Monday, January 19, 2009

Guest Post: Financial Crisis Accelerates Change In Global Media Landscape

This is an experiment of sorts. Since my new day job keeps me busy (read: keeps picking my brain), here is the first in a series of guest posts from a like-minded friend and industry specialist, John Goedegebuure. He is an independent new media consultant and is related to United Content Distributors as adviser on public relations and special projects.

In a recent article by Reuters’ columnist, Eric Auchard, it is questioned if the current tough times are drawing TV-viewers to the Web. Budget-conscious consumers are no longer massively going for each and every new communication gadget or media service, as they can now find an endless range of alternative cost-effective online substitutes for broadcast, cable or satellite TV.
Is it really the 2008/2009 Financial Crisis that brought on this alteration in consumer behavior or has the change been in the works for quite some time?
To established media service providers it might come across as a revolutionary move, however to me it seems merely an evolutionary trend, which is accelerating due to the economic downturn.
Evidently providers have for too long ignored signals from an increasingly growing group of unhappy subscribers and have denied to recognize the impact of upcoming online media services on their customers’ viewing habits.
Consumers do not necessarily want more (of the same) TV channels and most certainly don’t want to pay subscription fees to receive “unwanted” programs and channels. Have we not all heard and said “now we’ve got all these channels, how come there’s nothing worth watching on TV tonight?”. The overkill of TV commercials has always been frustrating to the TV viewer and hence further increased by an overload of pseudo-commercials, pre-announcing upcoming shows. And if a specific TV format finally turns out to be successful on one channel or network, then within the shortest of time, viewers are confronted with a multiple of “clones” featured on other channels.
Conventional TV entertainment as we know it, has become too much of a push of unwanted (and unwillingly paid for) content.
In recent years, TV viewers have bit by bit discovered the possibilities of the Internet and are now increasingly pulling wanted content towards them, at their own convenience. So is it surprising to see consumers drifting away from (packaged) entertainment services offered by the traditional providers?
The savvy media consumer perceives to finally be in control of his own media consumption and most importantly in this day and age, is meanwhile spending less money.

Wake-up call
What should be considered a wake-up call to TV providers, is that a recent survey on media consumption habits, conducted by Deloitte, suggests that the so called digital switchover may already be occurring right before our eyes, as a majority of US consumers aged 14-75 already see their PC as more of an entertainment device than the TV.
The traditional “couch potato” appears to be rapidly converting into a cost-conscious media consumer, which implies that conventional market players shall have to act swiftly and adjust to the “new rules” currently being set by the consumer masses.
The question being, can they and are they willing to?
Over the last couple of years major cable operators established a strong market position as provider of high speed internet services to their existing TV customer base. Most cable TV operators, therefore should be able to deliver web-based personalized entertainment services to their customers, however the downside is, that this could have a negative impact on existing revenue streams.
Package subscription fees lock in guaranteed revenues for a longer period of time and pay-per-view fees obviously generate less income in the short term.
Satellite TV providers are in a much less envied position, as they are often not in a position to deliver high speed services unilaterally. In most situations they will be forced to team up with one or more Internet Service Providers.
Telecommunication providers, on the other hand are well positioned, as they are often seen as the region’s primary provider of telephone and data services. However in this era of triple- and quadruple play, much also depends on the delivery of TV services. In that respect it still is surprising to see that most IPTV services offered by telcos often appear as clones of cable TV offerings.
If the battle between telecom providers and cable operators is going to be fought around the consumer’s cost-consciousness, then this will undoubtedly unleash a whole range of new innovative services and applications for consumers to choose from.

Addressable Advertising

2007

2008

2009

2010

2011

2012

Content-Based

$38.0

$34.5

$31.0

$30.0

$30.8

$31.5

Growth %

-

-9.2%

-10.1%

-3.2%

2.7%

2.3%

Percent of Total

47.4%

46.4%

43.4%

40.8%

39.4%

37.1%

Customer-Based

$17.2

$17.0

$18.5

$19.0

$20.0

$21.5

Growth %

-

-1.2%

8.8%

2.7%

5.3%

7.5%

Percent of Total

21.4%

22.9%

25.9%

25.9%

25.6%

25.3%

Geographic-Based

$22.0

$19.5

$17.5

$18.5

$19.5

$22.0

Growth %

-

-11.4%

-10.3%

5.7%

5.4%

12.8%

Percent of Total

27.4%

26.2%

24.5%

25.2%

25.0%

25.9%

Hardware-Based

$3.0

$3.3

$4.5

$6.0

$7.8

$10.0

Growth %

-

10.0%

36.4%

33.3%

30.0%

28.2%

Percent of Total

3.7%

4.4%

6.3%

8.2%

10.0%

11.8%

US Total (US$ B)

$80.2

$74.3

$71.5

$73.5

$78.1

$85.0

Growth %

-

-7.4%

-3.8%

2.8%

6.3%

8.8%

Source: In-Stat, 1/09.



























Are advertisers reacting to market changes?
The consumer market, due to its structural change, has started to build up pressure on TV service providers to alter their consumer offerings towards a more personalized entertainment structure (less fixed package deals and more flexible on demand possibilities).
The trend has already been set and the economic downturn could further accelerate this move. Globally, internet Video On Demand sites such as Hulu (US), BBC iPlayer (UK) and Uitzending Gemist (Dutch Public Broadcasting) already clearly show that considerable consumer demand is out there with viewing numbers rising month by month.
The key issue is, how advertisers and program sponsors are going to react if viewers increasingly turn away from conventional linear television and start moving further towards paying-per-view?
The market share of hardware based advertising (end user identification) is expected to grow from 4.4% in 2008 to 11.8% in 2012. This being an early indication that brands will be focusing more and more on targeting the consumer directly, i.e. the first signs of advertisers actually implementing new marketing strategies. If personalized advertizing is expected to be the future direction of the market then it becomes inevitable that video offerings (in whatever format) will have to follow this consumer centric trend.
Already studios and content owners have made the first steps, using the Internet to directly address target groups.
Is it realistic to expect these changes to take place in the current global economic environment?
History learns us that previous economic recessions (including the 1930’s Great Depression) were often the breeding ground and starting point of new innovative products and trends. During the recession of 1980-1982, IBM introduced the Personal Computer, shortly followed by Compaq one year later. That same period saw the launch of CNN, MTV and Disney Channel, to name just a few.
The current economic situation might lead to the pendulum swinging from provider centric offerings to consumer centric offerings and thus definitely changing the global media landscape, as we know it.

Equipment manufacturers
TV set manufacturers are also looking at ways to tackle the change in consumer media consumption. One of the main topics at this year’s CES was the introduction of a new line of “TV+(integrated) internet connection” by almost every major manufacturer. A line-up of projects is displayed on www.videonuze.com
This new breed of beefed-up TV’s is indeed in line with the current consumer trend. However it requires convincing the consumer to cough up hundreds (if not more) of Dollars, Pounds or Euros, which considering today’s economic climate, is not easily achieved. Most of the products announced still embrace a walled-garden principle, whereby the provider (manufacturer) decides, which content the viewer will have access to or not. The cost-conscious consumer however prefers to be in control of his own media consumption.
Most product-offerings put the emphasis on services and not on the hardware, thus simultaneously degrading the “new hardware product line” to a mere commodity. As so often with commoditized products, they tend to show a declining price line, which ultimately has a negative economic effect on equipment manufacturers.

Services are the differentiator
So if it’s all about services, then why not simply connect the existing TV set to the Internet and provide the services as an over-the-top product or as an additional service, without making all these capital investments?
Already a large number of Internet-TV devices have been introduced to the market and it is still too early to tell, which product will be commercially successful or not.
The new breed of cost-conscious media consumers, prefers to spend money on applications and services and limit the expenditure on hardware. A Dutch company, United Content Distributors, recently introduced an innovative product, Daily Media, which is fully in line with today’s trend, as it does not require any upfront investment from the consumer.
Daily Media, is an interactive marketing concept based on an open IPTV platform, integrating the Internet with traditional TV, enabling the TV play out of web based content, ranging from internet TV channels to On Demand video and User Generated Content.
The hardware (a media center) is provided to the consumer for free and distributed by partners via corporate loyalty- and retention programs.
Daily Media is not marketed as a competitive product to existing services of telcos, cable operators and ISP’s. Instead, the product is complementary to the services currently being offered and can easily be implemented as an “over-the-top” add-on.
Daily Media actually converts the traditionally passive TV into an active media consumer, which makes the platform especially appealing to advertisers and marketers.
Gerry Kaufhold, principal analyst at In-Stat, said “Daily Media is ideally positioned to establish itself as the pivot in the global media ecosystem , as it enables brands to effectively execute advertising and marketing campaigns ranging from content- to hardware-based advertising”.
Early results from the Daily Media consumer field tests in Rotterdam, Netherlands show that consumers are actively using the platform, which plays straight into the hands of advertisers.
“Advertising waste can be lowered considerably if brands can reliably track consumer-behavior on a user level. Certainly in the current economic slowdown that should be appealing to marketers”, according to Kaufhold.
The year 2009 could mark the start of the “Era Of Personalized Entertainment”, so consumers will no longer have to question if there’s anything on TV tonight, but simply have to ask themselves what THEY shall watch tonight.


Illustration provided by: In-Stat, a division of Reed Business Info, reflects total spending on TV advertising in the USA will continue to drop in 2009 and increase from 2010 onwards. Growth is estimated to come almost entirely come from targeted advertising. The amount of dollars spent on generic content-based advertising is expected to decrease considerably in 2009 and only slowly increase from 2011 onwards.

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