A report released on November 5 by Ernst & Young highlights how media and entertainment (M&E) companies will increase future revenue and profitability from digital media distribution by creating bundles of differentiated products and services.
The Company noted that the report also compares global penetration rates of free online content with the tendency to engage in online commerce and examines where online paid content strategies succeed.
According to Monetizing digital media: creating value consumers will buy media and entertainment companies will use digital content to add value to consumers and thereby help revenue and profitability in four key areas:
-Format and additional content: content and information can be delivered to consumers in specific formats that are most conducive to their needs and the devices on which they consume content. Consumers will also find value in additional bonus or exclusive content.
-Timing: Content consumption has been steadily shifting from a fixed-time model to one in which consumers can enjoy what they want, when they want. M&E companies can profitably monetize their products and services by accommodating this desire.
-Availability and interoperability: consumers want to access their media and entertainment from anywhere on multiple devices. M&E companies will enable multiple-device distribution and allow consumers the ability own and access content stored in a "digital locker."
-Sharing: the concept of sharing is changing. Free content can become premium content if consumers have the ability to share it with their social networks or can recommend, comment or customize it. In this way, providers can turn what has traditionally been a liability into an asset.
One example of this direction is Internet radio stations that are shifting their focus from free content to premium services that offer subscribers a selection, a higher quality stream, no advertising and the ability to create and listen to customized channels on mobile devices, Ernst & Young said.
"Now that the majority of consumers have learned to seamlessly integrate free digital media and entertainment content into their lives, companies have the opportunity to better monetize this habit by developing multiple paid content strategies that focus on consumer value," said John Nendick, Ernst & Young's Global Media and Entertainment Leader.
The report also compared penetration rates of free online content with the tendency to engage in online commerce. The Company reported that the US has an average penetration of free online activities of 57 percent, with South Korea showing the greatest penetration of free online activities at 70 percent and Japan the least at 43 percent. However, Ernst & Young noted that when examining the willingness of consumers to engage in online transactions as measured by e-commerce and online transactions a different picture emerged. The Company said that the average penetration levels of ecommerce and online transactions ranged from a high of 59 percent in Japan to a low of 7 percent in Russia, with the US placing third highest at 49 percent. The countries that ranked highest in free online content were generally less likely to engage in online commerce.
This divergence becomes most apparent when overall penetration is compared to online spending. In the U.S., for example, Internet users spent an average of $8.80 on digital music products last year, with 34 percent of the population using the Internet to access digital music, both paid and free. Looking across the globe, the Company noted that Japan has a high per user spend ($10.12) with a relatively low penetration (25 percent), indicating the Japanese are paying for their music content more than in any other country. Conversely, China has an extremely high penetration (83 percent) with a very low per user spend ($.20), indicating the Chinese are getting the overwhelming majority of their online music for "free."
"Media and entertainment companies will be more likely to see their online paid content strategies succeed in countries where Internet users' online spending is more aligned to their online media consumption habits," says Bruno Perrin, Ernst & Young's EMEIA Media & Entertainment Leader.
When looking at how willing consumers are to pay for online content, Ernst & Young noted that the report highlights that they are more willing to pay for games, TV shows and music, and are less likely to pay for news, except for few highly specialized business newspapers, which have successfully combined advertising, subscription and microtransactions revenues.
Bruno added that, "The gaming industry has developed various paid content business models for social gaming, generating revenues through microtransactions for virtual goods. Most users don't pay for virtual goods, but those who do, generate enough revenue to make the model work."
In the US, the virtual goods market reached $1.6 billion in 2010. Which, the social gaming market contributed $835 million. Another developing market, China, the Company said, has estimated 105 million gaming users. Virtual goods sales in 2009 were estimated at $2.2 billion. However, the Company reported that micropayments processing costs are still too high, with cost approximately US$0.20 per transaction, which is prohibitively high for a payment of US$1 or less. Nonetheless, market vendors are capitalizing on the opportunity, resulting in a more competitive market for micropayment processing.
Nendick concluded that, "Consumers in certain parts of the world will pay more for content and services they value. In creating "a la carte" content, M&E companies will generate more microtransactions, which in turn will increase micropayments and monetization."
Ernst & Young's Global Media & Entertainment Center works to anticipate market trends, identify the implications and develop points of view on relevant industry issues.
Ernst & Young is a global company focusing on assurance, tax, transaction and advisory services.
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