Media Business 2017-21
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Disruption in video: Five (possible) paths out of the maelstrom
McKinsey & CompanyMcKinsey & Company 1
Digital penetration is greatest in Media
31% 32%39% 42% 44% 44%
51% 54% 55%62%
MediaTelecomBusiness services
Travel andlogistics
Financialservices
RetailHigh techHealthcareAssemblyCPG
Perception of digital penetration by industry, % of respondents
Standard deviation(%)
57 32 48 33 37 48 42 31 38 21
SOURCE: McKinsey Digital Global Survey 2016
McKinsey & CompanyMcKinsey & Company 2
Disruption is driven by new entrants and business models
24.5
17.5
16.9
16.0
15.4
13.5
12.7
8.3
7.6
26.3
16.8
Telecom
High tech
Business services
Media
CPG
Assembly
Travel and logistics
Financial services
Healthcare
Sample average
Retail
Estimated market share of digital new entrants and business models, %Industry
SOURCE: McKinsey Digital Global Survey 2016
High digital penetration in Media in general is driven by new entrants and business models and no more so than in video
McKinsey & CompanyMcKinsey & Company 3
Platforms and formats for viewing video have exploded
D2C plays
Remix
Livestream
Traditional cable/DTH IPTV
Portals
Broadcasters
VOD aggregators
Publishers
Firstwave digital
New bundles
MCNs
Social
Secondwave digital
McKinsey & CompanyMcKinsey & Company 4
Online video viewing is growing fast
SOURCE: McKinsey iConsumer survey
Online video as % of all online viewing
2016
171 mins
2010
62 mins
30%
60%
McKinsey & CompanyMcKinsey & Company 5
Most of this growth is happening on mobile devices
SOURCE: McKinsey iConsumer survey
40% 38% 23%Overall share of online viewing time
Growth in time spent on devices for watching video, US, %
34
PCTV
4
30
3
Mobile
12
21
CAGR 2014-16CAGR 2012-14
McKinsey & CompanyMcKinsey & Company 6
Traditional TV viewing is falling, especially amongst the young
SOURCE: Enders, statista
Change in time spent, 2011-14 abs %
Younger audiences
-5
-3
-2
0
Overall
-21
-14
-12
-12
McKinsey & CompanyMcKinsey & Company 7
This is reflected in ratings for almost all genres
SOURCE: Enders, statista
+6.6%
+6.4%
-9.4%
-12.5%
-8.4%
1 Average primetime rating for top 50 US cable nets. Other channels include AMC, Syfy, truTV, Spike TV, E!, HGTV, ABC Family, TLC, Hallmark, Lifetime, BET, TV Land, Animal Planet, H2, LMN, Nat Geo, OWN, WeTV, GSN, Oxygen et al.
Change in ratings, 2010 vs. 20141
Scripted drama/comedy
Kids
Sport
Factual entertainment
News
▪ USA▪ TBS/TNT▪ Comedy Central▪ FX Network▪ Syfy
▪ Nickelodeon▪ Disney Channel▪ Cartoon Network
▪ ESPN▪ Fox Sports▪ NFL Network
▪ Bravo▪ MTV▪ Discovery Channel▪ History Channel▪ Food Network
▪ Fox News▪ CNN▪ MSNBC
Example channels
-2.5%Total for top 50 cable nets
-14.0%Total for all cable nets
McKinsey & CompanyMcKinsey & Company 8
Ad spend is shifting away from TV to search and display
SOURCE eMarketer, McKinsey iConsumer survey
Fastest growing advertising sector
Growth in ad revenues, US, 2016, %
Displaybanners
-9.6%
TV
5.6%
37.4%
Online video
24%
3.8%4.3%
Search
18.6%
19.2%
Share of ad spend, 2015
McKinsey & CompanyMcKinsey & Company 9
Social platforms are increasingly dominant in online referrals
SOURCE: Shareaholic
Other social Facebook
Share of online referrals, %
155
6
87
3730
25
10
7
6
122011
3
31
13
1013
21
37
14 15
47
2016
McKinsey & CompanyMcKinsey & Company 10
They are also leading in desktop video consumption
SOURCE: Comscore, UKOM
UK, June 2016Total monthly viewers, 000s
US, June 2016
YouTube / Google sites
Warner Music
8,797
10,275
19,159
6,659
30,334
7,490
8,294
8,657
Maker Studios Inc.
BroadbandTV
Microsoft Sites
Fullscreen
Vimeo
VEVO
5,465
6,109 Maker Studios Inc.
Warner Music
CBS Interactive
43,839
38,363
44,169
42,003
182,177
39,960
81,057
45,261
41,237
58,238Yahoo Sites
YouTube / Google sites
BroadbandTV
Comcast NBCUniversal
VEVO
McKinsey & CompanyMcKinsey & Company 11
There are at least five (possible) paths out of this maelstrom
Invest in content
Achieve global scale to fund investment in original content, both global and local
Aggregate AVOD
Drive increase in online video CPMs, with larger players attempting to create a “winner-takes-all” effect
Consolidate for scale
Merge to expand premium content portfolio and achieve greater economies of scale to fund future investment
Launch a D2C offer
Access new customers and capture incremental margin by disintermediating traditional distributors
Monetize traffic
Monetize video-generated traffic, expand into adjacency and protect customer relationship to avoid becoming “dumb pipe”
1
2
3
4
5
McKinsey & CompanyMcKinsey & Company 12
(Distinctive) content is still king
Authority in opinion-forming
Social discovery
Polarisation of opinion
Commanding breadth and depth of voice in a genre
Must-watch content
Share of value capture in IP Video
2.5
7.2
4.7Content Production
Distribution
Total
Aggregation
0
McKinsey & CompanyMcKinsey & Company 13
▪ Customers willing to pay primarily for premium sports, US scripted drama, and first run movies
▪ Even though barriers of entry for content are lower, but the bar for distinctive-ness is higher
▪ Production cost per episode of series close to production cost of a “good” European movie
2014-2016
8
0.5
2013-15
4
2x
2.8
2014
4.4
2017E
2x
However, premium content costs are increasing massively
Source: Press research, Virgin Media, Sportcal
Typical local scripted content cost1
Content costsEUR mn, per episode
Netflix content spendEUR bn, per year
1 Average of Tatort (EUR 1 mn per episode) and "Gute Zeiten, Schlechte Zeiten" (EUR 0.1 mn per episode)
McKinsey & CompanyMcKinsey & Company 14
D2C: Opportunity to fill in the demand curve … … with an expanded product portfolio
▪ Gateway product to motivate customers to move beyond free into a low-commitment, paid relationship with the brand - up-sell over time
▪ Exclusive products, privileges and experiences serve as a showcase to re-anchor prices of other offerings
▪ Benefits/products that collectively embody the brand, for upsell to the advocates among the core
▪ The brand’s core product – a large majority of brand-engaged consumers buy
Definitions
Ultra
Premium
Core
Entry
Winning the DTC battle will be key
1,000
10,000
500
100
10
Total audience
Affinity (annual willingness to pay in $)
Print and web advertising
Sub-scription
Newsstand and print advertising
Sub base
Total subscriber base
McKinsey & CompanyMcKinsey & Company 15
There’s still a lot to play for…
Advertising1. How quickly will older audiences move away from traditional
TV platforms?
2. Will digital or traditional TV platforms provide the most value to advertisers?
1
2
Distribution1. Will any individual content producer be able to survive without
being aggregated?
2. How dramatic will cord-shaving/cutting be given emergence of D2C video?
3
4
Production1. Is growth in content production sustainable or is it a
bubble?
2. As local production grows, will there still be global demand for English-language content?
5
6