The media & entertainment sector in France, Germany, Italy, Spain and the United Kingdom (the “EU5”) is experiencing a massive digital transformation, which creates a complex and volatile environment for traditional players. With its unique Media Flow of Funds methodology and extensive supporting interviews with content and media executives, Arthur D. Little (ADL) provides insight into the speed of the transition to online and the main beneficiaries.
The EU5 media industry generated €163.9 billion in revenues in 2013 (CAGR 2007–2013: -0.4%). Since 2007, advertisers and consumers have reduced their expenditure on media (-€4.3 and -€2.9 billion, respectively) while public funding has increased by €2.7 billion. Online spending reached 18.6% of total media expenditure (€30.5 billion, CAGR 16.1%) and gains two percentage points of market share over traditional media per year.
Only 11.2% of total consumer media spend was dedicated to online in 2013. But this small shift has already resulted in a loss of €12.2 billion in retained value for traditional retailers since 2007 (-11.4% vs. 2007, CAGR: -1.7%). “EU5 consumers’ current low online spending is the industry’s best source of future growth, but it is also an urgent call to action for traditional players in distribution/retail as they are yet to face the effects of the industry’s digital transformation,” says Clemens Schwaiger, Global Head of Digital Media at ADL.
Advertising revenues have already shifted considerably to online media (39% of revenues in 2013). This has resulted in a dramatic loss of €16.9 billion in retained value by traditional aggregators since 2007 (-25.3% vs. 2007, or CAGR -5.0%). Content producers and rights owners have added €2.0 billion, or +3.4%, in value since 2007, now accounting for €63.7 billion of total retained value.
The EU5 media industry will grow at ~1.1% CAGR (+€7.4 billion) until 2017. This will come from consumers (+€3.8 billion by 2017) and advertising (+€3.6 billion); public funding is expected to be flat given pressure on federal budgets. Total online spending by consumers and advertisers will increase by €15.1 billion until 2017, with online by then representing 27% of industry revenues. “Traditional players have to enter boldly, and learn how to disaggregate, reaggregate and accelerate their organizational transformation,” says Schwaiger.
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