Major Industry Trends
The term “media” refers both to various forms of communication, and to the organizations behind this communication, including the press and news-reporting agencies. It can also refer to different types of data storage. This sector profile looks at the media in all its communication activities.
One hundred years ago, the media was simply composed of the printed press. Today, there is a vast range of communication channels, including TV, radio, cinema, and the internet, as well as print. However, common industry trends can still be identified, despite the increasingly diverse nature of the market.
Convergence
Convergence has been one of the buzzwords in the industry for many years. It relates to the emergence of digital technology, which has allowed media organizations to deliver text, audio, and video material over the same wired, wireless, or fiber-optic connections. The development of the internet has played a critical role in media convergence, as it now allows people to read newspapers, listen to the radio, watch TV, and download music and movies (and play both) on their computers, or, increasingly, on handheld devices. Consumers are now watching movies on their mobile phones, and making phone calls from their personal computers. Technological advances also mean that consumers can watch TV programs on demand, that is, when and where they want, rather than when the TV schedulers decide to broadcast them.
The development of in-flight entertainment (IFE) provides a vivid illustration of the way in which the media has been transformed over the past 30 years, and of the convergence of technologies. In the 1970s, IFE consisted of a movie projected onto a screen. Today, most airlines offer personal televisions, usually located in the seat backs, featuring live satellite TV broadcasts. Airlines now offer video games and audio-visual entertainment on demand, allowing passengers to stop, start, and skip through programs, and to select movies stored in the aircraft computer system. Touch-screens and/or handsets allow passengers to choose from a variety of features and content, including feature films, news, and TV programs, as well as giving them the option to select video games and web-based content, create music playlists, and so on. The more advanced IFE systems allow passengers to make hotel or rental car reservations in advance from the aircraft seat.
Back on the ground, trends over the next few years, in terms of convergence and technological developments, mean manufacturers are likely to focus on increasing demand for personalized entertainment, with much of the industry’s attention focused on developing services for mobile phones. By mid-2011 “smartphones” featured high-speed internet access and doubled as portable entertainment hubs and news access portals, and were the preferred route into social networking sites for the youth segment. Media had truly gone mobile.
New Media Wins Advertising Share from Traditional Broadcasters
Search Engine Marketing Professional Organization (SEMPO), a trade organization for the search-engine marketing sector, reported in April 2010 that internet search engines are continuing to steal advertising market share from traditional broadcasters. SEMPO said that around half of the companies it surveyed are reallocating budgets to search-engine marketing from print advertising. More than a third (36%) are shifting money away from direct mail, and almost a quarter are moving budgets from conferences/exhibitions and web display advertising.
Sara Holoubek, SEMPO president for 2009–10, said, “Difficult market conditions caused by the recession resulted in a relatively slow year for the industry in 2009, which was improved by a significant upturn in the fourth quarter. This momentum has continued into 2010, and we are expecting a return to double-digit percentage market growth in 2010.”
Part of the appeal of new media to advertisers is that audiences can be targeted much more effectively than using traditional media. Earlier research from SEMPO has found that advertisers were expressing strong interest in new search-targeting technologies. These include “search retargeting,” or targeting search ads to select groups of users based on the websites that they have previously visited, or based upon whether an individual has visited an advertiser’s own website before. The search engine Google is striving to increase its advertising revenues, and is using targeted marketing as one means of achieving this. The company believes that: “by making ads more relevant, and improving the connection between advertisers and our users, we can create more value for everyone.” The company added that: “Users get more useful ads, and these more relevant ads generate higher returns for advertisers and publishers.” Google is also seeking to increase its advertising revenues by offering mobile advertising, including ads that appear within mobile phones’ web browsers.
Other companies have been offering personalized online advertising for some time. Social networking sites MySpace and Facebook have targeted ads at individual users based on their profiles since 2007, while retail sites such as Amazon and iTunes regularly recommend books and music to their users based on their past purchases.
Television Broadcasting Bucks the Trend
In its predictions for media developments in 2011, global accountancy firm Deloitte says it expects television to “solidify its status as the current super media,” this despite a slew of predictions by some media commentators predicting the immanent obsolescence of TV. Viewers around the world will watch 140 billion more hours of TV, and revenues from pay TV in the BRIC nations (Brazil, Russia, India, and China) will rise by 20% to over US$17 billion, Deloitte says. At the same time, worldwide TV advertising revenues are set to increase by US$10 billion through 2011 and more than 40 million new viewers will be added. As an instance of the continuing power of TV as a selling medium, Deloitte points to the fact that TV celebrity chefs will sell tens of millions more cookbooks than their non-televised peers. The enduring popularity of TV shows will be demonstrated by the fact that they will form the subject of more than a billion tweets through 2011.
Technological Developments
Apart from convergence, other technological developments are likely to have a dramatic impact on the media industry over the next 5–10 years. 3D TV was launched in 2010, although viewers will struggle to enjoy the product until 3D TV channels are also launched. However, Samsung, which was among the first to launch 3D TVs, says that the new hardware will add depth to the picture of normal broadcasts and Blu-ray films. For several years, the industry has talked up the arrival of 3D TV in the home to little effect. Many, however, believe 2011 really is the breakthrough year for the technology, helped in large part by the growing number of 3D movies at the theatre, and the success of James Cameron’s sci-fi epic Avatar. In 2010, around 20 out of 170 movies were made in 3D, double the number from 2009. Samsung is just one of the big TV makers betting a huge chunk of their revenue on 3D being a winning proposition for consumers, and for the company. Meanwhile, the Discovery Channel announced in early 2010 that it was forming a joint venture company with Sony and IMAX to deliver 3D TV channels. UK satellite operator BSkyB said it was also planning to launch a 3D service, while ESPN planned to show at least 85 sports events in 2010 on its new ESPN 3D channel.
Broadband TV News cited the market research company In-Stat in May 2011 as saying that the market for 3D TV sets was predicted to grow by almost 500% in 2011, with many manufacturers offering the 3D feature on more than half their models. In-Stat forecasts that the number of households with 3D TV sets will pass the 300 million mark by 2015.
Market Analysis
Impact of the Recession on the Media Industry
The media industry earns a large proportion of its revenues from advertising, and is, therefore, highly influenced by the economic cycle. Advertising and marketing budgets tend to suffer first when the corporate sector comes under pressure. The recession in 2009 certainly hit the industry hard, with one UK agency describing the downturn as the worst the media had faced since the Second World War. However, signs of an upturn emerged in 2010, with global giants such as Procter & Gamble (P&G) pledging to increase their media spend over the year. In 2009, P&G reduced its spend by 13%. This was a more swingeing cut than that made by the biggest 100 advertisers collectively: as a group, they decreased spending by just over 11% in the United Kingdom, according to Nielsen.
The downturn in ad spend had a severe impact in the United States. In April 2010, for example, the publisher of two of the country’s most popular dailies, the Chicago Tribune and the Los Angeles Times, and owner of television stations, including superstation WGN, filed for bankruptcy. Reports said that a 2007 buyout saddled the publisher, Tribune, with too much debt as the economy and advertising revenue declined. Meanwhile, in 2009, the struggling New York Times accepted a US$250 million loan from prominent shareholder Carlos Slim. The newspaper has suffered as readers and advertisers flee to other platforms. Also in 2009, burdened by debt and a steep slide in newspaper advertising, the Miami Herald was reported to be for sale.
However, there has been a clear rebound in advertising through 2010 and into 2011. The Economist Group, for example, reported overall revenues improving 9% to £347 million (US$563 million) for the fiscal year ended March 31, 2011, with subscription revenue remaining strong and its print magazine selling 15 million copies worldwide. WPP plc, one of the world’s largest advertising agencies, has announced that it expects to see organic growth of 5% in 2011. Like-for-like revenues for January 2011 were up over 8% on January 2010, showing that the momentum in advertising sales seen in the fourth quarter of 2010 has continued into 2011. WWP’s clients include some of the biggest multinationals, such as Unilever, Johnson & Johnson, and the Ford Motor Co.
One of the biggest media shocks in 2011 was the phone hacking scandal in the United Kingdom by News of the World journalists, which led Rupert Murdoch’s News Corporation to decide to cease publication, despite the paper’s 187-year history and despite the fact that on readership figures the paper was far and away the most successful British Sunday newspaper. The scandal spread to the United States by July 2011 with the FBI launching an investigation into alleged phone hacking of the families of the victims of the World Trade Center attacks. The outcry forced Rupert Murdoch to withdraw News Corp’s bid for satellite broadcaster BSkyB. It demonstrated to the media across developed markets that reputational risk needs to be given a lot more attention by executives, and provided a clear incentive for journalism not to ignore palpable ethical boundaries such as the rights of victims and their families to privacy.
Pay TV Shines in the Global Media Sector
The number of people who pay for TV has remained relatively stable in the United States and has grown in other countries, even through the downturn, as people relied more on home entertainment and avoided the expense of going out. The bundling of services has become especially popular, with US$100 a common price for most cable companies’ basic combined phone, TV, and internet services in the United States. Canada’s cable and specialty networks saw growth in their revenue and operating profits in 2009, according to statistics published in April 2010. The Canadian Radio-television and Telecommunications Commission (CRTC) said the country’s cable, pay-for-view, and specialty broadcast services posted revenue of C$3.1 billion in calendar 2009, a gain of 6% versus 2008’s C$2.9 billion. The measurable gain in the cable and specialty sector’s financial metrics came in a year when advertising revenue fell by 2.6%. Many Canadian companies throughout the economy cut back on their marketing budgets as they grappled with a severe financial downturn in late 2008 and into 2009. Canadian pay-TV companies made up for the slumping cash revenues from advertising by raking in more than C$1.4 billion in subscriber charges in 2009.
Growth of the Internet Hits Newspapers
The newspaper industry appears to be one of the main casualties of the growth of the internet. Certainly, the industry in the United States appears in deep trouble, according to a report by Agence France Presse in March 2009. The report quoted the Pew Research Center’s Project for Excellence in Journalism 2009 report, “The state of the news media,” as saying the outlook for the industry was the “bleakest” since it began doing the annual studies six years previously. The report examined newspapers, online media, network, cable, and local television news, as well as news magazines, radio, and the ethnic press. It found that the newspaper industry “exited a harrowing 2008 and entered 2009 in something perilously close to freefall.”
However, its 2010 report was more positive, saying that “newspapers, contrary to what is frequently alleged, are not dying in droves. Only half a dozen of any size went out of business, and most of those were second papers in their market. More papers, nearly 100, cut back at least one day a week, but most of those were very small.” However, it warned that “far too many American papers are at risk of becoming insubstantial. They lack the heft to be thrown up the front porch or to satisfy those readers still willing to pay for a good print newspaper.”
Traditional newspapers are now increasingly both using and facing competition from what Pew Research calls “non-profit” news and citizens blogging, plus the instant circulation of eyewitness accounts via Twitter and other social media. Another major source of analysis is the various “think tank” organizations who maintain free-access internet sites sharing their research and views. Newspapers continue to act as the preferred print media “aggregators” of news and analysis, but the competition for consumers’ attention is growing all the time and the industry is having to think hard about its medium-term business model.
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