Generative AI was one of many largest subjects of debate in Hollywood and past over the previous yr, and heated discussions are anticipated to proceed in 2024.
Because the Americas media & leisure chief at main accounting and consulting agency EY, John Harrison tracks adjustments, alternatives and challenges within the trade carefully. “Media corporations in all sub-sectors are actively experimenting with instruments and options infused with synthetic intelligence,” Harrison and his group wrote in his forecast for subsequent yr. “The media trade has been constructed and rebuilt through M&A over a few years. Looking forward to 2024, firm leaders will recreation out all strategic paths ahead. Nonetheless, pulling the set off on a deal would require conviction on clearing some excessive hurdles.”
Harrison spoke to The Hollywood Reporter in regards to the leisure trade’s AI challenges, the diminished metaverse, and the way chatter a few potential deal for Paramount World has introduced media M&A chat again into the highlight.
What do you anticipate to be the important thing theme of CES in January 2024?
I don’t wish to smash it, however the theme can be AI, similar to two years in the past every thing was in regards to the metaverse.
You additionally talked about in your 2024 preview report that AI will proceed to be on all people’s thoughts. Inform me a bit extra about what you expect on that entrance within the new yr?
There’s an incredible quantity of pleasure round AI. And I believe media corporations, particularly, are embracing it, however doing so in a measured manner. So there are quite a lot of pilot initiatives, quite a lot of inside SWAT groups which have been established to essentially determine what’s our technique for AI going ahead, attempting to grasp what the use circumstances are for the expertise.
We bucket issues into two classes. One is unlocking productiveness. So, how will we take all of our back-office features and infuse them with intelligence or automation to permit us to run our firm extra effectively and successfully, and basically lower prices, but additionally lower worker time, unencumber worker time to deal with higher-value initiatives? There are quite a lot of, whether or not it’s in finance or HR, productiveness parts. I believe that’s extra near-term.
After which there’s quite a lot of focus additionally round propelling progress. For media corporations, that’s how will we inject AI and actually Generative AI into the inventive course of? Whether or not it’s thought technology for tales or, extra probably, as a result of there are some protections round that now popping out of the labor offers, can we do sooner enhancing, can we do sooner dubbing and versioning? And might we personalize content material suggestions extra successfully to maintain our customers engaged, particularly on streaming companies? So, it’s round productiveness and it’s round sure methods to propel progress going ahead.
Within the Hollywood labor talks, there was concern that AI might exchange creatives. So, do you assume there’s broader consensus now that everybody ought to guarantee it’s extra about AI liberating up extra time for everyone to deal with the inventive course of?
It’s evolving so shortly, so who is aware of what it should appear to be 12 months from now, or 24 months from now. However proper now, I believe there’s a view that there are actually attention-grabbing instruments and options that can be primarily based on the expertise that can enhance processes, particularly in media the place money stream is at a premium. Firms are very disciplined about how a lot cash they’re burning on this proper now and ensuring that they’re simply being disciplined with their funding.
You talked about the metaverse which was all the fad in media and leisure some time again, but it surely appears to have gone actually quiet on that entrance in 2023. Am I proper or am I lacking one thing?
It’s been very quiet. If something, the bulletins out of corporations have been going the opposite manner the place the metaverse groups that had been established two years in the past or three years in the past, have been both redeployed elsewhere in organizations or they’ve simply been eradicated altogether. So I believe that the joy has light.
I believe there are nonetheless teams inside the technique groups inside the media corporations which can be maintaining a tally of developments, particularly with VR and AR and whether or not there’s some form of inventive factor, whether or not it’s in gaming or sports activities broadcasting, that would come into play down the highway. So corporations are retaining a finger on the heart beat however not essentially placing a complete lot of time vitality and, most significantly, capital behind the metaverse proper now.
What has heated up as of late although has been media and leisure M&A chat, pushed by studies that Paramount World and its proprietor Nationwide Amusements may very well be in play. What’s EY’s tackle the rationale for additional consolidation within the trade?
I do imagine the rationale stays intact for offers for media corporations, you do mass content material and mass sports activities rights and you may inorganically scale direct-to-consumer companies to get to profitability. Transactions are an awesome car for reducing prices and driving efficiencies into the enterprise. And as you get greater, you do enhance your positioning versus among the digital native mega gamers within the trade. So I do imagine there can be a ultimate spherical of trade consolidation.
I don’t know if it should occur in 2024 or 2025, as a result of there are some hurdles on the market. I believe there’s an argument for a rationalization of the portfolio [such as the sale of shuttering of small cable networks] upfront of transactions that most likely makes M&A simpler to execute. We might see some pre-emptive strikes across the portfolio, whether or not it’s asset gross sales or spins for companies which can be noncore, however nonetheless have worth. So there may very well be consumers exterior of media, monetary consumers for a few of these belongings that then lead to a media firm being extra primed for a deal. However these carve-outs, these gross sales and spins will not be simple to execute. They oftentimes lead to prices, they usually have tax penalties. So there’s been a ton of hypothesis round asset gross sales, but it surely’s simpler stated than completed to truly execute these kinds of transactions.
The opposite hurdle that everybody is super-focused on is the regulatory atmosphere, each right here within the U.S., however actually globally. Media is an trade the place large offers are likely to get quite a lot of consideration from the regulatory authorities. 2024 is an election yr within the U.S., the political atmosphere may be very unsure right here. So I believe any firm that takes a transfer to make a giant splash in M&A must be comfy that they will navigate by a 12- to 24-month overview course of that does have an unsure final result. They usually should be capable to navigate that interval whenever you’re most likely going to have some inertia since you’re within the midst of a merger overview.
Are you able to do the working actions you should do to maintain positioning your corporation for progress when you’re hung up in a merger overview? So, there’s somewhat uncertainty round regulatory and the way that impacts the general deal calendar.
Talking of uncertainty, the promoting market and its outlook have remained a query mark all through a lot of 2023. What’s your expectation for 2024?
I believe there’s somewhat bit extra readability across the trajectory of the macro backdrop, or the economic system. And the danger of a tough touchdown, a minimum of primarily based on how our economist is wanting on the market, the danger of a tough touchdown has been decreased. So there’s a view that the buyer is in a greater spot, and the broader economic system is in a greater spot, definitely than folks had been pondering six to 12 months in the past.
From an promoting perspective, entrepreneurs wish to attain customers in various other ways. There’s actual concern in regards to the well being of the linear ecosystem by way of viewership exterior of reside sports activities, which continues to be an enormous draw for promoting. And the advert companies from a streaming perspective have but to scale. So, total, there are many shops for advertisers to achieve customers, but it surely’s getting an increasing number of tough to achieve them in a scaled or broad-reach manner.
The rest you’re feeling is necessary to notice?
When it comes to the economic system, the danger of a tough touchdown, like we talked about is, is decrease. However the actuality is that there’s been large inflation in leisure. Every thing requires a subscription, going to the films along with your children is $100, in the event you go to a recreation or a live performance, it may very well be multiples of that. And I believe media corporations are very conscious that media and leisure spending for customers, basically, is discretionary. And so I believe that the 2024 deal with bundling, on promotions, on progressive partnerships to essentially spotlight the worth of leisure content material, alongside one other a part of a bundle, whether or not it’s wi-fi service, or e-commerce or one thing, can be inventive. There’s going to be quite a lot of very inventive structuring within the providing and the worth that’s delivered to customers. That can be by industrial partnerships, and it might in the end drive strategic outcomes for these corporations as effectively.
