2011 Australia - Digital Entertainment and Media Market

Digital media: disaggregating and transforming industries

Introduction

One positive outcome of the financial crisis was that global attention turned to new infrastructure developments. This has created a unique opportunity to shift the broadband emphasis – from a high-speed internet service to a national infrastructure for the digital economy that will underpin a range of positive social and economic developments.

E-commerce is just one sector that will benefit from improvements in infrastructure and a trans-sector approach to governance. E-government, e-health, e-education, social media and e-science are also important elements of a digital economy. These are addressed in separate reports.

Impact on the traditional media

The media industry has been in turmoil since the rise of digital media platforms, which have impacted upon many aspects of the industry’s traditional structure. The changes, combined with an economic downturn, have led to much unrest in the media sector. Major competing sectors include TV and radio broadcasting, newspaper publishers, film and video industries.

The digital media companies are the clear leaders, but to a certain extent there will be parallel developments – one driven by digital TV, using the traditional broadcasting networks, and one driven by broadband, using new fixed and mobile telco infrastructure.

The digital media industry

The success of internet media companies can be partly attributed to their willingness to compete in many different markets. While organisations like Google, Microsoft and Yahoo continue to focus on their core business of search services, these companies, as well as the other leading digital media players such as eBay, AOL, Microsoft, News Ltd, Amazon, Facebook, Apple and Twitter, also continue to look for other opportunities, arising from developments in mobility, cloud computing, e-commerce, home media, social media, online VoD, infrastructure etc.

At the same time the traditional TV media concentrates on digital TV. In terms of investment, that is where their money is going. They have been unable to keep up with the digital media activities of the new players – activities that are dominating the broadband content and services market.

Separately, other activities are emerging which we classify as digital economy (e-commerce, e-health, e-learning, smart grids, etc). These activities are covered in separate reports.

While the traditional media companies have all now established themselves in the developing digital media market, Seven, Nine and the ABC were the first to enter. The ABC in particular is increasing its market share significantly among digital viewers. Quality content is more and more crucial as digital platforms are becoming relatively commoditised. While telcos have tried to claim this territory they have continued to struggle to leverage their natural advantages.

In Australia, Fairfax Digital has continued to compete for digital viewers alongside the ABC and News Limited. In the report we cover the digital media activities of the ABC, News Limited, Freeview, ninemsn, Yahoo!7, Ten, Foxtel, Austar, Macquarie Southern Cross Media, WIN, Fairfax and Austereo.

The National Broadband Network is changing the media model

For more than a decade the traditional media has been on notice regarding the changes to be faced because of developments in the digital media market. So far it has failed to take decisive action, partly because it was afraid of cannibalisation and partly because its business models do not cater for swift business action. This has brought about a decline in revenues but, far more importantly, it has failed to seize a share of the new market, which is now dominated by newcomers such as Google, YouTube and Facebook.

The National Broadband Network is the next stage. Again the media has largely been absent from this debate, but the NBN will create new changes with new options. The traditional media players can take a leadership role, looking at the trans-sector opportunities the new network has on offer – or they can simply copy their outdated models onto the NBN, perhaps by using the wholesale services of a telco.

Initial indications are that they are looking at more of the same rather than moving towards media innovation. The media companies do have strong brands and millions of customers, but how can they utilise this advantage?

The online video media

Online video media is now emerging as a killer application. Faster broadband speeds and increased uptake by consumers and businesses are driving the video demand as internet media companies and content producers fill the niche market.

The killer application is content that is being produced by the users themselves, with YouTube the second most visited site in Australia. Meanwhile IPTV products by the ISPs are still largely failing to attract a large user base. Some services such ABC’s iView are generating downloads in excess of 40% growth year-on-year, but there is certainly room for more niche products to emerge.

The most popular video downloads and streams are full-length episodes of TV shows, amateur video clips such as YouTube, music videos and feature-length films. BuddeComm estimates that video downloading and video streaming market has grown to well over 50% of all regular online video usage..

The telcos were the first to move once they began to understand what they could do with the internet. However they then became entangled in their vertically-integrated business models – trying to be all things to all people.

The new companies that arrived were not provided with an economically-viable business offering by the telcos, who preferred to enter this market on their own, through portal and ‘walled garden’ offerings. This forced the new players to develop the new market independently, with Over-The-Top (OTT) and apps solutions, thus bypassing the telcos as much as possible.

In addition the telcos lack the necessary media background. However, Telstra in particular remains resolute about its position in this new market and the company has made significant investments in the market under its BigPond brand.

In only a few instances do we see an opportunity for IPTV – the reality is that the telcos will find it pretty tough competing with cable and pay TV operators.

The condition of other telcos, and non-telco players also, in this market is not much better. Also covered in this report are Optus, NineMSN, Yahoo!7TV, Hulu, iiNet,  Internode, SBS and TransACT. Non-telcos include Foxtel and VOD.

Music, MP3 and podcasting

While music was one of the key drivers behind the early developments in digital media, faster speeds are now enabling video streaming to overtake music downloading in the fixed and mobile networks. Nevertheless music, music streaming, podcasting and MP3s are still being downloaded in larger large numbers, with estimates of illegal downloading and sharing estimated to increase fivefold in the five years from 2011.

Mobile is one of the preferred technologies for listening to and downloading music. Most will use free or cheap internet sites to gain access to music. Only about 20% of Australians actually pay for downloaded music.

There are some reports that claim this is also a fair indication of the future direction of the video entertainment and wireless broadband (mobility) market. In 2011 cloud-based music may be a way to deliver music anywhere and anytime over the air, and to capture the other 80% of the users who are using digital media online. With service providers overseas such as Grooveshark or Spotify providing free access to over 10 million tracks, interspersed occasionally with ads, business models like these will be hard to contend with.

Social networks and gaming

The exciting social media developments have become an important part of internet media development. Facebook has managed to capture the largest share of the market in recent years, but the industry is not sitting still and the new social networks that are emerging aim to improve upon the originals models. In addition, online gaming, particularly games based on virtual simulations, are increasingly becoming linked with social networking services.

Mobile social networking is also receiving a lot of attention.

Mobile media

The report also provides information on the major mobile media providers and the services they offer in relation to mobile content. The market for on-deck services has reduced, due to off-deck market developments following the release of the iPhone and Android phones.

Nevertheless the market has seen some change over the last few years, as company mergers and acquisitions bring consolidation to the industry. As a result of this the major mobile media providers are now becoming the digital media providers on the internet as they provide access to their services from mobile devices.

With the advent of capped mobile services and new smartphones such as the iPhone, we now see users moving to the internet to access a far wider variety of apps-based mobile content and communication services.

In the premium SMS (PSMS) market the mobile operators maintain an iron grip through their m-payment facilities. However this has, at the same time, prevented them from taking up new business opportunities.

The report provides the activities of the mobile operators and those of the service providers. Companies and service providers include – Telstra BigPond Mobile, Optus, VHA (Vodafone and 3), MessageNet, The Photon Group subsidiaries of Be.interactive (previously Legion Interactive also BlueSkyFrog), Red Oxygen, Oxygen8 Communications (previously Opera Telecom), Jester Digital (Jamba and Jamster), MobileActive, Mnet Yahoo!7, Sybase 365, Netsize Group, mBlox, Jumbuck Entertainment, Mobile Messenger, 5th Finger, SMS Central and Communicator

Mobile TV

During the past few years many industry commentators have expressed the hope that mobile TV, representing a convergence of the mobile and broadcasting sectors, would lead to considerable changes in the way people used the technologies and services offered by both industries. However a number of barriers remain to prevent consumers taking up mobile TV services in sufficient numbers for ‘tipping points’ to be reached. These include a continuing lack of awareness of the mobile TV and video services on offer, plus their cost.

Furthermore, video-based content is being included to a greater extent in various apps, and charging for video-based services separately is thus becoming increasingly difficult. This particularly applies to telcos – they were the first players to start with mobile portals and walled internet gardens, but they entirely misjudged the business models required to develop their own revenue around these new developments.

Market highlights:

• In 2010 worldwide internet users reached around 1.6 billion and forecasts predict that by 2014 there will be around 2.3 billion regular internet users worldwide.
• While the overall global advertising spend declined by around 6% in 2009, in 2010 there were some signs of recovery and spending may stabilise somewhat in 2011.
• Following the internet revolution, which began with the fixed telecoms network, we are now seeing the mobile telecoms network being ‘invaded’ by new content providers, and soon there will be a new range of digital media companies seeking to leverage the apps market based on smartphones.
• The newspaper publishers are among those hardest hit by the massive changes that are taking place as a result of rapidly changing digital technologies.
• Faster broadband speeds and increased uptake by consumers and businesses are driving the video demand as internet media companies, together with content producers, fill the niche market.
• In the next few years the overall global entertainment and publishing industry (online and offline) is expected to be worth more than US$2 trillion – driven in particular by a wave of growth in online video games/gambling, music, social networking/UGC, online video, etc.
• Premium rate SMS (PSMS) services have developed into a US$200 million+ market.
• In 2011 mobile TV/video is commercially available in some markets, with further launches and trials taking place in all regions of the world.

Data in this report is the latest available at the time of preparation and may not be for the current year.