With COVID-19 in full throttle mode, we have had some interesting conversations with CFOs from media companies on how they are managing the impact of COVID-19. The contrast within their business is stark. Live events are cancelled, movie releases are delayed, production of various shows is on hold - all adding to revenue and forecast impacts. Sony Pictures has announced moving all the new releases to at least 2021. On the other hand, streaming businesses are seeing exponential growth driving accelerated need for more content with robust infrastructure and support. Netflix showed a growth of 16 million subscribers (total 183 million) in the last quarter ending March 2020. While there is some cautious optimism, the unknown with regards to when the pandemic will end or if it will resurface again, has forced them to err on the side of caution. This has resulted in various measures such as furlough, salary cuts and layoffs.
As the situation evolves, most CFOs are trying to address the following challenges:
1. Cash preservation: Companies such as iHeart Media and Sinclair Broadcast Group who rely on small, medium and local businesses for their ad revenues will see a significant decline on the demand side. Companies dependent on B2B subscription are seeing customers asking for a longer payment term or cancelling subscriptions. As the business outlook remains volatile, CFOs will tend to look for cash preservation at least in the shorter term. This may apply to even some streaming companies who are seeing significant growth of subscription and demand.
While there are some fixed operating costs, if organizations can isolate cost centers and overlay the power of analytical inferences, there are pockets of savings available. Having predictive and real time insights for accounts management function such as accounts receivables, payables, supply chain optimization and refinancing debt is vital in protecting cash flow. Location independent operations can drive cost efficiency and release of underperforming or capex heavy assets such as captives or satellite centers are some levers that companies can benefit from in the short to mid-term.
2. Forecasting in the COVID-19 environment has become extremely challenging. Changing market dynamics, unavailability of accurate data/ information and lack of resources is complicating this problem. For example, ViacomCBS withdrew its 2020 guidance due to the uncertainty around COVID-19. In April 2020, Disney has also acknowledged that it would be difficult to estimate future performance as the pandemic impacted most of its business segments.
There are some interesting concepts that can be tried for accurate forecasting, such as algorithmic models for subscription analytics, a la-carte vs services bundling, competitive pricing coupled with modular scenario analytics, which have shown promising results.
3. Emergency Task Force has emerged due to lack of resources or as part of enabling/changing regulations such as CARES act. While this has led to a short term need for additional hands and feet to make system changes, close books, month ends, etc. some CFOs are starting to accelerate their investments towards an automation and AI driven finance function. Some companies have accelerated the process automation initiatives to drive time to market and bring cost efficiencies.
As companies start to emerge from COVID-19, they will experience a seismic shift in their operating models. Emerging concepts such as digital finance will see accelerated adoption by CFOs globally to pivot into an agile and nimble operating unit. Activities such as instantaneous close, agile business planning, real time forecasts, predictive capital management, cognitive operations will be the way CFOs will govern their operations. For details on how to adopt digital finance for your organization read our whitepaper, The Impact of Digital Finance.
To summarize, while the challenges in the short term are critical to action, there is a strategic choice for the CFOs emerging out of this crisis. Investments in digital ecosystems now could be a potential differentiator for the companies. Doubling down on the digital agenda through a machine first approach and AI driven operations will lay the foundations for an accelerated transformation and could potentially insulate these companies from any future crisis of this magnitude.
We would love to hear your perspectives and thoughts on this.