media in vision - abn amro third role is that of distributor who ensures that the print or...

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Contents

Foreword 2

Part � Trends and developments

Media consumption: time expenditure 6

Technology: driving force in the media scene 11

Megatrend � ‘Anytime, anyplace, anywhere’ 13

Megatrend 2 Increasing interactivity 15

Megatrend 3 Blurring boundaries between media: convergence 17

Part 2 Media segments

Broadcasters/TV stations 23

Distributors 25

AV-producers 27

Magazines and newspapers 29

Summary and conclusion 32

Glossary 34

List of interviewees 35

deel � trends en ontwikkelingen /// mediaconsumptie

2

Foreword

The media sector is rapidly transforming beyond recognition. This metamorphosis is being driven by

changes in the field of technology, consumer behaviour and politics. We as a bank need to monitor

these developments closely, so that we can continue to give sound advice and make accurate

risk assessments. Another key factor is that the Dutch media sector is no longer a self-contained

national playing field, but now forms part of a European, possibly even global, marketplace. So the

competitive forces are greater than ever. And so is the pace of change. Weblogs, cross media,

time- and place-shifting, User Generated Content, multitasking: a few years ago these terms

were still unknown to the general public, today they play a pivotal role in opinion-forming, media

behaviour and trendsetting.

This explains our initiative for a high-quality study into the current developments in the media

sector: to help ourselves, and all other media stakeholders, to gain a clearer focus on the changing

media landscape.

‘Media in vision’ is the title and refers both to the overall vision we want to share as well as to the

increasingly dominant role of the visual media (TV, PC screen or mobile display).

To obtain this overall picture we interviewed some ten players who are active in the media sector

in 2006 (see appendix). We thank them warmly for their cooperation. They enabled us to make a

different kind of report than what you might normally expect of a bank. To our interview findings

we then added our own analysis and insights. We hope this account provides a thought-provoking

basis for engaging in a dialogue on the future direction of the media sector, both with your peers

in the sector and with your bank.

This report consists of two parts.

The first part is devoted to:

• the media behaviour of the consumer: how do consumers allocate their media time and what

changes can be observed?

• the technological developments: what are the ‘drivers’ and what are their consequences for

media behaviour?

media in vision /// foreword

3

In the second part four segments from the media sector are discussed: Broadcasters/TV stations,

Distributors of cable and telecommunication facilities, AV producers and Magazines/Newspapers.

Each of these segments is impacted in a different way by the technological developments and the

changing media consumption patterns. On the basis of three current megatrends, an explanation

is given by segment.

The report entitled ‘Media in Vision’ was written for everyone interested in a snapshot of the

current state of the media scene in the Netherlands. This report was written by Jacques van de

Wal of ABN AMRO Sector Research in cooperation with Rudolf Molkenboer, Conrad Roelen,

Edwin van Twist, Olaf Weeda, Suzan Uittenbogaard, Olivier den Tex and Menno van Leeuwen of

the Media Team.

The ABN AMRO Media Team – a group of advisors and specialists – will be happy to speak with

you about the specific impact of the developments for your business and finances.

Preferably as your bank of choice!

Pieter van Mierlo Menno van LeeuwenDirector Business Central Netherlands Media Sector Manager

ABN AMRO Bank N.V. ABN AMRO Bank N.V.

September, 2006

media in vision /// foreword

part � trends and developments /// media consumption �

Part �

Trends and Developments

Media consumption: time expenditure Consumers now enjoy unprecedented media choice and the options are still growing. The days that all the family huddled together to watch a TV programme in the evening largely lie behind us. In �960 the Netherlands had a single TV channel, today the consumer can choose from more than �0 Dutch channels and a multitude of foreign stations. But there is more than TV alone. New forms of information and entertainment are gaining ground. Games and internet are vying for the consumer’s favour. These changing media consumption patterns can have major consequences for corporate revenues in the media sector.

part � trends and developments /// media consumption �

A quarter century of media behaviour Just like suppliers of other products and services,

media players are constantly battling for the consumer’s favour. But one key difference sets media

apart from all other products and services. In the Western world we are used to economic growth:

disposable incomes are constantly rising, allowing consumers to purchase more and more goods

and services. The financial budget, in other words, is growing. Apart from money, people also need

time to consume media. Spending on media, in terms of time, has remained reasonably constant for

years. The time budget is the restricting factor for media consumption, not money. Media depend

largely on advertisers for revenue. The size of that revenue is related to the time consumers spend

on the media. In this light it would seem that, despite

the consumer’s larger budget, the revenue-generating

opportunities for advertisers have remained more or

less static. TV viewing figures are fairly constant: a slight

increase can be discerned, but this says nothing about

the attention/quality devoted to it. A recent study by the

media agency Initiative found that the TV often serves as a kind of background painting. So advertisers

must also try to reach the consumer via other avenues.

TV dominates, but… The most recent extensive leisure time survey of the Social Cultural

Planning Bureau dates from 2004, with 2000 as the most recent year surveyed. The study,

therefore, is not a reliable indicator for the latest developments but still produces a number of

interesting facts. Figure 1 shows that the number of hours spent on media remained strikingly

constant in the period from 1975-2000. Of the roughly 45 hours leisure time per week, the

consumer allocates almost 19 hours to media and ICT/Games. The increase in the time expenditure

on new media has taken place largely at the expense of print media, radio and music. Between

1975 and 2000 the time spent on print media fell by almost 40%: fewer books, newspapers and

magazines are being read. TV continues to dominate: two thirds of the time allocated to media and

ICT is spent in front of the TV. But remember: in 1975 the average household had two stations as

opposed to more than twenty stations in 2000. So though people watch TV more, the audience

has become increasingly fragmented.

Figure �Media & ICT time expenditure source: SCP

Time spent on media has remained virtually constant in quarter of a century’

20.0

18.0

16.0

14.0

12.0

10.0

8.0

6.0

4.0

2.0

0.01975 1980 1985 1990 1995 2000

print media

audio

TV

totaal

ICT/Games

hour

s pe

r w

eek

part � trends and developments /// media consumption�

Recent changes in media use The figures of the Social Cultural Planning Bureau provide no

insight into the turbulent developments after 2000. But three important changes can be discerned

in media usage patterns.

�. Print media fall sharply Despite the current economic growth, the print media are in dramatic

decline. Newspaper and magazine publishers posted disappointing results in the first quarter of

2006. This is remarkable, considering that magazines and newspapers are cyclical products and

usually benefit from an economic upturn. The only positive exception is the circulation growth

of free newspapers which, incidentally, is largely accounted for by the commuter paper Metro.

Looking at individual titles, Het Financieele Dagblad managed to escape the slump, with circulation

rising 6%. One of the most striking decliners is Algemeen Dagblad. The big question is whether

restyling and grouping of regional newspapers appeals to the readers. AD Nieuwsmedia saw its

circulation fall no less than 10.2% in the first quarter of 2006; newsstand sales halved.

Circulation of publishers

2005-II 2006-II %change

Newspapers Total 3,906,659 3,810,376 -2%

Regional 1,920,859 1,785,347 -7%

National 1,199,999 1,137,426 -5%

Free 785,801 887,603 13%

Magazines Total 21,871,697 21,074,682 -4%

Source: Het Instituut voor Media-auditing

2. Internet usage continues to rise Figures of the Amsterdam Internet Exchange show that

internet traffic grew in the Netherlands by an average of almost 20% over the past six quarters.

This is partly due to the increase in broadband (almost 2.6m users in mid-2006) and the use of

Peer-2-Peer exchange services (see figure 2). More than 70% of the Dutch population is online.

A study of Stichting Internetreclame (STIR) indicates that the average user spends about 3.3 hours

a week online at home. Interestingly, roughly the same amount of time is spent surfing outdoors,

usually at work.

part 1 trends and developments /// media consumption �

Research by Interview NSS shows that, after TV and radio, the internet is the third most used

medium in daily life, accounting for one third of the time expenditure. The internet has clearly

taken up a prominent place in media spending.

3. Young people set trends Changes in media usage are largely driven by young people.

A study entitled ‘Young People 2005’, conducted by Quirius, shows significant shifts in media

usage among young people: MSN and (online) games are gaining ground at the expense of print

media, TV and radio. Moreover, young people are increasingly embracing multitasking, i.e. the

simultaneous use of several media, such as online chatting

or text messaging while watching TV. Because young people

have grown up with all these media, they apparently miss

remarkably little of the information coming from the various

simultaneously used media.

Is there a break in media usage trends? Clearly, people are reading less (print media) and are

focusing more on new media. These are not passing fads. For younger generations will continue

their current media usage patterns into maturity. One relatively new development is that more

and more media are being used simultaneously. This effectively means that more time is being

allocated to media, which represents a historically significant break in the trend. The blurring of

the boundaries between e.g. life and work (a lot of browsing takes place at work) also entails that

more time is being spent on media. This would appear to conflict with the earlier observation that

media usage has remained constant over the years. One plausible explanation is that multitasking

is mainly a recent development, while the study of the Social Cultural Planning Bureau was

conducted in 2000.

‘Multitasking is perfectly normal for young people’

Figuur 2 Internet traffic Amsterdam Internet Exchange bron: AMS-IX

(1 TB = 1000 GB)

2005-I 2005-II 2005-III 2005-IV 2006-I 2006-II

120.000

100.000

80.000

60.000

40.000

20.000

0.0TB

part � trends and developments /// media consumption�0

Figure 3 The financial flows

The figure above shows a simplified value chain in the media sector. Three roles can be distinguished. The first is creation: the manufacture of an audiovisual production, article or music production. The second role is that of ‘aggregator’, which involves selecting and compiling a package of programmes or articles to appeal to a certain audience. The third role is that of distributor who ensures that the print or (audio)visual media reach the consumer. In many cases the players fulfil more than one role.

AV-producersEndemol

Eyeworks

IdtV

Music

Sony BMG

Warner Music

Newspaper PublishersPress agenciesFreelance journalists

ANP

Magazine publishersFreelance journalists

Omroepen/TV-stationsPublic Broadcasting Service

RTL

SBS

Talpa

Radio-stationsPublic Broadcasting Service

Sky Radio

BNR Nieuwsradio

Newspaper Publishers ANP

Newspaper Publishers

Cable operatorsSatellite airwave distr.

KPN

UPC

Casema

Nozema

Cable operatorsSatellite airwave distr.

UPC

Casema

Nozema

Newspaper PublishersMail Delivery Services

TPG

Newspaper PublishersMagazine DistributorsMail Delivery ServicesReading Packages

Aldipress

Betapress

TPG

Telegraaf Het Financieele Dagblad

PCM

Sanoma

contentcreation

advertisers

Value chain

TV

Radio

Print

contentaggregator

contentdistribution

Estimated turnover

Cable: EUR 1.8 bnAV production (relating to the Netherlands): EUR 200-250m.Facility support services: EUR 200-250m.

Public Broadcasting Service/TV stations: Total budget EUR 1.5bn of which: EUR 640m government subsidy to Public Broadcasting Service EUR 760m advertising revenue Excl. revenue from TV guides/sponsoring

Newspapers/magazines, free home-delivered newspapers: EUR 2.3bn; 60% advertising revenue Magazine publishers: EUR 1.2bn; 60% advertising revenue

Source: Nielsen, VEA, estimates ABN AMRO

��

Digitalisation and micro-electronics The current changes in media usage are being propelled

by two revolutionary technological developments: digitalisation and advancing micro-electronics.

These two drivers are mutually reinforcing and jointly make it possible to, for instance, equip the

smallest mobile telephone with a powerful computer capable of processing digital signals.

These two drivers are explained further in figure 4.

Digitalisation and micro-electronics have enabled great steps forward:

• improvement of existing products

• new applications for existing products

• a whole range of new products

Mobiliteit is een belangrijk thema bij productontwikkeling. Mobiele telefoons, notebooks,

handhelds, MP3-spelers en navigatiesystemen zijn gemaakt met het oog op de mobiele mens.

De dalende kosten van elektronica maken het mogelijk om meerdere functies in één apparaat te

combineren. Zo zijn nieuwe telefoons tevens geschikt om foto’s te maken en muziekbestanden en

filmpjes af te spelen.

Mobility is an important theme in product development. Mobile telephones, notebooks,handhelds,

MP3 players and navigation systems were specifically conceived with mobile man in mind. The

falling costs of electronics make it possible to combine several functions in a single device. New

telephones, for instance, can now be used to make photos and play music and video files.

And ‘fixed’ equipment hasn’t been standing still either. Affordable flat screens change the aspect

and design of the living room and the digital video recorder provides the convenience that was

once inconceivable with the former VHS recorder.

Technology: driving force in the media scene Advancing technology is the catalyst of change in the media landscape. This was true in the days of the invention of the printing press and it is still true today. Admittedly, it is creative people who shape the content, develop new formats and seek out the limits within the media. But ultimately, technology determines what is and what is not possible. The internet is without any doubt the most eye-catching development of our day. But there are others too. This chapter looks at the most important technological drivers and the three megatrends that determine the current developments in communication and media usage.

part � trends and developments /// technology

�2

The digital developments and accompanying equipment require a similarly modern infrastructure.

In the past decades billions of euros have been invested in communication infrastructures. And this

will continue in the coming years. The road is thus being paved for an increasingly communicative

digital world.

In most countries an end date has been set for analogue communication infrastructures, so that

the released bandwidth can be used for new digital services. DVB-H will make it possible to

view TV anywhere on handhelds. Wimax enables broadband internet, without needing a cable or

ADSL.

New infrastructures promote the use of multifunctional devices, which the consumer can use to

communicate and ‘consume’ media. For decades the TV literally dominated the media landscape

and served as the visual centre of the living room. Today, that picture is changing both literally and

figuratively.

Three media megatrends The aforementioned changes in media behaviour and technology

have led to three megatrends in media and communication (see figure 4). New infrastructures and

equipment means: new opportunities, new trends. Three ‘megatrends’ can currently be discerned

and will undoubtedly develop further in the future.

Figure 4Technology: impact on media usagesource: ABN AMRO

digitalisation

communication infrastructures media devices

anytime, anyplace, anywhere interactivity blurring of boundaries

between mediatrends in media and communication

technology

fundamental drivers

hardware

AirwavesDVB-TDVB-HCableSatelliteGSMUMTSWifiWimax

ComputerMobile telefony: GSM, UMTSPlasma en LCD screensIpodGDSPDAGame consolesHandhelds

development micro-electronica

part � trends and developments /// technology

�3

You choose when With time-shifting the consumer himself decides when he wishes to view

broadcast programmes. That was already possible with the VHS recorder, though the maximum

recording time imposed certain restrictions. The new digital video recorders (which can even be

programmed via the mobile phone or internet) make this a lot easier. An added advantage is that it is

extremely simple for the consumer to eliminate

commercials from the programme. Video on

Demand (VoD) is another form of time-shifting:

via streaming or downloading the consumer is

able to view his favourite programme or film

whenever he chooses. Cable operators already

offer this service to a limited extent, but the most successful channel in this respect is currently

the internet. One good example is the popular on-demand service Uitzendinggemist.nl which is

provided by the Public Broadcasting Service. So far the news has proved to be the most popular

offering and was requested no less than 3.7 million times in 2005. RTL and Talpa have followed the

Public Broadcasting Service’s example. Note, incidentally, that commercials are increasingly being

inserted into the streams.

Staying at home is no longer necessary Place-shifting makes it possible to view the TV

signal or video source elsewhere, independently from the fixed connection at home. For this you

need a place-shift device or place-shift software, such as a Slingbox or Orb, in combination with

a broadband internet connection. You can then view the stations included in your home cable

subscription via your laptop or mobile phone.

The media industry, incidentally, is less happy with this development. They believe that use of

place-shift software or equipment basically amounts to rebroadcasting the programme. Because

the rights (and hence the costs) for broadcasts are time- and place-bound, this is not permitted, so

the legal argument runs. The industry fears piracy and is considering taking legal action.

So the growing success of the Slingbox appears to herald a bright future for lawyers. But whatever

the outcome of the legal battle, time and place will henceforth pose few, if any, technical obstacles

to the use of numerous media.

Megatrend �

‘Anytime, anyplace, anywhere’ Now that the consumer has access to communication equipment at home, at the office and en route, it is becoming easier to use media services, irrespective of time, place or space.

‘The news has already been requested 3 million times on the on-demand service’

part � trends and developments /// megatrends

��

More and more new applications The interactive options in the media world are growing

steadily. Here too the internet is leading the way. During football matches the spectator can

view certain player or team statistics via a kind of linked webpage. In the split-screen mode on

widescreen TV this can even be done while simultaneously watching the match. But it will only

really take off when transactions can be carried out via the TV, thus allowing viewers to indulge in

a shopping spree from the comfort of their home (i.e. order and pay for products advertised on the

show via a press of the button).

The consumer as provider The next step in interactivity is the participation of the consumer

himself as a provider of content. With digital cameras, for instance, combined with the possibility

of processing photos via the PC, consumers can make their ‘User Generated Content’ (UGC)

available to others via various media.

Some forms of UGC are familiar in the present context. Examples are

readers’ letters in the newspapers and the ‘Funniest Home Videos’ on

TV. But the applications and possibilities of UGC are growing. Though

most of the supplied material does not stand comparison with the

professional material we are used to on TV, people enjoy making things

themselves and are eager to place and share their home movies on Social Community Sites. One

good example of such a website in the Netherlands is Hyves.nl, the Dutch variant of the American

MySpace.com. Interests can thus be shared in closed user groups or with strangers. The youtube.

com site which is specialised in videos grew in only one year to twenty million visitors. And after

the World Cup, parodies of Zidane’s infamous head butt during the final against Italy cropped up

everywhere on the internet.

Megatrend 2

Increasing interactivity The introduction of the remote control can be regarded as the first big step towards interactive TV. That’s about as far as analogue TV goes in interactive terms - with the exception, of course, of teletext and the possibility of texting or phoning in your favourite participant in talent-spotting shows, ordering products or taking part in TV games. Call TV grew big on such formats.

‘Consumer is going to participate in media offerings as provider’


�6

Newspapers and webpapers also increasingly make use of amateur footage. In the Netherlands

there are initiatives to make regional Web-TV with the aid of amateurs. The costs are limited,

so that such initiatives can be made profitable by means of commercials if a sufficiently large

audience can be found.

Also interesting for advertisers Advertisers too will ultimately have to tap into the huge

potential of interactivity. Commercials these days are largely a hit-or-miss affair. The consumer can

simply get out of the line of fire via behaviour (zapping or making coffee) and technology (digital

video, time-shifting). But things can be made more interesting for both parties if advertisers can

home in on the viewer’s profile.

Using the EPG (electronic programme guide) viewers can enter their profile and information about

the consumer’s viewing behaviour can be recorded. This is valuable information that can be used

for more refined target group marketing, allowing advertisers to target their commercials more

accurately. A consumer who is planning to buy a new car in six months’ time will probably not

mind being informed of new models and/or special offers. That way, advertisers can continue to

finance TV whilst limiting the amount of irritation caused to consumers.

‘Interactivity will also benefit advertisers’

The advent of LCD screens started with the application of small numeric displays for calculators and telephones. Meanwhile high-quality miniature colour screens are almost standard on every new mobile telephone, while devices such as PDAs, mobile video players and game consoles can be snapped up for a song. These devices are increasingly being equipped with high-quality screens and also increasingly have the multifunctional capability to play music and video: they are less suitable for viewing a full-length feature film with sub-titles, but are excellent for checking out soap trailers or clips. So far Apple icon Steve Jobs was extremely sceptical about the possibility of viewing moving pictures on a small screen, but he too has now been won over. In the Netherlands, Endemol and KPN have entered into a collaborative venture to refine and develop existing and new content specifically for mobile applications.

The developments of flat screens (LCD and plasma) have provoked a veritable screen explosion. Flat screens are much easier to place than tube screens and are consequently being increasingly used in public buildings, spaces and stores. This opens up new opportunities for reaching a specific audience, known as ‘narrowcasting’. NV Nederlandse Spoorwegen (Dutch Rail) has done an experiment with RTL to offer a form of TV on certain routes. Screens can also be increasingly found at stations and bus shelters. The screen culture is thus becoming more and more dominant.

Box � Consumer permanently surrounded by screens


��

Boundaries between devices Due to the digital character and development of multifunctional

devices, the consumer now enjoys tremendous freedom of choice. Boundaries between devices

are blurring. Programmes can be viewed on-screen via the internet, TV, mobile telephone, handheld

or other digital medium.

Boundaries between sectors Boundaries are also blurring between sectors or, put differently,

businesses keen to hold their own in the market are expanding their activities in depth and/or in

breadth. KPN is confronted with steadily falling revenue from speech telephony and is starting

up ‘Mine’, a digital TV service via ADSL. The public on-demand service Uitzendinggemist.nl will

be included in the package. In addition, Mine includes a catalogue containing hundreds of films.

Together with Endemol KPN is developing a number of theme-based channels for Mine which

is partly based on the Endemol catalogue. Broadcasters are seeing their status as programmer

jeopardised by the growing volume of product offerings and are shifting towards production. This

shift in activities is not a broadening but a deepening of their operational focus. One example is

Talpa, now still with Nickelodeon, which manages a TV station and is also active in the development

of content for TV formats.

Boundaries between amateur and professional Clearly, professional camera people and

photographers will continue to play an important role in the media industry. But nowadays people

all over the world are walking around with cameras and their amateur footage is increasingly

being used in news bulletins to report on disasters, events and other incidents of interest to the

general public.

Film and music makers can now also reach millions of viewers and listeners on a shoestring

budget. The movie ‘The Blair Witch Project’ and the pop group ‘The Arctic Monkeys’ cleverly used

the internet as a springboard to success. In the first case the makers circulated a fabricated story

about the origin of the film via the internet even before the film came out; in the second case, the

band placed demos on the community site MySpace.com to build a fan base of millions of music

lovers all over the world. It is initiatives like these, incidentally, that made MySpace.com, part of

Fox broadcasting, a household name in a short space of time. MySpace is actually very similar to

Hyves in the Netherlands, but thanks to its international scope has far more registered users (50

Megatrend 3

Boundaries between media are blurring: convergence The digital revolution is blurring boundaries.


��

million as opposed to 1.4 million). The US website is only two years old. Set up in 2004 by two

friends after earlier network sites failed, it now boasts more pageviews than Google and eBay.

Was this down to luck? Possibly, but the internet certainly played a crucial, if not all-decisive role,

as a driver of success.

TV of PC? As noted earlier, the TV accounts for by far the most media time. But properly

configured PCs have the capability to entirely replace the TV and video recorder. So is the PC

poised to oust the TV from the living room?

Yes, if Microsoft has any say in the matter. With the Windows XP Media Center taking centre

stage for all on- and offline media, such as TV, the internet, photos and videos. But there still

seems to be a long way to go. There is a fundamental difference between TV and PC. People are

active behind the PC (lean forward), but usually watch TV from an armchair or sofa (leanback) and

often in the company of other people. Though the two devices are converging, the question still

remains whether chatting with a wireless keyboard in front of the TV is handy and practical in

family situations.

There are also technical thresholds. The TV almost always works, needs very little maintenance

and is not vulnerable to attacks from spyware or viruses. There are more pitfalls with a PC. So for

the time being at least, it would seem that the combination of PC and TV will be mainly interesting

for a limited group of aficionados and early adopters.

One of the elementary changes within the media world is the sharp reduction in media distribution costs. A TV programme that is distributed via the traditional channel must have a certain reach to generate sufficient advertising revenue to break even. The amount of time on a TV channel is finite, i.e. limited to a maximum of 24 hours and only one programme can be broadcast per time unit. So a certain threshold number of viewers must be reached per time unit to earn back the costs. A programme that fails to attract the threshold audience is not commercially viable. However, if individuals are able to access programmes ‘on-demand’, the entire proposition changes. The costs of digital distribution are extremely low and, in addition, stored bits and bytes are also very patient. This means that the possibility of generating a profit is spread out over time. Consequently, programmes need not necessarily have a ‘hit’ character to reach a certain mass of people at a specific time. By means of targeted advertising or direct pay-per-view payments by the consumer, a programme can also earn itself back over a longer period of time. This is called the ‘long tail’ principle, named after the long tail in probability distribution curves. Where it was formerly necessary to serve the mass with the largest common denominator, it is now possible to make a profit out of the aggregated total of individual viewings over time. 3.7 million people in a year who missed the news at the scheduled time but chose to watch it later represent economic value. “Anytime, anyplace, anywhere” consumption of media turns all the models upside down.

This opens up great prospects, particularly for owners of programme libraries. With the modest costs of distribution and storage and the increasing opportunities for contacting the consumer directly using IPTV (Internet Protocol Television), the old libraries have suddenly acquired renewed value. Programmes that do not reach the threshold audience can thus still generate revenue. All revenue that is generated in excess of the marginal costs of storage and distribution is profit. The ‘long tail’ means that fragmented markets and niches can now also be made profitable.

Box 2 The Long Tail Revenue Model


�9part � trends and developments /// megatrends

part 2 media segments /// media consumption 2�

Part 2

Media segments

media segments The first part of this report identified three trends that are having a major impact on the way in which people ‘consume’ media. In this second part the influence of each of these trends on a number of different media segments is put under the microscope. These segments are: Broadcasters/TV stations, Distributors of cable and telecommunications facilities, AV producers and Magazines and Newspapers.

23

Broadcasters / TV Stations

There are four major players within this segment:

• the Public Broadcasting Service (with more than twenty broadcasting licence holders)

• Talpa

• RTL

• the SBS Group

Together they have a wide reach: 98.5% of the households have one or more television sets. Net

media spending (revenue from adverts and programme sponsoring) in 2005 amounted to EUR

760m for the public and commercial broadcasters jointly. In 2005 the Public Broadcasting Service

received EUR 640m of government money. Together with the income from other activities (excl.

TV guides), the ‘turnover’ of the sector thus worked out at about EUR 1.5bn.

Anytime, anyplace, anywhere

The consumer is increasingly deciding for himself what TV programmes he watches and when

and where he does this. This is undermining the current revenue model of broadcasting stations

– e.g. because it is increasingly easy to avoid commercials – and affects their core function as

‘aggregator’ and programmer. The growing supply inevitably leads to fragmentation; the grip on

the viewer is clearly loosening.

Does this spell the end of the existing broadcasting stations? One thing’s for sure: they must

adapt to survive. They are already taking steps in this direction, for instance by making their own

productions rather than outsourcing these to independent producers. The broadcasting stations

are thus moving up in the value chain. By securing the copyright and intellectual property rights,

they are strengthening their position in the commercial exploitation of programme formats.

There will also always be a need for ‘pre-defined’ programming that can be easily accessed with

the remote control. Some consumers simply want to tune into something familiar, either because

it suits their preferences or because they (sometimes) can’t be bothered choosing from the

overwhelming number of programme offerings . But to make this possible, the broadcasters must

invest in creating a clear profile for themselves. One way of doing this is to contract well-known

personalities (see e.g. the VARA who contracted seven audience pullers in 2005 with a view to

fostering a closer bond with the customer). Another example of pre-defined programming consists

of offering theme-based channels. Nederland 4 for instance is an online overarching digital station

comprising various theme-based channels of the Public Broadcasting Service. Other examples of

theme-based channels are Veronica’s filmshop and www.sbsautosport.nl. The Public Broadcasting

Service is also going to make its channels more target group specific in its new programming.

part 2 media segments /// broadcasters / TV Stations

24

Growing interactivity

Both the commercial and the public broadcasting stations have interactive potential. The Public

Broadcasting Service, for instance, can use interactivity to conduct public debates by e.g.

organising online or telephone voting on socially-relevant subjects or setting up internet forums

linked to a TV programme. There are also dedicated websites for children’s TV programmes where

young viewers can engage in all sorts of activities, such as colouring pictures, singing songs, etc.

The commercial broadcasting stations focus mainly on phone-in games and text voting for the

best or worst candidates in formats like Idols and Big Brother. One fairly new phenomenon is

that a growing number of consumers are offering self-produced content, such as film footage and

photos to professionals within the media world (User Generated Content). A programme like Hart

van Nederland of SBS6, for instance, makes use of a tip-off hotline and the editorial team invites

viewers to mail them about all manner of current issues. The logical next step is for consumers

to send in their own footage. Given the growing number of people with a camera on their mobile

telephone and the user-friendly possibilities for processing video, the consumer’s share in media

offerings is set to increase. The presence of specific UGC (user generated content) sites with a

wide reach is growing (Youtube.com is one well-known example).

Blurring boundaries

Media attention is shifting, particularly among young people. Broadcasters must therefore

increasingly engage in cross media activities. In this connection, the TV station can serve as the

showcase channel to draw attention to activities on other platforms, such as the internet and

mobile telephony. To be able to do this, the broadcasters must secure the programme rights or

agree on shared-revenue models with the copyright holders (producers) of productions.

Conclusion

• Increasing fragmentation and undermining of the advertising-driven model are potential

threats for the broadcasters.

• Focusing on the intellectual property of productions, alternative forms of funding

(non-advertising), and investing in a clear broadcaster profile are ways of countering the

decline in advertising revenues.

• Apart from TV, broadcasters can also make use of other platforms, such as the internet.

In this connection the TV channels can serve as the showcase, while more specific target

groups are served via other platforms.

part 2 media segments /// broadcasters / TV Stations

2�

Distributors

• Increasing fragmentation and undermining of the advertising-driven model are potential threats

for the broadcasters.

• Focusing on the intellectual property of productions, alternative forms of funding (non-advertising),

and investing in a clear broadcaster profile are ways of countering the decline in advertising

revenues.

• Apart from TV, broadcasters can also make use of other platforms, such as the internet. In this

connection the TV channels can serve as the showcase, while more specific target groups are

served via other platforms


Until fairly recently the (analogue) infrastructures were separated fairly strictly in terms of function

and use. Competition from other infrastructures was limited or non-existent and the various parties

acted purely as signal distributors. At the end of 2006 the analogue airwave signal for viewing TV

will be switched off. The digitalisation of infrastructures is leading to competition between the

infrastructures. Via broadband internet and mobile applications it is possible to watch TV ‘Anytime,

anyplace, anywhere’ (Aaa). To the companies involved this means they must rethink their strategy

and the services they offer, also with an eye on what the competition is doing.

For the providers of fixed infrastructures (telecom and cable businesses) ‘triple play’ is an important

development: the provision of broadband internet, telephony and TV by a single provider. Expanding

to several infrastructures, which is necessary to serve several platforms, is costly and usually only

feasible through partnership agreements. UPC, for instance, also offers mobile telephony, but does

this via the Orange network. One exception is KPN which, by taking over Nozema and launching

new initiatives via the internet (Mine), seems more prepared than other parties for the ‘Aaa’ media

behaviour of the consumer.

Increasing interactivity

Interactivity is extremely interesting for distributors: it generates traffic and thus revenue. This

applies in particular to providers of fixed and mobile telephony. They profit from e.g. telephony

and text messaging traffic that is generated through services such as Call-TV. All providers benefit

from the internet: telephone companies, cable operators and internet providers.

part 2 media segments /// distributors

26

At the start of 2006 78% of Dutch households were connected to the internet. Due to the

increasing multimediality of e.g. photos and films the demand for capacity and speed is increasing.

Internet providers translate this into attractive packages for diverse customer groups, either with

or without other communication services. Video-on-demand and Pay-Per-View are also forms of

new interactivity that can unlock potentially large new cashflows for distributors.

Blurring boundaries

With the blurring of boundaries in the media world, ‘Content is King’ has become the new catch

phrase and distribution is generally perceived to be less prestigious. This may not be entirely

unjustified, witness the efforts of distribution companies to venture into programming. However,

distributors do have a direct payment relationship with the customer. This is an important asset.

Because it means that the distributor knows the customer’s behaviour and this knowledge

can provide valuable information for advertisers and for the development of new services. No

doubt, further capital will be made out of these commercial opportunities in the future. For cable

companies this will only be possible once the decoder is installed in all households.

Conclusion

• Boundaries between formerly separate infrastructures are blurring and functions in the

value chain are shifting.

• The changes in the market are opening up new competitive opportunities.

• A direct relationship with the customer is an extremely valuable asset in the digital world

and offers opportunities for advertisers.

part 2 media segments /// distributors

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AV producers

In the Netherlands over 500 businesses are registered as a TV production company with the

Chamber of Commerce. Many of these are one-man businesses. A number of medium-sized and

large independent TV producers are members of OTP, a leading association of independent TV

producers. These include organisations like Endemol Nederland, Eyeworks, IdtV and René Stokvis

Producties. The total turnover of TV or AV producers is estimated at EUR 230m.


TV producers are increasingly responding to the fact that ‘screens are everywhere’ by offering

(variants of) productions on platforms other than TV. In this connection the content will frequently

be adapted to the specific capabilities of the device. The mobile phone or PDA are hardly suitable

for extended viewing, but are excellent for watching previews, summaries or highlights. In this way

a company like Endemol, owner of the popular TV soap “Goede Tijden Slechte Tijden”, can provide

interested parties with information (breaking news) and entertainment (tasters of upcoming

shows) via other platforms (telephones, PDAs, the internet). Another way of tapping into the

“anytime, anyplace, anywhere” trend among viewers is to offer DVDs of popular TV series. The

sale of TV series in DVD boxes has grown explosively in the past years, though the hits are mainly

US productions. The collector’s value of DVD boxes, incidentally, appears to be much greater than

the viewing value.

It is of course important to own the commercial rights to the productions, particularly as these

can be used in various ways to generate money. It is hardly surprising therefore that broadcasters

are focusing more on ownership and production in order to secure the rights of productions. Talpa

is an extreme example: this broadcaster seeks to retain all rights itself and mainly broadcasts

its own productions. As a result of these developments, the relationship between producer and

broadcaster is changing.


Call-TV and other hybrid forms are currently the most important interactive TV-formats. That is

also more or less the extent of what is technically feasible with analogue TV. In the Netherlands

the music station ‘The Box’ is fully interactive: the viewers decide what clips are shown. This is

interactivity in programming terms but has no influence on the actual content (in this case the

music clips). The possibilities of the internet are far greater. One interesting experiment of MTV

is MTVFLux. Inspired by the success of video exchange, this is an internet channel for and by the

part 2 media segments /// AV producers

2�

viewer. Not only do the visitors determine the clips, they can also submit self-made films as an

introduction to clips. In addition, there are numerous social network sites, websites where groups

or individuals meet each other online in order to share interests with one another. The applications

of genuinely interactive content are still in the ideas phase.

Boundaries are blurring

A number of important boundaries are blurring for AV producers. In the first place there is the

borderline between TV and other platforms, with the internet in the forefront. ‘Bypassing’

broadcasters and entering into direct contact with the viewer has become an option for producers.

Regarding old material whose rights rest with the producer, these new ‘channels’ which can be

commercially exploited using the long-tail model (see box 2) are wonderful. In the second place

the boundaries between broadcaster and producer are shifting. For the most popular formats,

TV remains the number one medium where ‘it is all happening’. Broadcasters still provide the

most effective means of delivering good formats, which can then possibly be developed further

via other platforms. Given that a sizeable chunk of the media dinner will still be consumed via

TV, broadcasters remain an important link in the chain. And given that good independent AV

producers are still the principal source of creative new formats, it would seem that broadcasters

and producers will continue to need each other well into the future.

Producers are no longer prepared to be dependent on a few large broadcasting customers and are

looking for a wider base, e.g. by selling formats abroad. So in the literal sense too, the boundaries

are blurring. The Call-TV format, for instance, has been sold to twenty organisations in other

countries. Clearly, therefore, AV producers are no longer restricting themselves to the creative

process alone.

Conclusie

• New media need new creative ideas, particularly in the interactive field, to take full

advantage of their potential. Real interactive content, however, is still in its infancy.

• In a (provisional) response to the digital future and the shifting position of broadcasters

towards productions, larger production companies are shifting towards the commercial

exploitation and trading of rights.

• Within the world of the new media, TV will remain the showcase window where ‘it is all

happening’ for many years to come. Production companies that can offer good formats and

broadcasters that have broadcasting time to fill need each other.

part 2 media segments /// AV producers

29

Magazines and Newspapers

The biggest publishers are Telegraaf, PCM, Wegener and Sanoma. Of all advertising expenditures,

just over EUR 2.1 billion is spent on print media. In 2006 the Netherlands had over 750 registered

titles (newspapers, magazines and professional journals).


Print has basically always been an ‘Anytime, anyplace, anywhere’ medium. Newspapers and

magazines can be taken along everywhere and the consumer himself determines what, when

and where he reads them. However, screens are also increasingly fitting this description. The

importance of screens in media consumption is set to increase; this will have a different impact on

newspapers, on the one hand, and magazines, on the other. Newspapers face heavy weather in

the increasingly screen-dominated environment. A growing number of people are turning to the TV

and the internet as their daily source of news. This trend is gathering momentum and newspapers

will see their readership steadily dwindle. Magazines are less at risk. Because magazines are aimed

at specific target groups and have a stronger bond with their readership, the magazine industry is

less likely to slide into a downward spiral. The magazine sector is also highly dynamic: new titles are

constantly entering the market to better serve the changing tastes and needs of the reading public.

Some titles survive, others do not.

Magazines and newspapers are responding to these trends. Each publisher has internet sites for

support and extra service. But the big question is whether this will generate revenue or merely

cost money. Some print media are already pruning their internet staff. Many newspapers are

experimenting with TV. But their hands are currently tied by statutory restrictions. There are plans to

relax these laws, so that publishers can also venture into the cross media arena.


Newspapers and magazines have really always contained an interactive component: the reader’s

letters. The internet makes it possible to respond to almost everything under the sun via sites,

forums, chatboxes and blogs, either with or without editorial control. Existing newspapers and

magazines are looking for new interactive options, sometimes with a link to the traditional product.

De Telegraaf invites readers to respond via www.telegraaf.nl to ‘the Poll of the Day’ and takes the

outcomes on board in an article in the next day’s edition. Newspapers are generally pursuing this

avenue more actively than magazines.

part 2 media segments /// magazines and newspapers

3�

Magazines, even more so than newspapers, benefit from their brand recognition and constitute

well-known beacons on the internet; newspaper sites attract large numbers of visitors. The

Washington Post acts as a jumping-off point for advertisers who want to advertise on Blogs via

a sponsored Blog network. The advertising revenues are shared. In this way, old and new media

meet, with the ‘brand’ of the old media being used as a beacon and filter.

Blurring boundaries

The boundaries between publishers of print media and other media players will continue to exist for

the time being. Publishers are engaging in other media, but these activities are mainly experimental

or intended to complement the existing core business. The cross media character is still limited.

The ‘Time-Warner’ model where all types of media are united in a single conglomerate seems

to be the preserve of multinational companies and is evidently beyond the reach of smaller-scale

operations. Whether this model will yield sufficient synergies is also open to question. Looking

at newspaper publishers, merging similar editorial teams always proves to be a tough challenge.

Het Financieele Dagblad and BNR Nieuwsradio have demonstrated that a marriage between print

and radio can be a success, but this concerns a highly specific target group and equally specific

themes. This model cannot be carbon-copied to publications of a more general nature.

Conclusie

• Newspapers are facing heavy weather in the increasingly screen-dominated environment;

magazines are less vulnerable to this development.

• Cross media activities of publishers are still fairly limited; they can however profit from

their name recognition in developing other activities, think of successful newspaper sites.

• Examples of successful combinations of print and other types of media remain rare.

part 2 media segments /// magazines and newspapers

32

Summary and conclusion

A lot is changing in the dynamic and rapidly evolving media world where some developments are

now reaching full maturity, while others are in their infancy or still in the laboratory.

• Despite the explosion of media options, the statistics tell us that people spend just as much

time on media consumption today as in 1975. Some strong shifts can be detected however: less

time is allocated to print media – particularly newspapers – and more to internet applications and

games. Moreover, a look behind the figures also suggests that media usage is rising slightly. That

is first of all due to multitasking – the simultaneous use of several media sources, particularly by

young people – and, secondly, to the increased internet use at work for personal purposes.

• Changes in the media world and media usage are principally driven by technological

developments: digitalisation and advancing micro electronics. Together, these have enabled the

creation of new media carriers and communication infrastructures leading to three megatrends:

– ‘Anytime, anyplace, anywhere’ (Aaa).

Thanks to opportunities provided by time- and place-shifting, consumers themselves

increasingly decide when and where they consume media. In addition, people are increasingly

being surrounded by screens: ‘Screens are everywhere’.

– Increasing interactivity.

The consumer is becoming more active. TV programmes are being enhanced with interactive

components (e.g. phone-in games and text voting for Idols participants). With User Generated

Content (UGC) the consumer can show home-made films and photos online to a wide

audience.

– Boundaries between media are blurring.

Devices are converging: the mobile phone can be used to surf on the internet and an iPod

video can be used to view films. The boundaries between sectors are also blurring. KPN is

venturing into digital TV and broadcasters are producing their own programmes. Moreover,

the boundaries between professional and amateur are also becoming less distinct. Amateur

footage is increasingly being used for all sorts of purposes. And some very popular internet

sites are already entirely based on User Generated Content. News and current affairs

programmes, too, are increasingly using amateur footage.

part 2 media segments /// summary and conclusion

33

– The changes in the media world are influencing the revenue models of the parties involved,

such as providers, producers and advertisers. The sharp reduction in storage and distribution

costs means that providers no longer need to draw a mass audience to generate sufficient

revenue; a small amount of viewers can also be profitable (e.g. programmes on demand via

www.uitzendinggemist.nl). That’s good news for the owners of old programme libraries.

All players who are active in the media world are reviewing their position within the rapidly

changing environment. Some companies have taken the bull by the horns and are engaged in

active experimentation with a view to taking full advantage of the new technology. Another group

of companies seems more intent on defending their existing position, possibly on account of

the prevailing uncertainties: for nobody really knows where the current explosion of innovation

is leading us. Let’s hope that, once the dust has settled, the players can still look each other in

the eye and acknowledge that mutual cooperation at all levels is the only way to realise the full

potential of the new developments.

part 2 media segments /// summary and conclusion

34

Glossary

Aaa Anytime, anywhere, anyplace – media consumption is increasingly dependent on time, location and place.

Aggregator Role played by broadcasters in the value chain: the selection and programming of content.

Blog Abbreviation for weblog (see explanation of weblog).Cross media Combined use of different media (TV, internet, mobile) leading to cross-fertilisation

between the various media.DVR Digital Video Recorder, one well-known example in the US is the Tivo.Digitenne Company set up in 2001 to provide digital radio and TV via the airwaves. This is now in

the hands of KPN.DVB-H Digital Video Broadcasting Handheld, a standard for digital TV aimed at portable/

mobile devices. DVB-T Digital Video Broadcasting Terrestrial, a standard for digital TV via terrestrial broadcasters Handheld Portable/mobile device with media capabilitiesHyves A Dutch online social community. IP Intellectual Property or Internet Protocol.ISP Internet Service Providers. Long tail Revenue model named after the tail of a probability distribution curve.

The accumulation of small numbers can be profitable in the internet era. A term first used by Chris Anderson.

Mine Digital interactive TV service via ADSL of KPN.Multitasken The simultaneous use of various media alongside one another. Narrowcasting Delivery of a targeted format to a specific group of recipients via screens at diverse

locations. Non-spot advertisement Advertising using means other than commercial spots, e.g. sponsoring of programmes

or product placement.Orb Hardware for place-shifting (see also definition of place-shifting).PDA Personal Digital Assistant, often used as telephone and personal organiser. Peer-2-Peer Exchange of information, music, etc. between users without intervention of a third party. Place-shifting Viewing a TV programme or video elsewhere, independently of the fixed home

connection, using a Slingbox or Orb. In combination with a broadband internet connection.

Shared-revenue Offering programmes on the basis of shared revenue.Slingbox Hardware for Place-shifting (see also explanation of Place-shifting).Social Community An online social platform where the users make a personal profile and meet other

people. STIR Stichting Internet Reclame (Internet Advertising Association)Streams Media that are viewed (or listened to) while downloading is in progress – audio-or

videostream.Time-shifting Shifting of the time when the consumer views or listens to programmes.Triple play The delivery of broadband Internet, telephony and TV by a single provider. UGC User Generated ContentUMTS Universal Mobile Telecommunications System. VOD Video on Demand, the ability to request videos whenever it best suits the consumer. Weblogs A website that is frequently updated and contains texts of authors about certain

subjects.Web-TV TV programmes broadcast via the Web.Wimax Standard for wireless broadband. Youtube.com ‘Broadcast yourself’, US website wholly based on UGC.

In this case video footage.

part 2 media segments /// glossary

3�

List of interviewees

DB Europe Mr. MeijerEndemol Mr. Van der Graaf Mr. VermeulenEyeworks Mr. Van WechemIdtV Mr. De JongeFD Mr. BergervoetKobalt Mr. Van Houwelingen Mr. FaasseKPN Mr. RasterhoffLukkien Mr. Lukkien Mr. Frederiksen Mr. Van RavenswaaijNOS Mr. TeunissenRTL Mr. Van WesterlooTalpa/Cyrte Investments Mr. PostmaUnited Broadcast Facilities Mr. Bout Mr. Van de PoelVan den Ende & Deitmers Mr. DeitmersVODW Marketing Mr. Peverelli Mr. Van Brenk

part 2 media segments /// list of interviewees

36

Acknowledgements

This report was made on behalf of the Segment Management Corporate Clients Department of ABN AMRO Bank N.V. The publication was compiled by Group Risk Management– Sector Research.

AuthorJacques van de Wal, Sector Research ABN AMRO

InterviewsRudolf Molkenboer, Global Clients TMT Media GroupConrad Roelen, Relationship Manager Media Region CentralOlaf Weeda, Relationship Manager Media Region North WestMenno van Leeuwen, Sector Manager Media

DistributionABN AMRO Segment Management Corporate Clients, Tel 020-6293776.Contact Officers: Menno van Leeuwen ([email protected]),Wendy Klein ([email protected]).You can also find this publication on www.abnamro.nl/grootzakelijk in the section ‘publicaties’.

DisclaimerThe views expressed in this publication are based on information that was carefully gathered and processed by ABN AMRO Sector Research. Neither ABN AMRO nor any officers of the bank can be held liable for any inaccuracies in this publication.

© ABN AMRO, September 2006

This publication is intended for personal use only. Multiplication and/or distribution of this publication is not permitted unless written permission has been obtained for this from ABN AMRO Bank.

part 2 media segments /// acknowledgements

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