Where did Disney and Live Nation’s missing $10 billion go?

In both economic and pandemic terms, we are in a relatively quiet period compared to the first half of the year. COVID-19 is at much lower levels in most countries and there are multiple sectors, such as housing and auto, that are reporting booms. These positive indicators will likely be both a pre-recession bounce and the lull before COVID-19’s second peak. However, there is a crucial subtext here, which is that one sector’s loss is often another’s gain. COVID-19 saw winners and losers, as any post-recession recovery is defined by ‘scarring’ where some companies and formats build where others have failed. For entertainment companies that lost revenue during the first half of the year, the question is whether they will regain that revenue or whether their lockdown legacy will be a long-term contraction.

Live Nation and Disney (because of its theme parks) were two of COVID-19’s biggest and highest-profile entertainment company casualties. Live Nation’s revenues fell from $3.2 billion in Q2 2019 to $74 million in Q2 2020, a 98% decline. Disney’s fall was less in relative terms (-38%) due to having a diversified business but more than double Live Nation’s loss in actual terms. Between them, Disney and Live Nation lost nearly $10 billion of revenue which can be bluntly equated with $10 billion of consumer entertainment spend that went unspent in Q2 2020. The big question is whether that spend remains dormant, waiting to be tapped when doors open again, or has it gone elsewhere – and if so, can it be won back.

The lockdown winners were companies that could trade on consumers being cooped at home: games, video, home shopping, video messaging etc. Some of these were stop-gaps that consumers turned to in order to fill the void; others represent long-term behaviour shifts. Here are some of the places consumers shifted their spend, and how it might impact recovery for entertainment businesses:

Home improvements: One of the areas to see strong lockdown growth was home improvements – people stuck at home staring at the DIY jobs they had always meant to get around to doing and now had both the time and the money to do them. Home Depot saw its Q2 2020 revenues increase by $7.2 billion, nearly three quarters of that lost Disney and Live Nation revenue. Obviously, these are not like-for-like shifts as different geographies are involved, but the direction of travel is clear. The beauty of the home improvements business model is that there is always another room to do, another project to start. The risk for entertainment companies is that a portion of these new home improvers may have got the DIY bug and will have less spend to shift back to entertainment.

Home shopping: Amazon was a huge lockdown winner, growing quarterly revenues by 42% compared to 2019, representing an increase of $38.3 billion. Those revenues include, among other things, its cloud business, which rode the wave of many of lockdown’s other success stories. Additionally, the shift to home shopping has been pronounced. Amazon’s growth has extra implications for entertainment companies. Its subscriptions were up 29% which largely refer to Amazon Prime, which of course comes with music and video bundled in and will in turn compete directly with pure-play propositions like Spotify and Netflix. This will take on added significance during the recession: when cost-conscious consumers are forced to cut back on spending, an all-in-one entertainment bundle that includes home shipping looks a lot more cost effective than a handful of standalone subscriptions. Amazon Prime is not recession proof, but it is certainly recession resilient.

Changing of the guard: Some of most interesting shifts are actually within entertainment. For example, AMC cinemas saw quarterly revenues fall by a catastrophic 99%, representing a quarterly loss of $1.5 billion while over the same period Netflix gained $1.3 billion. Again, the geographies are not directly comparable but the direction of travel is clear: old video being replaced by new video. A similar changing of the guard is happening in digital advertising. Alphabet, the powerhouse, saw revenues fall by 2% while Amazon saw its ad revenues grow by 40%. Turns out that advertisers will pay a premium to reach customers that are one click away from a purchase. Who’d have thought it…

The list of examples of lockdown shifts goes on and on. In fact, so much so that MIDiA is currently working on a major new piece of research exploring these shifts and what the long-term implications are for entertainment businesses. We’re calling it ‘Post-Pandemic Programming’. There will be a series of in-depth reports for clients and also a webinar and podcast mini-series. So, watch this space!

But returning to the above findings, the key takeaway is that companies that lost entertainment spend during lockdown should not assume that this spending is waiting in consumer’s bank accounts, ready to be spent as soon doors open again. Pent-up demand will ensure much of it will but some of it is probably gone for good, allocated to new habits developed during lockdown but that will persist long after. This is not to say that those companies cannot return to previous heights, but to do so they will need to unlock new spending from new customers. Which may not be the easiest of tasks during a global recession.

New Webinar on What Comes After Lockdown

0Want to know what happens in the post-Lockdown era? Join us for our free-to-attend Recovery Economics webinar tomorrow (Wednesday 10th June) at 4pm BST / 11am EST / 8am PT for insight on music, radio, games, TV, sports and media.

We will be presenting an overview of MIDiA’s latest research thesis: Recovery Economics. This is our framework for identifying which changed need states that emerged during lockdown will form the basis for new behaviours post-lockdown and what you need to do in order to adapt to this new normal.

What is clear is that simply doing more of the same is not a strategy. The Covid-19 lockdown created severe dislocation across many entertainment sectors but also a host of new growth opportunities. As we emerge from lockdown and enter the early stages of a global economic recession, some of these ‘new-normal’ business models will grow further, presenting increased competition for the ‘old normal’. New and established players alike will have to play by different rules in this coming period, dealing with challenges such as permanent changes to lifestyles, weakening consumer spending and ever growing competition for attention.

In the webinar we will explain how this will look across the music, TV, film, games, radio, sports and media industries.

Register now!

The Global Music Industry Will Decline in 2020

Sorry to be the bearer of bad tidings but the global music industry will decline in 2020.

Although we are now nearing the post-lockdown era in many countries across the globe, we are only just at the start of the recession phase that is coming next. Over the coming months we will start to see concrete examples of the downturn (including Q2 financial results) that will transform the recession from an abstract possibility into something far more tangible.

Although live music is the most obviously impacted, all elements of the music industry will be hit. In a forthcoming MIDiA client report we will be publishing our detailed forecasts of exactly what this impact could look like. In this blog post I am sharing some of the top-level trends.

music industry revenue forecasts 2020 midia research

In order to forecast recessionary impact on music revenues MIDiA broke down all of music’s sub-industries (recorded, publishing, live, merch, sponsorship) and all relevant sub categories (streaming, sync etc.), and then divided these into the financial quarters of the year. We then modelled the impact of lockdown, longer-term social-distancing measures and the recession on each of these quarters. We then put this model through bear, mid and bull cases. The sum totals are what you see in the chart above. In all cases, the Q2 decimation of live revenue and the subsequent slow clawback in the remainder of 2020 account for the majority of the decline.

In our mid case (i.e. what we consider to be the most likely case) we forecast a 30% decline on 2019 revenues with the following sector-level changes:

  • Recorded music (retail values) +2.5%
  • Publishing -3.6%
  • Live -75%
  • Merch -54%
  • Sponsorship – 30%

This is how we are thinking about each sector:

  • Recorded music: Music streaming will be far less affected by a recession than many other sectors. But under no circumstances is it immune, and ad supported in particular is anything but ‘resilient’. When the recession bites, consumers will cut discretionary spending, including subscriptions. We expect the increase in existing music subscriber churn to be relatively modest but the growth of new subscribers to slow in markets hardest hit by a recession. Unfortunately, millennials – streaming’s heartland – are the most vulnerable to job cuts. Ad supported is going to struggle whichever way you look at it. Spotify was struggling to make ad supported work even before the recession, while Alphabet was seeing a weakening Google ad business even last year. But it is the other parts of the labels’ businesses that lockdown has hurt most so far: physical sales due to store closures; sync due to the halt in TV and film production; performance due to store and restaurant closures. Q2 revenues could average out at between -2% and +1.5% up on Q1. If the recession deepens significantly in the second half of 2020, the combined effect of higher unemployment and reduced consumer spending could result in a worst case scenario of -4.0% annual growth for recorded music. If the economy recovers in 2021, recorded music revenue will return to growth also.
  • Publishing: Music publishing has been a steady earner for so long and as a consequence has enjoyed an influx of investment in recent years. 2020 though looks set to be a year of revenue decline. Our base case is for a -3.6% change on 2019. Key to this are: reduced syncs due to the halt in filming; reduced performance royalties due to a) live music decline; b) commercial radio declines; c) retail and leisure closures. Physical mechanicals, though small, will be hit by store closures. If the economy recovers in 2021, music publishing revenue will return to growth also, though performance revenues will see long-term transformation due to changes in lifestyles, e.g. more homeworking means less commuting (less radio) and less time spent in urban centres (less retail and leisure) both of which impact publisher income. If the economy recovers in 2021, publishing revenue will return to growth also.

 

  • Live: Even if live events can be put on in Q3, reduced capacities and some venues not being able to operate at all will mean that live revenue growth will be a slow clawback – a process that will run into 2022 and that will only be partially offset by the (much needed) growth in virtual event revenue.
  • Merch: Although there have been some great merch success stories during lockdown (including veteran UK synth poppers OMD selling £75,000 of merch during one live stream) merch sales are so often closely tied to live. Once the lockdown bump is over, the natural cycle of merch sales will remain disrupted by live’s slow clawback.
  • Sponsorship: Artist sponsorship will be hit by brands scaling back their marketing budgets as the advertising economy contracts.

In addition to the forthcoming MIDiA client report we will be exploring these themes and others in our free-to-attend webinar next week: Recovery Economics: Bounce Forward Not Back. Register here.

Recovery Economics | Bounce Forward not Back

COVID-19 social distancing measures caused unprecedented dislocation to the entertainment economy. With a recession now a question of ‘how bad’ rather than ‘if’, entertainment companies have to adapt their businesses and identify new partners to maximise opportunities in the post-lockdown era. This requires a detailed understanding of how the underlying user need states of their customers changed during lockdown, how these changes will in turn evolve, and how they can meet this new demand.

To help entertainment businesses and creators understand these dynamics and navigate the choppy waters ahead, MIDiA Research has created a new research stream entitled Recovery Economics. Recovery Economics explains what the post-lockdown era will look like, which market and audience fundamentals will remain changed and the risks and opportunities these will result in.

MIDiA clients can already access the first two Recovery Economics reports here in our exclusive COVID-19 research practice, with more reports to follow. And following on from the runaway success of MIDiA’s first COVID-19 webinar, we are showcasing some of the research highlights in another free-to-attend webinar: Recovery Economics: Bounce Forward not Back. Spaces are strictly limited so sign up soon! In the meantime, here is an introduction to Recovery Economics.

Recovery Economics - MIDiA June 2020

Recessions are no new thing to the global economy, but the scale and impact of the coming recession looks set to be unlike any that has been experienced in the living memory of today’s business world. Although it is COVID-19 effects that are the fire’s spark, these factors will still underpin the recession’s impact on entertainment businesses.

The crucial difference is the recession prologue that was lockdown. We can hope that COVID-19 dissipates far more quickly, but at this stage it would be imprudent of any business not to at least plan for things being markedly different for some time so that it can identify how to adapt and even thrive during such a scenario. It is time to prepare for the new normal.

recovery economics midia research

Politicians talk of a lockdown ‘bounce-back’, with business returning to normal after its enforced hiatus. In practice, recessions do not work this way. Instead, the dislocation that caused the economy creates permanent scarring, with the effect persisting into the future even once the causal factors are gone. This dynamic is known as hysteresis, as economist Michael Roberts puts it:

“Hysteresis is the argument that short-term effects can manifest themselves into long-term problems which inhibit growth and make it difficult to ‘return to normal’.”

For the purposes of understanding how the coming recession will impact entertainment businesses, the crucial consideration is what ways lockdown impacted consumer demand and supply chains will have long term effects. The length and severity of the recession will be crucial in determining this as will the degree to which social distancing measures remain a feature of the economy.

Perhaps the single most important factor to consider is changed need states. User need states underpin all businesses. For consumer entertainment businesses this is particularly true. Lockdown’s reframing of consumption paradigms showed us that some businesses did not have a plan B when need states became void states (e.g. live) while others were dependent on specific use cases (e.g. radio and music streaming on the commute).

In the post-lockdown era, some void states will return to need states – but slowly, while some of the new need states that emerged in lockdown (e.g. more video conferencing, YouTube fitness trainers, wellness / mindfulness apps) will continue to prosper in the post-lockdown era.

The boredom dependency

For music streaming, podcasts and radio, the biggest need-state change will be the commute. For so long a source of captive audiences, the commute is entering terminal decline. Post lockdown fewer employees will be fully office based. Some will be entirely home-based. Nearly a third of consumers said that during lockdown they have been using their commute time to do something else rather than listen to audio. This dynamic will lessen post lockdown, but it is not going to go away.

Lockdown revealed the vulnerability of entertainment’s boredom dependency. The obvious weakness of relying on people to consume because they have nothing better to do is that as soon as they can do something better, they will. Entertainment companies will have to plan for a steady erosion of boredom-driven consumption.

For more on Recovery Economics, insight into what forms of entertainment will do best post lockdown and how to map how it will affect you, join us on June 10th for: Recovery Economics | Bounce Forward not Back

If you have any questions regarding registration contact dara@midiaresearch.com.