Media Metrics 2016

Our key findings

What’s the value of the end-to-end trend?

Our research illustrates the value of content in today’s media and entertainment market: distribution-only companies in our ranking have an average profit margin of just over 1%. By contrast, content creators generate average margins of 9%. Those with both have a margin of 13%, suggesting that distributors should consider investing in content if they want to boost profitability.

Developing a primary distribution channel can be an attractive option to connect with a loyal paying customer base but companies should recognise that customers are often only willing to engage in direct paying relationships with the largest and most trusted content brands.
 

Diversify for revenue, focus for profit

The leading media and entertainment companies in the UK are a diverse bunch. The majority of the top ten have business interests outside their ‘core’ media market. In contrast, the ten most profitable generate almost all of their revenue from one core market.

Decisions to invest and diversify should be balanced by a desire for profitability and an awareness of shareholder demands regarding stable, low risk returns versus maximising profit.

Physical pounds to digital pennies, or online liberation?

The pivot to online that is underway across UK media is by no means complete. Across most media sub-sectors, physical revenues continue to represent a significant proportion of overall income. In our top ten by revenue, only two information publishing representatives generate two-thirds or more of their revenue from digital sources.

There are two clear challenges with moving from a legacy physical business model to an online-focused one. The first is finding a digital business model that is profitable, be that advertising funded, transactional or subscription, or a mix of all three. The second is managing the transition from an operating model focused on physical or linear products to a digital one, and the inherent complexities of operating in two worlds.

Advertising accelerates?

The advertising sector is buoyant, as evidenced by the fact that nearly one fifth of the companies in our Top 100 ranking are advertising businesses.  Moreover our data shows profits growing in the advertising sector at a compound annual rate of 8% over the last three years. However online media owners are moving away from advertising as a core business model, towards transactional or online subscription revenue from consumers.

Subscriptions can be a highly profitable source of revenue but tend to appeal to the most regular and loyal customers, which may only be a small proportion of the total audience. For many businesses, subscription may therefore always be just one source of income, coexisting alongside transactional sales and advertising.

There’s no place like home

Across our ranking, approximately two thirds of revenues are generated in the UK, but 85% of the country’s top 100 media and entertainment companies also generate revenues in other geographies. Among the top ten most profitable companies in our list, four generate revenues solely in the UK. A further two generated almost 90% of their revenues here.

For those companies seeking new revenue opportunities, improving connectivity and the continued growth in smartphone use are likely to drive demand for media content in developing markets. To be successful, media companies need to navigate challenges around managing and protecting their Intellectual Property (IP), as well as finding ways to establish a foothold in those markets, such as local partnerships or by acquiring existing businesses in those markets.