Painting the Bigger Picture: An Industry Being Reshaped

This 2012 report combines financial analysis of sector trends with the results of a survey of more than 500 CMT executives. “Painting the Bigger Picture” 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 also quantifies how the digital cannibalization of traditional media has polarized the industry.
In the report, Oliver Wyman identifies six opportunities for action, applicable across all regions and industries, to help CMT companies reinvigorate value growth:

Invent new end-user value propositions and consider focused vertical integration
Master the art of pricing
Embrace new partnerships – with friends and foes,
Endorse new economic models,
Explore more radical and innovative paths to reinvent and streamline operating models

Migrating Value

Overall, value is migrating to global players, mainly in hardware and software firms in North America and China. Valuation in North America, which holds nearly half of all CMT value, was up last year essentially concentrated in the Hardware Equipment and Semiconductors and Software and services subsectors (See Exhibit 1.2).

Outside North America, the Communications sector is the main concentrator of value – with the exception of Japan, South Korea and India. Europe is down, and Japan is in free fall (the earthquake/tsunami catastrophes exacerbated existing market issues).

1You refer to your portrait of the industry as “cubist”. What exactly do you mean?

The industry is fascinatingly multidimensional and constantly in motion, and we found that no one “cut” at the industry would provide a complete portrait, so we took several. First, we looked at 2011 market capitalization data, to see how value is distributed within the industry and between regions. Second, we applied Oliver Wyman’s Shareholder Performance Index (SPI) to analyze five-year trends, adjusted for currency risk and volatility of returns, which allows apples-to-apples value comparison of sectors and subsectors. Then we went out and surveyed over 500 executives from across the industry and around the globe.
2What does this cubist portrait reveal?

Value in the CMT industry is shifting away from the Communications sector toward the Media and Technology sectors. In fact, Technology’s Software and Services subsector was the only one that managed to increase market value, recording an 8% increase between 2007 and 2011. The results of our CMT executives’ survey confirm the picture of a maturing Communications industry. Communication executives are pragmatic about future growth prospects, while Media and Technology executives show more confidence in the future. Although the growth prospects for the three sub industries differ, executives across them highlight the fierce competition and high price pressure in their respective markets. Operational excellence is high on the agenda, and broadly takes the shape of continued cost cutting, while investments (capital expenditure) remain intact or increase.
3What’s surprised you?

One very noticeable development is in media. We’re seeing an increased divide between online and traditional media caused by increased cannibalization. Take the recovery from the crisis, which is very different by sector. The online content and services sector bounced back quickly, recovering its 2007 market value by 2009 and now standing 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.
4What can CMT companies learn from the report?

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. Looking ahead, for the first time ever, media executives expect growth in monetization from advertising and they expect increased consumer spend in online media. These trends will accelerate digital cannibalization and regional economic shifts.
5What can CMT companies do to meet these challenges?

To truly excel, companies must achieve lean and efficient operations and apply visionary and strategic innovation at all levels. Furthermore, companies must do so by competing and collaborating within their own industry and across industries. We urge players to focus their efforts around the six ‘calls to action’ described in our report.