How Media And Entertainment Companies Can Step Up Their Game By Diversifying Their Revenue Streams

Almost every company right now is in the throes of figuring out how they can tighten their belts. This is especially true of media and entertainment companies. When economic headwinds hit, consumers start to look more carefully at their discretionary spending, including spending on entertainment. According to Naveen Sarma, senior director of S&P Global Ratings who focuses on the media industry, “If consumers feel stressed and stretched, and they choose to cut back on spending, that ultimately will impact the media and entertainment sector, even if there isn’t a recession.”

Inevitably, amid this shift in consumer spending, media and entertainment companies need to respond. One of the most effective tools at their disposal is to diversify revenue streams.

Offering more ad-supported models

One way for media and entertainment companies to diversify their revenue streams is to offer more ad-supported models. Streaming platforms like NetflixNFLX
and Disney Plus have recently disclosed their intentions to double down on ad-supported models in order to diversify their revenue streams. In May, Netflix told employees that consumers might see the company roll out an ad tier before the end of 2022.

But merely adding new ad-supported models is not likely to be the most effective option for media and entertainment companies. While there are valid reasons for media and entertainment companies to pursue this avenue, adding ad-supported models can impair customer satisfaction and loyalty. Research has found that 69% of U.S. adults think ads on streaming services are repetitive, and a staggering 79% are bothered by that experience. One option to improve the experience is to make ads more relevant through, for example, applying algorithms and machine learning, but this can be a lose-lose situation for companies. More than half (51%) of adults in the U.S. say that they’re bothered by irrelevant ads, and yet 64% say they consider targeted ads to be “invasive.”

Fortunately, there are several other strategies available to media and entertainment companies that are looking to diversify revenue streams.

Leveraging brand partnerships

Brand partnerships are one particularly exciting, and potentially lucrative, outlet. Several media and entertainment juggernauts have started to increase their focus on brand partnerships over the past year. For example, Universal Music Group recently announced the launch of a new “media and data network” called the UMusic Media Network. The Network “connects brand partners with [the] World’s largest inventory of unique artist and music content from Universal Music Group.” While brand partnerships are not new, we’re seeing media and entertainment companies be more eager to form innovative brand partnerships around experiences. Research by AdobeADBE
found that 53% of media and entertainment companies think embracing an experimentation and innovative approach to content delivery is the top driver of engagement and retention.

Media and entertainment companies looking to pursue brand partnerships as new revenue streams may do well to take a page from Netflix and Stranger Things. Netflix worked with about 75 different brands for its third season of Stranger Things. As reported by Fast Company, it “built upon the cultural momentum behind the show and the overall feeling that this was a unique collective event.” For its new season, it partnered with the likes of Timex (for a Stranger Things watch), Doritos (for a 3D Doritos-branded bag), Quicksilver (for a branded backpack), and MAC Cosmetics (for branded makeup).

Capitalizing on NFTs

Media and entertainment can also capitalize on the enormous potential of NFTs to diversify their revenue streams. Earlier this year, when Disney launched its Disney Pixar Pals NFTs collectibles — which included nearly 55,000 NFTs based on characters from Disney films — on the digital collectibles marketplace Veve, it sold out in less than a day.

For music labels, NFTs also present lucrative monetization opportunities. As Variety has reported, it is likely that we’ll see major labels sell music videos as NFTs, with both Warner Music Group and Universal Music Group announcing a collection of music-based NFTs in their recent earnings calls.

More broadly, we can expect to see media and entertainment companies forming relationships with NFT specialists and marketplaces to diversify revenue streams. As a report by EY explains, this new approach might enable consumers to interact with media and entertainment companies “…in an entirely new way with their favorite characters, movie and TV show scenes and other content.”

Looking forward

As media and entertainment companies face strong headwinds, they need to respond in effective ways. Diversifying revenue is key, but media and entertainment companies should look beyond merely adding new ad-supported models. Instead, they should pursue channels like brand partnerships and NFTs that may provide them with firmer footing to weather economic headwinds ahead.