Confab zeroes in on digital effects

PwC report, NBC Uni exec agree: Adjust biz or 'miss the boat'

NEW YORK -- The continuing digital revamping of the media and entertainment business was in the spotlight Tuesday at a PricewaterhouseCoopers event here.

In a closely watched keynote session, NBC Universal chief digital officer George Kliavkoff highlighted his interest in more partnerships, especially with technology companies, as well as adding gaming and e-commerce offerings. He also cited international growth opportunities and emphasized that the online video joint venture between his firm and News Corp., whose transitional management team he oversees, is not trying to compete with Google Inc.'s YouTube.

Tuesday's event also formally launched PwC's "Global Entertainment and Media Outlook: 2007-2011," which projects that revenue streams that aren't subject to digital competition -- including media firms' digital businesses, boxoffice, TV subscriptions and video games, among others -- will grow well ahead of revenue streams challenged by digital competition, including home video, physical recorded music and book sales as well as newspaper and magazine sales.

From 2007 through 2011, compound annual gains in revenue with digital competition will come in at 2.7% worldwide and 1.6% in the more mature U.S. market, according to the global consultancy.

Over the same five-year period, revenue not subject to digital competition will increase 8.3% globally and 7.3% in the U.S., the report estimates. This means that those revenue streams will account for 61% of worldwide media and entertainment growth over the time frame, PwC predicts.

During the past five years, revenue vulnerable to digital competition averaged growth of only 2.4% globally, it says. In 2006, for the first time ever, digital/mobile spending streams contributed more to global industry spending gains than competing businesses -- $16.4 billion vs. $11.4 billion -- according to the report.

In a keynote interview led by PwC partner Michael Kelley, Kliavkoff said Tuesday that YouTube has "cornered the market on amateur user-generated content," while the NBC Uni-News Corp. joint venture is "about professionally produced premium content."

Although NBC has seen more than 300 million video streams of its TV content on its site, including 120 million full episode streams, "we just need more scale," he said in explaining the rationale behind the venture, adding that it also is an admission that often these days "the brand is not the network, the brand is the show."

With download-to-own content being a nonexclusive part of the venture, Kliavkoff said that there is additional upside for NBC Uni, arguing that 45%-50% of top-selling iTunes content is owned by his firm.

The executive also said that marketers increasingly want "three-screen solutions," meaning that a vast majority of advertising deals these days include TV, online and cell phone elements.

With IPTV expected to experience strong growth ahead, Kliavkoff said that media firms must change their programming to make it more interactive and otherwise adjust it to the medium or else "miss the boat."

Partnerships will be key to succeed in the digital world, the NBC Uni executive said, with tech firms particularly important. "They need content and relationships with marketers, we need the technology," he said.

With e-commerce the third-most-popular form of online usage behind e-mail and content, "we should figure out ways to play in e-commerce," Kliavkoff said during the event, adding that a broader gaming play also would be important given that gaming soon could make up 10%-20% of online usage.

Kliavkoff also was asked whether General Electric looks interested in selling NBC Uni. "I think they like this business," he replied. "It's a great growth business and opportunity." Some analysts have suggested a sale could allow GE to focus on its more industrial businesses.

Meanwhile, a panel of industry analysts and bankers Tuesday discussed the digital strides media giants have made so far, with reviews being mixed.

Retired Morgan Stanley entertainment and media analyst Richard Bilotti argued that digital doesn't move the financial needle yet. "The average of about 2% of operating profit (from digital businesses) pales in comparison" to the effect that macro-economic trends can have on sector conglomerates, he said.

Lawrence Haverty, portfolio manager at Gamco Investors, said that media biggies have had differing degrees of digital success. News Corp., thanks to the acquisition of MySpace, has "found a way to win," and Time Warner Inc. has done well by growing AOL's value from what Haverty said was about $20 billion last year to his current estimate of more than $30 billion.

The Walt Disney Co. has made good content deals but hasn't made a big play a la MySpace, while Viacom Inc. has a lot of potential but hasn't fulfilled it yet, he said.

John Chachas, media and telecommunications managing director at Lazard Freres, was more benign, saying that all sector giants are slowly but surely "finding their own way."

With MySpace being just one big example, digital growth is a key driver behind many media deals these days, PwC says in its report. "With content now distributed on multiple platforms, content producers/providers, distributors and technology companies are looking to expand their presence among the proliferating channels, resulting in an increase in merger and acquisition activity," it says.

Last year, media and entertainment deal volume exceeded $70 billion, according to PwC, and 2007 is "on track to be the greatest year in volume since 2001," when the AOL-Time Warner merger occurred, PwC transaction services partner Thomas Rooney said Tuesday.

PwC says that already there are pacts with about $167 billion in deal volume pending this year across subsectors.
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