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June 29 , 2010

The race for a digital advantage heats up

Industry juggling growth with cost savings

Succeeding in Canada's media and entertainment industry requires a delicate balance between investing in digital growth and managing traditional costs, according to a new Ernst & Young survey.

"As consumers continue to shift their media consumption to digital offerings, the greatest challenge is finding a way to make money in a digital world, and determining how to price digital entertainment," says Neal Clarance, Leader of Ernst & Young's Media & Entertainment practice in Canada. "The company that comes up with a winning formula is sure to become an industry leader, but in the meantime, a lot of money will need to be spent searching for a solution."

According to the survey, 75% of Canadian respondents see new distribution channels as an opportunity for growth in the media and entertainment sector, with 63% of respondents planning to use new products and services as their go-to-market approach to achieve growth and drive revenue.

Over a five-year period, consumer time spent using mobile devices for entertainment, news and personal use has increased 200% globally, while video game use is up 47%. In turn, time spent on traditional media, including TV and radio, is declining. By 2012, the average price per unit of home video and music content will have decreased by nearly 50% from 2006 levels.

"Consumers are becoming increasingly sophisticated and want interactive content," says Clarance. "The mobile phone, for example, is becoming the new Internet and home computer, so that one device enables the user to work, play and communicate. New products and technology improvements will continue to drive a shift in consumer desires and behaviour."

Three trends are expected to have the greatest impact on the media and entertainment industry in Canada over the next two to three years. These include competitive offerings enabled by new technology, new business models, and an overall reduction in marketing and advertising budgets.

In terms of growth, digital distribution channels and acquisitions are seen as key drivers. The companies identified as best positioned for future growth in the industry by Canadian CFOs are cable operators (63%) and internet/interactive media (56%).

Cost-management is the flip side of the success equation, with Canadian respondents citing process improvement (69%) and integration and optimization of technologies (63%) as the greatest opportunities for cost savings over the next one to two years. Companies that take advantage of these measures now can emerge as winners during the upturn.

The findings are part of a global survey whereby Ernst & Young interviewed CFOs from leading global companies from a cross-section of all sectors of the media and entertainment industry. The CFOs surveyed recognize their changing role in balancing between effective cost-cutting, recruiting and retaining key talent, and reaching financial goals to achieve success.

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