PricewaterhouseCoopers has recently published the results of a global study of corporate reporting, The Path to Transparency and Value in the Entertainment and Media Industry, in order to help bridge this gap.
The study gauged the perceptions of more than 100 entertainment and media industry CFOs, investors and analysts. Overall, the findings revealed several deficiencies in traditional reporting and bolster the case for a broader, more comprehensive approach to communicating a company's so-called 'value story' to the market. Some of the more telling findings were:
- In excess of 80 per cent of industry executives believe their company's share price falls short of its true value.
- Investors and analysts believe companies have a great deal of discretion over the short-term earnings that they report, which most likely indicates scepticism about the usefulness or reliability of those reported short-term earnings.
While a short-term earnings focus may not necessarily be a bad thing for certain subsectors in the industry (given the shelf life of their 'products' and rapidly changing technology), the survey reveals that investors and analysts are demanding more information about a company's ability to generate returns in the long run.
The survey highlighted a gap between how well industry executives on one hand and investors/analysts on the other perceive how well companies communicate with the markets. Significantly, only nine per cent of investors and virtually none of the analysts consider that companies work actively in this area. They asserted that reporting practices of entertainment and media companies fall short of what the market needs to be able to assess those companies for investment purposes.
These included non-traditionally reported areas such as market share, market growth, strategic direction, quality of management and customer demographics. It is apparent that analysts and investors are looking for more granular information that goes beyond the basic to include data on industry sales, marketing, overall segment performance, cash-burn rate, point-in-time or past performance data and other broader information.
The benefits of more comprehensive reporting and improved disclosure seem clear, as all categories surveyed agreed that this would lead to tangible gains. Over 80 per cent of investors and analysts said that better disclosure would enhance the credibility of management. Two-thirds of industry executives agreed.
There was also a clear feeling that higher valuations would result and specifically the majority of investors and analysts indicated that enhanced transparency would result in greater access to new capital and a lower cost of capital, which would drive the higher valuations.
Half of the analysts also added one other potential benefit to their list: more long-term investors. If that is true, then we are beginning to talk about an industry that starts to attract serious institutional money, which would be good for us all.
