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UHY GLOBAL JANUARY 2020 FEATURE


ENTERTAINING THE WORLD


A GLOBAL THIRST FOR CONTENT IS CREATING UNPRECEDENTED OPPORTUNITIES IN THE MEDIA AND ENTERTAINMENT SECTOR ‒ BUT NEW ENTRANTS NEED PROFESSIONAL BUSINESS SUPPORT TO REMAIN FINANCIALLY VIABLE When the Apple TV+ content streaming service launched in November 2019, it entered a crowded market. Netflix [LINK TO Netflix in numbers POP-UP] currently has over 151 million global subscribers. Amazon Prime, which bundles a TV, movie and music streaming service with two-day delivery on products from its retail marketplace, hit 100 million subscribers in the US alone in early 2019. Other major players are coming on stream. Disney’s own service, Disney+, debuted a few weeks after Apple TV+; NBCUniversal andWarnerMedia will both launch streaming services early in 2020. NETFLIX IN NUMBERS: THE RISE OF A STREAMING GIANT Netflix started life in 1997 as a DVD-by-mail service. It became a streaming provider in 2010, and since 2012 has been a producer of original content. Its revenue in 2010 was USD 2.16 billion – a figure that has increased more than sevenfold in less than a decade. Revenue (2018): USD 16 billion Number of paying subscribers: 158 million Monthly average user in the US: 72.9 million Number of original content titles produced (2018): 1,000 Estimated content budget (2019): USD 15 billion The proliferation of streaming services is a global phenomenon. Recognising the impact of the likes of Netflix, Amazon, and now Disney and Apple TV+ on viewer numbers, broadcasters in the UK have teamed up to launch the streaming service Britbox, offering content from four UK national broadcasters – the BBC, ITV, Channel 4 and Channel 5. The service will mostly feature classic series, but there is also an intention to produce original content for the service, which the broadcasters hope will entice British viewers away from the US slant of other streaming services. Meanwhile, iQiyi, which is often called the ‘Netflix of China’, has ambitions to be far more. “We want to be a one-stop entertainment platform,” said iQiyi’s chief content officer Wang Xiaohui last year. “We want to match users with more entertainment options, so they don’t have to leave our platform when they want to read books or play games.” As those words suggest, digitisation is not just disrupting the movie and TV business. Spotify and its challengers are changing the way we consume music, while traditional paper-and-ink newspapers are beginning to look like quaint throwbacks to a sepia-tinged age compared to their fast-moving, online multimedia counterparts. Few industries ‒ perhaps retail is one ‒ have undergone such a thorough transformation since the dawn of the internet age as media and entertainment. “Streaming platforms have definitely changed the shape of the media/entertainment sector and have moved us into the digital transformation age,” says Patrick Farrelly, principal and media specialist at UHY Advisors NY, Inc, Albany, US. “No one wants to listen to or watch commercials anymore. They want to live stream music, shows, movies, news…” The upshot of this is an almost unquenchable thirst for content. iQiyi has set aside up to USD 7.3 million for each of six new feature films – but that is a relatively small amount when compared to the USD 6 billion Apple reportedly spent on original shows and movies ahead of its launch. Netflix splashed USD 3.74 billion on original content in just the third quarter of 2019. A GOLDEN AGE FOR PRODUCERS That sort of money needs to go somewhere, and these lean digital organisations often do not have the in-house content-making infrastructure to do it all ‒ or even that much of it ‒ by themselves. Nor do they want to. MoneyWeek magazine recently reported that “producers have thrived on the back of the growth in demand for content, thanks to an array of new clients to make shows for.” Patrick Farrelly at UHY Advisors NY, Inc. in the US agrees: “All this has led to new players in the media and entertainment sector, and increased acquisition activity. Entities with large financial means realise they cannot engineer everything in-house. These companies weigh the cost benefits of producing in-house versus acquiring these services (from third parties). The upshot is a huge boost in the number of new content production companies.” This is far from just a US trend. Around the world, companies are springing up to service the new demand for content. “I would say that the general trend is that audiences and therefore advertising budgets are moving from content created by big TV channels and newspapers to that created by start-ups,” says Nikolay Litvinov, director of audit and consulting at UHY Yans-Audit LLC in Moscow, Russia. “It now requires a lower business entry threshold to open a media company, which often starts as the brainchild of an individual entrepreneur with just five to ten employees.” Andrea D'Amico, partner at UHY Audinet Srl in Rome, Italy, says that big players like Netflix and Amazon are dominating the streaming sector, and are formulating clever business strategies that will secure their position for the long term. “The big players, in addition to creating products of great quality, have also developed industrial integration strategies such as, for example, the recent arrival of Netflix on the Sky TV platform,” he says. In response, he believes further opportunities will emerge for non-mainstream channels organising along sharing economy lines. The upshot is a content requirement that shows no sign of diminishing. AWASH WITH OPPORTUNITY Whether mainstream or otherwise, the new media and entertainment landscape is awash with opportunity, and not just to serve local markets. The globalisation of media and entertainment means even small producers are granted access to global audiences in a way that was not possible when national broadcasters dominated the TV schedules. Bernard Fay, co-managing partner at UHY’s member firm in Spain, UHY Fay & Co, believes language barriers are crumbling as streaming companies increasingly push for worldwide audience share. “There is an explosion of new platforms competing to gain market share, and Netflix has noticed the entry of giants such as Amazon, Apple and Disney,” he says. “This has created a huge demand for content, and language does not seem to be a barrier anymore ‒ one example is the extraordinary success of Casa de Papel, which in English is Money Heist.” Casa de Papel is a Spanish language series that has become one of the most watched Netflix shows in any language. When the third series debuted in 2019, over 34 million people around the world tuned in, in the course of just one week. UHY Fay & Co has first-hand experience of the phenomenon of truly globalised film-making. One of the firm’s clients is Dreamlight International Productions, a Madrid-based media production company with an international outlook. Led by a Spanish media veteran and a renowned author and businessman, Dreamlight understands that the future for independent production companies lies in satisfying international demand for multilingual, multicultural content. “Dreamlight is now fully dedicated to its new project ‒ a historic series in English with a native English speaking cast ‒ which will soon start shooting in several countries,” says Bernard. A GLOBAL OUTLOOK In Russia, too, says Nikolay Litvinov, “we see Russian media firms creating popular exclusive content and looking for opportunities to sell it in other countries.” In the US, Patrick says media and entertainment companies are increasingly looking beyond domestic audiences and the traditional export markets of Europe and Australasia, and towards hundreds of millions of potential new content consumers in South America, China and Africa. It is easy to see why. This is a landscape in which the BBC’s famous wildlife shows, fronted by the ever-popular David Attenborough, are made with global rather than British audiences in mind. It is one where traditional broadcasters are scrambling to meet the challenge of nimbler streaming services and web-based competitors, by partnering with third- party production companies on content with cross-border appeal. While the opportunities available may seem like a golden age for independent content producers, it is not without pitfalls. New entrants to the sector might bring a wealth of creativity and content-making experience, but far less in the way of financial and business acumen. It is easy to forget that creative industries, like any other, live or die on their ability to make money. Professional service providers can help to provide the solid fiscal foundations upon which great content is built. “Research shows that a large percentage of movie projects actually lose money instead of creating a profit,” says Andrea D'Amico at UHY Audinet Srl in Italy. “Our goal is to help profitable films become the rule and no longer the exception. We can assist film studios and distributors with their greenlighting decisions by providing assessments of film financing, producing and releasing. In addition, Italy provides specific tax relief for movie making.” In the US, Patrick Farrelly also believes UHY member firms have a fundamental role to play in the new media landscape, by giving creative people the freedom they need to make the very best content. “These dynamic new companies have grown their businesses from the ground up,” he says. “They understand their product, their customers, and where the industry is trending. However, they may lack understanding when it comes to factors like government and industry regulations, tax compliance and cash flow management. “That’s where we can help – by helping companies address such challenges with a hands-on, highly communicative style of service delivery. We are there every step of the way to help grow these businesses.” In Russia, Nikolay Litvinov wonders if the sector is under-regulated, and will perhaps become subject to more government scrutiny over the coming decade, again necessitating first-rate business advice. “Other issues that professional consultants can help with is protecting exclusive copyrights and cyber-security protection,” he adds. INTERNATIONAL SUPPORT As a global network, working with an increasingly global sector, UHY is in a better position than most to offer the kind of support entertainment businesses need. In Spain, Dreamlight was founded with the ambition to quickly become a global player. “UHY Fay & Co is helping Dreamlight with the professional services required, but it is likely that other UHY members will be needed to support Dreamlight’s activities in the different countries where they will shoot the series, and then in the post-production sales efforts,” says Bernard Fay. In the same vein, Nikolay Litvinov says this cross-border activity “provides possibilities for professional consultants to help (content businesses) with international taxation issues and legal support in their communications with foreign colleagues.” With the internationalisation of media and entertainment showing no signs of slowing, it is likely that opportunities for collaboration between UHY member firms will also grow. The shift to a globalised industry appears unstoppable. With a host of new companies emerging to satisfy that growing demand for content, the support of professional service providers has never been more important. UHY IN THE MEDIA AND ENTERTAINMENT SECTOR From film production to mobile marketing, UHY member firms work with clients across the media and entertainment spectrum. As the industry becomes ever more global in its outlook, clients can draw on specialist knowledge and insight from both mature and emerging markets. Member firm experts across the network also have significant experience of specific issues affecting the sector, such as structuring of royalty agreements, licensing and the valuing of intellectual assets.

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