And the Implications for Brands

Transcription

1 February, 2010 The End of Television as we know it And the Implications for Brands Saul Berman, Global Lead Partner, Strategy and Change IBM Global Business Services This report is solely for the use of Client personnel. No part of it may be circulated, quoted, or reproduced for distribution outside the Client organization without prior written approval from IBM

2 As dollars continue to migrate to digital, Brands need to focus Beyond Advertising Consumer demand for digital video continues to rise, marking the end of traditional business and advertising models as we know them Brands will increasingly need both granularity in reach and integrated marketing strategies to reach consumers But business models and capabilities need to be put in place 2

3 In The End of Television as We Know It, we posit that disruption to the value chain is inevitable long-term Past Central programming Future Self programming Central scheduling / TV adjacencies Content networks oligopoly Linear-only advertising with CPMs TV set as the only screen Primarily ad-supported broadcasts Content freed from time Internet and mobile aggregators Tailored interactive advertising Anywhere screens Subscriptions and PPV revenues Platform-based release windowing One price fits all content / channels Monopoly/oligopoly p y for access Time-based release windowing Tailored content / channel bundles Access form telcos, Internet, others Your grandchildren won t know what a TV is Saul Berman 3

4 Demand for digital video is growing across the globe 100% Adoption and Regular Usage of PC and 90% Mobile/Portable Video by Country 81% 80% 73% 73% 70% 68% 65% 60% 50% 40% 39% 30% 20% 29% 23% 28% 20% 10% 0% Aus tralia Ge rm any Japan UK US PC Video Mobile/ Portable Video Watch at least a few times/month (usage) 4 Source: 2009 IBM Digital Consumer Survey. Total responses = 3300 across five countries: Australia, Germany, Japan, UK, US

5 But despite the new outlets for video distribution, new channel consumption is not additive to overall television consumption Impact of Online Video Viewing on Overall Television Consumption For those who have viewed videos online (Global) Please indicate how watching video content on your PC has impacted your overall television programming consumption Watch more 23% Watch slightly less TV 14% No change 55% 77% of respondents suggest they are watching the same or less overall TV Watch significantly less TV 8% 5 Source: 2009 IBM Digital Consumer Survey. Total responses = 2800 across six countries: Australia, Germany, Japan, UK, US

6 However, younger audiences in particular suggest it is cannibalizing traditional television viewing Impact of Online Video Viewing on Traditional TV Viewing US Respondents Segmented by Age 50% 40% Watch slightly less TV 30% Watch significantly less TV 20% 10% 0% Source: 2008 IBM Digital Consumer Survey. Total responses = 2800 across six countries:

7 Brands follow consumer-driven media fragmentation and shift spend to measurable, interactive channels 100% 90% 80% 70% 60% 50% 40% 7% 46% Advertising & Marketing Share E 13% 46% 27% 42% Share Change Alternative, Interactive Channels +20% (e.g. online advertising, branded entertainment, word of mouth marketing)) Traditional g Marketing - 4% (e.g. Direct marketing, promotions) 30% 20% 10% 0% 47% 41% 32% Traditional Advertising (e.g. TV, print, radio, outdoor) -15% (E) 7 Source: Veronis Suhler 2008 Communications Forecast, IBM Analysis

8 Companies therefore must focus on dual strategies to address distinct consumer segments mass market no longer suffices Consensus Endstate for 2012 Open Kool Kids Gadgetiers Content Access Generational Generational Chasm Limited Massive Passives Passive Consumer Media Control Involved 8 Source: IBM Institute for Business Value (IBV)

9 The implication is as growth of new services continues, new business models are required to address losses in traditional TV Lessons Learned from the US Traffic is exploding. Hulu has more monthly unique viewers than the top two largest US cable operators combined (42.5 million in October, 2009 vs. 37 million combined for Comcast and TWC) Revenue is minimal. Online revenues/thousand viewers estimated at 1/10 th of Broadcast 9 Source: D7 summit, CTAM 2009 Summit, UBS Pay TV analysis, LA Times, IBM analysis Source: D7 summit, CTAM 2009 Summit, UBS Pay TV analysis, LA Times, IBM analysis The impact is real. An entire generation is growing up, if we don t figure out how to change their behavior so it respects copyright and subscription revenue on the part of distributors, we re going to wake up and see cord cutting. Steve Burke, COO Comcast

10 As dollars continue to migrate to digital, Brands need to focus Beyond Advertising Consumer demand for digital video continues to rise, marking the end of traditional business and advertising models as we know them Brands will increasingly need both granularity in reach and integrated marketing strategies to reach consumers But business models and capabilities need to be put in place 10

11 Digital migration blurs the historical distinctions between advertising and marketing platforms There is no longer a clear distinction between marketing and advertising disciplines. Every contact with a consumer is now an opportunity to impact your brand/reputation as well as an opportunity to drive action. (CEO North America, Global l Advertising i Agency) 11 Source: IBM Advertiser Survey

12 Going Beyond Advertising means offering relevancy plus Integration for the consumer Evolutionary Business Models Insights ROI-DRIVEN ADVERTISING CONSUMER-CENTRIC MARKETING Level of Granularity TRADITIONAL ADVERTISING CROSS- PLATFORM REACH Impressions Single Platform Degree of Integration Integrated Cross- Platform 12 Source: IBM Institute for Business Value (IBV)

13 Relevancy: Consumers will trade information for value Willingness to Provide Information About Yourself 80% 72% 62% 60% 50% 49% 45% 40% 20% 0% Australia India Japan UK US 13 Source: 2009 IBM Digital Consumer Survey.

14 Integration: Consumers desire integrated content and messaging 100% Desire for Content Portability Across Devices (Global) 80% 60% 40% 41% 50% 58% 31% 20% 0% Total Kool Kids Gadgetiers Massive Passives 14 Source: 2009 IBM Digital Consumer Survey

15 As dollars continue to migrate to digital, Brands need to focus Beyond Advertising Consumer demand for digital video continues to rise, marking the end of traditional business and advertising models as we know them Brands will increasingly need both granularity in reach and integrated marketing strategies to reach consumers But business models and capabilities need to be put in place 15

16 Industry realities continue to hinder progress in moving towards consumer centricity Current Industry Realities NEW FORMAT UNCERTAINTY Industry Choices How to spend and allocate investments in light of current economic situation (e.g. targeting, video, social media)? FRAGMENTATION How to drive standards in metrics, processes, and formats? SILO D OPERATING MODELS How to integrate across platforms to offer consistency and relevancy to the consumer? DATA GLUT How to turn the explosion in information into realtime, actionable insights? 16

17 Competing in the new era requires new capabilities Historical Going Forward Creative Media centric development Cross-platform innovation Insights Data Glut Insights and Impact Collaboration Workflow Proprietary models Manual and analog Open collaboration Automated and digital processes 17

18 The music industry is a clear example of the impact of risk US $B $14 $12 US Music Industry Retail Revenues CAGR: -4% CAGR: -5% Historical CAGR Future CAGR $ $8 $6 $4 Digital 84% 19% (Internet, Mobile) $2 Physical -9% -12% $ (P) 2010 (E) 2011 (E) 2012 (E) 18 Sources: PwC Global Outlook ; Billboard Magazine; Apple Annual Report 2008; Nielsen; IBM Analysis

19 Lessons from music -- value was not lost, but shifted closer to the consumer the total industry grew by 7% Music Value Chain Create Manage Distribute Consume Service Record Labels Retailers Devices In-Home Services Global l CAGR* -3% CAGR -1% CAGR 18% CAGR 11% 2008 Size: $20 billion Size: $8 billion Size: $37 billion Size: $2 billion US CAGR -5% US CAGR -5% Digital Distributors KEY CAGR 118% Decreasing share Promoters CAGR 10% Increasing share Size: $4 billion US CAGR 90% Size: $13 billion 19 Sources: PwC Global Outlook ; CEA Market Research 2008; Veronis Suhler, 2007; emarketer, 2007; IBM Analysis CAGR is

20 Focus on multiple business models is required Revenue Innovation Models Payer Innovation Beyond traditional advertising Product placement Sponsorships Ad-supported Social media White label Pricing Innovation Differentiated pricing strategies Subscriptions Freemium Variable or dynamic Passport (shared access) Rent versus buy Cross-subsidy Product Innovation Seamless value chain experiences Bundled value chain integration Componentization (unbundling) Diversification Mash up 20

21 Revenue innovation models co-exist, with varying applicability by consumer segment Revenue Innovation Applicability in the Digital Era Gadgetiers Kool Kids Massive Passives Pricing Packaging Payer 2009 Revenue Size 2013 Revenue Size 21

22 In summary, the ongoing evolution of television and advertising will continually disrupt, and provide opportunity for players Media is moving beyond traditional models to consumercentric marketing Brands must evolve through dual emphasis on insights and integration Regardless of path, players need skills in innovation, collaboration, analytics and workflow 22

23 For more information: Saul J. Berman Global Lead Partner Strategy & Change Consulting IBM Global Business Services 23