This article is a contributed piece, authored by Stephen Blume, Vice President of Finance at Symphony MediaAI. The views expressed herein are solely those of the author.

Traditionally, CFOs in the media and entertainment industry have been viewed as cost managers, always seeking ways to reduce overhead. However, this perception is gradually becoming outdated.

As the pandemic subsides, CFOs in the media and entertainment industry are preparing for dramatic shifts in consumption patterns.

The pandemic accelerated the trend toward convenient, multi-option home streaming services. Many media and entertainment companies acquired new customers at a relatively low cost. But now, retaining these subscribers requires a continuous stream of new content and affordable pricing strategies.

Media and entertainment companies also need to clarify their streaming strategies. Not all companies can achieve Netflix's reach. Serving niche markets and creating differentiated products is crucial to staying competitive.

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Stephen Blume
Image courtesy of Symphony MediaAI

These changes are why six out of ten CFOs report that their job requirements have increased since the pandemic began, making real-time forecasting and predictive analytics capabilities essential.

Technology as a Differentiator

The role of the CFO in the media and entertainment industry is becoming increasingly complex. Advertising-supported video-on-demand (AVOD) and other direct-to-consumer models have complicated revenue management and data analysis processes originally designed for traditional licensing and distribution revenue streams. "Binge-and-churn" subscribers and overall customer churn have shifted organizational focus toward key performance indicators such as customer lifetime value (CLV).

The good news is that as this complex ecosystem navigates the end of the pandemic, revenue is unlikely to decline. However, because streaming platforms attracted a massive number of subscribers last year, the pace of revenue growth will slow considerably. Unfortunately, this also means that as media and entertainment companies compete for market share through promotions, pricing, or mergers and acquisitions—where we've already seen deals like Amazon/MGM and Warner Bros./Discovery—customer acquisition costs may rise.

The increasingly complex, competitive, and data-driven media and entertainment industry demands that CFOs take on a more strategic role within their companies. They can and should cultivate new skills to provide strategic value in an environment vastly different from just five years ago. This increasingly involves investing in emerging technologies.

According to Ernst & Young, 58% of media and entertainment executives are prioritizing process automation to optimize "low-value but necessary activities within labor-intensive corporate functions." Gartner further reports that 75% of CFOs expect to dedicate more time and effort to implementing artificial intelligence (AI) technologies in 2021 than in previous years.

Much of the media and entertainment industry has already migrated its infrastructure to the cloud and integrated advanced analytics capabilities into its products—such as streaming platforms, content algorithms, and subscriber behavior tracking. By leveraging these capabilities, CFOs can accelerate financial intelligence. Those adept at extracting new perspectives and insights from datasets can identify revenue opportunities, risks, and operational efficiencies that might otherwise remain invisible.

Finance teams can use AI to reduce operational overhead, scale data analysis, and improve decision quality through continuously available intelligence. AI-driven insights also enable finance teams to provide value to stakeholder functions such as marketing, distribution, product development, and customer experience.

According to IBM, CFOs at top-performing organizations are better at leveraging AI and analytics to execute tasks such as profitability analysis, planning, and reporting. Providing real-time, predictive, and highly accurate data significantly enhances the CFO's value in strategic business decisions.

Disruption Brings Opportunity

According to a survey by Financial Management magazine, CFOs are shifting from stabilizing their companies during the pandemic to rebuilding revenue streams. For many companies, technology and data investments are indispensable to recovery; replacing legacy systems was reportedly the most common IT priority among media and entertainment executives in 2021.

Subscriptions have evolved from a primary revenue source to one of many potential profit points. AVOD is expected to grow at an 11% compound annual growth rate by 2025. Streaming platforms are competing with traditional studios, securing three of the eight slots for Best Picture nominations at the 2021 Oscars.

Meanwhile, media and entertainment CFOs face new challenges including customer retention and expansion, contractual and legal matters, and distributor and licensing fees. The pandemic accelerated the social and economic trends driving these changes.

A study by Conviva found that Americans increased their time spent streaming content by 44% year-over-year in Q4 2020. As of the end of 2020, Netflix noted that 37 million of its over 200 million global subscribers joined in 2020—adding more than 8.5 million in Q4 alone. However, Netflix recently reported weaker-than-expected revenue growth in Q1 2021 due to relaxed lockdowns and increased competition in the streaming space. These figures suggest that even the most successful media companies need every possible tool to retain fickle post-pandemic customers.

Data-driven insights enable CFOs and their companies to determine which content garners the most viewers, then precisely analyze those audiences—for example, identifying how many viewers prefer which genres and lead actors. With AI processing vast amounts of data to generate these insights, CFOs can lead discussions on talent compensation and residuals, licensing distribution, and advertising fees. Going further, these insights will make it easier for CFOs to track emerging growth metrics. They should focus not only on churn rates but also on customer lifetime value, average revenue per user, average revenue per content, and total viewing hours on the service.

Time to Act

The state of the industry creates a tremendous opportunity for CFOs who can leverage data to generate forward-looking insights. Applying the same analytical capabilities to the finance function of media and entertainment companies will accelerate insight generation and ensure alignment of revenue streams across the entire business—marketing, content creation, product development, and more. It also creates the potential to uncover growth opportunities.

CFOs still have the responsibility of allocating company resources, but now they can drive more meaningful investment discussions. They simply need to adopt the right technology to turn insights into action.