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Media Predictions
2010
Jolyon Barker
Global Industry Leader TMT
Mexico, March 2010
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 2 Predictions, 2010 - A focus on the media sector
Deloitte TMT Predictions 2010
• TMT Predictions provide an in-depth look at the emerging issues that will impact the
Technology, Media & Telecommunications sectors in the coming year
• Whilst we cannot be 100% right all of the time; we have a good track record of
success. This is our 9th year of Predictions. Amongst the 2009 forecasts were: the
popularity of 3D cinema; the rise of the netbook and the threats to network capacity
by increasing demand for mobile broadband.
• We are providing a point of view – but we’re only asking that you consider this – we
do not demand that you agree with us
• Why are we doing this - we are not a firm content just to be functional experts – we
think it’s essential to understand the business that we’re in as that’s what our clients
need us to do
• So what does 2010 hold, and what will that mean for those in the Technology, Media
and Telecoms sectors?
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 3 Predictions, 2010 - A focus on the media sector
Media Predictions 2010
• Linear’s got legs: the television and radio schedule stays supreme
• TV and the Web belong together, but not necessarily on the same screen
• eReaders fill a niche, but eBooks fly off the (virtual) shelves
• Publishing fights back: pay walls and micropayments
• The shift to online advertising: more selective, but the trend continues
• Music as a service rises up the charts
• Video-on-demand takes off - thanks to the vending machine
• One step back, two steps forward for 3D TV
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 4 Predictions, 2010 - A focus on the media sector
Media Predictions 2010
Linear’s got legs: the television and radio schedule stays supreme
TV and the Web belong together, but not necessarily on the same screen
eReaders fill a niche, but eBooks fly off the (virtual) shelves
Publishing fights back: pay walls and micropayments
The shift to online advertising: more selective, but the trend continues
Music as a service rises up the charts
Video-on-demand takes off - thanks to the vending machine
One step back, two steps forward for 3D TV
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 5 Predictions, 2010 - A focus on the media sector
Linear’s got legs: the television and radio schedule stays supreme
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Linear’s got legs: the television and radio schedule stays
supreme
In 2010 more than 90% of all television watched and over 80% of all audio
content consumed will be broadcast.
Linear will prevail despite the following technologies:
• Personal video recorders (PVRs)
• Pay-per-view
• On-demand television
• Podcasts
• On-line music services
This is counter to many predictions foretelling the imminent demise
of schedulers,
disk jockeys and broadcasters.
Predictions, 2010 - A focus on the media sector
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Linear’s got legs: the television and radio schedule stays
supreme
For the mass market, the vast majority of content consumed is likely to be linear:
The supremacy of linear is likely to be due to one key factor:
Ease of use (inertia)
Linear's lead may well extend in 2010: the causes could be:
• The purchase of a new piece of television equipment (PVR, HD TV);
• The commencement of a new service (high definition, new movies channel);
• The availability of on-demand. It can increase the overall demand for scheduled
programming;
• Failure of high profile online video sites. They could result from the inability to make
advertising-funded online video pay;
• The introduction of charging for previously free non-linear services.
Television weekly consumption
• Linear: 20-30 hours
• Non-linear: 90 minutes to 2 hours
Radio weekly consumption
• Linear: 20 hours
• Radio is likely to remain more popular than Internet usage, and in some countries the majority of citizens are not expected to listen to pre-recorded music on any given day.
Predictions, 2010 - A focus on the media sector
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Linear’s got legs: the television and radio schedule stays
supreme
Misinterpretation of market data:
In 2010 many surveys of media consumption are likely to report self-reported data, where
respondents tend to reflect their idealized selves:
• Over-emphasized documentaries and news
• Under-stated viewing of traditional media
• Inflated usage of new media and devices
• Some linear consumption overlooked.
Comparisons maybe non-equivalent:
• Non-linear consumption may appear greater, as the numbers reported are larger;
• Like-for-like comparison in viewing hours would show the contrary.
• Broadcast is measured by viewers
• Online video metrics include page impressions, page views, unique users and requests.
Little distinction is made between a clip and a program.
In 2010 most consumers of content will likely remain beholden to the schedule, and with
hundreds of million of people spending 40% of their waking hours listening to television or
radio, linear is likely to remain dominant for many years to come.
Predictions, 2010 - A focus on the media sector
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 9
Deloitte bottom line
The broadcast industry and the equipment manufacturers should:
• Bear in mind that consumers not always take up the options offered to them by
advances in technologies;
• Remember that the behaviors of early adopters do not always become
mainstream;
• Realize that consumers appear quite content to purchase devices and subscribe
to services which they then hardly ever use;
• Offer greater choice via non-linear, as long as monetization is focused more on the
option to choose;
• Consider that the scheduler and the content timetabled are a fundamental
component of the social fabric in many societies.
Linear’s got legs: the television and radio schedule stays
supreme
Predictions, 2010 - A focus on the media sector
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TV and the Web belong together, but not necessary on the same screen
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
In 2010 we will see intensified efforts to converge the Web and TV. By year-end 30% of
broadband enabled households are likely to interact with what they are watching on
television via a form of computing device.
• Some web-based applications that will become accessible via the TV screen are: Social
networks, weather information, content streaming services.
• The range of internet-enabled televisions and set-top boxes is likely to increase.
• The penetration of ancillary Web-connected devices will rise (games consoles and media
players).
• The most popular approach to converged Web and television consumption is: the
combination of existing television sets and standalone browser-enabled devices.
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TV and the Web belong together, but not necessary on the
same screen
Predictions, 2010 - A focus on the media sector
OR OR OR+
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
Until now:
• Content optimized for PCs does not display well on television;
• Content created with the assumption of a keyboard and mouse has proved hard to manipulate via standard remote controls;
• Few televisions are Internet connected.
But in 2010:
• Websites are being built specifically for access via televisions;
• Websites are being built specifically for control via televisions;
• A growing range of next generation televisions are being launched (integrated broadband + TV widgets), PVRs and game consoles have Internet access.
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TV and the Web belong together, but not necessary on the
same screen
Predictions, 2010 - A focus on the media sector
Little progress has been made so far in getting Web-based content onto televisions:
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 13
TV and the Web belong together, but not necessary on the
same screen
Predictions, 2010 - A focus on the media sector
Part of the reason for the triumph of the pragmatic approach is the mismatch between the
consumer desire for concurrent consumption of the Internet and television integration, and
the typical ten-year renewal cycle for televisions.
But people want to combine the Web and TV today:
Also, superimposing a Web application on top of a TV image may block the view of the
image, and sharing commentary on a program with others in the room may not be very
appealing.
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Deloitte bottom line
• The main agents of the fusion of television and the Web are likely to be the user, the
content provider, and advertisers rather then a integrated device.
• Internet enabling of televisions is likely to create value.
• Functionality, from catch-up via a big screen to remote software upgrades, is likely to
be valued.
• One of the major beneficiaries of increased simultaneous usage of the Web and
television may be advertising:
− In 2010, global television advertising is expected to be worth $180 billion, and
global online advertising is projected at $63 billion.
− Commercials viewed on television can direct viewers instantly to websites.
Online and television together could result in 47% more positivity about a brand
than using either in isolation.
− Television producers should create websites that not only support programming,
but also feed off viewers’ eagerness to react to what they are watching.
TV and the Web belong together, but not necessary on the
same screen
Predictions, 2010 - A focus on the media sector
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The shift to online advertising: more selective, but the trend continues
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Online advertising spending share will grow from 10% at the end of 2009 to 15% by the end
of 2011.
Two lines of opinion:
• Forecast of a continuing shift to online (not impartial);
• Forecast that the online share gains of the last 5 years are about to slow, halt or even
reverse.
Year-over-year online advertising revenues have fallen in each of the first 3 quarters
of 2009. But:
• Even though online growth was negative, it continues to gain share (online fell 5%, a
smaller decline than almost any other advertising category);
• The overall online figure was negative, but that weakness was largely caused by areas
other than search and video; search grew by almost 7% for the first three quarters of
2009: its relative growth rate widened even during the recession.
Predictions, 2010 - A focus on the media sector
There is a possibility that the recession has not slowed the growth of online share, but
accelerated it.
The shift to online advertising: more selective, but the trend
continues
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The shift to online advertising: more selective, but the trend
continues
Analysts expect advertising spending to grow about 2% in 2010
Advertising buyers believe that:
• Online spending of “more bang for the buck”
• Online is currently too small a portion of their spending
• Online is the only solution that allows advertisers to measure the effectiveness of their
spending
• The gains in online seen in the past five years will in fact gather speed in the next five.
Predictions, 2010 - A focus on the media sector
Any category of advertising that allows for measurement of spending effectiveness is
likely to be relatively successful.
Online categories with the greatest growth
• Search
• Click
• Social network
• CPA (cost per action)
Traditional media losing share to online
• Less affected: Broadcast, Specialty TV/cable
• Affected: Radio, Outdoor
• More affected: Papers, Magazines
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Deloitte bottom line
There are two possible scenarios:
1. Online advertising continues to gain share in 2010 and beyond. The media
and advertising industry should carry on doing what worked in the last five years
2. Online advertising becomes a disruptive technology: online takes market
share from existing players, lowers prices and causes the market to contract.
Industry players should:
• Plan for a possible sharp and permanent reduction in revenues and margins;
• Consolidate, control cost even more aggressively and seek new business
models;
Traditional media companies should:
• Explore tactics that will allow them to bridge a period of continuing advertising
market share losses;
• Restrain cost growth lest EBITDA margins be further compressed;
• Embark on a two track strategy: 1) developing an earning-positive online
platform that supports their traditional business; 2) embracing tools, technology
and a new business model that matches the “perceived” advantages of online.
Creative companies should:
• Charge on the basis of results, not budgets.
The shift to online advertising: more selective, but the trend
continues
Predictions, 2010 - A focus on the media sector
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Music as a service rises up the charts
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
In 2010 subscription music services should finally start to thrive – the number of paying
subscribers should exceed 10 million for the first time.
The growth in subscription music services is likely to be because of greater levels of
functionality, and becoming accessible via more platforms:
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Music as a service rises up the charts
Predictions, 2010 - A focus on the media sector
Total revenues 2010
Subscription music services –
$100 million
CDs global sales -$14.4 billion
Digital downloads -$ 6 billion
More useful More used More valued
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
• Online and offline access via portable media devices:
− Extension of the service to portable devices – in particular the smartphone
− Enabling the music service to follow its owner blends ease-of-use, choice and
portability.
• More accommodating approach to licensing from industry players:
− Music services may be offered licensing deals similar to those offered to radio stations
(rather than on a per track basis).
• A greater number of subscription music services:
− New major new music services are expected to launch (pure-plays and technology or
media companies diversifying their revenue streams).
This would result in a service that blends the best elements of radio, music video, CD and
MP3 players, while exploiting the different capabilities of the devices used to access the
service.
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Music as a service rises up the charts
Predictions, 2010 - A focus on the media sector
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.
New features by end of 2010
To push users towards premium tiers, free services may be downgraded:
• Limited number of tracks per day
• Advertisements attached to free tracks played at higher volumes.
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Music as a service rises up the charts
Predictions, 2010 - A focus on the media sector
• Live recordings or tracks from televised talent showsExclusive material
• Narrated by the individualCelebrity top 10 lists
• Documentaries or interviews to put the music into perspective
Search functionality
• For tracks currently playingClick-to-purchase
Variable streaming quality
Expert + algorithm-generated recommendations
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 23
Deloitte bottom line
Premium subscription music services should be regarded as complementary and
positive, a means of arresting the decline in recorded music revenues.
The music industry should note that:
• The annual revenue per music subscriber is up to $180, higher than that of a
heavy CD buyer;
• Subscription services could convert music freeloaders to consumers;
• The success of premium music services will depend on positioning (added value,
not money saved);
• The offer of complete catalogues is likely to be critical, but all services may suffer
some omissions;
• Music services are likely to be selected on the basis of their momentum;
• The content should be manageable to be useful (music to be more like radio to
show off the choice available)
• CD revenue falls should be managed without undue sentiment or haste, although
in decline, it is still likely to generate billions of dollars in revenue for several years.
Music as a service rises up the charts
Predictions, 2010 - A focus on the media sector
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Video-on-demand takes off - thanks to the vending machine
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Video-on-demand takes off - thanks to the vending machine
2010 should see strong growth for video-on-demand (VOD), with the vending machine
driving this growth.
At some point in the future, the Web should become the most efficient means of distributing
long-for content, but in 2010, the vending machine focus is likely to be the principal driver
for self-service long-form VOD.
Predictions, 2010 - A focus on the media sector
By year end 2010:
Estimated 30,000 vending machines deployed in the
U.S. alone
Each machine holding up to 700 units
Each machine generating up to $50,000 a year
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 26
Video-on-demand takes off - thanks to the vending machine
By year-end 2009, the most commercially successful approach to self-service long-form
video distribution was a hybrid of Web-based self-selection and postal delivery. In the U.S.
in 2009, over 2million DVDs were mailed daily to over 11 million subscribers.
Predictions, 2010 - A focus on the media sector
+
Key drivers for the success of the DVD vending machine:
• Price: $1 per night
• Ease-of-use: Familiarity and accessibility
• Immediacy of the delivery: at the push of a few buttons
Challenges of the vending machine model in 2010:
• Restricted access to DVDs
• Launch of lower-cost DVD rental plans or comparably-priced pay television bundles
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C. 27
Deloitte bottom line
Content owners should:
• Determine whether low-cost rentals are the cause of revenue declines or simply
coincidental;
• Consider how low-cost rental vending machines could drive complementary
revenue streams (ability to purchase the DVD outright, vending machines
specialized in new-release DVDs, new releases rented at a higher price in the first
week or two weeks after release.
Content distributers should:
• Keep a close watch on the progress of network-delivered VOD (the volume of
Internet-connected PCs and ubiquity of sufficiently fast download speed, should
one day permit network-delivered full-length video);
• Note that file sizes are also expected to grow (DVD – 9 GB, HD DVD 25GB).
The content industry should:
• Note the different motivations for companies wanting DVD rental machines on their
premises: generate rental income from third party vending machine distributors;
generate additional revenues from their consumers; increase overall footfall and
frequency of customer visits, with DVDs rented at cost or even less.
Video-on-demand takes off - thanks to the vending machine
Predictions, 2010 - A focus on the media sector
©2010 Galaz, Yamazaki, Ruiz Urquiza, S.C.