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Executive Summary

In the digital age, the number of distribution channels for creative content continues to proliferate at an accelerating rate. To keep pace, studios will innovate how they use working capital. They will focus on what they do best: making great movies, while they divest under-performing assets and outsource non-core operations.

Nowhere is this better illustrated than in the back office of studios’ home entertainment distribution subsidiaries. Accounts receivable departments often find themselves overwhelmed by the sheer number of deductions taken by retail outlets and distributors. Altogether these deductions can aggregate to millions of lost dollars per year. By outsourcing revenue management, the studio can gain competitive advantage two ways: 1) by shedding back office infrastructure so assets can be better applied elsewhere, and 2) by exploiting best-of-breed competencies of organizations who have made receivables management their strategic focus. This results in faster cash collection, better relationships with business partners, and higher profitability. The result is also a better position from which to engage new channels of content distribution as those inevitably emerge.

Too Many Choices

For almost the first 50 years of the 20th Century, people had only four kinds of media with which to entertain themselves: print, movies, records, and radio. In the last ten years, however, there has been a proliferation of new media: digital cable, direct broadcast satellite TV, wireless telephony, instant messaging, video streaming, and the World Wide Web among others.

And if those weren’t enough …

Sony has developed a prototype product . . . that can store as many as 450 hours of DVD movie content, 1,500 CDs, and 600,000 high-resolution images. . . . [Sony president Kumitake] Ando hinted that, by 2003, every TV as well as nearly every product Sony produces will come standard with an Internet Protocol address. ¹

The trend is clear. Existing channels of content distribution will always face increasing competition from new venues, heightening the need to embrace the change. This very speed of change creates challenges for the bottom line of the studio. New channels require new fixed assets and new working capital. Operations have to be set up and people managed. At the same time, other operations will have to be terminated, their assets shed and their people let go or retrained. All this churn negatively impacts studios’ cost structures yet must be accomplished at an ever faster pace.

¹ Wall Street Journal, 4/16/02.

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