Speaker key
DR David Riley
HD Howard Davies
DR Hello and welcome to this series of podcasts produced by the technology, media and telecommunications industry group at Deloitte. In this programme, we'll be looking at the media industry, and asking what the future holds. These programmes are based on the predictions reports, which you can download from deloitte.co.uk/predictions. The reports are based on thousands of different inputs, ranging from conversations with clients to ideas provided by Deloitte's 6,000 strong global technology, media and telecommunications teams. Some of the predictions have been tested in a regular Financial Times column called Drowning in Numbers, written by Deloitte. Joining me today to talk about the media industry is Howard Davies, who is leader of the media strategy practice. Well, Howard, much of the report seems to focus on online revenue and particularly the move away from banner advertisements. Is that right?
HD That certainly seems to be the case. Historically, the industry grew up through banner advertising. One of the great challenges now is that the average user, so you or I, looks at those and ignores them. So where the industry is developing is to try and think about new innovative forms of online advertising that will allow them to capture the revenue, but in not such an intrusive way.
DR So people are less happy about having their online activity tracked then?
HD Well it certainly seems to be a growing concern. If you look at what's recently happened with some of the social networking sites, they have enraged their audience to some extent by appearing to either implicitly or in some cases explicitly, to track and monitor the behaviour of their users, and so to target advertising explicitly. I think one of the challenges, though, is that, as a consumer you know there's a trade-off between the price you pay for content and the fact that, if you don't pay any money for it, you sort of have to have it funded by advertising. And I think implicitly we accept that. The trick seems to be to get advertising that is relevant to the user, so that whilst it's somewhat of an annoyance, it's not too bad.
DR And do you think people will accept more advertising this sort of way than if it's more relevant to them?
HD Where the industry is trying to get to, and you may have heard this, is something called behavioural advertising, where instead of just presenting you with adverts that are in some way tailored to you based upon your socio-demographic status, age, they're much more tailored to the things that you've been doing. So, for example, if you've been searching on new car websites over the last half an hour or so, then they’ll recognise that, and some of the adverts you'll start to be served will be to do with loans for cars and insurance for cars, which is much more of a closer linkage between activity that you've demonstrated and potential buying power of the future. So in that respect, the industry is responding quite well.
DR If internet, the rise of the internet TV is taking place, but on the other hand, traditional TV is fighting back, isn't it to a certain extent?
HD Well, I think internet, you have to be a bit careful in the way that you describe internet TV. I mean, internet TV can just mean watching normal television via a computer, delivered down an internet pipe, and that's what the BBC are doing with the iPlayer, effectively. There are then sort of hybrids of internet TV which are more to do with a closed selection of content, that that's the only place that you can watch that content. And I think, you know, they're developing in different ways. So the former I gave you, for example, the BBC iPlayer, is really just an opportunity for people to catch up on programming that they would otherwise have seen on scheduled television, but they were out and about, and this is a god way to catch up later in the week. In the more sort of closed-wall garden example I gave you, that often gives people the opportunity to see content that would not otherwise be available to be seen in the UK, so some American content, some niche sports content. And that seems to be developing quite nicely into a proposition that allows particularly niche audiences, niche interest audiences, to see programming that's very relevant to them but wouldn't be relevant for the whole of the UK community.
DR Let's move on to e-books, and in particular e-reference books, because there seems to be an opportunity here, with digitisation, that digitisation can offer something extra. Is that true?
HD Well it's certainly interesting. I mean, I've watched probably for the last 10 years people talk about the e-book in some way or e-paper – I distinctly remember seeing some professor from MIT standing up with an early hybrid of it. And, you know, one of my challenges with the e-book has always been, I'm carrying around a paperback book here, it was useful to read on the train, and it only cost me 8.99. If I'd have lost it, it would have been a shame because I was only halfway through it, but it wouldn't have been a disaster. And one of my problems with the e-book for the sort of mass population has been, are you really going to spend £50 or £100 on something which, if you lose on the train, you've lost it. It's not that easy to read anyway. With the point you made reference to, though, the e-reference book, is, I think, much more interesting. If you're a medical student or a law student, I mean how helpful to be able to have all your textbooks for your first three years of your university course or your first two years as an SHO, carrying around with you in one place. I mean, that's sort of the most simple understanding of it, but how much more powerful if you can search for a particular medical term and it will, you know, search across every single publication you've got stored on that e-book, and provide you with some sort of synthesis from it. So it certainly seems to me that the e-reference book may be a much more likely practical use of the e-book technology than seeing trainloads of people staring at computer screens.
DR Let's move on now to the cinema, or as it's sometimes called the movie theatre.
HD Yes.
DR How is digitisation going to affect it here, and how much is the digitisation going on in cinemas?
HD There is technically the capability to show films projected through a digital projector in theatres now, or in cinemas now. The technology is quite expensive, both in terms of projection technology and in terms of the storage technology. But undoubtedly that is the way in which the market should develop. What it allows cinemas to do is to hold films for much longer on their own archives, and it allows them to therefore schedule showing which is a much more consumer or audience-demand driven, rather than film scheduling. So pretty much the way that normal cinema works today is that you book in advance of reel of film that comes for two weeks, and you can only show it in those two weeks, and therefore you sort of have to pre-plan how many seats and what types of theatres, and it doesn't really allow you to respond to the fact that maybe lots of people want to watch it over six weeks, but only 100 at a time. So digital gets round lots of that challenges. Digital in theory also allows you to improve the quality both of visual image, but also for sound. Now, practically, whether anyone in the audience will notice that, I don't know, but it certainly seems to be a way in which some theatres are beginning to develop. The other point you made, if I may come back to it, was around the movie theatre. And it's interesting, because that sort of describes a theatre in which you watch movies. One of the things that we believe is going to happen more and more in the next 12 to 24 months is that those theatres will be used for screening other events that aren't really just movies. You've started to see this already now with some big, live music concerts which are also sort of parallel screened in theatres, in cinemas. And given what's happening in the music industry in particular, where most of the revenue in CDs and DVDs and downloads is shrinking, and the premium products is increasingly becoming the live performance, then what this development allows more people to experience that live performance, although technically not quite in the original venue. But it does also allow the record labels and the artists to, you know, get a greater return for their activity.
DR As we look at some of the other themes in the report, piracy is a continuing theme, and the suggestion that perhaps casual piracy may be being reduced. Why do you think that is?
HD I mean, it's quite interesting looking at how the piracy angle is developing. One thing that really brought it home to me in the last three or four months has been when Radiohead launched their latest album, many of you may know they made it available in two forms. They effectively said, you can download it and you can pay however much you want for it. They set that as a, in theory, you could have it for nothing, or you could give them as much as you wanted. And they also then said, there's a premium product you can buy, which is a leather-bound, double CD, and that's £40, I think. But they've now issued some figures as to how well it was taken up. It turns out that most people paid £1 or £2 for the download, which might sound, on the face of it, like they've lost an incredibly large amount of money, certainly compared to the £9 or £10 you might pay for the CD if you were to buy it on the shelves. In reality of course, two things have happened. One is that they have probably reached an awful lot more consumers than they would ever have reached at £10, classic price demand elasticity point. But also, actually for them to take £2 is probably not far off the margin they would have got off the £10 CD anyway. So they may not be down in pocket. What I think is more interesting, though, is that they've begun to position a sort of two-tier product set. Nearly, to my mind, the download is being positioned now as a, you can have that for free; actually it's not worth that much either. If you're a real diehard fan of this particular band or film, then you really want the box set, you really want the luxury version. And so I think it's interesting how that market may develop. And I think downloads may just end up being repositioned as a sort of second-tier product.
DR What about the green aspects of the report? There's some concern over the living room becoming a major consumer of electricity?
HD I mean, it's clearly an issue. What I'm not sure about is, when you look at it from the outside in, you can certainly add up a very scary amount of electricity that's used on the green agenda. I think one of the challenges will be getting the individual consumer to take that fully into account when they're making their micro decision as to, do I buy this television or that television. I suspect that pressure will come on the industry as a whole to reduce its emissions and improve the energy usage of its technology, rather than it being a particular buying point between one or two different competing offers.
DR Okay. And there were just a couple of points about the rise of the citizen journalist, what was meant by that, and farming talent from the web.
HD Most news organisations are limited to some extent by the breadth of their, you know, their journalist coverage, their bureau facilities. And, you know, whilst they are very, very good in many respects, they usually lack two aspects. One is that it's not always possible to have someone on the ground at the very latest breaking news thing. and secondly, they are professional journalists and that gives them a very good stance from one angle, but actually increasingly, people are beginning to value or at least be interested in the opinions of amateurs, other people like them. So our views on the rise of the citizen journalist are quite simple actually. We think that there is a small number of people out using the web today as bloggers or as just casual observers, that have the capacity to be interesting as, you know, semi-professional journalists. Whether that ultimately means that they end up being a sort of talent for professional news organisations, or whether I means that they retain their amateur status but just become somebody whose opinion is respected by others, you'll start to see more and more of that.
DR Oh well, I hope it doesn't happen too soon from my point of view [laughter]. Howard Davies, thanks very much. And that's it for this programme. If you'd like to read the report in more detail, you can download it from deloitte.co.uk/predictions. Please join me as I discuss the other reports in the other podcasts. Thanks for listening, and goodbye.
