Media: Banking on Recovery
The media is a heterogeneous industry, incorporating companies specialising in marketing, advertising, research, publishing and entertainment (cable, satellite, music and gaming). Many of the larger companies participate across the sub-sectors. All of media’s constituent parts have been buffeted by the challenges that have beset the economy since 2007, but to generalise would be to lose the richness of understanding of the pressures – and thus the relevance of prospective solutions, some of which sit squarely in the banking domain. This article serves to highlight both the commercial and treasury challenges in each media domain while laying out respective banking solutions.
Citi’s Global Transaction Services (GTS) group is working with media companies to build on existing liquidity and accounts payable (A/P) and accounts receivable (A/R) systems to help:
Much has been made of the fall in media’s advertising revenue. The precipitous drop in customer spending has unquestionably hit many of the agencies that specialise in media buying, creative design, market research and brand identity. On the positive side, however, a case can be made that agencies are ‘late-cycle’ and, having borne much of the early impact of the financial crisis, are well placed to be an early beneficiary of economic recovery. Moreover, while top-line revenue has faltered, margins have held up far better, despite the highly variable cost base and increasing digital shift. Internet search is unquestionably the main area of client focus while custom research’s importance for companies launching and repositioning products and services ought to ensure rapid order-book building in 2010.
For corporate treasurers managing the cash and risk positions of decentralised agencies, overlay solutions, such as target balancing and pooling, have long been popular. However, use of these has traditionally been restricted due to the relative independence of business units and global nature of company footprints. This is changing. The need to reduce debt/leverage levels and counterparty risk has seen a rise in demand for tools that provide clear visibility of cash balances held at multiple banks. Treasurers of large media companies are now deploying regional and global liquidity structures to sweep cash to redeem debt and invest centrally. One company that has moved towards a multi-currency pool approach, thereby greatly enhancing its operational efficiency, is media giant WPP.
Prepaid cards are another key tool for consumer incentive promotions and manufacturer rebates for advertisers. An example of GTS’ UK work in this area is last year’s TomTom Christmas promotion of the latest satellite navigation models using a fully branded VISA fuel card to drive sales. The promotion was underwritten by Mando, part of WPP. There is also keen interest in the market research space for migrating participant payments from cheque or store voucher to electronic reward using prepaid cards.
Publishers serving the healthcare, accounting, tax and legal sectors have shown strong defensive attributes and have remained relatively healthy, while those providing education solutions and academic texts have also been boosted by OECD government focus on ‘knowledge economies’ and stimulus packages with emphasis on university enrolment. The growth of online learning has been another boon for this sub-sector. However, directories and newspapers have been challenged by the digital shift and the advertising cuts made by small and medium sized businesses (SMEs).
A fall in circulation figures has exacerbated the issues felt by advertising decline. Old media is wrestling with how to secure payment for online content, as cover prices for broadsheets and tabloids remain largely unchanged from a decade ago. Citi is helping those sophisticated businesses in this arena who have extensive geographic reach and local market sales to consolidate accounts, rationalise processes and lower costs. For businesses with correspondents, authors, and journalists based overseas, multi-currency payment systems are is a key tool.
As newspapers look to arrest revenue losses and bundle content packages, fresh consideration is being given to subscriber/reader offers. A trend is emerging to move away from one-off/individual promotions to prepaid card packages. Building on the cards this, there is renewed focus on internal expense management, with many media clients are considering both travel and expense and procurement cards as a means to control spend and drive reward for business expenditure back to the employer (in the form of rebate and improved vendor negotiation through consolidated data reporting).
Citi is also working on assisting online content payment for music, article and video downloads. Protection for and monetisation of intellectual property rights in the online environment is a key issue for the industry, to help publishers, recording studios, artists, etc. tap a richer vein in digital sales. Citi’s Receivables Vision team, comprising a group of order-to-cash (O2C) consultants, who look at company banking, process and technology arrangements with a view to enhancing client days sales outstanding (DSO) are engaged in helping corporate clients in this domain.
Given the strong correlation between housing sales and communication package change/upgrade, the slowdown in the housing market has impacted take-up of triple play packages and overall cable and satellite subscriber ‘churn’. Further, operators have carried higher customer acquisition costs, subsidising set-top boxes as a means of bringing new technologies such as high definition (HD) into the mainstream. However, the medium-term outlook is bright, as HD and service bundling serve to increase higher revenue per user and increase customer retention. Other positives for this sector have been the increased popularity in home entertainment and ‘escapism’ since the recession has taken hold – a major contributor to the growth of gaming and pay TV.
As stated at the outset, media as a sector has many business lines with associated opportunities and challenges. There are many ways banks can serve companies in this highly creative and fast-evolving industry. These include multi-currency liquidity solutions for those treasuries with extensive geographic breadth and prepaid cards as a reward proposition for marketing and advertising agencies looking to bring high-impact ideas to clients, and for and research companies aiming to pay participants in a more cost-efficient and personalised manner. The case for corporate cards, as well as the need for a fresh approach to unlocking liquidity through O2C consulting for companies with a focus on cost-cutting. Focusing on specific payment channels that address the cash-flow and visibility needs of these diverse businesses is also crucial.