Introduction to the Entertainment & Media Industry
¹ Video Tip
For our brief video introduction to the Entertainment industry, see www.plunkettresearch.com/video/entertainment.
With astonishing speed, entertainment and media have evolved into a highly dynamic industry, interconnected by the global digital platform in a manner that few people could even have conceived of 20 years ago. From media printed on paper, music on CDs, movies rented on DVD at the local Blockbuster, and TV networks that forced the viewer to be in front of the screen at a given hour in order to watch a given show, the industry has changed dramatically into an always on, easy to time-shift, always with you on mobile platforms, customizable stream of news, entertainment, movies and music. After difficult years during the financial crisis in 2008 and 2009, advertising revenue for global media firms has improved substantially. Global advertising media revenues were projected to be $427.0 billion in 2011, growing further to $449.0 billion in 2012, according to Magna Global, a unit of advertising agency leader Interpublic Group. Much of this growth is occurring in online media, and the fastest growing markets are in developing nations such as China, India and Brazil.
Analysts at Veronis Suhler Stevenson estimate that total U.S. communications and media spending hit $1.120 trillion in 2011 (up from $1.092 trillion in 2010). They forecast this number to grow to $1.40 trillion in 2015.
Broadly measured, the entertainment and media industry spans multiple sectors, from America’s 10,211 FM radio stations, to the 1.28 billion movie tickets sold during 2011 in U.S. theaters. Also, the gambling sector is often included when considering entertainment as a whole. In America, legal gambling is estimated to be a $90 billion industry. The American Gaming Association placed commercial casino gambling in the U.S. at $30.8 billion during 2010, a number that does not include Indian reservation gambling, lotteries and some other outlets.
Today, digital media of all types must be included when considering the scope of the entertainment and media industry. Broadband Internet connections in U.S. homes and business totaled about 88 million as 2012 began, plus another 105 million mobile Internet subscribers. This means there is a true mass market for online entertainment and media, and this segment represents one of the most important advertising revenue markets. Comcast (the cable TV provider) alone had 17 million high speed Internet customers as of the beginning of 2012. Advertising on the Internet grew to a $31.8 billion industry in the U.S. in 2011, according to eMarketer. This represented 20% growth over 2010’s $26 billion. By 2015, eMarketer forecasts the U.S. market to grow to $49.5 billion. This segment is an $80 billion business worldwide, according to Plunkett Research estimates.
Most recently, the “Third Screen” (cellphone-based content including video and music) is becoming a major factor in entertainment and media. As 2012 began, there were about 323 million wireless subscriptions (for cellphones, tablets and other devices) in the U.S. and nearly 6 billion worldwide.
Meanwhile, revenues are mixed for traditional entertainment and media segments. Book sales were an estimated $21.7 billion in the U.S. in 2011. Electronic books were about $2.9 billion, or 13.4% of the book market.
The traditional, storefront video rental business has lost market share due to alternatives including Netflix, TiVo and video-on-demand services offered by Comcast and other firms. This led to the bankruptcy of the Blockbuster retail chain, which has been acquired by satellite entertainment firm Dish Network.
Newspapers have been dramatically affected by online alternatives. With an approximately 42 million paid daily and Sunday circulation in the U.S. (down from 59.4 million in 2000), newspapers are finding it increasingly difficult to compete against Internet news and advertising rivals. Many of America’s leading newspapers have gone bankrupt, while others have downsized or become electronic only. Meanwhile, free daily or weekly newspapers and shopping guides have enjoyed substantial growth.
Both newspapers and magazines are rapidly adopting new formats and new technologies with the goal of making themselves highly relevant and readable for Internet users on PCs, and for mobile users on smart phones, iPads, ebook readers and other digital devices. Some consumer magazine industry executives in the U.S. expect at least 25% of their readership to be on digital devices by 2015. Recorded music sales on CD continue to drop while sales of digital music files gain market share. Traditional radio broadcasting is hurting, finding it increasingly difficult to gather listeners for advertising-based radio programming due to such alternatives as satellite radio (Sirius XM has over 21 million paid subscribers), Internet-based radio and digital MP3 players.
Gross U.S. box office receipts for 2011 were $10.16 billion, down from 2010’s $10.46 billion, according to Nash Information Services, LLC. Both emerging and mature economies outside the U.S. are of prime importance to film revenues. New technologies generally provide a big boost to entertainment, and today’s 3-D films are no exception. There are now thousands of 3-D capable screens in theaters around the world. Moviegoers are willing to pay premium ticket prices for 3-D films. IMAX theaters have also seen large growth in recent years.
3-D technology may be appealing on TV as well. Satellite broadcaster DIRECTV recently launched HD, 3-D channels as well as video-on-demand 3-D content. TV manufacturers unveiled new 3-D flat screen sets in early 2010; however, sales have been disappointing.
Meanwhile, more and more television sets are Internet-enabled, meaning viewers will be able to connect directly to entertainment options on the Internet. This brings up an important question: where will TV viewers of the future get their programming? Cable and satellite subscriptions are expensive. Broadcast TV is free, as is a lot of Internet-based programming, although online content is likely to become more and more subscription supported. At the same time, online delivery of rented movies is now mainstream, led by technology at Netflix. Consumers have been dropping their paid TV subscriptions in large numbers, opting to watch free programming on sites such as Hulu.com while dramatically impacting revenues at cable and satellite TV companies.
The burning issue affecting all sectors of the entertainment and media industry is maintaining control of content and audiences while taking advantage of myriad new electronic delivery venues. Competition in the entertainment sector is fierce. Gone are the days when television and radio programmers enjoyed captive audiences who happily sat through ad after ad, or planned their schedules around a favorite show. Consumers now demand more and more control over what they watch, read and listen to.
Issues related to control include:
1) Pricing for content (including free-of-charge access; illegal downloads versus authorized downloads; and full ownership of a paid download versus pay-per-view).
2) Portability (including the ability for a consumer to download once, and then use a file on multiple platforms and devices including iPads and cellphones, or the ability to share a download with friends).
3) Delayed viewing or listening (such as viewing TV programming at the consumer’s convenience via TiVo and similar digital video recorders).
The competition among entertainment delivery platforms has intensified; all sectors face daunting challenges from alternative delivery methods. For example, online radio firm Pandora is disrupting the traditional radio industry. Another example: telecommunications companies such as AT&T and Verizon are now delivering television programming to the home via ultra high-speed Internet connections, battling cable and satellite TV firms for market share.
Today, electronic offerings such as advanced smartphones, digital video recorders (DVRs), video-on-demand (VOD) and MP3 players have vastly altered the way consumers enjoy entertainment. People watch and listen according to their own desires and whims. Miss the finale to a favorite television show? Watch it online later, or plan in advance to record it to watch later. Interested in only one track from a recording artist’s new CD? Buy and download just the one song via iTunes. Love a prime-time drama on a major network but hate commercials? Record the show while skipping over the commercials with a DVR.
The implications of these changes are staggering. The business models upon which most entertainment companies have traditionally run are becoming obsolete. Revenue from traditional advertising is in jeopardy while revenue from subscription-based business models is soaring. Online advertising is growing at supersonic speed. Television programming schedules are losing relevance while electronic program guides are becoming more and more vital. Printed books are slipping while ebooks are soaring. The giant, U.S. book store chain Borders closed its doors in 2011. Traditional media are losing share while newer digital media are becoming the norm. Entertainment and publishing companies are being forced to evolve in order to deal with new technologies and new demands from consumers.
Rapid changes in viewing habits are already occurring. Network TV news, radio news and newspapers all find that they have to compete fiercely against Internet-based options. A large portion of sports programming has migrated away from “free” broadcasts on TV and onto paid cable channels and pay-per-view systems, and many of the most popular TV shows are found on cable only.
Meanwhile, platforms and delivery methods are evolving quickly. Smartphones are now used more and more for entertainment purposes, including games, videos and TV-like programming. Game machines are going multipurpose with the ability to connect to the Internet. Broadband to the home has matured into a true mass-market medium, while wireless broadband systems such as Wi-Fi are enhancing the mobility of entertainment and media access. A serious evolution of access and delivery methods will continue at a rapid-fire pace, and media companies will be forced to be more nimble than ever. Mobile TV is taking a large step forward thanks to new technologies and platforms that will provide programming to cellphones, laptops and other mobile devices. Hundreds of local broadcasters in the U.S. have joined in such an effort, called Open Mobile Video Coalition.
Advanced technology is elevating entertainment to new heights. For example, Sony’s PlayStation 3 utilizes a supercomputer-like chip called “Cell” with the ability to run highly realistic, advanced software at amazing speed. Microsoft’s Kinect game machine enhancement for the Xbox, released in late 2010, takes user interaction to a new level. Another excellent example of the technology revolution at work in entertainment is today’s level of special effects in movies.
Recommendation software that learns the habits and tastes of consumers will evolve and will do a better job of pushing appropriate entertainment choices toward audiences. Amazon.com has long been a leader in the use of such software. Netflix has created an admirable package of its own. Likewise, Apple’s iTunes software is strong on recommending content to customers. Some interesting mergers might be driven by the potential to use extremely powerful recommendation software to attract and better serve consumers across multiple types of entertainment media.
Apple launched its highly innovative mobile tablet-style entertainment device, personal computer and ebook reader, the iPad, in the spring of 2010. Sales have been outstanding, reaching 32.3 million during Apple’s fiscal 2011 year. (Apple also sold an incredible 72.4 million iPhones during the same year.) Since Apple sets the world’s highest standards in personal devices, this raised the bar for high end mobile entertainment devices. The rapidly growing variety of mobile entertainment, games and media “apps” available for smartphones and tablets is further revolutionizing the industry in a very dramatic way.
Count on continued, rapid changes. The revolution in new media continues, platforms will evolve quickly, consumers will obtain even greater control and competition will become even hotter. Meanwhile, the global audience is growing quickly, thanks to emerging middle classes in developing nations as well as the booming spread of cellphones and Internet access.
Video Introduction to Entertainment & Media Industry