Smartphones and tablets are having a dramatic impact on the digital media experience. They’re creating a new world in which content is available on-demand and can be streamed anywhere and anytime. It’s this immediacy of online content that is the game changer for the media sector and, combined, these forces are changing the way people consume television, music, movies and news.
KPMG International’s recent Digital Debate survey of 9,000 consumers in nine countries revealed that 70 percent feel the choice of digital content is broader than that offered by traditional media. In developing countries, adoption is even more profound: a recent Nielsen report found 39 percent of China’s mobile subscribers and 43 percent of Brazil’s had viewed mobile video in one 30-day period. The writing is on the wall for established media companies—both content owners and content distributors. Over the next several years, they will have to adapt to this increasingly mobile world. The question is, will they define that future or will it define them?
Newspapers experienced this new reality most painfully of all. For years, newspaper advertising revenues have been cannibalized by the internet. As mobile devices took off, the impact became even more acute as readers accessed their news anywhere, anytime they want. Many newspapers have tried to stem the tide by instituting pay walls, but the revenue from digital subscribers is like trading dollars for pennies.
The record business experienced a similar disruption when Apple’s iTunes* came on the scene in 2001. Apple* makes about 30 cents on the dollar as an aggregator for the music industry—and with 25 billion songs downloaded as of February 2013 that’s a great business. The record companies take on most of the risk of signing and promoting artists, while Apple digitizes the content and presents it for sale. Apple continues to dominate the music aggregation business, facing off against the likes of Amazon for downloadable music, and upstart streaming services like Spotify and Pandora.
In the equally venerable world of film and television we’re seeing a similar scenario take shape. Content owners and their distributors—cable companies and satellite providers—have lived in relatively peaceful co-existence, each dependent on the other. While online streaming services like Netflix have shaken the landscape, content owners have been quite satisfied to license their media for online consumption and create a nice incremental revenue stream, that is as long as it is incremental. They like the current model because there is inherent risk in change, and they’re dependent on the existing ecosystem to bring in enough revenue to justify the cost of their content.
If online streaming is simply additive, content owners will continue to reap the rewards of yet another channel to market. There is a potential dilemma, however: if consumers start to move increasingly towards streaming through mobile devices—as evidence suggests that they are —content owners could lose some very profitable revenue streams.
Meanwhile, for the traditional distributors and aggregators in the cable and satellite business, online streaming offers a method for going around their infrastructure. The big question for that group is: how do we maintain our position when online availability can shut us out?
Content owners should be concerned about any new model that lowers the pricing of their content. They also need to take a serious look at creating new revenue opportunities by developing a direct to consumer approach that gives them a bigger share of consumer spend on their product than the current model does. But how do you do that?
Hulu (a joint venture of NBCUniversal, Fox, and Disney) offers one such example by streaming on-demand content from several major studios and networks. But gaining consensus among a group of highly competitive industry players has proven difficult. Case in point: CBS continues to be the key Hulu hold-out, only delivering classic or cancelled shows through the platform.
Ultimately, all roads lead to the consumer. They will drive how content is consumed, and the market will have to adapt to that new reality. Content companies need to plan for the future and not assume they have control. There is both upside and risk in changing to meet consumer demands for content consumption. Consumer preferences may influence content providers, distributors and aggregators to the point that they have to take significant risks in order to stay competitive. Then the question becomes: do they want to sit in the same position they are now, or take advantage of the change and get a bigger piece of pie?
The key is to devise a plan that keeps as much profit in their pockets as possible. Cooperation within the ecosystem will be vital to creating a direct-to-consumer model, or a new relationship between content owners, distributors and aggregators or - most likely - some combination of both.
By Paul Wissmann, Head of Media & Telecommunications, KPMG in the US
* Apple is a trademark of Apple Inc., registered in the U.S. and other countries.