question is, will that be a longterm strategy? So what do you tell your customers right now when you talk to them? I mean, I think,  
 
Richard: (08:56) 
look, I mean it's, it's a little late, you know, where we're at, what, three months into this in the U S to really say we can help you respond. Um, I think the interesting part on that is content and my prophecy of a hypothesis, content isn't enough. You have to match that with customer experience. So I think what, um, media companies can do today is really get closer to the consumer, understand, start to do some predictive around people. Are people going to churn these services once you use such streaming as the example, are they going to turn, you know, those things off when things get better and really start to be proactive about retention, marketing. I think this is number one. Number two, um, I think visibility to cost, I think, you know, there's, there's two or three pressures. One is obviously income related in the sense that people will cut their services and again using direct to consumer.  
 
Richard: (09:44) 
Second is cash is King. Um, and you know, being able to monetize this content, you know, is somewhat constrained because movie theaters are not open. Box office has basically gone for a lot of companies. So you're seeing content delayed. And then the third thing really is um, in advertising supportive models. You know, consumer spend is down. A lot of consumer products or retail companies are cutting back on advertising. Things like the Olympics has been pushed. Um, the, the advertising spend is less so they're getting hit from both sides. So what we're telling them is, be closer to the customer understand the customer pulse, you know, things like customer experience surveys are important, be uh, on top of your cash, be able to predict, um, when you're going to have cash bumps and, and, and troughs and lows and then look at how when you come out of this you can do production in a much more cost efficient way so you can build up inventory and the finance folks understand cost of goods sold so you can build up inventory a much cheaper cost, but also be able to amortize that cost over a longer period so you don't have to burn that inventory right away. All of that, I think is pulled together by analytics. I think. I think the one big aha out of this is coming out of this. The ability to really understand from an end to end perspective what's going on in cost, what's going on in revenue down to an episode or a soundtrack or a song level is something that this is going to really tilt and accelerate. That progress has been going on. It's been, you know, it's not like media companies were sitting there blind, but I think it's going to become hyper important to give executives the information at their fingertips.  
 
Richard: (11:25) 
They can make these real fast decisions because no one knows whether it's going to spike again or whether it's going to go on for a year, two years, three years. There's so much uncertainty and that ability to have the customer's a sensor to have your hand on cashflow, to be able to predict the supply chain is sort of a triangle, but you know, I mean things. Things like tik tok, tick talks, a great example, right? Where it's user generated content, 2 billion audience worldwide. It's not like consumers won't go else for their media experience. It's, it's just really a question of who are going to be the ones that really thrive. I think you will see some consolidations. Um, you know, some of the smaller, smaller content companies will end up getting sucked in. But it really depends honestly, how quickly we come out of this and how quickly consumer confidence comes back so that the advertising spigot can be turned on so we can get back into making new stuff and we can get back on to enjoying the stuff that's been made. I mean, things like even burning man is going virtual now. And then how you can have a virtual virtual burning man is what do you set, set fire to someone in that garden?  
 
Josie: (12:31) 
Well, if that, yeah, if that doesn't say something about the time we're living in then I don't know. What will, um, Richard, you just talked about how media obviously is very creative industry and something I'm seeing across all industries when I do these interviews is that digital transformation is being accelerated massively. And you talked about the role that technology plays and will play in all of this, but do you think that digital transformation is also being accelerated in the media industry? Well, I think, I think early in that anyway.  
 
Richard: (13:01) 
I mean, if you think back to the very beginning of iTunes, you know, I mean, it's amazing the amount the lifecycle of iTunes has been and gone in like 17 years. Um, there's a lot of digital transformation. I think what is more, um, imminent is a reorganization or towards efficiency driven by digital transformation, right? So what does that mean? It means being able to do total spend management across the full production value chain. It means having a deep understanding of cost, a good salt. It means understanding what the consumer wants next. I mean, if you're in a world where your market is contracting, what you've got, you know, what do we see? We saw a 48% increase in tik tok in the US last month where you've got these competing services for eyeballs. You've got to know that customer really well. Um, you've got to know what they're going to want to watch on a Friday night.  
 
Richard: (13:52) 
You're going to really get the right content in front of them. So I think in one sense there's an opportunity around this whole predictive powered by the understanding the consumer to release hyper target, you know, the wreck, the right content at somebody, but in addition be able to show more value to the advertiser by saying, I am hyper targeting Josie and I know what she likes, I know what she wants, I know what she's going to buy. It's no longer sufficient enough just to throw money and advertising at her. I've got to be hyper specific, not just um, in digital but in broadcast and cable and streaming. However, this, you know, like peacock is going to be ad supported really across that spectrum. Obviously, you know, the digital online marketers know this inside and out, but it's got to, it's got to extend across other media platforms and you'll see other things like we work with a company called Now United, which is Simon follows band or concept out of the UK where new revenue streams are driven by digital driven by this insight on the consumer are going to happen.  
 
Richard: (14:54) 
For example, we just went soft live with them last week around where you can buy commerce and outfits from the performance on the show. So not relying on subscription or distribution fees, not relying on advertising but looking at commerce power by digital transformation, uh, as an adjacent revenue stream. Um, all of this kind of comes together when you start to reimagine what are we going to, life has changed. What are we going to do? Can I continue to spend $108 billion between maybe the top 10 US media companies last year in content production? The answer is no. Um, you know, so I think there's, um, there's another debate that's been going on years, which is also this concept of windows where I make a piece of content. It goes to the theater, then it goes to video, then it goes to pay TV or free TV and et cetera, et cetera. Disney with frozen two went straight to consumer, uh, troll, you know, with NBCU, um, went direct to consumer and it's upsetting the value chain. It's upsetting the participants in the value chain and it's disruptive. Um, but I don't think that genie is going to go back in the bottle anytime soon.  
 
Josie: (15:57) 
So that's a little bit about what companies should be doing, what you're telling me, what the advice is in general and how it's being reimagined. But what do you think, I'm really curious, what do you think will actually happen when you restart and also what do you foresee that there will be longterm structural changes in regards to the media industry?  
 
Richard: (16:17) 
I get my little crystal ball. I pulled out my crystal ball. I think production, it's going to be a slow restart. I mean I was reading against some stuff on it. Let's talk about film to start with. Um, it's going to be a slow restart. As you know, there are so many different components to making a piece of content. You'll see fewer people on set. You'll see more local productions. You might see more animation short term because animation doesn't require people to get together to make it. You can do that virtually. I think you might see the more you more use of visual effects. For example, augmented reality at sports and sports competitions where you can actually fake the crowd. Um, so you start to see things like that. I think, um, you will see big focus on the consumer media was already going through a major transformation around digital consumer with all the streaming services that will get accelerated.  
 
Richard: (17:10) 
There's no doubt about that. You will see, I think it's live sports come back because it's such a massive industry and the TV rights are worth so much money that will come back. I do think you will see a much more leaner, financially efficient industry because of the need to do that. And I do think you'll see some consolidation of smaller players who just can't survive. Um, so I do, I think, you know, coming out of this, what does the media company of the future look like? It think of an analogy of a plane. It'll have a flight deck where you'll have all the dials and widgets of what's going on in that business. In real time. You'll have tighter chains with partners working more closely with studios and content providers to um, understand where the costs are being spent. You'll see shifts, you'll see e-sports grow.  
 
Richard: (18:00) 
Um, you'll see user supply content, as I said about tik tok grow. Uh, you will see, um, much more social sharing of content. It really depends on how socially distant we remain. I mean, zoom watch parties for example. Um, people will still get, I still find a way to get together. Media has always been a social event. Um, no one goes to a rock concert. I think you'll see, you know, with live performances that will take a long time to come back. And I don't think that will ever look and feel like we knew it until there's decent therapeutics or a vaccine. But, um, you know, you'll see, uh, Simon Fuller's doing different ways of making monies out of those events. You'll see, I think we were talking to a high end, uh, count team for a big hotel chain last week, you know, branded content, you know, chefs of the four seasons, chefs of uh, you know, the Ritz Carlton, you'll start to see companies like that start to leverage their brands, consumer brands, curated content, um, in a much more, uh, virtual way because there's opportunity in that, right?  
 
Richard: (19:06) 
I mean, you know, if for example, let's use the four seasons as example, you created travel created, cooking created lifestyle, um, supported by advertising, for example, to very targeted audiences. So I think there's a, it's really actually a positive thing if you discount the human tragedy, which you can't, uh, and you just count the ICAN economic impact, I think for me to come out the other side. It's really kind of cool because you can reimagine and you need to reimagine and technology will play a large part of that. I think, you know, the ability to Hollywood is a good example. They're still creating content that was filmed and shot beforehand, but they're able to valve virtually do postproduction, which is usually a long process. And so people get more comfortable with this virtual work environment. Um, fan engagement will become the norm. We talked about getting to know you as a consumer.  
 
Richard: (20:00) 
Um, we're seeing sports teams now reaching out to their fans. You're seeing zoom as a medium for stars in, in these sports, uh, media, uh, events, be able to reach their fans one-on-one with hosted zooms. And that will be monetized. I mean, right now it's in the response stage, but in the reimagine stage, that intimacy, um, will become a monetized event. You know, it just, it just never makes me, if you, I don't know if you've watched the, andrea bocelli thing at the Notre Dame dome, um, sorry, not the Notre Dame one. Um, anyways, move on that, but he, you know, he pulled an audience about 18 million and there was no, no, no one there other than him. But I mean, again, that might've been sort of the, uh, the human need to reconnect after the event, like after nine 11. But I do think you'll see new competitive offerings.  
 
Richard: (20:51) 
You'll see a big play around driving consumer engagement and experience and you'll see another big play around driving media companies become intelligent insight driven organizations beyond what they already are today. But, you know, it could all change tomorrow, right? I mean it's, it's, um, as companies start to come out of lockdown, I think we'll, uh, we'll end up seeing some of the lessons that we can learn from that. Um, but you know, we've been in century over 20 years as SAP, our customers span the globe. You know, we've got about 83% of the Forbes global, two thousands. Our customers, we're close to what's going on. Um, and so hopefully we can bring that value to some of our customers as, as we move forward through the respond, recover and reimagine phases.  
 
Josie: (21:37) 
Yeah. I mean, it's such an amazing industry and it's so fascinating and I'm realizing while you're talking, how much this industry is really going to be reimagined also because of the creativity that really serves as the foundation for this industry. So I am personally super excited to see what big changes it'll drive more longterm, not just right now, but for the entire industry. Moving ahead. So on those words, Richard, thank you so much for coming on the show and sharing so many insights about how the media industry is being impacted by COVID 19 and to those who listened to this episode. Thank you so much for listening in and hopefully I'll see you on the next episode. Please subscribe to her channel industry insights by SAP at open SAP, Apple, Spotify, or Google podcasts. To learn more about what SAP is doing to help you cope in covert 19 you can go to sap.com about global health safety and find free access to select SAP software tools to support your business and much more. Stay safe. Everyone.