Post-Pandemic Programming

COVID-19 caused dislocation and disruption to the global entertainment business. Now, the recession and the prospect of further pandemic peaks create an unprecedented outlook for entertainment companies. Many of the shifts that occurred during lockdown will define the new market dynamics. The old rule books are being rewritten and new approaches to entertainment business models and experiences will be crucial to move from the holding pattern of survive to the growth mode of thrive. Approaches that worked for decades will no longer work while new innovations will gain traction in a mid-term market that will necessitate an entirely new approach for players across the entertainment industries. MIDiA has kicked off a new programme of research, analysis and insight around these dynamics. We call it Post-Pandemic Programming.

COVID-19 created a mini-recession via lockdown measures, stifling many businesses in an instant, paving the way for the onset of a more traditional, wider recession. All recessions though have uneven impact, affect many companies adversely but some positively. The early signs are that while there were many lockdown losers there were also plenty of companies that fared well, even thrived during lockdown. What was definitely going on, was a reallocation of spend. For example, in Q2 2020 Live Nation and Disney lost $9.9 billion between them compared to Q2 2019. Meanwhile Home Depot increased its revenue by $7.2 billion over the same period. While the comparisons are not perfect, they do illustrate the underlying dynamic well. What is crucial to understanding the post-pandemic period is identifying which of these shifts persist and which revert.

Before that though, the combined impact of the second wave and the coming recession needs to be mapped. To do this, we created a risk framework, looking at what characteristics make entertainment businesses low or high risk, both during a recession and during a pandemic. To understand the coming months, these then need to be overlayed. Companies that have both low recession risk and low pandemic risk will prosper while the adverse is also the case. So, if a company is virtual / online, is scalable, has unique content and is part of a bundle, then it is set to fare well. Enter stage left, Amazon Prime. 

Standalone digital subscriptions (e.g. Netflix, Spotify, Xbox Live) are low risk from a pandemic perspective (as the last nine months have illustrated) but the fact they are non-contract based means that they are more vulnerable to churn than say a pay-TV subscription which is contract based and therefore a subscriber has to buy their way out of a commitment (which has the exact opposite of the desired effect of cancelling to save money).

If you are interested in learning more about this research and understanding how music, video, games, sports and media companies will be affected in the coming months, there are two things you can do:

  1. Check out our subscriber report
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You may need to hurry for the webinar, we are already nearing capacity since promoting it to our clients and newsletter subscribers, but there are still some spaces left. 

Where did Disney and Live Nation’s missing $10 billion go?

In both economic and pandemic terms, we are in a relatively quiet period compared to the first half of the year. COVID-19 is at much lower levels in most countries and there are multiple sectors, such as housing and auto, that are reporting booms. These positive indicators will likely be both a pre-recession bounce and the lull before COVID-19’s second peak. However, there is a crucial subtext here, which is that one sector’s loss is often another’s gain. COVID-19 saw winners and losers, as any post-recession recovery is defined by ‘scarring’ where some companies and formats build where others have failed. For entertainment companies that lost revenue during the first half of the year, the question is whether they will regain that revenue or whether their lockdown legacy will be a long-term contraction.

Live Nation and Disney (because of its theme parks) were two of COVID-19’s biggest and highest-profile entertainment company casualties. Live Nation’s revenues fell from $3.2 billion in Q2 2019 to $74 million in Q2 2020, a 98% decline. Disney’s fall was less in relative terms (-38%) due to having a diversified business but more than double Live Nation’s loss in actual terms. Between them, Disney and Live Nation lost nearly $10 billion of revenue which can be bluntly equated with $10 billion of consumer entertainment spend that went unspent in Q2 2020. The big question is whether that spend remains dormant, waiting to be tapped when doors open again, or has it gone elsewhere – and if so, can it be won back.

The lockdown winners were companies that could trade on consumers being cooped at home: games, video, home shopping, video messaging etc. Some of these were stop-gaps that consumers turned to in order to fill the void; others represent long-term behaviour shifts. Here are some of the places consumers shifted their spend, and how it might impact recovery for entertainment businesses:

Home improvements: One of the areas to see strong lockdown growth was home improvements – people stuck at home staring at the DIY jobs they had always meant to get around to doing and now had both the time and the money to do them. Home Depot saw its Q2 2020 revenues increase by $7.2 billion, nearly three quarters of that lost Disney and Live Nation revenue. Obviously, these are not like-for-like shifts as different geographies are involved, but the direction of travel is clear. The beauty of the home improvements business model is that there is always another room to do, another project to start. The risk for entertainment companies is that a portion of these new home improvers may have got the DIY bug and will have less spend to shift back to entertainment.

Home shopping: Amazon was a huge lockdown winner, growing quarterly revenues by 42% compared to 2019, representing an increase of $38.3 billion. Those revenues include, among other things, its cloud business, which rode the wave of many of lockdown’s other success stories. Additionally, the shift to home shopping has been pronounced. Amazon’s growth has extra implications for entertainment companies. Its subscriptions were up 29% which largely refer to Amazon Prime, which of course comes with music and video bundled in and will in turn compete directly with pure-play propositions like Spotify and Netflix. This will take on added significance during the recession: when cost-conscious consumers are forced to cut back on spending, an all-in-one entertainment bundle that includes home shipping looks a lot more cost effective than a handful of standalone subscriptions. Amazon Prime is not recession proof, but it is certainly recession resilient.

Changing of the guard: Some of most interesting shifts are actually within entertainment. For example, AMC cinemas saw quarterly revenues fall by a catastrophic 99%, representing a quarterly loss of $1.5 billion while over the same period Netflix gained $1.3 billion. Again, the geographies are not directly comparable but the direction of travel is clear: old video being replaced by new video. A similar changing of the guard is happening in digital advertising. Alphabet, the powerhouse, saw revenues fall by 2% while Amazon saw its ad revenues grow by 40%. Turns out that advertisers will pay a premium to reach customers that are one click away from a purchase. Who’d have thought it…

The list of examples of lockdown shifts goes on and on. In fact, so much so that MIDiA is currently working on a major new piece of research exploring these shifts and what the long-term implications are for entertainment businesses. We’re calling it ‘Post-Pandemic Programming’. There will be a series of in-depth reports for clients and also a webinar and podcast mini-series. So, watch this space!

But returning to the above findings, the key takeaway is that companies that lost entertainment spend during lockdown should not assume that this spending is waiting in consumer’s bank accounts, ready to be spent as soon doors open again. Pent-up demand will ensure much of it will but some of it is probably gone for good, allocated to new habits developed during lockdown but that will persist long after. This is not to say that those companies cannot return to previous heights, but to do so they will need to unlock new spending from new customers. Which may not be the easiest of tasks during a global recession.