Content Disruptors - structural change in the media and entertainment industry
Content DisruptorsStructural change in the mediaand entertainment industry
Content Disruptors 01About this reportContent Disruptors is a report written by theEconomist Intelligence Unit (EIU) commissionedby UK Trade & Investment (UKTI). The report examinesthe key trends reshaping content markets andexplains how companies are adapting to succeedin a fast-changing world.To shed light on these topics, the EIU conducted a global survey of 485 executivesin the media and entertainment industry. Respondents were drawn from Europe,North America, Asia-Pacific and Brazil. All companies have a minimum globalrevenue of $1 million. All respondents hold management positions, with 48%occupying C-suite or board-level positions.To complement the survey findings, the EIU also conducted wide-rangingdesk research and in-depth interviews with a range of organisations.Our thanks are due to the following for their time and insight:– David Card, Vice President Research, GigaOm Pro– Nick George, Entertainment and Media Partner, PwC– Marco Gomes, Founder, Boo-box– Stephen King, UK Managing Director, Believe Digital– Ian Livingstone, Founder, Eidos Interactive– Stella Medlicott, Chief Marketing Officer, Red Bee Media– Robert Picard, Director of Research, Reuters Institute, Oxford University– Anthony Rose, Founder, Zeebox– Mitch Singer, Chief Digital Strategy Officer, Sony Pictures Entertainment– Zhang Tian Xiao, President, Shanghai Fantasia Animation Company– Marco Vernocchi, Global Managing Director of Media and Entertainment Practice, AccentureThe EIU bears full responsibility for the content of this report and thefindings do not necessarily reflect the views of UKTI.
02 Content DisruptorsExecutive summaryBack in 1996, when the internet was Inevitably, not everyone will thrive The revolution has only just begunyet to become the global phenomenon in this changeable and competitive Executives in our survey identify a seriesit is today, Microsoft co-founder and environment. Some parts of the of trends that have already transformedchairman Bill Gates argued that content industry are finding it more difficult their industry. Over three-fifths (63%)would be king in the rapidly evolving to adjust than others and there can believe advertisers are becoming moredigital world. be no single prescription for success informed and demanding, and 53% in such a complex sector. Nevertheless, say digital models have made it moreIt turns out he was wrong – at least in this report – based on a survey of difficult to reach consumers in theirthe sense that traditional media and almost 500 executives from the preferred environment. More thanentertainment companies (television, media and entertainment industry – half (52%) agree that the media andfilm, radio, publishing and music provides insights into the trends that entertainment industry “is notbusinesses) have often struggled to are reshaping the content business, sustainable in its current form”. Thetranslate their assets into a dominant as well as some of the key strategies majority think there is plenty of changeposition in digital markets. Indeed, that will help companies chart a still to come, with three-quarters sayingmany traditional media players have successful future. that “we have so far only experiencedhad to adjust to a world where new a small part of the overall impacttechnology powerhouses (the likes of Key findings that the shift to digital will have onGoogle, Apple and Facebook) compete Digital is where the growth is, our economy”.for their audiences’ time and attention.Even ‘digital natives’ in the games but most companies are still searching for the right model Opportunities outweigh threatsindustry have had to adjust their Digital content will be the fastest- The digital switch is increasingbusiness models, thanks to the arrival growing part of the industry over the competition and forcing a rethinkof mobile devices and social gaming. next decade and is expected to account of operating models. As with anyThe good news is that despite the for 80% of the media we consume structural shift, this is creating winnersceaseless wave of disruption and by 2020 (up from two-thirds in 2010). and losers. Nevertheless, when askedinnovation, the outlook for media and Businesses don’t need to shift to a whether they see different types ofentertainment companies as a whole is purely digital model, but they need change, such as the growth of onlinebright. The appetite for media shows no to tap into the growing digital market. consumption or increased use of socialsign of abating – indeed people seem Only 12% of firms polled in our survey media, as opportunities or threats, theeager to consume multiple media already have a digital distribution proportion of respondents seeing themsimultaneously. New technologies are model that is commercially successful more as opportunities never falls belowgiving rise to innovative formats and – perhaps because their confidence in 60%. One point that might be boostinggenres, and sophisticated consumers the future hasn’t been backed up by industry optimism is recognition ofare emerging in high-growth markets concrete action. Although 63% view the the fact that demand for media andwith money to spend. rise of social media as an opportunity, entertainment content will continue only 36% have undertaken social to increase, particularly in high-growth media and viral content initiatives markets like Brazil and China. in the past three years to increase digital revenues.
Content Disruptors 03This is still a hits business From personalisationDevices and formats may be changing, to gamificationbut traditional media players still have Three years ago, personalisation ofsome advantages. They are good at content was seen as the most effectivetapping into what the audience wants. method of engaging with consumers,“Media and entertainment is still according to executives in the survey.primarily a hits-driven business,” says Today, however, there is a greaterDavid Card, Vice President Research emphasis on interactivity and so-calledat GigaOm Pro, a US technology gamification. Having allowed users toconsultancy. Of course, increasing personalise their experience, contentthe ratio of hits to misses is difficult, providers are now trying to create abut technology may help in this area more interactive or playful experience.too. Nearly half of firms (49%) saythey involve consumers in their Traditional media can learninnovation process. valuable lessons from the masters of dataIf it’s good enough, people will pay Google, Yahoo, Facebook and othersThere has been much debate about have turned audience data into awhether enough people will be willing science. By contrast, only 45% ofto pay for content now that there is so magazine publishers say they havemuch available online for free. Nearly an efficient customer data miningseven in ten (69%) respondents to our strategy. This is a waste. In the digitalsurvey think consumers will get used world, there is an opportunity toto paying for well-targeted content continuously tweak and experimentas digital models mature. To turn this with your product, measuring andprediction into reality, the industry refining the audience experiencewill need to make more headway using the latest tools and techniquesagainst digital piracy as well as deliver in data analysis.genuinely compelling content thatis enticing enough to commanda premium.
04 Content DisruptorsIntroductionThe world’s media and entertainmentlandscape is undergoing a radicaltransformation. Growing use of theinternet and the introduction of newdistribution platforms that enablecontent to be accessed via theworld wide web mean that sectorslike music, film, video games andpublishing are all transitioning toa world where digital consumptionis fast becoming the new normal.At the same time, the proliferationof new kinds of devices, particularlysmartphones, tablets and e-readers,is giving end-users more optionsabout when, where and how theyconsume their content. If someonehad mentioned a decade ago thatthey played, watched and read all theirmedia and entertainment content ona single device it would have seemedunlikely. Now, with the introduction ofthe iPad and other tablet computers,it is becoming second nature to many.As transformational as thesedevelopments seem, industry insidersthink there is still plenty more to come.The impact of innovations like tabletsand smartphones has yet to fullyplay out and continued advances intechnology should ensure that themedia landscape remains in a stateof flux for years to come.The media and entertainment industry “ he impact of innovations Tis enormously complex, with significant like tablets and smartphonesdifferences in the rate of change and has yet to fully play out.”approaches to handling it betweensub-sectors and regions around theworld. This report acknowledges thosedifferences, but focuses primarily onaspects of change that are commonacross the industry.
Content Disruptors 05Disruptive forcesOur survey highlights the scale of the Chart 1: Please indicate the extent to which youchallenges facing the world’s media agree or disagree with the following statementsand entertainment businesses. Morethan half (52%) of all the executives Statement 1we polled agree that the industry “ e have so far only experienced a small part of W“is not sustainable in its current form”. the overall effect that the shift to digital will have Only 18% think it is. Meanwhile, three- on our economy. There is much more to come.”quarters think that “we have so far onlyexperienced a small part of the overalleffect that the shift to digital will have Neither/on our economy”. For those who fear Don’t knowchange, these are worrying times andthe future, it seems, can only promisemore of the same. 75% 22% 4% Agree Disagree Statement 2 “ he media and entertainment industry T is not sustainable in its current form.” Neither/ Don’t know 52% 30% 18% Agree Disagree Source: Economist Intelligence Unit Percentages were rounded up and may not add up to 100% for some charts.
06 Content Disruptors The three Ds of technological Both identify two big challenges. Another driver of the digital switch change: Digital, devices and One is coping with the structural shift has been the increased use of mobile distribution that is forcing a rethink of established devices, particularly smartphones. The shift to digital represents one of operating models and increasing both As chart 2 shows, the number of the most profound challenges the competition and fragmentation. The worldwide mobile subscriptions has industry has ever faced. Physical other is dealing with an economic increased even more quickly than distribution channels such as downturn that has reduced demand internet users since 2000, rising from newspapers, magazines, books, CDs and accelerated the pace of change. 690 million to an estimated 5.2 billion and DVDs have gradually been joined in 2012. Crucially, the share of Increasing use of the internet has by online or electronic consumption, smartphones in total mobile sales is been one of the principal drivers of leading to a disruption of existing growing rapidly too, increasing from the structural shift. As chart 2 shows, business models that is threatening 19% in 2010 to 31% in 2011.2 “Mobility worldwide internet use has grown profitability for many. is exceptionally high, but the other dramatically since 2000, with the driver is functionality,” says Mr George. “There has probably never been a number of users rising from 386 million “More functionality is being put into faster changing landscape than the to an estimated 2.2 billion in 2012. devices that are almost ubiquitous and one we’re in now,” says Nick George, Speed of access has improved for that’s giving people the opportunity Entertainment and Media Partner at many people too, with the number to consume media wherever they are.” PwC, a consultancy firm. Businesses of broadband users rising from just Zhang Tian Xiao, President of Shanghai are in the grip of what Marco Vernocchi, 16 million in 2000 to an estimated Fantasia Animation Company, believes Global Managing Director of Media and 649 million today. Both trends – rising this is increasingly true in emerging Entertainment Practice at Accenture, internet use and broadband access – markets. “In big Chinese cities, even another consultancy, describes as are set to continue well into the future taxis are equipped with tactile tablets “pervasive change… where every as high-growth markets continue to which customers can use to watch TV dimension of the industry is develop their infrastructure.1 or play games,” he says. undergoing a transformation.” The shift to digital and the growing use of mobile devices has created what Mr Vernocchi calls a “broadband- enabled ecosystem.” One of its defining features has been the introduction Chart 2: Internet users and mobile of new content distribution models. subscriptions, 1991-2016 iTunes, Apple’s music and video download platform, is probably the most well known. Other examples 7 billion include Spotify, the music streaming Number of internet users or mobile subscribers website, and Netflix, which allowsNumber of internet users or mobile subscribers 6 billion users to stream films and TV shows. 5 billion 4 billion 3 billion 2 billion 1 billion Internet users 0 Mobile subscriptions 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Forecast Source: Economist Intelligence Unit
Content Disruptors 07The challenge for business All this makes for a richer, more Of course, disruption comes withThese trends – increasing digitalisation, engaging and more convenient media opportunities as well as challenges.the proliferation of mobile devices and experience for end-users, but it is Apple’s launch of the iPad, althoughthe introduction of new distribution a mixed blessing for those involved by no means the first ever tabletplatforms – mean increased choice in the media and entertainment computer, opened the door to manyand convenience for end-users. “You’re business. The most difficult part of publications finding a means of sellinggetting many more platforms on which the adjustment process has been, content they had previously given awayaudiences can get new or old content and remains, the development of on the web. The blog, ipad.blorge.com,so they’re getting a lot of choice,” says new business models that effectively reported in March this year that theProfessor Robert Picard, Director of monetise content. There are signs of launch of Apple’s Newsstand hadResearch at the University of Oxford’s progress on this (see next section), but resulted in users spending $70,000 perReuter’s Institute. “This is really good many industry sub-sectors are still day on subscriptions within six months.for audiences in terms of not having struggling to come up with a solution. This hints at a wider point thatto be captives of legacy media firms Another feature of the process has seen Mr George is keen to underline.and platforms.” incumbent businesses coming under “As societies get richer andNew devices and programmes are also increasing pressure from market technologies improve it makes it easierenabling a shift in the way end-users entrants with new business models to consume more of the media youconsume media. According to InMobi, that challenge established approaches. want, so the net effect is that mediaa mobile advertising network, mobile Though they have experienced consumption will increase,” he says.devices have now surpassed TV in different levels of commercial success, With established markets still growing,terms of time spent on media, with the obvious examples here are iTunes albeit slowly, and with emergingconsumers spending 27% of their time and YouTube, which both work market middle classes also expandingon mobile devices compared with 22% alongside – as well as in competition quickly, demand for media andon TV.3 Viewers are also increasingly with – traditional media. “The biggest entertainment content is unlikely togetting into the habit of ‘dual strength of Apple, Google and YouTube decrease anytime soon. The naturescreening’, meaning that as they watch is that they’re always one step ahead of the demand may evolve, but it willTV they are also using their mobile of the game, whereas most media undoubtedly be there. The challengedevices to interact with family and companies have a passive approach to for firms will be finding ways to tapfriends or purchase products they have change,” says Mr Zhang. “Instead, they into it.seen. Consumers are also accessing should be anticipating disruptions and The opportunities that come withcontent at different times and with funding research in new technologies the shift to digital should not bedifferent types of devices. A survey by and platforms.” underplayed, but nor should theIAB Europe, a trade association, found challenges be underestimated. Thethat 73% of European internet users process of digitalisation representswatch TV online, either live or using a radical shift that many parts of thecatch-up services like the BBC’s iPlayer.4 media and entertainment industry are still struggling to get to grips with. The next section of the report reviews attitudes towards change and explains some of the strategies being adopted in a selection of industry sub-sectors as they race to adapt.“ obile devices have now M surpassed TV in terms of time spent on media.”
08 Content DisruptorsHigh growth marketsAs in other industries, another correlation between GDP growth witnessing an explosion of start-upsimportant driver of change in media and consumer spend on media and focusing on consumer audiences.”and entertainment is the rapid growth entertainment… so it’s natural that we Brazilian firms in particular seemof emerging markets. In terms of total see the highest growth rates for media eager to embrace interactive content.media spend, the US remains the in these high-growth markets.” According to our survey, four-fifthsworld’s largest market by far with, This is backed up by the findings of have developed products with anaccording to PwC, a total spend in 2010 Nielsen’s global media consumption interactive interface to increaseof over $443 billion. However, other index, which shows that Asia (excluding digital revenue in the past three yearscountries are growing more quickly. Japan) and BRIC countries surpass compared with only 52% of ChineseChina’s total spend on media and Europe and Western markets on TV firms and 59% of European firms.entertainment grew by more than viewing and video consumption via75% between 2006 and 2010, and it is But Brazil, India and China aren’t the internet or mobiles.5 Marco Gomes,expected to grow at nearly the same the only countries to look out for. Founder of Boo-box, a Brazilianrate up to 2015. Brazil too is growing “Any country with strong GDP growth advertising network, emphasises theexceptionally quickly (see chart). and a rising middle class is going to opportunities created by the growth of have an interesting media market,”Brazil, India and China have fast- the middle class in emerging markets. says Mr George, citing Mexico, Southgrowing economies and middle classes “The Latin American market has grown Africa and the Philippines as examples.who are big consumers of media,” thanks to the increasing buying powersays Mr George. “There’s quite a strong of the middle class,” he says. “We areChart 3: 2011-2015 growth forecasts for theworld’s largest media and entertainment marketsChinaBrazilCanadaSpainSouth KoreaUnited StatesAustraliaFranceItalyUKGermanyJapan 0% 2% 4% 6% 8% 10% 12% 14%Source: PwC Forecast compound annual growth rate 2011-2015
Content Disruptors 09Rethinking the media firmGiven the scale of the challenges faced As chart 4 shows, in each of the areasby those operating in the media and we asked them about, from theentertainment industry, one of the rise of emerging markets to themost remarkable findings from our fragmentation of media channels,survey is that the majority of the proportion of respondents viewingrespondents see the process of change these changes as opportunities rathermore as an opportunity than a threat. than threats never drops below 60%.Chart 4: Do you see the followingmore as an opportunity or a threat?Growth of online consumption 82% 12% 5% 1%Paid search 60% 11% 27% 2%New advertising models 67% 11% 21% 2%Increased use of mobile devices 63% 9% 27% 1%Rise of social media 63% 10% 25% 1%Internet TV 64% 12% 23% 1%Rise of emerging markets 67% 8% 25% 0%Fragmentation of media channels 63% 12% 23% 1% 0 10 20 30 40 50 60 70 80 90 100 ■ More as an opportunity ■ Neither an opportunity nor a threatSource: Economist Intelligence Unit ■ More as a threat ■ Don’t know/NA
10 Content DisruptorsReasons to be cheerful Perhaps most impressively, thoughThis optimism chimes with Accenture’s only 12% of respondents say they havethinking. “If you go back just three a profitable digital distribution modelyears, most of the debate was about at the moment, more than six out ofthe digitalisation to come,” says ten (61%) expect to have one in theMr Vernocchi. “Now that future has next three years.arrived and while some companies There is no doubting the industry’smight not have been as quick to adapt confidence, but recent growth figuresas they should have been, most are suggest that some sub-sectors havereally accelerating.” more cause for optimism than others.Encouragingly, our survey results seem According to PwC, the filmedto back this up. More than seven in ten entertainment, video games and(71%) companies say they “now have radio sub-sectors all grew during 2010,a strategy for mitigating the threats but recorded music declined andposed by the rise of digital content”, newspaper and magazine publishingwhile nearly six in ten (58%) have were both flat.a strategy to grow their businessby exploiting it.Chart 5: Please indicate the extent to which youagree or disagree with the following statementsStatement 1 Statement 2“ e now have a strategy to mitigate any threats W “ e now have a strategy to grow our business W posed by the rise of digital content.” by exploiting digital content.” Neither/ Neither/ Don’t know Don’t know 71% 20% 58% 23% 8% 20% Agree Disagree Agree DisagreeSource: Economist Intelligence Unit
Content Disruptors 11“ ore than seven in ten companies M say they have a strategy for mitigating the threats posed by the rise of digital content.”Chart 6: When, if ever, do you expect to have a digital distribution modelthat is commercially successful?We already have a digital distribution model that 12%is commercially successfulIn the next year 31% 61% of respondents expect to have a successful distributionIn 1-3 years 30% model in the next 3 years.In more than 3 years 19%I do not think our company will be able to 5%create a commercially successful digitaldistribution modelWe are not looking to create a digital 2%distribution modelDon’t know/NA 1% 0 10 20 30 40 50 60 70 80 90 100Source: Economist Intelligence Unit
12 Content DisruptorsMisplaced or not, part of the industry’s are most effective, executives in the the way end-users are able to engageconfidence might come from its ability survey say personalisation was top of with content.” The result is thatto come up with creative ways of the list three years ago. But now the businesses are harnessing the newengaging with its target audiences and emphasis has shifted to interactivity platforms to come up with innovativeits willingness to embrace these new and gamification. ways of engaging their target audience.methods when they prove effective. Mr Vernocchi offers an explanationOur survey certainly seems to suggest for the rapid shift. “What we observethat media and entertainment firms more and more is a ‘screen-centric’are flexible about the approach user experience,” he says. “There hasthey use to engage with customers. been an explosion of connected devicesWhen asked for their views on which across the world that is transformingmethods of consumer engagementChart 7: What do you see as the most effective methodsof consumer engagement?Personalisation (eg allowing a consumer ■ 3 years agoto modify their page after logging onto a ■ Todaycompany’s website) ■ 3 years from nowInteractivity (eg by creating data visualisationsthat can be manipulated)Gamification (eg by creating leaderboards thatrank performance)Convergence (eg offering free access to a movieto incentivise the purchase of a game)Consumer-led innovation (eg by crowdsourcingimprovement to products or services) 0% 10% 20% 30% 40% 50% 60% 70%Source: Economist Intelligence Unit
Content Disruptors 13Music: adapting to digital David Card, Vice President Research at There can be issues such as thoseThe music business has experienced GigaOm Pro, agrees that the music concerning Pink Floyd, an Englishmassive disruption from the shift to industry is being disrupted, but thinks rock band, which has contractuallydigital, with music downloads, piracy that new technologies and distribution prohibited the sale of its music asand, more recently, streaming from models are only part of the problem. individual tracks on vinyl and CD,sites like Spotify, Pandora and Last FM “The birth of rock culture, the baby- and wanted the same to apply in theall forcing change. boomer generation and the switch to download world. Its record company selling albums rather than singles were EMI disagreed, but in late 2010 a judgeWhile the sector as a whole is growing, probably responsible for artificially ruled in the band’s favour. King believesthese pressures have meant that its inflating consumer spending on music this should have been the label’s viewsources of income have begun to shift relative to where it had been,” he as well. “If Pink Floyd says we don’tas revenue from recorded music has explains. “The music industry used want our tracks available individually,declined. According to eMarketer, to be 2% of consumer entertainment I wholeheartedly support them anda US research firm, worldwide music spending – it went up to 3% for a while say ‘if that’s the rule for you withindustry revenue increased from and now it’s probably back down to your digital rights, we have to find$60.7 billion in 2006 to $67.6 billion about 2%.” the answer to it’, rather than sayingin 2011. Over the same period, however, ‘that’s not how people consume it’.”income from recorded music fell He also thinks there has been afrom $36 billion to $34.7 billion while fragmentation in the demand for In fact King rejects the word ‘disruptive’income from live events increased music, which means that there are when it comes to music distribution.from $16.6 billion to $23.5 billion.6 now fewer of the really big artists who “For people to talk about content have acted as cash cows in the past. disruptors is ludicrous,” he says.Increased revenue from live “There are so many genres and sub- It indicates that something is finishing,performances has been welcome, genres now,” he says. The result has whereas people who saw the shift frombut what is happening to recorded been that there are fewer big bands the single being the most importantmusic? In a nutshell, income from with crossover hits. “The hip hop stars sale, to the album, to the CD, will beonline and mobile sales has been here in the US are pretty big, but they’re accustomed to change. “There arerising, but is not enough to offset not as big as the stars of the 1970s changes in the methods of distribution,the decline in physical sales. and 1980s, or even the 1990s.” For an that’s all it is,” he explains. “It’s howAs this suggests, the pattern of how industry that relies on hits, he says, you enhance your offering that reallypeople consume music is far from this is a major problem. counts. The great thing about digitalsettled. “A lot of old school people still is that it de-risks the industry. We Regardless of the underlying reasonslike downloads and owning, and a don’t have to manufacture. Distribution for the music industry’s struggles,lot of young people have only known is quite an easy process and it’s digital distribution is now a givenstreaming or stealing,” explains Stephen developing on a daily basis.” for new artists and their music. MoreKing, UK Managing Director of Believe challenging is the situation surroundingDigital, a digital distributor for artists who were signed before digitalindependent artists. “Our job is to was prominent or even existed. In 1963persuade them that stealing content clearly there was no need for a digitalis unacceptable and the only way clause in a contract but those contractsyou can make that case is to make need revisiting with the artists or theireverything available legitimately.” estates, says Mr King. “The cost for the [music] majors is quite high, there’s a lot of legal work in those areas and they think it outweighs the return.”
14 Content DisruptorsTV: does every wheel need to be The other thing that doesn’t need Mr Rose also thinks that improvingreinvented? reinvention, she suggests, is the ‘event’ technology could lead to a major shiftTV is evolving too, but it is important TV programme. “Big broadcasters in the way the TV industry organisesnot to overstate the extent of the such as ITV and BBC have invested itself. “Broadcasters do three thingstransformation. As long ago as 2005, heavily in live-event broadcasting today: they’re content providers,executives at ITV, a UK broadcaster, whether through a voting-based distributors and aggregation portals,”were claiming the family-viewing mechanism or live sporting events,” he explains. “In future, however,tradition on Saturday was effectively she says. “We’re seeing this type of they might not want to do all three.dead, ignoring their own X-Factor-style premium content really booming.” For example, you might find that onesuccesses and failing to anticipate doesn’t want to do content anymore. There are some changes afoot, however.the BBC reinventing the genre with Instead, it can simply reinvent itself as Video-on-demand service Netflix,a relaunched Doctor Who and an aggregation portal. Do broadcasters for example, commissioned a furtherStrictly Come Dancing, both popular realise these kinds of options are open season of Arrested Development, a USprogrammes in the UK. The same is to them? If they don’t, they might TV series. This was never intended fortrue in the US, says Mr Card. “A lot of find themselves disenfranchised in traditional broadcast, but for directpeople have been talking about major the future.” streaming to the box. The episodesdisruptions in television content… concentrated on a specific character Mr Zhang thinks partnering withbut I think the broadcast networks and could be watched in any order. foreign producers is the best way to tapand cable networks have actually This, Ms Medlicott suggests, marks a into international markets. For example,done a pretty good job of locking new way of commissioning away from Fantasia worked with French nationaldown their business.” the constraints of linear programming. broadcaster France Télévisions to“It’s amazing how people had develop Shaolin Wuzang, a popular Another shift is coming in thewritten TV off,” says Stella Medlicott, show about three teenagers fighting integration of TV and mobile deviceChief Marketing Officer of Red Bee a ruthless demon in China during experiences. “In future, all of televisionMedia, a firm which helps broadcasters the 16th century. The show has since is going to be two-way interactive andand platform operators connect their received numerous awards. “Many of socially connected,” says Anthonyoutput with their audience. “We our projects are built on that model,” Rose, Founder of Zeebox, which hasmustn’t underestimate the art of comments Mr Zhang. created an app to help integrate thescheduling. A lot of people say they two domains. “Today, TV and thewant to have the freedom of choice of internet exist as two separate entities,what they watch, [but] when you get with little interaction between them,down to it in reality they don’t. A lot but that’s all going to change asof the time people want to sit back technology allows us to make it moreand have content pushed at them, interactive, personalised and targeted.”and that hasn’t really changed.”Storing your contentIn the download market Sony Pictures “[Consumers] said they can’t share The company’s solution was to createEntertainment, the television and film content with their family when they a platform that could be shared moreunit of Japanese conglomerate Sony, buy it online, they’re worried about easily with family and the servicehas launched Ultraviolet, a cloud what might happen to it if their is building up a reservoir of users.service where customers can store their hardware crashes and about keeping “We have over four million registeredpurchased films. Mitch Singer, Chief track of what they own,” he says. users and we’ve been running for lessDigital Strategy Officer at Sony Pictures “They have to remember where they than a year,” says Mr Singer. “Of courseEntertainment and the chief architect bought it and where it’s stored – I’d want hundreds of millions of usersof UltraViolet, says the idea originated on Apple, on Amazon or on a shelf but I’m very happy with the growth.”from customer research. at home.”
Content Disruptors 15Computer games: the new It is worth explaining the freemium This will have an effect on a marketoutgrowing the new model for non-players. If someone in which $50 for the latest releaseIronically, the most striking example goes on Facebook and plays a game is commonplace, one might think.of a medium outgrowing the devices called Farmville, for example, the object “That graphic-rich, interactiveon which it is traditionally consumed is is to build up a farm full of animals and cinematic experience is still going toalso the newest. Computer games were these are acquired in two ways. Either be required by a lot of people, but thedigital to begin with, even in the days the player works for ‘rewards’ and business model and the formats bywhen a tennis game consisting of two therefore gets a cow or a sheep or some which these games will be servedblobs batting another blob between other token, or they can pay cash to will undoubtedly change,” saysthem was considered sophisticated. boost themselves. Entry to the game is Mr Livingstone. “The console game free but the company behind it makes might one day become software-Ian Livingstone, Founder of Eidos money from people buying the extras embedded in a smart TV, for example.Interactive, is a leading games industry so they can enjoy the game a lot more. But one thing is certain, the gamesfigure and an advisor to the UK industry has become mass marketgovernment on computer games Another factor that has pushed the entertainment, driven by advancesand digital skills. He believes the price of games down is the ubiquity in technology and content diversity.impact of games moving to the online, of computer games once they became In terms of where we are as an industrydownloadable or streamable world has available on smartphones. “All the compared with film, we’re only in thebeen profound. “Content creators, no explosive growth has been on games 1930s and yet the global market formatter where they are in the world, are played on Facebook, smartphones software sales alone is $50 billion aable to serve digital content to global and tablets,” says Mr Livingstone. year today and that’s going to riseaudiences via high-speed broadband,” “Smartphone growth has been to $90 billion by 2015 as more peoplehe says. “Small, agile studios are able phenomenal, leading to successes play games.”to innovate and self-publish, bypassing like Angry Birds, which has seen athe traditional supply chain of getting billion downloads over the past couple Also, the casual player is moreboxed games to retail stores. Games of years. Everyone’s now carrying a accustomed to paying $1 than fiveare moving from analogue to digital, games device in their pocket in the or six times that, which changes thefrom being a product to a service, shape of a smartphone and that’s where dynamic. “Paradoxically, ‘free’ contentfrom a premium price model to a the true growth is happening today.” actually forces up the quality offreemium model.” production,” says Mr Livingstone. “If you want someone to pay for an item inside the game they’re playing, your game had better be good because people will only spend money when they’re enjoying themselves.” Changes in this market have led traditional sales channels to suffer. In the UK the Game store chain spent a period in receivership just as in the music industry HMV has posted poor profits. Mr Livingstone believes these channels have supported the games industry but now need to change with it in order not to be outmoded.
16 Content DisruptorsPublishing That kind of blow is difficult to duck, Much rides on the outcome of thePublishing is another sector commonly but many think that a big reason the publishing industry’s attempted shiftthought to have struggled with the publishing industry has struggled is from free to paid-for content on theswitch to digital. Newspapers have that it was too quick to offer content internet. Executives in our surveylost out as consumers have started for free in the early days of the digital believe audience expectations willaccessing news and opinion for switch. It is still possible to visit a change: indeed, fully 69% of themfree online, and advertisers have newsagent and pay for a newspaper say that readers will be prepared toincreasingly looked elsewhere to while someone else is in their home pay for content.capture their attention. Book publishers looking at the same articles for free But Mr Card sounds a note of caution.are struggling too as the growing on their computer (see box below for “I don’t think paywalls are hopeless,popularity of e-readers eats away more on this). but they’re very tricky because there’sat margins.7 News Corp was one of the first so much good free content available,”“Newspapers and magazines have companies to strike out against he says. He thinks we need to bebeen hugely disrupted,” says Mr Card. this trend, insisting on charging for realistic about how much paywalls“In the US in particular, we had a big everything beyond the current day’s can do to solve the industry’s problems.market with lots of local newspapers newspapers. It was heavily criticised “Historically, it’s difficult to get moreand not so many national newspapers, by consumers at the time who had than single-digit figures of yourbut Craigslist (the online classified become accustomed to free services audience to subscribe for content.advertisement site set up in the mid- from Facebook, Twitter, free office If you’re getting 6%, 7% or 8% you’re1990s) basically destroyed the local automation from Google and free doing pretty well, but that’s not thenews business by giving away music from a number of sources. kind of ratio newspapers are usedclassified ads for free.” Since then, however, other newspapers to at all.” – including the Financial Times and New York Times – have started selling rather than giving away their content.A punishing time for publishingOur survey confirms that publishing Meanwhile, only 55% of newspaperfirms are struggling more than their publishers expect to have a digitalinternet, TV and entertainment peers model that is commercially successfulto adapt to changes brought about in the next three years compared withby the shift to digital. Perhaps most 69% of film companies.importantly, only half (49%) of There are also understandablemagazine publishers believe marketing differences within the publishingthrough digital channels has increased industry, particularly when looking attheir sales and lead generation the impact of social media. Magazinesignificantly compared with two-thirds publishers are much more sanguineof TV and film companies. about its rise than newspaper publishers. More than seven in ten (71%) of the former view the rise of social media as an opportunity compared with only 54% of the latter.
Content Disruptors 17Boo-box: how to make online content profitableBrazil’s media and entertainment “And yet companies are missing a trickmarket is forecast to grow by nearly by not showcasing their core business12% between 2011 and 2015, a much on these networks. So I foundedhigher rate than in the US and European Boo-box.” Last year, it quintupledcountries. According to Mr Gomes, Latin the number of ads it placed to reachAmerica is undergoing a major digital four-fifths of Brazilian web users.revolution. “Facilitated access to the Described by web publicationinternet and the growth of homes TechCrunch as “Brazil’s Web 2.0with personal computers, laptops, ad network”, Boo-box has beensmartphones and tablet sales have experimenting with rich-media adfostered a spirit of entrepreneurship formats, behavioural targeting andand innovation in Latin America,” he demographic profiling. In return thissays. “I believe we can expect a massive gives publishers (Boo-box’s customers)expansion of start-ups focused on the possibility to explore differentiatedtechnology, internet and e-commerce.” formats and higher profitability.Mr Gomes has taken advantage of this Mr Gomes thinks the digital revolutiontrend to create Boo-box, a platform will lead to more success storiesfor content providers with novel ad like his. “A growing number offormats, such as Twitter feeds or blog entrepreneurs and investors aretext. “People in Latin America love to coming to Brazil to implement theirinteract with content, which is why we projects,” he says. “We are undoubtedlyare experiencing such a surge in social witnessing a historic moment.”media,” Mr Gomes explains.
18 Content DisruptorsConclusion: Who will One thing is for certain, there willcome out on top? be winners and losers, just as there are in any industry experiencing structural change. The shift to digital is a critical andWith the impact of digitalisation still playing out, which ongoing challenge, and there is no sign of relaxation in the pace of change.types of organisation can we expect to prosper as the In 2010, digital content was estimatedmedia and entertainment industry continues to evolve? to account for about two-thirds of all media, but by 2020 it is forecast to account for about 80%.8 Media and entertainment firms failing to effectively tap into the digital shift will either be niche players or will disappear. As Mr Rose points out, “Technology giveth and technology taketh away. If you don’t embrace it, you’re eventually going to be left behind.” This doesn’t mean that everything will go digital. Instead, many will be governed by ‘the rule of and’, meaning that they will need to complement physical distribution channels with a digital offering. Quality content will still have a huge role to play. “Media and entertainment is still pretty much a hits-driven business,” says Mr Card. This isn’t going to change. “Movie studios, record labels and TV stations will be doing the same thing they’ve been doing forever: they have to manage a portfolio, jump on the ones that take off and then franchise them to death.”
Content Disruptors 19 However, that doesn’t mean they can’t One of the key strategies for firms In comparison, the biggest risers are learn from other parts of the industry. trying to transform themselves into this mobile, social media and telesales, with “The likes of Google, Yahoo and others kind of organisation, Mr Vernocchi says, social media expected to become the are very numbers-orientated,” explains is to remain “open to the ecosystem”, best value for money media channel Mr Card. “They programme, they see meaning that they should collaborate over the next three years. As in any what works and they do it again. and absorb innovations where possible, industry, when the balance of return Traditional media companies that but buy them in where necessary. on investment shifts so does the focus can take their taste and deal-making of activity. Media and entertainment Winners and losers might also be capability and combine it with as much spend has already been refocused to determined by the evolving perceptions numbers discipline as possible will fit the shifting consumption habits of value for money in advertising. One probably be able to react and move of users and we should expect to see of the clearest messages from our poll better than others.” this continue. is that those media channels seen as Drawing some of these themes together, being most effective from a marketing Mr Vernocchi says firms that succeed point of view are in a state of flux. will be characterised by their capacity Traditional advertising mediums like for “continuous innovation”. This is radio, TV, print and poster advertising critical, he thinks, because growing are all seen as being in decline in terms complexity and the increasing pace of the value for money they offer of change mean that the profitability marketers. Perhaps most strikingly, of existing business models will be whereas radio was seen as the best continually called into question. value for money just three years ago, in three years’ time our respondents think it will only rank sixth. Chart 8: In your opinion, which of the following marketing channels will provide best value for money for companies attempting to engage with content consumers in your sector of the media and entertainment? ■ 3 years ago ■ Today ■ 3 years from now50%45%40%35%30%25%20%15%10%5%0% TV ail s) ile dio ia g er e ail r ia) g he fly m in tin ite ed ob Em m ed Ra tis s) Ot eg ho ke bs tm M ct lm er ar g ( of we re dv in cia m Di sin ut e( Pr ra ele rti f o so lin ste s/t e( ve s o On Po lin ale ad m On or les rf Te he Ot Source: Economist Intelligence Unit
20 Content DisruptorsThe media and entertainment industry This kind of bullish attitude towardsremains in the grip of a radical change, shared by the majority of ourtransformation. In managing this, respondents and interviewees, is justthe key challenge for market players is as well because there is much moreto come up with new business models to come. The good news for thosethat can ensure they remain profitable. that can adapt is that media andThough many companies were slow entertainment markets continue toto respond, there are signs that the expand, particularly in high-growthindustry is beginning to get a handle economies like Brazil and China.on the challenges involved and many Demand for quality content deliveredare optimistic about their ability in the right way is far from satisfied.to adapt. For those that can find a way to tap into it, the future looks bright.Mr Singer of Sony PicturesEntertainment is firm. “You can viewdisruption in one of two ways,” he says.“You can view it as a threat whichforces you to attack it or you can viewit as an opportunity. New technologies,for example, cloud services, areopportunities to us and to ourconsumers to get content in entirelynew ways. There’s a lot of things youcan do with disruption and I don’t thinkviewing it as a threat is very productive.”End notes1. Internal Communications Market Report 2011, Ofcom2. Market Share: Mobile Devices, Worldwide, 1Q12, Gartner3. Mobile Media Consumption Research, InMobi, February 20124. Mediascope Europe 2012, IAB Europe5. Turning Digital: The Asian Media Landscape, Nielsen, 20126. GrabStats.com7. IHS iSuppli, April 20118. A Brave New World of Connected Media, Cognizant, November 2011
To find out more, scan this code with your smart phone. www.ukti.gov.uk +44(0)20 7215 5000UK Trade Investment is the Whereas every effort has been madeGovernment Department that helps to ensure that the information givenUK-based companies succeed in the in this document is accurate, neitherglobal economy. We also help overseas UK Trade Investment nor its parentcompanies bring their high-quality Departments (the Department forinvestment to the UK’s dynamic Business, Innovation and Skills, andeconomy acknowledged as Europe’s the Foreign Commonwealth Office)best place from which to succeed accept liability for any errors, omissionsin global business. or misleading statements, and no warranty is given or responsibility accepted as to the standing if any individual, firm, company or other organisation mentioned.Published September 2012by UK Trade InvestmentURN 12/1130