The digital generationA research report exploring online digital consumer behaviour in the US and UK

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The Digital Generation research, commissioned by WorldPay, surveyed 3,065 adults in the UK and US (1,008 consumers from the UK and 2,057 consumers from the US) aged18+ who have purchased a digital product in the last 12 months. The research explored behaviours, levels of investment and digital ownership. The survey was completed online.

About the research

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IntroductionIn the last five years the ways in which music, films, TV programmes and reading material are purchased and consumed has transformed as a consequence of the online revolution. The digital industry has grown exponentially, and there has been a shift from the physical to the digital across all types of content and services.

Year-end figures released by the Entertainment Retailers Association (ERA) reported that digital sales of music, video and games exceeded £1bn for the first time in 2012.

As a result of the rapid increase in the availability of digital products and services, consumer and purchasing behaviours have transformed and continue to evolve. According to the Digital Generation research, 70% of UK respondents and 75% US respondents expect that they will buy more digital products in the future than they do now, and Ovum reports that the global digital music industry alone is expected to grow 15% annually, reaching nearly $22.5 billion by 2017.

So how can merchants capitalise on this growing appetite for digital products? Who is the Digital Generation? What behaviours are guiding consumers purchasing decisions?

This report will provide insight to all of these questions and more to help merchants navigate the ever changing Digital Generation, and benefit from the revenue opportunities that are available.

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As well as changing buying behaviours, the type of content purchased is interesting to consider. Consumers were asked to estimate the volume of each type of digital content they have bought in their ‘digital lifetime’. This is how they compared:

The way in which content is consumed is also changing. The Netflix House of Cards new season was released as an entire season so ‘box-set junkies’ could watch as many episodes as they wanted in one go rather than waiting for each episode to be available.

The appetite for TV programmes and film appear to be much greater in the US than the UK but this is largely driven by a proliferation of over-the-top (OTT) TV services, where domestic carriers have priority access to content. However, in the UK, terrestrial TV is in decline, and the UK and Europe are catching up with the US to give consumers greater access to films and TV programmes digitally. We can expect to see a rise in the digital consumption of TV and films in the UK over the next few years.

The research also found that UK consumers have a higher expectation that content is ‘free’. On average they are unwilling to pay for TV programmes and downloadable magazines or newspapers. In the US consumers are, in comparison, more willing to pay for all types of digital content but nearly half agree that digital products cost too much (42% UK and 43% US).

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Music, films and book collections have always defined individual personalities – whether they are hardcore Nirvana fans or love watching re-runs of 80s classics like Top Gun. As the access, purchase and ownership of this content increasingly shifts online, the way consumers project their personality is changing. 54% (UK) / 49% (US) say that their CD, DVD and paper book collections say more about them than their digital products.

However, the nature of digital has created new buying behaviours, whereby consumers can choose to be private or choose to be public.

The recent ‘Fifty shades’ phenomena is a perfect example of this. With the rise of eBooks, how many people were sitting on the beach last summer reading this book without the recognisable cover to give them away? This new behaviour has created an opportunity for merchants to sell wares that consumers may have traditionally been too embarrassed to buy face-to-face or have sitting on their bookshelf at home.

On the flipside, digital also allows consumers to showcase their collections further afield than just the friends and family that visit their house, and this has made them more aware of how they can shape their personality online. When it comes to sharing lists of digital collections publicly, 17% (UK) / 24% (US) admit that they sometimes buy digital products to make them look “cool”. With the ability to use social media channels like Facebook to publish and share these lists, consumers are more self-conscious about what this content could potentially say about them as a person and this influences their purchasing decisions. It also fuels ‘crazes’ as more people are aware of content more quickly. Social media channels can and are increasingly taking advantage of this to provide merchants with the insight to be more targeted in advertising and increase their own monetisation opportunities.

The Digital Generation

USUK

Music tracks purchased

91

95

6

32

3

14

15

19

9

22

8

25

12

15

2

6

Films purchased

TV programmes purchased

eBooks purchased

Games purchased

Software files purchased

Apps purchased

Downloadable magazines or newspaper issues purchased

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Digital products are quicker to receive once bought

Digital products require no physical storage or shelf

Digital products are cheaper

Digital products are easier to take delivery of

Digital products are easier to installl on devices

Digital products are easier to share with others

Reasons for digital product preference

UK US

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Digital ownershipWhile consumers have strong views on the cost of digital content, there is an increasing debate around the ‘ownership’ of digital content. A couple of examples of this include: Bruce Willis who was in the headlines with claims he intends to take Apple to court to enable him to bequeath his iTunes library; the Court of Justice of the European Union handed down a ruling in a software reselling case potentially making the resale of digitally distributed software officially legal throughout the EU.

Consumers are slowly becoming more aware of the T&Cs around content ownership, and this is subsequently influencing their demands for how they wish to manage / recycle ‘old’ content.

As with the Bruce Willis case, there is some confusion around what consumers think they can do with their content and whether they can gift it. 1 in 4 in the UK and almost a third of people in the US think they can legally pass on their digital goods to a friend or loved one. 14% (UK) / 15% (US) believe they can sell it on and 16% (UK) / 18% (US) think they can part-exchange in return for new content. While 32% in the UK and 29% in the US are pretty confident it is illegal to do any of the above, quite a high percentage is uncertain about what they can do with their eBooks, movies and songs.

The desire to pass content on, or even exchange old for new, presents an opportunity for an alternative selling model for merchants if they can address or control digital rights. As consumers build up digital content libraries over their lifetime, the demand to re-use, recycle or exchange content will become more common and may lead to a new wave of swap-shops.

45%

43%

38%

36%

32%

19%

49%

49%

38%

36%

37%

24%

In terms of payment preferences, subscription models are growing in popularity. US consumers are much more likely to use subscription-based services for digital content – 29% for films; 25% for TV programmes – whereby they pay for ‘all you can eat’. In the UK, the number of consumers that use subscription models to pay for goods is lower, and consumers in this market are more likely to buy bite-size chunks of content. In the UK, the most popular content purchased through a subscription is films, with 20% of consumers using this payment method.

As we mentioned earlier on, consumers, in the UK in particular, are unwilling to pay for certain types of digital content. The amount of money that consumers are willing to spend is without doubt influenced by the availability of ‘free’ content. Music tracks, TV programmes or downloadable newspapers and magazines have the lowest, if not non-existent, price point of all types of digital content (£1, £0, £0 respectively for the UK and $1 each in the US).

To overcome this challenge, ‘freemium’ models can be applied by merchants to drive mass adoption by providing free but limited access to content, full access for a limited time or charging for additional features. To maximise on the conversion opportunities, merchants need to put in place clear upgrade paths so the consumer can identify what’s on offer.

The payment types used by consumers to purchase digital goods vary by content. In the UK, debit card is the preferred method of payment accounting for over half of all purchases on music (54%), films (53%) and Apps (52%).

When it comes to the take up of alternative payment types other than credit or debit card schemes, although the US and UK lag behind other countries, eWallets are used by 17% of consumers in the UK to pay for games. In the US, 15% use a pre-paid card to pay for music.

Digital investment

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Software file App

Game TV programme

Film Downloadable magazine or newspaper issue

eBook Music track

US

UK

Subscription - based purchases

Willingness to pay - Average (mean)UK

Products bought via subscriptionUK US

US

20%

£19.14

£17.20£12.12

£11.70

£7.08

£5.40 £5.32

£2.13

$24.56

$14.39

$8.49$8.27

$5.99 $5.44

$4.44 $4.01

29%

25%22%

18%16%

13%13%13%

16%15%

11% 11%8%

10%9%

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Music Apps TV e-Books Games Films Magazines & newspapers

Software

Music Apps TV e-Books Games Films Magazines & newspapers

Software

Frequency of buying digital products

The US leads the way with music and apps being most frequently purchased products.

Once a week or more often Once a month or few times a month Less often than monthly Never

UK

US

Device behaviourIn the US and the UK, laptops are the primary device used to make purchases (32% and 33% respectively); followed by smartphones (25% in the UK and 27% in the US). As mobile payment technology advances and, in turn, consumer confidence and familiarity with making purchases on a smartphone improves, we can expect to see increases in the number of consumers that purchase digital content on the move.

Own

Buy from

Own

US UK

Buy from

ConclusionDigital consumption and purchasing behaviour has transformed in the last five years and merchants have a significant opportunity to capitalise on the revenue potential if they can understand the nuances in consumer behaviour and tailor their monetisation strategy accordingly.

Rights and ownership of digital content will become an increasingly discussed topic as the digital industry evolves, and merchants should see this as an opportunity to introduce new selling models such as ‘premium pricing’ where certain types of content can be gifted or shared for an additional fee, or recycled or exchanged for new content.

While the ‘all you can eat’ subscription model works well in the US particularly for films and TV programmes, UK consumers prefer to buy content in small chunks. UK consumers also expect some types of digital content to be ‘free’. Merchants should continue to exploit and refine the ‘freemium’ model and put in place clear strategies for upgrades so consumers can identify what they pay for and the options available to them for an additional cost.

It’s important for merchants to have a clearly defined digital strategy, whether that be as a pure-play operator or in striking the right balance between physical and online, as well as combining the right billing and monetisation solutions. In the future, the merchants that continue to succeed will be those that stay in-tune with consumer behaviour and respond accordingly.

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Hints and tips

By putting in place clear upgrade paths the consumer can clearly see what is on offer above and beyond ‘free’ contentTop 3 'digital lifetime' purchases by consumers in the UK:

music, eBooks and Apps

Top 3 'digital lifetime' purchases by consumers in the US: music, film and software

The UK and Europe are catching up with the US with regards to the proliferation of over-the-top (OTT) TV services, impacting digital content consumption

Offering alternative models for purchasing digital content presents new revenue opportunities for merchants as consumer digital 'ownership' preferences evolve

Subscription models (as the preferred payment method) are fast becoming the most predominant and popular way to pay for digital content

'Freemium' models are growing in popularity and can be used by merchants to increase sign-ups and the potential customer base

Growth of device ownership is driving increased demand for on-the-move content

Social media channels provide invaluable insight into consumer behaviours and purchasing trends

Phone from the UK: 0870 366 1290 Phone internationally: +44 (0)1268 500 615

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Contactus

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Contact usPhone from the UK: 0870 366 1290 Phone internationally: +44 (0)1268 500 615