Top media predictions: Digitalization, the main challenge of media players

A new reality in the Romanian media industry

“The more or less controversial developments at the end of 2009 and the uncertainty that followed laid a grim perspective for the Romanian media industry in the beginning of the year,” said Andreea Zoescu, Audit Manager with Deloitte Romania. “No matter how unsettling these changes might have been, it is obvious that the local industry needs and will undergo restructuring based on new realities. Implementing new technologies and adapting to constantly changing consumer expectations will prove vital to any business strategy; however, the quality of content and the reputation associated with a high level of professionalism remain the main criteria of differentiation,” said Andreea Zoescu (photo), audit manager with Deloitte Romania.

Deloitte’s Media Predictions have been drawn on internal and external inputs including conversations with TMT companies, contributions from Deloitte Touche Tohmatsu member firms’ 7,000 partners and senior practitioners specializing in TMT, discussions with financial and industry analysts, and conversations with trade bodies. The result is a comprehensive guide of what can be expected this year and in the years to come, so as to provide industry executives with the right premise for a long-term and solid business strategy.”

1. Linear�s got legs: the television and radio schedule stays supreme

In 2010 most video and audio content will continue to be consumed linearly (that is, according to broadcasters’ programming schedules). Over 90 percent of all television watched and over 80 percent of all audio content consumed will be via traditional broadcast.

Linear’s lead may actually increase in 2010. Generally speaking, the purchase of a new piece of television equipment, or the launch of a new service, such as high-definition (HD) or a movie channel, stimulates consumption.

In developing countries, sales of new television sets have been particularly strong. In these countries, the progress of broadcast television is evident because of strong growth in advertising revenues. In many markets, HD adoption rates are progressing steadily.

2. The shift to online advertising: more selective, but the trend continues

Online advertising spending will not only grow in value but is also likely to grow substantially faster than the total advertising market. Although recession has affected this segment as well, causing a 5% drop in revenues last year, this was still a much smaller decline than almost any other advertising category. In other words, even though online growth was negative, it continued to gain share.

According to predictions, online advertising will grow from roughly 10 percent of the overall industry at the end of 2009, to 15 percent by the end of 2011.

Based on their performance in the first half of 2009, the traditional media industries that seem the most vulnerable to losing share to online are magazines and newspapers, with radio and outdoor in the middle, while broadcast seem to be the most resilient.

The online offensive within the advertising industry is likely to affect the traditional advertising model, thus leading to possible sharp and permanent reductions in revenues and margins. In that case, the entire advertising and ad-supported ecosystem would need to consolidate, control costs more aggressively, and seek new business models.

3. eReaders fill a niche, but eBooks fly off the (virtual) shelves

In 2010 standalone eReader devices will likely sell five million units globally. Meanwhile, electronic versions of books (eBooks) could sell as many as 100 million copies.

However, more eBooks may be read this year on PCs, netbooks, smartphones and netTabs than on single-purpose eReaders.

The success of eBooks poses a potential challenge for authors and publishers as well. Although eBooks are easy to purchase, the low price for the average title suggests that the economic model is changing.

Lower price points are not new in the publishing industry, but these have tended to be restricted to a few books, not hundreds of thousands of titles. New revenue-sharing models are probably necessary.

4. Publishing fights back: pay walls and micropayments

In 2010 the newspaper and magazine industry will continue to make noises about charging readers for the online portion of their business. But that talk is unlikely to be matched by actions or results. Only a small percentage of titles worldwide are likely to even attempt to implement pay models, and even fewer are likely to do so profitably.

There will likely be at least a few online pay initiatives that result in high-profile successes, although they may be the exceptions that prove the rule. In short, across the entire publishing industry online revenues will continue to consist mainly of advertising. Online readers might be willing to pay but only if the content is good enough.

The practice of making the entire publication available for free online seems to be accelerating the decline of high-value print subscribers. The more likely outcome for the industry will be a mix of models motivated not (in most cases) by the revenues generated, but by the need to reduce ongoing cannibalization of existing print subscribers.

But the most important strategy will probably be to continue to retain as many print subscribers as possible and hope for a recovery in print advertising linage.

5. TV and the Web belong together, but not necessarily on the same screen.

Efforts to converge two of the biggest media distribution platforms - the Web and TV - will intensify in 2010.
But the main agents of this fusion are likely to be the user, the content producer, and advertisers rather than an integrated device.

One of the major beneficiaries of increased simultaneous usage of the Web and television may be advertising.

In 2010, global television advertising is expected to be worth 180 billion Dollars, while global online advertising is projected at 63 billion Dollars. One study found that using online and television together resulted in 47 percent more positivity about a brand than using either in isolation.

Commercials viewed on television can direct viewers instantly to websites; it is now possible for a product seen during an advertising break to be purchased before the program resumes.

6. Music as a service rises up the charts

While demand for music in general remains strong and wide-spread, the CD is no longer a vehicle for growth, but rather a collector’s item in the long run. As a result, premium subscription music services should be regarded as complementary and positive, not as a last resort.

Such services should finally start to thrive this year, with the number of paying subscribers - as opposed to individuals who simply register – expected to exceed 10 million for the first time.

Online and offline access through mobile phones and other portable media devices across all major platforms should be a key driver of adoption.

7. Video-on-demand takes off � thanks to the vending machine

Amid the global digital revolution, some old technologies seem to “age well”.

The vending machine for example proves it can still add value over a century after its invention when it comes to DVDs distribution. According to the Deloitte report, the volume and value of DVDs distributed via vending machine will double in 2010, mostly due to additional capacity. Key drivers for the success of the DVD vending machine include price and ease-of-use.

Vending machines are likely to be deployed in locations with high foot traffic, such as fast food outlets, convenience stores and subway stations. The more vending machines that are deployed, the more places DVDs can be rented from and returned to.

8. One step back, two steps forward for 3D TV

Following a bumper year for 3D at the cinema, DTT TMT anticipates that expectations will be high for an equivalent 3D-fueled boost to the television sector in 2010.

This year should see several significant firsts for 3D television, including the launch of the first 3D TV channels in Europe and North America, the launch of numerous 3D-capable television sets or the launch of integrated 3D cameras.

However, this start will be marked by significant challenges. While the potential for 3D to bolster the television industry’s revenues is strong, by year-end subscriber numbers, subscription and equipment revenues, as well as available content are likely to remain negligible.

Much of 3D TV’s initial challenge will likely be due to customer confusion, with the lack of a single 3D TV standard serving as the central obstacle. A key objective should be to agree and promote a single definition of 3D television.