Consultant at IDATE
Average household spending on cultural goods worldwide decreased from €75.50 to €71.60 between 2010 and 2013
Electronic distribution allows households to spend less on any cultural products they buy or rent individually. The gap in price is especially significant in those industries where the cost of producing a hard copy heavily influences its retail price.
As a result, between 2010 and 2013, average household spending on cultural goods worldwide decreased from €75.50 to €71.60 a year. This figure nevertheless includes sizeable regional disparities:
• in North America, average annual spending on all types of content combined has actually increased, going from €327.30 per household in 2012 to €328.40 in 2013;
• households in Asia/Pacific and Latin America are also spending more, with average entertainment budgets rising, respectively, from €35.80 per household/year to €39.10 per household/year, and from €31.70 per household/year to €34.10 per household/year between 2010 and 2013;
• meanwhile Europe and Africa/the Middle East are reporting a sizeable decrease in average household spending on cultural products: -10.6% and -15.6%, respectively, over the past three years.
Deputy Managing Director
Director of TV & Digital Content Business Unit
It is no secret that the shift to digital has had a huge impact on the music sector: the multiplication of distribution channels, the shift from owning albums to listening on the fly, along with piracy have resulted in a significant drop in revenue for the sector, the arrival of new unlimited music services and, more generally, the core revenue stream shifting from the sale of recorded music to exploiting all of the rights attached to an artist.
The role of live performance has also changed. While it has always been a special event, providing a venue for fans to meet the bands as well as being a promotional vehicle, concerts had long been a by-product of records. Today, they have become not only essential revenue streams, but also an essential means for music lovers to discover artists, and for artists to develop their careers. In addition to the their growing weight in music industry economics, the live concert market is also being affected by the internet: the use of social media to promote an event, online ticket sales, the importance of metadata in creating and maintaining ties with fans, new forms of interaction during concerts, etc.
Among these many developments, digital technologies open up new opportunities in the realm of recording and broadcasting concerts. As with recorded music, video, news and now books as well, the rise of digital and the web is steadily creating new ways to distribute recordings of live concerts, which had long been the sole dominion of a handful of TV channels, and so confined to only the most popular artists. The proliferation of online distribution channels is already driving up demand. At the same time, on the supply side of the equation, new, cheaper recording and distribution solutions continue to lower the barriers to entry. So more and more players are getting in the game. They are coming from new sectors of the digital ecosystem: pure player concert sites, internet giants, telecom and consumer electronics industry players… but very few live event organisers.
It is within this new environment that IDATE was commissioned by musical, concert and variety show union, PRODISS, to provide an analysis of what impact digital technologies are having on live performance.
> The report and its summary (in French) are available online at: www.proscenium.fr/thinktank/
Deputy Managing Director
Director of TV & Digital Content Business Unit
Original production in the US had long been the fiefdom of the top TV networks and a limited group of premium cable pay-TVs. Today, however, all cable channels are developing an original production policy, operating alongside their reruns of series produced by the big networks.
Some of the most popular series in the United States have been produced not by these heavyweights, or by HBO: Mad Men, Breaking Bad and The Walking Dead (AMC), The Americans (FX), Rectify and Top of The Lake (Sundance).
This new strategy has been especially profitable for AMC which originally aired only reruns: in 10 years, its earnings from cablecos has gone from $0.22 to $0.35 a month per subscriber.
Consultant at IDATE
IDATE estimates that industry losses due to the various forms of illegal video consumption – namely P2P, downloads and streaming – totalled €6.3 billion in Europe in 2013, which translates into 37.8% increase from 2010 to 2013.
The main reason for this rise in online video piracy is the lack of attractive video on-demand (VoD) services in Europe, which is due in large part to:
• a very scattered offering, which is hard for users to navigate through;
• the fact that legacy pay-TV providers have captures the rights for the most premium content, and are taking a defensive approach to new distribution channels;
• very few online sales options;
• certain regulatory restrictions, such as the media chronology in France and Germany for feature films.
The VoD sector’s consolidation, and the inroads being made by American companies, especially in the subscription VoD segment, is expected to breathe some life into Europe’s video-on-demand market, and contribute indirectly to scaling back users’ reliance on piracy. IDATE estimates that industry losses due to piracy should decrease by 6.5% between 2014 and 2018.
Jacques Bajon, Head of "Video Distribution" Practice
Cloud TV solutions being developed in a new video consumption environment that is having a profound effect on distribution modes.
In its latest report published in its monitoring service “Cloud & Infrastructure”, IDATE analyses Cloud TV solutions the advantages and the issues that still remains.
The cloud TV phenomenon is part of the massive changes taking place in our TV and video viewing habits and, by extension, in video distribution. This cloud-based approach to distributing TV programming refers to the fact of offering services from a central platform connected to the Web, and which can serve any user device.
A cloud platform can be operated by OTT (over the top) content providers who deliver their solution directly over the Web, or by telecom operators who use their own networks. In this second instance, the service is typically not assimilated with the cloud per se, even if we will include it in our field of analysis.
What cloud TV brings to the industry
• It is above all a response to a growing demand among consumers to have access to TV everywhere.
• It paves the way for more personalised video viewing and targeted advertising.
• The fact of centralising the solution enables more flexible rollouts and the abilty to offer a broader array of services.
• The growing move towards virtualisation allows vendors to achieve more cost-effective capital and operating expenses for their video distribution business.
• And brings vendors one step closer to deploying concept of TV as a service, so creating ties with users, or of operator as a service, for distributors looking to achieve more operational flexibility.
But certain unknowns remain
In addition to increasing quality of service (QoS) to meet users’ demands, the gradual switch to cloud-based video solutions will no doubt also generate a sizeable increase in traffic on the Internet and managed networks, and with it the inevitable challenges of maintaining a steady level of quality.
New challenges are arising as barriers to entry into video distribution are being lowered, through expansive platforms that are not subject to any network coverage, device compatility or geographical imperatives.
• We could thus see an acceleration in the rise of independent video offerings, which could include libraries of self-distributed content. This type of configuration could result in telecom operators being cut out of the loop and losing control of consumers.
• In addition, service providers and broadcasters will be going head to head with their TV Everywhere applications, offering potentially identical content but being delivered by pay-TV providers and TV networks, for instance.
• The traditional TV distribution industry runs the risk of being marginalised by these developments. But it has developoled its own solutions to meet some of viewers’ new demands and, above all, has begun to integrate these new options into its own environment.
• And, finally, cloud TV represents a major gateway for the Internet giants that are currently competing against pay-TV providers and programme aggregators for a foothold in this new market.
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Deputy Managing Director Director of TV & Digital Content Business Unit
Pricing models for digital content were originally inspired by the models used for hard copies: the sale of books, CDs and DVDs were replaced by the sale of digital files. Prices were lowered of course, to factor in not only the savings in production costs but also the stiffer competition on the Web.
But setting prices for cultural content online is still a very empirical matter today. If the price of an MP3 album has settled in at around half the price of a CD, pricing for books is much more scattered: an e-book costs around 40% less than a hardback but (almost always) more than the paperback version. Meanwhile, VoD film rental rates have not factored in the steady decrease in DVD prices, and so are not very competitive.
Unlimited plans and advertising
But this first period of copying brick-and-mortar models is now giving way to the creation of more original pricing schemes. They are a reflection of the profound changes in consumer habits fuelled by two aspects of the internet: first, the fact that the Web is synonymous with abundance and, second, the fact that piracy spread the idea that everything could be had for free. The first response to this upheaval in consumer expectations was the arrival of unlimited subscription services such as Netflix, Spotify, Oyster and PlayStation Plus. These unlimited plans, who share piracy as a common rival, are low-price offers that leverage affordability to persuade consumers to opt for a lawful service. A second response involves the use of advertising, to counter illegal free offerings. But the advertising model quickly encountered its limitations, and the different cultural segments are now introducing freemium models that combine a free, basic plan and a premium for-pay one (Hulu+, free-to-play, Spotify, Deezer).
Recreate the link between the hard and digital copy
A number of factors have led to the inexorable loss of revenue when moving from the tangible to the intangible: sales of single songs rather than complete albums, increased competition, the weight of piracy and the plethora of content on offer. One trend that we are seeing in the industry’s bid to turn the tide on the inevitable seeks to create a link between hard copies and digital files. So Ultraviolet (a consortium whose members include most of the top TV and film studios and distributors) for video, and Audiorip (Amazon) for music, provide consumers with free access to a digital copy when they purchase a DVD or a CD, respectively.
Yield management for cultural goods?
In addition to the necessary streamlining, a new approach needs to be ushered in: one where the price of cultural goods adapts continually to demand. While today a book, an album or a game will change price only once or twice during its shelf life, the online sale of digital goods provides infinitely greater flexibility. Without going quite so far as the yield management famously employed by airlines, i.e. adjusting the price of tickets to demand (as there is no scarcity when it comes to a piece of digital content), one likely path for the future will be to adjust the price of a cultural product according to its popularity and/or how fresh it is.
Key trends in content digitisation
Jacques Bajon, Head of "Video Distribution" Practice
In developing countries and emerging economies, wireless broadband represents a fundamental path to eradicating the digital divide that exists in regions that are still not covered by wireline infrastructure, and especially sparsely populated rural areas.
The digital switchover of terrestrial networks and the associated digital dividend provide a unique opportunity for broadcasters to expand their services, for consumers to gain access to a broader selection of programming, for the market to meet the growing demand for new wireless communications services, and for governments to optimise the overall use that is made of the scarce resource that radio spectrum represents. All for the sake of socioeconomic progress. In developing countries and emerging economies, wireless broadband represents a fundamental path to eradicating the digital divide that exists in regions that are still not covered by wireline infrastructure, and especially sparsely populated rural areas.
Is integrated broadcast-broadband the answer?
Despite the existence of several international agreements, the transition process is not progressing at an even pace across the global. New arrivals to the process are up against tremendous challenges, while also benefitting from the experience of their predecessors and technological leaps forward – such as the combination of DVB-T2 and MPEG-4 – which help alleviate some of the hurdles. Key ingredients of successful planning include consideration of the national situation, along with clear policies and objectives from the government and real cooperation between the various stakeholders.
It is a well-known fact that the digital dividend is a driving force between the transition, but new questions have arisen recently over a second digital dividend in the 700 MHz band in Region 1 (i.e. Europe, Africa and the Middle East). So the telecommunications and media industries will need to cooperate more closely on the spectrum issue.
The digital transition: global scorecard
A global economic approach needs to be taken in the planning stage to tackle the goals of the transition, and the means being deployed to achieve them.
In developing countries where the switch to digital terrestrial television (DTT) has yet to begin, digital set-top boxes represent the biggest cost item. A large percentage of households in these countries will need to receive subsidies to be able to buy these new devices.
Additionally, the size of the network investment will depend on several factors, such as the number of multiplexes involved. By the same token, technical coverage will need to be adapted to each country according to the geographical distribution of its citizens, as costs can increase exponentially when seeking to cover a large swathe of the population.
Communication campaigns are also vital, to educate the public on the digital transition. They need to be rolled out gradually, and be especially concentrated during the period immediately prior to the transition from one technology to the next.
In addition to financing set-top boxes and running information campaigns promoting the transition to digital, public monies may be required to help TV channels during the transitional phase. The period of simulcasting will be one of additional broadcasting expenses that will not necessarily be compensated by revenue and, for incumbent channels, will also be a time of increased competition. Veteran broadcasters will have to upgrade all of their equipment and installations when the switchover occurs.
The revenue earned on the sale of licences to digital dividend spectrum can help meet the public financing needs created by the transition. It is vital that a global approach to the process be taken – one that involves both the television and telecoms universe. These two sectors can enter into a mutually beneficial virtuous circle.
Public-private partnerships to allocate digital dividend revenue to the transition
Governments need to be financially involved in DTT rollouts, and in the transition process as a whole. The economic surplus generated by a better allocation of frequencies and related services creates solid prospects for ROI in the medium term.
The digital switchover is thus an ideal opportunity to create public-private partnerships. The foundations are already in place, with the arrival of new private sector players from the world of both telecommunications and broadcasting.
Florence Le Borgne
Head of the TV & Digital content Practice, IDATE.
What potential exists for “everything OTT” distribution?
IDATE’s latest report spotlights premium content right holders’ strategies to tap the new internet territories. It provides a benchmark of OTT services launched by major rightholders. The study also provides the analyses and conclusions on these OTT strategies in highlighting their drivers and hurdles: technology, regulation, consumption patterns. Finally, it addresses the question of viability of an exclusive OTT strategy for Sport, Cinema & TV series right holders.
There is not a lot of audiovisual content that can be designated as 'premium'. Only fiction (films and TV series) and certain sporting events (depending on the country) meet the conditions necessary to merit the description: mass appeal, a certain rarity and desirable enough that consumers will pay for it.
Broadcast by a small number of providers (the importance of rights and the relative scarcity of premium content automatically limits the number of possible candidates), premium content belongs to a variety of players, such as in cinema where production is distributed among a large number of smaller players, although a few big US studios produce a large part of the sector's revenue.
The clear lines drawn with rights (by territory, time, medium) aims to maximize the potential value of the content and thus the revenues generated by the rights holders. Although television contributes significantly to revenues generated by film studios and sports leagues (about 20% on average), its contribution varies significantly depending on the country, the licensing fee model in place and the attractiveness of the content itself.
Florence Le Borgne, Head of Study, notes: “OTT-specific services present an obvious opportunity to premium content rights holders: to add value to content that has little or no exposure on television, to generate additional revenue, and to put pressure on traditional distributors and thus 'raise the stakes'.”
Premium content distribution value chain and breakdown of value by player according to distribution type :
Source: IDATE, Rightholders turn OTT, April 2014
However, the approaches taken so far have differed considerably:
• Release windows, either regulatory or contractual, limit opportunities for fiction rights holders to embark on an aggressive OTT strategy, which would probably compete directly with traditional distributors who provide the bulk of their revenues (cinemas, DVD publishers, TV channels). The biggest studios are adopting conservative approaches, working within the constraints and characteristics of specific geographical markets. Independent publishers favour OTT distribution via existing platforms, due to a lack of financial resources to distribute online content themselves.
• Leagues and sports federations, who are not subject to the same constraints, have invested significantly in the internet to generate more value from redistribution rights of their events, either via a third-party operated platform for sports with little media coverage, or direct distribution for major sports. However, leagues and federations are adopting differentiated strategies per country to favour TV coverage across the board: the more their sport is televised, the less choice offered by proprietary OTT services. Note that the European football leagues focus solely on the sale of TV rights.
As direct distribution via the internet results in disintermediation for some of the players involved in the traditional distribution chain, rights holders could theoretically expect to capture a much larger share of the end market (up to 92% of the value with direct distribution compared with 28% in the current model). However, to date, traditional distribution is still more profitable because revenues from the TV end market are so large and no player has yet exclusively distributed its most premium content. However, models have shown that, for some sports leagues, moving to 'everything OTT' would be a viable option and would generate the same revenues as those of current TV rights.
Apart from the financial risk of moving to 'everything OTT' for rights holders and the lack of internal expertise in broadcasting video services, several obstacles can be identified:
• limited access to broadband internet in some markets as well as the number of active compatible devices (especially connected TVs with large screens)
• regulations that favour traditional distribution in some countries, especially regulated release windows
• the high level of dependence that could involve reintermediation with a dominant web platform
• the potential unwillingness of users to subscribe to every sport followed on an individual billing basis rather than a household package.
Also, in the current context, only some sporting content would be a realistic candidate for migration from a rights holder's perspective (but not TV channels). OTT distribution of fiction would entail a profound upheaval which the various players in the value chain seem unwilling to accept.
The potential for migrating to ‘everything OTT’ for some sports leagues:
Source: IDATE, Rightholders turn OTT, April 2014
Head of Consumer Electronics & Digital Entertainment Practice
Just how much has digital changed the music industry?
The music sector, and especially recorded music sales, have been suffering the impact of piracy since the turn of the century. And it is within this crisis mode that the industry has gradually rebuilt itself around segments like publishing, concerts and new consumption, business and pricing models (based on downloading and streaming), and now through related services available equally and simultaneously on connected platforms, both fixed and mobile. If they have proven their ability to attract a large, if not massive audience, and are sketching out the future shape of the industry, the impact of these changes has not yet been enough to erase the accumulated losses of the past thirteen years.
Momentum driven by digital music and the proliferation of channels
The global recorded music market remains stagnant (+0.2%), inching up from 16.456 billion USD in 2011 to 16.481 billion USD in 2012.
Hard copy sales continue their slow decline, generating only 57% of the sector’s revenue in 2014, compared to 74% in 2008. IDATE forecasts that in 2014 this figure will drop below 50%. Digital music gained 13 points between 2008 and 2012, generating 35% of the industry’s total income in 2012. Revenue earned from synchronisation (i.e. royalties on music used in films, TV programmes and games), and from performance and broadcasting rights accounted for 2% and 6% of industry revenue, respectively, in 2012.
Digital music generated a total 5.8 billion USD in 2012. Worldwide, the bulk of this revenue comes from music downloads (72%), followed by unlimited subscriptions (13%), mobile purchases (8%) and streaming (7%).
Switching to a network-centric approach
So the music industry is reinventing itself around new business models and consumer behaviour driven to a large degree by what goes viral, and the sheer scale of the popular sites and platforms that users spend time on, i.e. app stores and social networking sites.
• The mobile phone is becoming a central device for consuming music products (albums, videos, information on the musicians, concert dates, etc.), both when on the go and at home, listened to through ear buds or nestled in a sound dock. A host of music-related applications have been rolled out, such as Shazam, Discovr and MusicWatch. All aim to enhance the user experience for music lovers, allowing them to discover and listen to new artists (Music Beat), find concert dates (Bandsintown) or get the latest news on their favourite bands (Songkick).
• The “socialisation” of music, and the need for artists to build a community around themselves are both phenomena born of the proliferation of social media and the massive success of smartphones. This creates a greater proximity between artists and their fans, which has also proven key in keeping fans loyal. The second effect is that, thanks to social networking sites, fans communicate more than ever before about the artists they like and their favourite songs. The ability of artists, and the companies responsible for promoting them, to make something go viral has become the key to the kingdom. Video is another key ingredient in the socialisation process: YouTube, Dailymotion and Vevo are crucial parts of both users’ discovery of music, and record labels’ strategies.
• Artists have become brands that are deployed, and developed on several media. They sell themselves, or are called on to sell themselves, well beyond just their music. Their image is becoming at least as important as the music itself, and a main selling point for their products. They need to create a community around themselves, nourish it, and help convert that into sales. By the same token, massive community support for a new artist can kick-start a career, and force a record label to reconsider its marketing strategy.
Florence Le Borgne
Head of the TV & Digital content Practice, IDATE.
Electronic distribution poised to become the mainstay
More and more content is being distributed electronically. If music and video are no doubt the two sectors where digital consumption is the most visible, this phenomenon has pervaded the entire content sector. Video games top the ranks of content that has moved most massively to the Internet and electronic distribution, followed by music, video and, well behind them, books.
In 2013, an estimated 51.4% of video game market revenue was generated by electronic sales – i.e. on smartphones, computers, home consoles and laptops connected to the Web – and by online gaming, which includes item selling, subscriptions and commissions on exchange operations. This figure is forecast to have risen to 68.6% by 2017.
In the recorded music sector, electronic sales are expected to account for 38.4% of total sales in 2013 while, over in the video sector, electronic sales and rentals are expected to represent 33.8% of total sales last year. We predict these figures will have increased to 53.6% and 52.2%, respectively, by 2017.
The book sector, meanwhile, has only recently started making the transition to electronic formats. In Europe, for instance, e-book sales will likely account for only 4.5% of total sales in 2013. But the swift rise of tablet penetration rates in households, which of course makes reading electronic books easy, means that e-books could account for as much as 21% of total book sales in Europe in 2017.
The rise of digital starting to offset the decline of the hard copy
Even though digital is widely associated with the destruction of revenue – the music market lost 40% of its revenue between 1999 and 2012, and the video market lost 13% between 2006 and 2012, after having increased by a factor of 3.8 between 2000 and 2006 – we are seeing a growing number of signs that the markets are becoming more stable.
After hitting a record low in 2010, the recorded music market enjoyed a slight recovery worldwide in 2011 and 2012, which will likely carry on through 2013. This has been due in part to a slower rate of decrease in hard copy sales, and to a steadier rate of increase in revenue from digital sales – including downloads, subscriptions, and ad revenue on music sites.
We are also seeing encouraging signs in the video market. The US market has been reporting growth for two years straight (+0.2% in 2012 and +0.7% in 2013), thanks to a steady rise in permanent download sales (+47.1% in 2013), which topped the 1 billion USD mark for the first time last year. The UK market is enjoying the same momentum, reporting 0.5% growth in 2013, thanks to a very healthy increase in digital sales (+40.2%) and a 10% rise in spending on Blu-ray.
The book market in France, where e-books accounted for only 4.4% of sales in 2013, is starting to lose ground (-1.2% in 2012 and -1.3% in 2013), whereas Britain’s book market continues to grow – by 4.9% and 2.5%, respectively, during those two years – despite a decline in printed books sales: -4.7% in 2012 and -5.5% in 2013. The fact that the UK’s e-book and audiobook market kicked off earlier than it did in France, has meant both more readers who have adopted these formats, and a high rate of digitisation for the works themselves (27.5% in 2013). The rise in e-book sales is thus offsetting ailing print edition sales.
Although it is still too early to conclude that digital will open up new growth avenues for the content market, these positive signs in a globally dismal economy do offer some rays of hope.