Media and entertainment organisations need to sort out their digital strategies, according to the inaugural Global Entertainment and Media Outlook 2011-2015 report from PriceWaterhouseCoopers. But, as always, it's a matter of figuring out new ways to turn a profit online, something that will require traditional media organisations to ‘shed conservatism’ if they hope to get with the digital times.
Drawing on historical data from trade associations and publications, government agencies and other industry sources, PwC analysed recent trends and the factors driving them. And the study says we're trailing behind other countries in the shift to digital, although this isn't necessarily a bad thing. In fact, it allows us to learn from the successes (and failures) of our global counterparts.
- Download the full report here. New Zealand Entertainment & Media Outlook
PwC assurance partner Keren Blakey says traditional business models are being challenged, providing opportunities for emerging and "agile" companies. And with 1.3 million households expected to be on broadband and 90 percent of businesses on UFB from 2015, and mobile devices continuing to surge in popularity, leveraging the online space is an increasingly urgent concern.
“The industry needs to prepare now so it can capitalise on the opportunities ultra-fast-broadband and digital technologies will give," she said.
Between 2006 and 2010, New Zealand magazine and newspaper advertising revenues declined 22 percent.
“We are not predicting the imminent demise of traditional media but change is happening. Online advertising grew at almost 388 percent during the same period and is now the third largest earner of advertising revenue in New Zealand."
Magazine and newspaper publishing revenues held up reasonably well during the economic downturn, however, growing three percent last year. And the report predicts growth rates will rise nearly six percent by 2015 as new technologies and faster, cheaper broadband change the way people consume and pay for entertainment.
However, spending is not expected to return to pre-recession levels in the short term as growth shifts online.
“The biggest challenge for the industry is figuring out how to introduce new business services and models monetise the online space. At the moment, audiences aren’t willing to pay for online content, while advertisers won’t spend the same amount online,” Blakey says.
According to APN chief executive Brett Chenoweth, the three key impacts of digitisation for publishers are digitising and monetising content, mobile and video, and building online revenue businesses (he cites APN-owned GrabOne as an example).
He called on publishers to "shed any conservatism" and allow new product development to thrive.
“We as an industry need to increase our metabolic rate, in other words, respond faster and not be afraid of trying new things."
Blakey says aid media companies would need to form strong local and global partnerships to ensure success in the future.
“We recommend media and entertainment organisations partner with others who can help them execute innovative ideas and compete globally. A closer collaboration between advertisers, entertainment and media businesses and technology providers is essential for engaging empowered but time-poor consumers."
It's a sentiment echoed by Chenoweth: "If you are not a great partner, then you will fail ... In a fragmenting media environment, media companies must partner for content, technology and distribution. There will be no exceptions."
Revenues fell almost 12 percent between 2008 and 2009, reflecting the weak New Zealand economy. Spending is yet to return to pre-recession levels but rose 3.4 percent in 2010, partly due to increased spending online, and now accounts for 39 percent of the entertainment and media market.
Interactive or online advertising alone bucked the industry trend of negative growth between 2006 and 2010, increasing threefold. It now sits behind newspapers and television as the third largest earner of advertising revenue in New Zealand.
Says Droga5 digital partner Jose Alomajan: “There will be a shift from online display and classified ads to social advertising, and search will continue to grow in importance.”
Many advertisers are already developing cross-platform offerings, and Chenoweth predicts more will launch multi-channel campaigns during big events.
Despite the growing number of screens competing for viewers’ attention, recent research shows television is still a powerful medium, and New Zealanders are spending more time than ever watching it, on average more than three hours a day.
About 98 percent of New Zealand households have a television, and of these just over 70 percent now have at least one digital set.
By 2013 at the latest, the remaining 30 percent will need join Freeview or subscribe to Sky TV or another provider.
Sky chief executive John Fellet sees this as a difficult group to convert. “They are not really engaged with watching television.”
The industry has shown steady growth since 2006, continuing to expand throughout the recession even as retail sales fell overall. Interactive game sales were worth close to $140 million in New Zealand in 2010.
Local developers are also taking advantage of the lower cost of entry presented by online distribution channels such as Apple’s App Store. Social gaming, which includes advertising or encourages gamers to use real money to buy in-game credit or goods, has also opened up new revenue streams.
Physical music sales have been declining for years, and while digital sales have grown, they have not replaced lost physical revenue. Radio revenue, however, has been relatively stable.
“Radio is the most robust medium – it doesn’t spike too high and doesn’t fall too low,” says Chenoweth.
The way songwriters and copyright owners generate income is also shifting. Live music has made a comeback, and merchandise sales now make up a greater share of revenue.
Cinema operators and DVD rental stores have survived the economic downturn reasonably well, with box office revenue and DVD sales and rentals all showing modest increases throughout the recession.
In the DVD rental market, video shops still dominate. Mail order services have so far failed to make significant inroads and the speed and cost of broadband services have hindered the growth of online video-on-demand (VOD) offerings.