A dire but common picture in entertainmente venues worldwide.
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Complete sectors of the media and entertainment ecosystem, like theaters and live sports, have been effectively shut down across the globe. At the same time, consumption of media and home entertainment are way up, as we crave news and content while we follow lockdown mandates. What will be the net economic effect on the industry?
The trends are evolving day by day and there’s lots of uncertainty about when the shelter-in-place orders will end. Nevertheless, here’s my humble prediction.
Short-term direct impacts
At the Outthinker Virtual Summit on Tuesday, Paul Krugman, Nobel laureate in economics and NY Times columnist, stated about the U.S. economy: “What we’ve done is we basically put a fraction of the economy, maybe 20 to 25%, into suspension; we put it into coma for the time being.”
For the U.S., I estimate a 15% contraction in the media and entertainment industry from the direct effect of the induced coma for live events, including theater exhibitions, live sports, musicals, and concerts. Then, considering the indirect effects below, it’s possible that the contraction for the industry will reach 20-25%, in line with Krugman’s prediction for the broader economy.
Indirect impacts
The direct impact is somewhat predictable based on the dire picture of empty stadiums, theaters, stages, and other venues. What’s less evident and will depend on how long we remain in lockdown, is the magnitude of the following side-effects.
Less spending. Krugman stated that unemployment levels in the U.S. could reach the levels of a great depression, and I fear this could be the case in other countries significantly affected by the pandemic. Consequently, many consumers are having no choice but to reduce or eliminate discretionary spending in media and entertainment. So on average, we are watching more but spending less.
Health concerns. When the lockdown is lifted, the risk of contagion will make people reluctant to attend live events. So the recovery may be slower for sectors of entertainment that rely heavily on ticket revenues, such as music and sports.
Ad revenues. Despite reported upticks in content consumption at home, there are cuts in advertising budgets in other industries significantly affected by the pandemic. Omdia is forecasting a 25% decrease in global ad revenues. For the week of March 23, Kantar Media reported an 8% decrease in advertising in the U.S. market, with food ads down 21% and travel and tourism ads down 94%.
Piracy. Unfortunately, with consumption shifting to digital and the forced reduction in spending, I expect an increase in piracy. There is some evidence of it happening in Italy during their lockdown.
Sector-specific side effects. Supply chains across the industry are being significantly disrupted. For example, in the movie business studio productions and theater exhibitions have come to a halt. In addition to a 25% projected dive in global cinema revenues according to Omdia, downstream revenue that would come from digital sales will decrease or delay. Also, once the lockdown is over it will be hard to ramp up the creative talent (actors, directors, writers) that has been idle for months, which will increase production delays.
The silver lining
There is some upside. At least in the short-term, consumers are glued to their mobile devices and screens at home, leading to substantial increases in consumption. There are reports that video gaming and video streaming activity in U.S. homes have doubled. The problem is that not all of that consumption will translate into revenues. Strategy Analytics forecasts only a 5% increase in video streaming subscriptions globally in 2020.
Unfortunately the uptick in consumption will not compensate for the bigger losses anytime soon. Krugman anticipates a gradual macroeconomic recovery post-lockdown, as opposed to a V-shaped recovery. The curve for media and entertainment is likely to follow a similar slow, upward path, as employment creeps back up from record-low levels.
But let me end on a promising note. At the Outthinker summit, I asked Salim Ismail, tech visionary and lead author of Exponential Organizations, how the crisis would affect media and entertainment. He stated: “I think this is going to shut down a huge amount of existing businesses… the huge winners are going to be the media-rich social networks, and I think this is where virtual reality and augmented reality now will start to play a real game.”
I agree with Ismail. Necessity is the mother of invention. Thanks to its incredibly creative and entrepreneurial talent pool, rest assured the media and entertainment industry will get back on its feet, slowly but surely, and with a serious digital facelift.