TMT Trends: Media&Entertainment Prediction 2007

The media sector has again had a vibrant year. As forecast last year, digital music’s popularity has continued growing, helped by the increasing range of online retailers and MP3 players. The television industry has also experienced much change, with the launch of ever larger television sets, a spurt in the uptake of high-definition equipment and huge excitement, though little revenue, from IPTV. The falling price of memory and processors has enabled further digitization of the media production process. The video-game market has seen considerable progress online, with rapid growth, albeit from low levels, of participation in virtual worlds. Radio has continued its reinvention, both in the expansion of digital services and the launch of new digital sets. Both audience fragmentation and convergence have offered challenges as well as opportunities for all media players. Meanwhile, consumers themselves have had a hand in changing the media landscape – the number of blogs worldwide now exceeds 60 million and user-generated video content has become headline news.

“The real world value of transactions taking place in virtual worlds is rising steadily, and is likely to continue growing through 2007.”

 

The outlook for the media sector in 2007 is similarly interesting. 2007’s Predictions cover:

• Making digital, user-generated content useful
• In 2007, digital, user-generated content may offer more of an opportunity than a threat to incumbent media companies. The more media companies take an opportunistic stance towards user-generated content, the more they are likely to be able to exploit its potential value. The industry should consider, for example, how such content can be incorporated into traditional media formats.
• Profiting from participation in television
• The television industry should not regard participation as a panacea. However effective deployment of participation programming could have a significant impact on audiences, loyalty and revenue, even in developing economies.
• Cracking China’s media sector
• Media companies targeting the Chinese market should have a realistic view of opportunities in 2007. China is a unique market, blending opportunity and challenge like no other country. Entering the Chinese market is likely to be quite different to any other in terms of scale, approach and timeliness. A copy and paste approach to targeting China, based on attempting the same business model as in a media company’s home country, is unlikely to succeed.
• Paper, pixels and profits
• Publishers and other media companies should create a balance between paper and pixels. The sector should assume that it may take many years, or even decades, for the Internet to match the accessibility of paper. Even then, readers may often prefer to curl up with a good book, newspaper or magazine, rather than remain hunched in front of a monitor. In the meantime, profitability from both paper and pixels is possible if companies reinvent traditional formats, developing new products and services both online and in print.
• The digital tail comes in many shapes and forms
• Media companies should embrace the long tail, while recognizing its limitations. To many in the media, the long-tail phenomenon has been embraced as a panacea. Even if new releases do not turn into blockbusters, the long tail means that the back catalog has the potential to become a more productive and potentially profitable line of business, less prone to the seasonal sales spikes and massive marketing costs of new releases.
• Video-on-demand may leave you waiting
• Media companies should consider VOD to PCs as one of a growing number of distribution channels. It is not be heralded as a panacea. The available market that could receive VOD, to any device, remains relatively small. While there were an estimated 285 million consumer broadband connections in the world by the end of 2006, only 14 million were regarded as fast enough to support high-quality VOD.
• Analog apples and digital oranges
• Media companies, advertisers and even telecommunications operators have been keen to tap into new media’s potential. In 2007 they should continue to do so, but ideally when informed by using only statistics that are directly comparable.
• Media’s never-ending quest for value
• Determining price in the media sector appears especially challenging. Pricing strategies may need to be tailored to each market, by demographic or by income level, as the price that each of these segments is prepared to pay is driven by a growing array of factors.
• 15 Megabytes of fame; one gigabyte of privacy
• Social networking companies should move rapidly to expand both the appeal and the revenue-generating capacity of their services. Advertising revenues may not suffice, not least because more established media are likely to continue to perform well, and attract the lion’s share of advertising dollars100. Moreover, advertisers are unlikely to be keen to associate their brands with the often questionable contents of unmoderated social networking sites, and some users may not care to have their social experience tainted by adjacent advertising messages.
• Virtuanomics
• Virtual fantasy worlds have become a serious business in their own right. Consequently they are now attracting the interests of advertisers and even media companies.

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About the report

The methodology used to generate the Predictions series is revisited every year. The 2007 series of Predictions has included inputs from conversations with member firm clients, contributions from DTT member firms’ 5,000 partners and managers, specializing in TMT, and discussions with industry analysts. This series of Predictions has incorporated two additional sources.

The first is a series of 36 interviews with leading executives from around the world, on the key industry theme of convergence. This global primary research exercise, spanning the TMT sectors, produced a wealth of insight, much of which is reflected in many of this year’s Predictions.

The second source is a column, Drowning by Numbers, that the Financial Times invited Deloitte & Touche LLP in the United Kingdom to write on a fortnightly basis. Some of the ideas for Predictions have been tested in this column.