A fleet new class of corporate entrepreneurs invents the future.
IN 2015, today's media and entertainment conglomerates will still be purveyors of branded content and services, but their business models, revenue streams, creative dynamics and key relations with global advertisers, consumers and competitors will be dramatically different — and they will no longer own the space.
The likes of News Corp., Viacom, Time Warner, the Walt Disney Co., NBC Universal and Sony will compete alongside blog-bred consumers and electronic entrepreneurs who are providing a new generation of content, products and services on a playing field leveled by a super-race of digital broadband interactive devices.
The bottom line: There will be an unprecedented amount of global wealth, innovation and sharing of old and new media and entertainment going on in more places, among more people than ever before. Given the growth curves of international markets, major media players are likely to generate at least half of their revenue outside of the United States.
Content still will rule, especially if it is branded and distinguished by integrity and unique creativity, but pervasive portable interactivity will require a new strain of aggregators specializing in searching, managing and customizing all media, entertainment, communications and advertising. In fact, the ability to access, locate, store, manipulate and manage content will be as important as the content itself.
Digital broadband interactivity will be the industry standard — not a business phenomenon — that will permeate every level of media and entertainment company operations, rather than being relegated to separate divisions. That standard will go into hyperdrive when it takes up with the likes of 3G, surround-sensor and other advanced technology. Increased bandwidth, digital compression, infinite cheap storage and power packs, high-definition, WiFi, WiMax and broadband interoperability will be the new status quo.
Ten years from now, today's blogging, Google-type Internet searches, home video rental and other content packaging and distribution methods will seem archaic. There will be no going back for interactive broadband consumers, whose impulsive on-demand spending and user habits will drive everything about media and entertainment to previously unfathomable levels.
Annual consumer spending on all forms of U.S. media and entertainment — from television, home video, print and boxoffice movies to music and the Internet — will approach $253 billion by 2009. By that time, consumers, advertisers, service providers and institutional end-users will spend more than $1.1 trillion on all U.S. communications, according to Veronis Suhler Stevenson's recently released five-year industry forecast. Consumers will media-multitask an average of 11 hours daily and 78 hours weekly by then, the New York-based media-merchant bank adds.
Globally, PricewaterhouseCoopers forecasts that consumer and end-user spending on all media and entertainment will grow 7.8% annually to more than $1.3 trillion in 2009. PWC predicts that U.S. consumer spending on media and entertainment will grow at an average annual rate of 5.8% to $475 billion in 2009, with domestic advertiser spending projected to grow 5.3% annually to $216 billion during that span.
PWC says the biggest growth driver will be new spending streams, including wireless and online options, that will account for 12% of the global media and entertainment spending increase during the next five years ($73 billion by 2009) and which will offset a decline of at least $5 billion in traditional media sales during that period.
The big unknown, though, is how quickly out-of-home use of portable interactive devices will overshadow long-dominant in-home use.
The rapidly evolving digital home is expected to generate more than $225 billion in worldwide revenue during the next six years but is likely to be outpaced eventually by out-of-home digital media, according to Bernstein Research.
In order to embrace that shift, the six media giants now responsible for more than 90% of film and TV product in the U.S. will have to extend their tentacles worldwide into hybrid companies, partnerships and entrepreneurial ventures that be equally important in stoking creative fires and profits. These giants will focus intensely on personalization, customization, community and catering to individual interests and needs — following decades of empire-building on force-fed mass consumption — and universal one-click connections and 90-second attention spans will force the reinvention of content production, distribution and marketing, advertising and commerce, and personal communications as we now know them.
Consumers' ability to access, download and store full-length entertainment, snippets (or, as video cell-phone wonks call it, "snack TV") or tailored data and marketing messages, or to alter and interact with content and engage in real-time three-dimensional communications and transactions, will result in the explosion of a bundled-media market already forecast to be worth $120 billion by decade's end. Cable and telephone companies will be only two of many multichannel players involved.
Download-storage devices and servers with infinite capacity will replace physical storage devices such as DVDs and CDs, prompting major shifts in global industry economics, copyright protection and piracy. Content will carry links and samples of related content, products and services, à la Amazon.com, and marketing and distribution will be reinvented as an electronic function of on-demand supply.
The targeted, connected consumer will find the content or service they want, when they want it, and will be click-billed automatically using an electronic signature. Whether through isolated or renewable cycles, entertainment and media subscription revenue will be boosted far past current levels; for example, Bernstein forecasts that today's $4 billion in annual domestic TV subscriber revenue will quadruple by 2015, when global subscription TV fees will reach $50 billion.
But those who rely on ad revenue to support their media models need not lose hope: Ad revenue will grow impressively as advertising takes on new forms. Forrester Research forecasts that $26 billion will be spent annually on online display ads, e-mail, search and broadband classified ads in only five years, accounting for 8% of all domestic advertising spending and rivaling the combined ad revenue of cable and satellite TV and radio.
That compares with traditional-media U.S. advertiser spending, which will appreciate at an average annual rate of 4.3% to $161 billion through 2008, according to Morgan Stanley. That figure does not include Internet advertising, which is projected to grow at four times that rate and top $22 billion during that span.
Internet-connected advertising should be a gold mine for all media and entertainment providers because it will facilitate targeted connections with consumers, who will be able to drill down into products and services and complete electronic transactions. It also will be the ultimate pitch, hit and sinker for advertisers and marketers.
Early attempts to estimate the changing economics of entertainment are eye-opening. Bernstein suggests that attracting a mere 6% of the 20 million U.S. female consumers ages 18-49 with targeted content like streaming daytime soap operas could generate $230 million in revenue at current broadcast TV cost-per-thousand ad units, or $700 million at three-times-higher Web CPMs. That would make individual broadcast-network profits averaging $100 million-$200 million look like child's play.
Clearly, media users, producers, marketers and distributors will become a "virtual one" as TV sets, radios, computers, video players, cameras, MP3 players, digital cell phones and other online devices blend into universal screens and consoles of personal communications devices. Bernstein forecasts that annual consumer media spending will approach $350 billion by 2010, of which only $151 billion will be concentrated in traditional media forms.
During the next decade, as conventional TV sets, radios and the like are replaced through attrition, entertainment firms will cater to a new wave of powerful and portable personal communicators. These devices will boast more memory than an iPod Mini, wireless Web-browsing and connectivity on par with laptop computers, high-definition video and audio (even for phones), 3-D sound, sync capability, instant-messaging and even new ways to time the popcorn and coffee that consumers still will have to make themselves. It will be convergence fulfilled.
It also is likely that during the next decade, media giants will be streamlined to include clusters of smaller companies whose pure-play balance sheets and businesses will be easier for investors to understand and support. Whatever synergy these conglomerates hoped to achieve by gathering assets during the 1990s will be achieved across sister companies and outside partnerships. None of these companies can afford to reinvent the wheel, but neither can they afford every asset needed to do business in the media's brave new world.
The lines separating content forms, distribution platforms, producers, consumers, companies and nations also will be blurred and even shattered, and the fortunes and existences of traditional and new-media companies will become intertwined as their content, marketing and technology savvy are fused to define an interactive media era under the leadership of entrepreneurial executives. Google, eBay and Yahoo! are sure to teach News Corp., Viacom, Time Warner and Disney a thing or two, but they all will need one another in the end.
The same will be true of distribution gatekeepers such as Comcast, Time Warner Cable and DirecTV and of the prevailing broadcast and cable TV networks, which even now are being reenergized as stables of branded niche-content channels. Even local broadcast TV and radio stations will capitalize on their unique connections to local consumers and advertisers and will become lucrative digital interactive players.
During an era in which three-year plans have replaced conventional five-year plans, which have been deemed too risky, even the most savvy and powerful media players are reluctant to forecast much beyond the immediate future. Things are moving way too fast and into uncharted waters, they say, and there are no historical data to serve as a guide.
Never before have the balance sheets, strategies, constituent relationships and very existence of media conglomerates been shaped so radically by technology and changing consumer habits. Never before has so much revenue been put on the line, and never before has there existed the potential for so much content, distribution, packaging and pricing to be placed beyond the reach of the media giants.
The technological evolution of radio to television, black-and-white to color TV, live to taped to live-event content and broadcasting to cable has been dynamic during the past 50 years. Pure-play media concerns founded by early industry moguls such as Walt Disney and William Paley made leaps by remaining agile and innovative, then the takeover of media and entertainment by opportunistic investors like former CBS chairman Laurence Tisch changed the marching orders as massive consolidation concentrated content production and distribution power in hot pursuit of consumers at home, in stores and in theaters.
But media and entertainment's battle to control the living room has come to a grinding halt recently as consumers increasingly take their video games, movies, TV programs, news, sports, music, reading and favorite Web sites "to go." Ideologically, things have come full-circle.
"Bulk will not assure us success; agility and innovation will separate the winners from the losers," Viacom chairman and CEO Sumner Redstone said recently when explaining his decision to split his company into two distinct public entities.
In a similar vein, citing the need to alter exhibition windows, marketing and production costs for TV shows and films, Disney CEO-elect Robert Iger conceded recently that, "I think that all the old rules should be called into question because the rules in terms of consumption have changed so dramatically."
Those comments are but general acknowledgment of a tidal wave of change that is about to break, and those standing closest to the shoreline already can feel it lapping at their feet.
Nothing has had as cataclysmic an impact on industries so inbred in our culture, economy and sense of self as the Internet and the digital broadband technology it has ushered into the world in less than a decade.
Forrester's recent five-year benchmark forecast projects that broadband access to the Internet will more than double during this decade to more than 71 million U.S. households. Of the 115 million U.S. households projected to exist in 2010, 85% will own mobile phones, 53% will own laptop computers, and 35% will use MP3 player-like devices — all of which will be programmed to transport content anywhere for access anytime. Such personalized use of digital broadband technology will dictate the ways of media and entertainment 10 and 20 years from now.
Primetime has become anytime consumers want content of their choice. When circulation is ubiquitous and user accountability comes in the form of an immediate click, it will be difficult for media and entertainment companies to fail, as long as they can provide content and services that capture consumers' interest and attention.
If the bounty of a digital broadband era can be tapped with enterprise and intelligence, then those companies also should be able to devise solutions to their other daunting problems. For example, technology used to create electronic fingerprints as unique as real ones also can provide new means of instantaneous payment and anti-piracy protection.
There will be a stiff penalty for resisting the digital broadband transformation. Bernstein projects that by 2010, big media companies that own broadcast and cable networks and TV stations could lose $160 billion in equity value to unchecked ad-skipping and content piracy. Television is especially vulnerable and must identify new technology-based business models to avoid the loss of an estimated $12.5 billion, or 8%, of all TV ad-related revenue during the next five years to the combined threat of ad-skipping and piracy, the research firm says.
But all that media and entertainment players must do is think outside the box, literally. If companies can sell their repackaged content everywhere, then the return on investment can be mind-boggling — and that practice will give new meaning to the term "syndication," a once-lucrative revenue stream heretofore given its last rites.
Moreover, "everywhere" means not only all types of devices but also nearly every part of the globe. Mass proliferation of digital dynamics will alter the worldwide competitive, economic, cultural and social landscape radically, and because the U.K., India and other nations in Europe, Asia and elsewhere have learned everything they know about the industry from U.S. media companies, they will try to do us one better — and often succeed.
Indeed, the expectation that non-U.S. markets will account for more than 50% of business for domestic media-related companies within a decade, while reasonable based on the latest wave of expansion, could be stunted by the ability of foreign counterparts to produce content and services molded more precisely for their own constituents, cultures and economies. The recent wild success of Baidu, China's now-publicly traded equivalent of Google, should serve as an early reminder to U.S. media giants that the colonization of territories hungry for digital magic is no sure path to riches.
September 13, 2005
The Hollywood Reporter
