The audience of one

Few industries have felt the impact of digital technology over the past ten years as much as media.

Every media sector – from newspapers to movies, from popular TV to professional publishing – is grappling with the challenges of the digital age. The Internet has already become the primary distribution channel for many types of news and information, and has created the need for new revenue models in the process. Advances in technology have also spawned huge markets ranging from video gaming to music downloads and pay TV.

Technology as a driver
Technology has also fundamentally changed the way media companies need to interact with their audiences, as a range of technologies, from 3G mobile phones to personal video recorders (PVRs), empower users to take control over when and how they access media and entertainment. These changes create huge challenges for media companies, some of which have failed to keep pace with what digital-age audiences want.



A positive outlook
Despite this, the overall outlook for the industry is positive. According to PricewaterhouseCoopers, total media spending in Europe, the Middle East and Africa is forecast to increase from Û328bn in 2003 to Û429bn in 2008, growing at 5.5% per year. This growth presents huge opportunities, particularly for companies that learn to harness new
technology effectively and cater for changing consumer demands.

Most media companies are only beginning to understand the potential of digital technologies. At a 2005 American Society of Newspaper Editors gathering, Rupert Murdoch, owner of News Corporation, alluded to this.

He said: “We need to realise that the next generation of people accessing news and information, whether from newspapers or any other source, have a different set of  xpectations about the kind of news they will get, including how and when they will get it, where they will get it from, and whom they will get it from.”

For example, in July, News Corporation announced that it would be acquiring Intermix. Intermix operates MySpace.com, where visitors can create private communities and share photos, journals and interests online.

The next few years will see a transformation of Europe’s media companies as they compete to offer products aimed at “the audience of one”.

My TV
Traditional mass markets are becoming increasingly splintered into small sub-groups determined by demographics, lifestyles and personal interests.

Television has been particularly affected. Digital satellite TV has allowed dozens, sometimes hundreds, of channels to be broadcast simultaneously, where previously only a handful could be transmitted.

The fragmentation of media audiences means that the traditional network broadcast model is likely to be replaced by a more targeted model focused on the customer’s needs. The old network model was funded by advertising, and was based on the idea that a single broadcast could have mass-market reach. The growing popularity of
multichannel TV has eroded viewing figures for network broadcasters, reducing the attractiveness of mass-market TV advertising.

Traditional TV advertising has also taken a blow from personal video recorders (PVRs), which allow consumers to take control of TV viewing. They can choose programmes by genre and record and store shows automatically on computer hard drives. These devices also enable users to pre-record programmes without adverts, or to fast-forward through commercials.

“The use of PVRs has caught on like wildfire. Take BSkyB’s PVR service, Sky Plus, as an example. It has attracted 500,000 subscribers within its first two years,” says Griffin Parry, BSkyB’s Head of Corporate Development. In the US, PVRs are currently found in around 4% of homes, according to Forrester, a technology and market research company. But this is set to rise to 41% over the next five years. Forrester has also found that 92% of viewers skip commercials when watching PVR-recorded programmes.

Quality programming
At the same time audiences’ appetite for personalised, good quality programming is growing. Media companies that create or acquire TV content to target niche audiences will stay one step ahead of the competition. Viewers are increasingly willing to spend on their enthusiasms, not just through pay-TV itself, but also through DVDs, clothing, games and toys. By segmenting and targeting their customers carefully, broadcasters can create successful subscription models and benefit from extended revenue streams from related merchandise.

Advertisers can also benefit from this more personalised form of broadcasting. It allows them to target different types of consumer more accurately than before. “Cable and satellite will become much more important to us as it provides direct interaction benefits and far better targeting. By contrast, network television stations will find it increasingly difficult to attract advertising,” comments Sir Martin Sorrell, CEO of WPP, the world’s largest advertising and marketing firm.

Terrestrial broadcasters will also need to embrace multichannel TV. Some are already doing so through digital terrestrial TV (DTT). In the UK, Freeview – the BBC’s free to air digital channel – has achieved rapid growth, and there has been a strong uptake of similar services in Germany and Italy. France also recently launched a DTT service, known as TNT, that will enable a third of the country’s population to receive 14 free-to-air channels. While the network model is fading, DTT platforms like Freeview and TNT will enable terrestrial broadcasters to compete in the world of digital TV against satellite and cable TV firms.

Publishing gets personal
Newspapers are also seeing their audiences segment. “Other sectors have had to come to terms with fragmentation and dropping sales; now the newspaper industry has to do likewise,” says David Montgomery, Former CEO of the Trinity Mirror Group. Falling circulation numbers have sparked a wave of deals involving national newspapers such as the Daily Telegraph in the UK, and Le Figaro, Le Monde and Libération in France.

Circulation figures have been in steady decline for a number of years. To halt this decline, newspapers need to develop new strategies to attract and retain young consumers, many of whom are more interested in using mobile phones, iPods and other portable media than reading a newspaper. “Our clients are finding it difficult to connect with young consumers. This makes it hard to spot potential changes in consumption patterns. There is a lot of multi-tasking (between different types of media) taking place, and the key challenge will be to devise the most effective ways of reaching these young consumers,” said Sir Martin Sorrell, CEO of WPP.



Taking advantage of the web Many newspapers have attempted to leverage their brands online, although most are only generating modest returns so far. Some are seeking to make money through Internet advertising – many newspapers have migrated classified adverts online, for example. Others have acquired or formed partnerships with Internet operations. German publisher Axel Springer, for example, recently acquired 50% of Stepstone, the number-two online platform in Germany for employment advertising.

Newspapers have also attempted to make subscription models work for their online publications. But the results have been mixed. “The take-up rate for paid-for content online is much slower than everyone thought,” says Dr Michael Stollarz, Head of Investment Management of Verlagsgruppe Handelsblatt, the leading Germanlanguage
financial and business newspaper. “We have to develop intelligent products and intelligent business models in electronic media, but so far we are at the stage of trial and error.”

Some of the more forward-looking newspaper publishers have formed multimedia units to extend their content through broadcasting, the Internet, mobile phones and electronic games, among other channels. Axel Springer, for example, uses its multi-media unit as a launch pad for campaigns to sell merchandise related to films or pop stars,
using promotions through TV, the Internet, SMS messaging and traditional print media. This enables the company to exploit synergies across a range of its media assets. “The media business today is not only about selling newspapers, but also about selling a whole bundle of things, primarily the newspaper’s own brand name,” said Joerg Schweikart, Axel Springer’s Head of Group Controlling and M&A.

Europe’s magazine publishing sector is already a mature market. But there is still room to create and target lucrative new niche audiences. IPC Media and Emap have both recently scored successes by launching men’s lifestyle weeklies, Nuts and Zoo, respectively. French publisher Hachette has also triumphed with Psychologies, an alternative women’s title that has significantly grown its readership since 1997, overtaking established leaders such as Madame Figaro and Cosmo.



The Internet is a powerful tool for all publishers, offering instantaneous access to a global audience, combined with massively reduced distribution costs. This enables new higher levels of targeting, allowing even small publishers to reach out profitably to affluent, niche audiences. Many publishers will offer a tiered online service, giving access to
some products for free, with premium content available through subscription. They will also be able to extract value from content archives and increasingly powerful search facilities.

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