You could say that Michael Wolf knows a little something about Hollywood. For over a decade, Wolf has been the trusted adviser to some of the largest and best-known entertainment companies around the world. Prior to joining McKinsey & Company as the head of their entertainment & media practice, Wolf built the entertainment, media & technology group at Booz-Allen Hamilton, and in 1999 authored the best-selling book The Entertainment Economy: How Mega-Media Forces Are Transforming Our Lives.
As a leading industry expert, Wolf provided a unique insight into the major challenges faced by today’s media companies when he visited the HBS campus on Thursday, December 6. Hosted by the Entertainment and Media Club, Wolf spoke eloquently and candidly to approximately 100 students about the current state of the industry and where he believed the industry would be moving in the coming years.
Ten years ago, the media business could be characterized by one word: scarcity. There were only the big three TV networks and just a few major movie studios. Most markets had just one local newspaper, and limited channel capacity left us with just a handful of cable channels. “Most businesses operated like monopolies. They could charge whatever they wanted,” Wolf explained.
Today, the rules have all changed. Media companies have integrated, vertically and horizontally. The networks have integrated backwards into the content business. The audience of the big three networks has declined as the proliferation of cable viewing options has led to gains in aggregate share.
For the entertainment industry, “the Internet is here to stay,” Wolf stated. A whole new category of advertising spend was created by dot-coms as they rushed to establish their brands and capture consumers’ attention. The fall of dot-coms and the overall weakening of the economy have created an “advertising crisis” for the entertainment industry. “Advertising is not likely to come back until the economy comes back,” Wolf continued.
“I know I’ve painted a pretty dismal picture,” Wolf quipped, “so if anyone wants to leave now you can still catch Abby Joseph Cohen.” (Cohen was simultaneously speaking in Spangler Auditorium.) Wolf highlighted a silver lining, however. Despite the economic downturn, consumption of entertainment products has increased.
To survive in this new era, media companies must put the “business” back into show business. “In a period of ever-increasing growth, costs are growing faster than revenues, and margins are being squeezed,” Wolf explained. These companies have scaled their enterprises to the point where they are producing a lot of revenue, but not a lot of it is going to the bottom line. This requires media companies to leave behind the old days of monopolistic thinking and begin running their businesses in the context of a competitive environment.
“The primary challenge faced by media companies is to get away from commoditization. Media needs to find a way to distinguish its products, to find new ways to serve advertisers and become marketing problem solvers,” Wolf offered. Historically, the entertainment business has been a “gentlemen’s business.” It’s time for companies to become more competitive, and “they must do so at the expense of other companies.”
Another challenge for the management of media companies is to move away from companies driven by one personality and move towards a team-based approach. “We see this happening today. At Viacom, Mel Karmazin and Sumner Redstone have put in place a strong team behind them. Companies are moving away from a cult of a personality and understanding that you need to create a talent-friendly environment.”