ENTERTAINMENT/SPORTS INDUSTRY PROFILE
INDUSTRY OVERVIEW:
The U.S. media and entertainment (M&E) industry is the largest in the world. At $717 billion, it represents a third of the global M&E industry, and it includes motion pictures, television programs and commercials, streaming content, music and audio recordings, broadcast, radio, book publishing, video games, and ancillary services and products. The U.S. industry is expected to reach more than $825 billion by 2023, according to the 2018-2023 Entertainment & Media Outlook by PriceWaterhouseCoopers (PwC).
Filmed Entertainment (Motion Pictures, Television, and Video)
The U.S. filmed entertainment industry encompasses films, movie theaters, TV subscriptions and electronic home video production, and distribution and consumption. Box office receipts are expected to surpass $11 billion in 2019 (this figure includes projected cinema advertising earnings of $991 million). TV and home video earnings are expected to reach $96 billion in 2019. Due to the rapid expansion of streaming video on demand (SVOD), television subscriptions are expected to experience a slight decline (to $91 billion) through 2019.
Box office numbers are expected to grow as theaters adopt digital screens, increase ticket prices, diversify concession options, offer consumer products such as movie or brand related merchandise, and offer membership discounts to attract viewership. Traditionally the film industry consisted of multinational umbrella corporations, major studios, and independent studios or “indies.” Today, multi-channel networks engage in the filmed entertainment sector and SVOD platforms are major drivers in the filmed entertainment sector.
Drawing on formidable strengths, the U.S. film industry has a proven ability to produce films that generate hundreds of millions of dollars, including revenues from distribution across strong domestic and international networks. Success in the industry is based on creativity and financing, and the industry is largely self-regulated. The U.S. market has a large talent pool of writers, actors, producers, directors and technical experts, and is home to a variety of film crews, post-production firms, backdrops, and infrastructure to support production. U.S. filmmakers also receive critical protections for their intellectual property.
Many of the leading motion picture studios are part of larger media conglomerates that often include television, video and streaming services, music services, newspaper, cable and magazine segments. The U.S. filmed entertainment sector enjoyed a trade surplus of $10.3 billion in 2016 (latest available data), which was roughly 4 percent of the total U.S. private sector services trade surplus that year.
The industry offers attractive possibilities for international companies, both large and small, and provides film production tax incentives. With the shift toward digital production and distribution, foreign firms are continually seeking out U.S. digital and animation expertise and new formats.
Music
The U.S. recorded music industry (including concerts and touring) grew to $22 billion in 2019. Collectively, it is the largest global music market. Aside from contracting physical music sales, all segments of recorded music are up, including digital, streaming, and sync licensing. Since overtaking physical music sales in 2014, digital sales have helped the music industry adapt to a fast-changing entertainment landscape (royalties are expected to reach $1.1 billion in 2019). Live and recorded music sales are rising, and digitally recorded music is expected to grow just under $1 billion in 2019. Many companies in the industry have diversified, signing sync deals with vertical businesses for TV ads, in-flight entertainment, satellite radio, restaurants, touring, live entertainment, and merchandise. The United States also has the world’s largest performance rights market and earns half of global sync revenues.
Digital technologies have revolutionized the music industry by creating high quality, low-cost recording technologies and digital distribution, along with the proliferation of devices to download and listen to music. Future industry growth is likely to come from diversified services as they capitalize on vertical business opportunities to license brand name products and services, packaging consumer experiences around touring and live music, bundling music services with other online content services and more. Streaming services will continue to grow and offer more personalized services for consumers. The consumer has more power to influence digital entertainment industries than ever before.
Book Publishing
The U.S. publishing sector, which includes both physical and digital books, is the largest in the world: $38 billion in 2018. Publishing is measured across three major segments: professional, educational, and consumer publishing. Consumer books cover the largest market share by far, followed by educational and then professional books. By 2023, digital publishing will account for nearly 60 percent of all U.S. publishing.
Consumer demand and reading experiences continue to evolve. For example, online retailer Amazon has opened physical book stores (for both physical and e-books). In addition to e-readers, which are designed to only display e-books, smartphones, and tablets bring entire libraries (and most human knowledge) to users’ fingertips. More than 80 percent of American adults own a smartphone, and more than half own a tablet and/or an e-reader. (Pew)
Video Games
The U.S. gaming industry accounts for a significant amount of the M&E industry, and revenues are expected to reach nearly $26 billion in 2019. Today’s consumers have access to multiple devices for gaming, including PCs, mobile phones, digital or physical consoles, and tablets. The sector is comprised of: physical, digital, and online games; mobile apps; and virtual and augmented reality (VR/AR). Electronic sports, also known as “eSports” or “e-sports”, includes professional gaming, in which players compete before a live audience, and the industry is growing quickly: $281 billion in 2019, more than double its size in 2016. In 2019, eSport media rights earnings will have quadrupled to $69 million in that same period. (NOTE: eSports earnings data are currently available for about ten key markets worldwide).
The industry is constantly innovating and bringing new applications to market. VR is the use of digital technology to replace reality with a complete and realistic, immersive simulation, while AR is interaction with computer-generated content overlaid with the “real world”. Using VR/AR, U.S. developers and scientists are producing cutting-edge solutions in healthcare, education, online shopping, and entertainment. VR gaming has grown more than 14 percent since 2018.
SPORTS
Over the past 20 or 30 years, the major trend in sports has been the tremendous growth in revenues, primed by televised broadcasting of games. This innovation led first to increased advertising sales, then to sponsorships, and then to stadium naming rights. Player endorsements provide a human (or superhuman) face to these sports-marketing efforts. Over time, teams and leagues have become much more business-minded, and revenues have increased many times over. This transformation has fueled the need for business people to wheel and deal, and squeeze as much money out of every sporting event or deal as possible.
However, sports consumers (whoops, make that “fans”) are becoming increasingly disillusioned with the transformation of sports into a money-making machine, one that has encouraged player hubris, corporate intrusion, and a general disregard for the fans. Older fans have voted with their, um, backsides, by keeping them at home rather than seating them in stadiums. And younger people have moved toward “action” sports more to their liking, such as snowboarding and BMX, as these are exactly the kinds of things they like to do themselves.
As consumers retreat, corporate sponsors are forced to be more selective in their campaigns, usually by targeting as closely as possible the demographic they are after. They are also demanding more from sponsorship deals. Valuation services is a growing segment of sponsorship, since it attempts to quantify and evaluate the return on investment of any such deal.
Companies in this industry sector produce or promote live entertainment and other events, operate amusement and leisure activity facilities, or preserve and exhibit objects and sites of historical or cultural significance. Major companies and organizations include Creative Artists Agency (CAA), Las Vegas Sands, Live Nation Entertainment, the New York Yankees, the Smithsonian Institution, and Walt Disney Parks and Resorts (all US-based); as well as Cirque du Soleil (Canada); Galaxy Entertainment (Hong Kong); IGT, Merlin Entertainments, and William Hill (all based in the UK); the Louvre (France); and Real Madrid (Spain).
The global recreation market is forecast to grow to more than $2 trillion in 2027 at a compound annual growth rate (CAGR) of 3.7%, according to The Business Research Company.
The US arts, entertainment, and recreation sector includes about 140,000 establishments (single-location companies and units of multi-location companies) with combined annual revenue of about $265 billion.
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In 2007, the Writers Guild of America and Alliance of Motion Picture and Television Producers couldn’t reach an agreement on issues such as low pay, revenue-splitting from new media, and the non-unionization of reality shows. And so American was left watching re-runs, catching up on old seasons available on DVD, sampling a seemingly endless array of new reality and game shows. Strikes in Hollywood don’t only have an effect on the big studio execs and union workers at the center of negotiations. Reuters reported in January that Warner Bros. could cut up to 1,000 employees at its Burbank, Ca., location due to lack of work, stating that recipients could be subject to layoff after 60 days. The notices represent the first sign of the strike’s potential implications for Hollywood employees, and could launch a major spree of lay-offs similar to the result of the WGA strike of 1988. Many TV production companies had already laid off workers not necessary without new scripts when Warner Bros. revealed it had gone through the necessary steps to legally pass out pink slips. Some big names came back with new episodes in order to save their own employees from being let go. Late night show hosts including Jay Leno, David Letterman, Conan O’Brien returned to work in the new year with fresh scripts.
Some argue a long-lasting strike would only push the younger generation further toward Internet media as the primary source of entertainment-which would have a direct effect, of course, on job opportunities in the more traditional entertainment sectors. Another concern raised is that the striking could become even more complicated when the 120,000-member Screen Actors Guild heads to the negotiation room in June 2008.
With the rise of the Internet and other new communications technologies, the field of entertainment is increasingly difficult to define. The film, television, and music, as well as sports-each a form of entertainment raking in millions of dollars. The first three of these businesses are dominated by enormous, vertically integrated companies such as Sony, Time Warner, and Walt Disney, which have interests in multiple segments of the industry. But there are also thousands of jobs in the entertainment industry at smaller, less corporate companies-film and television production or distribution companies, for instance, and small independent record companies, talent agencies, and management companies. Similarly, pro sports is dominated by the four biggest spectator sports-baseball, football, basketball, and hockey-but there are many other sports out there with varying degrees of business sophistication, and even at the Big Four there are numerous, albeit unglamorous and low-paying, jobs in minor-league outfits.
When Seagram followed its $10.4 billion purchase of PolyGram with the announcement that it would fire thousands of employees in a major restructuring, it initiated a trend among the Big Five (BMG, EMI, Sony Music Entertainment, Universal Music Group, and Warner Music Group) toward making record label companies smaller and “smarter”-that is, focusing on a smaller number of “surefire” acts. And the merging continued. In any case, the industry doldrums, which began in 2001, continue to put a damper on hiring.
Most companies in the arts, entertainment, and recreation sector rely on lower-skilled workers and, in some cases, part-time workers to fill many positions. Overall, US wages for production workers in the industry are moderately lower than the national average. Some notable exceptions include performing arts companies and sports teams, which rely on highly trained artists and athletes. Museums and zoos also need highly skilled experts in various fields. Employee turnover in the arts, entertainment, and recreation sector is significantly higher than the US average. The problem can be exacerbated by changes in visa programs that limit the number of foreign workers companies can hire. Amusement parks and ski resorts rely heavily on H-2B visas.
Some segments involve activities that may present some health risks, occupational injuries are significantly higher than the national average. Professional athletes, for example, risk various sports injuries. Moving equipment at amusement parks could put workers there at elevated risk of injury.
The culture in this industry is one of anti-corporate, studied casualness. There are still uniforms: an ever-changing array of baseball caps and jackets in the music business, for example. But they’re invariably less starchy, more expressive of individualism, than anything worn to work in the fields of finance or law. The people? Well, there’s no people like show people, and the same can be said for those in the sports world. This is a high-energy crowd. It’s also a crowd jammed with inflated egos, which can make its members both stimulating and frustrating.
Regional & International Issues
Global investment banking’s net revenue fell to $35.6 billion to $132 billion by 2021, according to Reuters. Major companies and organizations based outside the US include Cirque du Soleil (Canada); Compagnie des Alpes and the Louvre (France); Galaxy Entertainment (Hong Kong); Real Madrid (Spain); and UK-based IGT, Merlin Entertainments, and William Hill.
Entertainment and recreation industries tend to thrive in developed economies with stable consumer incomes. However, developing economies like China and India have growing recreation and leisure sectors: China’s Macau district is one of the world’s leading gambling markets, and the popularity of professional sports is thriving throughout the world.
Overcoming regional and cultural differences could make international expansion a challenge for some companies in the entertainment and recreation sector. Professional sports leagues, for example, may need to invest in outreach programs to educate new fans about a game and to develop local talent. Regulatory or licensing requirements may also differ between countries.
Increasing globalization and access to information through the internet is generating new demand for particular kinds of art and entertainment in different world regions. Exposure on YouTube and social media has helped many recording artists establish large fan bases beyond their home countries. Professional sports are also going global; the NFL, for example, has begun hosting games outside the US as part of the league’s plan to grow its international audience.
Online streaming is further expanding global sports viewership, as several leagues have made deals with major tech firms to broadcast games on the internet. For example, Amazon offers some NFL games along with enhanced features on some devices, and MLB has sold streaming rights to both Twitter and Facebook. Upstart streaming services like DAZN and Eleven Sports are also bringing sports viewing into the digital age. Cultural exports like music and sports can help increase globalization, which in turn can drive demand for more international entertainment.
In the US, arts, entertainment, and recreational sector companies are typically located in more densely populated areas and regions with higher population growth. States with the most arts and leisure establishments include California, New York, Florida, Texas, and Illinois. Some segments, though, may be clustered in certain regions due to climate or geography. Ski facilities, for example, are typically found in the Northeast and the Rocky Mountain region, while the most popular amusement parks are found in California and Florida.
The box-office success of independent films over the past several years has sparked significant changes in the film industry. Hollywood has bought into the appeal-and lower production costs-of character-driven films, and studios have established subsidiaries that solely produce such films. Consumers and critics alike have rewarded them for this endeavor. Moreover, many studio distribution departments are looking more seriously at foreign markets and other outside producers as sources of film “product”-partly because these ancillary sources are making movies that filmgoers are responding to, and partly because when they buy a finished film, they have complete control over costs.
While these trends translate into less work for film crews, they heighten the demand for office personnel, who must find new writers, directors, and actors to put together these back-to-basics productions. “It takes talent to find talent,” as the industry maxim goes. And studios’ efforts to mimic the style of independent films and curtail production costs have meant less reliance on special effects and consequently a greater need for a steady stream of new writers, directors, and actors.
Major sources of revenue include admission to live performing arts performances (about 15%); fitness and recreational sports center services (about 15%); ad gambling machine products (about 10%). Other services include amusement park and arcade services; golf course and country club services; and admissions to live sports events.
Companies within the arts, entertainment, and recreation sector generally cater to people with an interest in a particular leisure activity. Many companies require specialized facilities that may be costly to build and maintain. Companies in some segments may require significant investments to upgrade their facilities on a regular basis, such as amusement parks and sports stadiums.
Hiring and staffing requirements for some companies may depend on the time of year. Outdoor recreation facilities such as ski areas, marinas, and golf courses may operate on a seasonal basis. Performing arts companies generally present their productions as part of a season. Workers with specialized skills or knowledge may be needed by museums and historical sites. Low-skilled and part-time workers are generally employed for grounds maintenance, food service operations, and similar functions.
Technology
While most companies require some degree of computer technology for business and record-keeping operations, some segments may require more specialized technologies. Some amusement parks have been using IoT-enabled processes in their operations, such as sensors in rides that collect and transfer data about the ride’s performance which enable managers, technicians, and engineers tell when a ride needs checking or repair. Such application can also be used as a guide for future designs using the performance insights gained through the system. IoT can also enhance guest experience by sending signals to a guest’s phone about events, attractions, and deals nearby. IoT can also be merged with Augmented Reality to offer virtual tours, promos, and even games while guests wait in line. Disney’s MagicBands are used in conjunction with RFID tags and radio frequency technology throughout the location. These wristbands are substitutes to paper tickets and speeds up queuing based on the info embedded in the device. These are also used for cashless payments in restaurants, shops, and photography services within the park.
Meanwhile, Big Data analysis tools have transformed the casino industry, helping companies save money. A security system called NORA (Non-obvious Relationship Awareness) is an efficient tool against cheating used in some casinos in Las Vegas. Other casinos have developed in-house software to collect and analyze customer data. This can be used to optimize their platform and adjust their marketing efforts by analyzing customer activity.
Museums and fitness centers are using virtual and augmented reality to varying degrees for marketing and to enhance the visitor experience. Some golf courses use drones for marketing purposes and grounds management.
Competitive Landscape
Advancements in consumer electronics have given rise to a growing variety of at-home entertainment options that compete with those offered by companies in the arts, entertainment, and recreation sector. Smartphones, tablets, gaming consoles, video streaming services, and social media have made it easier to stay busy and have fun without leaving the house. This is especially true of younger consumers, who represent a critical customer base for the industry. To lure people away from their screens, amusement parks, arcades, museums, and other institutions are investing in technology improvements to create novel experiences that cannot be replicated at home. Many organizations are also using sophisticated data analysis applications to improve efficiency and guide decisions on marketing and programming.
Most operators in the industry — such as sports teams, concert promoters, performing arts groups, fitness centers, and golf courses — typically compete for regional customers who live within a short driving distance. However, the industry’s largest companies operate destination attractions that rely heavily on both domestic and international tourism; examples include Disney World, Broadway theaters, and Las Vegas casinos.
Demand is driven by consumer spending and leisure time, as well as demographics. The profitability of individual companies depends on efficient operations and effective marketing. Large companies have advantages in purchasing and access to capital needed to construct leisure and recreation facilities. Small companies can compete effectively by catering to local tastes or offering unique experiences. The overall US arts, entertainment, and recreation sector is highly fragmented: the top 50 companies account for about 20% of revenue. However, certain segments within the industry, particularly gambling, sports, and amusement parks, are more concentrated.
Competitive Advantages:
Pricing — Pricing strategies vary considerably within the arts and entertainment industry, depending on the type of attraction and other factors. Heavy competition from other entertainment options generally pressures operators to keep prices as affordable as possible. However, high demand can drastically push up the cost of admission to events such as professional sports games, hit Broadway shows, and popular theme parks. The rapid growth of luxury fitness studios is also contributing to an affordability gap in the US health club market. Some theaters, museums, and amusement parks offer promotional discounts to maintain steady attendance.
Innovative Attractions — Entertainment and recreation companies are increasing their investments in high-tech attractions in order to stand apart from a crowded field of competitors. Theme park operators are incorporating emerging technologies such as virtual reality and augmented reality into new and existing rides. Museums are also using those technologies to create new kinds of interactive exhibits that feature personalized, location-based content. A growing number of fitness clubs are providing wearable devices to help members track their progress and stay engaged with their workouts, which can boost retention rates.
Licensing Partnerships — Large entertainment and recreation companies often make licensing deals to leverage brand awareness and encourage repeat business. Disney theme parks feature rides based on popular franchises such as Star Wars, Frozen, and Marvel Comics superheroes, while Universal Parks & Resorts successfully introduced Harry Potter-themed sections at several of its properties. All four major US pro sports leagues and many individual teams have co-branding deals with fantasy sports companies like DraftKings and FanDuel in an effort to capitalize on the industry’s explosive growth. High-end boutique fitness chains like Exhale and SoulCycle have partnered with luxury hotel brands to open on-site workout facilities at their properties.
Companies to Watch:
Walt Disney Parks and Resorts owns and operates six of the world’s leading family vacation destinations, including Walt Disney World Resort and Disneyland Resort in the US, as well as parks in Tokyo, Paris, Hong Kong, and Shanghai. The company’s theme parks hosted more than 150 million guests in 2017.
Las Vegas Sands is a major international casino resort operator with two flagship properties on the Las Vegas Strip: The Venetian and The Palazzo. The firm also operates several properties in Macao, China, as well as a resort in Singapore and a joint venture in Bethlehem, Pennsylvania.
Live Nation Entertainment is the world’s largest ticket seller and promoter of live entertainment. The company significantly expanded its ticketing services with its 2010 purchase of Ticketmaster Entertainment. Live Nation owns, operates, or has exclusive ticket-selling rights for about 220 venues around the world; its talent-management arm represents more than 500 musical artists.
The Smithsonian Institution houses about 160 million objects in 19 museums and galleries, most of which are on the National Mall in Washington, DC. It also operates the National Zoo. Roughly 30 million people visit every year to view the Smithsonian’s exhibits on art, music, TV and film, science, history, and other subjects.
DraftKings offers daily fantasy sports games in 12 sports and is poised to move into sports betting following the US Supreme Court’s decision in mid-2018 striking down a law outlawing sports betting nationwide. Some states have already legalized gambling on sports events, and others have bills in the works.
Perhaps the most contested and conversed about issue within the music industry today, even more than Britney Spears’ latest breakdown, would have to be digital music downloads. No industry is more paranoid about a technological advance eating into its profits than the music industry. Though other factors (e.g., a perceived lack of compelling artists, artificially high CD prices, competition from “higher-value” DVDs, and the sluggish economy) are involved, file sharing has clearly had a negative impact on album sales.
To counteract the consumer-spending slump, labels first began trying to find new ways to bring in revenue. These include new contracts that entitle them to a cut of an artist’s tour and merchandising revenues and an increased emphasis on placing songs in films, television shows, and-the most lucrative of all-commercials.
Then they adapted the “if you can’t beat them, join them” mentality, and major labels partnered with Apple’s iTunes, Napster, RealNetworks, and Wal-Mart, increasing the legal digital distribution of music. In a move BusinessWeek reported as ending a digital music era, Sony BMG revealed in January 2008 it would make at least part of its collection digital rights management-free. Sony BMG would therefore become the last of the top four labels to allow its songs to be sold from various outlets, such as Amazon.com. UMG and WMG both announced plans to do the same in 2007.
As we move into the digital age, it’s getting more difficult to cleanly break down the industry into traditional categories. One reason for this is the proliferation of new forms of entertainment-DVDs, the Internet, and the like. Another reason is that many film, television, and music companies have united to form entertainment conglomerates.
While the landscape of the industry is changing, for the purposes of this profile we break entertainment into three traditional categories: television, film, and music, and then follow these up with a look at sports entertainment as its own standalone category.
Sales & Marketing
Some segments, such as amusement parks and arcades, cater to families and middle-income consumers, while other segments, such as golf courses, tend appeal more to higher-income individuals. Companies such as talent and modeling agencies represent entertainers, professional athletes, fashion models, and other independent artists.
Marketing for arts, entertainment, and recreation companies varies according to segment but typically includes advertising through mass media and direct mail. Some segments, such as fitness centers and private golf courses, market membership offers. Some performing arts companies and museums depend on contributions solicited from the public, as well as corporate sponsorships.
Many entertainment and recreation companies allow customers to buy tickets or make reservations on the internet. Ticketmaster, owned by Live Nation Entertainment, dominates the online ticket market for live entertainment and sporting events.
In entertainment and sports, profit comes from discretionary spending, so these industries enjoy the most success in economically stable countries where leisure dollars flow freely. Industry companies supply their audiences with large-scale sporting events, music concerts, TV situation comedies, and silver-screen masterpieces. Simply put, they’re in the business of fun-at least most of the time.
Even during economically depressed periods, this industry flourishes as an escape for all walks of life. And standing at the pinnacle of entertainment culture are the celebrities: the movie stars and quarterbacks and rock stars and talk-show hostesses who either realize our dreams and give us hope, or make us fearful of the kind of values and environment of which current future generations will become a part. This is the only industry whose product is an illusion-neither a good nor a service, and yet both at the same time.
In 2004, Sony Music and BMG merged to become Sony BMG Music Entertainment, and EMI merged with Vivendi, which then purchased BMG Music Publishing for $2.2 million to form Universal Music Group. A year later, the European Union’s approval of the Sony-BMG merger was annulled in European court, making an investigation of potential antitrust problems necessary. In 2007, the deal was cleared. Still, Universal Music Group continues to hold its top position as the world’s largest record company, a title it’s held since acquiring PolyGram in ’98.
Cash flow is most likely to be seasonal for companies that operate outdoor activities or events, including ski facilities, golf courses, and amusement parks. Financing for performing arts companies can be risky due to the large upfront investment required and the unpredictability of success. Some museums and zoos may have significant endowment funds to help finance their operations.
Regulation
Many companies within the sector operate in highly regulated industries, including casinos, ski facilities, and amusement parks. Many recreation companies, as well as amusement parks, must carry liability insurance due to the risk of injuries. Actors, singers, dancers, and stage workers for performing arts companies are typically represented by unions.
American Association of Independent Music
Association of American Publishers
Copyright Alliance
Creative Future
Entertainment Small Business Alliance
Entertainment Software Association