Preparing for the Best

PREPARING FORTHE BEST

EXPERTS SHARED LOADS OF PREDICTIONS ABOUT POSSIBLE SPEED BUMPS AND BRIGHT PROMISES DURING media finance focus 2021.

THE SECOND ARTICLE IN A TWO-PART REPORT.

BY JANET STILSON & KRISTA VAN LEWEN

As finance departments position themselves for a comeback after the COVID-19 crisis, enormous changes are afoot that could make labor laws much more pro-union. At the same time, some streaming TV services are expected to refine their business models, and esports businesses could show stronger results as the next year progresses. Those are just a few tidbits from the smorgasbord of knowledge shared during Media Finance Focus 2021. Here are some insights that we put on our “plate” during the event’s second half.

Forging a PostCOVID Strategy

DOES YOUR companyhave a COVID-19 exit strategy? That question was front and center during a session that featured two McKinsey officials.

On the upside, companies responded 20-40 times faster than they thought they could during the crisis, delivering working solutions in days instead of weeks or years, said senior knowledge expert Laura LaBerge. On the downside, organizations still must

navigate uncharted territory. With some course corrections, companies – particularly media companies – stand to leverage their technology innovations and flourish in the years ahead.

LaBerge and Priyanka Prakash, an engagement manager at McKinsey, cited a study showing that 64% of respondents plan to build new digital businesses as part of their COVID exit strategy. “The rate of change in the media industry has been pretty acute,” said Prakash. “Companies are using this moment in time to innovate, diversify, maybe completely reinvent aspects of their business. And CFOs are rising up to take part in this innovation.”

In fact, in this increasingly digital world, both the CFO and chief technology officer (CTO) roles are becoming more significant. “Five years ago, a slim number of organizations in the tech space had the CTO in the room when big decisions were being made,” said Prakash. That’s changing, and in parallel, McKinsey sees a large increase in CFOs looking to make the finance function more agile, streamlined and digital.

CFOs have a prime opportunity to enable their companies to meet new challenges, LaBerge and Prakash advised. Finance can work in cross-functional, agile teams; use analytics to generate performance insights; and develop in-house talent. “Finance can become the single source of trust, helping to shape decision-making. It’s really an advisor to the entire business,” said LaBerge.

“FIVE YEARS AGO, A SLIM NUMBER OF ORGANIZATIONS IN THE TECH SPACE HAD THE CTO IN THE ROOM WHEN BIG DECISIONS WERE BEING MADE.”

—PRIYANKA PRAKASH, McKINSEY

Biden’s Swing for The Fences

IF PRESIDENT JOE BIDEN’S dreams come true, the U.S. will see far-reaching changes in its labor laws. The Protecting the Right to Organize (PRO) Act, which passed the House and now faces a Senate debate, is key to that goal. So said Dave Masud, managing partner of Masud Labor Law Group, and Dana Neves, senior vice president, WFSB, and labor relations for Meredith Local Media Group, during their presentation.

“It would be the single biggest change to labor laws ever,” said Neves. “For an employer, it could be enormous. It would give unions more power than they’ve ever had, or maybe not since the 1930s.”

The PRO Act would eliminate state right-

“[THE PRO ACT] WOULD GIVE UNIONS MORE POWER THAN THEY’VE EVER HAD, OR MAYBE NOT SINCE THE 1930S.”

— DANA NEVES, WFSB-TV

to-work laws, which prohibit union security agreements between employers and labor unions. It would also block employers from hiring permanent replacements for striking employees. “If we were not allowed to bring in permanent replacements, we would lose some bargaining power,” said Neves.

If the PRO Act passes, it would also be possible for employees to strike for secondary activity. Under current rules, “if Dana’s home station in Hartford, WFSB, had a labor dispute with their union, the union cannot set up a picket line in front of one of [the station’s] big advertisers,” explained Masud. That roadblock would be eliminated if the PRO Act passes.

The act contains several other provisions that raise concerns, but its fate is far from assured. While it passed the House vote earlier this year, the act is likely to spark a filibuster in the Senate. As a result, 60 votes would be required to pass it. So the current debate over whether or not filibuster rules should change is critical.

Regardless of whether the act passes in its current state or in a watered-down version, Biden and his Democratic colleagues are invoking their power to make the U.S. more pro-labor in other ways. Perhaps most notably, the makeup of the National Labor Relations Board is changing from its Donald Trumpera composition. Biden is already shifting the balance of power to his own party.

DAVE MASUD

Video Games’ Epic Year Ahead

WILL THE VIDEO GAME INDUSTRY CAPTURE MORE INVESTMENT ATTENTION from SPACs, more formally known as special purpose acquisition companies? Will the esports business come out of its COVID-19 funk during the next year? Will the court showdown between Epic Games and Apple result in better economic conditions for video game apps? Those are some of the questions raised by Mark Mondello during his annual valuation presentation. There’s an attractive business model for most sectors of the video-games industry, with the exception of hardware, said Mondello, who is Duff & Phelps’ managing director, global leader of entertainment media valuation advisory services. “The big powerful companies are getting stronger, because they’ve been able to generate more and more out of their franchises through digital distribution and just elongating the franchises,” he said.

“THE CAPITAL MARKETS ARE STRONG RIGHT However, the esports business had a bit of a rocky year, because it wasn’t able to hold live events during

NOW; THE IPO MARKET’S the COVID crisis. Mondello noted that the $1 billion

GOOD; AND THERE’S A in sales that esports generated last year was a drop from

LOT OF SPACs WITH A the year before, but it’s likely to ramp up as the economy LOT OF CASH.” continues to improve. — MARK MONDELLO, So are the investment opportunities. “The capital DUFF & PHELPS markets are strong right now; the IPO market’s good; and there’s a lot of SPACs with a lot of cash,” he said.

Mondello also noted that Epic Games, the force behind Fortnite, is among the other companies that might go public. This possibility comes when Epic and Apple are awaiting the outcome of their high-profile legal battle, which largely stems from Epic’s resistance to the 30% app store fees that Apple demands. Mondello questioned whether the final outcome would emerge before year’s end.

The Streaming Tsunami

THE DELUGE of streaming services that compete for consumer attention has created a “flixopalypse,” joked Alan Wolk during a session on subscription video on demand (SVOD) services.

Wolk, co-founder and lead analyst at media industry consultancy TV[R]EV, noted that SVOD began slowly with Netflix, Hulu and Amazon. “Suddenly it’s everywhere, as Paramount+, Apple TV, Disney+, Peacock+ and others joined the fray,” he said. “And the pricing is so competitive, you can subscribe to all nine major services for less than $100 per month.”

Wolk’s advice to SVODs? It’s complicated. They must grapple with churn, as customers toggle between ad-free and ad-supported services. Network groups with more than one service need to determine how to best bundle and discount them. The brand “A Team” (as

he calls it) – Discovery, Hulu, Netflix and Amazon – is in a good position, since top talent wants to work with them. The “B Team” – where Wolk places Paramount+, Peacock and Apple TV – “needs to figure out what they’re doing. News and regional sports will be key.”

Don’t count linear TV out yet, he said. “It’s shrinking, but it’s far from over. Massive

“[LINEAR TV] IS SHRINKING, BUT IT’S FAR FROM OVER. MASSIVE CORD-CUTTING IS FICTION. THERE ARE STILL 80 MILLION SUBSCRIBERS.”

— ALAN WOLK, TV[R]EV

cord-cutting is fiction. There are still 80 million subscribers.”

Meanwhile, the recently launched Peacock service is on a mission to join the A team. It offers consumers three options: free, ad-supported “premium” and ad-free “premium plus.” Kristin Newkirk, senior vice president and group controller at NBCUniversal, is leading the charge to manage the complexities around its unique subscription model that must recognize and harmonize data from numerous systems.

To do this, Peacock introduced an automated BRIM (billing and revenue innovation management) platform to handle its order-tocash components. Newkirk admitted BRIM has been a long, but worthwhile endeavor. “You’re never done,” she said. “At least for the first year. It’s probably an 18-month process.”

Speaking to Cultural Passions

THE CULTURAL relevance of media companies has become increasingly important to advertisers as they consider where to place their dollars. And it’s no coincidence that 62% of the media buyers and influencers working today have been in the business fewer than eight years. “That translates into Gen Z and young Millennials,” said Jack Myers, founder and chairman of MediaVillage and AdvancingDiversity.org. “Social values, impact and relevance are important to their own well-being and the careers they choose.”

Myers believes that media companies need to consider both the social and financial implications of budgeting decisions. CFOs and their teams should be more focused on the rewards of a diverse workforce and initiatives that will speak to the social-conscious passions of consumers, in his view.

Seconding that opinion were both Sarah Harris, vice president of social impact, and

Paul Suchman, chief marketing officer, at Audacy. The radio and podcast company was formerly known as Entercom Communications.

Harris explained that the new brand “is about building belonging and bringing people together around content that moves them. That translates into our culture and how we build a community of inclusivity [to help support] high-performing folks on our team. And then we set them up to excel.”

It’s possible to directly connect a company’s purpose to its return on investment, said Suchman. Audacy has zeroed in on three live events, rebranding them to generate awareness of, and dollars to, specific causes: the environment, mental health and veterans.

“My CFO understands the value of making that kind of investment,” Suchman said. “Because there aren’t a lot of dollars, it can’t be buckshot. You have to be very precise in the bets that you’re making.”

As the Cookies Crumble

THIRD-PARTY COOKIES MAY HAVE BEEN DEALT A CRUSHING BLOW, BUT A NUMBER of options for resolving the data-privacy dilemma are in the works. That’s according to three experts from The Washington Post, who emphasized that there are no simple remedies.

At issue are aggressive moves by governments, first initiated by European Parliament’s General Data Protection Regulation (GDPR), which was enforced in May 2018 to protect consumers’ health and banking data.

Even before that, in 2017, Apple introduced the so-called intelligent tracking prevention technology into its operating system. Firefox and Safari were the first web browsers to remove third-party tracking, with Google on board to begin a phase-out in mid-2023. Google is focused on its “federated learning of cohorts” or FLoC. The test groups are made up of demographically similar users in a decentralized system that advertisers could use to target ads. FLoC has already generated privacy concerns. Publishers, which stand to benefit from more direct purchasing in a post-cookie world, are nonetheless grappling

“THERE’S NOT ONE with putting up more paywalls in order to obtain data

SOLUTION, AND IT’S when third-party tracking departs.

FAIRLY FRAGMENTED WaPo senior data analyst Joey Weed said that there are

AND CONTROVERSIAL. several alternatives to third-party cookies under considerNOTHING IS VERY GOOD ation. Among them is first-party data, in which users offer OR VERY BAD.” information themselves; contextual targeting, a less exact —JENNIFER HURLEY, WASHINGTON POST way to advertise; Unified ID 2.0, an encrypted identification system that follows users on the web; and Google’s other “privacy sandbox” offering, FLEDGE, which has been shelved until late 2021.

Todd Nicolini, WaPo’s manager of ad sales research, advised media companies to explore research tools and prepare for all possibilities. Jennifer Hurley, director of finance, added: “There’s not one solution, and it’s fairly fragmented and controversial. Nothing is very good or very bad; it’s just going to be very interesting.”

JOEY WEED

JACK MYERS BELIEVES THAT MEDIA COMPANIES NEED TO CONSIDER BOTH THE SOCIAL AND FINANCIAL IMPLICATIONS OF BUDGETING DECISIONS.

Janet Stilson is editor of TFM. She can be reached at TFMEditor@mediafinance.org or (212) 694-0126. Krista Van Lewen provides public relations services to MFM and BCCA. She can be contacted at kvanlewen@gmail.com or (415) 608-0263.