Entertainment & Media Outlook for the Netherlands

Transcription

1 Entertainment & Media Outlook for the Netherlands To brand or not to be outlook.pwc.nl

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3 At PwC in the Netherlands over 4,200 people work together from 12 offices. PwC Netherlands helps organisations and individuals create the value they re looking for. We re a member of the PwC network of firms in 157 countries with more than 195,000 people. We re committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at Entertainment & Media Outlook for the Netherlands Entertainment & Media Outlook for the Netherlands th annual edition, September 2015 Each year, PwC s global and local teams of entertainment and media experts generate unbiased, in-depth forecasts for 11 industry segments. The Entertainment & Media Outlook for the Netherlands combines thorough knowledge of the Dutch market with a truly global perspective a powerful tool for understanding critical business issues. To learn more about the challenges and opportunities ahead for the entertainment and media industry, please contact Ennèl van Eeden via +31 (0) or [email protected] 1

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5 Welcome to the Entertainment & Media Outlook for the Netherlands Dear Outlook reader, I am delighted once again to bring you our annual Entertainment & Media Outlook for the Netherlands, providing you with consumer and advertising trends and forecasts. In this year s Outlook we have added special insights into the media consumption behaviour of five different target audiences, now and in the future. We have included our point of view on the impact of over-the-top services on the entertainment & media ecosystem, and we shed some light on the maze of digital advertising. In addition to reading the Outlook, I encourage you to also visit our Outlook online at outlook.pwc.nl for more in-depth analyses on these topics, and more to follow. This year s Outlook shows consumer demand for E&M experiences will grow, while migrating towards video and mobile. Digital spend is expected to overtake non-digital spend by 2017, however, it is increasingly clear that consumers perceive no divide between digital and traditional media. What they want is flexibility and freedom of choice as to when, where and how they consume media. Ennèl van Eeden Entertainment & Media Leader in the Netherlands +31 (0) [email protected] Today it is vital for entertainment and media companies to do more than just offer high-quality content. It s all about the brand, the experience and a connection with the audience that will make them wish for more. Being successful in building a strong brand of your own just might make the difference in the years to come. These trends are driving important changes in the E&M ecosystem. The content value chain is rapidly changing with broadcasters, cable companies, content producers and publishers all taking up additional, alternative, positions in the ecosystem. Advertisers are increasingly becoming publishers while publishers are becoming advertisers themselves. These developments, and more, are illustrated by the personal views of Joris Merks-Benjaminsen (Google), Robin Kroes (Ziggo), Joris van der Pol (One Media Sales), Barbara van Beukering (PAPER) and Diederick Breijer and Onno Seelen (IPG Mediabrands & Magna Global). I hope you will enjoy this edition of our Outlook. Of course our research activities do not end here, as our PwC E&M professionals continuously track the trends in the industry. If you would like to discuss any of the topics covered, please contact us. We would love to hear from you. Yours sincerely, Ennèl van Eeden Entertainment & Media Leader 3

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7 Contents Industry Analysis and Executive Summary 6 Our E&M Outlook at a glance 12 Special Behavioural shifts in target audiences 14 Interview Joris Merks-Benjaminsen Head of Digital Transformation at Google Access Spending 20 Interview Robin Kroes VP Strategy & Integration at Ziggo Filmed entertainment Television 34 Special Over-the-top Television Radio 40 Interview Joris van der Pol CEO at One Media Sales Music Video games Newspaper publishing 58 Interview Barbara van Beukering Founder and editor-in-chief at PAPER Magazine publishing Consumer & educational book publishing Business-to-business publishing Advertising 82 Special The maze of digital advertising 90 Interview Diederik Breijer, CEO at IPG Mediabrands Benelux and Onno Seelen, Managing Director at Magna Global 92 Contacts 94 5

8 Industry Analysis and Executive Summary The Netherlands made a robust recovery from more difficult macroeconomic conditions in 2012 and 2013 and achieved 2,5% year-on-year growth in 2014 in total entertainment and media spending. The E&M market is now forecast to grow at 3,0% CAGR to 2019, with growth spearheaded by mobile internet access spending, which will contribute around 1 billion euros to the more than 2.2 billion euros of absolute growth. As a result, the industry is expected to experience the long-awaited digital tipping point in Digital advertising Digital consumer Non-digital advertising Non-digital consumer Total Entertainment & Media market ( millions) Netherlands Historical data Forecast data CAGR % Digital advertising y-o-y growth 12,0% 8,6% 8,9% 11,4% 11,1% 10,9% 10,4% 10,0% 9,6% 10,4% Non-digital advertising y-o-y growth -3,6% -6,4% -6,6% -1,9% -2,7% -1,5% -1,6% -0,5% -0,5% -1,4% Digital consumer (inc. internet access) y-o-y growth 9,1% 7,9% 8,5% 9,3% 7,3% 6,9% 6,1% 6,6% 6,0% 6,6% Non-digital consumer y-o-y growth -2,9% -2,4% -4,7% -2,9% -1,8% -1,7% -1,1% -0,7% -0,1% -1,1% Total Digital E&M y-o-y growth 9,7% 8,0% 8,6% 9,8% 8,2% 7,9% 7,2% 7,5% 6,9% 7,5% Total Non-digital E&M y-o-y growth -3,1% -3,7% -5,3% -2,6% -2,1% -1,6% -1,3% -0,6% -0,3% -1,2% Total E&M y-o-y growth 1,0% 0,4% -0,1% 2,5% 2,4% 2,8% 2,8% 3,5% 3,5% 3,0% Source: PwC, Ovum PwC Entertainment & Media Outlook for the Netherlands

9 Develop seamless consumer relationships across channels. 2014: predictions vs actuals Total E&M revenue growth in 2014 came in slightly above last year s forecast, at 2,5% compared to our predicted 1,9%, as spending recovered well from a difficult 2012 and Although non-digital E&M fell very slightly short of our expectations, declining by 2,6% rather than the 2,4% forecasted, this was more than compensated for by a strong performance in digital revenue, which rose 9,8%, outstripping the anticipated 8,4%. The strongest outperformer was digital advertising revenue, which saw very robust 11,4% growth compared to an anticipated 5,7%, while non-digital advertising revenue also fell less steeply than expected. The recovery in E&M spending mirrors a wider economic recovery, with nominal GDP forecast to rise above 2,0% year-on-year from 2016 onwards. But just as the dips in spending outweighed the falls in nominal GDP in previous years, E&M revenue growth year-on-year will now exceed nominal GDP growth, as segments recover lost ground and find success with new revenue streams. Digital overtaking non-digital E&M spending in 2017 As traditional media in general struggles to find growth, digital media s strong performance means that the Dutch market is approaching a significant tipping point. The total digital share of E&M E&M and nominal GDP growth comparison spending was already considerable in 2014, but it is now forecast to 4,5% account for the majority of overall E&M revenues in This major 4,0% shift is presaged by tipping points at the segment level, with electronic 3,5% home video overtaking physical home video last year due to a major 3,0% rise in OTT/streaming, and digital recorded music revenue forecast to exceed physical recorded music revenue this year. 2,5% 2,0% 1,5% 1,0% 0,5% 0,0% -0,5% Source: PwC, Ovum E&M revenue growth Nominal GDP growth But as the industry tries to keep pace with advancing consumer expectations derived from digital disruption, the divide between digital and non-digital may be clearest for content providers and advertisers. The method of delivery is less important for consumers, who tend to focus on choosing a convenient and compelling content experience that suits their needs at a particular time and place. Nowadays consumers are looking for seamless relationships with content providers and advertisers across distribution channels. Also of growing relevance is what content, services and experiences consumers are willing to pay for and how. Industry Analysis and Executive Summary 7

10 Total Entertainment & Media revenue split 56% 44% % Non-digital Digital Source: PwC, Ovum % In numbers released in June 2015, Spotify stated that 26,7% of its 75 million active global users subscribed to premium services. Netflix s proposition goes not one, but two steps further: it provides original content as an extra draw to the consumer, and it increasingly releases this at the same time worldwide, meeting the demand from impatient consumers to access a keenly anticipated piece of content through whatever channel. These new services are also building their business on an understanding of the way consumers expectations are changing. The model of traditional media asks consumers to pay to own a physical copy a book, CD or DVD. But attempts to replicate the ownership model in digital media have struggled, whereas models where the consumer pays merely to access the content have, in general, found success. It is notable that at the global level, digital media providers such as Facebook are among the new advertisers on non-digital media. In a world where consumers do not differentiate between channels and attention is the most valuable currency, such moves reflect an acknowledgement by successful advertisers that a multifaceted campaign across many types of media may deliver the best results. This awareness is fuelling the drive to develop cross-platform measurement of consumer engagement, using new metrics such as attention minutes or engagement minutes. On-demand models are changing consumer expectations about paid digital content Among the internet s many transformative effects is that it has accustomed consumers to the idea of instant access to content. In most cases, this content was initially delivered at no cost to the end user, and this apparent lack of a monetisation model caused owners of expensive content to hold off on making it available online. However, as sales of physical media continue to decline, subscription services such as Spotify and Netflix are managing to build a sizeable paying audience for content delivered over the internet. Spotify stated that 26,7% of its 75 million active global users subscribed to premium services The migration continues from owning to streaming, OTT and all-you-can-eat The same shift from owning to streaming can be seen in the subdued demand for electronic sell-through (EST) versions of movies, in the face of competition from not just standalone over-the-top (OTT) video services, but also enhanced multiscreen and OTT offerings from broadcasters. For some consumers those who are happy to pay for content to be aggregated for them, rather than going out to discover it for themselves the all-you-can-eat content access model is proving attractive. It is now being used for books and magazines as well through services such as PAPER, Blendle or Amazon s Kindle Unlimited. Services that provide instant access to a wide and regularly updated catalogue of content, on the right range of devices, are finding an audience willing to pay. Conversely, those offering consumers a storable single piece of digital content at a premium price are often struggling to compete. In a digital era, when the product itself is no longer tangible, this move away from the traditional ownership models makes sense. Yet it s important to remember that for some media segments including cinema and TV an approach based on temporarily PwC Entertainment & Media Outlook for the Netherlands

11 Put mobile, and increasingly video, at the centre. accessing content, as opposed to owning it, has historically been the dominant model. Today s new providers of music and video services are effectively returning to this model, where the priority for consumers is access and convenience rather than ownership. The fact that many of these OTT services are funded through subscriptions and do not carry ads both underlines and reinforces their appeal to consumers. Video continues to pull away from print Television, of course, remains a significant contributor to consumer spending, second only to internet access in value terms. One consistent trend is the rise in overall consumer spending through to 2019 of video-based content and services against an ongoing decline in spending on primarily text-based content and services. If consumer revenue from pay-tv subscriptions, video games and filmed entertainment is aggregated, more than 300 million euros will be added between 2014 and This is modest, perhaps, but notable when contrasted with consumer revenue from consumer and educational books and consumer magazines and newspapers, which will fall by nearly 200 million euros in the same period. Indeed, revenue from the former exceeded the latter for the first time in This reflects a surge in video-based content, as the means of creating, distributing and viewing it become cheaper and easier. One source of optimism for print is that the expected declines will fall below 1% in 2019 after years of sharper decline, indicating that publishing houses in all of their various forms will slowly see success in monetising consumers in a digital world. The significant penetration and usage of connected devices are important drivers for the surge in online video consumption. This is generating both significant new opportunities and considerable challenges for companies creating and distributing filmed entertainment content. Lean forward video content typically shorter in duration and usually free is likely to dominate, since small screens are less optimised for the kind of immersive lean back experiences offered by traditional movies. Monetising short-form video content on mobile devices is much harder than selling consumers access to premium video content in a cinema or on a television. On the other hand, mobile internet advertising is proving its value Content & services ( millions) Netherlands Historical data Forecast data CAGR % Filmed entertainment ,2% Video games ,8% Pay-TV ,5% Total video-based y-o-y growth -1,0% -0,7% -3,9% 2,4% 4,2% 3,0% 2,7% 2,4% 2,3% 2,9% Consumer & educational books ,2% Consumer magazines ,8% Newspapers ,5% Total text-based y-o-y growth -4,3% -2,9% -2,9% -3,4% -3,4% -2,0% -1,7% -1,3% -0,7% -1,8% Source: PwC, Ovum Total video-based Total text-based Industry Analysis and Executive Summary 9

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13 Innovate around the product and user experience. Go to outlook.pwc.nl For more information and data to advertisers. The growing strength of mobile and video, which are now gradually replacing classifieds and slowing challenging display advertising, shows the fluidity of the market. The advent of wearable technology is also likely to unlock new opportunities. The threat of piracy will not go away With the ongoing migration of content to online distribution platforms, piracy remains a problem, with consumers often arguing that it gives them access to content sooner after release than traditional channels. The industry is attempting to combat piracy by reducing the length of windows for key content, and this trend is likely to continue. But in the Netherlands, the open-source BitTorrent client Popcorn Time, installed on as many as 1.3 million devices according to estimates, poses a significant threat to paid-for services, particularly since Popcorn Time claims that it has no legal liability because it does not host content. Paid, owned or earned? One of the internet s countless disruptive effects has been on advertising models. Where once brands would pay to advertise via an established media channel (paid media), they can now create their own content online (owned media), and even have consumers enthusiastically share that content (earned media). In 2014, for example, Vodafone took a new approach to their marketing by demonstrating the potential of mobile technology via their firsts.com platform. The company s ten-minute video of two Dutch grandmothers taking their first flight together was picked up by media outlets around the world and received hundreds of thousands of views. As similar examples see success, the big question for media companies is whether a shift of advertising budgets might accelerate from paid to owned, and what repercussions that might have for advertising revenues that are already facing challenges. This will particularly become the case as digital measurement technologies improve their efficacy. In the main, this doesn t really look like an existential threat. Owned content is seen as complementary to paid media, and at the moment that is unlikely to change only a television advert guarantees the delivery of a mass audience such as the 12.4 million who watched the Netherlands FIFA World Cup semi-final against Argentina. But it does mean that advertising has become even more competitive. Red Bull for example already employs a thousand people at Red Bull Media House and regularly reaches a large audience with their own created content. In particular, media players in the newspaper and magazine segment, where advertising revenue is already shrinking, must be wary of the trend, in case brands start to consider a generic budget shift from print to self-generated content. In response, media companies must point to their advantages in each of the media in which they operate. Newspapers and magazines can highlight their ability to deliver native advertising on a popular platform in their digital editions, as well as the level of engagement that the typical consumer has with a print copy. Ultimately, of course, consumers are only interested in content, be that branded or not; distinctions between paid, owned and earned do not concern them. It is therefore up to media companies to demonstrate that they offer the best home for branded content. They have to innovate around their product and the user experience because this will help advertisers deliver innovative and high-quality campaigns that have a genuine, memorable impact. And finally, do some branding of your own The successful stations and titles in the Entertainment & Media industry illustrate that media companies really need to do more than just produce high-quality content; the key to success is content supported by a strong brand. Media companies need to offer more than quality; they also have to connect with the target audience and make them want more, for example through an online community and events. This helps them attract and maintain audiences that are interesting to advertisers so that they keep their branding budgets coming. Success in building a strong brand of your own just might make the difference in the years to come. Industry Analysis and Executive Summary 11

14 Our E&M Outlook at a glance The industry s tipping points Video streaming is driving high growth in mobile internet access, which is expected to exceed fixed broadband access revenue by Due to the uptake of streaming services digital music will grow at 11,0% CAGR contrasted to the drop in physical formats by -8,6% CAGR and is predicted to overtake physical in After 2020 the growth in digital newspaper publishing is expected to start offsetting the declines in print. Digital to overtake non-digital E&M spending in 2017 In 2016 the spending on electronic home video will overtake box office sales. Video-based content & services revenue exceeded text-based revenue in Digital and online / microtransaction revenue in console gaming will overtake physical spend in PwC Entertainment & Media Outlook for the Netherlands

15 The consumer shifts from media ownership to media access Access models in digital media are more successful than ownership models. The distribution of recorded music has clearly started to move away from ownership to access. Physical home video revenue will decrease from 136 million in 2014 to 70 million euros in 2019 as consumers increasingly shift away from content ownership. The primary driver of growth will be internet advertising, which will rise at 10,2% CAGR to 2.27 billion euros and account for nearly half of the total advertising market in Mobile internet access spending will contribute around 1 billion euros to the more than 2.2 billion euros of absolute growth in E&M spending between 2014 and Spending on OTT / streaming services to reach 250 million euros by 2019, a CAGR of 32,1%. Limited growth in TV advertising from 985 million euros in 2014 to 1.06 billion euros in 2019 a CAGR of only 1,4%, due to the changing viewing habits. Print to continue downward trend with newspapers declining at -2,6% CAGR and magazines at a CAGR of -4,8%. Our E&M Outlook at a glance 13

16 Outlook special Behavioural shifts in target audiences Rajendra Sitompoel, September 2015 Behavioural shifts in target audiences The future media consumption of five generations explored Throughout the year Outlook Specials address key developments that are transforming the industry. As consumer spending on media continues to grow towards 2019, we asked nearly 2000 consumers from five generations to tell us how they see their future media consumption. At the meta level, different generations of consumers envisage different rates of growth, and there are intriguing differences between them that will interest media companies and advertisers. Below you will find a summary of the Target Groups Special; the full publication can be viewed online. The three youngest generations in this study the Technoholics, Digital natives and Digital immigrants will increase their average spending on media content by between 3,1% and 4,2% per year through For the Baby boomers and the Digitally disengaged, we expect a decline over the same period of -1,3% and -2,7% respectively. Advertising budgets need to shift further from traditional media to the internet to keep engaging consumers in In the case of younger generations, budgets should be shifted mainly from (linear) television to online media. Older generations, on the other hand, can still be reached through (linear) television over the coming five years but are increasingly moving from traditional printed to online media. PwC Entertainment & Media Outlook for the Netherlands

17 Where can you reach your customer in 2019? The Technoholics The Technoholics include teens and young adults born after Generally speaking they are more social, practical, visually oriented and technology-proficient than the generations before them. Because their disposable personal income is small, they spend less on media content than older generations. Yet they still spend 192 on content per year, growing to 221 in 2019 at a CAGR of 3,6%. Despite their relatively low expenditure, the behaviour and preferences of the Technoholics are crucial for identifying future consumption patterns. Technoholics feel a strong attraction to audio-visual media, as evidenced by their expenditure on Filmed Entertainment, Music and Video Games. These three segments account for more than 80% of their total media spending. We expect further annual growth between 3,9% and 5,2% for these media segments. Conversely, written media are clearly of less interest to Technoholics. While we expect Magazines to remain constant, News (-0,8%) and particularly Books (-2,8%) will experience a decline among Technoholics. Advertisers looking to capture the attention of Technoholics already know that the majority of this group s media activities take place online. We expect the importance of the internet to increase even further, with online advertising budgets needing to grow for this group from 60% in 2015 to 70% in Most of this growth will be at the expense of other media types, particularly (linear) television, which is expected to fall from 24% in 2015 to 18% in The Technoholics content spend CAGR -0,8% CAGR 3,9% CAGR -0,1% 33% CAGR -2,8% 8% 2% 2% 3% 2% 32% 29% 10% 3% 11% 5% 3% 4% 29% % CAGR 5,2% 30% 28% 25% CAGR 4,5% The Digital natives content spend CAGR 4,5% CAGR -1,0% CAGR -0,8% 9% CAGR 7,9% Filmed entertainment Video games Magazines Source: PwC 26% 24% 29% 28% CAGR 3,4% CAGR 6,9% Music News Consumer books The Digital natives Digital natives were born between 1981 and 1995 and have grown up in a culture of digital technology. Their extraordinary ease with technology means that it permeates every aspect of their lives. They represent the most interesting group for media companies, as they spend 275 per year on media content more than any other generation. We expect this spending to grow annually by 4,2% to 324 in We also expect a particularly sharp increase in content spending in the News and Filmed Entertainment segments, with high singledigit growth figures of 7,9% and 6,9% respectively. While overall spending on News remains relatively low (most of the money goes to Music, Games and Filmed Entertainment), this is particularly good news for news publishers because Digital natives appear willing to spend more on news content as their disposable income increases. Forecasts are less promising for Magazines (-0,8%) and Books (1,0%), where the shift to paid digital media does not offset the drop in print spending. In terms of media as a channel for advertising to Digital natives, the pattern is quite similar to the Technoholics. Online advertising budgets need to increase from 60% in 2015 to 69% in 2019, in order to keep on reaching Digital natives. Again, we anticipate that all other media segments will experience a decline in their advertising budgets for Digital natives, with (linear) television taking the biggest hit, dropping from 23% to 18% in the years Outlook special - Behavioural shifts in target audiences 15

18 Outlook special Behavioural shifts in target audiences The Digital immigrants Digital immigrants are the last generation to have grown up before the widespread adoption of digital technology (born between 1965 and 1980). They are a popular target group for media companies, spending an average of 246 annually on media content; we expect this to grow by 3,1% annually to 278 in Given their background in both traditional and digital media and the fact that their spending includes purchases for their children (age 0-12), Digital immigrants display a highly varied mix of media consumption across segments, with no one media segment standing out in terms of total spending. When looking purely at growth, Filmed Entertainment (5,7%) and Video Games (5,6%) are the two segments that show the strongest growth among Digital immigrants towards While Music (2,1%) and News (2,0%) also display moderate growth in this generation, we forecast a decline in their spending on Magazine content (2,3%). The Digital immigrants are also shifting from traditional media to the internet. This is having a major impact on the advertising mix required to reach them. As a result, we expect to see the biggest drop in advertising budgets aimed at Digital immigrants in magazines and (linear) television. 1 These spending figures also include purchases for the pre-teen children of Digital immigrants. The effect of spending on 0-12 year olds is negligible for other generations. The Digital immigrants content spend CAGR -2,3% CAGR 2,0% CAGR -5,6% CAGR 0,2% % CAGR ,7% % 14% 6% 21% 14% 8% 15% 9% 11% CAGR 5,6 CAGR -3,0% 14% 33% CAGR -2,4% 15% 25% 34% 23% % 18% 16% 4% 4% 20% CAGR 2,2% 20% The Baby boomers content spend Filmed entertainment Video games Magazines Source: PwC CAGR 2,5% 21% CAGR 2,1% Music News Consumer books CAGR -0,3% The Baby boomers Baby boomers were born between 1945 and 1964 and have experienced the birth of computing and information technology first hand. Compared to the other adult generations, they spend the least on media content, an average of 215 per year. We expect this to decline by -1,3% per year to 203 by Baby boomers consume mostly traditional printed media, with Newspapers, Books and Magazines making up 60% of their total spending on content. However, as Baby boomers shift their budget to digital versions that come at lower price points, we forecast a decline of -4,4% per year in the traditional (analogue) media segments. The only segments that show moderate growth are Filmed Entertainment (2,5%) and Video Games (2,2%). The growth in Video Games can be attributed to the emergence of social web and app games. Concerning the media mix required to reach Baby boomers, we see a similar story to that of the other generations: a sharp increase in internet-based media activities requiring an increase in online advertising share from 44% in 2015 to 54% in The impact on advertising budgets for all other media types is negative, as the Baby boomer s interest in them fades. Especially magazines and newspapers are losing ground, declining to 8% and 6% respectively in the years PwC Entertainment & Media Outlook for the Netherlands

19 Go to outlook.pwc.nl To read the full Target audiences publication The Digitally disengaged Born before 1945, the Digitally disengaged generally came into contact with digital technology after turning 50. Their total spending on content is high at 262 per year, trailing only the Digital natives. Most of their content spending more than 50% of their entire content budget is concentrated in News. We expect their total expenditure to decline to 235 in 2019 as they increasingly lean towards digital alternatives, which are often cheaper. Video Games and Filmed Entertainment are the only segments that show a (slight) growth. As is the case for the other generations, reaching the Digitally disengaged means shifting advertising budgets to the internet. Unlike our forecasts for the other generations, however, we expect (linear) television and radio to remain popular with the Digitally disengaged, with an (unchanged) combined advertising budget share of 37%. Internet advertising will grow exclusively at the expense of printed media types such as magazines and newspapers, which both will decline from 15% in 2015 to 10% in Although often overlooked by media companies and advertisers, we believe that there is a considerable upside to engaging with this generation. They are increasingly capable of adopting digital technology and consuming digital media. In addition, they often have a relatively high disposable income and spare time, given their life phase. The Digitally disengaged content spend CAGR -5,6% 60% 5% 6% 5% 24% CAGR -1,9% 11% 12% 15% 70% 4% 4% 4% 18% % Filmed entertainment Video games Magazines Source: PwC % 54% 53% CAGR -3,3% 60% CAGR 1,0% 8% Advertisement media mix The technoholics Source: PwC 13% 12% 1% 69% 7% 3% 7% 6% 2% 6% 23% 18% CAGR -0,8% 1% Music News Consumer books The digital natives CAGR 3,2% The digital immigrants 51% 12% 4% 8% 60% 9% 3% 7% 24% 21% In addition to our projections of content spending per media segment and generation, we have also looked into digital media as a percentage of total media consumed. Our research shows that the share of content consumed on digital media continues to grow. The younger generations are already very digital in their media consumption but will continue to increase their spending on digital media at the expense of traditional media. As for the older generations, they are moving to digital media at an astonishing rate, with their digital consumption set to almost double between now and Please see the complete publication for our projections of digital and traditional content consumption across generations. The baby boomers 44% 54% 12% 9% 8% 6% 6% 5% 29% 27% Television Radio Newspapers Magazines Internet The digitally disengaged 34% 43% 15% 10% 15% 10% 7% 7% 30% 30% Outlook special - Behavioural shifts in target audiences 17

20 Interview Joris Merks-Benjaminsen Head of Digital Transformation at Google Digital is the new media mix Google aims to organise all information in the world and make it universally accessible and usable. In pursuit of this ambition Google is at the forefront of innovations in this digital age. Joris Merks-Benjaminsen is Head of Digital Transformation at Google and just finished his fourth book Online Brand Identity in which he discusses a future ready brand model and elaborates on all relevant factors and the changes he observes. In this interview Joris Merks discusses a changing customer journey, the importance of online brand identity and a strong focus on content, as well as the opportunities the digital world has to offer. In my previous role as researcher I studied consumer journeys by monitoring online behaviour and the way this ultimately led to a purchase, either online or offline, says Merks. It turned out that both online and offline buyers invest a similar amount of time on the orientation phase online. In my view online and offline buyers don t really exist as consumers mix the two. This is even further boosted by the use of smartphones. However, this split between online and offline still exists within companies. Merks: In our experience the decision to start an online or offline advertising campaign is often made based on where a business sells its products. Travel agencies were quick to start up online businesses and were among the first to advertise online, whereas companies selling products offline are very slow in switching to online advertising. This is strange given that the consumer journey is not limited to an online or offline environment and it is this narrow view that we have to hurdle. Sales funnel Fast moving consumer goods companies proved to be slow when it comes to the switch to digital. On the other hand, those who fully embrace the possibilities of digital and use cost per acquisition as a method of advertising, find themselves at the bottom of the sales funnel. Merks: These businesses skip the first steps in the customer journey in which consumers are looking for new inspiration and ideas. They focus on the bottom of the funnel as it is easier to measure results there and settle accounts based on cost per acquisition. In the online world there is too much focus on direct sales, the last click to purchase, and too little on longterm effects and this is where branding offers a solution. Everybody knows which is the best way to go, but does not yet put it into practice. Consumers first For some traditional advertisers online video is a first step towards digital, but they often hold on to their traditional way of thinking. A lot of traditional advertisers apply video as if it were TV, says Merks. What we try to do at Google is to let advertisers move to digital first, which means taking digital as a starting point of an advertising strategy instead of starting with offline ads and then repackage these as online media. Digital is, in fact, the whole media mix and offers the full media spectrum, including TV commercials. In my view this strategy should be called consumers first. Digital as the new media mix Different media types, such as TV and outdoor, that are often separately itemised in media plans, should all be linked to the same infrastructure resulting in digital functioning as the media mix according to Merks. He denies the relevance of the distinction between online and offline, as well as between below the line and above the line communication. Merks: It will all be about devices and screens and the term media mix will, in fact, become redundant. Unlike traditional media, the digital media mix takes into account the different pace and order at which consumers move through the sales funnel. A shift to the driving force of data results in a media strategy that is for the most part based on the always-on principle and which requires messages and content with a broader scope. Branding in a digital environment How can we relate digital advertising to the concept of branding? Take online video for example, more and more people watch online video content, especially among those in the age groups under 34 years, says Merks, and video content is associated with TV, which is, in turn, associated with branding. It s a real eye opener for many that digital advertising can also be branding. Just as traditional brand identity, online brand identity is also about creativity and knowing what your brand and brand mission stand for. PwC Entertainment & Media Outlook for the Netherlands

21 This makes it important to think about the added value of a brand and translate this into meaningful communication towards consumers. Merks: At Google we use a model to structure a content creation strategy on YouTube called Hero, Help, Hub. Hero is push content around big events; help is pull content; and hub content aims to reengage with consumers over time, getting them to subscribe to content and come back for it repeatedly. In traditional media, consumers were randomly confronted with advertisements, while in the digital world it is a challenge to get the voluntary attention of consumers. Branding is now moving more towards engagement. Merks: Good quality content does not automatically mean customers will be able to find it. Even if you have content that could go viral, you ll have to give it a boost through advertising. Paid is a good way to provide that boost, in fact, Paid, Owned and Earned are still useful formats, also in an online environment. Google, for instance, launched Google Preferred, which is a list of top rated online videos that offer quality content. Offering video advertising for this selection of videos is similar to the traditional way of media buying. This really shows the significance of digital advertising when it comes to branding. Guarding brand uniformity In the past a brand manager together with an advertising agency could determine the touchpoints in TV, print and radio and present a consistent brand image. However, in the digital world the number of touchpoints with Advertisers should start to act more as publishers, while publishers need to act more as advertisers. consumers are far more fragmented, says Merks. There are for instance hundreds of online videos, articles, tweets and Facebook posts. What s more, in the world of today what consumers say about your brand is a touchpoint too, as well as wat employees say about the brand they work for. Brand managers should be able to show employees how a brand affects their work and vice versa. This emphasises the importance of taking ownership of a brand and moving it in the desired direction. A brand should be recognizable in every type of communication. Guarding brand uniformity in a fragmented landscape is key. Content is king, even more so today All strong brands should focus on an adequate content strategy, because push advertising will gradually cease to work and always-on is the norm. Merks: It s all about providing content to attract an audience that keeps coming back for more. To achieve this you have to bring technical and creative people together. Successful brands have a unique tone of voice and offer content that stimulates interaction with consumers. This interaction will produce data that can actually be used for personalisation. Although some people think data will solve everything, data driven advertising also requires a stronger focus on brand, content and emotion. Regarding content, advertisers should start to act more as publishers. This is a nice parallel to what s advised in PwC s Outlook about publishers having to act more as advertisers. The future of media agencies A shift to content also reflects in the changing role of media agencies, especially after the introduction of automated auctions. Merks: Media agencies are increasingly focused on solving communication issues, which is not only about where to place commercial messages, but also about the content of these messages. This development shows that media agencies and ad agencies are becoming converging domains again. However, traditional ad agencies are too much focused on, for instance, big ideas and push messages and missed the opportunity to create effective content strategies. Media agencies are also taking on a technological advisory role, because all content, communication and interaction should be managed and stored in the same database. It s crucial to know how and to what extent the consumer touchpoints influence the actual transaction or interaction with the customer. However, the fact that people use multiple devices to get to the last click moment causes difficulties with regard to measuring the phases of the customer journey. One of our main challenges as an industry is to make sure that separate clicks on different devices together will be seen as one individual. Trial market Joris Merks concludes by mentioning that the Netherlands is the best trial market for digital advertising. Consumers in the Netherlands are among the most digitally advanced consumers in the world. They have the biggest number of devices in every household and the Netherlands is a frontrunner in programmatic. It s also small enough to easily bring together all decision makers and specialists. This makes our country the ideal trial market for anything that is digital and future ready. Interview 19

22 1. Access spending 20

23 The highly penetrated fixed broadband market in the Netherlands offers Dutch consumers widespread access to very high-speed services. Overall the market is highly competitive, but recent mergers have created a near duopoly in the fixed broadband sector. Mobile internet was initially slower to take off than in some European markets, but the rapid rollout of 4G networks fuelled a substantial rise in mobile data usage in 2014, driven largely by video streaming. With little room for organic growth, operators are looking to bundled and converged offers to increase customer loyalty and reduce churn. Their focus is on upselling customers to higher-speed and/or highervalue packages to raise ARPU. Increasingly, fixed operators will be betting on combining fixed-mobile converged offers (4P) to enhance customer value and create customer lock-in. In an attempt to prevent prices from declining, operators are likely to focus their strategy even more on increasing bundle value by adding more services such as additional (on-demand) content packages and social media integration. At the same time, we expect that competition for share of wallet for OTT services, such as Netflix, will increase. In 2014, total access revenue (income from fixed internet, mobile internet, TV subscriptions and OTT/streaming) amounted to 5.2 billion euros, ranking the Netherlands sixth among Western European markets. Spending is forecast to grow by 4,6% per year on average from 2015 to 2019, driven primarily by growth in mobile internet access. Forecast average yearly growth in other European countries ranges from 3% (Switzerland and Finland) to 7%-8% (Austria and Italy), also driven mainly by mobile internet. By 2019, mobile internet access revenue is expected to exceed fixed broadband access revenue Access spending market ( millions) Netherlands Historical data Forecast data CAGR % Fixed broadband y-o-y growth 0,4% -0,5% 3,6% 2,5% 0,4% 0,3% 0,2% 0,2% 0,1% 0,2% Mobile internet y-o-y growth 26,8% 21,1% 9,3% 13,0% 12,3% 10,8% 9,6% 11,5% 9,7% 10,8% Pay-TV y-o-y growth -0,3% -0,6% -3,4% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% 0,5% OTT / streaming y-o-y growth 83,3% 44,6% 121,3% 86,9% 87,0% 43,6% 21,7% 13,6% 8,5% 32,1% Total y-o-y growth 5,5% 4,7% 3,9% 5,6% 5,1% 4,7% 4,2% 4,9% 4,2% 4,6% Source: PwC, Ovum Fixed broadband Pay-TV Mobile internet OTT / streaming 1. Access spending 21

24 The Netherlands continues to be a fixed broadband leader The Netherlands is one of the world s leading countries in terms of fixed broadband penetration. The availability of high-speed services delivered via coax, twisted copper or fibre is not only high, but the majority of customers can choose between different high-speed networks. The hybrid fibre coax (HFC) cable operators provide access to speeds of more than 100Mbps to 85%-90% of Dutch households. KPN offers at least 100Mbps to 55%-60% of households through its twisted copper and fibre access network. KPN intends to expand its coverage to 80% by Currently, only 3% of Dutch households do not have access to speeds over 30Mbps (source: Stratix, February 2015). The take-up of available high-speed services is increasing steadily. According to the Netherlands Authority for Consumers and Markets (ACM), 46% of fixed broadband customers subscribed to services of 30Mbps or above at the end of the last quarter of 2014, with 16% of customers taking services of over 100Mbps. This compares with figures of 42% and 9% respectively at the end of Fixed broadband penetration stood at 99,7% at the end of Proportion of broadband subscriptions by speed 100 European Commission (EC) data on Western European Member States show that only Belgium and Portugal had higher take-up of over 30Mbps services in 2014, at 73% and 49% respectively. Sweden was right behind the Netherlands with 42% take-up According to the EC s most recent Digital Economy and Society Index (DESI), published in February 2015, the Netherlands ranks third (behind Denmark and Sweden) of all 28 EU Member States in the overall DESI score, which grades countries on connectivity, digital skills, online activity, integration of digital technology and digital public services Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 >100Mbps >2Mbps, <10Mbps >30Mbps, <100Mbps <2Mbps >10Mbps, <30Mbps Source: PwC, Ovum, ACM PwC Entertainment & Media Outlook for the Netherlands

25 Considerable untapped growth potential for mobile data usage. Video streaming drives mobile data boom KPN and Vodafone have rolled out 4G rapidly in the past two years and both providers had national population coverage by the end of the first quarter of T-Mobile, the only mobile operator without a fixed broadband presence since it shed its fixed provider Online.nl in late 2013, is aiming for 95% coverage by October Meanwhile, the newest entrant, Tele2, is seeking national coverage by the first quarter of 2016, building a 4G-only network. KPN s first-mover advantage and faster rollout have secured it the lion s share of 4G customers to date. Mobile data usage has grown rapidly in line with 4G availability, driven largely by video streaming. KPN recorded a more than threefold increase in video usage alone on its mobile network between the first and fourth quarters of This suggests that video is the key driver of increased usage (e.g. a more than threefold and twofold increase in data usage from Q to Q is reported by KPN and Vodafone respectively). Also, the ACM reported that total mobile data usage had more than doubled to 17,7 petabytes in the year ended September Consequently, operators are increasing the size of their data bundles, with T-Mobile now offering up to 12GB per month, and are upselling to higher-value offers. The rise in usage has not yet translated into increased ARPU, but year-on-year ARPU levels should start to rise from 2017 as operators secure a critical mass of higher-value customers. We believe, however, that considerable untapped growth potential for monthly mobile data usage remains in the Netherlands as LTE reaches its full potential and operators offer larger bundles for lower prices per GB than before. M&A activity alters the competitive landscape The Dutch telecoms sector is going through a period of adjustment in 2015 following Liberty Global s acquisition of the leading cable operator Ziggo in March The merger of Ziggo and UPC NL created a new market leader in the fixed broadband sector and has concentrated the fixed broadband market (i.e. KPN and the enlarged Ziggo have a combined fixed broadband market share of over 80%). B2B and B2C mobile subscribers by operator Q Source: PwC, Ovum 2G 3G 4G T-Mobile Vodafone KPN The merged company launched a revamped service portfolio under the Ziggo brand in April. As part of its renewed offer, Ziggo increased its maximum residential internet offer to 200Mbps across the entire network, while launching a 500Mbps service for business customers. The network integration process caused some disruption, with the local press reporting that a number of customers encountered problems with their TV service. Ziggo lost 49,500 TV and 7400 telephony customers in the first quarter of 2015, the majority of whom were in the former Ziggo footprint, though the company saw gains in broadband and mobile. The next few quarters will demonstrate whether Ziggo has succeeded in ironing out these issues or whether its rivals have an opportunity to pick up churning customers. The enlarged Ziggo is in a strong position: at the end of 2014 its fixed broadband market share was greater than KPN s and it is by far the largest pay-tv provider in the country. 1. Access spending 23

26 PwC Entertainment & Media Outlook for the Netherlands

27 Dutch regulator considering position on the access and TV market The EC imposed conditions on the merger of Ziggo and UPC NL. As a result, Liberty sold its premium pay-tv film channel Film 1 (Ziggo owns 50% of HBO Netherlands) and cable operators were forced to lift restrictions preventing channel broadcasters from offering over-the-top (OTT) content. The EC is looking into the ACM s most recent draft market analysis on local-loop unbundling, published in October In one of its comments, the Commission suggests that the ACM should consider whether the cable networks could support wholesale access in the future. KPN s full ownership of Reggefiber provokes concern from Vodafone Vodafone began offering triple-play services via Reggefiber s network on a wholesale basis in August As the scale and triple-play ambitions Major fixed broadband providers market share 11,9% 12,6% 7,2% 4,3% KPN Online.nl ,1% Source: PwC, Ovum 40,9% 10,6% 40,2% 1,9% 0,8% 5,0% 2014 Ziggo UPC Tele2 Vodafone Delta Others 41,6% of formerly mobile-focused Vodafone increased, it began to invest heavily in FTTH unbundling, reaching 1.1 million homes about half Reggefiber s homes passed by the end of March This marked a rapid expansion from 300,000 homes passed at the beginning of the fourth quarter of The incumbent KPN s planned acquisition of the last block of shares in open-access fibre network operator Reggefiber received the go-ahead because the latter would continue to operate on an open-access basis. The transaction was the last in a series of share increases since KPN first bought a 41% stake in the fibre operator in late In theory, KPN s full ownership of Reggefiber should make no difference to the development of, and access to, the country s FTTH/B networks: as it is an open access network, all the parties KPN included are subject to the same terms. However, Vodafone has voiced concern that, with Reggefiber now being wholly owned by KPN, there is less incentive for KPN to roll out FTTH/B as quickly as before, and that rollout is becoming more fragmented, increasing Vodafone s deployment costs. Vodafone consequently filed a lawsuit with the Court of Rotterdam in February 2015 contesting the ACM s approval of KPN s full ownership of Reggefiber. Competition in the Dutch market is driven by bundles Customer loyalty is vital in a highly penetrated and competitive market: with an almost non-existent pool of new subscribers, picking up churning customers is virtually the only way to grow. Bundled offers reduce churn, though initially ARPU is often lower because operators tend to offer bundled services at a discount. On the plus side, they have a captive audience to which they can try to upsell additional services or migrate customers on to higher-speed fixed broadband, or content bundles. The focus on competition through bundles has led to TV challenger KPN pinching TV market share from TV incumbent Ziggo. Similarly, it has led to Ziggo stealing broadband market share from incumbent telco KPN. 1. Access spending 25

28 The majority of players offer a fixed double or triple play separately from any mobile element, though KPN offers quadruple plays, with all four services included. The converged KPN product Compleet offers rewards (such as more data, minutes, TV channels and content) for each additional service rather than price discounts. KPN adopted the same strategy with its low-cost Telfort brand in April Subscriptions to Compleet are rising steadily and at the end of the first quarter of 2015, they had grown to 485,000 households and 701,000 subscribers. 19% of KPN s residential broadband customers had a fixedmobile package (though not necessarily a quad play). Triple play as a percentage of fixed broadband was 52%. According to KPN, its quad-play customers are 70% less likely to churn than single-play customers, while mobile-only customers are twice as likely to churn as those with quad play. The new Ziggo has a mobile offering, but based on its being a mobile virtual network operator (MVNO) and not, as yet, focused on quad play. We expect Ziggo to gradually focus more on mobile as its integration with UPC NL progresses. Vodafone expanded its triple play to DSL in October 2014, making it near nationally available. In line with Vodafone s global strategy, the company announced that it wants a 10% share of the fixed broadband market within five years and expects to invest hundreds of millions to achieve this aim. Vodafone provides competitive bundles. However, unlike KPN and Ziggo, Vodafone actively promotes individual services when bundles are not an optimal proposition (e.g. replace a TV subscription by OTT or replace a fixed telephone line by mobile only). Tele2 s fixed broadband market share has been falling for some years in line with a general decline in the demand for DSL. The company has said it is looking to build its broadband base by raising speeds and improving services, which suggests it might increase its fibre presence via unbundling. The company launched 4G via its own network in January 2015, so it has the potential to put together converged bundles that focus on 4G, reducing its reliance on the 2G and 3G services it operates as an MVNO. PwC Entertainment & Media Outlook for the Netherlands

29 Go to outlook.pwc.nl For more information and data Major pay-tv operators market share 10,4% 12,1% 6,3% Ziggo (cable) ,5% 4,1% Canal Digitaal (DTH) Source: PwC, Ovum UPC (cable) 41,6% 9,8% 21,2% 3,2% 2,5% 6,4% KPN (DTT) Delta 2014 KPN (IPTV) Others 56,8% Given the different starting positions of these four largest players and the intensifying quadruple-play competition, we expect further market consolidation, possibly leading to more fixed-mobile converged operators. User experience and content are the key levers to gain TV market share The growth of OTT and ubiquitous high-speed broadband access are changing the TV landscape, as some customers opt to use OTT services instead of additional pay-tv packages. Operators are trying to slow this trend by adding features to their pay-tv offerings, such as time-shifting, multiscreen viewing, live streaming and video on demand, both transaction-based (TVOD) and subscription-based (SVOD). The Netherlands provides an interesting test case of how the globalising forces of internet technology and economics affect the business of TV at a national level. The universal access to high-quality broadband and acceptance of non-dutch content remove the barriers to fast OTT penetration that exist in other countries. Netflix and other OTT players have used the possibilities offered by new technology, high penetration of connected devices and apps successfully to introduce a new way of consuming TV and video content. Bingeviewing and personal recommendations have become common and are key to the success of OTT players like Netflix. Netflix s international expansion, multinational pay-tv consolidation and moves by the likes of HBO to provide online video direct to consumers suggest that global companies will increasingly influence competition in local TV markets. These new service providers will have a scale and reach that dwarfs national pay-tv operators, enabling them to negotiate enviable deals around multi-territory content deals and technology. As part of Liberty Global, the new Ziggo will be in a better position to navigate these dynamics. KPN is gearing up to launch a home-grown OTT service, Play. by KPN, later in The subscription-based service will allow anyone, whether they have a fixed or mobile KPN subscription, to watch live TV or on-demand content on a range of devices. Though OTT services are disrupting the traditional TV sector, Play. by KPN should bring in new revenue streams and provide opportunities for cross-selling. Although specific Play. plans are unclear at this stage, the independence of the access network subscription allows KPN to increase population coverage and provide a platform for new revenue models (e.g. mobile-only or focused content targeting for example, the youth market). KPN s increased focus on IPTV has resulted in a decline of its pay-dtt service. Subscriptions fell from 868,000 in mid-2011 to 533,000 by mid KPN stated its intention to continue operating the DTT service until the end of its current licence. In May 2015, the Dutch government announced plans to extend KPN s Digitenne service DTT licence until the end of January The government plans to free up the 700MHz band currently used for DTT broadcasting in order to use it for LTE services, requiring a transition to the more efficient DVB-T2 standard. 1. Access spending 27

30 Interview Robin Kroes VP Strategy & Integration at Ziggo Providing the ultimate entertainment experience In 2005 when I started working for Chellomedia, a Liberty Global brand, conventional analogue TV systems were still the norm and digital TV was just starting to gain ground, says Robin Kroes. In ten years time our industry has been turned upside down. Today, the amount of available content is enormous and catch-up TV and non-linear TV have rocketed. Ziggo aims to give its customers the ultimate entertainment experience and makes substantial investments in order to bring all content together on one platform and make TV viewing a more flexible, personalised and interactive experience. Over-the-Top (OTT) triggers necessary discussions regarding net neutrality, while at the same time enhanced data traffic also opens up a world of innovative possibilities, such as the Internet of Things, Smart Cities and out-of-home connectivity. Robin Kroes emphasises that TV is still a major factor in the media landscape as total viewing time remains stable, despite the fact that youngsters are increasingly watching other media instead of linear TV and more and more viewers are engaged in multitasking on different devices. Kroes: Linear TV will stand the test of time, since TV producers are very much aware of what viewers want, which is for instance local content and major live events. Still, linear TV will decline and only remains stable when you include catch-up TV. However, if you add up linear TV (including catch-up TV), SVOD propositions, and TV video content, you see that total viewing time has increased and that TV is in fact booming and will continue to be in the years to come. Entertainment Ziggo s main aim is to provide customers with state-of-the-art connectivity and to make sure they have an optimal entertainment experience. In accordance with this aim, Ziggo also sponsors the concert platform Ziggo Dome in Amsterdam and the Amsterdam based football club Ajax. Kroes: Sports and music are textbook examples of real entertainment, both at home and live in a stadium. Our main goal is to give our customers the perfect entertainment experience everywhere and at any time. Content production Boundaries between different domains in the media landscape are further blurring. An example in the Netherlands is KPN, who recently announced their own new TV series Brussel. This will not immediately overturn the Dutch content value chain in my view, Kroes says. Despite the fluidity of boundaries, I still think creative people, producers and cable operators that function as content aggregator and distributors all have their own special knowledge and expertise. At Ziggo we want to offer our customers all the quality content that is being produced and only if a specific format with great potential is not yet being produced by others, we might jump on that opportunity. Innovation Ziggo not only heavily invests in content, but also in the technology to make the TV viewing experience more flexible and interactive. As part of these developments Ziggo launched new products such as Horizon TV and SVOD offers MyPrime and HBO ON Demand. Robin Kroes sees innovative solutions for more flexible viewing as the way to go. Kroes: At Ziggo we launched Replay TV which offers our customers start-over TV. We record all content for our customers and provide them the possibility to watch TV programmes from the past seven days by choosing any programme from the TV guide. It s not that consumers don t like TV content, they just want to be able to watch TV programmes when it suits them best. Besides flexibility and interactivity, a simple interface and personalisation features are also key according to Robin Kroes. Netflix, for instance, offers good quality OTT content, and, perhaps even more important, an easy way to consume this content. In addition to a recommendation function this also involves linking TV viewers and the people around them, comparable to Spotify. This is the direction in which TV is heading. Also, the enhanced TV experience is not limited to the home, but can also be experienced out-of-home. For instance with our Horizon GO app for tablet viewing. This app even includes a YouTube app, as we wish to offer our customers what they really want. 28

31 An aggregator such as Ziggo offers real benefits as it brings all content together on one platform. Advantage of scale All the new (technical) developments make the world of TV content very complex, given that, for instance, apps need to be developed for all different types of devices, and all require regular updates. Kroes: Having innovative ideas is not enough, since their success depends on scale. Only large companies with enough resources and a critical mass of clients can further develop these ideas and put them on the market. These larger companies need to have an attractive content offering, a sophisticated yet simple interface and a good helpdesk. New players will enter the market, but only a few will survive or new market entrants will remain small. One platform From a consumer point of view the profusion of content is overpowering. Kroes: Consumers are faced with the paradox of choice. This means media consumers want to have access to all available content, but at the same time most customers don t want to invest a lot of time in locating this content and gaining access to the platform in question. Instead, viewers want the simplicity of only one platform. The variety of broadcasters of OTT content, such as NL Ziet and Netflix, all offer different series and films and there is not much overlap between parties. This is where an aggregator such as Ziggo offers real benefits as it brings all content together on one platform, making it easily accessible and offering good service and a solid billing system. These benefits represent great value and secure a bright future for aggregators. Net neutrality Broadcasting OTT content gives rise to some challenges. Kroes: Content produced in the Netherlands is heavily regulated by legislation, whereas the unlimited broadcasting of OTT content is not. Another issue is the enormous increase of data traffic as a result of OTT content, as well as HD content and 4K resolution. Kroes: Providers invest a great deal of money in extra net capacity while other parties earn a lot of money making heavy use of this infrastructure. This started a discussion over net neutrality and the question if providers are allowed to differentiate on how subscribers use data services. The legislator has a role to play in solving these issues, but commercial parties also have to work towards a solution, because legislation should not hamper free market processes. Internet of Things Although data traffic has increased significantly, innovations of data transfer via Hybrid Fibre Coax networks (cable) resulted in a speed of 500 megabits and a high level of reliability. Together with a high cable penetration this makes up a perfect starting point for innovative applications. Kroes: Ziggo has already explored the possibilities of for instance remote patient monitoring. Technical possibilities are not the bottleneck here, but it will be all about acceptance by all parties involved and the decision to really make a change. The Internet of Things and Smart Cities also represent great market potential for cable companies, as this is all about connectivity and data-exchange. With regard to the Internet of Things cable companies have an advantage over the manufacturers of consumer electronics, because cable companies have a long-standing business relationship with their customers and already have billing and service systems in place. As for hardware solutions other parties will have to step in. Out-of-home Bringing connectivity to for instance cities and shopping malls is a growth market for Ziggo. Last year Ziggo started with Wi-Fi Spots which provides Wi-Fi access to all Ziggo customers via the modems of other Ziggo customers. Ziggo equipped several stadiums with Wi-Fi and in The Hague they installed street cabinets for out-of-home Wi-Fi access. Kroes: To further develop out-of-home internet we are constantly looking for partners, such as local authorities, who are willing to cooperate with us. We have also launched a new sim-only mobile offering for our customers through an MVNO model (mobile virtual network operator, ed.), which also includes access to Wi-Fi homespots. Data transfer out-of-home used to be slow and expensive. Removing these impediments frees up new energy in the market and paves the way for new commercial location-based solutions and added value. Interview 29

32 2. Filmed entertainment 30

33 Continued growth in streaming revenues helped to expand the total market for filmed entertainment in the Netherlands by 3,9% in 2014, just as viewers continue to move away from DVD and Blu-ray. The continued investment in, and expansion of, great new multiplex theatres all over the Netherlands, combined with a strong film slate in the coming years, will boost the box office the coming years. The rising popularity of on-demand services is expected to be the biggest driver in total filmed entertainment market revenue which will move from 575 million euros in 2014 to 771 million euros by 2019, a CAGR of 6,0% Filmed entertainment market ( millions) Netherlands Historical data Forecast data CAGR % Electronic home video ,0% OTT/streaming ,1% Through-TV subscription ,9% Physical home video ,5% Rentals ,7% Sell-through ,8% Box office ,9% Advertising ,5% Total y-o-y growth 2,6% -4,4% -2,0% 3,9% 9,9% 5,9% 5,7% 4,8% 4,0% 6,0% Source: PwC, Ovum, NVPI, NVB (Nederlandse Vereniging van Bioscoopexploitanten), International Video Federation Electronic home video Physical home video Box office Advertising The distribution of filmed entertainment is undergoing rapid change. The sale of DVDs and Blu-rays is showing irreversible decline as consumers increasingly shift away from content ownership a trend seen almost everywhere in Western Europe. Consequently retailers will see physical sales dwindle over the period, as the market segment shrinks by a CAGR of -12,5%, while video on demand (VOD) services continue their ascent. These forecasts remain subject to great uncertainty because of the numerous changes in the (home video) market at the supply side (many new forms of consuming video) and at the user side (changing viewing habits that differ substantially across age groups). Electronic home video revenue takes an ever-larger share The Netherlands has been keenly adopting streaming services, outpacing much of the rest of Europe. Market leader Netflix arrived relatively late, entering the market in September 2013, but has already made significant gains. By the second quarter of 2015 it was estimated that the service had reached 1.4 million households. This makes the Netherlands the most popular market for Netflix in the region, after the UK and Sweden, both of which had a year s head-start on the Netherlands. The rapid adoption of VOD has been eased by the fact that the Netherlands enjoys some of the highest internet connection speeds and fixed broadband penetration, which was 96,5% in Filmed entertainment 31

34 The cinema experience is all about sound, site and seats Videoland, RTL s OTT service, is still relatively small but offers its entire library on a monthly subscription basis, thus going head-to-head with Netflix. Dutch broadcasters NPO, RTL and SBS launched their own streaming service, NLziet in July 2014, offering access to the catch-up and preview services of the public broadcasters under the NPO umbrella, as well as content from RTL and SBS. Other national transactional VOD service providers include Pathé Thuis and Moviemax, although their market share is much smaller than that of Netflix. With a growing VOD market and the continuing adoption of streaming platforms, total electronic home video revenue will reach 419 million euros by 2019, up from 183 million euros in 2014, a CAGR of 18,0%. This growth in the Netherlands is above the Western European average of 14,4% CAGR, and electronic home video revenue will take an ever-larger share of total filmed entertainment revenue over the forecast period. Cinema is the place to be With a major digitisation overhaul completed by the end of 2013, cinemas are now able to manage their exhibition schedules more Proportion of revenues by segment % 20% 40% 60% 80% 100% Source: PwC, Ovum Electronic home video Physical home video Box office Advertising effectively and save on distribution costs, thereby boosting profitability. Total cinema admissions continue to hold firm despite the growing penetration of VOD services. Cinema is renowned for being a non-cyclical sector and ticket sales in the Netherlands have remained steady in recent years, even amid the country s year-long recession and the subsequent rise in popularity of VOD services. Box office revenue remains on a slight upward curve and is expected to reach 274 million euros in 2019, up from 250 million euros in 2014, a CAGR of 1,9%. Blockbusters such as Fast & Furious 7 have drawn a large audience, while the latest instalment in the Star Wars franchise, slated for later this year, will make US box office features a major attraction of At the same time, the performance of local comedies such as Gooische Vrouwen II has been impressive. The Desperate Housewives-style comedy made 10.1 million euros in 2014, outperforming The Hobbit. Admissions are forecast to reach 33.2 million this year, further boosted by Jurassic World, the new James Bond film Spectre and a generally strong film slate. Dutch cinema exhibitors who continue to invest in new infrastructure by opening new cinema complexes constitute a significant growth driver. New cinemas have improved equipment and interiors and there are yet many more upgrades to come. The cinema experience is becoming all about sound, site and seats and has become again a place to be. The Dutch film industry should remain fertile ground as the government has been taking steps to boost national film production. In February 2015, Dutch and German ministers signed a co-production treaty, creating a cross-border development initiative called the Children Film Co-Development Fund that is offering grants to filmmakers. Meanwhile, the Netherlands Film Production Incentive, a 30% cash rebate on film expenditure that was introduced last year, is already driving up production levels. Some 78 million euros was spent on Dutch films last year, a considerable hike on production investment in 2013, which was around 18 million euros less. The effect of the project is that post-production work is being relocated back to the Netherlands and that it has made the country more attractive to foreign filmmakers. PwC Entertainment & Media Outlook for the Netherlands

35 Top ten films by box office revenue 2014 Rank Title Country Revenue 1 Gooische Vrouwen II The Netherlands 10.1 million 2 The Hobbit: The Battle of the Five Armies New Zealand/US 8.5 million 3 The Wolf of Wall Street US 5.9 million 4 The Hunger Games: Mockingjay - Part 1 US 5.7 million 5 Rio 2 US 4.7 million 6 Toscaanse bruiloft The Netherlands 4.5 million 7 How To Train Your Dragon 2 US 4.3 million 8 The Maze Runner US 4.1 million 9 Dawn of the Planet of the Apes US 4.1 million 10 Soof The Netherlands 3.8 million Source: NVB (Nederlandse Vereniging van Bioscoopexploitanten) Go to outlook.pwc.nl For more information and data VOD puts pressure on release windows Until now theatrical releases have largely maintained their windows, with cinemas having exclusivity to new films for an average of four months. However, the boom in digital distribution is beginning to impact schedules. Three out of eight films that were nominated for best picture at the Academy Awards, were released digitally on services like Netflix less than three months after their theatre release. The other five were, or are set to be, made available digitally before appearing on DVD. This demonstrates how VOD services are fast becoming the secondary format of choice, and in some cases are no longer second to cinema. The Weinstein company announced the simultaneous release of Crouching Tiger, Hidden Dragon on both Netflix and in IMAX theaters in the second half of This caused a lot of resistance from the cinema exhibition community, indicating that the market may not be ready for this big step yet. Key drivers for this development are the demand for content anywhere at any time, as demonstrated by the proliferation of smartphones and tablets. The latter is a particularly popular viewing device for Netflix users, since Netflix offers seamless cross-over between devices. This second demand has typically been supplied by piracy ahead of the home video release of films, but is now increasingly being fulfilled by the speed at which titles are digitally released. The rapidly growing popularity of sites such as Popcorn Time in the Netherlands is causing concern in the industry. It is estimated that the application is installed on as many as 1.3 million devices in the Netherlands, posing a direct threat to OTT/streaming subscriptionbased services like Netflix. The ease of streaming pirated content (as opposed to downloading illegally) has the adjunct of reducing illegal downloading with a 5% drop in such activity by the end of Towards the end of last year, industry organisation NVPI Video called for the Dutch government to clamp down on piracy by taking the same approach as Britain and Denmark, which is tracing illegal downloaders by their IP address and issuing them with written warnings. This may not become policy, but the Netherlands is taking piracy more seriously than ever. Nonetheless, it is difficult to find the legal grounds to overcome piracy in such a fast-changing digital environment. Popcorn Time, for example, argues that it has no legal liability since it does not host content. It claims the site only offers information and acts as a search engine for links to streamed content. 2. Filmed entertainment 33

36 3. Television 34

37 After a strong recovery in 2014, the Dutch TV advertising market is not expected to grow in TV viewing is coming to a crossroads as the rise of OTT video services is impacting the way in which video content is consumed and is slowly changing the shape of television advertising. For the time being, however, television advertising remains the mass audience platform. The real GDP of the Netherlands increased in 2014 by 0,6% compared to the previous year, which resulted in a return to growth in TV advertising revenues. This development was propelled by major events such as the 2014 FIFA World Cup. According to the EU group of broadcaster trade bodies (PEPPTV), no less than 12,4% million Dutch viewers watched the semi-final match between the Netherlands and Argentina, which represents a record audience share of 89,3%. The TV advertising market amounted to 985 million euros in 2014, and is forecast to grow to 1.06 billion euros by 2019 a CAGR of 1,4%. The increase in revenue over the forecast period is due to larger budgets for advertising spend, mainly for big live events and primetime broadcasts. At the same time, the online TV revenue growth rate will be the strongest as viewers shift to alternative viewing platforms and advertisers seek to diversify their spend targets. Online TV advertising revenue growth over the forecast period is scheduled to come in at a double-digit 10,9% CAGR, compared to a rate of 1,1% CAGR for broadcast TV. The rise of OTT video services is slowly changing the shape of television advertising The rise of over-the-top (OTT) video services such as Netflix and rival services from pay-tv providers will boost the market for electronic home video, alongside traditional pay-tv subscriptions. (The chapter on Access Spending includes forecast data of the digital home video spend and pay-tv market during the next five years.) OTT activity in the Netherlands has been ramping up over the past couple of years, with the arrival of Netflix as a major factor. For instance UPC s MyPrime and NLziet, a joint initiative of NPO, RTL and SBS, will help the established players defend themselves against the new market entrant, but will not prevent Netflix from becoming a significant OTT contender. Leading commercial broadcaster RTL expanded its OTT presence by acquiring the Videoland platform and transforming it into a subscription video on demand (SVOD) service that is available via both pay-tv platforms and the open internet Television advertising market ( millions) Netherlands Historical data Forecast data CAGR % Broadcast advertising ,1% Spot ,1% Non-spot ,7% Online advertising ,9% Total y-o-y growth 4,4% -5,5% -2,7% 4,2% 0,2% 2,2% 1,3% 2,1% 1,1% 1,4% Source: PwC, Ovum, SPOT Spot Non-spot Online Television 35

38 The battle for the consumers is set to conclude this year. OTT operators in the Netherlands as of 2014 Service Horizon Go KPN Netflix MyPrime RTL XL SBS6 Gemist; Net 5 Gemist; Veronica Gemist NPO Uitzending Gemist NLziet Pathe Thuis Videoland / Videoland Unlimited Ziggo TV Source: PwC, Ovum Netflix launched its 8.99-a-month offering in the Netherlands in September 2013 and it has been well-received subscribers were estimated to have reached 1.4 million in High broadband penetration and the popularity of English-language programming have contributed to the success of Netflix in the Netherlands. NLziet is a Dutch SVOD service that was launched in mid-2014 for 7.95 per month. The content of NLziet consists of programmes from both the Dutch public broadcaster Nederlandse Publieke Omroep (NPO) and commercial broadcasters RTL (part of Bertelsmann) and SBS (owned by Finnish media company Sanoma Media and Dutch media company Talpa Broadcasting Holding). This joint service runs parallel to the separate OTT propositions of these brands. The service is positioned to compete with Netflix. The battle for the consumers is set to conclude this year. Pay-TV operators will be instrumental in both launching and marketing their own streaming services, as well as in incorporating services from third parties (such as Netflix) into their offerings in order to retain customers and potentially increase ARPU. Just as in other markets, we forecast that Type Multiscreen service for pay-tv customers, VOD, linear channels Multiscreen service for pay-tv customers, VOD, linear channels OTT SVOD service, VOD. Multiscreen SVOD service for pay-tv customers Commercial broadcaster catch-up TV Commercial broadcaster catch-up TV PSB catch-up TV Joint-venture broadcaster OTT SVOD service OTT TVOD service OTT SVOD and TVOD service Multiscreen service for pay-tv customers. VOD, linear channels in the Netherlands strong demand for high quality SVOD services can complement, rather than replace, services from more traditional TV providers. Traditional broadcasters are already experiencing lower viewing figures, mainly due to a rise in the number of young viewers that have been growing up watching video content over the internet. Younger viewers gradually turning away from the main screen in the living room has implications for the entire industry, given that younger demographics are the viewers and subscribers of tomorrow. It remains to be seen whether the TV set will become the primary viewing platform when these young viewers age and become financially secure. More companies offering cross-platform advertising is expected to become the main driver to take an already evolving situation to the next stage. More accurate, segmented and granular data on viewership across various platforms will allow this opportunity to be fully exploited. OTT is noticeably shifting audience viewing patterns. Given the speed with which ad spend follows changing consumer viewing habits, advertisers will inevitably adapt themselves accordingly. PwC Entertainment & Media Outlook for the Netherlands

39 Go to outlook.pwc.nl For more information and data OTT services are familiarising viewers with advertising-free video consumption OTT services are thriving using a model that is totally different from most of the online media: no advertising, premium subscriptions supporting a high paywall, high-quality content, and expensive original productions. These ad-free models are of particular concern to the advertising sector. While OTT services may attract advertising revenues at the expense of TV advertising into the digital space, subscription-only services are promoting a model that excludes advertising altogether. Although TV advertising is still a key advertising format, this format has to be reinvented to compete with the major OTT players on their own turf the internet. But it will be difficult, even for a fast growing service such as Netflix, to sustain existing growth levels through an ad-free model. This is why, although Netflix and other similar services will retain their ad-free model for now, it is likely that there will be a point where advertising of some sort will be embraced to achieve the next level of growth. This will create the necessity to mitigate the risk of certain customers cancelling their subscription by way of protest. Compromises, such as no adverts during shows but limited advertising space at the beginning of a movie or an episode, may seem lucrative enough to adopt. Government contributions to public broadcasting to remain stable The Dutch public broadcasting community was confronted with significant cuts in government contributions in the past years. Significant restructuring of the Dutch public broadcast domain followed as a result. The first round of mergers of public broadcasters has now been completed i.e. the mergers of KRO/NRCV, VARA/BNN, and TROS/AVRO. A second round is expected to be completed in 2016 Government contribution to public broadcast ( millions) After mergers only 8 remaining public broadcasters in 2016, down from 21 a few years ago Source: Totale meerjarenbegroting NPO when only eight public broadcasters will remain, down from 21 only a few years ago. In the midst of these significant developments, public broadcasting is changing rapidly and is also confronted with the challenges of online and OTT. The question is whether the public broadcasters are sufficiently able and agile to adapt to these demands, as they also have to focus on internal developments that is, the mergers, cost cuttings, and quality criteria issues. The debate is ongoing as to whether the function of the public broadcasters in the year 2015 is still in line with their legal tasks. The current expectation is that government funding will remain stable over the coming years, however, the topic remains one of significant political scrutiny and public debate, and significant future changes in the public broadcasting arena are to be expected. 3. Television 37

40 Outlook special Over-the-top TV Tom de Groeve, July 2015 Over-the-top TV, Netflix and the impact on the TV industry Perspectives for the Netherlands Throughout the year Outlook Specials address key developments that are transforming the industry. The rise of Netflix and other over-the-top (OTT) TV services trigger many questions for the TV industry. Do they change viewing habits? What is their impact on the advertising market? Will OTT TV lead to changes in pay-tv? And what does it imply for content creation? Below you will find a summary of the OTT TV Special, the full publication can be viewed online. Cable companies have been offering subscription video-on-demand (SVOD) for a long time. But these services were never very successful. What then makes the Netflix SVOD service so popular? Why is it not following the same fate? To answer these questions we turn to the US, because the US is about four years ahead in terms of use of OTT services and competitive dynamics. Findings from the US, however, cannot be blindly extrapolated to the Netherlands, as there are important differences. Many industries have gone through or are still going through a digital transformation process and were thoroughly reshaped by the internet. It looks like the rise of OTT TV is the digital turning point for the TV industry. It affects business models and success factors along all the steps of the value chain, from content creation to distribution. All players in the TV industry need to determine their strategy to deal with this transformation. PwC Entertainment & Media Outlook for the Netherlands

41 Is OTT TV the digital turning point for the TV industry? Netflix a success story Netflix launched its streaming SVOD service in the US in 2007 and has 41 million subscribers there. Outside the US it has 21 million subscribers and the worldwide annual revenue of Netflix amounts to $6 billion. The company does not share its subscriber numbers in the Netherlands, but by extrapolating survey results some estimate the current number of Dutch subscribers at 1.4 million. In this Special we focus on Netflix because it is by far the largest player in the OTT TV area. What drives the success of Netflix? Is it the vision and foresight of its management? Is it about long-term orientation? Is it timing? Branding? Above all, the key is the service it offers: flexibility, quality content, state-of-theart functionality & design, the right price and clever use of big data. Will Netflix be as successful in the Netherlands as in the US? Maybe not entirely. There are a number of relevant differences, for instance in TV programming, pricing levels of pay-tv packages and advertising load on linear TV. On the other hand, broadband penetration in the Netherlands is higher than in the US. Netflix and linear TV - Cannibalistic or additive? The key question is whether the 10 billion hours that Netflix streamed in Q have changed TV watching habits, and with that TV advertising and the value of a pay-tv package to its subscribers. Some figures might indicate that Netflix is largely additive, but in the last year some US data are starting to show that Netflix is indeed cannibalistic of linear TV watching. We think Netflix also has a deep impact on the TV advertising market and on pay-tv subscriptions. And it doesn t stop there, OTT TV providers like Netflix, have become major competitors in the market for content too. Strategic implications Now that OTT TV, and Netflix in particular, change the key dynamics in the TV industry it is crucial that players formulate a strategic response. This touches all parties: Should TV stations or pay-tv companies develop an OTT TV platform? And under what conditions? How should content makers adjust their programme offering? How can advertisers best reach their target groups? There remains substantial uncertainty about how this rapid transformation is going to unfold, so speed and agility in reshaping the strategy will be key factors for success. Success factors of Netflix Go to outlook.pwc.nl Flexibility Content Functionality & design Price Big Data To read the full OTT TV publication - Any moment: no appointment TV - Any screen - Any quantity ( binge viewing ) - Sizeable library - High quality - Recent - Exclusive - Original series and movies - Compatibility - Ease of navigation - Recommendation engine - Tracking across devices - Low pricing point (basic package: 8.99 per month) - Priced below similar SVOD services (f.i. HBO) - More and more detailed viewer data (than live TV) - Better content acquisition and timing decisions Outlook special - OTT TV 39

42 4. Radio 40

43 Compared to many other traditional media segments, the Dutch radio market has been fairly stable in terms of market participants, listening habits and revenues. Advertising spend will grow again after 2015, albeit at relatively low rates. The increasing popularity of internet radio and mobile internet has an impact on when and how people listen to the radio. This makes multi-media strategies more important, but also provides radio channels and advertisers with new opportunities. The conversion to DAB+ is going slower than expected. In addition, there is significant uncertainty with regard to the potential auction of the Dutch FM frequencies in the short-term. Following a drop in 2012 of -4,7%, radio advertising revenue has grown for two consecutive years to reach 233 million euros in The radio market in the Netherlands is expected to record positive growth after a disappointing 2015, but it will be one of the slowest-growing markets in Western Europe with a modest CAGR of 1,3%. The market will be worth 248 million euros in Relatively slow growth in the radio sector is partly due to the macroeconomic environment of the Netherlands (although economic growth is now slightly higher than the European average) and partly due to the lure of internet advertising, which hampers any greater growth of the radio sector. The radio landscape Public broadcasting has a strong presence in the Dutch media market. The public broadcaster Nederlandse Publieke Omroep (NPO) operates six national radio stations. There are also thirteen publicly funded regional stations (ORN) and around 300 local radio stations that are largely subsidised by community tax. The rest of the market is primarily made up of nine commercial radio stations operating on FM, cable, satellite and DTT, and a further two on cable, satellite and DTT. Public broadcasting is popular and around one-third of all Dutch radio listeners frequently tune in to one of the NPO s national channels, making it the largest radio provider. In March 2015, it was announced that the NPO plans to close down Radio 6, which focuses on soul and jazz, as of The Dutch public broadcast community was confronted with significant cuts in government contributions during the past years. Significant restructuring of the public broadcasting sector followed as a result. The current expectation is that government contributions will remain relatively stable in the coming years Radio advertising market ( millions) Netherlands Historical data Forecast data CAGR (%) Spot y-o-y growth 1,4% -5,4% 2,4% 2,3% -0,6% 1,9% 1,6% 1,6% 1,6% 1,2% Non-Spot y-o-y growth -7,7% 0,0% 8,3% 7,7% 1,5% 1,6% 1,9% 1,9% 2,0% 1,8% Total advertising y-o-y growth 0,9% -4,7% 2,3% 2,6% -0,5% 1,9% 1,6% 1,7% 1,6% 1,3% Source: PwC, Ovum, Radio Advies Bureau (RAB) Spot Non Spot Radio 41

44 Government contribution to public broadcast ( millions) Source: Totale meerjarenbegroting NPO The largest commercial broadcasters are Telegraaf Media Group (owner of Sky Radio, Radio Veronica and Classic FM), Talpa Media (owner of Radio538 and Slam!FM) and Persgroep (Q-Music), with a combined listening market share of 37,4% in Radio 538 and Sky Radio are the most listened-to commercial stations, broadcasting primarily pop music Since 2013 a number of radio stations, including Radio538, 100% NL, Slam!FM and BNR, have bundled the sale of radio advertising through One Media Sales to improve their advertising proposition by offering advertisers the possibility to target specific audiences across different radio channels. Uncertainty regarding the auction of radio frequencies In June 2015, the Dutch government announced plans to auction commercial radio FM and DAB+ frequencies for the period At the previous auction in 2003, radio stations paid significant sums to acquire their preferred frequency, which led to a high amortisation burden in the following years. The auction might delay digitisation plans as investments are likely to be postponed pending the auction results. It is, however, not clear whether the auction will go ahead as the Dutch Parliament does not yet support the current plans. DAB+ developments Digital radio infrastructure is well-established in the Netherlands, with population coverage at 95%. DAB+ services were launched at the end of 2013, and all national public and FM commercial broadcasters are now transmitting in DAB+. The first regional DAB+ network became available in the south-west region in March A potential pilot programme is also currently being considered with the aim to start local DAB+ transmissions within two years, if successful. A series of campaigns have been coordinated between the commercial broadcast association (VCR) and the government in order to spread awareness and further promote DAB+. The latest radio campaign kicked off in March and is set to run again in October No official digital switchover date has been set due to insufficient transition to DAB+. A study by Telecompaper revealed that DAB+ had a reach of 3%, which is far from the 50% target that was set by Minister of Economic Affairs Henk Kamp. As a result, the FM-era might be extended beyond The radio audience: listening habits and digitalisation A traditional AM/FM receiver remains the most common way to listen to radio, with at-home and in-car listening being the most popular. Greater access to the internet is creating important new distribution channels for radio as more people can access content via mobile phones or desktops. In particular, mobile internet is changing audience behaviour, as more listeners access radio on the go. Around 5 million people (36% of all radio listeners) accessed radio at least once over the internet in 2013, with 1.8 million tuning into a radio channel via a smartphone or tablet. On-the-go radio is expected to grow substantially over the next five years as an additional 4.3 million people will become mobile internet subscribers. By then, almost nine in every ten people will have mobile internet access and this will further shape how and when people listen to the radio. The rise of mobile internet makes mobile strategies an area of growing importance. For example, geo-targeting technology is evolving and, although not yet implemented by broadcasters, integrated radio apps with geo-targeting will ensure that local ads are directly targeted to listeners in a specific area. To enable targeted advertising, efforts have been made to improve accuracy in radio audience data in order to effectively communicate its relevancy and value to advertisers. PwC Entertainment & Media Outlook for the Netherlands

45 Radio stations aim to increase involvement and interaction with listeners. Mobile internet subscribers Smartphone connections Source: PwC, Ovum Active tablet devices Mobile internet subscribers Average radio listening minutes * Source: PwC, Ovum, Mediamonitor, NLO/Intomart GfK* Go to outlook.pwc.nl For more information and data *Note: The method that NLO/Intomart GfK used for measuring daily listening changed in 2012, thus the data prior to 2012 are not like-for-like with the later periods. Several smartphone monitoring apps are also currently being tested with the aim to improve real-time testing of radio ads and promotions. Such developments give advertisers access to unprecedented information about the demographics and behaviour of listeners. This allows them to better optimise radio campaigns and see the value of their investments, boosting long-term growth in radio advertising revenue. Building brands to combat the challenges ahead Historically, radio broadcasters had the benefit of audiences that were locked in via dedicated devices. Today, smartphones and tablets are empowering consumers with choice and control. In this new environment, radio finds itself competing with an array of on-demand media, some of which look or sound nothing like radio but nonetheless compete directly for listening time. Services like Spotify, as well as Google and Apple, are spearheading disruption with their music streaming innovation and this undoubtedly intensifies the competition for listeners. About one third of the Dutch population has a Spotify account. This has not yet significantly impacted the average radio listening time the average Dutch person listens to the radio approximately 3 hours a day. Listening time grew until 2011 after which it stabilised. In 2014, however, the listening rates fell by a notable 9 minutes per day. This might indicate the beginning of a downward trend as seen in other European countries such as Italy. Broadcasters currently still have the upper hand, as they offer wellknown, professional on-air talent, live celebrity appearances, local news and traffic, and have the advantage of listener loyalty. These assets will, in the long run, not remain unique differentiators as streaming services are starting to invest in spoken-word content. To combat these challenges and expand their reach and effectiveness, many radio stations aim to increase the involvement and the interaction with their listeners by building strong listening communities positioned around their own brands. Radio stations now apply multimedia strategies Sky Radio, for example, allows users to create their own account, which includes a personalised homepage, access to more music content and the chance to win exclusive prizes. Content is made available via terrestrial FM broadcasting, Web platforms and mobile apps. Comment platforms, polls and active use of social media is used to strengthen the relationship between radio presenters, shows and the audience. However, the way broadcasters can best monetise on a more engaged relationship with listeners remains a challenge. 4. Radio 43

46 Interview Joris van der Pol - CEO at One Media Sales One Media Sales, a start-up in a mature market One Media Sales is the biggest sales organisation for commercial radio and has been active in the market for almost two years now. Shareholders Talpa and RadioCorp are parent companies of Radio 538, SLAM!FM, 100%NL and Radio10. One Media Sales further expanded its proposition in the market by adding SublimeFM and as of 1 January 2015 One Media Sales (OMS) added radio station BNR to its portfolio. Together these radio stations have six million unique listeners every week which represents a market share of 32% in the age group years. And on 1 May 2015 OMS signed a partnership with The Media Exchange, a trading platform on which media agencies can buy commercial time from online radio stations. One Media Sales sells radio advertising space and functions as a one-stop shop for advertisers and media companies who reap the benefits of combined buying power. Joris van der Pol discusses the interaction between One Media Sales, media agencies and advertisers, as well as the developments in the Dutch radio advertising market. While there are several combined sales platforms in surrounding European countries, such sell-side platforms for radio advertising were entirely lacking in the Netherlands as Dutch media owners, big and small, did their own sales. Why does the market need a sales organisation when we have media agencies? Broadly speaking, media agencies represent advertisers and we represent radio stations, Van der Pol replies. Media agencies are demand-side platforms that focus on a full range of media types, while at One Media Sales (OMS) we represent specific radio brands. The radio stations supply GRPs that OMS subsequently sells. We also service advertisers directly, but these are mainly small parties since advertisers with large media budgets mostly do business through media agencies. Van der Pol: In a year s time we expanded our portfolio with new radio stations and together with an improved service level this greatly improved our client proposition and client satisfaction. The latter is confirmed by regular surveys and research, including NPS, brand awareness and loyalty. At One Media Sales we not only focus on sales but also on promoting audio in general and we gained brand awareness by sponsoring BNR s radio programme Mediazaken. Strong radio brands For radio stations attracting new and especially loyal listeners is the only way to generate real growth and a bigger market share according to Van der Pol. Being distinctive as a brand and having a distinctive presence on all platforms is very important in this respect. In the past ten years Dutch radio stations transformed into marketing companies that invest in brands and offer radio as a product. The radio landscape in the Netherlands has some really strong brands and no less than 92% of all Dutch people tune in to at least one radio station every week. Only very few brands get as much attention and exposure as radio brands. This is different for TV, as television viewers are more focused on the content and not so much on the brands of TV broadcasters. Streaming services Online music streaming services show that the audio domain is expanding and gaining in importance. We don t see streaming services as a threat to radio, Van der Pol says, but as a mere opportunity for expanding the listening audience and by that advertising opportunities. In fact, we would really like to add a streaming service to our portfolio. In the past, inventions such as cassettes, CDs and MP3 Players were all looked upon as threats to radio but only had little impact and I think the same goes for streaming audio. Music streaming and radio both serve their own specific purpose. Radio offers its lean back audience a sense of surprise as well as some unique content in addition to music, whereas Spotify offers a lean forward audience a vast music database they can actively manage. Although the amount of time people listen to the radio does vary from year to year, it does not show a steady decrease. Media consumption Generally speaking media consumption can be subdivided into reading, watching and listening which together represent a value of four billion euros. In the Netherlands media consumption amounts to about 8.5 hours every day of which one third is spent on watching, one third on listening, and ten percent on reading. The rest of the 8.5 hours is spent on for instance phone calls, gaming and ing. Van der Pol: This means a 44

47 more than substantial part of the 8.5 hours is relevant to the advertising industry. The activity of watching accounts for 28% of the four billion euros in advertising budgets, this includes online video, Van der Pol continues. Reading, which also includes for instance a search on Google, makes up about 33% of advertising budgets and listening only 6%. This can be explained by the conviction that reading and watching are intrusive activities while listening is often a secondary activity that requires less focused attention. The power of audio In the world of today audio has a subordinate role while visual media get the most attention. This is undeserved, says Van der Pol, so it is also the mission of One Media Sales to generate more appreciation for audio. It s interesting to see that, for instance, the automotive industry truly acknowledges the value of audio. Sound engineers carefully tune every sound of a car, such as the sound of engines or car doors, in order to get to the desired product experience. Research also shows that the taste experience of someone who eats at a restaurant is more influenced by music than by the eater s taste buds. And in supermarkets music influences purchasing behaviour of shoppers. The power of audio is of course reflected in radio advertising. A group of six to ten thousand medium-sized Dutch e-commerce businesses can serve as an example here. Van der Pol: These e-businesses experienced limits to their growth which they could not resolve by only advertising through Google because this entails a focus on the bottom of the sales funnel, in other words, customers who already know what they are looking for. For further growth these companies need brand recognition as well and this can only be achieved by media channels that have the ability to reach a large number of prospective customers, such as print, TV and of course radio advertising. In the past years we successfully introduced 150 companies to radio advertising. Radio commercials Van der Pol finds radio commercials often very intrusive, as they are very price driven and calling on listeners to come into action or visit a website. Although this may be very successful for a lot of advertisers, I m very much in favour of commercials that have a thematic approach and a focus on awareness. For instance, Vodafone commercials focus on the benefits of being a Vodafone client instead of focussing on special offers or discounts. Not to my surprise Vodafone was In the past ten years Dutch radio stations transformed into marketing companies that invest in brands and offer radio as a product. voted radio advertiser of the year 2015 in the Netherlands. In my view online radio opens up a lot of new possibilities. For example, testing commercials on online radio stations before broadcasting them. If you record four or five different versions of a commercial, you can ask a panel for their opinion and measure CTR (click through rate ed.) during a trial period. Unicasting, as opposed to broadcasting, is another interesting advantage of digital radio. This means radio listeners hear different commercials even when they listen to the same station. MyRadio by SkyRadio is a good example. Listeners can only log in on MyRadio using their Facebook account, which gives SkyRadio the necessary data for targeted commercial messages. Digital and analogue In advertising today, digital and analogue are often perceived as two different worlds, as there are separate online media agencies for instance, Van der Pol concludes. But Apple and Google launching their own radio stations show that these worlds increasingly connect. Moreover, consumers are more interested in content than in media type, as they don t make a conscious distinction between analogue and digital. At One Media Sales we believe in bringing these two worlds together and offer the best overall audio advertising proposition to reach the consumer throughout the day. Interview 45

48 5. Music 46

49 The total music market in the Netherlands was worth 731 million euros in 2014, which is 0,6% higher than the 726 million euros in Growth is forecast in each of the next five years for both recorded and live music. Total spending will rise at a CAGR of 1,8%. The relatively low growth rate in the live music sector will be overshadowed by higher recorded music gains, driven entirely by a consumer uptake of music streaming. Spending on digital formats and access services is predicted to overtake physical formats in 2015 and the gap will further widen during the forecast period because of the rapid deterioration of physical CD sales. By 2019, digital spending will account for nearly 70% of the recorded music total Music market ( millions) Netherlands Historical data Forecast data CAGR % Recorded music y-o-y growth -15,3% -4,1% -11,5% 1,0% -1,2% -0,1% 1,1% 2,3% 3,4% 4,4% 2,2% Physical y-o-y growth -17,6% -10,5% -26,5% -15,1% -8,7% -8,7% -8,6% -8,6% -8,6% -8,5% -8,6% Digital y-o-y growth 13,9% 54,5% 67,7% 38,6% 9,5% 10,1% 10,8% 11,2% 11,5% 11,5% 11,0% Live music y-o-y growth -5,9% 1,6% 1,3% 1,1% 1,2% 1,3% 1,5% 1,6% 1,7% 1,9% 1,6% Total y-o-y growth -0,1% -2,4% 1,1% 0,6% 1,0% 1,4% 1,8% 2,2% 2,6% 1,8% Source: PwC, Ovum, NVPI Live music Physical recorded music Digital recorded music Dutch recorded music revenue suffered a slight fall in 2014, with the growth in revenue from streaming and subscriptions unable to counter the fall in CD album and download sales. As a consequence of the rise in music streaming, download service itunes has been overtaken by Spotify as the biggest earner for Dutch record companies. Spotify has often championed the Netherlands as one of its most successful countries outside of Sweden. The success of Spotify s bundling partnership with KPN has been a major driver of this growth. Transition from ownership to access revolutionised the music industry, but challenges remain Since the early 1970s, recorded music formats have evolved from vinyl records and audiocassettes to digital formats. The distribution of recorded music has now clearly started to move away from ownership to access, with music subscription services, such as Spotify, offering consumers access to all the world s music for either a fixed monthly fee or a few minutes advertising per hour of listening. 5. Music 47

50 This change had a disruptive effect. Record companies have recognised the benefits of streaming, but artists, composers and songwriters complain about lower payments. Some artists have even withdrawn their music from streaming services altogether and the issue of royalty payments has become a pressing one for access services. With Apple entering the music subscription space in mid 2015, this business model will come under even more scrutiny. This is why the need to address the declining income of artists has never been more urgent. Another major challenge for the recorded music sector is the continuing use of unauthorised digital distribution services. However, streaming has emerged from the shadow of piracy and gives rise to a sense of optimism about the future of the music industry. Retailers struggled to adapt The transition from physical to digital music formats has forced brick and mortar retailers to adapt to the changing environment. Inevitably, many small independent stores had no other option than to close down, but the changing environment has also affected the market leaders. Brick and mortar music stores have now become a rare sight in the Netherlands. The music retailers that survived have transformed their stores into a place that aims to attract the more passionate music lovers, hosting in-store events and other attractions. Recorded music split 46% 2014 Source: PwC, Ovum, NVPI Digital 54% 69% Physical % Digital growth boosted by streaming In October 2014, Spotify published a new report, Adventures in the Lowlands, examining the use of Spotify among visitors of the three-day music festival Lowlands, which is one of the biggest music festivals in the Netherlands. Citing a study by the Dutch concert promoter Mojo Concerts, the report mentions that more than two-thirds of the festival goers use Spotify. Additional research found that 70% of Spotify-using attendees use the service to discover new bands from the line-up before Downloading Streaming Mobile Digital music ( millions) Netherlands Historical data Forecast data CAGR % Downloading y-o-y growth 3,5% 56,9% 9,2% -16,3% -9,6% -9,5% -9,4% -9,2% -9,1% -9,0% -9,2% Streaming y-o-y growth 84,7% 48,3% 232,6% 86,4% 17,3% 16,6% 16,0% 15,4% 14,8% 14,1% 15,4% Mobile y-o-y growth -1,9% -1,7% -6,4% -3,7% 16,7% -6,3% -6,8% -7,2% -7,9% -8,4% -7,3% Total digital y-o-y growth 52,1% 65,6% 36,4% 9,5% 10,1% 10,8% 11,2% 11,5% 11,5% 11,0% Source: PwC, Ovum, NVPI PwC Entertainment & Media Outlook for the Netherlands

51 Digital music split Recorded music market growth: CAGR comparison 1% 0% 24% 9% Germany -0,5% Netherlands 2,2% UK 1,5% -4,9% France 75% 91% Streaming Downloading Mobile -2,2% Global -6% -5% -4% -3% -2% -1% 0% 1% 2% 3% Source: PwC, Ovum, NVPI Source: PwC, Ovum visiting the festival and 80% of them check out bands after they have seen them at the festival. Half of all users check out the bands they had missed at the festival. In addition to the clear streaming benefits for artists performing at the festival, the Spotify report noted that specific artists received higher streaming use after the event than others, suggesting new audience engagement. In addition to Spotify, all of the major international music subscription services (Deezer, Google Play Music All Access, Napster, Nokia Mix Radio, Rara.com, Rdio and Microsoft s Xbox Music) operate in the Netherlands. Recorded music in the Dutch market is set to outperform other major markets Not only has the uptake of streaming edged the Dutch recorded music sector towards growth, but the popularity of access services will also result in recorded music revenue growth rising faster than the leading markets in Europe. The CAGR rate of growth for recorded music in the Netherlands over the next five years is forecast at 2,2%. This is notably higher than Europe s leading markets, many of which have negative forecasts up to Although these music markets have all seen growth in streaming revenue, the notable success of Spotify s bundle deal with Dutch telecom service KPN has resulted in growth exceeding that of the bigger markets in the region. Dance music and festival scene are the Netherlands strongest live assets Live music revenue totalled 541 million euros in 2014 and is expected to grow at a CAGR of 1,6% to reach 586 million euros in Live music revenue is not set to rise quite as fast as recorded music in the next five years. However, live music will still account for just under threequarters of Dutch music revenue in Dutch dance music talent remains a significant export asset, and the authorities recognised this fact last year when a new set of stamps was issued featuring portraits of local DJs Afrojack, Armin van Buuren, Dash Berlin, Hardwell and Tiësto. These artists are among the highest paid EDM acts in the world, with Tiësto as the leading Dutch earner on an estimated 28 million US dollars a year, ahead of Afrojack and Hardwell. Moreover, it is estimated that Dutch DJs in the EDM scene account for about 80% of live performances. The overwhelming presence of Dutch DJs on DJ Mag s new DJ top 100 list illustrates this. 5. Music 49

52 PwC Entertainment & Media Outlook for the Netherlands

53 Live versus recorded music 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0 Source: PwC, Ovum, NVPI Go to outlook.pwc.nl For more information and data The Netherlands has a vibrant festival scene with a strong international following. Two events, Sensation and Mysteryland, are featured in ticketing firms Viagogo s 2015 top ten ranking of festivals, which is based on ticket search metrics across the company s 55 global websites. Sensation, an indoor electronic dance music event, originated in the Netherlands but has expanded to multiple markets around the globe. Sensation Amsterdam 2015 celebrated its 15th anniversary in July with a line-up which included Afrojack, Hardwell and DJ Ruckus. The ticketing market in the Netherlands is consolidating. EDM giant SFX Entertainment bought the ticketing company Pay Logic at the end of 2013 and since then has been consolidating the company. In March 2014, See Tickets Netherlands was acquired by the German events company CTS Eventim and in November, Ticketmaster acquired the Dutch division of the Live Recorded Sensation and Mysteryland are featured in Viagogo s 2015 global top ten ranking of festivals secondary ticketing company Seatwave as part of a wider European asset deal. Licensing role in leveraging copyright protection The income from copyright protection compensation providers such as Sena and Thuiskopie are increasingly important to the music industry. In 2014 the industry received 25,8 million euros in related income, increasing from 20,9 million euros the year before. In addition, Buma/ Stemra, the Dutch collective copyright management organisation, is expected to play a key role in the increasing complexity of copyright and reimbursements across several industry parties. These parties include radio stations, television companies, record labels, download and streaming portals, concert halls, bars and restaurants, all supplying music against different business models and rates. Music publishers often decide to outsource their copyrights to collective copyright management organisations that negotiate with the music supply parties on their behalf. The size of the collective music repertoire of such an organisation puts it in a strong strategic position to negotiate with music suppliers. We expect these organisations to have an increasingly decisive role in leveraging this revenue accordingly and supporting the fight against piracy, given that most revenue streams will be generated by streaming via digital, live performances and brand partnerships. Jean-Michel Jarre, president of the International Confederation of Societies of Authors and Composers (CISAC), together with the Dutch DJ Armin van Buuren, had some critical notes regarding YouTube and Spotify: The mistake we made is that we focused on illegal downloads. But when you listen to a radio station, you are not illegally listening because those rights have been paid for by the networks. YouTube and Spotify are the new networks and they should reimburse the artists properly. 5. Music 51

54 6. Video games 52

55 Go to outlook.pwc.nl for definitions and more data Aided by very high broadband penetration rates and connectivity levels, even outside urban areas, digital and online/microtransaction revenues will increasingly stand out in the Netherlands over the forecast period. And since such business models eliminate concerns about mastering or distribution, the gradual change in consumer behaviour is good news for content creators too. A robust and growing market The market for video games in the Netherlands was worth 568 million euros in 2014, having increased from 484 million euros in Total video games revenue is forecast to grow by a CAGR of 5,2% to reach 732 million euros in New consoles continue to do better than many expected Traditional gaming revenue will account for 81% of the video games market in the Netherlands in 2019, only a slight change compared to 2014, with a 42%/58% split between PC game revenues and console game revenues. Console gaming revenue split 23% 21% % 56% 26% % While physical console games sell-through revenue will decline over the next five years, digital distribution of console games will increase at a CAGR of 10,1% to 89 million euros in 2019 from 55 million euros in 2014, as consumers increasingly find digital distribution more convenient than physical distribution. This is especially so given that installing a physical game often involves downloading a number of updates before the game can actually be played. Games can also Source: PwC, Ovum Physical Digital Online/microtransaction be downloaded before release dates and enabled on the stroke of midnight, allowing more games to enjoy a midnight release and its associated hype. The disconnection between physical pricing and digital 600 Video games market ( millions) Netherlands Historical data Forecast data CAGR % Traditional gaming ,2% Social/casual gaming ,8% Advertising ,5% Total Traditional gaming Social/casual gaming Advertising y-o-y growth -0,5% 9,1% -2,8% 11,3% 6,8% 5,6% 4,4% 4,3% 5,1% 5,2% Source: PwC, Ovum 6. Video games 53

56 Console gaming revenue ( millions) Netherlands Historical data Forecast data CAGR % Physical ,5% 50 Digital ,1% Physical Digital Online/microtransaction Online/microtransaction ,6% Total y-o-y growth -9,4% 10,9% -13,8% 16,4% 8,6% 6,7% 5,2% 5,1% 5,8% 6,3% Source: PwC, Ovum pricing (in that digital is, counterintuitively, more expensive than physical) is also gradually being fixed as publishers slowly but surely ramp up their digital efforts. Online/microtransaction console games revenue will rise strongly from 58 million euros in 2014 to 124 million euros in 2019 at a CAGR of 16,6%, due to the further emphasis on digital purchasing of consoles. This growth will also be driven by the fact that paid subscriptions to Xbox Live or PlayStation Plus are required for online multiplayer gameplay on Xbox One and PlayStation 4. Console gaming revenue split 2019 UK US France Physical Digital Online/ microtransaction The future seems well set for developers as by 2019, 62% of console revenues is forecast to be driven either by digital downloads (26%) or online/microtransactions (36%). Without mastering, distribution or retail costs to worry about, games should in most cases be more profitable when sold through a digital channel assuming a similar price point. As digital distribution is typically tied to a single user account or console it also reduces the risk of piracy, while simultaneously opening up more opportunities for add-in downloadable content (DLC) once consumers have become used to transacting digitally. The Netherlands is a global leader here, also when compared to markets with a developed gaming ecosystem, as more than 50% of console revenue in most of these markets is still driven by physical games sales. Germany Netherlands Source: PwC, Ovum 0% 10% 20% 30% 40% 50% 60% 70% The advanced Dutch connectivity infrastructure, along with an active gaming culture and a somewhat weak physical retail market, are driving digital transactions and high trust levels of digital assets. PwC Entertainment & Media Outlook for the Netherlands

57 250 PC gaming revenue ( millions) 200 Netherlands Historical data Forecast data CAGR % Physical Digital Online/microtransaction Physical ,6% Digital ,8% Online/microtransaction ,9% Total y-o-y growth 6,5% 3,5% 6,1% 7,7% 5,0% 4,2% 3,6% 3,5% 3,4% 3,9% Source: PwC, Ovum We have seen strong ongoing subscriptions and an explosion in free to play games. PC gaming revenue split 82% 2014 Source: PwC, Ovum 11% 7% 85% % 8% Online/microtransaction Physical Digital Online and F2P save PC gaming PC gaming is no longer just about silver discs or games designed to be bought and played solo: the past five years have seen an explosion in free to play (F2P) games such as League of Legends or Defense of the Ancients 2 (Dota 2). Along with revenues from strong ongoing subscriptions to World of Warcraft and a couple of other smaller MMORPGs, this segment now dwarfs the revenues from traditional PC game sales. In the Netherlands, the online/microtransaction revenue on PCs will represent 86% of the total PC game sector revenues by 2019, much higher than in neighbouring markets such as France (58%), Germany (56%), or the UK (65%). In fact, it is more in line with emerging markets like Brazil (89%) or China (82%). This is because Dutch gamers embraced digital gaming long before their peers did, due to the ubiquity of high-quality consumer broadband connections. Growth here will drive the entire PC sector to a 3,9% CAGR up to Social/casual games represent a more inclusive gaming future The revenue of social/casual games is forecast to rise at a CAGR of 3,8% in the Netherlands over the forecast period. Although this is a respectable growth rate, it doesn t match up to the type of revenue growth curves of many other markets such as Italy, Brazil or China. A strong social/casual market is driven by a critical mass of consumers (i.e. big geographic markets) and a strong mobile culture compared to a weaker traditional game culture none of these factors applies to the Netherlands. Market composition comparisons Compared to regional and global averages, the Dutch video games market is different in two crucial ways: Significantly bigger traditional gaming market. The switch to online/microtransactions spending in both the PC and console space means that traditional gaming revenues in the Netherlands 6. Video games 55

58 56

59 Go to outlook.pwc.nl For more information and data The Netherlands video games market breakdown compared to the regional and global average breakdowns -19% Advertising -18% -7% -12% Traditional Source: PwC, Ovum % 0% 4% 3% 1% 2% Social 15% 2% 15% 6% 10% Asia Pacific Northern America Latin America Western Europe Global continue to dominate spending contributing to a higher proportion of revenues than any aggregate region, even slightly outpacing North American revenues in this category. A much smaller social/casual market. Of course if traditional gaming accounts for a higher proportion of revenues, something has to give and in the case of the Netherlands that is the relative small contribution of social/casual gaming revenues, particularly compared to Asia Pacific and Latin American spending. Video games advertising will continue its upward trend from a low base In-game video games advertising will grow at an impressive CAGR of 7,5% between 2014 and 2019, but revenues are still very low as they amount to just 35 million euros in Very few markets develop significant advertising-based revenues this is dependent on a combination of population size and the sophistication of both the advertising and gaming ecosystems. The video game ecosystem expands In addition to more people playing games on a variety of devices, we re seeing new types of entertainment and business models emerge key among these are e-sports. Throughout the world, multiple e-sports events such as The International and the Smite World Championships are gathering more attention. Additionally firms like Twitch and individuals such as Felix Arvid Ulf Kjellberg (PewDiePie) are very successful on the back of watching others play or comment on gaming. Cloud gaming is starting to look compelling While OnLive did not take off, services from Nvidia, Sony, Square Enix and Playcast (now owned by GameFly and partnered with Amazon) are all either live or in advanced beta. If the gaming experience is good enough, and the revenue model well thought-out, there is no reason why cloud gaming services can t deliver both an extensive back catalogue of older games to new devices and drive additional sales of new titles across devices. 6. Video games 57

60 7. Newspaper publishing 58

61 The Dutch newspaper publishing industry is in a long-term contraction. Publishers have faced difficult years and forecasts remain uncertain regardless of many initiatives to innovate the product offering, capture existing revenues and cut costs. Total newspaper revenue has shrunk to 1.15 billion euros in Further decline is anticipated, as growth in digital circulation revenues will not offset declining income from print until Consumer media habits are changing fast. Readers have an ever-larger number of activities to pursue online and elsewhere. Newspapers as a mass medium only comes in fourth position with regard to consumer time spent, and the reach of newspapers has shrunk to around 60%. Print-copy circulation declined by 5% in 2014, with national titles posting their worst drop since 2000, according to NOM. This is partly offset by hybrid print/digital circulation. This trend is generational, as the reach of newspapers in the age group 25 to 34 is almost half of that among those aged 65 and over. Accordingly, print circulation is expected to decline further in the years ahead, losing 35,7% in the decade ( ). By contrast, online media consumption is growing rapidly. The Dutch spend more time online than anyone in Europe except for consumers in the UK and Turkey, according to comscore. Dutch publishers have embraced the Web as the medium to deliver news digitally. Now, 64,7% of the Dutch use laptops to consume news, according to NOM and other measurement agencies. It is challenging to compensate print decline by digital revenues Overall advertising spend is growing, but newspapers have lost more than one third of their advertising revenue between 2010 and 2014, and their digital advertising revenue is only now rising again after suffering a drop in Digital newspapers are competing with many other segments, resulting in fierce price pressure for digital advertisements. Although growth in digital advertising and circulation revenue is forecast to increase in the years ahead, we believe that it may take up Newspaper publishing market ( millions) Netherlands Historical data Forecast data CAGR % Advertising ,8% Print ,5% Digital ,1% Circulation ,0% Print ,1% Digital ,4% Total y-o-y growth -6,4% -2,2% -6,4% -2,2% -3,7% -2,4% -2,6% -2,4% -2,0% -2,6% Source: PwC, Ovum, NDP Nieuwsmedia, Nederlandse Uitgeversverbond (NUV) Advertising Circulation 7. Newspaper publishing 59

62 PwC Entertainment & Media Outlook for the Netherlands

63 to 2020 until digital growth will overcome the shrinking of the print segment. We believe that digital circulation revenues can grow at an annual rate of nearly 20%, which is an optimistic scenario. We expect print revenues to decline at a high pace, in part because of pressure from freesheet revenues, limited possibilities to increase circulation prices, continued decline in circulation and pressure on advertisement prices. Digital advertisement revenues remain limited In this multiscreen age, advertisers want to reach and understand consumers across all the platforms they use, and publishers will need to respond. Digital newspapers are better positioned to tailor advertisements to their loyal readership than printed newspapers. Nonetheless, revenues from digital advertisements are still significantly lower than revenues from print. Measuring the reach of advertising across media is key. Traditional measurement agencies such as HOI are being replaced by agencies Newspaper advertising revenue Print Digital such as NOM and NOBO, which in turn are merging into a new agency named Media:Tijd. This agency measures consumer activity across TV, radio, newspapers, magazines and online. Such moves will give publishers a chance to prove the value of their fragmented audience base in what, for consumers and proprietors alike, is now a truly multimedia world. Publishers have to keep a close watch on advertisement blockers. Apple s new mobile web browser, for example, will offer content blockers, which means that developers may now be able to create ad blockers for the iphone. These technologies may hamper the growth of digital advertising revenues across multiple sectors, including newspaper publishing. Usage of these blockers in the Netherlands is lower than in surrounding markets, but Dutch customers have proven to be quick adopters of international trends. A recent court case in Germany shows that the industry is trying to react to these kind of threats posed to this vulnerable segment. This combination of continued decline in print revenues, partly offset by growing digital circulation revenues in particular, adds up to a forecast total industry revenue decline of -2,6% CAGR between 2014 and Publishers respond with retrenchment, alliances and acquisitions To adapt to the new situation, publishers are executing a mixture of contraction and consolidation that is changing both the variety of their product sets and the power dynamics within the industry. For example, after its losses tripled in 2014, TMG announced a strategy of further cost cuts. The publisher of De Telegraaf has now sold its Zoomin.tv video site and Ticketsplus promotion service, and merged its unprofitable Sp!ts freesheet with stablemate Metro, integrated its distribution activities with its competitors, and announced that it will downsize and partly outsource its print capacities. And there is more change to come, which will result in a smaller and more focused company. Source: PwC, Ovum, NDP Nieuwsmedia 7. Newspaper publishing 61

64 With a home delivery subscription rate of 90% Dutch B2C sales provide publishers with a welcome protection Rivals do not limit themselves to cost-cutting mergers and acquisitions driven by neighbouring Belgian owners are creating a new Northern European regional publishing opportunity out of the circumstances. The approved 236 million euro acquisition of Mecom Group by De Volkskrant publisher De Persgroep, combines the 23% market share each proprietor enjoyed to create a new powerhouse that overtakes TMG s dominance in the market. Meanwhile, Mediahuis, itself the product of a joint venture between two other publishers, has acquired NRC Media, including its evening newspaper NRC Handelsblad. Regional newspapers owned by NDC are considered as a potential next takeover target. These deals show how publishers, in the face of competitive threats from alternative media, are focusing on strengths and seeking mutual support. Even though this results in a smaller and less diverse news publishing sector, it is one in which individual players can find synergies and whatever scale that remains in their industry. Despite the fact that consolidation and cost-cutting will help, publishers ultimately need to find a business model that successfully offers a concept that attracts sufficient readers and/or advertisers. Safeguarding the subscription culture While consumers are spending more and more time online and watching TV, time spent reading newspapers has remained stable over the last five years. Publishers in many markets are vulnerable to singlecopy newsstand erosion, but Dutch newspaper publishers are fortunate that a remarkable portion of B2C sales, nearly 90%, comes from home delivery subscriptions. Even though some customers cancel their subscription or switch to a hybrid digital and print subscription, the dominance of home delivery subscriptions provides the industry with a welcome protection from media turmoil. Although they did not manage to make online advertising grow significantly, newspaper proprietors have begun to convert print subscription strength into digital. In 2014, digital edition subscriptions to De Telegraaf doubled to , those to AD rose by 19% to , those to De Volkskrant went up by 23% to and those to Trouw went up by 30% to , according to NOM. Publishers are reporting particular success from so-called hybrid subscriptions, which combines digital access to the weekday edition with weekend print delivery. We believe that this is a successful concept to soften the decline in print subscriptions, as well as a way to make customers acquainted with digital products, although the price difference between print and hybrid products is too high to avoid bottom-line impact. Publishers are offering more and more added value in the weekend which, in the end, will accelerate the move from print to hybrid subscriptions. Willingness to pay for a digital-only subscription is limited. Furthermore, the current growth is enabled by publishers increasing the subscription price as they are offering all digital content to existing print subscribers. Subscribers can opt out but typically tend to accept the price increase. Publishers are now trying to increase revenue from micropayments by increasing the share of premium content. Newspaper circulation revenue Print Digital Source: PwC, Ovum, NDP Nieuwsmedia PwC Entertainment & Media Outlook for the Netherlands

65 Some articles on Blendle cost up to 80% of a full edition home delivered printed newspaper. Go to outlook.pwc.nl For more information and data Pay-per-use and ad-free papers are among the concepts explored Furthermore, technologies brought to publishers by a range of independent developers demonstrate the power of innovation in the Netherlands that work to solidify this trend. Existing and new publishers are exploring opportunities to turn content into revenue, ranging from free content to micropayments and online subscription models. Blendle has attracted accounts to its paid digital news kiosk, disproving the notion that micropayments cannot work for news. Although Blendle s conversion rate from subscribers to actual income is limited, the company, supported by US and German investors, is entering new territories. De Persgroep has launched a new digital subscription format: PAPER. This is a daily digital newspaper which comprises a selection of articles from De Persgroep s Dutch newspapers and some specific PAPER content at a rate of broadly 20% of a typical print subscription. Former freesheet De (Nieuwe) Pers launched with a model to subscribe to individual journalists that, although the publication was acquired, lives on under its much larger owner, The Post Online. Another start-up, De Correspondent, is an ad-free format where customers can subscribe for a fixed fee. Development of pay-per-use concepts is still in an early stage of development. New concepts are being implemented and optimised by existing newspaper publishers and new entrants. This has started a discussion on the value of content. To put this into perspective: a 48-page Dutch printed newspaper delivered to a consumer s house at 7am costs approximately 1. Some articles from the same publishers which are offered on the Blendle platform cost up to 0,80. These developments raise hopes that the news industry can lock in its print subscription culture well into the digital age. 7. Newspaper publishing 63

66 Interview Barbara van Beukering Founder and editor-in-chief of daily online magazine PAPER PAPER enhances the experience of digital reading At the end of 2014, after seven years at Dutch daily newspaper Het Parool as editor-in-chief, Barbara van Beukering started to develop detailed plans for a daily online magazine. Her brainchild PAPER is a cross-over between newspaper and magazine, as the app for instance contains news articles and columns, but has the look and feel of a printed magazine. Together with art director Sabine Verschueren, who also restyled Het Parool, I invented the name PAPER, as well as its concept and design, says Van Beukering. Of course PAPER is a reference to the paper you write on, as well as the word newspaper, but it is also a pun on the Dutch word for pepper reflecting the snappiness of our new digital medium. The shift from print to digital is an irreversible process. This made me start to think of a digital magazine I would actually enjoy reading myself, Barbara van Beukering remarks. But I then realised such a magazine did not exist. Van Beukering wanted to change this and Frits Campagne, CEO at media company De Persgroep Nederland, gave her carte blanche to develop a new attractively designed digital medium. Embedding all the appealing characteristics of print in a new daily online magazine marked the birth of PAPER. On a daily basis PAPER offers its readers fifteen articles, such as the hot topic of the day, more current news, the best column, the most interesting interview of the day, art and culture, a human interest story and the juiciest gossip of the day. Van Beukering: Three-quarters of all articles consist of the best pieces from De Persgroep s newspaper content selected, and sometimes combined, by our own editorial team. The rest of the content of PAPER is written by our own journalists and columnists. It is our aim to bring our readers up-to-date by providing them the best available content. Through PAPER newspaper articles get a second life and for instance columnists can tap into a new readership, Van Beukering continues. Yet, for freelance journalists and photographers the reuse of their work was not received with undivided enthusiasm. But I think in today s market it is inevitable to do so, given that Sanoma and Hearst Magazines already preceded us in this respect. Reading online content For Van Beukering the immediate cause to start PAPER was the fact that she experienced reading online content as unpleasant. Van Beukering: I don t like reading news articles on websites or social media. Websites are useful when you want to book a trip, browse through news or check facts for instance, but they don t give me the reading experience I really want. This induced me to plunge into the world of digital media which appeared to lack any attractively designed journalistic writing. Let s face it, PDF versions of newspaper articles are just images of a printed newspaper. Embed the advantages of print To make online reading a more pleasant experience PAPER embeds the advantages of printed content in a digital magazine. Van Beukering: Just as printed media land on your doormat at a specific time and date, PAPER is published every day at noon. Similar to a printed magazine, we offer our readers quality photography and graphic design in addition to quality journalistic writing. Another crucial and often underestimated advantage of print is that you can experience the pleasure of actually reading a magazine to the end. A website, on the other hand, you never finish reading. Before you know it you spend hours surfing the web merely browsing through endless pieces of information. I find this very unsatisfying and it made me want to create a digital magazine that you can actually finish. For every article we even mention the amount of time it takes to read it. Unique identity What sets PAPER apart from initiatives such as Blendle is its own unique identity as PAPER has the outward appearance of a magazine and has an editorial team that re-packages news, puts it in a fixed format and adds newly made content. Van Beukering: Blendle is a kiosk, while PAPER is a unified whole in which we combine long background stories with shorter features and mix highbrow and low-brow content. Online journalism platform De Correspondent is not a real competitor either as it has a 64

67 different readership due to a focus on analysis and investigative journalism. As opposed to readers of for instance nu.nl who quickly browse through concise articles while they are busy doing other things, the PAPER reader sits back and devotes some time to actually read. Although PAPER does not contain a complete overview of all the news, it does provide the topics and events everyone talks about. The latter is also reflected in one of our ad campaigns: PAPER, all you need to know. Target group After being in business only a few months it s too soon to make claims about the readership of PAPER. Still, polls indicate that an equal number of both women and men read it. Readers vary in age ranging from people in their twenties who don t read newspapers at all to people in their thirties and forties who don t have time to read newspapers and people over fifty who find PAPER very accessible and easy to read on an ipad. Through PAPER De Persgroep may retain those customers who cancelled their newspaper subscription, as well as welcome new customers. But I also realise the most ardent newspaper readers will not switch to a subscription to PAPER, because for them fifteen articles may not be enough. For this group PAPER can be a complementary news source. It s not possible to make the shift from paper to digital and be profitable right from the start. Pricing and earnings model It s also too soon to make any conclusive statements about the financial success of PAPER. It s not possible to make the shift from paper to digital and be profitable right from the start, says Van Beukering. But not making the shift is not an option because printed media will eventually be prohibitively expensive. We have one advertorial every day, but we don t have enough subscribers yet to attract more advertisers. Our earnings model is based on subscription revenue. For 5.95 euros a month, the price of one glossy magazine, subscribers get 24 editions of PAPER and are able to download our app on five different devices. We chose this earnings model because I don t believe in making customers pay per article. In my view people don t want to consider if they are willing to pay or not every time they want to read an article. Evolving functionalities The PAPER app is constantly evolving and there will be updates that include for instance social sharing and reader analysis. Van Beukering: By means of extensive reader analysis we can further improve our product. Which articles do subscribers read first? How often do readers click on a specific article? How long does he or she remain on a specific page? This gives us for instance the possibility to determine the most popular articles, as well as the newspapers these articles originate from. These opportunities for analysis also open up future possibilities for targeted advertising. The content we offer is not personalised, because I think readers will miss relevant information that way. For instance, I m not a big sports fan, but I do want to know who won the Tour de France. On the other hand, I don t rule out a future launch of PAPER spin-offs specifically dedicated to sports or teenagers for instance. Although being editor-in-chief at Het Parool was a great challenging experience, setting up PAPER from scratch is the greatest adventure I can imagine, Van Beukering concludes enthusiastically. Interview 65

68 8. Magazine publishing 66

69 During 2014, Dutch consumer magazine publishers have continued to rationalise their portfolio while exploring opportunities to turn their titles into brands and concepts. Paid circulation in most sub-categories declined by 8% or even more in Total revenues declined by 5,2% as the industry is still struggling to increase revenues from digital advertising and digital circulation. Publishers are continuously monitoring local and international trends in technology, propositions and consumer behavior. A number of titles were successful in shifting their model and audience towards an omni-channel business, but it will take many years and experimenting to successfully turn this industry around. Therefore, we expect that the historical decline will continue at a slightly lower rate of -4,8% CAGR. The Dutch consumer magazine market is set to decline between 2014 and It will be worth 534 million euros by the end of 2019, down from 683 million euros in 2014, a CAGR decline of -4,8% over this period. Print revenues have fallen across the board while digital revenues have not risen enough to compensate this decline. Across the majority of sub-categories, declines in paid circulation of 8% and more are not uncommon and are not forecast to come to a halt. Only a handful of magazine categories are able to maintain paid circulation at a more or less flat level, such as the categories: mind and body, home and garden and science. Publishers are cutting complexity and costs Given the continued decline in magazine revenues, publishers have been reshuffling portfolios and have engaged in reorganisations. In recent years many titles ceased to exist, some of which had existed for decades. We expect publishers to terminate more titles or sell them off at bargain prices. Sanoma, traditionally the publisher with the largest number of titles on the Dutch market, has been undergoing restructuring since It sold off 26 Dutch magazine titles to New Skool Media, Pijper Media and to De Persgroep Consumer magazine market ( millions) Netherlands Historical data Forecast data CAGR % Circulation ,4% Print ,0% Digital ,2% Advertising ,1% Print ,8% Digital ,9% Total y-o-y growth -3,9% -6,6% -7,1% -5,2% -6,4% -6,0% -5,2% -3,8% -2,7% -4,8% Source: PwC, Ovum Circulation Advertising 8. Magazine publishing 67

70 PwC Entertainment & Media Outlook for the Netherlands

71 Content supported by a strong brand will be vital to success. LINDA. wonen lindanieuws.nl NAJAAR 2014 PRIJS 5,75 VERS GESCHEIDEN Zij de villa, hij de volkstuin SOPPEN EN SHOPPEN met interieurgoeroe Eric Kuster CARLO BOSZHARD doet louter de kattenbak Source: LINDA PIEP KLEIN IK KAN THUIS MIJN KONT NIET KEREN Number of titles over time Source: HOI Total number of titles Total number of titles > 1 year Total number of titles > 3 year The majority of the existing titles are still facing a declining subscription base. This continuous pressure on results will cause a further reduction of the number of magazine titles. Only a limited number of titles will be able to maintain an acceptable level of subscriptions. In parallel, new titles continue to be launched in the local market. New titles for 2015 include a Dutch edition of Saveurs, launched by F&L Publishing in partnership with Burda International. This foodbased magazine will be published bi-monthly. A Dutch edition of Harper s Bazaar was launched in September 2014 by Hearst Magazines International. Publishers must create omnichannel brands In the Netherlands, as in the rest of the world, consumers are spending more time on mobile devices such as tablets and smartphones. The mobile and online landscape is a crowded one, in which magazine publishers have to compete with a wide variety of media which are only a click away. As a result, magazine publishers are no longer competing solely with other magazine publishers. In order to compete effectively in this market, magazine publishers need to expand their content creation and become omnichannel brands rather than dedicated magazine publishers. If consumers are drawn to sites that offer video content, for example, then magazine publishers should produce video in order to bring people to their content. Content supported by a strong brand will be vital to success; not just quality content, but content which connects with the target audience and which makes them want to search for more such as an online community and events. In the Netherlands, Sanoma is increasingly becoming a good example of an omnichannel business, although its efforts have not resulted in growth yet. Sanoma acquired TV channels SBS, Veronica and Net5 from ProSieben in After a difficult start, it is currently executing an omnichannel strategy that is focused on cross-selling and upselling. In 2014 and 2015 Sanoma launched multiple integrated formats; SBS launched VT Wonen TV and an e-commerce site, which are both based on Sanoma s magazine VT-Wonen. In 2015, Sanoma launched KIJK Ouders van nu, a video platform targeted at pregnant women and so-called New Moms, which builds on Sanoma s magazine brands in this attractive segment. Another example of the omnichannel approach is LINDA. After launching a successful glossy magazine, LINDA. is building a community by offering all kinds of media such as LINDA.nieuws and as of October 2015 a new paid app, called LINDA.tv. Not only publishers are transforming into omnichannel brands in the new digital landscape. Digital brands are also beginning to move towards the print world, with a small number of them launching physical magazines in the past few years. Examples include AllesVoor (a collaboration between supermarket Albert Heijn and webshop bol.com), Net-a-Porter, Airbnb and Allrecipes. Indeed, the trend is not so much print vs digital, but how to use both to make the most of content. Print is still highly connected to leisure time, while consumers use digital sources to find more information or news. Publishers should be looking to leverage their content on as many relevant platforms as possible. 8. Magazine publishing 69

72 Consumer magazine revenue split 12% 2014 Source: PwC, Ovum 88% Total Print 25% Total Digital % Free print magazines, either focussing on specific audiences (golf, airlines, watches) or on bulk (retail), remain an important channel for advertisers. Digital monetisation remains a problem for publishers The major challenge for publishers will be to get consumers to pay for their content or to find alternative solutions to earn money. In the digital world consumers are often looking for free or low-cost content. While the market for free and low-cost content outweighs the market for standard-priced magazines, this market has potential for growth if publishers find the right model to monetise their audience. So far, all-you-can-read subscription services for consumer magazines have not gained traction in the marketplace, but subscription services have become increasingly important across other parts of the digital media landscape over the past few years. With consumers who are increasingly looking for value for money, subscription services will eventually gain traction in the magazine market provided that they have the right price and offer the right type of content. While all-you-can-read subscription services are relatively rare, bookstore Bruna recently launched Bliyoo, which is an unlimited subscription service for books and magazines. The app was launched in May 2015 and costs 9.95 a month for books or magazines or for both books and magazines. Subscribers can have up to three magazines on their device at any given time, but can also delete a magazine and replace it with another whenever they want, which allows subscribers to read an unlimited number of magazines. Magazines available on the service include Filosofie, Home & Garden, Muscle & Fitness and Gloss. Around 70 titles are available on the service as of July Another method of monetisation, via microtransactions, may also bring about traction in the Dutch market. Dutch digital kiosk Blendle has partnered with most of the major publishers in the Netherlands, including De Persgroep, Sanoma, Hearst and Reed Elsevier. Blendle sells integral magazines and individual articles. Gradually, Blendle is offering more international content as well. This may attract a wider audience and accelerate usage of digital magazines, but can also be a threat to Dutch publishers as competition is increasing. The service is notable for attracting a younger demographic; half of its users are under 35, a group that does not generally pay for content online. By April 2015, Blendle had about 250,000 subscriber accounts of which 20% actually paid after using their welcome credits. Whether or not Blendle will turn into a profitable business in the coming years remains uncertain. But the concept clearly shows that the industry is investing in innovations to bring the decline of the last decade to a halt. Clearly, there are different models, each of which is more suitable for a different sector. The microtransaction model is likely to work better for news and other factual magazines than for lifestyle magazines. Magazines with smaller circulation numbers are likely to benefit from being included in all-you-can-read subscription services together with more popular titles which act as readership pullers. There is no single model that will work for the entire magazine industry. PwC Entertainment & Media Outlook for the Netherlands

73 Digital magazine revenue Circulation Advertising their products online. As a result there is a growing discussion in the publishing market about how best to sell digital advertising. Advertisers too are looking for better ways to buy advertising space. New technologies are currently being developed to improve the measurement of advertisement effectiveness and the time people actually spend reading an article. Traditional measurement agencies such as HOI are being replaced by agencies such as NOM and NOBO, which, in turn, have merged into a new agency, Media:Tijd. This new collaboration has the aim to measure consumer activity across TV, radio, newspapers, magazines and online. Development like this will give publishers a chance to prove the value of their fragmented audience base in what, for consumers and publishers alike, is now a truly multimedia world. In the medium term, we expect that large advertisers and agencies will no longer accept technologies that do not allow for these kind of measurements. Go to outlook.pwc.nl For more information and data Source: PwC, Ovum Measuring advertising effectiveness is increasingly important Digital advertising revenue has increased from 20 million euros in 2010 to 72 million euros in 2014, and is forecast to rise to 110 million euros in Advertisers have been quicker to adopt digital editions compared to consumers. By 2019, digital advertising revenue will account for 37% of total advertising revenue. By contrast, digital consumer magazine circulation revenue will account for only 11% of total consumer magazine circulation revenue. However, there is a disconnect between advertising rates for digital products and print products. Print magazines are widely acknowledged to be effective means of reaching an audience and advertisers pay accordingly. Payments for website advertising are typically much lower than established rates for advertising in print publications, which means publishers face a significant challenge to monetise By 2019 up to 37% of advertising revenue is digital and only 11% of circulation revenue Some of the most innovative publishers around the world are already experimenting with different ways of selling advertising space. The Financial Times in the UK is trialling a system which focuses on the time a user is exposed to an ad, and which is about selling this ad time instead of ad space. Similarly, the Economist is guaranteeing advertisers that an ad will be at least in view for 250 hours during a month. As well as reconsidering how to sell advertising, publishers will also have to keep a close watch on the advent of advertisement blockers. These new technologies may hamper the growth of digital advertising revenues across multiple sectors, including magazine publishing. The use of these ad blockers in the Netherlands is lower than in surrounding markets, but Dutch customers have proven to be rapid adopters of international trends. A recent court case in Germany shows that the industry is trying to react to these kind of threats to this vulnerable segment. Nevertheless, if more consumers choose to actively avoid adverts, this will clearly have a negative effect. 8. Magazine publishing 71

74 9. Consumer & educational book publishing 72

75 The main developments in the consumer and educational book publishing market are threefold. A declining consumer book market will require publishers to cut costs by realigning back-office activities and reinvent their relationships with authors. At the same moment, digital book sales fall short of expectations, while educational book publishers are transforming their products to digital multi-device propositions. The market for consumer and educational book publishing in the Netherlands was worth 875 million euros in 2014, but is set to decline to 837 million euros in 2019, falling at a CAGR of -0,9% over the forecast period. Publishers will need to cut costs by realigning back-office activities and reinvent their relationships with authors With a declining consumer book market over the past five years, pressure on book publishers to keep their companies profitable has increased. The shrinking market is caused by consumers who spend less and less time reading books, whose attention is drawn by other media, and who are increasingly switching to digital books. What s more, the digital book market is characterised by lower prices and a considerable level of piracy. As can also be seen in the numbers digital book sales are not offsetting declines in the print book market. Considering the increasing pressure on the market, book publishers need to find ways to keep their companies profitable while margins are decreasing. The current decrease in demand puts revenues under pressure. Therefore, increasing the profit margins should be achieved through gaining efficiencies and lowering costs in the process of bringing books to the market Consumer and educational book publishing market ( millions) Netherlands Historical data Forecast data CAGR % Consumer books y-o-y growth -4,1% -6,7% -4,3% -9,5% -4,7% -3,4% -2,1% -1,1% 0,5% -2,2% Consumer print/audio ,8% Consumer electronic ,1% Educational books y-o-y growth -0,3% 0,2% 0,0% 0,5% 0,0% 1,0% 0,8% 0,8% 0,9% 0,7% Educational print/audio ,8% Educational electronic ,8% Total book publishing y-o-y growth -2,7% -4,0% -2,6% -5,3% -2,6% -1,4% -0,8% -0,2% 0,7% -0,9% Source: PwC, Ovum, Koninklijke Vereniging van het Boekenvak Consumer Educational 9. Consumer & educational book publishing 73

76 The aforementioned pressure on price is also the result of increasing competition from online players such as Amazon, which finally opened a store dedicated to the Dutch market in November 2014, and home-grown stores like bol.com, which is currently dominating the online print and e-book retailing market in the Netherlands. The number of brick and mortar stores is set to decline further over the next few years as continuing decreases in print revenues take their toll. In 2014, the newly merged Selexyz and De Slegte bookstore chains, operating under the name Polare, filed for bankruptcy and closed 20 stores. Many bookstores in the Netherlands are small independents which may find it harder to weather the book-buying climate than the larger chains. Print versus e-books 6% % 2019 The largest bookstore chains in the Netherlands include Bruna, which has around 375 stores; AKO, with around 85 stores; and Boekenpartners, which is a book-buying union of approximately 110 independent booksellers. Despite ongoing turmoil in the consumer books market, print consumer books revenues will still account for 82% of consumer book revenues in 2019, representing a value of 357 million euros. Source: PwC, Ovum, NVPI 94% Consumer print books 82% Consumer e-books Digital book publishing sales fall short of expectation The fact that a majority of the Dutch population owns a tablet or an e-reader affects the manner in which Dutch consumers read books. The proliferation of these devices will result in significantly increasing consumer e-book revenues, rising from just 6% of total consumer book revenues in 2014 to 18% in 2019 and with e-books revenues reaching 79 million euros in the latter year. However, this increase does not meet expectations. Increasing digital sales do not mean that consumers stopped buying hard copy books. The market for these books is not set to disappear, but will phase out in the long run. This is one of the reasons digital growth trails behind. Many consumers will purchase both e-books and hard copy books depending on the way they choose to consume book content in different situations. Furthermore, print books mainly remain desirable as gifts or PwC Entertainment & Media Outlook for the Netherlands

77 Digital books in learning methods only up from 5% in 2014 to 11% in 2019 Go to outlook.pwc.nl For more information and data holiday reading, are read to children or serve as coffee table books. In addition to consumers still buying print books, piracy is another reason for disappointing sales of e-books. E-books are considered to be expensive, easy to copy and share among friends, and are often not compatible between different devices. All these factors spur the online piracy market, as they encourage some consumers not to pay for digitalised books. Similar developments have been apparent in the music and movie industry which transformed itself by changing to subscription earning models with streaming services such as Spotify and Netflix. Within the book publishing industry VBK and Dutch Media introduced Elly s Choice and Bruna introduced Bliyoo. Both services are operating using a similar concept that entails the offering of a subscription to a number of e-books per month. Educational book publishers are transforming their products to digital multi-device propositions Total sales of educational books will increase slowly over the next five years, despite a decline in print educational books revenues. Educational books generated 389 million euros in This figure will rise to 402 million euros in 2019, at a CAGR of 0,7%. This growth will occur despite declines in other book publishing segments: educational books revenues are generally more stable since they are funded by governments rather than individuals, and as such are less susceptible to macroeconomic changes. The change in the mix of sales between print and electronic editions in the Netherlands is due to innovations in learning methods that are mainly driven by educational publishers combined with a focus on personalised learning in schools. Both developments are leading to sales methods that combine print books with electronic content in learning methods to optimise the learning experience. With the offering of learning methods by educational book publishers schools seem to rely increasingly on the content provided by book publishers, which drives publishers to evolve into educational service providers. Looking at the continued use of print books in learning methods shows that they have advantages over electronic editions within schools: they are easily shared among students, are highly durable and are perceived to increase concentration while learning. As such they will continue to form the bulk of the educational book market, at 89% of total educational books revenues in 2019, down from 95% in 2014, only showing a -0,8% CAGR decline over the forecast period. Despite the advantages of print, the interactivity enabled by the use of tablets and PCs, and their falling costs do result in educators who are increasingly recognising the benefits of purchasing easily updateable and interactive learning materials for students. In the higher educational sector, personal preference will ensure that e-textbooks will have a larger take-up than in the primary/elementary and secondary/ high school market. 9. Consumer & educational book publishing 75

78 10. Business-to-business publishing 76

79 The Dutch B2B market brought in close to 2.1 billion euros in 2014, with revenue up by a marginal 0,3% on the year as the industry made a tentative recovery from a fall in sales in In a sector with so many disparate revenue streams, a host of trends and factors will influence growth as Big Data boosts business information and continued digitisation impacts directories, trade magazines and professional books. The B2B segment relies largely on business expenditure and so depends heavily on the state of the broader economy. In 2014, the Netherlands emerged from its second recession since the global crash. With prices remaining constant, GDP is expected to grow by 1,6% over the course of 2015, according to the IMF s April 2015 projections. This helps explain why the B2B market is forecast to grow by 1,2% this year, up on last year s modest 0,3% expansion. Print advertising and revenue continue to trend downwards as the market makes a general transition to digital. This will flatten out over the next four years, but only because the overall B2B market is projected to grow to 2.3 billion euros by The share of revenue accounted for by advertising as compared to consumer expenditure on business information, trade magazine circulation and professional books will fall slightly, from 49% of the market in 2010 to 42% by Business information and trade shows will drive B2B market growth While ad and print sales are on the wane, the business information and trade show sub-segments will help to power the market along over the period. Companies analyse survey data and focus groups for an accurate picture of how best to develop and market their products and services. Now more than ever, businesses are turning to social media campaigns and analytics companies to help them reach global audiences and build their online presence. Additionally, companies continue to harness Big Data: information already held on file that can be used to map out future strategies, perform trading and risk analyses and, ultimately, grow revenue streams. While it is true that organisations already own such data, potentially eating into B2B data service providers sales, they often do not have the know-how to exploit this Business Information Trade shows Trade magazines Directory advertising Professional books 2019 B2B market millions) Netherlands Historical data Forecast data CAGR % Business Information ,0% Directory advertising ,5% Trade shows ,2% Professional books ,8% Trade magazines ,4% Total y-o-y growth -1,7% 0,8% -1,8% 0,3% 1,2% 1,8% 2,5% 3,5% 4,0% 2,6% Source: PwC, Ovum 10. Business-to-business publishing 77

80 Business information revenue ( millions) Netherlands Historical data Forecast data CAGR % Financial ,0% 150 Marketing ,0% Industry ,7% Total Financial Industry Marketing y-o-y growth 4,9% 4,0% 3,4% 3,9% 4,6% 5,3% 6,0% 6,7% 7,4% 6,0% Source: PwC, Ovum information and frequently hire in specialists to interpret the numbers and offer actionable responses. The continued drive to utilise Big Data contributes to the positive forecast for business information revenues. Business information revenue accounted for close to 30% of the B2B market last year, and this will continue to grow to 35% by This segment will expand at a CAGR of 6,0% between 2015 and 2019, from Business to business revenue split 21% 20% 17% 30% % Business Information Trade shows Trade magazines Source: PwC, Ovum 17% 18% 15% 2019 Directory advertising Professional books 15% 35% 613 million euros to 821 million euros as businesses seek to gauge how products and services will be affected by the macroeconomic environment. A better understanding of the financial markets will benefit businesses, while market research and enhanced consumer understanding through the use of Big Data analytics will highlight areas of potential investment. Furthermore, with tighter regulation in the financial services industry in general, B2B providers are expanding their service offerings to provide the data needed to comply. Similarly, companies continue to see value in networking opportunities and showcasing themselves before other industry stakeholders at trade shows. Despite accounting for the smallest portion of revenues in the overall B2B market, this area is displaying the fastest growth, with a CAGR of 6,2% notching sales up to 345 million euros by Integral to the forecast is Amsterdam s continued attractiveness as a regional hub, with more than 1.1 million square feet of conference space. Trade magazines continue to adapt to life online Just as B2C newspapers and magazines around the world struggle to maintain both their advertising and subscription revenues amid a structural shift away from print to digital, so too are trade-focused publications feeling the pressure. Overall, total trade magazine revenue was worth 404 million euros last year, a drop of 3,3% year-on-year, and will continue to dip to 395 million euros over the period. However, a substantial shift towards advertising on websites and the sale of online content will largely offset the decline in print, even if the relative cost PwC Entertainment & Media Outlook for the Netherlands

81 Trade magazines revenue ( millions) Netherlands Historical data Forecast data CAGR % Advertising ,6% Digital ,4% Print ,4% Circulation ,0% Digital ,4% Print ,5% Total Digital advertising Digital circulation Print advertising Print circulation y-o-y growth -8,8% -2,5% -9,9% -3,3% -1,1% -1,1% -0,4% -0,1% 0,5% -0,4% Source: PwC, Ovum of digital ads is lower than the print equivalent, with 27% of trade magazine ad sales forecast to come from digital in 2019 compared to just 5% in The traditional directories medium phases out The trade directories business will grow modestly over the forecast period as the industry s traditional medium phases out. Over that time, print advertising revenue is forecast to fall by more than 22%, to a mere 33 million euros. This transition is summed up by the repositioning of DTG the rebranded name for De Telefoongids and Gouden Gids. Customers have moved away from bulky printed directories entirely and shifted to online information sources. The Netherlands directories market has proved attractive to foreign companies looking to access Europe. In December 2014, New Yorkbased Yext, a digital presence management service for small businesses, acquired its Dutch equivalent InnerBalloons. As part of the deal, which will see InnerBalloons become the base of Yext s European operations, DTG exited its 51% stake in the Dutch start-up. Directories firms continue to implement and fine-tune their digital strategies, in part by moving away from simple publishing. They centralise local products and services, and position themselves as 10. Business-to-business publishing 79

82 Digital Electronic Print Print Directory advertising revenue ( millions) Netherlands Historical data Forecast data CAGR % Digital ,8% Print ,2% Total y-o-y growth -9,2% -2,8% -3,5% -3,6% -2,6% -1,8% 0,3% 3,6% 2,9% 0,5% Source: PwC, Ovum Professional books revenue ( millions) Netherlands Historical data Forecast data CAGR % Electronic ,7% Print ,7% Total y-o-y growth 1,4% 3,9% -1,8% -0,2% -1,4% -1,2% -0,9% -0,5% 0,0% -0,8% Source: PwC, Ovum go-to online marketing partners for their clients, with a focus on smaller businesses. By 2019, digital ads will account for 91% of all advertising revenues generated in the directories sub-segment. Professional books will suffer the most The sale of professional books, the second-largest of the Dutch B2B sub-segments after business information, will suffer more than any other part of the market, falling by 1,4% this year and with a CAGR of nearly -0,8% over the forecast period to 422 million euros in E-books revenue will account for 21% of overall income in 2015, rising to 33% over the next four years as publishers increasingly move away from hard copies and audio formats to readable content that can be downloaded. For professions such as the law or medicine, where reference books are large and unwieldy, e-books are much more convenient than print. The e-book format makes information searchable and bookmarkable, and because tablets are easy to carry, professionals can now access hundreds of books at the touch of a button. Many future professionals will carry their e-books habit over from their student days, so the rise of educational e-book sales in the Netherlands will benefit professional e-books sales in years to come. Additionally, many offices are becoming paperless and have digital as the format of choice for all content, giving a further boost to professional e-book sales. Digital formats allow book publishers to be more inventive with their business models. Books that are continually updated can be sold as a subscription, allowing the user to upgrade as and when updates are ready rather than on an annual basis. E-books can also point directly to complementary content, allowing publishers to be more direct about upselling. PwC Entertainment & Media Outlook for the Netherlands

83 Business to business revenue % 20% 40% 60% 80% 100% Non-digital Digital Source: PwC, Ovum (excluding business information and trade shows) Go to outlook.pwc.nl For more information and data Digital B2B market approaches tipping point The media s evolution from print to digital can be seen everywhere, from daily consumer newspapers all the way to specialist trade magazines, and this trend will continue to play out for the foreseeable future. In Western Europe, digital revenue represented 15% of B2B sales in That rose to 30% in 2014 and is expected to reach 47% in In the Netherlands this shift has been mirrored almost exactly: digital revenue accounted for just 15% of sales in 2010, rising to an anticipated 48% by It is important to bear in mind, however, that print will still comprise the majority of revenue even at the end of the forecast period. It may be a sector in irreversible decline, but it remains a vital part of the revenue mix. 10. Business-to-business publishing 81

84 11. Advertising 82

85 The Netherlands advertising market returned to growth in 2014, with total revenue increasing by 2,5% to 3.96 billion euros. This ends an extended period of uncertainty dating back to the financial crisis of 2008, with weak or negative growth in most years. The recovery is set to continue and indeed gain momentum over the next five years. Our forecast has the market growing at a CAGR of 3,5%, reaching 4.7 billion euros by Total advertising market ( millions) Netherlands Historical data Forecast data CAGR % Television y-o-y growth 4,4% -5,5% -2,7% 4,2% 0,2% 2,2% 1,3% 2,1% 1,1% 1,4% Radio y-o-y growth 0,9% -4,7% 2,3% 2,6% -0,5% 1,9% 1,6% 1,7% 1,6% 1,3% Out-of-home y-o-y growth 2,9% -1,6% 0,7% 1,4% 0,8% 0,9% 0,7% 1,0% 1,4% 1,0% Internet y-o-y growth 11,8% 8,4% 8,8% 11,3% 10,9% 10,7% 10,2% 9,9% 9,3% 10,2% Consumer Magazines y-o-y growth -4,0% -6,7% -7,0% -5,2% -7,0% -6,8% -5,7% -3,7% -2,2% -5,1% Newspapers y-o-y growth -7,1% -6,8% -18,4% -6,1% -5,0% -4,6% -5,2% -4,8% -4,6% -4,8% Trade Magazines y-o-y growth -9,4% -2,9% -12,6% -4,1% -1,4% -1,4% -0,2% -0,1% 0,0% -0,6% Directories y-o-y growth -9,1% -3,0% -3,3% -3,8% -2,4% -1,7% 0,1% 3,6% 3,1% 0,5% Trade shows y-o-y growth 7,7% 0,6% 3,7% 4,7% 5,9% 6,6% 6,1% 5,8% 6,6% 6,2% Video Games y-o-y growth 31,2% 28,9% 10,7% 8,7% 8,1% 7,0% 5,1% 5,1% 12,3% 7,5% Cinema y-o-y growth 11,6% 6,2% 4,0% 4,5% 4,7% 4,5% 5,3% 6,0% 6,8% 5,5% Total y-o-y growth 0,1% -2,4% -2,1% 2,5% 2,2% 3,3% 3,4% 4,2% 4,2% 3,5% Sources: PwC, Ovum 11. Advertising 83

86 Total advertising market ( millions) Television Radio Out-of-home Internet Print Sources: PwC, Ovum The primary driver of growth will be internet advertising, which will rise at a CAGR of 10,2% and account for nearly half of the total advertising market by There will also be growth in traditional media through the likes of television, radio and out-of-home advertising, although weakness in print advertising will remain a drag, with revenue continuing to fall in newspapers and both consumer and trade magazines. TV advertising will grow but continue to fall behind digital rivals Following declines in 2012 and 2013, TV advertising revenue recovered to grow by 4,2% in 2014, driven in part by additional revenue from the Netherlands strong showing in the FIFA World Cup in Brazil. Growth will be sustained after a disappointing 2015 thanks to improved macroeconomic conditions, with a CAGR of 1,4% helping the market to reach almost 1.06 billion euros by This means television will remain a key element of the Dutch advertising market, far exceeding revenue in every segment other than internet advertising. The robust growth of digital advertising, however, means that TV will not regain its former position as the premier advertising medium in the Netherlands. By 2019, broadcast TV advertising will generate less than half as much revenue as internet advertising. These trends are being driven by underlying shifts in consumer behaviour as digital formats and non-linear viewing habits become ever more popular, particularly among younger consumers. There will be a boon again to online TV advertising, which will grow at a CAGR of 10,9% over the forecast period. It will remain a niche element of the market, however, accounting for only a 3% share of total TV advertising revenue even by Broadcast TV s position at the heart of both consumers media lives and advertisers campaigns is undergoing a fundamental change as TV begins falling behind the internet as the medium that captures consumers attention best. The pressure on TV advertising means that TV stations will need to reach out beyond traditional broadcast advertising to survive. By turning themselves into brands that operate across multiple channels, they can tap into the evergrowing share of advertising budgets going online. Print advertising faces even greater challenges Newspapers and consumer and trade magazines are the only segments of the Dutch advertising market that will decline over the forecast period. Newspapers will fall at a CAGR of -4,8%, with consumer magazines falling at a similar rate (-5,1%) and trade magazines a much lower -0,6% over the next five years. Directories, however, will return to growth by 2017, boosted by their movement away from print models (as exemplified by DTG) and helping the segment sustain a modest CAGR of 0,5% over the forecast period. Their performance was driven by the impressive advances in digitisation achieved by directories providers in the Netherlands, with 90,7% of revenue set to come from digital directories by Taken together, consumer and trade magazines will fall by a -3,1% CAGR up to 2019, declining less steeply than newspapers. The difference is due to the impact of open competition on the internet. Newspapers factual reporting is easy to replicate online, where they PwC Entertainment & Media Outlook for the Netherlands

87 The radio advertising market faces deep structural challenges. compete with low-cost digital news sites and even social media. Print newspapers used to be regarded as guaranteeing a captive audience, but in the digital environment advertisers can no longer be sure this is the case. For many types of magazine, however particularly trade magazines elements such as specialist and detailed content, stories outside of the typical news scope, and expensive photography ensure that the experience isn t readily available for free elsewhere. This, coupled with the growth of tablets a natural fit for the magazine experience means that magazines can make a smoother transition to digital distribution and hence maintain their appeal for advertisers, especially in specialist categories. Consequently, trade magazine advertising revenue in the Netherlands will cease its decline by 2019, when there will be slight growth. Magazine publishers are also looking to become omnichannel brands rather than dedicated magazine publishers. If consumers are drawn to sites by video, for example, then publishers must produce video to attract people to their content. Content supported by a strong brand will be vital to success. Content should offer more than quality; it should connect with the target audience and make them want more, such as an online community and events. Digital shift in OOH will sustain growth OOH advertising will grow steadily, but modestly, with a CAGR of 1,0% over the forecast period, reaching 168 million euros by This apparent consistency masks dramatic underlying changes, however. Digital OOH (DOOH) has reached critical mass in the Netherlands and is set to account for more than 10% of revenue for the first time in It will grow rapidly from there at a CAGR of 24,6% to reach 43 million euros by 2019, or 25,7% of total OOH revenue. Physical (traditional) OOH, on the other hand, will decline at a substantial -3,0% CAGR and more as it is rapidly displaced by digital formats. Digital OOH will grow from 10% in 2015 to 25,7% of total OOH revenue in 2019 The growth of DOOH is being driven by what both advertisers and providers consider the superiority of digital formats. For advertisers, the ability to deliver higher-quality, more dynamic messages using bright, moving LCD screens and effectively targeted at different groups at different times of the day or week justifies the associated increase in fees. For providers, the ability to rotate multiple ads on the same screen allows them to monetise their displays much more efficiently. As a result, DOOH will quickly come to monopolise the highest-value OOH advertising space in the Netherlands in the coming years. DOOH is very much part of the digital revolution in advertising. The connected nature of DOOH installations, which improves both measurability by providing real-time feedback to providers and consumer experience by allowing direct interaction via mobile devices, delivers substantial back- and front-end increases in value to advertisers. This also makes programmatic buying in DOOH advertising possible. Radio advertising holds steady despite challenges Radio advertising revenue grew by 2,6% in 2014 to 233 million euros. It is set to maintain small but consistent growth rates after 2015, with a CAGR of 1,3% taking revenue to 248 million euros by The radio advertising market in the Netherlands faces deep structural challenges as broadcasters struggle to attract younger listeners, leaving the medium with an ageing audience less attractive to advertisers. With more people listening on mobile devices, however, broadcasters have new opportunities to re-engage with younger listeners. This dynamic will play a pivotal role in the shift in radio consumption, with a growing audience listening on multi-purpose devices. The growth of connected devices will be a mixed blessing, however, as it also means more competition from services such as Spotify and Apple Music, popular with precisely the young listeners broadcasters wish to attract. Nonetheless, broadcasters currently have the edge in several areas: well-known, professional on-air talent; live celebrity appearances; local news and traffic; and listener loyalty. These factors will help to sustain radio listenership and 11. Advertising 85

88 86

89 High growth rates in video and mobile. thus advertising revenue on both traditional and digital platforms in the short to medium term. But in the long run, deep challenges remain: as with TV stations, radio broadcasters will have to become truly multichannel operators to survive in an environment in which ever more advertising spending is moving online. Niche segments will continue to grow The small, specialised video games advertising channels will continue to be a growth area with a CAGR of 7,5% and will grow more rapidly than any format except internet advertising. The ever-increasing popularity of video games and the trend towards utilising in-game advertising (IGA) (such as the creative use of pitch-side hoardings in video football games) will see it become an increasingly important part of the advertising mix. Dominance of internet advertising set to increase Internet advertising is already comfortably the largest segment of the Dutch advertising market. With a very strong 10,2% CAGR, it will also be the fastest-growing segment by far, a trend borne out in the majority of countries worldwide. As a result, a rapidly increasing share of Dutch advertising spending will go into internet advertising, which, at 2.27 billion euros by 2019, will account for almost 50% of all advertising revenue. All sub-segments of internet advertising will grow in the Netherlands over the next five years, albeit at significantly varying rates. Paid search, the largest component, will enjoy a robust 12,3% CAGR. Video and mobile will drive growth, with respective CAGRs of 19,6% and 35,1% making them increasingly sizeable parts of the market. Although global players like Google, which recently rolled out a click-to-buy button, are seeking to play a key role in the mobile ads space, they don t yet dominate mobile advertising markets to the same extent as the other categories of internet advertising. Local platform players could thus secure themselves an important key role by establishing a range of collaborations with content partners in order to monetise the opportunity Internet advertising market ( millions) Netherlands Historical data Forecast data CAGR % Paid search ,3% Display ,7% Classified ,7% Video ,6% Total Wired y-o-y growth 11,7% 8,4% 8,7% 10,8% 10,4% 10,1% 9,7% 9,4% 9,1% 9,7% Mobile y-o-y growth 29,3% 15,8% 15,2% 64,3% 55,3% 46,3% 35,2% 26,2% 16,1% 35,1% Total y-o-y growth 11,8% 8,4% 8,8% 11,3% 10,9% 10,7% 10,2% 9,9% 9,3% 10,2% Sources: PwC, Ovum, Interactive Advertising Bureau Europe Paid search Video Display Mobile Classified 11. Advertising 87

90 Digital versus non-digital advertising 64% 36% % Non-digital Digital % CAGRs in display (4,7%) and classifieds (3,7%) will lag behind somewhat as internet advertising moves towards more mobile and video-led models. The effectiveness of display advertising, in particular, has come under increasing pressure in recent years. Consumers are becoming more aware of ad-blocking software that targets standard display ad units. Browser plug-ins such as Ad Block allow consumers to manage their exposure to display ads, while Ghostery and others highlight the various tracking elements that are embedded in each page they visit so that they can moderate the degree to which they are exposed. Nonetheless, in the context of the broader advertising market, these growth rates are very positive, underlying the current and rising strength of internet advertising in the Netherlands. Source: PwC, Ovum Mobile s growth rate is certainly eye-catching, but device categorisation is blurring as smartphones and tablets increasingly converge in size and as wearable interfaces such as watches begin to make an impact. To navigate in this environment, advertisers should be asking what types of content generate greatest consumer engagement rather than which device people are using. Over time, screen size will play less of a role; instead, the pattern of usage will become the defining factor for advertisers and publishers. In fact, the key will be to develop seamless consumer relationships across all distribution channels. The rise of content marketing and native advertising show that advertisers and publishers are moving away from device-specific advertising formats and instead focusing on delivering content to their audiences. A piece of content marketing can be consumed on any device and benefits from cross-platform sharing via social networks, which boosts its reach and subsequently its effectiveness. Advertisers who lead the way here are asking questions about how they can engage, entertain and inform their audience with content rather than how they can reach a specific number of mobile users. Innovation in advertising formats and technology will also continue to bolster growth as programmatic trading of display, video and mobile inventory gathers pace and brands demand new approaches to capturing the attention of an audience that is being bombarded by advertising in every facet of their daily lives. Programmatic advertising PwC Entertainment & Media Outlook for the Netherlands

91 revenue is thought to have risen by nearly 40% in 2014, accounting for more than 140 million euros of the display internet advertising total. Go to outlook.pwc.nl For more information and data Increasingly, emerging innovations on the internet are also transitioning to other media. Programmatic buying is already possible in (D)OOH, and television broadcasters (RTL) and radio broadcasters (through sales house One Media Sales) are exploring these possibilities as well. Other media also need to learn more from the internet by making use of all the data that is becoming available. Improvements in measurement will be key to revenue maximisation Advertisers and publishers are now much better equipped to capture, store and process data that allows them to build a fuller picture of how consumers interact with internet advertising. They are adopting new metrics that reflect the quality of impressions rather than their quantity. In recent years, internet advertising has focused on measuring performance based on the volume of impressions delivered over the course of a campaign. For publishers, this dynamic has resulted in a rush to create more inventory, as seen in the rise of the click-bait article. However, this glut of inventory has resulted in falling prices. Increasingly sophisticated metrics have shown advertisers that the quality of impressions drop, with falling click-through rates, rising ad fraud and other factors impinging on the effectiveness of their advertising. Over the coming years, internet advertising will come to focus more on attention and attribution rather than number of impressions. Publishers are already shifting their internet advertising towards this model, charging advertisers on a cost per hour basis (measuring the time an individual user spends with the content) rather than on a cost per thousand basis (measuring how many users have any sort of engagement with the content). The benefits of this approach are clear for high-quality publishers; it ensures them that their audience is truly engaged with their content. The rising sophistication in internet advertising measurement is leading to similar improvements in other advertising media. The increasingly fine-grained feedback offered by internet advertising is driving demand by advertisers for similarly effective measurement of their investments elsewhere. Traditional measurement agencies such as HOI are being replaced by such agencies as NOM and studies as NOBO, which in their turn are merging into Media:Tijd, a new initiative that measures consumer activity across TV, radio, newspapers, magazines and online. Meanwhile, the shift to online and connected consumption across formats as diverse as newspapers, magazines, television, radio and OOH helps providers deliver better metrics to meet this demand. Across all advertising media, the rising demand for, and supply of, more sophisticated measurement will be a key trend over the next five years. 11. Advertising 89

92 Outlook special The maze of digital advertising Joris Heijltjes, September 2015 The maze of digital advertising Five building blocks for successful digital advertising strategies Throughout the year Outlook Specials address key developments that are transforming the industry. Digital advertising has a major impact on how organisations engage with their prospects and customers. Search, display, digital out-of-home, video, as well as social media are just a few of the options available to persuade customers. Beyond this, four forces are reshaping digital advertising: mobile, video, native and programmatic. How should advertisers deal with them? What impact will this have on their organisation? Below you will find a summary of the Digital Advertising Special, the full publication can be viewed online. Lost in the maze The brave new world of digital advertising is turning out to be more complex than expected. What happens if advertisers get lost in the maze? In the worst case, they ll spend a lot of money reaching out to the wrong audience through the wrong channels, communicating an irrelevant message on the wrong device at a moment that s frustratingly inconvenient for their customers. All this obstructs a customer experience that s worth remembering, resulting in alienated customers instead of engaged ones. At the same time, the division between online and mobile is evaporating rapidly. In fact, consumers make no distinction between channels. They communicate with organisations, not with digital or offline departments. Consumers attitudes to mobile advertising are evolving and the digital advertising landscape is being reshaped. PwC Entertainment & Media Outlook for the Netherlands

93 Are you at risk of getting lost in the maze? Five Building Blocks Although the digital advertising landscape is highly fragmented and various types of digital advertising operate according to different timescales, there are five generic building blocks that help advertisers navigate through the maze: People, Plan, Platforms, Partners and Perform. Each building block has its own characteristics and requirements. Their implementation needs to be tailored to the advertiser s organisation. There simply is not a one-size-fits-all approach to navigating the maze. People Each of the digital advertising platforms requires its own distinct skillset. The challenge lies in coordinating the constituent skills without diminishing diversity or unique experience. What kind of people does an advertiser need to maximise the potential of digital advertising? How can the more traditional marketers align themselves with their (younger) digital native counterparts, and vice versa? Platforms Digital advertising relies heavily on technology. What are the key systems, tools and platforms involved? At a minimum we advise advertisers to consider the following platforms and systems: Data Management, Tag Management Software, Customer Analytics & Business Intelligence, Ad Networks, Real Time Bidding and Marketing Resource Management. Partners Can advertisers engage in digital advertising on their own? And if not, who do they need? How should they go about selecting partners for the necessary skillsets? Do these partners really understand the advertiser s business? Before selecting one or more partners, advertisers should decide what they can do themselves and what areas require external expertise. Perform In the end it comes down to the art of execution. But who should be involved in maximising performance? What is the role of senior management? The governance structure should be crystal-clear, and KPIs must be unified across silos. The Chief Marketing Officer, Chief Technology Officer and Chief Information Officer need to be at the forefront of these developments. How to get started How can advertisers that are already involved in digital advertising start optimising and improving? The best way to begin is to perform a quickscan or (time permitting) a more thorough maturity assessment. The five building blocks (People, Plan, Platforms, Partners and Perform) can be used to cover the different angles. After that, business goals and challenges need to be defined, together with a blueprint and accompanying roadmap. A dedicated team can then start implementing, based on rapid prototyping, failing fast and continuous learning. Go to outlook.pwc.nl To read the full Digital maze publication Plan In these dynamic times, agility is an important asset. Does that mean advertisers no longer need to structure their activities? How do advertisers stay disciplined, keep learning from mistakes, and boost their success? We have identified four pillars for the digital advertising section of the overall marketing plan: insights, target, execution and learning. People Plan Platforms Partners Perform Outlook special - The maze of digital advertising 91

94 Interview Diederik Breijer, CEO at IPG Mediabrands Benelux and Onno Seelen, Managing Director at Magna Global Digitisation is drastically transforming the advertising industry IPG Mediabrands operates under the umbrella of Interpublic Group (IPG) and serves its clients through a network of media agencies and specialist agencies. Together these agencies offer a full-service proposition. Magna Global is the strategic media buying unit of Mediabrands. With a focus on creating added value on media investments and identifying and creating opportunities concerning media initiatives, Magna Global facilitates its partner agencies to implement media strategies at the most favourable price, qualitative agreements and conditions. Consumer confidence is increasing and there is general optimism about the gradual recovery of the Dutch economy. Although the advertising industry is doing well, it is still not as booming as we had hoped it would be, Diederik Breijer remarks. Unlike what was predicted by many, sales volumes remain unchanged, advertising spending is not soaring and pricing is at an all-time low. Set against this situation, Mediabrands, as a fullservice media network, heavily invests in new digital technology and in attracting top-class experts in order to deliver the quality we want. There is a striking imbalance here. Due to booming technological developments in the past years Mediabrands transformed itself from media consultancy firm into a technology player and thus entered a new competitive playing field. Mediabrands is becoming more and more active in the digital technology segment and this is where Google is the ambitious and dominating player that follows its own agenda, Breijer says. Google dominates the digital segment, as it controls 90 percent of the performance market. There is an area of tension between us and Google in the technology arena, but we are not only competitors as we also need each other as partners. The transformation in our industry is drastic. Hiring new employees with superior technical skills is very important in order to deal with this new situation in the market. Media auditing At the same time, the years of recession changed the way media agencies operate. According to Breijer media agencies suffer under the burden of overregulation and excessive media auditing and benchmarking under the pretext of transparency and at the expense of entrepreneurship. Media contracts and pricing, for instance, are all put under a microscope. For internal accountability purposes more and more advertisers ask media auditors for objective feedback on how their media buying agency is performing. Yet, if more clients do this, media agencies will eventually be fighting their own benchmark. Today media audits are often performed beforehand which means clients also monitor pricing negotiations. Breijer: This causes a strange situation as media agencies, advertisers and media operators all have different perceptions about a fair price. Onno Seelen, picks up on this: The fact that benchmarks cannot be completed until the end of the year further complicates things. If a media agency negotiated a certain price at the beginning of the year and market prices fall afterwards this doesn t mean that the higher price earlier that year was not a fair price for that specific moment in time. Short-term planning Seelen then draws attention to short-term planning in the advertising industry of today. Nowadays most advertisers only plan three months ahead instead of a whole year. There are still some annual contracts in television advertising, but in radio, outdoor, print and online long-term media plans are very rare if not non-existent. Short-term planning makes advertisers very flexible and creates the possibility for them to better respond to a changing market. Breijer adds, Although longterm contracts make forecasting a lot easier for media agencies such as Mediabrands, shortterm planning does not affect the long-term relationships we have with our clients. Targeted advertising An important development in the market is the advent of targeted advertising. This type of advertising will also be able to reach Millennials, a group of consumers that are known to have an aversion to advertising in general. Bombarding Millennials with non-targeted advertising will not work, Seelen says. But if they receive targeted commercial messages they won t even perceive this as advertising but as useful information. In my view paying for content and 92

95 seeing targeted adverts will not be mutually exclusive in the future, as I believe even players such as Netflix will not be able to avoid offering commercials in the end. Targeted advertising involves collecting digital data, should we be afraid of Google and Facebook? Market parties such as Google and Facebook know everything about us and this is both scary and practical, Breijer says. It s scary because of privacy issues and it s practical because a variety of products and services that make use of these data can make our daily lives easier and more comfortable. So we are operating carefully while we also understand that (within the boundaries of the permissible) having such data at our disposal is valuable to us, especially if we connect this information for smart, effective and efficient targeted advertising. Breijer emphasises that he fully recognises the advantages of targeted advertising, but also believes in the power of classic quality advertising. I can still be pleasantly surprised by beautiful and tasteful adverts or commercials like the ones that compete in the annual advertising award festival in Cannes. Seelen adds, Advertising is here to stay, despite the fact that some people are willing to pay in order not to see advertising in a digital environment for example. Advertising focuses attention on interesting products and special offers, which can be useful and convenient. Linear TV In the TV domain linear TV will remain an important medium in the Netherlands, despite the advent of over-the-top (OTT) content, such as Netflix. Netflix, NL Ziet or RTL XL are used more for targeted viewing, while linear TV remains important when people want to be surprised and entertained, says Breijer. Although the total amount of time people spend watching TV remains more or less unchanged, young people are pulling out. When asked about linear TV advertising, Seelen expects that advertisers are willing to pay more if their commercial is broadcasted together with other grade-a products in shorter commercial breaks. Issues of data ownership and privacy are still a hurdle to overcome with regard to targeted advertising on linear TV. Netflix knows who its viewers are, what they watch, when and how long they watch, Seelen says. If cable companies could use such data targeted advertising would become possible. Breijer adds that digitisation will also completely change the way we measure the audience ratings of TV programmes. He remarks, Ratings will be all real-time and GRP s (gross rating points, ed.) as a way to measure the overall weight of an advertising campaign will be drastically reshuffled, as they can be more accurately determined and are therefore more reliable. Who are the winners of tomorrow? All players in the industry are part of the same transformation process, but only a few will be fit and ready for what Seelen calls the champions league. Seelen remarks, Of course there will also be a target group for smaller local niche agencies, but they play in a The dynamics and complexity that affect our industry make it more interesting and exciting. different league. A frequently voiced opinion is that small start-up companies are the driving force of innovation. This could be true in a way, as they at least stimulate the development of new ideas, but only the big media agencies have the power and the means to push the market ahead with innovative solutions. If media agencies want to play in the champions league they should hire top-notch digital specialists and technologists otherwise they will miss the boat, Breijer remarks. We are only on the threshold of the digital revolution since, for instance, the possibilities of digital data have not yet been fully utilised in our business. Due to the increasing complexity of our business no single person has all the knowledge or expertise. What s more, nobody has a complete overview of the entire business. It s a challenge to bring all different specialists together and manage them in a way that clients will enjoy optimal end results. Ready for the future Some media companies are afraid prices will drop in the dynamic media business of today. Seelen does not agree: There will be a level playing field between media companies, media agencies and advertisers. I even think that for instance targeted advertising will stimulate advertisers to pay a better price. But on the whole the dynamics and complexity that affect our industry make it more interesting and exciting, Breijer concludes. The transformation and reshaping of our industry take time, money, dedication, talent and a focus on clients. Mediabrands is in a strong position and is making the right investment decisions. The time and money we spend on tech driven innovation is enormous yet necessary, since the world in which we operate today is changing fast and we cannot afford to stand still. Interview 93

96 Contacts Ennèl van Eeden Partner Assurance Entertainment & Media Leader +31 (0) Cornelis Smaal Partner Deals Technology, Media & Telecom Leader +31 (0) Jheroen Muste Partner Consulting Digital, Strategy & Innovation Leader +31 (0) Ilja Linnemeijer Partner Assurance Technology Leader +31 (0) Pieter Verhees Partner Consulting Telecom Leader +31 (0) Wouter Poot Director Assurance +31 (0) Tom de Groeve Director Strategy & Innovation +31 (0) Joris Heijltjes Senior Manager Digital, Strategy & Innovation +31 (0) Rajendra Sitompoel Senior Manager Digital, Strategy & Innovation +31 (0) PwC Entertainment & Media Outlook for the Netherlands

97 Editorial board Ennèl van Eeden, Entertainment & Media Leader Nancy Krijnen, Entertainment & Media Outlook Marketing Manager Danielle Hoekstra, Entertainment & Media Communications Coordinator Many other professionals from the Dutch PwC Entertainment & Media practice reviewed and added specific expertise to this publication. This Outlook includes content authored by Ovum, whose research business delivers strategic insight, global market data and primary research to the global telecoms and media community. Photography Photo Republic, NO CANDY, ASA Foto, istock Interviews Hanno van der Winden Use of Outlook data This document is provided by PwC for general guidance only and does not constitute the provision of legal advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. The information is provided as is, with no assurance or guarantee of completeness, accuracy, or timeliness of the information and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose. Outlook content must not be excerpted, used, or presented in any portion that would render it misleading in any manner or that fails to provide sufficient context. Permission to cite No part of this publication may be excerpted, reproduced, stored in a retrieval system, or distributed or transmitted in any form or by any means including electronic, digital, mechanical, photocopying, recording, or scanning without the prior written permission of PwC. Requests should be submitted in writing to Daniëlle Hoekstra at danië[email protected] outlining the excerpts you wish to use, along with a draft copy of the full report that the excerpts will appear in. Provision of this information is necessary for every citation request to enable PwC to assess the context in which the excerpts are being presented. Without limiting the foregoing, excerpts from the publication may be used only for background market illustration, should not be the sole source of information, and must not form the majority of sourced information. PwC is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together these firms form the PwC network. In this document, PwC refers to the global PwC network, or, if this arises from the context, to the individual member firms of the PwC network. Please see for further details. 95

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