As incumbent magazine and newspaper publishers migrate their content and advertising from print to online, many are holding back from programmatic trading of advertising for fear it will drive rates and margins downwards. At the same time, Internet companies are moving to increase their share of advertising budgets by investing in systems to trade ads automatically based on information on website visitors.
Source: PwC Global Entertainment and Media Outlook 2014-2018
As these trends play out, online publishers have seen a rise in their digital ad revenues, whereas traditional publishers are struggling to grow theirs. This divergence is being attributed (at least in part) to the rise of programmatic ad trading.
But for traditional publishers, ignoring the problem won’t make it go away: whatever approach they decide to take to programmatic ad trading, the fact is that it’s here to stay as part of the marketing mix.
There are clear reasons for the growth in programmatic ad trading. On the advertiser side, it allows brands to scale more quickly and target ads more precisely. And its heavy usage by online-only publishers is one reason why marketers are shifting some of their budget away from traditional publishers. However, programmatic ad trading can also bring benefits for print publishers looking to grow their online presence.
Does Facebook / social media help us relate or just connect? Are we less lonely having the new tools?
If you have such questions, I would recommend the video below. It quotes the thoughts of Sherry Turkle from her TED talk – Connected, But Alone and it’s also based on Dr. Yair Amichai’s article -The Invention of Loneliness.
The last Global entertainment and media outlook produced by PwC revealed some interesting insights. As media consumption fragments across devices, consumers increasingly want personalised experiences: their content on their chosen devices when they want it. This move to ‘my media’ can be seen in ‘cord-cutting’ where consumers abandon their pay TV subscriptions and instead access the content they want via cheaper, Internet-based content services. The cord-cutters are now being joined the ‘cord-nevers’, a younger generation who would never think of paying for TV. A further manifestation of ‘my media’ is consumers’ growing use of the ‘second screen’smartphones and tablets to comment on and share the experience of TV content with friends, often via social media.
Understanding new consumers is key
Over the next five years and beyond, all E&M businesses will increasingly engage with a new and more diverse global customer base, with different needs and expectations. According to the OECD, by 2030 two-thirds of the world’s population will be ‘middle class’, with a daily expenditure of US$10 to US$100. This new middle class will appear primarily in Asia Pacific-and the E&M industry needs to understand its needs and motivations to capture its spending power.
Economic growth + new middle class + mobile = ongoing digital growth
Economic studies in emerging markets show consistently that rising mobile and broadband penetration boost economic growth. But fibre networks and next-generation mobile broadband services demands heavy investment. So telcos will have to partner with one another to reduce network costs, and collaborate with ‘over-the-top’ content players to roll out new services. Going forward, the E&M companies that seize a profitable position in the new digital ecosystem will be those with the speed, flexibility and insight to engage and monetise an ever more diverse global base of connected consumers y delivering personalised, relevant, and ultimately indispensable content experiences.
Europe’s challenge from a publishing perspective is that it consists mainly of small markets that lack the volume of readers and investment needed to build expensive pan-European eBook platforms and apps that can compete with Amazon and Kobo. Spanish is the only European language apart from English that has a big reach outside its country of origin. This means that most publishers are confined to selling books within their own borders.
The European Commission, which is driving the harmonisation of EU business markets, has become so alarmed by the lack of integration between European publishers that it has issued a ‘books without frontiers’ declaration, arguing that there should be no national barriers to buying eBooks. The Commission has also proposed a neutral value-added-tax regime for books (in the UK, printed book sales are VAT-free, but eBooks are charged at the highest VAT rate of 20%).
The Commission has called for open standards: at present, eReaders such as Amazon’s Kindle use digital-rights-management software to keep readers within its ‘walled garden’. Brussels wants any book bought to be transferable between devices.
According to a PwC study launched today, Western Europe’s eBook market is fragmented along national lines and struggles to make up 6% of the total book market in 2012.
Market shares for eBooks fluctuate between countries where they have taken hold, such as the Netherlands (5% of all books sold) and Spain (4%), and territories such as Germany, Europe’s biggest single market, where eBooks have only a 3% share. Norway has the highest share with a 20% market share.
So, what figures are we talking about?
The study shows that the market for consumer and educational books in Europe, the Middle East and Africa (EMEA) generated revenues of US$37.4bn in 2012, down from revenue of US$38.1bn in 2008. Revenue is forecast to be flat between 2012 and 2017, totalling US$37.0bn in 2017.
EMEA is the largest region for sales of consumer and educational books. Germany is the biggest individual territory, accounting for nearly 25% of all books sold and posting revenue of US$8.9bn in 2012. EBooks is expected to account for 17% of all sales in the region in 2017, up from 5% in 2012. Consumer eBooks may show the most growth, with revenue rising by a CAGR of 28.2% to US$5.0bn in 2017.
Educational books will continue to account for over 30% of the market in the next five years. The sector is expected to grow by a CAGR of 0.2% to be worth US$11.4bn in 2017, compared with US$11.3bn in 2012. Sales of printed educational books, though, could fall by a CAGR of 1.3%, to US$10.2bn, in five years.
The use of social media sites like Facebook has exploded in recent years – the site recently hit one billion users. But while people are checking out social media sites daily, how many of them actually shop?
A recent study showed that seven out of ten online shoppers who took the survey say they never shop this way. That should also remain the status quo for the immediate future, as only about 5% say they’ll shop more via social media in the next 12 months.
But still, what are online shoppers doing on social media? Essentially they’re commenting on companies and products they know and discovering new ones. However, there are differences in motivation among these social media users, divided into three groups based on their behavior: “brand lovers,” “deal hunters” and “social addicts”.
Out of those brand lovers who say they interact with brands via social media, 53% go shopping in a physical store daily or weekly, compared to 45% of the overall sample, and 58% buy something in a physical store at least once a week. The deal hunters say they’ll click through to a specific online store if offered a good sale or an attractive special offer. Appealing to deal hunters looking for good offers and contests can be a great way to drive traffic to the provider’s website. Noone can afford to ignore the social addicts – they use social media to talk about their experiences with brands, learn what their friends like and recommend, find customer service answers, and submit ideas and product feedback to companies. Getting the message out to social addicts can support the brand, while ignoring them carries significant reputational risk, as these very active online users tend to have huge social media networks and wield an outsized influence among them.
So, will social media be an indispensable sales channel? Not likely but there’s good reason for retailers to continue focusing on social media investment. Campalyst analysed the world’s 250 biggest internet retailers and found that 97% of them are already on Facebook, 96% have a presence on Twitter, and 90% use YouTube. The social media traffic generated in many cases is impressive; 43 of the 250 can claim more than one million followers on Facebook.
Too many companies view marketing plans as little more than an exercise in where and when to buy media placement. Yet as the number of digital interactions increases, marketers must recognize the power that lies beyond traditional paid media.
The changing role of older media and the emergence of newer ones extend the marketer’s role well beyond the allocation of budgets and channels. Marketers today require a deep understanding of how consumers engage with different types of media at each stage of the journey toward a purchase decision. McKinsey’s study “Beyond paid media: Marketing’s new vocabulary” splits the media in 5 categories: paid, owned, earned, sold, and hijacked and makes an analysis of how media are evolving nowadays.
What’s there to think about?
1. Media are becoming more integrated. New ways to connect with customers, for example, are transforming traditional relationship management by requiring marketers to interact with consumers through multiple forms of media in increasingly personalized ways. JetBlue has promoted its Twitter offering through many channels, for instance, and now has about 1.6 million followers seeking a regular feed of special deals for tickets. This approach has given JetBlue the ability to deliver timely coupons at a minimal variable cost, reducing its reliance on expensive paid media while fostering closer relationships with consumers.
2. New publishing models are emerging because the increasing complexity of consumer needs. Computer maker Dell and automobile manufacturer Nissan, for example, worked with the Sundance Channel to create a television talk show hosted by Elvis Costello to attract their target demographic. With ads that seamlessly blended into the show’s content, Dell and Nissan not only gained exposure to a highly engaged audience but also shifted the perception of their brands to connect with Generation X.
3. Applications on wireless devices are spawning tools that provide useful information. For example, eBay’s Red Laser generates a list of prices for any product whose bar code has been scanned by a mobile phone. Beverage companies show where their products are available by overlaying icons onto maps on the screens of mobile phones. In Japan, food manufacturers can increase sales across entire product categories through marketing collaborations with platforms such as Cookpad, the country’s leading online recipe site, with 9 million members, more than 40 percent of whom are women in their 30s.
4. Marketing experiences are becoming more personally relevant. McDonald’s in Japan, for example, has developed expertise in the use of Twitter and other blogging platforms to promote new products and promotions by leveraging its huge fan base to talk about how much they love the company’s food. While this fan promotion is sometimes spontaneous, it’s often facilitated and encouraged by providing these fans with free meals. In this way, paid- and owned-media efforts (such as blog and Twitter campaigns) make consumers so enamored of McDonald’s products that the company generates a significant amount of earned media.
5. The evolution of new kinds of media means that consumers are engaging more often in real-time conversations, particularly on social networks and other digital platforms. One consumer electronics company, for example, has recognized the significance of every review or rating posted about its products. It now responds to all comments within 24 hours: positive feedback gets a thank you, an invitation to become a Facebook friend, and special offers; negative reviews get explanations of how to fix issues, instructions on how to navigate an interface more easily, or follow-up questions to learn more about what the consumer didn’t like. Some hotel chains, recognizing the importance of travel sites (such as the popular TripAdvisor), likewise encourage satisfied guests to post comments online, while employing staff to follow and answer negative comments.
Following a year of decline in 2009, the global E&M market, as a whole, is forecasted to grow by 5% compounded annually for the entire period to 2014 reaching US$1.7 trillion, up from US$1.3 trillion in 2009. Fastest growing region throughout the forecast period is Latin America growing at 8.8% compound annual rate (CAR) during the next 5 years to US$77 billion in 2014. Asia Pacific is next at 6.4% CAR through to 2014 to US$475 billion. Europe, Middle East and Africa (EMEA) follows at 4.6% to US$581 billion in 2014. The largest, but slowest growing market is North America growing at 3.9% CAR taking it from US$460 billion in 2009 to US$558 billion in 2014.
Consumers seam to embrace new media experiences with staggering speed. The advancing digital transformation is driving audience fragmentation to a level not previously seen. However, the current wave of change is of a different magnitude from previous ones both in its speed and its simultaneous impact across all segments.
Although there is consistency in the inevitable migration to digital, the ways in which this presents itself and the pace of change continues to vary by market. Regional and country variations in current market size and future growth reflect local factors around infrastructure, access availability and consumer behaviour. For example the mobile internet explosion has already happened in Japan, accounting for some 53% of global spending on mobile Internet access in 2009 while other markets are still at the bottom of their growth curve.
Advertising on the rebound
Advertising revenues have been particularly hit by the turbulent markets and while there are signs of a rebound, this is still fragile in nature. Spend is unlikely to return to former levels. By 2014, the US advertising spend is expected to still be 9% below its level in 2006. Overall, global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Internet advertising will join television in 2014 as the only media with spending in excess of US$100 billion.
The projections reflect the fragmentation of the market and behavioural changes of consumers. The advertising industry is responding to consumers’ shifting attention and has embarked upon a long-term journey towards total marketing or total brand communication. Brands are changing their focus from advertising on a medium, to marketing through, and with, content.
Conversing with consumers
Consumer feedback and usage provides the only reliable guide to the commercial viability of products and services, and the global consumer base is being used as a test-bed for new offerings and consumption modes. However, as responses are still evolving it is up to the industry to anticipate and identify where they are heading and pre-empt the needs and wants of consumers. PwC believes that three themes will emerge from changing consumer behaviour:
The rising power of mobility and devices: Advances in technology and products will see increasingly converged, multi-functional and interoperable mobile devices come of age as a consumption platform by the end of 2011. Consumers are increasingly demanding “ubiquity”, with content flowing across different devices to support ever-greater interactivity and convenience. They are using mobile in new ways, and downloading ever-increasing numbers of mobile applications (“apps”) to support their lifestyles. The ability to consume and interact with content anywhere, anytime—and to share and discuss that content experience with other people via social networks—will become an increasingly integral part of people’s lives.
The growing dominance of the Internet experience over all content consumption: Using the Internet is now one of the great unifying experiences of the current era for consumers everywhere—and their expectation of Internet-style interactivity and access to content will continue to expand across media consumption in every segment. This trend is initially at its clearest in television. Equally, people are already consuming magazines and newspapers on Internet-enabled tablets, and streaming personalised music services such as Pandora in preference to buying physical CDs or even digital downloads.
Increasing engagement and readiness to pay for content—driven by improved consumption experiences and convenience: Ongoing fragmentation means that media offerings will need greater consumer engagement and quality to get themselves heard – and paid. Consumers are more willing to pay for content when accompanied by convenience and flexibility in usage, personalisation , and/or a differentiated experience that cannot be created elsewhere. Local relevance will also become important once again as an aspect of convenience and relevance.
Revolutionising the business
Digital migration and the changes in consumer behaviour have put extreme pressure on existing business models. It has caused the industry to radically rethink its approach to monetising content as it strives to capture new sources of revenue, be it from transactions or from participation with others operating in the evolving digital value chain.
Inevitably this results in individual companies searching for where to position themselves in the new digital world. Partnering with other organisations is becoming imperative in order to create viable commercial content offerings while sharing the costs and risks. Increasingly potential partners are being found from a diverse set of industries.
Whatever the partnership or collaboration PwC identifies seven critical factors for operating succesfully in the new value chain:
• Strategic flexibility
• Delivery of engagement and reationship with the customer through the consumption experience
• Economics of scale and scope
• Speed of decision-making and execution, with the appetite to experiment and fail
• Agility in talent management
• Ability to monetise brand/rights across platforms
• Strong capabilities in partnership structuring and M&A targeting and integration
2010 – 2014 Media Outlook in numbers
• There were 12 countries in 2009 with E&M spending above US$20 billion, led by the United States at US$428 billion and Japan at US$164 billion. Of the leading countries, the People’s Republic of China (PRC) will be by far the fastest growing with a projected 12% compound annual increase, fuelled by a vibrant economy and large increases in broadband penetration that in turn propel other segments. Japan will be the slowest growing of the leading countries at 2.8% compounded annually.
• Internet access is a key driver of spending in most segments. Increased broadband penetration will boost wired access while growing smartphone penetration and wireless network upgrades will drive mobile access. Spending on wired and mobile Internet access will rise from US$228 billion in 2009 to US$351 billion in 2014.
• PwC expects a relatively flat market in aggregate global advertising and consumer/end-user spending in 2010, improved growth in 2011 and a return to mid-single-digit gains during 2014. Overall global advertising will increase at a 4.2% CAR from US$406 billion in 2009 to US$498 billion in 2014. Overall consumer/end-user spending will rise from US$688 billion in 2009 to US$842 billion in 2014, a 4.1% compound annual increase.
• Globally, the video game market will grow from US$52.5 billion in 2009 to US$86.8 billion in 2014, growing at a compound growth rate of 10.6%. This will make it the second fastest-growing segment of E&M behind internet advertising wired and mobile, but will be the fastest-growing consumer/end user segment ahead of TV subscriptions and license fees.
• The global television subscription and license fee market will increase from $185.9 billion in 2009 to US$258.1 billion in 2014, a CAGR of 6.8%. This will outpace TV advertising, which will grow at a CAGR of 5.7%. The biggest component of this market is subscription spending and this will increase at 7.5% CAR to US$210.8 billion in 2014. Asia Pacific will be the fastest-growing region with a 10% compund annual increase rising to US$47.1 billion in 2014 from US$29.2 billion in 2009.
• Total global spending on consumer magazines fell by 10.6 percent in 2009. PwC projects an additional 2.7% decrease in 2010, a flat market in 2011, and modest growth during 2012–14. As a result, spending will total $74 billion in 2014, up 0.7 percent compounded annually from $71.5 billion in 2009.
• Electronic educational books will grow at a CAGR of 36.5% globally throughout the forecast period yet will still only account for less than 6% of global spend on educational books in 2014.
Over the next five years, digital technologies will become increasingly widespread across all segments of entertainment & media (E&M) as the digital migration continues to expand according to the PricewaterhouseCoopers Global Entertainment & Media Outlook 2009-2013.
The study shows that this recession will last longer than previous ones due to a steeper downturn and that the impact on consumer spending will be much steeper than in the past. E&M is not immune to that trend – consumer spending in E&M will fall by a projected 1.2% in 2009, remaining weak in 2010 and seeing only relatively low growth at 3.2% in 2011.
Responses to the recession will vary from country to country and region to region with some territories showing little ill effects while others experience steep declines. Latin America and Asia Pacific remain the fastest growing regions increasing at an annual compound rate of 5.1% and 4.5% through to 2013 reaching $73 billion and $413 billion respectively. Excluding Japan, the dominant country in the Asia Pacific region which accounted for 45% of total spending in 2008, E&M spending in Asia Pacific will increase at a projected 7.1% compound annual rate over the period of the Forecast.
According to PwC’s analysis, this ongoing migration to digital will occur and manifest itself across three parallel and interrelated dimensions:
The overall, effect of the current global economic downturn will be to accelerate and intensify the migration to digital technologies among both providers and consumers of E&M content and services.
The accelerating digital transformation will in turn reinforce and proliferate new consumption habits and “digital behaviours”, as consumers seek (1) more control over where, when, and how they consume content, and (2) higher value from their entertainment and media choices.
As digital behaviours become more widespread and embedded, a new generation of advertising-funded revenue models will emerge, aiming to reflect and capitalize on the evolving consumption habits by delivering advertising that is ever more targeted and relevant to the specific audience.
By 2013, the combination of these three change dimensions will give rise to a much more fragmented E&M landscape than today’s, characterized by a wide divergence of revenue models aimed at exploiting the digital opportunity. Traditional, long-established revenue models in segments such as TV and magazines will be replaced by more targeted and tailored models that will differ widely within and across segments and geographies.
E&M companies will have to commit themselves to participating actively in this industry-wide shift, or risk suffering lower growth than their competitors and ultimately possible extinction. As we said at the beginning of this article, they will have no place to hide from the remorseless digital advance.