Accenture Media and Entertainment
Beyond the Hype: How New Content and Technology are Redefining the Future of Media Accenture’s Global Content Study 2007
Accenture’s Global Content Study 2007 surveyed more than 100 leaders and decision-makers in the media and entertainment sectors, including television, film, music, radio, video games, publishing, interactive entertainment and advertising. The study solicited opinions from executives around the globe — across North America, Europe and AsiaPacific — to gauge their views of where the greatest opportunities and challenges will come over the next five years. Key findings include: • 62% of executives look to “new platforms” as being the most important key to growth, followed by 31% “new content” and 7% “geographic expansion” as the key growth lever.
Executive Summary
• Of these new platforms, online and mobile dominated; a combined 43% viewed online as most important (of which 17% represented a distribution of content through online portals or entertainment/information sites, and a further 13% through social networking sites and 13% through eCommerce sites), while mobile drew 17% of responses. • 53% of executives surveyed indicated that “short form content” offered the largest opportunity for “new content,” with “long form” or “full length” video content (greater than 60 minutes) garnering 11% of responses. In addition, “video gaming” was viewed as a key growth area, according to 13% of executives. • Asked what they believed was a top threat to the business, over half of the executives (57%) identified “consumer-based competition” or “user-generated” content; 46% of respondents viewed “piracy or IP theft” as a top three issue.
• However, despite the perceived threat, 68% of respondents believe that they will be able to harness user-generated content to create revenue within one to three years. • Nearly 80% of those surveyed believed that there was no bubble in the Web 2.0 space, with 70% of respondents also observing that social media was a natural, “evolutionary” progression for media (versus 25% calling social media “revolutionary” and 5% calling it “a fad”.) As a reflection of this upbeat perception, over 90% of the executives said that their companies would become involved in social media over the next 12 months. •Half of executives indicated that advertising could grow to become the most prevalent business model in the industry within five years, with digital advertising driving growth. • Content remains king (according to 37% of respondents), although the crown is under attack by technology companies (26%) and telecommunications players (9%). • Critically important is the need for digital readiness and a future technology road map. Only by transforming their organization and capabilities can media and entertainment expect to maximize the opportunity that digital offers. This includes increasing reach (through multi-platform distribution), engagement (through social media and interactivity) and monetization (through digital advertising). See “Implications” section for more detail.
The end of the year brought with it new tidings for the British Royal Family. For the first time in its majestic history, Queen Elizabeth II delivered her traditional holiday greetings in a simulcast over the internet. Not since the broadcast was first televised in 1957 — and before that, the jump from print to radio in 1932 — has the monarchy stepped so decisively into the media of its generation. While the Royal Family has often been viewed as an institution bound by tradition and history, the move to communicate its messages over IP audio and video signalled something much larger than simply an experiment in new media; it demonstrated the power of the people consuming the message. As the audience for content shifts ever more online, so too must the content creators. And now this same audience demands content any time, any place and any how – on demand, on the go and on its terms.
So while the aphorism “content is king” has long been held in the media, what we are witnessing today is a shift in the balance of power. For the second year, Accenture has commissioned global research into the changes, challenges and opportunities for players in media and adjunct industries. And while the research shows that content indeed remains king, it also illuminates the fundamental shift in the structure and stability of this self-proclaimed “monarchy.”
The following pages reveal the findings of Accenture’s Global Content Study 2007, which surveyed more than one hundred global, C-level executives in media and entertainment as they give insight into the trends of the industry, in order to forecast the winners and the losers, the prizes and the pitfalls. Beyond the hype, this study presents Accenture’s point of view, along with the words of the leaders who will shape the future of the media and entertainment industry.
Methodology Now in its sophomore year, Accenture’s Global Content Study 2007 has quickly established itself as a touchstone of thought leadership in the media and entertainment industry. This year, Accenture surveyed more than100 leaders in the content space, including C-level executives from companies such as CBS, WPP, News Corporation, Fox, the BBC, Reuters, EMAP, the Walt Disney Company, EMI, Sony, Universal, Time Warner, Sky, Electronic Arts, McCann Erickson, Pearson, Ogilvy, Google, Virgin Media, McGraw Hill, Axel Springer and many more.
The executives surveyed represent some of the most important media and entertainment sectors, including television, film, music, radio, video games, publishing, interactive entertainment and advertising. The study solicited opinions from around the globe, spanning North America, Europe and Asia-Pacific regions.
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Accenture asked these powerful decision-makers where the greatest opportunities and challenges will come from in the sector over the next five years. Crucially, we asked them their opinions on how key market trends will affect their ability to distribute and monetize their content, as well as who is best positioned to succeed, as new competitors enter the market. Along the way, these executives shared with us their hopes and fears for an uncertain
future, including the impact of social media, user-generated content, mobile entertainment and the emergence of new business models. The following summary presents some of the key findings from our study, as well as highlighting the implications for media, technology and communications companies operating in this dynamic and evolving sector.
The Revolution Will Be Televised “Technology will continue to alter the distribution landscape, allowing people to access content on their own schedule, wherever they are, in all kinds of ways. Current technologically-driven distribution channels will expand and new ones will open. But without compelling content, every new platform is an empty shell. Companies that can combine world-class content with powerful national and local distribution will have the competitive advantage.” Leslie Moonves, President and CEO of CBS Corporation
What will drive revenue growth in the next five years? New Platforms/Ways of Delivery
New Content
New Geographic Markets
Change since 2006 study
62%
+11%
7%
2007 -5%
With the media industry evolving at internet speed, it seems forward motion is everything. Executives are looking for the “new, new thing,” and underpinning all their hopes is the need for growth. This is a powerful motivator, so we asked our respondents what they believed would be the engine of growth for the industry over the next five years. As with last year’s results, executives are looking to “new platforms” as being the most important key to growth. Of the respondents, 62% believe this to be true, and it includes platforms such as online and mobile. Although clearly a leading choice, it is down from last year, when 67% of executives believed that new ways of delivering content would drive the most growth.
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The category that has changed the most in the last year has been “new content” as a key growth driver. While last year’s results saw only 21% of respondents choosing new content, this year, 32% of executives selected this option as the second most important category. Much of this change can be attributed to the emergence of user-generated content, as well as short-form content. Furthermore, media executives are looking more than ever at the opportunity in franchised TV shows and films, as well as the upsurge in game releases as next-generation video gaming consoles gain traction in the marketplace.
32%
-5%
Although overseas expansion has long been a cash cow for extending content releases — for example, foreign receipts now account for over half of theatrical box office receipts — growth through “new geographic markets” was yet again the least favored option of respondents. Part of this can be accounted for by the sheer excitement and speed of growth in the other categories, as well as the relative difficulty many content owners have experienced in opening new markets, in particular China and India. This is due to a number of reasons, including the continued issue of piracy, as well as cultural and macro economic trends. Given the optimism about new ways of delivering content, we asked the executives which platforms were best positioned to leverage this growth. As a combined option, “online” garnered 43% of respondents’ votes, of which 17%
“This is just the beginning for a rapidly changing landscape where the media content environment grows more fractious and the user gains more control and power. Traditional, established content providers will have to adapt and develop new business and monetization models in order to keep revenue streams flowing. The key to success will be identifying new forms of content that can complement their traditional strengths.” Gavin Mann, digital media lead for Accenture’s Media & Entertainment practice
Which distribution channel offers the highest growth opportunities? TV Mobile/Wireless Online (Portals, Info, Ent)
Online (eCommerce) Online (Social Networking) IPTV
Retail (Offline) Radio Print
+1% +3%
Change since 2006 study +2% +4%
+2%
17%
13%
13%
+3%
2007 19%
17%
represented a distribution of content through online portals or entertainment/information sites. Interestingly, a further 13% of the 43% specified growth through social networking sites, reflecting the increased interest executives are showing for sites that allow the user-controlled sharing and creation of content. The second leading platform, with 19% of respondents, is “television.” As one of the primary vehicles for media consumption today (approximately half of time spent on media is television-related) as well as one of the largest sectors (at over $350 billion in revenues worldwide), the fact that television is seen as a leader is not remarkable in the traditional world of media. However, what is driving television as a platform of choice is the increasing merging of the television set with computing and networking capabilities.
-16%
One of the key developments in 2007– 2008 is the release of products and services that are powering television’s reach. These include the launch of Apple’s iTV, which enables a viewer to wirelessly link the TV set to the company’s iTunes store, where they are offered a panoply of content for download, on demand — from TV episodes, to video podcasts, through to full length feature films. The key to these services is the ability to enjoy content in a multiplatform environment. Another headline-grabbing launch is Joost, a new offering from the team that first changed the game for digital content distribution with Kazaa, and then upended the business model for voice services with Skype. The Joost service distributes video content using peer-topeer technology, as well as a channelbased user interface, which replicates
9%
4% 4% 4%
the format TV viewers are used to manipulating. In addition, the viewing is complemented by communications tools such as instant-messaging. From a content perspective, Joost has struck deals with some of the biggest names in media, including CBS, MTV and Paramount. Copyright owners are compensated both from licensing and a revenue-share agreement, based on advertising dollars. Due to its use of the internet for distribution, Joost has the opportunity to establish itself as a truly global broadcaster with capabilities that will increase exponentially as its peerto-peer technology harnesses the network effect.
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“I think there will be a fundamental shift in the way that people consume content. They will be looking to consume content on their terms, and in forms and shapes and platforms that suit their needs. I think this will take a long time and that different parts of the population, or social groups, will move at very different speeds.” Richard Halton, Controller of Business Strategy for the BBC
Online distribution of TV shows is more of an opportunity than a threat Strongly disagree
6%
12%
Disagree
12%
Of the executives we surveyed, 70% agreed that online distribution of TV shows is more of an opportunity than a threat, given its ability to extend the reach of its programming to a much wider audience at a relatively low cost compared to traditional broadcasting or physical distribution. In addition, telecommunications companies continue their aggressive investment into internet protocol (“IPTV”) services, which utilize high-speed fiber optic networks and set-top boxes to deliver high-definition and interactive video content to their millions of subscribers. Of the respondents, 9% believed IPTV to be a leading platform.
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Don’t know
Agree
Strongly agree
58%
The strategy the telco players are pursuing is putting them into a head-to-head battle with cable and satellite companies as they compete to lock customers in to bundled service packages, which include phone (fixed and mobile) as well as internet service provision. As part of these so-called “quad play” bundles, mobile services are becoming a must-have for all operators. Much of this is driven by an expectation that commoditized voice minutes will need to be complemented by high-value, sticky content. This is why “mobile” is viewed as one of the most important platforms for content, with 17% of our respondents (up from 15% last year)
12%
selecting it as a leading option. Wireless operators around the world — from SK Telecom in Korea, to Vodafone in the UK and Verizon in the US — continue to innovate the entertainment available to their subscribers on the go, including live, streaming TV, on-demand games and music. The mobile platform is opening up the possibility of increased media consumption, as viewers can now acquire content at times and places they had previously been unable to access it.
"I think digitalization of distribution channels is the most important change. Piracy, copyright issues, and possible higher cost for licenses are the three consequences.” Andreas Beretzky, Executive VP Production and Engineering, ZDF Mainz
Timeframe to see mobile-rich media mass market uptake in each market Less Less than than 11 year year
1–3 1–3 years years
3–5 3–5 years years
More More than than 55 years years
Change Change since since 2006 2006 study study No No change change
50% 50%
+3% +3%
7% 7%
2007 2007 6%
Despite the optimism for mobile and IPTV platforms, executives still believe that it will be some time before either reaches critical mass in terms of consumer uptake. For mobile-rich media, 50% of respondents believe it will reach mass market within one to three years, which is a slight decrease from last year’s survey. This potentially reflects the challenges operators and content owners have faced in driving uptake of mobile media over the past year. Barriers identified by our respondents include consumer readiness (32% of respondents), network readiness (25% of respondents) and the availability of media-optimized handsets (15% of respondents).
-2%
In addition, the majority of executives surveyed believe that IPTV (defined here as internet protocol TV delivered via set-top box) will take at least three to five years to gain traction in the mass market. This illuminates the enormous amount of investment and implementation that must be undertaken before a fully-realized IPTV service is rolled out nationwide. In addition, content owners will also need to customize and create content which leverages the unique attributes of the platform, including on-demand, interactivity and personalization.
37%
-1%
Despite these challenges, one of the biggest opportunities will be for companies to integrate all the different channels of video content delivery to provide a seamless, multi-platform digital ecosystem which firmly puts the user in the center of the experience. Once companies harness this, the consumer will truly be able to realize the promise of rich digital media any time, any place and any how. Once this happens, we can be sure that the revolution really will be televised.
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Power to the People “We will look to the user side and learn from the YouTubes and the MySpaces who are training consumers in media usage. We will look at their experience and leverage it.” Executive, Reed Publishing
Which content types offer the highest growth opportunities over the next five years? Business Publishing Consumer Publishing Music & Radio Videogames Full Length Video Short Form Video
4%
9%
11%
13%
The average, modern “couch potato” consumes around 3,500 hours of media per year, of which about 50% is TV, 25% radio and the remainder includes publishing, music, film and video gaming. What does this mean for the media and entertainment executive looking for growth? In terms of revenue driver, 32% of our survey’s respondents indicated that “new content” was the most important lever. Looking at the content sub-sectors, it is clear which is the leader in sheer market size — worldwide revenues for publishing are approximately $800 billion today, followed by television at $350 billion, film at $90 billion, radio at $75 billion, music at $40 billion and video games around $35 billion.
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11%
However, projected growth rates for each sub-sector differ extensively, with publishing relatively mature at 3% CAGR (2006-2010), while radio, television, film and music are projected to grow modestly at 4-6% CAGR in the same period. Much of the growth is expected to be driven by more nascent content types, such as online and video game content, while in absolute value terms, publishing and television content are still at the forefront. Market size projections aside, however, we asked our respondents what content area most excited them for the next five years. Interestingly, it seems that content types that most leveraged new platforms are the genres that hold the most
53%
promise. An overwhelming 53% of executives surveyed indicated that “short form content” offered the largest opportunity. “Short form” is defined as content from a few seconds long, to a standard thirty- to sixty- minute television episode. Much of this optimism has been generated due to the success of short form content online at sites such as YouTube, Revver or Veoh. “Long form” or “full length” video content (greater than 60 minutes) garnered 11% of responses. In addition, another video-based format, “video gaming,” was viewed as a key growth area according to 13% of executives.
What is the number one threat to your business today? Macroeconomic Cross-sector competition (e.g. portals, telcos) Intra-sector competition (e.g. other studios in the film seg) Consumer-based competition (e.g. rise of user-generated cont)
39%
Structural (e.g. government, economy, legislative, demograph)) Overseas (companies/investments/products) Other
30%
12%
15%
1% 3%
Microeconomic Technological changes Price decreasing/pressure Production/distribution/marketing costs increasing
28%
One of the more interesting perspectives around the potential in short form video is how much of this content is usergenerated versus professionally created. A lot of recent press and deal activity has been around user-generated content and, as a media category, it is relatively new and unproven. Indeed, when we asked the executives what they believed was a top threat to the business, over half of the respondents (57%) identified “consumer-based competition” as one of the top three threats to their business.
Piracy or IP theft Stagnation of media consumption Other
24%
14%
This response is due, in part, to the perception that consumer-based competition is also behind issues such as piracy — indeed, 46% of respondents viewed “piracy or IP theft” as a top three microeconomic issue. However, a larger driver behind the view that usergenerated content may be a threat is that professional content owners — such as film studios or music labels — have relatively little control over the material, unless they also own the distribution platform. In addition, by ceding control to users, professional content owners also remove some of their ability to exercise editorial oversight, as well as to monetize the content.
24%
10%
1%
However, despite the perceived threat of consumer control over content, 68% of respondents believe that they will be able to harness user-generated content to create revenue within one to three years. Much of this optimism is due to the success that leading companies such as MySpace and YouTube have had in monetizing their user-generated content. As content companies look to realize value from user-generated content, they will need to master new, emerging business models, including digital advertising.
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“Is user-generated content entertaining to others? Does it inform? Does it make the viewer laugh or cry? One of the things I think amateur usergenerated content is most likely to do is to generate new respect for the outstanding creative professionals in our industry, who can tell a truly great story.” Henry Schleiff, CEO, Hallmark Channel
On what time frame do you see yourself making money from user-generated content? Less than 1 year
1–3 years
3–5 years
26%
Furthermore, content owners are coming to the realization that user-generated content — and the wider Web 2.0 phenomenon — is here to stay. Nearly 80% of those surveyed believed that there was no bubble in the Web 2.0 space, while 70% of respondents also observed that social media was a natural, “evolutionary” progression for media (versus 25% who called social media “revolutionary” and only 5% who called it “a fad”). As a reflection of this upbeat perception, over 90% of the executives said that their companies would become involved in social media over the next 12 months.
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More than 5 years
42%
A key takeaway from these findings is that the new strain of content, in which users are seizing more control, is not going away, and that rather than resist it, it is incumbent upon media players to deliver on consumer expectation, while aggressively monetizing and protecting their assets. Piracy will always be an issue in the industry (87% of our respondents believed this to be the case), therefore companies must ensure that they have adequate Digital Rights Management (DRM) and Digital Asset Management (DAM) systems and capabilities in place.
20%
9%
At the same time, they recognize that intrusive restrictions can negatively impact the reach of content, as well as potentially damage the brand of the company, as key media players have witnessed over the past year. How to balance the need for leveraging content to wider audiences versus protecting their assets is a key question for media executives, to which there is no industry-wide answer.
“The rise of user-generated content — and its integration with more traditional content — is one of the most exciting developments to watch in today's media space. Content produced by communities of users has become an undeniable force. Advertisers will need to rethink how they can effectively tap into these trends, and use it to build strong relationships with their consumers, even if that means giving users more control over the way in which their brands are conveyed.” Professor Anita Elberse, Harvard Business School
How will your company become involved in social media over the next 12 months? Organic
JV
Acquire
No Plan
49%
28%
15%
8%
What is clear, however, is that this new “vox populi” or democracy in media, while throwing out challenges, is also creating a great many opportunities. For one, professional content companies are seeing the benefits of utilizing contentsharing sites as a way to market their content, whether trailers for a studio’s new movie or a music video for a label’s artist. In addition, as companies such as Google or Joost have proven, harnessing user feedback through beta versions of products and services represents an innovative market research opportunity — one which is truly a reflection of consumer needs and tastes.
Ceding control to the “wisdom of crowds” is also showing dividends in the way traditional media companies are complementing their content with userbased input. For example, companies such as Reuters are complementing their professional newswire services with so-called “citizen journalism” stories submitted by non-professionals, whether in text, photo or video. Sites such as The Huffington Post are supplementing their journalists with relevant amateur blogs on breaking news. As professional and amateur content learns to coexist in the new media ecosystem, the industry will bear witness to ever broader content creation and consumption.
In its purest sense, we are witnessing “power to the people.”
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Show Me The Money “The music industry is moving from a sales model to a consumer consumption model or participation model, where its economics are predicated on the use patterns of consumers as opposed to the purchase patterns. In essence the commercial roles of music companies will be more as facilitators for bringing music and the rights that support them into the marketplace, as opposed to being originators of the content itself.” Roger Faxon, CEO of EMI Music Publishing
Survey Response
40%
20%
0% 0%
5–10%
10–25%
>25%
% of Revenues from Digital
As the archetypal Hollywood agent in the movie Jerry Maguire, the character played by Tom Cruise at one point reminds a colleague that “it’s not show friends, it’s show business.” It is a mantra worth remembering, especially as those in the media industry struggle to cope with the rapidly changing environment, because ultimately the bottom line must be served and money must be made. To that end, we asked the executives how much of their revenues they expected would be made from the brave new world of digital media, whether leveraging user-generated content or distributing content to new platforms. The findings are that the majority of those surveyed believed that 5-10% of their total revenues would be derived
from digital consumption by the end of 2007. “Digital consumption” is defined in this instance as digitized media, distributed over non-traditional platforms (such as online or mobile), and typically non-linear in fashion (i.e. not scheduled programming, but on-demand content, whether streamed or downloaded). This figure is potentially optimistic, considering how much digital revenue today is a percentage of most companies’ income statement. However, it does reveal a very positive outlook for digital opportunities, as well as reflect the fact that certain executives surveyed represent companies where the entire revenue stream is digital, such as social media enterprises or online video game companies.
More importantly, however, is how executives expect to make these revenues in the future. Traditionally, media revenues have been split approximately 65% in end-user spending, with 35% of revenues from advertising. “End user spending” is defined as either subscription-based or transactional per unit (for example, buying a newspaper off the rack or a music CD from a store). However, in our survey, respondents indicated that advertising could grow to become the most prevalent business model in the industry within five years — 50% of those surveyed selected this option. These results show a marked difference from the prior year’s survey, when only 38% of respondents saw advertising as a leading revenue stream.
Accenture’s Global Content Study 13
“Digital and advertising agencies will no longer be separate. They will come together. Technology will speed up the industry — it will become more fragmented, more targeted, more reactive. It will also enable small agencies to become more successful — you won’t need scale in the same way.” Executive, M&C Saatchi
What do you believe will be the most prevalent consumer business models in your sector in five years? Ad-supported/sponsorhip Ad-supported/sponsorhip
Subscription Subscription
Pay-per-play/à la la carte/per carte/per unit unit Pay-per-play/à
Other Other
Change since since 2006 2006 study study Change +12% +12%
26% 26%
23% 23%
1% 1%
2007 2007 50%
These findings are illustrative of what has been a remarkable 12 months for the advertising industry. Much of the increased interest in this form of business model has been the strong traction that digital advertising has experienced, particularly in online. At the forefront of this trend has been the success of search-based advertising on the internet, which is rapidly being complemented by video-based brand advertising. The promise of this digital revenue format has been buoyed by major deals in the online space, including acquisitions such as Google and DoubleClick, Microsoft and aQuantive, Yahoo! and Right Media, Publicis and Digitas and WPP with 24/7 Real Media. It is this tipping point in advertising which is expected to lead to as much as $30 billion of online advertising revenues within 12 months.
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-6%
And while there is much promise in digital advertising — not least in its ability to offer targeted, personalized, measurable campaigns — there is also the sense that technology players could dominate this emerging space. This has led to a fear among traditional advertising executives that their traditional capabilities and skill sets could be rendered redundant. Sir Martin Sorrell, chief executive of WPP and a respondent to this survey, even went so far as to label certain internet advertising providers as “frenemies” to traditional agencies. By labeling them thus, he is articulating that technology is both “friend” and “enemy” to those who operate in the traditional media world.
-3%
-3%
It is true that Madison Avenue needs to maintain relevancy, although technology companies are less a threat to the traditional account management and creative competencies. However, media planning groups within agencies will need to adapt, particularly in the areas of data mining and analytics. Regarding analytics, one of the major benefits of digital advertising is its measurability, which allows advertisers to track impact and Return On Investment (ROI) for their spending. As such, expect to see a shift in the way digital advertising is priced. While 39% of our respondents said that Cost Per Thousand (CPM) pricing would remain dominant, a combined 33% believe that Cost Per Transaction (CPT) and Cost Per Action (CPA) pricing would be more important. Both CPT and CPA models
What will be the most relevant digital advertising business model for your industry segment during the next five years? Other Exposure Time Revenue Sharing (e.g. offline sales lift) Cost-Per-Click (CPC) Cost-Per-Transaction/ Cost-Per Action (CPA) Cost Per 1000 Impressions (CPM)
2%
9%
17%
12%
21%
39%
Where will you spend your digital advertising budget? In-Game Advertising Other Mobile Advertising VoD Advertising Social Networking Sites User-Generated Content Mainstream Media Portals
8% 10%
25%
29%
tie pricing to accountability in a way that CPM and more traditional offline advertising measurements, such as Gross Rating Points (GRP), have never been able to do. Furthermore, it is important to understand where advertising dollars will be spent online, so that brands can ensure they are reaching their audience and publishers can provide the optimal content mix to attract the eyeballs. To this end, 86% of respondents believe “mainstream media portals” are one of the top three areas on which they will spend the majority of their digital advertising budgets. Additionally 41% and 38% of those interviewed see “user-generated content” and “social networking sites” respectively as the most attractive area for online advertising budgets. Emerging
38%
41%
platforms — such as mobile and video gaming — while in their sights, are still viewed as relatively nascent areas for advertising spend. Even when the optimal content site or platform is established for each company’s campaign, other questions remain — for example, whether short form video content is best suited to pre-roll, mid-roll or post-roll advertising, or whether the traditional ratios of 15 minutes of advertising to one hour of programming remain the same online. Once more, only experimentation will yield the answers.
86%
Whether technology companies are “frenemy” or not, media and advertising players must adapt to the new reality, both iterating and hybridizing their existing business models. As advertisers and media publishers run to keep up with a fluid environment — from blogs to podcasts and RSS feeds — what is clear is that there is no silver bullet solution. Only by innovating the way they do business, can media companies expect to achieve the aggressive opportunities they see in digital. Then, and only then, can advertisers — and consumers — show content owners the money.
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The Battle Lines Are Drawn “Technological change and the consolidation of digital and non-digital business models will have a dramatic impact on the media and entertainment industry over the next five years. The winners will be those who can probe and analyze the changes and manage and merge on-line and the off-line models most successfully." Sir Martin Sorrell, chief executive of WPP
Which sector along the media value chain is best positioned to take advantage of growth in content opportunities? Professional Content Owners Software/Internet Companies Amateur Content Owners
Telcos Advertisers Cable/Satellite Companies
Hardware Companies Retailers Other
Change since 2006 study 38%
+3%
13%
9%
6%
5% 1%
NEW
-8%
2007 -10%
The media and entertainment industry is one where, as has often been cited, content is king — or, as a studio executive quipped in our interview, “King Content,” referring to the iconic movie ape. Others disagree — consider the academic Marshall McLuhan, who observed in his 1964 treatise Understanding Media, “the medium is the message.” One is left to ponder if content really is king of media. The question is, however, in a market where media, technology and communications companies are converging on the same space, at what point does it become a game of diminishing returns? The world is finite, whether in customers, attention span, leisure time or dollars to spend. As more companies see potential in converged offerings, the danger is that the arms race becomes a zero-sum game.
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26%
Although this scenario is neither certain, nor necessarily imminent, it begs the question as to who is best positioned to take advantage of growth in the media industry — will content remain king, or are there pretenders to the crown? We asked our panel of media executives, and over 38% believed that professional content owners would remain the most important players along the value chain. This feeling was underscored by Leslie Moonves, President and CEO of CBS Corporation, who told us, “Every new platform is an empty shell without compelling content, just as a streambed is worthless until there is water flowing through it.”
NEW
-1%
However, there has been a distinct shift in sentiment since we asked the question last year. First, the percentage believing that professional content rules has dropped by 10%, while the perceived power of technology companies has risen, to 26% of respondents. Second, “amateur content owners” represented 13% of our responses to the question of who was best positioned along the value chain. This demonstrates how the balance of power among content owners has altered, from the traditional leaders in the space — studios and labels — to amateurs wielding ever-greater clout in what is created and what is consumed. This reality is a challenge to the content incumbents, as well as a real opportunity for them to editorialize, distribute and monetize non-traditional, user-generated content on their terms.
“The film industry must adapt quickly to the new rules of the digital world. Digital distribution of content will be increasingly important in three to five years with the convergence of computers, TV and home entertainment options. To succeed in this environment, you need to innovate and anticipate the needs of the consumer, be willing to take risks and try new things.” Doug Neil, SVP Digital, Universal Studios
How far along are you in terms of the migration from an analog, offline company, to a fully digital enterprise (e.g. digital content creation, distribution, consumption)? Not started/NA
4%
Less than 10%
12%
Another impact of the blurring value chain is the possibility of disintermediation. Traditional distributors — such as cable and satellite operators — may face the potential of “IP bypass,” where content creators use digital access over the internet to reach the end user directly, and vice versa. In this situation, content owners will not only gain greater control of their assets, but also retain a larger share of the value, as well as increased visibility of customer data. This can be countered by distributors moving down the value chain, towards content origination, or by offering exclusive content and a differentiated experience, as many cable and satellite operators are doing. Regardless of where they sit in the value chain, one strategy which will enable media companies to stand their ground against new entrants is to ensure that they have the tools to fully leverage the emerging opportunities. As such, it is critical that media companies ensure that they invest in digital capabilities.
10–40%
40–70%
More than 70%
41%
The survey asked executives how far along their companies are in the migration from an offline media company to a fully digital enterprise. The majority — 41% — believe that they are 10% – 40% along the journey of digital transformation. While no one expects all content to be digitally distributed and consumed, there are clearly advantages — not least from a cost and efficiency perspective — to digitizing media assets. In the future, newspapers will still be printed and people will still enjoy building libraries of movies and box sets. However, in order for media companies to maintain the responsiveness and reach for their existing catalogue and future releases, engineering a digital supply chain is paramount. Yet not all of the executives surveyed agreed that their companies were aligned to these needs, despite their importance. In particular, many did not believe that they had robust asset management royalty systems, while nearly a third — 33% — had no clear vision of a future technology road map.
22%
19%
While digital transformation will be key to the future success of media companies, it is not imperative that all assets and capabilities are built from within. Companies should look to partnering with leading solutions and best-of-breed technology vendors, in order to assimilate these competencies. What they may lose in costs will ultimately be gained in speed to market, flexibility and future digital revenues. However, when it comes to digital, companies will have their own idiosyncratic needs and constraints, which will shape the way they approach their technology strategy. Clearly, digital preparedness is all. To paraphrase Sun Tzu from The Art of War, “every battle is won before it is fought.” And as ever more highly capitalized players enter the content space, the battle lines are being drawn to decide the winners and losers.
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Implications – Reach, Engage, Monetize Reviewing the results of Accenture’s Global Content Study 2007, it is clear that the industry is at a vibrant and dynamic inflection point — one that is akin to the changes witnessed with the invention of Gutenberg’s printing press in 1450 or Marconi’s transatlantic broadcast in 1902. The digital revolution in media, powered by technological innovation and worldwide IP distribution, is enabling wider, faster and cheaper access to content than ever before. But as our study illustrates, the opportunity is matched by the challenges to success.
Accenture believes that media companies, in order to become high-performance enterprises, need to evolve the way they go to market and operate their businesses. This involves developing innovative approaches to strategy and execution, including people, processes and systems. Most importantly, it involves change, or as the economist Joseph Schumpeter observed, a certain “creative destruction” in the way business is done. Specifically to content companies, the survey highlights the following implications, primarily around increasing reach, engagement and monetization:
Increase Reach: Distribute content to a wider set of channels and platforms • Proactively ensure content is available where users look for it, or to put it more bluntly — don’t be prissy about where people consume your content • Expand digital content platforms, including online, mobile and IPTV where appropriate • Increase sharing of content with online affiliates and aggregators to encourage availability; consider “Creative Commons Licensing” of content to open up usage by other sites and users, as well as making content extensible to other platforms using RSS • Attract users through exposing content to increase web discovery, including search engine optimization and integrated multiplatform marketing
Increase Engagement: Drive user interaction through relevance, increasing retention and value • Engage the user, embrace their participation; provide a platform for users to interact with, create, and share content • Don’t over-control or over-moderate • Balance a need for content protection — via DAM and DRM — with an understanding of the benefits that wider user distribution and marketing bring to the table
Increase Monetization: Adapt business models to new content types and leverage deep user insight • Innovate and experiment with new business models that utilize subscription, unit transactions and advertising • Leverage the success of the digital advertising model to hurdle the “free content” expectation that consumers have online
18 Accenture’s Global Content Study
What will be the most important source of innovation in your industry in the next five years? Supply chain/operational Marketing/advertising/branding Partnerships/joint ventures Pricing/new business models Customer experience Product innovation/technology 1% 5%
11%
14%
• Use customer insight to enable more effective targeted, measurable advertising • Develop digital advertising-related capabilities, including inventory management, pricing optimization, bundling, network sales and ad serving using best-of-breed solutions As content companies take these important steps, they could look to define a “digital manifesto” to guide their organization. Furthermore, dedicating resources to the digital transformation is critical. In order to ensure adequate executive and board exposure, companies could also explore the creation of a Chief Digital Officer to drive change. This executive should be supported by a seasoned media management, but one that is also enhanced by the inclusion of youth input in key decisions. This means people who represent the generational demographics executives are targeting; the type of people who have a Facebook page, people who have blogged, downloaded a ringtone, shared a video on YouTube, dated via Match or beta-tested Halo 3. These are the voices
15%
that must be represented, while matched by sound business principles. In addition, as executives consider how to seize the digital media opportunity, they must master one of the keys to growth, namely, innovation. And when we asked our survey respondents what they believe would be the most important source of innovation in their media sector, an overwhelming 55% stated that product and technology innovation were critical. High-performance businesses know how to harness technology and make appropriate investments with a focus on longterm success as well as short-term cost efficiencies. Executives must understand that innovation is not a luxury companies can only afford when they are highly profitable — innovation must be at the core of their ability to create and sustain superior business performance. To this end, Accenture believes that the following best practices should be harnessed in order to maximize innovation in digital media, as well as evolve goto-market strategies.
55%
Do almost enough, trial many: contain the urge to over-engineer, think “successive betas” instead of waiting for the perfect release Pursue multiple, competing innovations, concurrently: encourage controlled inventiveness, let the idea that survives live on Build on success, rather than re-engineer failures: look for winning elements, share and build on those, while resetting expectations relative to failures Engrain product “factory” mentality: create a methodical approach and capabilities for development to increase agility, from mindset to capabilities to assets and processes Ready-Fire-Aim: don’t over-research breakthrough ideas, but get “good enough” insights (Ready) and “risk” beta to market (Fire), and then let market forces help fine-tune the product (Aim)
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Conclusion In the past, legendary press barons such as Pulitzer, Hearst and Beaverbrook have wielded enormous power over the voice — and votes — of the public, whether in politics, culture or the economy. These individuals used their media assets to act as kingmakers, and, in a sense, their content itself was king. Today, the statement “content is king” is being challenged — by distributors, technology and communications companies and, for the first time, by the very consumers of media. It is incumbent upon content creators and owners to rise to the challenge and seize the opportunity that digital provides.
It is important to keep perspective, and understand that digital complements traditional media, rather than replacing it. To paraphrase Mark Twain, reports about the death of print media are greatly exaggerated. People will still read newspapers and magazines, and they will still go to the cinema. Digital merely enhances the experiences these media offer, enabling wider and more potent distribution. And one day soon, the “digital” moniker will be irrelevant and “new” media will revert to simply “media.” But it’s how today’s content companies adapt their businesses between now and then that will demarcate success from failure.
While media companies innovate and experiment with digital, one thing that will remain true is that quality, professionally produced and editorialized content is not going away. It may be complemented by user-generated content and new forms of interactive entertainment, but the purpose of media will remain — to communicate, inform, entertain, inspire and tell stories to educate the generations that follow us. Which begs the question, in light of all these shifts and upheaval in the industry, is content still king?
The answer should be framed with due respect for the democratization of media and the barbarians at the gate of the kingdom. However, without content, all we are left with is unprinted paper, blank screens and empty theaters. So the answer is undoubtedly “yes, content remains king”, but changed and ready for the next phase of its evolution. It promises to be interesting. So, in the words that have echoed through the people’s court throughout history: “the king is dead, long live the king!”
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Trends in Media & Entertainment As politicians and celebrities can attest, a lot can change in an online minute — whether launching their 2008 presidential campaigns on MySpace, or being unwitting stars of YouTube’s video of the day. And as ever more audience eyeballs migrate to online, interactive content, it seems as if the media sector has finally caught up to internet time. Since Accenture launched its first Global Content Survey last year, much has changed in the industry, from product launches to digital partnerships. With this report looking into the future of the industry, it is also important to take stock of the key market indicators that are shaping the sector today.
Key market indicators include: Technological innovation is driving growth in media Digitization is broadening distribution scope and scale Mass media is moving to “me media” and user control Digital advertising is leading the shift in business models New competitors enter as value chain boundaries blur
22 Accenture’s Global Content Study
Media industry is trending upwards, with new media growth led by technological, IP-driven innovation, as well as an increase in time consuming media. The overall media and entertainment market is predicted to grow at 7% CAGR over the next five years. Traditional media sectors, such as broadcast and publishing, remain dominant in terms of market size, while segments such as music continue to be impacted by piracy and saturated sales. The majority of the growth is led by content sub-sectors, including video games and sports. Forecasts suggest that user consumption of media will rise from approximately 70 hours per week today to over 80 hours weekly by the end of the decade. More leisure time, as well as multitasking users who are consuming media on an ever larger number of devices, will drive the growth. Much of this increased media consumption is manifesting itself online, which indicates the overall revenue pie is increasing, and digital is complementing, rather than cannibalizing traditional media. Technological innovation is expanding both the scope (platforms) and scale (reach) of how content is consumed. Traditional audiences are fragmenting and coalescing into new interest groups served by niche programming and diverse new platforms.
The digitization of media is enabling wider and more efficient distribution of content, while blurring the boundaries between consumer electronics and computing platforms. Content and services are moving to digital, both complementing and replacing offline media. This is apparent in both consumer demand — including digital upgrades to HD TVs and Blu-Ray — as well as government plans to switch off analog broadcasting signals in the next decade. Digitization is enabling the end user to access media over more platforms, driven by growing penetration of broadband and mobile. The traditional media devices, such as television sets and radios, have achieved ubiquity in the mass market and are now being joined by a new generation of access platforms, such as PCs, mobile phones and video game consoles. Already, mobile phone uptake has achieved over 100% penetration in certain markets in Europe and Asia.
This platform agnostic approach, improved with increased interoperability, means consumer electronics and computing are becoming more tightly coupled, especially as devices merge in the digital home (for example TV and PC into IPTV, or video game consoles as entertainment hubs). One form of digital media that has received particular attention in the last 12 months has been online video or “web TV.” Players such as Joost, YouTube and Veoh have all driven uptake of this format. The proliferation of these distribution channels is enabling users to share, embed and aggregate their own programming. While this increases reach of programming, issues remain around copyright and DRM.
A major benefit of these new devices is that they enable cheaper and more efficient digital media creation, delivery and consumption, allowing content owners to reduce manufacturing and distribution costs. In addition, consumption is becoming platform agnostic, as consumers are demanding access ”any time, any place and any how.“ This has led to the socalled ”three screen“ phenomenon, where users consume media in a “liquid” fashion, across television, computer and mobile device.
Accenture’s Global Content Study 23
The rise of online has shifted mass media to “me media” and “social media,” where consumers are expecting interactivity, personalization and mobility in their content and services. Traditional forms of content have often been categorized as ”lean back” media, implying passivity on the part of the consumer as they listen to the radio, watch television or read a magazine. Technological innovation and consumer trends are now being complemented by more “lean forward” media, which implies more user control. This interactivity and control is manifest in traditional media — for example, Video On Demand (VOD) and Digital Video Recorders (DVR) for television — which is impacting traditional scheduling, and therefore claiming some of the control from programmers and advertisers. And these changing consumer habits are evolving from time-shifted to placeshifted and device-shifted experiences, both in home/office and on-the-go. As these trends become mass market, consumers are growing adept at consuming and manipulating digital media across multiple platforms. With increased user control of professional content has also come greater enablement of the mass creation and distribution of personal or “user-generated” content. Social networking sites, which provide a channel for consumer interaction, including sharing of photos, music and video, has complemented this development. Part of the force behind the shift from mass media to “me media” has also been the rise of what has been dubbed “Web 2.0.” The term was conceived by O’Reilly Media in 2004 to refer to the next generation of the internet, where the web is viewed as a platform, with data as the driving force and network effects created by “an architecture of participation.”
24 Accenture’s Global Content Study
The impact of Web 2.0 has driven the uptake of social media, which includes social networking, blogging, folksonomies, wikis and user-generated content. Sites such as MySpace, Facebook and YouTube have built strong user loyalty and enabled creators within these communities — such as artists, musicians and filmmakers — to market and distribute their content globally and at no or low cost. Personalization is becoming more prevalent in digital media as well, as more consumers tailor not only the look and feel of their online experience (for example their Google or Yahoo homepages), but also the media feeds that they are exposed to — from RSS news to bespoke video feeds. This trend has moved into the mobile platform as well, enabled by GPS and cell-site triangulation, which is allowing network operators and content/service providers to tailor their offerings, for Location Based Services (LBS) such as Dodgeball and Loopt, or mobile social networking sites, such as Twitter. From a content perspective, this allows more targeted and relevant delivery of media, including local restaurant reviews or trailers for movies playing at nearby theaters. An advantage of digital media has been the ability to close the loop between content owners and consumers, allowing companies to track usage and behaviors in ever more sophisticated ways. With this rich user data comes the ability for the media to measure, mine and analyze consumption patterns, and therefore track the emergence of interest and affinity groups.
In order to monetize their assets, media companies are iterating new business models online, particularly around digital advertising. Given the breadth of new products, services and channels that digital convergence offers, companies are adapting their revenue structures to move beyond traditional business models. The existing spread of revenues in the media landscape is skewed towards end-user spending, which represents over 60% of media and entertainment revenues; the remaining portion relates to advertising revenues. However, when end-user spending is broken down by subscription vs. transactional revenues, advertising dominates as a business model. Advertising revenues track macroeconomic trends more closely, so may be more volatile, while transactional media revenues are often viewed as a required good, so fluctuate less. As the industry follows its audience online, it is hybridizing and iterating its business models. In particular, digital advertising is driving the monetization of content online, combating piracy and consumer perception that content should be free on the internet. Currently, advertising worldwide is a nearly $500 billion industry, dominated by the TV, newspaper and magazine sectors. Of this, online advertising is estimated to be approximately $30 billion worldwide by 2008, or around 5% of the overall market. Online advertising is growing rapidly, particularly in search (such as Google’s keyword ads) and video advertising.
The promise of advertising to support digital content includes better targeting, leading to greater performance and accountability. Traditional ad ratings based on GRPs or circulation for broadcast and publishing will be less relevant in the online world, where better tracking of user data enables greater accountability. The promise of online ads remains the ability to target, personalize and localize, as well as mine rich user data. In order to succeed, media/ad publishers will need to optimize their ad operations (particularly inventory, pricing and ad serving), as well as improve product packaging and integrated cross-platform campaigns. Although online advertising — both branded and search based — budgets are increasing, emerging channels are complementing these cross-media initiatives, including wireless, gaming and IPTV platforms. The challenge remains that many of these new avenues are unproven, although mobile advertising clickthrough rates have been estimated to be 5 to 10 times higher than typical web banner ads, with 10-20% conversion rates that are far above the industry norm. A number of issues remain, such as handset, network and content constraints, and both user resistance and privacy concerns. However, wireless operators have great expectations for mobile advertising supported content, especially to break through the perceived “ARPU ceiling.” As content owners hybridize their business models, they are accounting for consumer propensity to pay for content that bears repeat consumption (for example movies or music) or is premium (such as sports) versus more “perishable” content, such as news or weather. The implication is that there is no one business model that is suited to online distribution, and that many of the traits of offline business models will be replicated online.
However, the media value chain boundaries are blurring, driven by digital transformation, disintermediation, emerging new competitors and the rise of end-user control. Digital media is enabling the disintermediation of the traditional distribution channels, as content creators, publishers and aggregators gain direct access to the end user, for example by distribution through iTunes, Amazon or Moviebeam. Access to digital content creation tools and distribution is allowing consumers to access mass markets. Ever more sophisticated technology, at more affordable prices and higher performance, is putting the tools of content creation in the hands of “amateur” users. Once created and edited, these content owners now have access to global audiences for their user-generated content through channels such as YouTube or MySpace. These channels now provide the option of not only marketing this “homemade” content, but also to monetize it, through advertising revenue-share agreements. Simultaneously, new entrants are redefining the traditional competitive set, as technology (hardware and software) and telecoms players (fixed and mobile) are converging on the media sector, investing billions of dollars to capture footholds along the value chain. This is manifest in rollouts of new media services (such as Verizon FiOS) and products (such as Apple’s iTV or the X-Box 360). As new competitors — whether professional or amateur — create and invest in the media and entertainment sector, a critical question is whether these companies can simultaneously grow the market size to benefit all the players or whether the increased competitive intensity will lead to redundancy and cannibalization of people’s limited time to consume and enjoy media.
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Copyright © 2007 Accenture. All rights reserved.
About the Media & Entertainment Group
Accenture, its logo, and High Performance Delivered are trademarks of Accenture.
For more information on this study and what Accenture can do to help you reach high performance in your convergence business, please contact:
About the Survey The survey was fielded for Accenture in North America, Europe and Asia by The BPRI Group during the first quarter of 2007. The results are based on face-to-face and telephone interviews. Quantitative outputs were analyzed by Accenture using SPSS. All efforts were made in good faith to secure a balanced and representative sample of respondents. Author: Jamyn Edis and Alexis Rose Contributions: Greg Douglass, Gavin Mann and Alexis Rose
Greg Douglass, Global Managing Director, Accenture Media & Entertainment Gavin Mann, Digital Media Lead, Accenture Media & Entertainment Email comms.and.high.tech@accenture.com and write ”Content2007” in the subject line
About Accenture Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills and technologies to help clients improve their performance. With more than 158,000 people in 49 countries, the company generated net revenues of US$16.65 billion for the fiscal year ended Aug. 31, 2006. Its home page is www.accenture.com.