trends in TMT

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Global Trends in Technology, Media & Telecommunications

What issues are top-of-mind for executives in Technology, Media & Entertainment, and Telecommunications (TMT)? Our essay series offers succinct insights from global TMT leaders about opportunities for success across the rapidly changing TMT ecosystem.

Three keys to success for adopting a flexible-consumption business model

Paul Sallomi, Global Technology, Media & Entertainment and Telecommunications Industry Leader, and Global Technology Sector Leader

Today, the world’s internet users number in the billions. Technology-enabled newcomers are disrupting industries, from healthcare and transportation to retail and media. And companies of all kinds are pushing the technological envelope to the point that self-driving cars and drone-based product-delivery systems are becoming viable.

It might seem that the digital era, which took flight in earnest a quarter-century ago with the popularization of the World Wide Web, is already mature. But it’s actually just beginning, especially for the enterprise. The changes of the past few decades—in how we communicate, shop, work, consume media, and more—are minor in comparison with what’s to come.

Evolving business models

For companies across all industries, one major trend will be the continuing transition away from producing and selling physical products, to service-based solutions supporting flexible consumption models. Instead of purchasing on-premise servers, for instance, enterprises are increasingly likely to turn to infrastructure-as-a-service (IaaS) solutions. And instead of buying shrink-wrapped software, businesses are more and more likely to subscribe to software-as-a-service (SaaS) solutions.

Powered by machine learning, advanced analytics, falling prices for bandwidth, and processing power and ubiquitous connectivity, this transition promises to keep accelerating. As companies of all kinds, producing everything from printers to jet engine manufacturers, increasingly adopt flexible-consumption, service-delivery models, buyers will benefit from lower upfront costs (along with a shift in spending from CAPEX to OPEX), instant scalability, increased agility, and lower risk.

Service-delivery models offer benefits, including more predictable revenue streams and enhanced customer engagement. Instead of touching the customer only at the point of sale (and possibly later, if issues arise with the product), organizations that offer goods and services via a flexible consumption model have the opportunity to build and maintain an ongoing relationship—which can lead to greater brand loyalty, decreased selling costs, and new ways to create value for customers that drive increased revenue.

Transforming your company for success

To make a successful transition from selling products to providing services, companies need to consider three critical concepts:

Be ready to embrace a fundamentally new business model. This transition will affect every aspect of the business, including Branding, Investor Relations, R&D and product development, IT infrastructure and operations, sales-force training and compensation, tax, and regulatory compliance.

Don’t underestimate the effort required. The challenges of making a transition to a flexible consumption model are many and varied. The regulatory and tax implications of shifting from selling products to providing subscription services can be complex, especially if you operate internationally and/or operate multiple businesses. Each and every business unit and function of the enterprise will have its own transformational roadmap with unique issues and opportunities to assess.

Make a plan for transforming your business. The complexities of orchestrating a top-to-bottom transformation are significant and no business discipline or function can be left behind. A successful transition to a services-focused model requires getting all stakeholders aligned and executing in concert—from your management team to your partners and vendors. Achieving success requires a clear model of the transformation journey; a detailed roadmap defining opportunities, milestones, and metrics; and good governance involving all stakeholders.

Whether you’re ready for it or not, the shift to flexible-consumption models is happening, and it’s accelerating rapidly. Whether you adapt successfully is up to you.

I welcome your feedback, and invite you to review the results of the Deloitte survey on flexible consumption at the enterprise level for additional insights.

Three Steps to More Successful Media M&A Deals

Mark Casey, Global Media & Entertainment Sector Leader

As Warren Buffet says, “Price is what you pay. Value is what you get.” Among M&A dealmakers, too often the focus is on the price aspect of the deal—CEOs haggling over and agreeing to terms. But what happens after the handshake—how the companies are integrated—is given short shrift. The result? Deals that fail to deliver the expected value.

This is particularly true of deals involving media companies, which can be vastly different from companies in other sectors, and difficult to integrate as a result.

Smart media M&A dealmakers see the handshake as just the beginning of any given deal. Before that fateful moment, they look forward to assess whether and how their companies can be integrated in three important areas: culture, operations, and cash flow and forecasting.

Culture

You’ve heard the saying “culture eats strategy for breakfast.” I’m here to tell you that culture devours M&A deals, too. Doing a media deal and want to avoid egg on your face? You’d better understand the cultural issues at play.

For instance, telecommunications and technology companies are currently buying up media companies for impressive sums, hoping to create value by bringing together content creation and distribution. (See Comcast’s acquisition of NBC Universal, Verizon’s acquisitions of AOL and Yahoo, and AT&T’s acquisition of Time-Warner.) Telcos and tech companies, which are often engineering focused, usually have very different cultures from media companies, which, relatively, tend to employ lots of creative types and have cultures that reflect that fact.

Integrating corporate cultures is an art form—but it’s essential if you want your deal to generate value. Give this factor the attention it requires to get it right.

Operations

Companies involved in mergers and acquisitions typically hope to drive operational efficiencies in areas from supply chain, manufacturing, and marketing to distribution and customer service. But because media company operations are typically so distinct from those in other industries, integrating operations after a media M&A deal can be especially challenging. And because the media business can involve taking sizeable financial risks—content creation and acquisition costs can be enormous, but there’s no guarantee that the marketplace will be interested in your content—answering the question of how your combined company will integrate operations is of the utmost importance to driving deal value.

It’s also important to consider issues related to the legal structures involved in, and the tax implications of, the deal. Often, for example, media companies and other businesses take very different approaches to asset structuring. If you’re not careful, media M&A deals can have suboptimal tax consequences, and generate lots of extra work for both management and boards.

Cash flow and forecasting

Companies in media M&A deals can have significantly different cash-flow profiles. Media companies with subscription-based business models generate predictable cash flows, compared to industries where cash flows and forecasts are lumpier—like tech. As dividend plays, meanwhile, telcos desire steady cash flow—but media M&A targets don’t necessarily map to the telco cash-flow profile. Moreover, there may be significant cash opportunities at the outset of an M&A deal, which could affect the new entity’s taxation. How will you combine the companies in your media merger or acquisition? Have a clear answer if you want the deal to work.

Listen to Mr. Buffet, no slouch at M&A himself. For a successful media M&A deal, look beyond the terms of the deal to how, exactly, your companies are going to integrate. You—and your investors—will be glad you did.

What’s your take on media M&A? Have anything to add? Join the conversation below.

Listen to Mr. Buffet, no slouch at M&A himself. For a successful media M&A deal, look beyond the terms of the deal to how, exactly, your companies are going to integrate. You—and your investors—will be glad you did.

What’s your take on media M&A? Have anything to add? Join the conversation on LinkedIn or Twitter.

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