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April 9, 2012

Online Media Defy Broader Decline in Communications, Media and Tech, New Oliver Wyman Report Reveals: Study Shows Polarizing Value Shifts Across Industries and Geographies — Signaling a Wake-Up Call for Media Execs and Policy Makers

Online content and services were the only sector of the communications, media and technology (CMT) industry to gain market value in 2011, according to financial analysis by Oliver Wyman that illuminates the shifts reshaping the CMT landscape. The 2012 state of the industry report, Painting the Bigger Picture, also reveals how value has migrated in the communications sector, with the fixed and mobile subsector losing value in Western Europe last year but growing in North America and China. The report, which includes the results of a survey of more than 500 CMT executives, quantifies how the digital cannibalization of traditional media has polarized the industry. Bouncing back from the global financial crisis of 2008, the online content and services sector had already regained its 2007 market value by 2010 and is now 14% above water. By contrast, all of the traditional media sectors declined in 2011, dragging the broader media sector to a 3% market cap decrease, the report shows. The dominance of U.S.-headquartered online companies contributed to a geographic value shift in the media sector, away from regions such as Western Europe (where market value declined 15%) and toward the U.S. "This is a wake-up call for traditional media players and policy makers alike to rethink the role and stake their companies and economies claim in digital," said Denis Burger, partner and head of media in Central Europe at Oliver Wyman and a co-author of the report, in a news release. "Looking ahead, for the first time ever, media executives expect monetization from advertising and consumer spend actually to outpace growth in usage of online media," Burger adds. "This will accelerate the digital cannibalization trend and regional economic shifts."

Although the value of the tech sector declined slightly in 2011, it has recovered its losses from 2008, with the software and services subsector actually increasing in market value by 8% between 2007 and 2011. Consumer electronics companies, dependent on consumer spending, remain below their 2007 level and fell by 7% in 2011 — due in part to the earthquake and tsunami in Japan. Overall, technology executives are focused on the potential for growth in the next two years, with the vast majority expecting their companies to increase both revenues and margins. Opportunities for organic growth, followed by expansion into new markets, are their highest growth priorities, with executives still open to partnerships across a spectrum of businesses.

While the market value of Communications firms declined 30% from 2007 to 2011, most value was lost in 2008. In 2011, a 5% decline reversed the growth achieved in 2010. Since 2008, Asia has been an area of strength. Chinese communications firms scored 84% above the industry average on the Oliver Wyman Shareholder Performance Index (SPI), a risk-adjusted measure that identifies long-term value-migration trends.

Taking the CMT sectors together, North American companies are within 6% of their 2007 value, thanks to strength in hardware equipment and semiconductors, and in software and services. In 2011, North American CMT companies lost the least value (1%) of any region, bolstered by growth in the fixed and mobile communications and media industries, and especially online content and services.

"Although there are encouraging bright spots, the CMT industry remains unsettled," said Raul Macias, a partner at Oliver Wyman and co-author of the report, in the release. "As politicians, regulators and consumers adapt and respond to the changing CMT landscape, the next few years will see increasing reliance on operations optimization, synergies, and innovation, all of which require strong managerial skills."

See a full copy of the report here.

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