What Matters Most

CEOs cite tech savvy as top business skill
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Future [business] leaders need to be personal consumers and users of
technology, buying content and movies online,” says the CEO of a major media
company, “rather than having their assistants print out their e-mails.”
That's the advice a top executive surveyed by Ernst & Young gives to his
corporate heirs. “In order to be a leader, you need to walk the walk, operate
a TiVo and know how an iPod works.”

That sentiment is echoed by other CEOs who participated in the study
“Fast Forward: Technology Propels Media and Entertainment CEOs into the
Future.” Twenty-five corporate giants granted interviews to John Nendick, who
heads Ernst & Young's media and entertainment division.

Among the participants: Time Warner's Dick Parsons, Disney's Michael
Eisner, Sony's Howard Stringer, Clear Channel's Lowry Mays, Viacom's
Sumner Redstone and Liberty Media's John Malone. The one-hour interviews
promised anonymity, a move that led to honest answers from power brokers who
typically speak on behalf of billion-dollar corporations, not themselves.

More than financial acumen or programming savvy, CEOs cite
technological sophistication as outranking other skills for top management.
“This group of CEOs has not really been on the cutting edge of technology,”
says Nendick. “But these discussions were an acknowledgment they have to be
aware of technology.”

In the past three months, tech announcements—high-definition DVDs,
video over cellphones, and power companies' offering broadband services—are
shaping future business opportunities and competition. And not only are these
technologies penetrating the market quickly—it took only six years for DVD
players to enter 50% of U.S. homes—but they're being introduced with
greater frequency. (It was 25 years between the introduction of radio and
television. But the time between the launch of DVD and DVRs, two devices
transforming TV, was less than three.)

That pace of change, coupled with the multimillion-dollar mistakes of
the dotcom boom by companies like Time Warner (the AOL debacle) and Disney (the
Go Internet portal fiasco), have pushed tech understanding front and center.
“While there was some feedback that the functional skills of leadership
aren't changing much from those required 50 years ago, being technologically
savvy was the top skill set required,” says Nendick.

Topping the list of technologies to understand: the digital video
recorder. “We'll see a higher penetration of DVRs that will make TV
consumption a tailored event, not a broadcast event,” said one CEO. “This
is not a good trend for mass media.”

That concern, says Nendick, had CEOs contemplating how DVRs will change
their business. It's estimated that $4 billion worth of advertising will be
skipped by 2007. That has corporate chiefs looking at new ad models: everything
from product placement or shows within a show to cable channels that are more
tightly focused on a demographic, more subscriber-based models and greater
emphasis on live news and sports.

“Sports and news are the two types of programming that still need to
be seen now,” explains Nendick. “Pure CPM and ad rates for that type of
programming have increased significantly, even as absolute viewership has
declined.”

Another threat is the Internet. Broadband access is projected to hit 50%
of online U.S. households by next year, and online advertising is recovering.
It's expected to hit $7.4 billion in 2005. Unlike other media, the Internet
impacts everyone. “Internet players are direct competitors to everyone,”
says one CEO. “They'll take a large share of advertising and
audience.”

Adding to that impact is TV transmitted over the
Internet. We don't know if it will replace TV as we know it today, notes
another CEO. Other trends they are watching are digital cable and satellite,
online content distribution, DVDs and the growth of videogames. The latter two
pose a different sort of challenge, since most adults have a limited number of
evening hours to spend on entertainment. DVDs and videogames reduce the time
spent watching TV. “Who would have guessed that electronic-game revenue would
exceed movie-ticket sales?” muses one CEO.

In order to keep up with emerging technologies, a CEO needs to have
technically sophisticated people feeding the decision process. That doesn't
mean focusing on the most forward-looking technology but being aware of the
state of technology today and likely changes in the future.

One of the tricks is to hire top people to provide sound feedback. The
dotcom crash taught business that it's vital to hire decision-makers whose
job security isn't tied to the success of the new initiative. If it is,
they'll call for more cash and resources, even if the project isn't in the
company's best interest. That realization underscores the need for financial
discipline.

“The CFO now has a seat at the table when discussing investments,”
says Nendick. “New ideas need to pass financial muster as well as being good
technological opportunities.”

Or as one CEO puts it: “You can't let the accountants run the place,
because we sell creative products. But you can't let the creative guys run it
without adult supervision, or else you'd have the inmates taking over the
asylum.”

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