Speaker key
DR Interviewer
JB Jolyon Barker
DR Hello and welcome to this series of podcasts produced by the technology, media and telecommunications industry group at Deloitte. In the following programmes, I'll be looking, with the help of some of Deloitte's senior partners, at what the future holds for these industries, 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. In this first programme, I'll be taking an overview of the issues facing the technology, media and telecommunications industries, with the help of Jolyon Barker, the TMT UK industry leader here at Deloitte. Jolyon, how did 2007's predictions fare then?
DR Well, I'd say that in general we've been pretty on the money. One of our predictions for the telecommunications sector was that the internet was in danger of running out of capacity at certain bottlenecks. And one of the most important industry discussions in 2007 was just precisely on that theme. If you look at the news stories on this topic, there's been a pretty prolific discussion in the press. For the media predictions, one of our views was that social networks needed to find ways to make money, and that one way that they could do that was by starting to offer privacy controls. I know that several of the larger social networks, over the course of 2007, started offering those controls or have increased their offerings. As a corollary to that, some of the attempts to dismantle that privacy were swiftly rebuffed, and awareness of the challenges of securing digital content in general, not just in terms of protecting content posted on social networks, but content in digital format in general, was very much in the news. One of the predictions that we had for the technology sector focused on the importance of the user interface, and of course two of the most talked-about products in 2007 were Nintendo's Wii and Apple's iPhone, both of which featured extremely novel and exciting consumer interfaces.
DR Well, there are plenty of predictions out there, and one commentator's mentioned that this time of year, early January, predictions are as common as marked-down mince pies, so how are Deloitte's predictions different then?
JB Well, we're very often asked how Deloitte's predictions differ from other predictions reports in the market. Our core objective with the predictions is to make their development as inclusive as we possibly can, and by doing this we hope that they stand out and that they're different. Our view is that, the more people we consult, the more people we get inputs from, the more experts we draw upon, the greater the chance we have of coming out with balanced predictions. So we ask colleagues, we ask analysts, we ask our clients around the world, what do you think, and we try and come up with an hypothesis. We then ask again, what do you think, and we review thousands of pieces of information, we look at them, we discuss them, we come up then with 10 views of how the market might change for each of technology, media and telecommunications. We test out some of those predictions in a column that we have in The Financial Times, and we then publish our collective thinking as of mid-December and we ask each reader, what do you think. We don’t claim to be right all the time, but the aim of predictions is really to provoke a good discussion and a good debate.
DR Well, Deloitte's made, what, 30 predictions for 2008 – which do you think are going to be particularly significant?
JB Rather than select individual predictions, what I'd like to do is pick out some significant themes, which I think run through the 2008 predictions. The first of those themes is digitisation.
DR Well, that's not particularly new, is it? No, digitisation's been around for a while now.
JB Yeah, no, and in a sense, that's a very fair reaction. But my response to that is the impact of digitisation varies each year. I don't think that we can ever get complacent about it. it's always changing both the nature of supply, so how products are delivered and how they're offered, but also the nature of demand, so what is it that people actually want to be using. Digitisation has, for example, enabled the online advert which, in its various forms, have really transformed and are transforming the business models of the media sector. The online ad has grown massively fast over the last few years, and it's now going to be circa a $40bn industry in 2008. But we think that there could be some obstacles to its continued growth.
DR What sort of challenges do you think it's going to face?
JB Well, in a sense there's a huge weight of expectation around the online advert, and the media world is gearing up to exploit and develop the opportunity that's sitting there. Everyone from the online television pure plays through to traditional media companies are all looking to get a slice of that pie, and it may just be in 2008, there is not quite enough of that pie to go around, with the huge expectations that exist.
DR People are very concerned about websites that track users' movements online, aren't they? Would this be a case here?
JB Yes, I mean, that's certainly another significant theme for us in the predictions that, as people get more familiar with how readily what they do online is tracked, we think there's going to be a lot more uncertainty, there's going to be a flight to privacy. And we're already seeing the first search engines offering non-tracking versions of their websites, so that your movements through the web can't be followed. And we do think that'll be a significant theme.
DR What about the credit crunch? We haven't talked much about that yet, and that must be a significant theme for 2008?
JB Yes, the credit crunch is a significant theme for us in 2008. And clearly we don't know the full extent of it at this point in time, and it's going to emerge over the next few months, and potentially over the next few years. But we have already seen a very significant reduction in the growth forecasts for some of the largest economies in the world. For example the US, Canada and Japan, I think we're looking at about a 25% reduction in their growth forecasts between June and December 07, and that has massive implications for our sectors. So in the telecommunications sector, there are two possible outcomes. One of them could actually be that that downturn that's caused by the credit crunch could actually encourage businesses to spend more on communications, particularly communications-based productivity solutions, such as telecommuting or offshoring. And on the note of offshoring, there's the possibility of very large deals, I think, in the media sector. In 07, we saw the first $1bn plus deal, where a large media company outsourced most of its back office and offshored a large portion of it. In 2008, we think we're likely to see more in the way of offshoring both of the core finance and HR roles, but potentially in areas such as digital post-production, which we could start see going overseas for certain types of movies, certain types of TV broadcast.
DR Yes. What are the potential problems of that sort of media offshoring, because some offshoring hasn’t been successful, has it?
JB Offshoring has enormous challenges, and I think in a creative, certainly within a creative sector, we wouldn't see creative roles in any way heading offshore. Is what you could see is that there are certain functional roles now that you can move data very rapidly between any point on the globe, but there are certain functional roles that can be distanced from the core operating team, such as a very large amount of post-production editing, because it can be viewed real-time in any country. So whilst the editing is taking place in India, for example, the production team can be watching it online in the UK or in the US. So it will have enormous challenges, I think it will be a voyage of discovery, and to be honest, it's been that for finance and HR as well, and for call centres in particular, where there was a huge rush offshore and then of course there's been a return back onshore [overtalking], yes, and to make sure that accents are right, that people really do get the customer service that they want. And I think in the media world, getting the absolutely right product in the creative environment is going to be the key focus. If that can't be achieved offshore, then it won't move.
DR In 2007, you identified tech going green as a theme. Has that been followed up in other sectors?
JB There are several predictions that we have that link to the green theme in 2008 as well. For the media sector, we've noted the growing power demand from devices, just in the living room. One forecast's predicted that the living room could represent half of the household electricity bill by 2020. Clearly there's an imperative and an opportunity for media companies in here, and consumer electronics device companies to market their products and services on the basis of power consumption. And it's an enormously complex area. And we see people's demand for digital technology rising so strongly, but we also recognise that the extent of carbon emissions is extreme, and we have to find ways in the home to bring them back. In the technology sector, one technology that could have a major impact on the environment is white LEDs, a semi-conductor technology that's far more efficient at generating light compared to the traditional light bulb, because major output is heat. As this is a semi-conductor technology, white LEDs may be subject to the economies of scale that Maw's Law [?] confers. So the cost of white LEDs might actually plummet over the next few years, and make a very substantial difference to the economics and the carbon consumption of homes. It's also worth noting in the technology sector, the whole evolution of nanotechnology, the science of the very, very small. It's being used for a growing number of environmental applications, from improving the efficiency of desalination, which is the process of converting salt water to fresh drinking water, to creating ultra long-life batteries.
DR Just before we wrap up, any other points you'd like to make?
JB Yeah. For us, we anticipate that 2008 is once again going to be a year of significant change, driven by both a continued transition to digital technology, but in an increasingly challenging environment. And despite that uncertainty, we think that the core engines of growth in people's desire to communicate, to be entertained, to be informed, are going to remain extremely strong.
DR Okay, well, we'll see how the crystal ball goes. Jolyon Barker, thanks very much. Well, that's it for this programme. If you'd like to read the reports in more detail, you can download them from deloitte.co.uk/predictions. Or you can listen to me discussing the reports in greater detail in the next few podcasts. Thanks for listening and goodbye.
