The annual report this week from PricewaterhouseCoopers, entitle Global Entertainment & Media Outlook 2009-2013, has found it hard to paint a positive picture of how the entertainment world will look in the future.
Set, as it is, among a damaging and far reaching recession, it beats out the same message that Faultline has banged on about for the past 7 years ‘ that media and entertainment is continuing to shift from analog to digital, and that this is a structural change which will lead to new business models, a fragmented media environment and although it doesn’t make this point, potentially new winners and losers.
PwC also makes another point we have made many times in the past, that we should not confuse the effects of the economic downturn with the effects of this transition from analog to digital and that the recession will help break those players who refuse to bend with these winds of change.
The report also typifies these changes in digital content consumption as consumers seeking more control of over the time place and format of their own entertainment consumption and looking for better value from entertainment and media choices. PwC also singles out advertising to drive a new generation of ad funded revenue models.
While we cannot disagree with the overall conclusions (except to say that this is the same story of digital transformation which has been going on since the 90s) telling organizations to look for ad funded models for entertainment at a time when advertising revenues are dropping rapidly and when there is a resurgence (for instance from US newspapers) of paying for access to branded content, is at best badly thought out and at worst dangerous.
PwC says that traditional revenue models in TV and magazines will be replaced by more-targeted and more-tailored models that will differ widely within and across segments.
We think about this sort of sentiment daily and we do agree with it, but you have to qualify it a bit. For instance it’s true that advertising on broadcast TV is less effective than it was. Cable and other Pay TV services give better value for money, DVRs mean that many adverts are fast forwarded and at present little, if any, of this advertising is addressable (different people get different relevant adverts) or interactive (like the internet).
But the PwC clients should know that. What they don’t know is what to do about it.
Does there need to be a huge drift to putting TV on the internet? If so should this be ad supported and if it is, will that accelerate the demise of existing broadcasts? There are many questions that this report will leave unanswered, but what it does is provide a consistent view of the rate of inevitable change, from year to year.
Our own view is that broadcast TV should have died a death (well reduced considerably) years ago but because there are few clear advertising propositions out there, which major brands can adopt, they have continued to support broadcast TV, long after it has been useful. This all has advertisers dragging their heels, and the imminent collapse of broadcast TV services has been predicted for at least five years, but fails to materialize.
But through this recession PwC expects the global entertainment and media market as a whole, including both consumer and advertising spending, to grow by 2.7% compounded annually for the entire forecast period to $1.6 trillion by 2013.
While that is the headline figure, the 2009 headline is a fall of 3.9% followed by a flat 2010. This just underlines how awful a time it is to launch ad funded services. We don’t agree that the recession will accelerate the drift to ad funded business models, instead the drop in spend will create hesitancy to try new marketing channels, and in times of uncertainty advertisers will stick with media they know, even where its results are poor. It is in times of plenty, when any given company is throwing off loads of cash, that it will experiment with new routes to market and then plow more money into those which work.
PwC sees light at the end of the tunnel and says that from 2011 onwards media spending will grow at 7.1% each year until 2013.
But PwC says that during this time the recovery will be on services which are ad funded, and this is not entirely down to how much the consumer spends. Consumer spending on Entertainment and Media will fall, it says, by 1.2% in 2009, remaining weak in 2010 and see low growth, at 3.2% in 2011. So the rest of the growth it sees across the whole market, the rest of that 7.1%, is advertising based.
Like us PwC, mixes its metaphors when talking about the recession. Marcel Fenez, Global Leader Entertainment & Media practice, PricewaterhouseCoopers, said: ‘In some ways this could be called ‘the perfect storm’. Inside every cloud is a silver lining and in this case, a digital one. Companies who grasp the opportunities which are appearing in this fast changing marketplace and are agile enough to adapt their business models will be able to take full advantage of the potential and new revenue models as they emerge.’
And that’s the message in a nutshell ‘ like the joke about what is the essential ingredient in telling a joke, and when the person speaks, you speak over them interrupting and giving away the one word answer ‘Timing.’
By PwC numbers the message is spend a little preparing the way for ad funded models in 2009 and 2010, but don’t budget for them to work until 2011. That advice is sound enough.
And if that snippet of advice doesn’t pay for your copy of the report, the drift to mobile numbers from PwC may be the clincher. ‘End-user spending through digital and mobile platforms accounted for 23.4% of the overall consumer access market in 2008 and PwC expects this to be the main growth driver at 78% of all growth over the next five years.
The report lists ‘time-shifting’, increased broadband penetration, better downloading and streaming mobile access, being able to buy songs individually, the growth in sideloading, and the massive buying-power of online communities as all being important in changing consumer behaviors. Even Kindle gets a big mention.
But we’re not quite so sure about the inevitability of the PwC conclusions ‘ it says that advertising will follow the fragmented entertainment markets ‘ but as we have pointed out, in the past fragmentation means that almost no channels make money, as revenue is shared too sparsely, and in these circumstances advertisers go back to what they know. It is this that accounts for the slower take up of new business models than expected.
It’s one thing if an NBC or Viacom shifts video content to the web and bundles in the benefits of advertising there with the existing benefits of the older advertising routes. But it is quite another for new businesses to be created which have no foothold in traditional media, to bootstrap themselves ‘ especially in the 2009, 2010 time frame.
PwC gives the video game advertising industry as a market which will outgrow the advertising market, rising 13.8% annually through 2013. While that sounds impressive, in-game advertising is incredibly effective and should be growing at treble digit growth, if it was not an entirely new business. However PwC is probably bang on the money when it says that the proportion of Internet and mobile advertising will rise from around 12% of total advertising in 2008 to 19% by 2013.
The report calls for greater transparency in audience metrics and that must have had Nielsen Media laughing, because the last thing it wants to do, for both itself and for its clientele, is to be too transparent ‘ it doesn’t serve the TV audience specialist well to make it clear just how ineffective TV advertising has become and we have criticized it in the past for issuing figure that just CANNOT be true ‘ claiming each successive year that US consumers watch another 2 hours a month of TV.
PwC might ask for accountability for ad results in this new media world, but it’s unlikely that will materialize over the timescale of this report.
The report is probably essential for anyone following the entertainment industry, the data points perhaps needing your own interpretation, but nonetheless vital.
In total PwC reckons that total entertainment spending will go from 21% spent on digital formats now to 31% by 2013, which shows that the shadow of existing analog services will continue way past the period of this report (see PDF version for diagrams).
The report also sees that TV advertising will remain 14% of an increase total market by the end of 2013, which is in line with our belief that this should fall, but will fall very slowly, while the big rises are in internet advertising, TV subscriptions and license fees, which shows that Pay TV will remain on the rise, as will gaming. The graphs even suggests that filmed entertainment will rise, but we see the cinema becoming less and less relevant in this equation.