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 ennel.van.eeden@nl.pwc.com 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) ennel.van.eeden@nl.pwc.com 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