Costs of technology rising for media companies, PricewaterhouseCoopers says
The entertainment industry is having to invest heavily in new technology in order to keep up with consumer demand for their favorite music or television show on any mobile device at any time.
Over the next five years, digital content will account for 87 percent of the growth in spending in the entertainment and media business, according to a new report by PricewaterhouseCoopers. Those revenues will come from digital advertising, sales, licensing and other internet-based forms of capitalism.
But all that profit will come at a price.
“We've reached a tipping point that requires companies to make significant investments to stay on top of the technology,” Cindy McKenzie, managing director of PwC's entertainment, media and communications practice, said. “The exponential growth in the amount of digital content and the number of formats being used is causing a fundamental shift.”
Overall, information and technology spending in the entertainment sector will hit $60 billion by 2017 and will increase at a compound rate of 9 percent per year, the study finds. That spending will go towards enhancing the way that entertainment companies distribute their content and make it accessible across a dizzying array of devices and internet platform.
Gone are the days, McKenzie noted, when studios could get by with a small staff tasked with handling the digital supply chain. As consumer spending on digital products grows, so to will studios’ overhead costs.
“Companies need to figure out ways to make the same piece of content available on people's phones, on their tablets, on their computers and on their TV screen,” McKenzie said.
This growth in digital spending is being made possible in part by cloud technologies, such as the iCloud and UltraViolet, which are making owning digital content more convenient and desirable by allowing users to stream shows, movies and music across multiple devices. Cloud technology may also be key to providing less expensive ways for entertainment companies to transfer their content and collaborate on products, the study notes.
Hollywood has had a tortured relationship with new technology, as important sectors of its home entertainment and music industries have lost ground to new players such as Netflix and Spotify. Yet these deep-pocketed players are also becoming a crucial source of sales now that they are beginning to make substantial investments in original programming. YouTube, the video streaming service that Google owns, recently invested $200 million in producing shows from established talents such as Russell Simmons and Adam Carolla, and Netflix, Amazon and Hulu are producing high quality programming such as “Orange is the New Black” and “Alpha House.”
They've also emerged as important buyers for the content, with companies such as CBS, Disney and Warner Bros. all signing distribution deals with online video providers in recent years.
“The line is being blurred between content producer, distributors and advertisers,” McKenzie said. “What we're finding with each and every one of the companies that we deal with is that it's causing significant changes throughout the technology eco-system.”