To start a new section, hold down the apple+shift keys and click to release this object and type the section title in the box below. Media and entertainment companies should try to establish a clear understanding of the relative profitability of physical and digital revenue streams. For many businesses this is no small task: when many of the same staff and resources are used to create content that is distributed in physical and digital formats it can be hard to quantify the true profitability of digital operations. Without this knowledge, companies may be working on false assumptions about the extent to which they should hold on to physical revenue streams, or the pricing that they need to achieve from digital products and services. Legacy vs Legacy Mixed media Online only digital • Physical or live/linear products • Digital offerings well • Digital native business, or has still account for majority of established, account for c.50%+ almost entirely exited physical revenues and profits of revenue (and growing) products • Digital revenues growing but • Digital business models still • Digital business model well not large enough to sustain evolving established whole business Key success • Large distribution network • Ability to offer a compelling • Digital propositions that offer factors • Have cutomers who are multi-channel experience greater value for customers strongly attached to the across physical and digital than physical equivalents (e.g. physical product/resistant to • Understanding of relative searchable archive content) change profitability of physical and • Products optimised for mobile • Emphasis craft and longevity online channels over immediacy Challenges • Declining sales volumes in the • Managing the cost of • Declining prices for digital ad of this majority of media sectors maintaining a legacy inventory model • Demonstrating value of legacy infrastructure (Production • Developing sustainable digital products to advertisers and distribution of physical business model • Managing economics as products) as volumes decline online business grows • Developing digital skills, business models and ways of working within existing organisation structures • Managing two (or more) channels to market, operating at different speeds Media Metrics The state of UK media and entertainment 21