Andersen Forecasts Digital Content Trends

Posted on January 10, 2002

Andersen, a provider of tax, finance and other professional services, has forecasted continued growth in digital entertainment and media. According to Andersen, the impact of digital technology has yet to be fully realized. Technological innovation will create a massive shift in the competitive playing field and will provide consumers with a plethora of opportunities to access the entertainment and information they desire.

``Consumers have become device agnostic,'' said John Nendick, global managing partner of Andersen's media and entertainment industry practice, ``They prefer convenience - whether that's television, the phone, their PDA or PC - to communicate with friends, access email or check stocks. What's important is that they can get what they want, when they want, how they want.''

Andersen has identified the following key issues and trends that illustrate the impact these changes will have on the media industry:

Unsaturated Demand for Content

People demand content for entertainment, information and education. As global population, incomes and media access points increase, such will the demand for content. However, as many ``intertainment'' (Internet entertainment) sites have learned, wanting and consuming content does not necessarily mean paying for it. Consumers expect much content for free and are only prepared to pay for the right, value-added content. Another important consideration in today's global marketplace is that ``old media'' in one country is ``new media'' in another. Media has evolved differently in different cultures - much of the world's population has never made a phone call, let alone been exposed to the Internet, pay TV, DVDs or broadband. Cultural, behavioral and geographic factors influence take-up rates in some countries as much as income and wealth do. In those countries where digital technology does exist, the degree of penetration differs greatly. For example, most of the countries in Latin America have selected the same standard for digital TV, but are at different stages of development.

Impact of Digital Distribution

The move to digital is inevitable for every media segment, but at various rates. For some, digital distribution is already a reality; others are just beginning their evolution.

Television -- In Europe, millions of people use their televisions to balance checkbooks, pay bills, order pizza, book travel, play games and send email. A click of a button can bring up details on their favorite athletes or will choose a preferred camera angle to watch a sporting event. This type of interactive and intimate relationship will continue to increase. As audiences fragment and advertising dollars are attracted elsewhere, broadcasters are looking at the revenue potential of ``t-commerce'' (television commerce) and other interactive services to fill their coffers. While the United Kingdom has led the way with iDTV (by 2005, 65 percent of households will have digital TV), by 2004 the U.S. iDTV market will surpass that of the U.K. In Latin America, the current economic situation has led to increased concern over costs associated with DTV technology; therefore this arena will probably not advance as quickly in those countries.

Movies -- While Internet downloading of film shorts and trailers has proven popular, downloading full-length feature films awaits the complete rollout of broadband. Cineplexes have yet to adopt the much-vaunted digital cinema technology as the question remains, ``Who will pay for the initial investment in infrastructure and equipment?''

Publishing -- The development and acceptance of ebooks, emagazines and enewspapers has been slower than anticipated. Andersen research suggests that consumers will embrace ebooks as prices of reading devices decrease, but reading hard copy books will remain a popular entertainment medium -- as the Harry Potter phenomenon has illustrated. Meanwhile, the ROI for enewspapers and emagazines has yet to be proven. Initial forecasts set epublishing as a viable option in no less than five years.

Exaggerated Threat of Cannibalization

Despite the availability of huge volumes of text, audio and visual content on the Web, there is little evidence that this new media is seriously cannibalizing consumption of offline content. Consumers of Internet content are generally avid consumers of all media. Many subscribers of wsj.com also receive the printed newspaper. The major Hollywood studios, while slow to embrace the Internet, have taken advantage of new technologies for content distribution (i.e. pay per view, video on demand, home video, DVDs) to increase revenues overall. At the same time, some of the traditional windows such as cinema attendance have proven remarkably resilient. While it appears that online music will cannibalize some CD sales, it also seems to encourage music purchases -- many consumers will purchase a CD after listening to the music online.

Shift of Power Toward the Consumer

Digital technology has enabled a fundamental shift in the balance of power from the media companies to the consumer. Consumers can choose how, when and where they receive the content of their choice instead of the content owner pushing it to them, en masse. In Germany, the competition between service providers, such as cable and satellite, is growing. The success of recent entrants like multi-national cable providers who also provide programming will be determined by their ability to differentiate themselves from satellite providers. To do so, they are offering more ``triple-play-offerings'' (speech, video and data).

Interactivity and Personalization

Enthusiasm continues to grow for narrower, targeted communication and entertainment such as MyYahoo, interactive TV, chatrooms, online book/music reviews, sports scores and stock alerts on mobile phones and PDAs. The combination of consumer demand and technological innovation has resulted in a more personal relationship between individuals and their previously passive media devices, especially among younger consumers to whom such features are standard expectations.

Advertising Evolution

The advertising sector continues to grow, albeit at a slower pace than in recent years. As a result of this slowdown, combined with technology advances, advertisers must now explore a more integrated, cross-media approach to delivering their message. Many organizations are re-branding themselves as broader ``communications companies'' rather than simply advertising agencies. In addition, technology such as TiVo further challenges traditional advertising models. Giving viewers the ability to skip over commercials may catalyze an increase in sponsored programming and product placement.

Intimate Customer Relationships

Access to customers is nice, ownership is better...and an intimate relationship is even better. Continued M&A activity in the media and entertainment industries illustrates the value of access and ownership of customer relationships and information. Success is determined by the ability to develop an intimate, long-term relationship with customers. Anticipating consumer wants and needs is crucial -- whether they be a TV show, a movie, a concert, a CD, a book, a news item or food. Recognizing and responding to these desires, perhaps before the consumer even knows they have them, is the key to identifying the next ``killer app.''