ASIMELEC S REPORT ON THE DIGITAL CONTENT INDUSTRY 2008 EXECUTIVE SUMMARY

Transcription

1 ASIMELEC S REPORT ON THE DIGITAL CONTENT INDUSTRY 2008 EXECUTIVE SUMMARY

2 Executive Summary The transition we have experienced over the last decade moving from an analogue world to this new digital universe is truly revolutionising the traditional media and entertainment sectors, most particularly the models associated with the distribution of digital content. One of the principal driving forces behind the booming digital content industry is the appearance of powerful new portable player devices. The other key element is the development of broadband services, which has permitted widespread access to huge volumes of digital content and the development of new, innovative business models. Digital Content Market Around the World The international leisure and entertainment market, within which the digital content sector lies, has experienced continuous growth in recent years, with annual growth rates between 2003 and 2007 reaching 6.6%. The growth of most of the sectors that go to make up this market ranges between 2% and 9%. In the field of music, the revenues of the record companies in 2007 from sales of music in digital format via online distribution channels amounted to $2,900M. The new digital distribution formats accounted for 15% of the record industry s income worldwide in The principal region for the consumption of digitally distributed music is the United States, with 30% of the total market. The chief business models within the Internet digital video market are video purchasing (DTO Download to Own) and video-on-demand services. The most highly-developed international markets for both these business models are the United States and Western Europe. In 2007, total revenue in these two areas exceeded $159M. As for the videogame sector, the principal business models are structured around online gaming and games for mobile phones. The Asia-Pacific region is the most important market worldwide, totalling over $5,600M. The European market is dominated by the distribution of games for mobiles, unlike the situation in Asia and North America. The principal business models associated with digital content in the television sector are the videoon-demand (VOD) and pay-per-view (PPV) formats. The USA leads the world pay-per-view market, accounting for 67.8% of the total in Digital Content Market in Europe The principal European markets for music in new digital formats associated with online distribution channels (United Kingdom, Germany, France, Italy and Spain) achieved a total sales figure of $558.5M in The most important video markets are Germany, France, United Kingdom, Norway and Sweden, which represent 77% of the total Western European market, accounting for over 38M. As regards the videogames sector, it has seen highly significant growth figures over the last three years. A large portion of this growth is due to the new business models for online gaming and games for mobiles. The revenue in 2007 from both business models reached a figure of 1,250M. The television sector is headed by France and the United Kingdom. Total expenditure in Western Europe for the pay-per-view model rose 17.1% more in 2007 than in Spain is the European country with the greatest consumption of PPV, while the market for television subscription services is dominated by the United Kingdom, Germany and France. Digital Content Market in Spain Socio-technological context The economic bonanza enjoyed by Spain in recent years has had a direct impact on the ICT sector, the basis for growth in the digital content sector. The presence of new technology in Spanish homes has evolved on a par with the progressive introduction of the Information Society and the consequent implementation of digital content. The Survey on ICT Equipment and Use carried out by the INE (Spanish National Statistics Institute) revealed a practically universal penetration of the television in all households and stagnation with regard to traditional content players: radios, music systems and videos. Significant growth is also observed for equipment related to downloading and reproducing the new digital contents: computers (desktop and portable), mobile telephones, MP3 players, DVDs. The incorporation of our country into the Information Society is reflected in the use of the Internet, which rises year on year across all age groups, and in the evolution of access speeds. Both factors will be decisive for the success of the business models based on digital contents. Music Market in Spain The new business models have managed to provide a new source of income that, nonetheless, has not yet managed to offset the dwindling revenues from 2

3 traditional business models. Over the last few years, three new business models have gone from strength to strength: payment per download services (for mobile telephones and other reproduction devices), subscription services (allowing songs to be played instantly, without having to wait for the download to complete) and advertising-supported services. Evolution of Income The traditional business models have suffered a sharp decline in recent years, with sales revenue for music on physical media dropping from 531M in 2003 to 276M in In 2007, revenue from new business models exceeded 28 million euros, a figure that represents 9.4% of the total for the Spanish record industry. As regards reproduction devices, 2007 saw revenue reach a figure of 116.7M from sales of MP3 players. The number of music CDs sold in 2007 reached 28 million, a drop of 22% with respect to A total of 1.8 million MP3 players were sold in Video Market in Spain To date, the emergence of these new business models has not affected video to the same extent as the music sector. The principal reason for this has been the bandwidth limitation that hinders the speedy downloading of video content, with file sizes being much greater than for music. This has permitted the producers of video content to greatly prolong the use of traditional distribution channels for their films. The chief business models for online video distribution are the sale and permanent download of films and episodes of TV series (Download-to-Own DTO), the online video club for films and episodes of TV series (Download-to-Rent DTR), subscription to streaming or downloading services and advertisingsupported streaming or downloading services. Evolution of Income Revenues from the traditional business models in the video sector stem, on the one hand, from the box office in 2007 in excess of 643M and, on the other, from the sales and rental of films and series on physical media, with 265M in 2007, a decrease with respect to 2006 of 4%. As is the case in the music sector, the falling income from the physical distribution models for video has yet to be offset by the income from the new online business models. The income from the sale of DVD players (including portable players) in 2007 exceeded 363.4M, representing 99.4% of the total revenue from sales of players for all the different video formats. Sales of high-definition video players took off in Spain in 2007, reaching a figure of 2.1M, which represented 0.58% of the total video player market. It is estimated that revenue from the new Internetbased business models surpassed the figure of 0.5M in As for income from pay-per-view and video-on-demand services, offered over the television distribution platforms, this reached 227M in The principal indicator for the cinema business models is the number of spectators passing through the box office. In 2007, the number of cinema-goers reached million, down 3.9% on the 2006 figures. The number of DVDs sold in Spain dropped by 12% between 2006 and 2007, with the 2007 figure standing at 29 million units. The number of DVD players (including portable players) sold in 2007 was 3.6 million. The number of legal video downloads lags far behind the number of physical units sold and their relevance is merely symbolic, in the light of the appearance of the new business models. Over 60,000 legal video downloads were registered in The number of films acquired under the pay-per-view and video-ondemand modalities reached 11.4 million in Videogame Market in Spain In sharp contrast to what is happening in the other sectors analysed here, both the traditional and the new business models are going through a period of tremendous growth. Another particular characteristic of this sector is the fact that the contents distributed in physical format are complemented and enhanced by the online gaming experience. There exist various innovative business models in the videogame world, such as: the advertisingsupported online gaming services, where gamers can play for free; the online gaming subscription services, which enable users to play one or more games online by paying a monthly fee; the pay-per-play format, which barely exists in Spain, whereby the users pay a small amount (on a pay-as-you-go basis) to play online for a certain period of time in cybercafés; and the videogame as an advertising medium, which reaps benefits from various different forms of advertising. Another important business model is the permanent downloading of videogames onto mobile telephones or portable devices (such as the ipod) from the portals of the mobile phone companies, from the services associated with the device (e.g. the itunes Store) or from portals belonging to the videogame developers themselves. 3

4 Evolution of Income Sales revenue for videogames on physical media exceeded 700M in Spain in Revenues rose 54% between 2004 and This growth rate is principally due to the videogames for consoles, given that the revenue from PC videogames has remained static, at around 90M, in recent years. Increased videogame sales are directly linked to the rise in the number of consoles sold over the last few years. The income from these devices experienced an increase of 88% between 2006 and 2007 and now stands at 735M. While the sales of desktop consoles grew by 197.4% between 2006 and 2007 to reach 440M, portable console sales rose by 24.7% to a figure of 310M. Despite the fact that revenues from new business models in the videogame sector account for a significant percentage of the total income worldwide, in Spain there is no information available on the economic contribution of these new models. In Spain, over 21 million videogame units were sold in 2007, an increase of 21.3% with respect to 2006, and over 79% of these videogames were sold for use on consoles, while just 21% were distributed for PC users. A total of 3.39 million consoles were sold in Spain in 2007, thus representing an increase of 53.4% in the number of units sold between 2006 and Spain is the second European country in the ranking of downloading games for mobile phones, after the United Kingdom. Television Market The television has long been the traditional channel for delivery content, with practically universal penetration in Spanish households. There exist new exploitation and distribution models for the television such as pay digital TV platforms, received via satellite, cable or over the Internet (IPTV), which employ three different business models. subscription to gain access to the contents, pay per view and video on demand. More recently, providers in Spain have started delivering TV content over the Internet. The traditional terrestrial broadcasting distribution of television content is currently immersed in the transition process to the new digital format. The end of analogue broadcasting is scheduled for 3rd April This firm commitment to digital terrestrial television (DTT) is going to entail several different consequences for the traditional model that has historically maintained the analogue format, namely advertising. This is due to the fragmentation of the audience, the appearance of new business models and the differentiation of contents. The business models being developed in neighbouring countries, all based on the DTT system, are Enhanced Television and pay DTT with subscription, pay-per-view and video-on-demand services. Another television business model is the broadcasting of TV channels to mobile telephones. The leading mobile phone operators that currently exist in Spain all offer television services to their clients. The most common business model is a subscription service to access a packet of channels. Evolution of Income The basic source of income for terrestrial broadcasting is advertising. In 2007, advertisers invested 8.7% more in television than in 2006, reaching a total of 3,467M. This represents 43.43% of the total advertising figure invested in conventional media in Spain. Nonetheless, the growth rate plummeted from 15.2% in 2004 to 8.7% in Traditionally income from pay television come from the monthly subscription fees paid by users and from the purchase of contents, whether in the pay-per-view or video-on-demand format saw an increase of 4.4% in revenues from subscriptions to pay services, which reached 1,273M. Television sets continue being the most common screen on which Spanish users view contents. The Spanish market for advanced TV sets surpassed the figure of 2,500M in 2007, a growth rate of 23.3% with respect to % of revenues in Spain throughout 2007 corresponded to the sale of LCD televisions. Revenues from sales of TVs capable of displaying high definition pictures so-called HD Ready TVs, whether LCD or Plasma increased by 45.7% between 2006 and 2007 to reach 2,221M. The new business models in the television sector are still in a very early stage of development and there are scarcely any economic data on them. The only model that achieved significant results in 2007 was mobile TV, with revenue reaching 8.7M. The share of screen time achieved by digital distribution media rose by 10 points in just one year, largely due to the growing introduction of DTT services. With regard to pay TV services, the number of subscribers reached 4 million in Satellite television accounted for 51.9% of the total number of subscribers to pay services in However, the greatest growth rate was achieved by the IP Television services, which, with an increase of 43.5% between 2006 and 2007, now boast over 560,000 subscribers. Of the over 3.4 million advanced television sets sold in Spain throughout 2007, 2.4 million or 70.7% of 4

5 them are HD Ready televisions. The most significant fact was the increase experienced, between 2006 and 2007, in the number of high-definition televisions sold. The 109.3% increase resulted in the 2006 figure of 1.15 million soared to 2.42 million in The new mobile TV business model had achieved a total of 290,000 subscribers by the end of User-Generated Content Market The market for user-generated content consists of two kinds of web platforms: social networks and content-sharing portals. The fundamental goal of social networks is for registered users to share information and interact with each other by exchanging messages. However, there also exist other forms of collaboration, such as uploading photos or videos with the possibility of other users then downloading them. There is yet another type of website that could also be considered a social network. However, the difference with the above examples is that the contents uploaded by users may be viewed by anyone and everyone. A well-known example of such social websites requiring no prior invitation is YouTube. Quantitative User Analysis This is a sector experiencing tremendous growth largely thanks to word of mouth (or, rather, exchanges) and to the fact that most people are likely to accept invitations, given the advantages on offer. MySpace, the largest of them all, has nearly 110 million registered users and grew by 30% in Facebook is currently the fastest-growing site, having achieved a growth rate of 100% in 2007 to reach a figure of 55 million registered users. As regards the open access sites, YouTube is among the 10 most visited, where the number of unique hits each month rose by 33.1% between August 2007 and August Looking at Wikipedia, there were over 11 million registered articles in September 2008, including over 2 million in its English edition and more than 13 million registered users. The principal business model that exists in the user-generated content market is advertising. The social networks are aiming to boost the generation of revenues through an analysis of user behaviour patterns in order to identify market sub-segments, as well as users tastes and needs. This more specific, targeted advertising is therefore more expensive, but it is also more effective. Analysis of Trends in the Contents Sector Music The most important trends in the Spanish digital music market for 2008 and 2009 will be closely linked to the emergence of the mobile phone as a major distribution and revenue-generating channel in the music market. It is also worth mentioning the trend that has already been initiated in the US market, namely enabling the purchase of music without DRM protection through online channels. Digital Video The principal trends in the Spanish digital video market for 2008 and 2009 will be related to highdefinition broadcasting, to the appearance of televisions that can be connected to home networks and the Internet and to the appearance of device-oriented business models (for video consoles and specific devices) that are already proving particularly successful on the US market. Videogames In the videogame sector, the mobile phone is destined to play a significant role, being as it is the ideal device for casual games, which are targeted at a very different audience to that of the videogame consoles. The next few years will see a consolidation of the business models related to online gaming subscription plans, as a complement to traditional gaming. Television In the high-definition television sector, the emergence of pay DTT services and Internet TV will be setting the trends for the next few years. 5

6 Acknowledgements ASIMELEC wishes to thank the following for their collaboration: the Information Society General Directorate and the Secretary of State for Telecommunications and the Information Society of the Ministry of Industry, Tourism and Commerce, which co-financed the drafting and publication of the present report. Moreover, we must express our sincere gratitude for the collaboration of the experts from the Digital Contents Forum, which proved essential for preparing this document. D. Martín Pérez Sánchez... Chairman ASIMELEC D. José Pérez García... Director General of ASIMELEC D. Jorge Pérez Martínez... Professor at ETSIT UPM Madrid. D. Eladio Gutiérrez Montes... Chairman of Impulsa TDT D. Ángel García Castillejo... Board Member of CMT (Telecoms Market Commission). D. José Neri... Board Member & Director General of SDAE D. Rafael Sánchez Jiménez... Managing Director of EGEDA D. Carlos Iglesias Redondo... Secretary General of ADeSe Dª María Rosa Rotondo... Secretary General of AESAM D. Daniel Torres Mancera... Director of the Red.es Observatory. Symmachia Project Team: Dª Elisa de la Nuez... Managing Director D. Juan Pablo Villar... Consultant Dª Loreta Rodríguez... Consultant Published by: With the support of: Publisher: ASIMELEC Design & Layout: Leaders Comunicación Printer: Gráficas ApeL Legal Deposit: AS