managing through market disruption and beyond: approach for … · © 2020 kpmg llp, a delaware...

© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. [Printed in the U.S.]

kpmg

Media

KPMG perspectives on how to respond

to the COVID-19 disruption

May 15, 2020

Managing through Market Disruption and Beyond:

Approach for Media Companies


2

Media stocks lost nearly 40% of their market cap, from peak to trough, between February

and April. Broadcasters and live entertainment players have fared worst (down ~48 – 50%),

while online, audio and gaming players have fared best (down ~32 – 35%)

Streaming and TV viewership are spiking, with streaming minutes up 85% from 2019 in

early March. Leading streaming players are adding subscribers at an accelerated pace, at

least temporarily. Cord cutting, however, could worsen, given headwinds of potential

recession, sports cancellations and news fatigue

Increased digital viewership is harder to monetize due to declines in ad spending and

halted content production. Ad spend could potentially drop ~30 – 40% this year and some

spend is likely to shift toward digital channels. Most production has been paused and sports

and live programming postponed

Live events have stopped with unclear timing around possible return. Social distancing

measures have caused 20,000+ cancellations or postponements of large-scale events and

closure of venue-based businesses. Regulations and protocols will vary by state and drive

uncertainty around timing and speed of return

Going forward, media companies will need to seek new opportunities for growth, in

addition to managing cost. In prior recessions, those that addressed both growth and cost in a

balanced manner outperformed others ~2x on sales & EBITDA CAGRs

1

1

1

1

1

Executive Summary

Source: CapitalIQ (market capitalizations), The New York Times (estimated events cancelled), Nielsen (streaming minutes), KPMG Analysis (advertising spend decline), Harvard Business Review (prior recession performance)

HOW ARE COMPANIES IN THE MEDIA SECTOR BEING IMPACTED BY COVID -19?


3

WHAT IMPACT IS COVID-19 HAVING ON THE MARKET AND SOCIETY?

COVID-19 is rapidly transforming our world, disrupting markets and society

US GDP decline by 8.0% in 20201 Largest US job loss in history2

Largest US government stimulus3

Market Impact Societal Impact

Note(s) (1) Projections are dated as of June 4, 2020 (2) Projections are dated as of April 7, 2020 (3) Projections are dated as of April 14, 2020

Source(s): Johns Hopkins (map), KPMG Economics, BEA, BLS, Macroeconomic Advisors by IHS Markit, Haver Analytics, Eichenbaum, et al, 2020, Federal Reserve Board (April 8, 2020)

• 20 million jobs lost in Q2

(2x 2008 Financial Crisis)

• 46% of US workers at risk

• Discretionary spending

may fall by 75% in April

• $2.1 Trillion CARES act

• Fed Special Purpose

Vehicles

• Fed purchasing, bonds,

treasuries, and securities

Fastest 20%+ drop in S&P history

375,000+ fatalities to date

6,500,000+ infected globally

1,000,000,000+ in social distancing

Global COVID-19 Impact


4

HOW DOES THE COVID-19 MARKET IMPACT COMPARE WITH OTHER RECENT BEAR MARKET EVENTS?

Equity markets have fallen faster than any recent bear market, bringing unprecedented uncertainty

1

S&P 500 declines and recovery durations in recent bear markets

Event S&P 500

S&P500

Trough

Total

Event

Duration

Lowest US

GDP YOY

Growth %

during Event

Peak

Unemployment

Rate (%) during

Event Period2

COVID-19

2/19/20 - ?TBD Ongoing -8.0%1

Financial

Crisis

10/9/07-

3/9/09

-57% ~ 5.5 yrs. -3%

Dot Com

Bubble

3/24/00-

10/9/02

-49% ~ 7 yrs. 2%

’87 Crash

8/21/87 –

12/4/87

-33% ~ 2 yrs. 4%

Stagflation

11/28/80 –

8/12/82

-27% ~ 2 yrs. -2%

15

10

6

6

11

32

Note(s): (1) Forecasts are inherently time sensitive and projections are dated as of June 4, 2020; (2) Dashed line for COVID-19 represents a higher-end estimate from Federal Reserve Bank of St Louis on March 24

Source(s): Forecast Bureau of Labor Statistics, Bureau of Economic Analysis, Bank of America, Goldman Sachs, CNBC, KPMG Economics

0.4

0.6

0.8

1

1.2

0.4

0.6

0.8

1

1.2

0.4

0.6

0.8

1

1.2

0.4

0.6

0.8

1

1.2

0.4

0.6

0.8

1

1.2

24 months

Bear Market: 2.5 yrs.

Recovery: 4.6 yrs.


Recovery: 4 yrs.


Recovery: 1.6 yrs.


Recovery: 0.2 yrs.

How companies recover from this

disruption will depend on:

Industry Sector: Your relative business

exposure to different sub-sectors with

varying degree of impact from COVID-19

Starting Point: The strength of your

ingoing position -- both financial and

competitive -- relative to peers

Execution: How you execute your

recovery game plan – both speed and

depth/breadth of your transformation

1

2

3


5

Most media sub-sectors have been hit harder than the market, with broadcasters and live entertainment companies facing the biggest losses

Value declines from 2/19/2020 peak to 3/23/2020 trough1

-44%

-32%

-43%

-50%-48%

-35%

-41%-38%

-36%

Broadcast

Stations

N=7

Advertising

and Marketing

N=19

Live

Entertainment

N=15

Consumer

Publishing

N=11

Information

Services

N=10

Networks and

Studios

N=15

MVPDs

N=11

Online and

Social Media

N=54

Other (e.g.

Podcast, Gaming)

N=34

Note(s): Average value declines of all 176 media-categorized entities trading on major US exchanges; 2/19/2020 was the S&P 500 peak prior to recent decline

Source(s): CapitalIQ, KPMG Analysis

Market Average

- 37%-35%-36%

Online and social media companies have

been more resilient since the outbreak

(Netflix only dropped 7% from peak to

trough), as demand for streaming and

online entertainment has increased with

more time at home

Live entertainment companies have

been hard hit due to social

distancing measures, especially

movie theatres which dropped an

average of 62% from peak to trough

HOW HAVE SOFTWARE AND SAAS STOCKS PERFORMED RELATIVE TO OTHER SE CTORS?


6

COVID-19 drives immediate surge in viewership, with a potentially lasting impact on streaming

Source(s): Nielsen, TVB, Tech Crunch, The Hollywood Reporter, Variety; CNBC

Over the first three weeks of March 2020, the total estimated

number of minutes streamed is up 50-100% compared with

the comparable period in 2019

73 7076

71

115 116

128

156

4th Week Feb 1st Week March 3rd Week March2nd Week March

+58% +67%

+69%

+119%2019

2020

Demand for content is spiking across the board, with particularly

strong performance in streaming

SVOD outpaced overall gains in TV usage (34% versus 25% growth)

Netflix added 15.8m paid subscribers in Q1 2020, double the number of new

subscriptions added the previous quarter

Disney+ surpassed 50M subscribers 5 months post launch (ahead of

schedule)

YouTube seeing increased viewership of “at home” related videos

TV news has also spiked, although demand likely to waver as conditions

stabilize

Longer term shift to work from home and school closures may lead

to a sustained increase

Parents and those WFH were most likely to buy new streaming subscriptions

A fifth of homes with children are watching 4 additional hours a day

Sustained WFH environment and school closures could extend demand

However, monetizing this demand may be a challenge

Advertisers are cutting back on spend due to cost pressures and inability of

their target consumers to leave home and make purchases

Live sporting event cancellations and production shutdowns lead to content

gaps

Viewers may start to shift to ad-free streaming options

Total streaming minutesBillions, by viewers aged 2+, 2019-2020

HOW HAS STREAMING AND VIEWERSHIP BEHAVIORS BEEN IMPACTED?


7

2008 Crisis

Accelerants of cord cutting: cancelation of sports and

live events and recessionary pressure

Live events and sports are key drivers of pay TV

consumption; extended periods without both due to COVID-

19 may drive cancellations

Recessionary environment could reduce disposable income,

leading to cuts in discretionary spending on pay TV

‒ 70% of cutters indicate “too expensive” reason for cutting

‒ Increasing availability of lower cost streaming

alternatives

Inhibitors of cord cutting: mass quarantine

environment and bundled offerings

Spike in overall TV viewership in the short term as

quarantines force people to stay at home more

Existing bundling (e.g. TV, internet and phone services

bundled at reduced prices) may deter cancellation of a

singular service

Uptick in cord cutting, with likely acceleration in the long term

Source(s): eMarketer, Business Insider Intelligence, Variety; KPMG analysis

Pay TV Households in the USHouseholds in Millions, 2007 – 2020E

95 97 99100 100

101101 101 100 98

9490

8478

0

10

20

30

40

50

60

70

80

90

100

110

2014

-0.5%

1.7%

-1.9%

2007

0.9%

2013

1.5%

2008 2009

-0.9%

2.1%

2010

-4.2%

0.8%

2011

-0.4%

1.1%

2012 2015 2016

-3.5%

-6.5%

2017 2018

-6.5%

2019

-7.6%

2020E

• Continued growth through the

2008 crisis

• Pay-TV seen as must-have

during this time, as people

were more likely to stay home

• Fewer low cost streaming

alternatives were available

• Largest quarterly loss, with an

overall drop of 1.8M subscribers

• Anticipated to get worse in Q2

due to recessionary environment

• Analysts project this will translate

into an annual decline of 7.6%

% Change

HOW HAS THE TREND TOWARDS CORD CUTTING BEEN IMPACTED?


8

Advertising spend contraction likely to vary, as sectors will be impacted differently by COVID-19

Note(s): (1) Forecasts are inherently time sensitive and projections are dated as of April 7, 2020; Modeling COVID-19’s impact on the economy is multifaceted. Critical factors include: Global economy, Domestic job losses, Domestic

business closure, Oil / commodity prices, Capital markets, Fiscal measures, Monetary measures, Multipliers for the CARES Act, etc. (2) Range bubble in teal represents a -10%-10% (3) Average of low / high case projections

Source(s): KPMG Economics; IMF; S&P Global Market Intelligence; Kantar Media; Magna Global

US advertising forecast (1)

$ billions, 2015-2021

Mo

de

rate

Im

pa

ct

Lo

w Im

pa

ct

Hig

h Im

pa

ct

Medical 9%

Food and Drink 6%

Technology 6%

CPG 6%

COVID-19

Impact

Media 9%

Automotive 8%

Telecom 5%

Retail 12%

Financial Services 12%

Professional &

Business Services9%

Travel 5%

Restaurant 4%

Some sub-sectors are expected to increase ad

spend, including home entertainment, e-

commerce, and cloud computing

US Ad Spend by

Industry, 2019Sector

GDP

change YoY

Ad spend

change YoY

2015 2016 2017 2018 2019 2020 2021

160

0

140

180

200

220

240

194

173

189

230

213

224

148

233

197

2.9% 1.6% 2.4% 2.9% 2.4% -8.0% 3.4%

3.7% 9.3% 2.9% 9.5% 5.1% -33.9%3 33.5%

Projection

prior

to COVID-19

2008-09

Financial

Crisis

replayed

Dot Com

Bubble

replayed

Last 20 years

historical

relationship

applied to KPMG

GDP projections

HOW WILL COVID-19 IMPACT THE US ADVERTISING MARKET?


9

(1 year)(~5 weeks)

Liquidity risk for Media companies varies by sub-sector, with Online and Social Media companies best positioned to face the COVID-19 driven downturn

Source(s): CapitalIQ, KPMG Analysis

Liquidity risk for select Media companies

Online & Social Media e.g. Netflix, Alphabet, Facebook MVPDs e.g. Comcast, Charter, DISHOther Media

e.g. Eventbrite, Tribune

Publishing, S&P GlobalNetworks and Studios e.g. ViacomCBS, Sony, Discovery Broadcasters e.g. Sinclair, E.W. Scripps, Gray TV

HOW ARE MEDIA COMPANIES POSITIONED FROM A LIQUIDITY PERSPECTIVE?

Median: 0.9

Burn time:

Increasing need to reduce expenses quickly if revenue declines

Cash to Annual Opex

(~4 days)

Incre

asin

g e

xposure

to d

ebt-

rela

ted r

isk

Low Liquidity, Low Leverage High Liquidity, Low Leverage

Low Liquidity, High Leverage

0.01

0.10

1.00

10.00

100.00

0.001 0.010 0.100 1.000 10.000 100.000

Ne

t D

eb

t to

EB

ITD

A

MVPDs and Broadcasters

tend to be in a more

challenging position,

facing higher liquidity risk

and being more highly

leveraged

Online and social media

companies tend to be in

a better liquidity position

Median: 0.2 (~75 days)

High Liquidity, High Leverage

Networks and Studios

perform close to the

median for liquidity, with

a higher than average

Net Debt to EBITDA ratio


10

Companies will increasingly need to find ways to fill content gaps due to event cancellation and production hiatus

Source(s): ‘Dare to Stream’, Variety Intelligence Platform (2020); ‘What Does The Coronavirus Outbreak Mean For Film And TV Production?’, Forbes, (2020); ‘Broadcasters predict TV rights value decline post COVID-19’, SportsPro

Media (2020); ‘With America at home, the streaming war is Hollywood’s ultimate test’, The Wall Street Journal (2020); ‘The coronavirus threw ESPN a curveball. How the sports giant is changing its game’, Los Angeles

Times (2020); KPMG analysis

As demand spikes, filling content gaps will be a challenge

Less original content as production of films / TV shows is halted

due to social distancing measures

Less sports content as seasons and cyclical events (Olympics,

March Madness) are cancelled or postponed

Resuming production will also be difficult and costly – e.g.

increased insurance premiums (or inability to obtain COVID related

insurance), costs associated with quarantining cast and crew

Players with a deeper library of content are better

positioned to face potential content gaps

Companies in “building mode” who seek to challenge others with

deeper libraries may be worse off, as original content runs out

Acquired content may become more valuable due to lack of new

original and sports content

Opportunities in animation and unscripted programming

Children's programming is seeing a spike in demand and animation

overall is a genre that can be produced remotely

Unscripted programming often quicker turnaround and may be able

to fill in the original content gap post quarantine

Content spend (Original, Acquired and Sport), by Company$ billions, 2019

1610 182 4 1486 12 20

AppleTV+

NBCUniversal/

Sky

Disney

ViacomCBS

Netflix

Fox

WarnerMedia

Amazon

Hulu

Original Acquired Sport

Netflix ceased production

on all shows in U.S. and

Canada (>280 new series

in production)

NBCU has suspended

production on 35+ shows from

its numerous production units

Olympics postponed, with

millions already spent on

infrastructure and talent

NBA and MLB

halted, impacting

core of ESPN

programming over

next few months

WarnerMedia, Disney+, Apple

TV+, CBS, and Viacom all

announced their shows will not

be continuing until “significant

change in situation”

HOW WILL COVID-19 IMPACT CONTENT SLATES AND PRODUCTION FOR MEDIA COMPANIES?


11

HISTORICALLY, WHAT HAS BEEN THE BEST APPROACH TO CRISIS RESPONSE ?

History suggests that companies executing a balanced response may outperform their competitors post-recession on sales and EBITDA growth

Companies differ significantly in how they deal with recessions

Prevention-focused – make primarily defensive moves and are

more concerned with avoiding losses and minimizing downside risks

Promotion-focused – invest more in offensive moves that provide

upside benefits than their peers do

Pragmatists – combine defensive and offensive moves

Progressives – deploy the optimal combination of defense and

offense

In the past, progressive companies have significantly outperformed the

others through the right mix of actions

Cutting costs mainly by improving operational efficiency rather than

reducing the number of employees relative to peers

Developing new business opportunities by making significantly greater

investments than their rivals in R&D and marketing

Investing in assets such a plant and machinery

Companies that rely solely on cutting the workforce have only an

11% probability of achieving breakaway performance after a

downturn

Nitin Nohria, Dean, Harvard Business School

Post-recession leaders in sales and profit growth(three-year post-recession compound annual growth rate)

Source(s): “Roaring out of Recession”, Gulati, Nohria, and Wohlgezogen, HBR, 2010


12

WHAT ARE THE CORE STAGES AND ACTIVITIES OF RESPONSE PLANNING?

Response planning should address 3 distinct stages, that may overlap

Shift to streaming

Redesigned live

events

Market

consolidation

Digital advertising

acceleration

Improve performance under new conditions

Adapt go-to-market to customer/partner needs & conditions

Take steps to reduce cost as appropriate

Manage working capital and debt

Re-prioritize capital investments

Evolve risk and compliance controls

Rapid mobilization and stress testing

Safeguard employees/assets

Assess impact to revenue/payments

Protect customers and manage churn

Control use of cash

Stress test the business

Capture value from pervasive changes

Shift talent/capital towards growth

Adapt offers to new sources of demand

Innovate new capabilities and solutions

Enter adjacent markets to capture additional value

Take advantage of M&A opportunities

New Reality

Resilience

Recovery

Adjusted content

monetization

Continuous Demand Forecasting and Scenario Planning


13

WHAT ACTIONS ARE COMPANIES TAKING TO DEVELOP RESILIENCE?

Assessing the impact on renewals, acquisitions and payments should start in Resilience and continue to feed scenario planning through all response phases

Combine top-down and bottom-up approaches to improve results

Bot tom-Up

De

ma

nd

Fo

rec

ast

En

gin

eD

em

an

d F

ore

ca

st E

ng

ine

Top-Dow n

Customer Attributes:

Segment Size Geography

Renewal / Resiliency

Revenue Matrix

Relative Market Impact:

(external data, same attr.)

Subscription Details:

Product Renewal data

Renewal / Resiliency

Churn Matrix,

Multiple Scenarios

Churn Model

(predictive)

Revised Churn Impact:

By quarter By customer resilience

Recovery Scenarios:

V, U, L, W Depth and duration

Vulnerability:

Stock price vs. ML

projected baseline

Recovery Forecasts

(Top-down, per

scenario):

Recovery Scenarios:

V, U, L, W

Depth and durationEstimate Impact,

Feed Scenario

Planning

Recoverability:

Performance & volatility

Forecasts

Historical Recessions

Impact Index:


14

Key components of the recovery plan for Media companies

Cost Reviewing content strategy and spend forecasts

Assessing profitability across products, customer segments and geographies

Evaluating support functions vs. benchmarks, demand, and service requirements; restructuring as needed

Customer Managing the advertising revenue stream, despite declines

Modeling revenue forecasts, e.g. subscriber / viewer churn risk, pricing, etc.

Reviewing contract renewals and evaluating opportunities to proactively renew and preserve value

Capital Identifying digital product investments to defer if resources need to shift or align to a reduced spend target

Evaluating planned content production capex against demand changes, refocusing / resizing

Example actions to explore

Cash Analyzing cash burn under various scenarios (e.g., 30% ad spend reduction, event attendance recovery)

Evaluating sufficiency of controls over working capital; benchmarking vs. peers

Preparing to capture tax and other benefits of CARES Act – for self / partners / customers

Compliance &

Risk

Taking steps to continue to comply with risk / regulatory / reporting requirements in a timely manner

Modifying risk management and safety processes around content production; enhancing tools and

operations to remain effective in a remote work environment

WHAT ACTIONS ARE CORE TO A RECOVERY PLAN?


15

Shift to streaming: consumers prefer lower

cost / higher flexibility provided by streaming

Adjusted content monetization windows:

shorter theatre releases, more DTC launches

Shift to digital advertising: accelerated

transition of ad spend to digital channels

New ways of content production: socially

distanced sets, user generated content

Redesigned live events: reduced capacity,

new screening protocols, enhanced cleaning

Media companies should begin as early as possible to consider potential implications of the New Reality

COVID-19

Disruption

New Reality Trends Key Questions for Media Companies

• Investor focus on profitable growth (vs.

rewarding growth over profit)

• How are you transforming your business towards

streaming and direct-to-consumer (DTC) capabilities?



• How are you modeling and planning for different

monetization windows?


rewarding growth over profit)• How are you expanding digital opportunities for

advertisers (e.g. ad supported video offerings)?



• What steps are you taking to mitigate health risks and

rebuild confidence in your live venues?

• How will you shift your production approach and what

opportunities are there to monetize unused assets?

Continued consolidation: stronger

investment theses and attractive pricing



• Are there opportunities for you to acquire content,

scale viewership or enable cost efficiencies?

WHAT NEW REALITY TRENDS WILL IMPACT MEDIA COMPANIES?


16

HOW SHOULD SCENARIO PLANNING EVOLVE ACROSS THE RESPONSE STAGES?

Continuous Scenario Planning identifies appropriate actions throughout the disruption and recovery – with depth and frequency evolving by stage

Frequency of Planning Cycles

Depth of Scenario Planning

1. Gather existing and updated inputs

2. Develop/refine views on cause and

effect between uncertainties and

potential drivers

3. Define/refine 2-5 plausible future

outcomes with boundary conditions

formed by extrapolating key

dimensions of uncertainties out to

their extremes

4. Create/refine potential response to

scenarios

5. Identify/refine no–regrets

performance improvement actions

and assets to protect

Iterative Process Steps & Outputs

1

2

3

4

5


17

Our firm brings capabilities to assist you in your response and recovery

Better people. Better approach. Better technology.

Deep specialization across media including working

with companies on all aspects of strategy,

transformation and M&A transactions

Team with senior management and operational

experience at leading companies

Delivered $1B+ in value creation across the value

chain both in transformations and transactions

Industry depth

Operational specialists across business functions

such as finance, IT, HR, tax, compliance, sourcing

and operations

Orchestration of organization-wide activities,

initiatives and transformations

Designed and structured to execute as one

cohesive advisor

Integrated teaming approach

Leading analytics and data science expertise

leveraged in nearly every project to help analyze

granular data and identify insights at ‘deal speed’

Industry-tailored proprietary tools to accelerate data

ingestion and virtually eliminate set-up costs

Leading cloud based platforms including a Signals

Repository leveraged for machine learning models

Advanced analytics capabilities

Speed to value creation

Alignment of improvement activities with your key

value drivers

Rapid identification of critical factors and operating

levers that impact organizational performance

Actionable roadmap for integrated performance

improvement and value creation planning and execution

WHY KPMG?


Authors

Pär EdinSector Lead

Technology, Media and

Telecom Strategy

KPMG LLP

[email protected]

Scott PurdyManaging Director


Telecom Strategy

KPMG LLP

[email protected]

Sagi AbiriPrincipal


Telecom Strategy

KPMG LLP

[email protected]

Abs KotulskiPrincipal


Telecom Strategy

KPMG LLP

[email protected]

mailto:[email protected]





The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we

endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue

to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

© 2020 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG

International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

The KPMG name and logo are registered trademarks or trademarks of KPMG International.

Some or all of the services described herein may not be permissible for KPMG audit clients and their affiliates or related entities.

managing through market disruption and beyond: approach for … · © 2020 kpmg llp, a delaware...

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