global entertainment and media outlook 2012 - 2016

Incorporating data from 4 principal regions comprising 48 countries and areas around the world, Global entertainment and media outlook: 2012–2016 combines deep knowledge of local marke

Global entertainment and media outlook

2012–2016 Industry overviewwww.pwc.com/outlook

13th annual edition

June 2012

Global entertainment and media outlook

2012–2016 Industry overview

Each year, PwC’s global team of entertainment and media experts generates unbiased, in-depth forecasts for 13 industry segments Incorporating data from 4 principal regions comprising 48

countries and areas around the world, Global entertainment and media outlook: 2012–2016 combines deep knowledge of local

markets with a truly global perspective—a powerful tool for understanding critical business issues.

To learn more about the challenges and opportunities ahead for the entertainment and media industry, please visit pwc.com/e&m

13th annual edition

June 2012

Prepared and edited by:

PwC firms help organizations and individuals

create the value they are looking for We are a

network of firms in 158 countries with close to

169,000 people who are committed to delivering

quality in assurance, tax and advisory services.

Wilkofsky Gruen Associates Inc., a provider of global

research and analysis of the media, entertainment,

and telecommunications industries

www.wilkofskygruen.com

Outlook editorial board:

For the PwC Entertainment &

Media Practice:

Deborah Bothun, Principal

James DePonte, Partner

Sean DeWinter, Partner

Marcel Fenez, Global Leader, Entertainment & Media

Nick George, Partner

Stefanie Kane, Partner

Alexandra Maclean, Global E&M Marketing Manager

Radhika Nanda, Global E&M Marketing Executive

Pauline Orchard, Global E&M Marketing Leader

Kenneth Sharkey, Partner

Phil Stokes, Partner

Many other professionals from the PwC

Entertainment & Media Practice reviewed

and added local expertise to this publication.

For Wilkofsky Gruen Associates Inc.:

David Wilkofsky, Partner

Arthur Gruen, Partner

Norman D Eisenberg, Vice President

Global entertainment and media outlook: 2012–2016

Use of Outlook data

This document is provided by PwC for general guidance only and does not constitute the provision of legal advice, accounting services, investment advice, or professional consulting

of any kind The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant

to your particular situation.

The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information and without warranty of any kind, express

or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

Outlook content must not be excerpted, used,

or presented in any portion that would render

it misleading in any manner or that fails to provide sufficient context.

Permission to cite

No part of this publication may be excerpted, reproduced, stored in a retrieval system, or distributed or transmitted in any form or by any means—including electronic, mechanical, photocopying, recording, or scanning—without the prior written permission of PwC.

Requests should be submitted in writing to Radhika Nanda at radhika.nanda@uk.pwc.com outlining the excerpts you wish to use, along with a draft copy of the full report that the excerpts will appear in Provision of this information is necessary for every citation request to enable PwC to assess the context in which the excerpts are being presented.

Without limiting the foregoing, excerpts from the publication may

be used only for background market illustration, should not be the sole source of 2012-2016 information, and must not form the majority of sourced information.

© 2012 PwC All rights reserved PwC refers to the PwC network and/or one or more of its member firms, each of which is also a separate legal entity Please see www.pwc.com/structure for further details AT-12-0120

Global entertainment and media outlook is a trademark owned by PricewaterhouseCoopers LLP.

ISBN 978-1-931684-27-9 Global entertainment and media outlook: 2012–2016, Industry overview ISBN 978-1-931684-25-5

Global entertainment and media outlook: 2012–2016

For access to full data sets and commentary, visit the online

Outlook at www.pwc.com/outlook

Contents: Industry overview

This Industry Overview contains a top-line summary of industry data, along with PwC’s viewpoint about industry trends It does not approach the depth or granularity of the

full Outlook content, which provides more than 100,000 data points and in-depth

commentary for the 13 segments and 48 countries and areas covered

Letter from Global Leader, Entertainment & Media 4

PwC Entertainment & Media Practice—country contacts 5

Scope and methodology Scope 8

Methodology 9

Viewpoint Preface and economic context 18

The end of the digital beginning: E&M companies reshape and retool for life in the new normal 23

Summaries by segment and region Global industry summary 48

Global market by segment 57

Global market by region 63

Index of tables and charts 91

June 2012

To our clients and friends both in and beyond the entertainment and media industry:

Welcome to the 13th annual edition of PwC’s Global entertainment and media outlook, covering the forecast period 2012–2016 Our

forecasts and analyses for this edition focus on 13 major entertainment and media (E&M) industry segments To reflect the ever-changing nature of the industry, as well as the continuing growth of digital revenue streams, we continue seeking out new data sources and have

again increased the depth of data across the 48 countries and areas covered in the Outlook Given those increases in the depth and breadth

of our content, you will now find certain of the data sets in the online Outlook only I encourage you to get to know the online edition of the

Outlook, which offers significant additional functionality and flexibility for the user of the underlying data and which includes additional

territory-specific content.

During 2011, both advertising spending and, to a lesser extent, consumer/end-user spending grew as overall economic activity and demand for high-quality content increased Proliferation in the usage of smart mobile devices has enabled the convenience of consumption of content anywhere and anytime to become a reality

In the near term, economic prospects are mixed but should improve and lead to growth in the sector However, we anticipate that overall growth in the E&M industry will lag nominal GDP growth due to an ongoing consumption shift to lower-priced digital distribution Although rates of growth in China and India show some signs of moderating, those markets—as well as other fast-growing markets in Asia and Latin America—are the engines of global growth.

The initial uncertainty of digital migration is giving way to a sharper focus on identifying and executing the business models, organizational structures, and skill sets that will deliver rising future value in the changed environment Put simply, digital is now established as the new normal The relative availability and affordability of fixed and mobile broadband in different markets set the pace of consumer adoption of digital And as a consequence, some markets will continue to see differing growth patterns

Understanding how consumer behavior is changing and interpreting the mass of data that is being gathered about consumer preferences are becoming core skills and are providing the basis for monetization either directly or through collaboration and partnering with others This is just one example of the areas where sources of value are changing.

All of us at PwC continue to stay on top of trends and developments that may impact your business now and in the future, and we look forward to further sharing our thoughts with you We appreciate your feedback and ask that you in turn continue telling us what we can do

to make the Outlook more useful to you For additional clarification on any matters included in the Outlook or if we can be of service to your

business in any way, either contact one of the PwC E&M professionals listed on pages 5 and 6 or visit our Web site (www.pwc.com/e&m) for details of the contact in your territory.

Finally, we thank you for your support and wish you an exciting and rewarding year ahead.

Sincerely,

Global Marcel Fenez marcel.fenez@hk.pwc.com

North America

EMEA

Western Europe

Central and Eastern Europe

Middle East/Africa

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, and the United Arab Emirates.

PwC Entertainment & Media Practice—country contacts

Asia Pacific

Latin America

Scope and methodology

Scope 8 Methodology 9

The Outlook reflects the collective wisdom of our large team of professionals

who work with entertainment and media companies around the world It is a unique resource for the industry, offering a five-year outlook for global consumer spending and advertising revenues, along with insights into the technology, government, political, and business trends driving those forecasts

Scope

New additions to the 2012

Outlook

There are a number of data breakouts

included in this year’s Outlook that

were not provided in the past We have

added trade shows to the

“Business-to-Business” chapter, and concerts and

music festivals to the “Recorded Music”

chapter, which we renamed “Music.”

Also in “Music,” we are providing data

for unit sales of both physical and

digital recorded music, available in the

online edition In “Consumer Magazine

Publishing,” we are providing per-issue

unit sales for print circulation and

paid unit sales for digital circulation,

also available in the online edition

In “Filmed Entertainment,” we are

providing revenue data for electronic

home distribution through pay TV providers and also for over-the-top content accessed via the Internet

Because video-on-demand and view are major components of electronic home video distribution, we are now including those revenue streams in

pay-per-“Filmed Entertainment.” And because

“Television Subscriptions and License Fees” focuses principally on distribution,

we shifted to “Filmed Entertainment”

video-on-demand and pay-per-view to reflect payments for content

Categories covered

• Internet access spending:

wired and mobile

• Internet advertising:

wired and mobile

• Television subscriptions and license fees

Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands

Central and Eastern Europe

Czech Republic Hungary Poland Romania Russia Turkey

Middle East/Africa

Israel Middle East/North Africa (MENA) †

Asia Pacific

Australia China Hong Kong India Indonesia Japan Malaysia New Zealand Pakistan Philippines Singapore

Latin America

Argentina Brazil Chile Colombia Mexico Venezuela

How we derive the data

Historical information

Historical information is obtained

principally from confidential and

proprietary sources In instances when

third-party sources are consulted and

their information is used directly—

from such sources as government

agencies, trade associations, or related

entities that seek to have their data

disseminated in the public domain—

the sources of such information are

explicitly cited In instances when the

information is used indirectly, as part of

the calculus for the historical data, the

sources are proprietary

Each year, we look not only at data for

the most recent year but also at the

historical data to determine whether

there have been any revisions and

whether new sources have emerged

that provide a more complete or more

accurate picture of the market In some

cases, that exercise leads us to revise

historical spending levels and growth

trends from one edition to the next

Forecast information

Recent trends in industry performance are analyzed, and the factors underlying those trends are identified

The factors considered are economic, demographic, technological,

institutional, behavioral, and competitive, as well as certain other drivers that may affect each of the entertainment and media markets

Models are then developed to quantify the impact of each factor on industry spending Next, a forecast scenario for each causative factor is created, and the contribution of each factor on a prospective basis is identified

Those proprietary mathematical models and analytic algorithms are applied in the process to provide an initial array

of prospective values Our professional expertise and institutional knowledge are then brought to bear in a review and adjustment of those values if required

The entire process is then examined for internal consistency and transparency vis-à-vis prevailing industry wisdom

Forecasts for 2012–2016 are also based on analysis of the dynamics of each segment in each region and on factors that affect those dynamics We provide compound annual growth rates (CAGRs) that cover the 2012–2016 forecast period In the calculation of CAGRs, 2011 is the beginning year, with five growth years during the forecast period: 2012, 2013, 2014, 2015, and 2016 The end year is 2016 The formula is:

CAGR = 100 * [(Value in 2016/Value

in that segment We do not include spending on hardware or on services that may be needed to access content.End-user spending is counted at the consumer or end-user level, not at the wholesale level, and includes retail markups when applicable

Advertising spending is measured net

of agency commissions in all territories except the United States and Russia, where gross advertising is measured to

be consistent with the way advertising

is generally reported

In addition to annual-spending figures,

we also present data that are measured

at a single point in time, such as TV subscriptions, Internet subscriptions, mobile subscriptions, and newspaper unit circulation In those instances,

we show annual averages rather than year-end totals because annual averages more accurately connect the impact of these figures to annual spending

Inflation

Across all chapters, figures are reported

in nominal terms reflecting actual spending transactions and therefore include the effects of inflation

Methodology

Key to symbols used in the tables and charts

p = preliminary

NA = not available

Exchange rates

All figures are presented in US dollars

by using the average 2011 exchange

rate held constant for each historical

year and forecast year This means

the figures reflect industry trends and

are not distorted by fluctuations in international exchange rates

The exchange rates used for the individual countries in each region are outlined in the following tables

Exchange rates per US$ (2011 average)

Exchange rates per US$ (2011 average)

Exchange rates per US$ (2011 average)

Exchange rates per US$ (2011 average)

Central and Eastern Europe

Because all figures are shown as actual

spending, with the effects of inflation

included, nominal GDP growth has an

important influence on entertainment

and media spending The following tables show historical and projected growth rates for nominal GDP for the individual countries in each region

Nominal GDP growth by country in North America (%)

Nominal GDP growth by country in EMEA (%)

Central and Eastern Europe

Nominal GDP growth by country in Asia Pacific (%)

Nominal GDP growth by country in Latin America (%)

Global nominal GDP growth (%)

2007 2008 2009 2010 2011p 2012 2013 2014 2015 2016 2012–16 CAGR

The following tables show historical and

projected growth rates for consumer

price inflation for the individual

countries in each region

Consumer price inflation by country in North America (%)

Consumer price inflation by country in EMEA (%)

Central and Eastern Europe

Consumer price inflation by country in Asia Pacific (%)

Consumer price inflation by country in Latin America (%)

The end of the digital beginning:

E&M companies reshape and

2011:

The recovery progresses

The global economy began to recover in

2010 from its steep decline in 2009 and

continued to advance in 2011, although

the hoped-for pickup in momentum did

not materialize consistently around the

globe Global entertainment and media

(E&M) spending rose 4.9 percent in

2011—a bit faster than the 4.5 percent

increase in 2010 but still below gains

in prior expansion years Advertising

increased 3.6 percent, down from

the 7.0 percent gain in 2010 that was

augmented by advertising associated

with the FIFA World Cup and Winter

Olympics and by the rebound from a

sluggish 2009 Consumer/end-user

spending rose 2.0 percent, up from the

1.3 percent rise in 2010 Internet access

recorded the largest improvement, rising

by 15.1 percent from the 10.0 percent

gain in 2010

Preface and economic context

We are pleased to present the 13th edition of PwC’s Global entertainment and media outlook

The purpose of this Industry Overview is to provide a brief overview of the data presented in the 2012–2016 Outlook and to present a thought piece on our insights related to the trends that drive the industry and the growth forecasts.

Projected and actual global 2011 E&M growth by category (%)

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Projected and actual global 2011 E&M growth by segment (%)

†Excludes video-on-demand, pay-per-view, and over-the-top.

‡Excludes concerts and music festivals

††Excludes video-on-demand and pay-per-view

‡‡Excludes trade shows

floor may exist in terms of spending

on physical music In filmed ment, box office spending in a number

entertain-of countries was disappointing, ing less-appealing movies In home video, Blu-ray gains were smaller than expected, while DVDs were pretty much

reflect-as anticipated, with the result that overall physical spending declined In video games, growth in online gaming cut into the console market, leading to slower growth in overall spending than

we expected In consumer and tional books, lower-priced electronic books surged in 2011, cutting into print sales Overall spending declined even

educa-as reading picked up

In the 2011–15 Outlook, we

pre-dicted a 3.1 percent increase in global

advertising, which was a bit lower

than the 3.6 percent actual increase

Consumer/end-user spending rose

2.0 percent, a somewhat smaller gain

than our 3.4 percent projection We

expected Internet access spending to

increase by 8.8 percent in 2011, but

actual growth was nearly twice as fast,

with a 15.1 percent increase A jump

in infrastructure spending combined

with a surge in smart-device

pene-tration fueled large gains in mobile

access and propelled the overall access

market Overall global E&M growth of

4.9 percent was marginally ahead of

the 4.3 percent increase we projected

last year

On a segment basis, in addition to Internet access, Internet advertising, recorded music, and out-of-home advertising substantially outperformed our expectations in 2011, while filmed entertainment, video games, and consumer and educational books grew less than we expected TV subscrip-tions and license fees, TV advertising, and business-to-business materially matched our forecasts, while consumer magazine and newspaper publishing and radio were within two percentage points of our projections

In recorded music, declines in physical spending moderated in a number of countries, most notably in the United States, leading to a smaller decline than

we expected and hinting that a natural

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global E&M spending and nominal GDP growth (%)

Global nominal GDP Global advertising

Global consumer/end user Global E&M spending

2014 2013

2012 2011

2010 2009

2008

2007

Create customized bar charts and line graphs instantly Visit the

online Outlook at www.pwc.com/outlook

E&M spending is affected by the economy, and countries experiencing healthy economic growth will see large gains in E&M spending By contrast, weak economies will dampen growth in other countries We expect gains averaging less than 3 percent annually in Japan, Germany, Ireland, Denmark, Spain, and Greece and gains averaging less than 3.5 percent compounded annually in the UK, Italy, France, Austria, the Netherlands, and Switzerland Full data on E&M spending by country and major category can be found in the sections

on regional spending

Looking forward

The economic prospects in the short

term are mixed Europe’s economy

remains weak, North America appears

to be improving, Latin America is

relatively healthy, and the People’s

Republic of China (PRC) and India

continue to record strong, if

moder-ating, growth We expect the varied

economic prospects to be reflected in

E&M spending growth in 2012 We

project Europe, Middle East, Africa

(EMEA) to be the slowest-growing

region, with a 3.5 percent increase,

which will be less than the 5.2 percent

advance in 2011 Latin America will

be the fastest-growing region, with a

9.2 percent gain, nearly matching the

9.5 percent gain in 2011 Asia Pacific

will increase by 6.6 percent Excluding

the relatively sluggish Japanese market,

the remainder of Asia Pacific is expected

to grow by 9.0 percent North America

will grow by a projected 5.7 percent in

2012, helped by an inflow of

election-related advertising in the United States

as well as advertising associated with

the Summer Olympics

Over the longer run, we expect the economic climate to improve, which will lead to faster growth in E&M spending during the next five years compared with the 2008–11 period

Nevertheless, we expect E&M growth

to continue to lag nominal GDP growth, principally because of the ongoing shift from higher-priced physical distribution

to lower-priced digital distribution As the experience of the book publishing industry in 2011 reveals, the shift in usage from traditional media to digital media limits growth because end-user prices for digital content are generally lower than prices for physical content

During the next five years, we project that E&M spending will grow at a 5.7 percent compound annual rate—

below the projected 6.6 percent pound annual increase in nominal GDP

com-The average growth rate masks wide disparities in growth, resulting from economic disparities around the world

A number of countries in Asia and Latin America along with Middle East/

North Africa (MENA), South Africa, and Russia will average double-digit increases during the next five years

The end of the digital beginning:

E&M companies reshape and

retool for life in the new normal

However, behind the headlines, an

even more important milestone for the

E&M industry is upcoming: the onset of

the digital new normal Digital is now

embedded in business as usual And

as digital moves to the heart of many

media companies and begins to present

the greatest opportunities for growth,

what previously looked like a wide gap

between old media models and new

ones is being bridged

Companies are planning out and

execut-ing their strategies to cross to the new

normal, and with that, we’re hearing

clearer and more-consistent language

from industry CEOs as they articulate

the new landscape That clearer

lan-guage signals that the initial uncertainty

triggered by digital migration is giving

way to a sharper focus on identifying,

choosing, and executing the business

models, organizational structures, and

skill sets that will harness new consumer

behaviors to deliver rising future value

in the changed environment

Despite ongoing economic uncertainty, the past year has seen global sales of tablets and smartphones reach record levels once again—thus underlining the growing revenue opportunities in the digital delivery

of entertainment and media (E&M) content and advertising to increasingly connected and, particularly, mobile customers

Digital migration has two main cations for E&M companies: One is the need to make clear and commit-ted choices about the role or roles companies should play in the digital value chain The other is that behaviors are changing rapidly and irreversibly within organizations and organizations’

impli-customer bases—and leaders need to understand and harness those behav-ioral changes to grow future revenues

Three global shifts

Changing consumer behavior is driving both of the implications Consumers’

ongoing migration to digital modes of consumption got accelerated by the eco-nomic downturn And it is now continu-ing to gain pace during the recovery, fueled by three forces now commonly summarized as “social, mobile, and local,” to which others add, variously,

“global” and “commercial.” Together those forces will help companies tap into an expanding pool of value: this

edition of Global entertainment and

media outlook projects that total global

E&M revenues will rise from $1.6 trillion

in 2011 to $2.1 trillion by 2016

The Outlook also confirms that the

parallel global shifts we’ve highlighted

in recent years will continue to play out and strengthen through 2016, with value shifting as follows

• From print to digital: For example,

electronic books’ share of total global spending on consumer and educa-tional books will rise from 5 percent

in 2011 to 18 percent in 2016

• From fixed to mobile-driven

con-sumption: Mobile Internet access

increased from 26 percent of total Internet access spending in 2007

to 40 percent in 2011—and will account for 45 percent in 2016

• From West to East, North to South:

During the next five years, total E&M revenue growth in the East (Central and Eastern Europe/Asia Pacific) will average 7.2 percent compounded annually, compared with a 4.3 percent CAGR for the West (North America/Western Europe) And growth in the South (Latin America/Middle East/Africa) will average 10.0 percent com-pounded annually—more than twice the 4.5 percent CAGR in the North (North America/Europe)

Looking beyond the

impact of digital…

In last year’s Industry Overview, we

noted that those shifts—spearheaded

by digital migration—were driving

change in three dimensions: the

empowered consumer, the involved

advertiser, and transformation of

the business for digital The outcome

of that transformation was a new

type of organization we termed the

Collaborative Digital Enterprise (CDE),

heralding a wider shift to a

collabora-tive ecosystem-based economy

The developments of the past year

rein-force that view while also underlining

the fact that talking specifically about

“digital” increasingly misses the point

Digital marketing, for example, now

means marketing in a digital world And

as digital becomes the new normal, its

rising penetration ceases to be a topic for

discussion What matters is how

compa-nies capitalize on it and operate within it

…to map out the industry’s future topography

Against this background, we believe the reshaping of the industry will take place based on the perspectives of three main groups:

• For consumers: The creation of

more-compelling, more-immersive, and increasingly shared experiences

by understanding what connected consumers want—by finding the right little data amid the big data

• For advertisers and value chain

partners: The design of new

business models that reinvent and expand the value proposi-tion of advertising and content through innovation

• For the industry: Development of

the right organizational and tional models to understand and harness new behaviors inside and outside organizations in order to grow their revenues and/or margins

opera-in the new normal

We’ll examine each of those tives in turn

perspec-1 Understanding the connected consumer

Any discussion or analysis of what’s

happening in entertainment and media

must begin with consumers Why?

Because change in today’s consumer

behavior is both pervasive and

acceler-ating—and E&M is in the front line of

that change

PwC’s 15th Annual Global CEO Survey

finds that some 74 percent of CEOs in

E&M are “somewhat concerned” or

“extremely concerned” about a

perma-nent shift in consumer spending and

behavior—the highest level of concern

in any sector Other PwC research bears

out the scale of the shifts under way:

more than 80 percent of respondents

to PwC’s multichannel shopper survey1

now research their purchases online

before buying electronics, computers,

books, music, and movies

As the Outlook highlights, those changes

reflect an underlying and ongoing

migration in consumer behavior and

spending toward digital

consump-tion and digital experiences Growth

in digital spending—defined here as

spending over Internet protocol

plat-forms in such segments as broadband

and mobile Internet access, mobile TV

subscriptions, music, home video, video

games, newspapers, magazines, and

books—will continue to outpace growth

in nondigital spending during the next

five years

Different segments are at different

stages of this industry-wide journey

Recorded music—which already has

a well-developed digital market—saw

digital formats increase from 16 percent

of spending in 2007 to 33 percent in

1 “Customers take control,” PwC, December

2011; http://download.pwc.com/ie/pubs/2011_

customers_take_control.pdf.

2011, which will rise to 55 percent

in 2016 In contrast, other segments are at the start of the journey: in the consumer magazine circulation mar-ket, digital paid circulation accounted for only 0.4 percent of total circulation spending in 2011 But during the next five years, digital spending will surge,

at a 76.1 percent CAGR, accounting for 6.5 percent of total circulation spending

• Watch, read, or listen to what they want and when they want to—

ranging from “now” to “in my own good time.”

• Access and consume content taneously via multiple devices and connections: TV, smartphone, tablet app, social media

simul-• Find and engage with provocative and relevant media experiences that cross the traditional boundaries of genre and immediacy—and ones they can share, shape, and control

These characteristics add up to a search for immersive experiences that unite the personal with the social Past gen-erations could feel engaged through the passive consumption of mass-market

content But today’s younger ations expect consuming media to involve multifaceted, personalized experiences that they can touch and influence—meaning, they feel not just engaged but also immersed

gener-Those ideas aren’t new for ers who were early adopters of digital behaviors But the difference today—and the challenge for E&M companies—

consum-is that the expectation of an immersive content experience has now extended across the mass market, meaning that

providers not only have to deliver on this

promise; they also must do so at greater scale

ever-The drive for immersion is increasingly evident in the growth of such behaviors

as personal marathoning and social marathoning—consuming an entire series end-to-end either alone or socially With smart devices now enabling easier and fuller social interaction around such content as newspapers and magazines, that same sense of socialized immersion

is emerging in other media and is driving spending choices

Online gaming: the connected shape of things to come

A useful historical parallel for the connected and socialized future may be the rise

of online video games in Asia, where spending on online games overtook console/handheld games in 2010 Such online games—especially advanced casual games and massive multiplayer online games—were providing consumers with connected social media experiences before people were even talking about social networks

As the chart below shows, Asian countries—which also have huge cultures of social media, such as China, which leads the way—have maintained their lead in terms

of growth in online/mobile gaming revenues And outside Asia Pacific, such markets as the US and Russia are also seeing healthy growth

Many reasons have been suggested for Asian populations’ eager embrace of online and social gaming, ranging from Asians’ relatively low participation in physical sports to a simply game-friendly culture But what’s clear is that online and mobile gaming acted as a precursor of the socialization of other media in Asia and could play the same role in other territories where online gaming takes off quickly when the necessary connectivity becomes available

In addition, as we’ll highlight later, online gaming has led the way in creating flexible and sophisticated revenue models To see the future of socialized media, online gaming is a good place to start

4,707 1,750

1,376 1,286 687

The medium formerly

known as TV: toward the

media hub…

Amid these developments, one clear

trend is the continued strength of the

medium formerly known as

televi-sion—or, more accurately today, video

The consumption of professional video

content has never been more popular,

partly reflecting the explosion in the

ways people can access it

The growing number of ways and

contexts in which people can

experi-ence video content is creating a blend

of confusion, excitement, and choice for

consumers It’s also raising questions

around the value proposition and pricing

of TV-only content bundles—especially

given the advent of a rising generation

of savvy and increasingly urbanized

consumers who still love television but

want more flexibility: first, in the ways

they access and pay for content and

second, what content they get

Like previous generations, the new

con-sumers are passionate about other media

experiences as well as television: live

concerts, radio, magazines, books, and

so on But unlike previous generations,

they demand, consume, and function

in a world of globally connected social

media And they’re increasingly adept

at incorporating the various elements

of content and connectivity into their

media consumption mix All of this

points toward the multichannel,

multi-content, multiexperience future: a

con-cept we’ve termed here the media hub,

wherein a mass of content is available for

an agreed price on all devices and where

the live experience—be it US basketball

or FIFA World Cup football or Lady Gaga

in concert—comes at a premium

…and turning the second screen into the consumer’s social nexus

With the advent of smart devices, the concept of the media hub has now gained a so-called second screen for sharing and enjoying these experiences anywhere And with formerly print-based media such as magazines and newspapers launching smart-device apps, these forms of content could also become part of the overall media pack-age—as part of a multisegment media bundle accessed via the media hub and its connected screens

Some companies are already making the early running in this direction, such

as Technicolor, with its MediaNavi and M-GO multiscreen content platform, whereby MediaNavi serves as the socialized and personalized hub for navigating and accessing the universe

of content, and the M-GO app expands that access across a range of connected devices With social media incorporated into the media hub concept, consum-ers can take the logical next step from watching “everything whenever and wherever I want” to having friends and family log in to share the experience in real time

This could lead to an environment where all content is streamed as a cheap, easily available, cloud-based utility-style service, with the streamed and shared live experience becoming the premium form of content The digi-tal locker may also play a role, enabling consumers to store recorded content remotely and access it from anywhere

on any device

In such a world, the multicontent, multidevice media hub could regain the role that TV held as the nexus of the col-lective social experience from the 1950s through the 1990s However, while the

analog TV in the living room put the family circle at the center of the shared content experience, the media hub will shift the center of gravity toward a more geographically spread community of friends with shared interests, often of similar ages This extended circle of friends could become the media hub’s killer application, glued together by the shared content experience

Smart devices spearheading change…

The first signs of the socialized tiscreen future are already emerging But how is the consumer experiencing them? The answer lies in the rocketing take-up of smart devices

mul-Since the launch of the original iPad in April 2010, tablets have brought home

to consumers—like no other device has—what the future of media might look like For the first time, consumers became willing to watch premium video content on the go And in addition to cutting into PC sales, the tablet provides

a metaphor for the feel of a future with ever-available mobile video and non-video content

As soon as consumers held tablets, they

could imagine a large one fixed on the

liv-ing room wall for “big” content and

fam-ily viewing; a handy-size one for a decent

personal or social content experience on

the move; and a small one in the form of

a smartphone, for times when tivity, information, and immediacy are the priorities Each device suits differ-ent content and contexts But the key is that portability, accessibility to content, on-demand capability, high resolution, and acceptable screen size—all of those formerly conflicting goals—have finally been reconciled

connec-…across broadcast and

print media

Smart devices bring transformational

opportunities across E&M segments

For example, TV companies could give

consumers a customizable

tablet/smart-phone app that brings up a consumer’s

own personal My Media on the TV, with

the consumer’s favorite shows,

mov-ies, and apps For instance, hotel guests

could get their own personal channels

loaded straight up on the connected

TVs in their rooms by pointing their

tablets at the TV

Tablets are also enabling print

pub-lishers to present consumers with a

value proposition previously lacking in

those publishers’ online products, thus

convincing consumers to pay for

addi-tional and premium content Examples

include the New York Times’ paid-for

fashion app called The Collection,

which draws from a number of the

newspaper’s products and repackages

them together stylishly

More generally, as the Outlook

high-lights, tablets’ superior content

experi-ence is enabling growing numbers of

print publishers to harness rising digital

revenues E-books are claiming a

ris-ing share of the paid-for book market

And more and more newspapers are

both launching apps and putting their

content behind paywalls—often with a

free incentive so as to win over

commit-ted print consumers When Australia’s

Herald Sun launched its new

paywall-protected Web site and m-site alongside

its iPad app in early 2012, for example,

it offered an initial two-month free trial

of its Digital Pass

Consumer trends knock on into B2B business models…

Consumers’ behavioral changes are also driving change in business-to-business (B2B) publishing Most consumers are members of the business workforce—

who are increasingly mobile as well as accustomed to accessing information via an ever-wider range of devices They expect the same immersive quality and consistency of experience at work

as in their private lives and are porating social behaviors into their business behaviors

incor-For companies, these trends present challenges in terms of security and access, but they also open up business opportunities One outcome is that corporations are setting up social net-works to encourage collaboration and innovation Another is that formerly print-based B2B information publishers are starting to view their businesses in

a different way It’s no coincidence that

on its Web site, Wolters Kluwer of the Netherlands now calls itself “a global provider of information, software, and services” rather than a publisher

This is a major shift For B2B tion providers, the core value of their business used to lie in their original product, such as a trade magazine or directory, whether physical or online

informa-But today, these businesses’ real asset

is the deeply engaged specialist munity with deep domain expertise for whom they provide information and interaction, thereby acting as a gateway for advertisers

com-…creating opportunities for curators and B2B2C providers

For B2B information providers, the most direct and most sustainable way to maximize their proposition to advertis-ers is to be a curator of information for the target community This information

is often publicly available elsewhere: if people have the time and inclination, they can now trawl around to find a mass of information on mergers-and-acquisitions deals on the Internet But

subscribers to the Financial Times’

mergermarket, for example, prefer to pay mergermarket to act as their curator for such information, by providing them with tailored, convenient deal data seg-mented by sector on their smart devices

as they travel to work

Increasingly, it is employers who pay

for this service—a trend that reflects

the emergence of a new category of

media: B2B2C, or

business-to-business-to-consumer Twenty years ago,

news-papers like the Financial Times and the

Wall Street Journal were mainly B2C

Since then, the proportion of circulation

revenues coming from combined print

and online licenses sold to corporations

appears to have risen steadily Employees

want these publications as curators and

aggregators providing reliable news and

sharp analysis, and employers can see

the value in paying for the service

Acting as a curator protects a B2B

pro-vider from the threat of disintermediation

by the original sources of information—

a risk that particularly affects B2B models

based on acting as a channel for

propri-etary data For example, a publisher of

academic papers faces the danger that the academic community can bypass it and publish direct to peers over the Internet

In contrast, differentiation through standing curatorship is much harder for anyone else to take away

out-The finger on the consumer’s pulse…

In segments ranging from B2B mation to consumer magazines, to streaming live music, smart devices are helping usher in the connected multiscreen future But to engage and immerse consumers in that future, E&M companies will need to understand consumers’ behaviors, motivations, and expectations and to be able to access such information as location and trans-action record

infor-The raw material needed to build that understanding—consisting of big data

on consumers’ activities, lifestyles, behaviors, and transactions—is now available at a previously inconceivable scale and depth For example, social networks represent a potentially rich source of consumer data: according to comScore, nearly one minute in five that consumers spend online is now spent on social networks By joining consumers on those networks, by get-ting involved in their conversations, and

by mining their activities via analytics, companies can not only build deeper relationships with those consumers but also generate valuable insights into ways of serving and selling to them more effectively, thereby benefiting both ad-based and subscription models

…by using analytics to find

the little data in the big data

Getting this right isn’t easy The sheer

volume and noise of big data make it

hard to identify and apply the little data

within them—the granular individual

information that enables companies

to personalize their communications

with consumers and engage or immerse

consumers more effectively Many

com-panies are feeling their ways to learn

to generate real value from data, and

they’re still collecting and mining only

the most basic of information

Going forward, E&M businesses will

raise their game in this area, because

they know they have to One sign of

their commitment to driving value

from data is the continuing rise in the

prominence and power of data analytics

companies and skill sets—particularly

those able to assess audience

intelli-gence at the consumer level and deliver

warm leads, such as a specific

product-purchase intender

A related development is the drive to

create new measurement systems for

many segments of media, ranging from

radio to out-of-home and from

maga-zines and newspapers to TV content

across platforms—a subject we return

to later in this Industry Overview And

the rising importance of data analytics

is further underlined by the intensifying

war for talent in the consumer insight

space, with E&M companies

compet-ing head-on against other sectors with

B2C relationships—such as banks and

retailers—which often have a head start

Consumers’ concerns have been fied by confusion and controversies surrounding the privacy approaches taken by global online giants, including the recent coverage of Facebook’s deci-sion to repackage its Timeline feature and create ads based on users’ media consumption Such instances may con-tribute to consumers’ sense of unease about how their personal data might

intensi-be used Those concerns are creating the risk of regulatory actions that could potentially threaten the growth not only

of the digital media industry but also

of the broader, digital economy That risk underlines the need for further rapid progress in such areas as secure digital IDs

…that might be overcome through a win-win

In our view, there’s a middle way that companies could pursue Consumers are happier to provide information if they get in return something they value, such as filling in a questionnaire at the supermarket in exchange for loyalty points But they’re concerned about companies’ going too far by monetizing their data first and asking permission later Given such worries, there’s an opportunity to give consumers more control over how their personal data gets used and to deliver higher benefits

in return, thereby encouraging them to volunteer even more information Under the current model, the advertiser works on behalf of the brand, not on behalf of the consumer What’s needed

is a model that produces a win-win, with the medium, the advertiser, and the consumer all collaborating and benefiting transparently in a way that’s ethical and legally appropriate

Such a model demands collaboration

as well as the acceptance that the only ones who own customers—and the customers’ data—are the customers themselves This would require a shift

in the industry’s mind-set, from the legacy focus on customer ownership to

a new approach based on putting the customer in control—with all parties agreeing that personal data can be used only in ways the customer has agreed to

by opting in

We now look at new business models that will enable companies to turn con-sumers’ attention and engagement into revenues

2 Devising new business models to reinvent and expand

the value proposition of advertising and content

A world of difference…

In the face of the three main shifts

we’ve highlighted—analog to digital,

fixed to mobile, and West and North to

East and South—the core challenge for

E&M companies lies in how to remain

relevant to their consumers and

busi-ness customers in a way that

differenti-ates them from their competitors

At the global level, that means

reach-ing people in different territories and

giving them content experiences that

feel local and personalized In the

short term, E&M companies will be

boosted by cyclical economic recovery

particularly in markets in the Northern

Hemisphere But that should not mask

the long-term structural and

organiza-tional changes that are needed—and

under way—right across the industry

For companies operating

internation-ally, this reshaping of their

organiza-tions is made more difficult because

while many of the trends are global,

the solutions vary locally The reason is

that the E&M market in each territory

worldwide is developing in a different

way from a differing starting point

Such diversity means the traditional

distinction between developed markets

and emerging markets becomes

increas-ingly irrelevant—or even misleading

For example, India and China—two

countries often bracketed together from

an overall economic growth tive—are fundamentally different in terms of, say, installed communications infrastructure India still faces short-comings around infrastructure, with comparatively little fixed broadband and with mobile broadband still embry-onic In contrast, China has excellent mobile infrastructure following several years of heavy state-driven investment

perspec-…with pockets of pent-up growth potential

What’s more, the impact on consumer behavior when such services as mobile broadband burst onto a market can

be electrifying Even if the ture to support new media offerings is currently rudimentary or lacking, the growth in usage and revenues in that market can be explosive, once ignited

infrastruc-by connectivity We project that during the next five years, India’s mobile access market will expand at a 42.4 percent CAGR—the fastest in the world—and

it will also have the fastest-growing wireless video game market, expanding

at a 22.2 percent CAGR Similar ics can be seen in the rapid take-up of mobile banking in Africa, as providers and consumers leapfrog the stage of physical branch infrastructure

dynam-So, far from hampering growth, a lack

of legacy analog connectivity and media choices makes consumers in growth markets more voracious for new digital choices—partly because the novelty and excitement are greater and partly because those consumers don’t have to cope with

a transition from old behaviors These dynamics are demonstrated by the vora-cious take-up and usage of social media

in markets considered to be developing, such as Indonesia and Thailand

The pent-up demand for connectivity also helps explain why businesses in growth markets are outpacing mature territories in the pursuit of the com-mercial potential of mobile broadband

A PwC-sponsored study of 363 C-suite executives2 finds that businesses in fast-growing economies are embrac-ing mobile more readily as a driver of business growth and innovation Some

85 percent of respondents in India say mobility will be very important in creating new products and services, compared with 67 percent in Australia; and 93 percent of respondents in China say mobile consumers will lead to busi-ness model transformation, compared with 57 percent in the US

2 The new digital economy: How it will transform business Oxford Economics, June 2011 A research paper produced in collaboration with AT&T, Cisco, Citi, PwC, and SAP.

30.9

9.5 22.5

6.8 15.4

5.1 17.5

Asia Pacific Latin America

Source: comScore Media Metrix, October 2011

Most-engaged markets for social networking (average monthly hours per user)

However, even though Internet tion influences current year-on-year growth in E&M, it says less about future potential A complementary measure might be in the form of engagement with new forms of consumption, such

penetra-as the average number of hours the rent population of Internet users spends

cur-on cur-online or mobile activities, cially social networks The chart at the lower left, based on comScore research, shows that not a single mature Western economy makes it into the world’s top nine most-engaged markets for social networking Only Canada makes it into the top 10—in last place

espe-Internet subscriber growth (2012–16 CAGR)

Most-engaged markets for social networking (average monthly hours per user)

The reinvention of

advertising—in the image

of the consumer

Regardless of differences between

markets, the overriding trend across the

world is that consumers’ engagement

with connected digital experiences is

continuing to grow As this happens, it’s

increasingly evident that people’s time

and, by extension, the data generated

through the ways they spend it are

cur-rencies that can be monetized While

this has always been the case, the

addi-tion of digitally derived insights to the

mix is now redefining advertising—and

expanding its value proposition

Until recently, the natural choice for

an advertiser looking to reach, say,

potential car buyers might have been to

advertise on the major auto Web sites

But by applying analytics to

individu-als’ browsing behaviors, ad agencies

and networks can now identify specific

so-called auto-intenders who have

the highest propensity to buy a car in

the next 12 months So messages can

be directed via other touch points to

specific individuals more likely to take

action on the desired decision

Such developments mean premium

results are increasingly key to getting

premium rates Using display ads is

seen as an increasingly commoditized

approach Instead, advertisers will pay a

premium only for clearly demonstrated

premium demographics, a proven

track record of engaged consumers,

or solid revenues from click-throughs

Similarly, the conversation has shifted

from display inventory to the value in

behavioral factors and drivers such as location This is why some targeted Internet advertising is now generating higher costs per thousand views (CPMs) than network television is

Already, audience metrics and ment are changing rapidly in response

measure-to such shifts Cusmeasure-tomized metrics are valuable for retrospectively testing the impact of audience reach and engage-ment on the effectiveness of advertis-ing campaigns, for planning future campaigns, and for allocating market-ing spend across media In the UK, for

example, the Financial Times and three

UBM titles have published new metrics assured by PwC, designed to reflect more accurately their entire audience footprint across platforms

rec-Socialization of advertising is also being fostered by consumers’ strengthening engagement with the live shared experi-ence, ranging from concerts to cinema, to exhibitions These live formats are driving growth in experiential ads, such as por-table cardboard seats for music festivals, which act as minibillboards for brands

Advancing socialization is feeding into the widely accepted concept among agencies and advertisers of bought-owned-and-earned advertising—to which we’ve added a fourth category: managed Bought media consist of traditional above-the-line platforms such as the paid-for 30-second spot Owned media are brands’ Web sites that consumers are driven to by ads Managed media is the orchestrated use

of social media, such as engagement via bloggers And earned media consist of

ad content that generates massive hits through social recommendation.More and more brands are using earned

or unpaid media in their mixes, because

a shared ad—if it takes off—can ate returns out of all proportion to the investment, especially if integrated across media In China, PepsiCo’s Bringing Happiness Home campaign—featuring Pepsi, Lay’s, and Tropicana—was delivered simultaneously on TV, online, in store, and at people’s homes Two weeks into the campaign, the campaign’s main 10-minute minimovie had been viewed over 100 million times And Coca-Cola’s 2012 Super Bowl advertising used its iconic polar bears in an animated cross-platform social media campaign, with the bears responding in real time to on-field events, consumers’ tweets, and ads dur-ing commercial breaks

gener-Advertising and marketing agencies:

three key strands of change

The move from digital marketing to marketing in a digital world is driving change for agencies in three interconnected dimensions as follows

Convergence of agency roles: Creative agencies and media agencies are

increas-ingly converging, as creative agencies seek to offer a full service including areas like digital and sponsorship strategies and as media agencies become more digitally savvy and creative Niche agencies—including PR, event management, and digital specialist—are also looking to strengthen their relationships with brands and disintermediate the bigger agencies Clients now expect all of their agencies to have high IQs in digital

Payment-by-results: What matters today is not where agencies have come from

but the results they deliver Yet cost-plus models still dominate agencies’ ation, making them feel that brands are failing to fully recognize and reward the value they generate through their creativity and innovation So, agencies—and some brands—are pushing toward pay-for-performance remuneration models, wherein compensation reflects the value delivered on both sides

remuner-Driving changes in metrics: The move away from cost-plus and toward

perfor-mance-based remuneration demands new metrics So, agencies are directing clients’ attention away from input measures such as cost-plus and instead toward outputs such as earned or unpaid media reach, recall rates, purchasing intentions, and brand awareness—all contributing to performance and return on spend Going forward, remuneration for media campaigns will become increasingly linked to performance metrics Evolution of those new measures is being led by such bodies as the Coalition for Innovative Media Measurement*

*See http://www.cimm-us.org.

…driving profound

change for agencies

The rise of unpaid media reflects an

innovative, new fusion of advertising,

content, and analytics—and is helping

drive sweeping change in the roles and

business models of creative and media

agencies As their clients hunt for new

ideas and approaches, agencies are

stepping up to act as digital

advertis-ing consultants, guidadvertis-ing their clients

via insights into opportunities around

the aggregation of data, socialization,

and content

That trend is being accelerated by the

disappearance of the historical

distinc-tion between tradidistinc-tional and digital

media Everything that agencies do

for their clients now has an

embed-ded digital component—and brands

will increase their spend on previously

untried models if they can see

reason-able likelihood of the right return The

shifts are driving change for agencies on

three fronts, as further described in the

accompanying information panel

These changes raise several challenges

To stay ahead, agencies need to be

flexible enough both to adapt fast to

change and to collaborate with a wide

array of media, technology, data, and

research companies

But whatever alliances they form, data

analytics is increasingly central to

agencies’ ability to demonstrate value

for clients Digital measurement tools

mean brands can demand far greater

accountability and insights into ad

effectiveness And agencies are

invest-ing in search engine optimization and

econometric modeling, prefiguring

an opportunity for them to act as data

consolidators For example, an agency

could aggregate customer data across

a community of smaller online

publish-ers and build a collective volume of

consumer footprints that could compete more effectively for online advertising against the global search and social media giants This possibility underlines once again the scope for new perfor-mance metrics

New roles emerge across the E&M value chain

More generally, the evolution of the value chain over the next five years will see new roles emerge across the E&M industry, reflecting growing clarity about the business models that will generate value in the new landscape

The precise mechanics of and balance between those roles will vary from seg-ment to segment, but we believe they will come to pervade all segments in one form or another—enabling compa-nies to (1) occupy one or more specific parts of the value chain and (2) work collaboratively with other providers whose capabilities are complementary

What will the roles look like? We believe one of them will involve acting

as the online destination or physical auditorium that hosts the customer experience—a role that could be termed

the venue Another will be to act as the

aggregator and filter for the target sumers’ content requirements, possibly

con-termed the community curator

(super-seding the publisher) A further role will be as provider of exclusive content,

perhaps called the content monopolizer

Device developers will have a tinuing part to play by collaborating closely with other participants to ensure the right experience Some strongly branded players will seek roles as consumers’ trusted companions for all content across devices, perhaps termed

con-the digital services champion And con-there

will be third-party specialists that laborate with the other participants to

col-enable and support experimentation, innovation, and execution They might

be called ideas generators.

As the various roles crystallize, media groups will conduct portfolio reviews

to decide which they should focus on Some companies may decide to play more than one of the roles—and even all of them if they have sufficient scale and reach But size alone will not be a measure of success, and some partici-pants will thrive by specializing and differentiating themselves in specific niche roles

Companies that take on multiple roles will face pressure from shareholders

to justify their investments in diverse activities and to show how those invest-ments contribute overall value A num-ber of media organizations may respond

by narrowing their focus to a smaller range of activities at which they want to

be world-class while using flexible laboration to access any wider capabili-ties as and when they’re needed

col-One shift already under way is that some content companies that have traditionally operated on a B2B model are starting to build direct relationships with consumers, thereby disintermedi-ating their existing distribution chan-nels The underlying agenda here is transformation into a consumer-focused connected company Examples include HBO with HBO GO, whereby HBO offers its own content for streaming direct by consumers

Ongoing disintermediation can also be seen in such segments as books, movies, and music J K Rowling is bypassing online retailers by selling unencrypted electronic versions of her Harry Potter books direct over her own Pottermore Web site Paramount Pictures offered

an online streaming option in 2011 for

Transformers: Dark of the Moon

revenues rose by 18.9 percent in 2011, indicating that renting is gaining both market share and mainstream accep-tance One factor may be that past expe-rience has made consumers wary of owning content on formats that might become obsolete

Overall, the various trends highlight the need for flexibility in the way that different types of content are priced and delivered For example, some high-end consumer magazine publishers are find-ing that 30 or 40 percent of the single copies they sell on tablets are back issues, which consumers then store and keep digitally This opens up opportuni-ties to sell a “rental” subscription for current issues, and use an “ownership”

model for selling back issues It also underlines that the long tail of existing content continues to offer opportunities for additional revenue

…and using an array

of pricing models

The trend toward differentiated ing in consumer magazines is mirrored

pric-in other segments by the emergence

of a wide array of segmented pricing models These include free or paid-for options, respectively with or without ads; tiered pricing, again with or with-out ads; payments in virtual currency;

stored-value micropayments to buy bolt-on “packs”; and rental models charging cash or virtual currency over social networks

The interactive game sector—especially mobile—has established itself as a leader in innovative price segmenta-tion, creating flexible models wherein

In music, the labels—which have never

had strong consumer brands—are

being disintermediated by artists’ going

direct, as well as by such entrants as

RIM, Wal-Mart, and Live Nation

Indeed, Live Nation’s 360-degree deals,

which essentially position the artist

as a brand to be managed, effectively

involve outsourcing the distribution

chain And the rise of the so-called

pro-sumer is a further form of

disintermedi-ation, with consumers turning producer

to create and sell games, music, films,

and books over online platforms

Paying for content:

renting, not owning…

The models for monetizing content are

also continuing to evolve As we’ve noted

in previous editions of the Outlook,

consumers will pay for privileged access

to content they want, such as being able

to consume it ad free or ahead of other

people But in cases when they want to

sample content to find out whether they

like it, our conversations with consumers

suggest they generally don’t want to

pay anything for new content the first

time they try it out This tendency may

in part be driven by—or reflect—the

move toward freemium business models,

wherein people can receive a free

ad-supported taster before upgrading

to the premium paid-for variant

A further factor is that consumers

generally appear to be moving toward

wanting to rent content rather than

own it outright While people could see

some worth in building up VHS, CD,

or DVD libraries on their shelves, they

don’t perceive the same kind of value

ad-free version Bolt-on tions have also proved popular Games providers often offer the consumer the option of purchasing virtual goods for use within a game or of performing a function with a monetizable benefit to get some benefit back in return, such

microtransac-as earning virtual in-game currency by signing up for a newsletter, looking at

an ad, or giving feedback

Online gaming’s historical role as a leader in socializing the entertainment experience suggests similar models may emerge in other segments To date, movie studios’ attempts to sell or rent content through social media have had mixed results Consumers tell us they would be more willing to pay if the payment was in a virtual form such as Facebook credits, but this raises com-plexities around how to get the real dollars back into the right hands Across the whole area of pricing, the question remains regarding how the future infrastructure to service rising demand for bandwidth will be paid for (see information panel) As we’ve highlighted in previous editions of the

Outlook, this issue demands a

collab-orative solution involving content and distribution But the collective will to drive that solution may emerge only once the bandwidth crunch comes, and consumers’ services start to degrade.Ultimately, however, solutions will be found to the challenges around both infrastructure and consumer privacy

As business models for the new E&M environment start to take shape, atten-tion is turning to the organizational and operating models needed to underpin them This is the third dimension of the

Infrastructure: broadcast economics are not satisfying on-demand needs

A frequently overlooked advantage of traditional broadcasting over the airwaves—whether digital or analog—is that traditional broadcasting is very efficient in terms of infrastructure costs and requires minimal spectrum to serve a large base

of consumers However, as consumers access more and more bandwidth-heavy content on demand—including HD video—over wired or wireless telecom net-works and as more and more machine-to-machine (M2M) devices ranging from smart meters to fridges get connected, these networks’ capacity inevitably comes under strain

Compression technologies and content distribution networks (CDNs) are helping slow down the squeeze But as demand continues to rise, billions of dollars of investment will still be needed to build out the necessary infrastructure—and consumers are not yet paying enough for access to fund that To try to close the gap, bandwidth providers are introducing data capacity limitations and usage caps But consumers resent such limits, partly because of the history of “all-you-can-eat” access

From bandwidth issue to business model headache

The net-neutrality viewpoint might see this as a problem for telcos to sort out, but

in fact it is a shared problem demanding a collaborative solution There is a cost associated with delivering to any device a program or a product While distributing

at current levels may be sustainable, the continuing future growth in on-demand delivery and M2M will see real macro growth in those delivery costs, and it is not clear who will pick up the bill

The hidden costs of on-demand and M2M delivery also mean that the cost ture changes significantly for broadcasters whose viewers switch to online and catch-up services To date, the emphasis has been on the benefits of online media: creation of stickiness, reduction in churn, allowing better bundling But as volumes continue to rise, distribution costs will become a growing issue

struc-Reorganizing around

digital…

Over the past decade, many E&M

businesses have developed their digital

business as an adjacent operating group,

with additional separate infrastructure,

solutions, and staff But in the new

normal, with digital established as

part of business as usual, that siloed

approach has passed its sell-by date The

dislocation it causes between digital and

physical is hindering consistent customer

insight, holding back revenues, and

limiting the scope for cost efficiencies

on both sides of the divide

The imperative is to combine the

duplicate processes into a single,

enterprise-class digital operating model

and capability, enabling companies to

create once and distribute anywhere

they choose A digital model positions

the business to reshape itself for the new

normal and to harness new behaviors

more effectively as a source of revenues

…to boost profitability,

scalability—and innovation

E&M businesses across broadcast,

music, print, and publishing have

grasped the need to move digital to

the center of their operations, are now

integrating their digital divisions into

the main enterprise, and are targeting

benefits around three key areas:

• Higher profitability by reducing

operational costs through common

3 Developing organizational models to harness new

behaviors and grow revenues in the new normal

• Better scalability, thereby gaining

greater agility to grow and flex the business—through digital work flows; rights and royalty solu-tions that can support millions of digital transactions; and digital consolidation of physical format archives to reduce costs and boost commercial exploitation

• More effective and continual

innovation through integration

and automation, thereby freeing

up time for staff to collaborate and generate new ideas

Repositioning digital as the engine of the business demands that businesses prioritize several key investments (see information panel) and can bring several additional benefits in return

It enables the business to rebalance its skills and capabilities around control, data, and smart commercialization to drive new services And it can enable companies to tap into cloud-based models that might handle 95 percent

of their offerings’ ing, they’re freed to focus only on the last 5 percent that interfaces with the customer

functionality—mean-Integrating digital across the business

doesn’t mean focusing just on digital

end products and experiences Content

that is created and stored digitally can

still be distributed on analog platforms

And some newspapers are

demonstrat-ing that premium glossy print products

can still boost ad revenues and sustain

circulation, supported by digital work

flows Printers of the Globe and Mail

in Canada built a new printing plant,

enabling the publisher to upgrade to

glossy paper for its Saturday section

and capture a significant slice of the

available fashion advertising while

also maintaining print circulation in

a declining market

Some key priorities in integrating digital across the business

While different businesses are at different stages of their digital integra-tion and transformation, a number of key steps usually emerge as priorities These include:

• Cost optimization and process integration by bringing digital

divisions into the main enterprise and replatforming around digital work flow for end-to-end production and distribution

• Rights and royalty optimization in

order to sell content globally with effective rights and royalty tracking and payments

• Metadata modeling, which

imple-ments unique identifiers, structures, and tags to organize all products and assets that are the keys to digital processes

• Archive consolidation and mercialization to reduce physical

com-asset and facility costs, usually by about 40 percent, and to prioritize digital assets for commercial distribution

• Digital content and publishing integration to create a new, enter-

prise-class production/editorial and commercial/ advertising platform—usually with a commercial partner