AGCS spotlights risks in the entertainment industry

The industry is evolving in a new, post-COVID environment

AGCS spotlights risks in the entertainment industry

Insurance News

By Ryan Smith

With the Oscars fast approaching, the entertainment industry is seeing revenue and audiences returning post-pandemic. However, the movie and live events sector has yet to fully recover from the COVID-19 crisis and is having to evolve in a new environment shaped by economic, sustainability and technology trends, according to a new report from Allianz Global Corporate and Specialty (AGCS).

 AGCS, a major player in the global entertainment insurance market, insured five of the 10 films nominated in the Oscars’ Best Picture category for 2023.

“The entertainment industry had a very positive year in 2022 and a welcome recovery is definitely underway, but we are not out of the woods yet,” said Michael Furtschegger, global head of entertainment at AGCS. “In the three years since the coronavirus first hit the headlines, the world has changed. The sector must continue to evolve in line with new technologies, proliferating platforms, and seismic shifts in patterns of consumption, as well as changes in the public mood, particularly among younger generations.”

Despite the challenges faced by the industry, consumers are returning to their preferred entertainment venues or platforms, AGCS said. Global box office receipts reached $25.9 billion last year, a 27% rise from 2021, according to Gower Street Analytics. However, that number is still 35% below the average for the three years before the pandemic.

Live music revenue is expected to surpass pre-pandemic levels next year, with digital music streaming subscriptions driving growth in recorded music, where revenues are predicted to reach $45.6 billion in 2026, up from $36.1 billion in 2021.

Live theater is also seeing a comeback, with rising receipts and attendance. The global sports industry is also proving resilient, supported by media rights, sponsorship deals, and a calendar of international events and tournaments, AGCS said.

Challenges remain

However, the entertainment industry is not immune to economic trends such as staff shortages and rising costs, AGCS said.

“Our entertainment clients are feeling the effects of inflation, with increased production and live-event costs,” Furtschegger said. “Staffing costs have risen following the skills shortage that occurred in the wake of the pandemic, when many left the industry. Venues are scarcer than they were because there are still many shows postponed from the pandemic that need to take place in addition to new events and festivals. Bigger events may be thriving, but smaller events are more challenged by factors such as venue, transportation, and energy costs. We expect to see more consolidation in the industry, with smaller, struggling production companies and venues being bought by larger operators.”

Quality not quantity

Technology has lowered entry barriers for content creators, with almost anyone able to upload content to TikTok or YouTube. Meanwhile, the major studios and tech businesses are launching their own platforms. The volume of content now being distributed makes quality a key differentiator in a crowded market, AGCS said.

“We see a move towards quality in film production, but this doesn’t come cheap,” said Wanda Phillips, head of North American entertainment insurance at AGCS. “Businesses need to know they have sufficient insurance cover for sophisticated productions. Where costs increase, so, too, do exposures because the costs are higher with each day of shooting, and this could be reflected in any insurance loss.

Sustainability concerns

Environmental, social and governance issues are having a growing influence on the entertainment sector, AGCS said.

This year’s Oscars ceremony will feature green dresses on the Red Carpet as the Academy encourages a more sustainable approach to awards fashion. In live events, the British band Coldplay has promised to halve the carbon emissions associated with its current world tour, compared to 2016-2017, and has made an array of sustainable commitments, including paying a surcharge for aviation fuel, sourcing ethical and sustainable merchandise, and planting a tree for every ticket sold.

“Younger generations are particularly concerned about sustainability, and festival organizers are responding to this,” Furtschegger said. “More and more entertainment organizations are committing themselves to sustainability targets to reduce the emissions associated with live tours.”

Virtual future

With streaming now a fundamental part of the entertainment and media sector, virtual conferences are a particular growth area, AGCS said. The global virtual events market was valued at more than $114 billion in 2021 and is expected to grow at a compound annual growth rate of 21.4% between 2022 and 2030.

Even without a live audience, virtual events still face risks, including transmission failure due to weather or natural catastrophe, fire affecting the broadcast unit, or network issues impacting broadcasting infrastructure. Rented equipment and studio space can also be at risk of property and casualty liabilities.

Virtual reality is the fastest-growing entertainment and media segment, with global growth between 2021 and 2026 predicted to bring the segment to $7.6 billion. Gaming is forecast to account for 85% of total VR revenue by 2026.

“As the worlds of gaming, music and entertainment continue to converge, gaming platforms such as Fortnite and Roblox are increasingly serving as entertainment and social hubs, while gaming content is crossing over to social media and streaming platforms,” Furtschegger said.

Emerging risks

Health and safety protocols, increasing weather hazards and crowd safety are some of the top risk concerns the entertainment sector should monitor, AGCS said.

“The COVID crisis and the recent tragic shooting incident on a film set have shown that the industry needs to remain vigilant about health and safety protocols,” Furtschegger said.

Climate change is another cause for concern.

“We’re seeing more abnormal weather-related events – heavy storms and flooding in Europe and brushfires in California, for example,” Furtscchegger said. “These inevitably cause havoc for live events, both in terms of cancellation exposure but also damages and human safety.”

“Crowds have always carried inherent risks,” said Kurt Miner, managing director of entertainment at Allianz Risk Consulting, North America. “Event organizers are now better able to monitor large groups of people and keep them safe, as well as artists, with the use of real-time video monitoring. Safety experts can remotely monitor two or three events, which could each be taking place over 15 acres or more, spotting risk concerns such as blocked exits or damaged barriers. They can also monitor social media to pre-empt gate-rushing and prevent stampedes, sending a security contingent to the location before the situation gets out of hand.”

Slips and falls are the most common cause of claims from live-event policies, so organizers should make sure medical staff and transport to local medical facilities are on-site, AGCS said.

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