Published in COMMUNICATIONS & STRATEGIES No. 94, 2nd Quarter 2014
Video game business models and monetization
Interview with Yves GUILLEMOT Co-Founder and CEO UBISOFT
Conducted by Philippe CHANTEPIE
French Ministry of Culture and Communication;
Associate researcher, Innovation & Regulation Chair, Paris
C&S: We have entered the 8th generation of consoles. Do you consider it likely that this will upset the market positions of publishers and console manufacturers?
Yves Guillemot: This new generation of consoles brings many changes, incorporating all the innovations from parallel markets and multiplying their potential through technological power. These platforms reach an unparalleled high level of performance, immersion and opportunities which allow us to create even more powerful game experiences. Each generation of consoles has large implications for publishers who need to invest heavily to maximize power and be able to seize the great opportunities that arise.
On the other hand, the strong growth in mobile and PC markets, driven by social games, permanently connected and free access, is a challenge for traditional industry players, with new economic and editorial models that differ from more traditional games. These models started being introduced at the end of the previous generation of consoles. New platforms like the Playstation 4 or Xbox One have fully integrated these developments and allow us to put the player at the center - before, during and after the game experience - and to give him/her an increasingly active role in changing content.
C&S: Casual gaming has grown rapidly and has already started occupying a predominant position. Do you think it is likely that this will continue to increase?
Y.G.: Casual gaming is not a new phenomenon. In 2006 the Nintendo Wii had taken a big step towards attracting video games and a new audience, part of which is now plays more traditional games. The rise of social networks, mobile games and online greatly amplified this phenomenon and globalised the supply and the audience to which it is intended. The video game market today encompasses nearly 2.5 billion players, compared to 500 million previously. This is a pool of significant growth for our industry. For example, one of our flagship brands Just Dance is a dance game first released on the Wii, which has sold 49 million copies since 2009. It was particularly popular during the Christmas season.
C&S: We are witnessing significant changes in revenue models. Are these new models mature enough and able to renew the game console segment?
Y.G.: These new models are growing dynamically and also continue to evolve. Some examples or experiences have shown us the difficulty of maintaining high market shares and good consistent results. Without a miracle, renewal is necessary to adapt to a changing marketplace. Ubisoft deploys and uses these models, while consolidating and diversifying a portfolio of original brands for which we control the entire creative and commercial process. Beyond the video game, our goal is to increase the visibility and attractiveness of our franchises by being increasingly present on new media such as television, with the Raving Rabbids TV series, and soon the cinema with the adaptation of franchises like Assassin's Creed or Splinter Cell. The Raving Rabbids Futuroscope theme park attraction, open for several months, is also a success.
C&S: Do you consider that the development of competition in the video game industry will lead to transform the production system of game publishing and how?
Y.G.: In recent years, production of video games has become considerably more professional. Our industry is constantly evolving: our businesses, the technologies we use, as well as the habits and customs of the consumers, such as being permanently connected with their phones. These changes are revolutionizing the way we design our games. We must constantly renew and adapt to propose the most innovative and immersive creative experiences. For example, a game like Watch Dogs allows our players via mobile applications connected to the game console, to play anywhere and anytime; it also allows their friends who do not have game consoles to help them progress in the game. Our mission is to provide our players ever stronger and enriching experiences while finding technical solutions allowing us to reduce our costs and therefore our risk. To remain agile and ready to face these challenges, we actively invest in R & D in France and abroad.
C&S: Which factors do you think are the most disruptive of the game economy factors present or future: free to play, an actor like Steam, etc.?
Y.G.: The free-to-play model was born in Asia to circumvent the problems of piracy of the PC game business model. This model has experienced significant growth in recent years in Western markets. By removing entry barriers, it allows players to experience games and be free to invite their friends and invest if they like the content. This model has now gone beyond the sphere of casual games in which it was previously embedded to move towards more traditional experiences and platforms such as consoles. Ubisoft has been present in this segment for some years with games like Settlers Online, Howrse, and more recently with Trials Frontier, and The Mighty Quest for Epic Loot.
C&S: The Montreal studio set-up seems to be a supporting model of this industry. What elements of this support do you consider are the most strategic to strengthen the ecosystem of this sector?
Y.G.: Canada, but also other territories around the world, has been able to highlight craft, creativity and innovation as a driver of economic development. These territories were able to discern the many benefits that the digital creation industry and jobs with high added value could bring. In addition to the direct incentives, education is also specialized in these areas to form a diverse pool of talents. Two key factors in this success that are important in the eyes of the gaming industry are the unique efforts and the simplicity of public procedures.
Yves Guillemot founded Ubisoft in 1986 with his four brothers, and was named CEO of the company in 1988. Starting off by importing and translating video games from England, Yves and his brothers immediately used the distribution business to fund the creation of games, starting with Zombie in 1990 for Atari ST. Yves has overseen the phenomenal growth of Ubisoft into an internationally renowned and respected creator of quality video games with 29 studios, distribution in 55 countries and with more than 9,200 employees around the globe. For the 2013-2014 fiscal year it generated sales of 1.007 billion euros.
Born in Brittany of France's west coast, Yves grew up in a family of entrepreneurs. All five Guillemot brothers worked summers in the family agriculture supply business. Later, Yves attended business school in Paris, formalizing his education in the creation and sustenance of an enterprise. Yves is married and enjoys playing video games with his three children.
Published in COMMUNICATIONS & STRATEGIES No. 94, 2nd Quarter 2014
For more information about our activities: www.comstrat.org
COMMUNICATIONS & STRATEGIES
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.
Head of Research, Telecoms Business Unit, IDATE
From less than 40 EUR to more than 100 EUR per month for 100 Mbps access
IDATE’s latest report focuses on the services offered by telecom and cable operators via their FTTx infrastructures. It analyses the various speeds offered, the services included in the offering, pricing tiers and also highlights disparities between regions.
The speed race has not yet reached the finish line
Over the past few months, many operators have announced the launch of new offerings with even higher speeds, thanks to their FTTH/B networks. In the space of six months, no fewer than five operators in Europe have launched 1 Gbps offerings! Up until then, 100 Mbps was considered the norm for ultra-fast broadband (UFB), but now there are many offerings with 300, 400 or 500 Mbps speeds. These are not always very visible and are sometimes not even available as part of a bundle (this is the case with Verizon's 500 Mbps offering, which is only available as a stand-alone service). However, this strategy allows telecom operators using FTTH to differentiate themselves better from cable operators whose peak speeds are normally around 150 to 200 Mbps.
Segmentation of services: speeds and TV/video services prioritised
UFB players do not always go for strong segmentation based on available speeds. As a general rule, plans are built around 3 to 4 speeds, but for some, the offering is limited to 1 or 2 speeds, continuing on from the positioning they adopted in the traditional broadband market.
As for TV and video services, segmentation is sometimes stronger due to providing customers with themed packages (sports, movies, kids), especially for players from English-speaking countries. Generally speaking, telecom and cable operators from English-speaking countries have a very specific approach because they mainly promote video services and TV channels. Speed is only a secondary selling point. Their offerings are characterised by an increasing number of plans available with the ability to customise bundles (or, for more pragmatic players, to help select a pre-configured bundle).
In other regions, the approach seems more pragmatic, with fewer bundles and a more limited choice for end users.
With a lack of innovative services, prices are remaining stable
None of the players studied here offers a particularly innovative service. Most bundle add-ons, such as new set-top box features, cloud-based storage, antivirus, etc., are systematically added to the basic offering. Therefore, operators are unable to differentiate themselves from each other. A very small number of players, such as Altibox in Norway and HKBN in Hong Kong, are exploiting the technical characteristics of FTTH networks to offer genuinely differentiated services with symmetric upload/download speeds. In the short term, it seems very likely that speed (including symmetry, guarantees, faster speeds) will remain the main area to exploit for UFB operators.
This should impact prices offered, which have remained relatively stable in each of the major regions over the past year.
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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Jacques Bajon, Head of "Video Distribution" Practice
The battle for control of the user interface will only become fiercer. Device suppliers, pay-TV providers and software giants will move increasingly towards some form of coopetition.
Looking at the facts, Samsung has taken over Boxee, and especially its software knowledge, which is to be integrated into the South Korean’s smart TVs. LG acquired the WebOS platform from HP – which HP had earlier acquired from Palm – and made it the engine of its Smart TV portal.
If straight-up competition between proprietary platforms will continue to be the norm in the short term, market players will move gradually towards a more cooperative approach, and no doubt a series of agreements as mergers begin to occur.
Software giants will likely continue to make real strides, as they are in a good position to concentrate their R&D efforts on their core business, and able to leverage their app stores. Although still in a marginal position, the Android TV, iOS TV and Microsoft Windows TV systems could prove solid contenders.
Smart TV alternatives
The development of streaming sticks and smart TV dongles could be the first steps towards a new configuration for smart systems that are more flexible, and more connected to other equipment in the home such as tablets and smartphones. The purpose of these new bits of gear is to transform an ordinary television into a smart TV which, at the very least, could help accelerate users’ adoption of the services. Many run on Android and, in addition to the sector’s pioneers, a great many players are involved in the market.
Google Chromecast has been a driving force, rolling out an HDMI dongle that sells for only 35 USD, and which makes it possible to show content from a smartphone, laptop or tablet on a TV screen. The dongle has been a best seller in Amazon’s consumer electronics department. Sony and LG have also introduced an HDMI dongle, the aim being to bring the Google environment to their television sets.
Other solutions have been developed by Roku through a branded equipment programme, and by NTT DOCOMO and KDDI, both of which have unveiled solutions that allow their subscribers to watch videos and listen to music through their TV screens.
The end of the set-top box?
Pay-TV service providers are also examining the question of how to integrate the smart TV universe. Set-top boxes (STB) are being steadily enhanced with IP functionalities to allow them to interact with the world of OTT video. At the same time, the concept of operator-as-an-app whereby, in terms of access, the pay-TV package becomes just one application among many, is starting to take shape.
The ability to consume TV services without going through a set-top box initially developed on secondary (or companion) screens in the home, using applications developed for televisions, game consoles and streaming devices. The next question to be examined is whether STBs can also be removed from the equation for the main screen in the household. Only a small handful of solutions for virtualising the main set-top box in the home exist today, and all are still in the trial stage. Etisalat has developed just such a solution in the Middle East, in partnership with LG. TeliaSonera and Samsung have done the same thing in Estonia – their aim being to deploy their IPTV multicast solution in TeliaSonera markets (Sweden, Finland), if feedback from early trials is positive.
Taking the opposite tack, smart home solutions built around a multi-purpose central device are developing in the premium market, and particularly on satellite. The Hopper PVR from American satellite pay-TV provider, Dish, comes with a 2 Tb hard drive, a multi-tuner feature that can target the different sets in the home, as well as multi-screen functions.
IDATE’s latest report explores telecom carriers’ strategies with respect to Content delivery networks (CDN). It analyses the impact of telcos’ arrival into the CDN value chain, especially with respect to pure-player CDN companies and equipment suppliers.It concludes with an analysis of the market that telcos can expect to capture over the long term, especially in the realm of mobile solutions which today are few and far between.
Telco CDN: strategic business for telcos and two-sided market enabler
As internet traffic continues to grow, spurred in large part by video consumption, most incumbent carriers have become engaged in a strategy to deploy their own content delivery network (CDN), which is integrated into their access network. Telcos will use a fixed CDN for their internal purposes, to improve the quality of the content services they distribute. This allows them to earn revenue from users, notably on managed services like IPTV, to offload traffic and to reduce their network expenditures. As to mobile networks, we have not really seen any native mobile CDN solutions as yet, but rather fixed solutions adapted to mobile systems. We are nevertheless starting to see initiatives from mobile equipment suppliers such as Samsung and Ericsson, in partnership with Akamai.
Operators are using telco CDN as a way of shoring up their two-sided market strategies, by generating new revenue streams, notably from OTT vendors. In other words, operators are looking to to be both a both technical and economic solution to their development issues. But the way they are positioning their CDN is somewhat tentative, and they are struggling on the sales end of things when targeting media or internet companies, as both have a range of alternatives for distributing their video services, such as paid peering.
An increasingly complex CDN value chain
The direct competition that telco CDN are facing has more or less required them to embrace coopetition, and create partnerships with their rivals. Traditional CDN players developed their solutions to target telcos, offering CDN resale and managed CDN solutions as well as licensing schemes. Some operators, such as AT&T and Orange, stumbled when initially rolling out their own CDN, before turning to more long-established CDN players as partners, in particular via distribution deals.
So CDN market competition has heated up since telcos entered the fray, and become full-fledged links in the newly revamped CDN value chain. They are part of what is now a complex ecosystem where players often occupy dual positions:
• telcos are both rival and customer for long-established CDN players, in both the retail and wholesale markets;
• with respect to internet companies, telcos may be both their wholesale supplier and their retail market competitor;
• equipment manufacturers are also positioned in the value chain, targeting client telcos and competing with traditional CDN companies.
The CDN market is in the throes of a second wave of consolidation, which will result in an even more competitive environment as telcos acquire traditional CDN players, a case in point being Verizon’s recent takeover of EdgeCast.
Expected boost from mobile traffic and non-video services starting in 2016
Telco CDN accounted for a mere 0.7% of the global CDN market in 2013. But the long-term outlook is good, and they are forecast to grow by 90% annually over the next five years. 2016 is expected to be the year that operator CDN really take off, spurred by growing distribution on mobile networks and distribution of non-video content. By being indispensable players in the mobile ecosystem, telcos will be able use CDN to optimise traffic on cellular systems. The creation of CDN federations also opens up new opportunities for CDN market players to expand their footprint.
Tiana RAMAHANDRY, Consultant
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
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.