Maximizing margins in Media and Entertainment with micro-costs
4th February 2022
Are your sales as profitable as they can be?
Media and entertainment companies were supply-driven in the linear broadcasting world of the past; in today's demand-driven, consumer empowered landscape it all works differently. The media and entertainment industry is going to have to make adjustments, in terms of improved efficiency and competitiveness, to ensure a sustained increase in revenue and profits.
Micro-cost evaluation is in the spotlight when we look at determining profit margins from sales, due to the multitude of distribution channels in the market and thus the lowered pricing paid-for content. The question is how distribution companies can increase revenues when using old-fashioned, manual methods to determine what their micro-costs are. The answer is they can’t! Digital Micro-costing tools are needed for accurate calculations.
The Media Landscape Today: Changes and Trends.
The Media and Entertainment industry has had to face major structural changes that were accelerated by the pandemic. These rapid changes have seen tried and tested methodologies cease to serve the industry, where they once worked so well. As an industry, it is now crucial to play catch-up and sort through what is needed to take advantage of the opportunities it has presented to the fullest.
Previously, there were a few linear broadcasters, distribution costs were essentially fixed, margins were high and reasonably reliable and the industry was supply-driven. Consumers received their content as and when broadcasters had done creating it and were ready to distribute it.
The huge increase in demand for internet and streaming services turned everything upside down, so much that Wall Street forecasted that Netflix would spend on content up to $17 billion in 2020, from $15.3 billion in 2019, after increasing spending three years in a row. In terms of distribution companies, there used to be a few major players, but now there are many more, as well as local and regional players. Taking into consideration how rapidly it is all changing, this may not even stay the same going forward.
All of these distributors needed content in the highly competitive environment, this meant more titles and higher costs. The bigger distributors could absorb the costs, but smaller players complained. Ignoring the smaller companies would not make sense when it comes to maximizing the opportunity. Consumers became empowered and started to decide.
Without a doubt, content is costing us more and more every single day. And that means that the pressure is on the business to try and find the cheapest way to distribute that content to our customers. If I look at my own platform, my god, it’s difficult. It's so complex; I have so many supply chains. If you asked me, do I have one supply chain? No. I can’t even count how many supply chains I have.
DARREN LONG, SKY. DPP. Next Gen Supply Chain Report, 2020.
Flexibility and Transparency: Adapting to the customer.
When your consumers are complaining about your prices, as an honest business owner you have to find ways to adjust. In a booming market there is a major opportunity for increased revenues and to scale, so it would be to your advantage. The obvious answer is to try and minimize input costs to deliver better pricing to your consumer. But what if you don't know exactly what your input costs are?
To know exactly what your input costs are you have to know the cost of each part of the file delivery process. If you don’t know this, you will not know if the prices you are selling at will even make you money anyway. To better serve your customer and effective financial management, to know your margins on each sale, are two fundamentals for survival in the business world, ever true for the Media and Entertainment industry.
Intelligence and Accuracy: Benefits of Micro-costing Tools.
Digital Micro-costing tools have a major role to play in better serving your customer and for effective financial management in your business.
Proper application of micro-costing tools can produce quality cost estimates of each part of the file delivery process. By using a digital micro-costing tool you can determine exactly what your costs are and the best price to sell for, ensuring you are still making a profit when you are giving your customer the best possible price.
It is also vital, for effective resource allocation, planning and to identify opportunities to scale, to have reliable cost data. Without this, the way forward is a guessing game to which many businesses have fallen.
At its core, micro-costing entails enumerating each input unit used and deriving the total cost by assigning a unit cost value to the inputs and aggregating them.
Micro-costing comprises five primary steps:
Define the production processes and the study perspective
Identify the inputs
Quantify the units of each input
Assign a cost value to each input unit and aggregate
Conduct a sensitivity analysis.
Traditional ways of doing this are manual with a human operator, which by nature increases costs and it’s not scalable.
The solution is to use a digital micro-costing tool that provides a system that eliminates the need for erroneous human calculation and automates all the steps of the distribution process while keeping track of all micro-costs.
A great media asset management and distribution cloud platform can easily do this at a minimal cost. The returns are unbeatable and the opportunity costs are expensive. Here at Knox Media Hub (KMH), we offer an end-to-end media asset management (MAM) and distribution platform that provides media and entertainment companies with the ability to run media day-to-day workflows, while keeping track of the costs of every single operation executed on every single file.
The software provides clients with a full breakdown of costs, so that they can be allocated with absolute granularity to clients, partners, and the assets themselves. Offering the best price to your customers and knowing which deal to go with becomes easy. The platform can even cater to specific operations like accelerated transfers, encoding, QC, and so on.
One can even compile an inventory of assets with costs, which is of great value for strategizing and scaling. It also offers the benefit of the ability to provide complete transparency to customers in terms of invoicing.
Ensuring profitability into the future.
In the highly competitive landscape of the Media and Entertainment industry, it is now a matter of survival that every deal is profitable and increases revenue. With the year-on-year growth levels we have seen in the past few years, the landscape is only going to become more competitive, so eliminating cumbersome human calculations and automating the process will streamline operations and cut costs.
Providing the best possible pricing, while making a profit, and being transparent will improve your customer retention and acquisition. Knowledge is power and by using a micro-costing tool you can now gain more control of your business and avoid loss-making deals.