Key Takeaways
2020 will be a defining year for the media industry, setting the tone for the coming decade. This report provides our views on the top five trends we expect to see in the media industry.
1. The SVOD wars will continue to fragment the media industry, threatening incumbents and allowing aggregators to re-emerge; With Disney+ and greater focus on exclusives, access to content will have growing frictions. This will restart the aggregation cycle as the losers of the SVOD wars merge or are subsumed by the larger players
2. Broadcasters will increasingly rely on BVOD to create a ‘Total TV’ ecosystem; the shift in viewing habits and launch of connected TV metrics will allow broadcasters to deliver a more robust product that, for the first time, consolidates digital and linear audiences
3. Ephemeral social media will be an increasingly relevant platform; 23% of all Facebook ad revenue in 2019 was generated by Instagram Stories. While Gen Z have been early adopters, older demographics are just beginning to understand and explore these platforms, giving plenty of user growth runway
4. Podcast monetisation will improve, thanks to better infrastructure around creation, curation, discovery, and selling; the number of Australian podcast listeners has grown ~24% in 2019 and is expected to continue as new tools simplify the listening experience. In addition, audio platforms will leverage recently developed tools over 2020 to enable effective monetisation of podcasts
5. Public pushback against tech giants to give local players an opportunity to clawback some market share; the Australian government accepting most of the ACCC’s 23 recommendations from the Digital Platforms inquiry will put some restraint on global tech giants in Australia, but are unlikely to break their market domination
This article first appeared in Venture Insights - click here.
Introduction
The 2010s have been an extraordinary decade in media, demonstrating the speed of disruption in the media industry and the need for market participants to constantly innovate to stay relevant and unlock new sources of growth. So, what can we expect to be the top trends to arise in 2020? At first glance, we expect:
The SVOD wars to continue to fragment the media industry
BVOD will become a centrepiece of the ‘Total TV’ ecosystem
Ephemeral social media will see exponentially growing revenue
Podcast revenues to grow due to improved infrastructure enabling effective monetisation and a simplified listening experience for greater adoption
Pushback against tech giants to create a more level playing field between local and global players
This report explores these trends in greater detail and how they will impact the media landscape.
Trend 1: Who will win the SVOD wars?
The video entertainment industry is fragmenting again
With the Australian launch of Disney+ on the 19th of November 2019, the SVOD wars are at their peak. Australians have long forgotten the days where pirating content was the only channel to access affordable content without subscribing for overly expensive cable TV. Now, there is access to almost every piece of content created at prices as low as $8.99 per month. However, the proliferation of SVOD platforms has also caused the industry to once again fragment.
Figure 1. Timeline of SVOD platform launches in Australia
SOURCE: VENTURE INSIGHTS
The already congested SVOD market in Australia is set to become even more fragmented with the recent launch of Disney+ and Apple TV+ joining Netflix, Stan, Hayu, Amazon, Youtube Premium, Foxtel GO, and Kayo. Fuelling the SVOD war is the landgrab for exclusive, top-rated content. Netflix, which once housed content from the top producers in Hollywood, is no longer the one SVOD service that has everything in its content library. Disney recalled its content from Netflix in preparation for the launch of Disney+, and has more recently imposed a ban on all ads related to Netflix across its channels[1]. The industry has shifted to become more protective of their content assets, with the large players now increasingly focused on producing original content.
Even with such a congested market, the threat of new entrants persists in the market. New SVOD platforms from the US, such as HBO Max by WarnerMedia and Peacock by Comcast’s NBCUniversal, are looming across the Pacific. Whether or not they enter the Australian market remains to be seen given their international distribution contracts already in place. Foxtel currently holds ‘long-term rights’ to HBO and NBCUniversal titles, but the deal with HBO expires in 2021. Ominously, HBO recently lodged a trademark application for HBO Max in September 2019[2]. This suggests an Australian entry by HBO Max is not off the cards, threatening Foxtel’s content and market share.
SVOD market growth is decelerating
With such intense competition for audiences in an increasingly saturated market, the winner of the SVOD wars will be the best at retaining its subscriber base. Retention efforts are most likely to be seen in the form of loyalty programs, recommendation engines, and exclusive content.
According to Venture Insights[3], growth of the Australian SVOD market is beginning to decelerate. Annual growth is expected to slow from 40% p.a. in 2019 to 7% p.a. by 2023, with the Australian SVOD/IPTV market forecast to plateau above $1.8b by 2023. At the household level, the average household spent ~$17 per month on 1.4 SVOD subscriptions in 2019.
Figure 2. SVOD revenue and pcp growth (A$m, %), January 2020
SOURCE: VENTURE INSIGHTS
Australian audiences are unlikely to pay for more SVOD services unless they complement or offer significant value over their existing subscriptions. One of the reasons why SVOD has seen such high uptake in Australia is because SVOD by nature is a cheaper, more convenient alternative to cable. As a result, it is unlikely for households that have embraced SVOD to spend more per month than a $30 entry-level cable service. In addition, audiences can churn SVOD services with no break fees and cycle through multiple content libraries in a year whilst paying the same amount every month. As a result, growth in subscriptions per household will be suppressed to 1.6 in 2023. High competition will also keep average subscription pricing low at the $12 level. For more information about the Australian video entertainment market, see our report ‘Video Entertainment Market Outlook’.
Access to great content will separate winners from losers
SVOD winners will be characterised by a strong brand and supported by initiatives to reduce churn or, at the very least, remain as a staple part of audience content churn cycles. A strong brand is reinforced with large scale; media buzz grows exponentially by the number of audiences sharing what they are watching. However, content is king, and these audiences must first be attracted by content that is relatable and entertaining. A big release can achieve this, but winning SVOD platforms will have enough content in the library – both old and new – to maintain inertia and retain subscribers until the next big release. In the global landscape, the current pure-play SVOD platforms that are likely to be winners include:
Netflix; has industry-leading predictive capabilities to understand the characteristics of content that people enjoy and want to watch. Netflix can use this insight to fund and influence the development of future releases. They have also amassed a large and diverse library of global content that, with the help of their leading recommendation engine, always offers something new and relatable to the subscriber to watch.
Disney; owns and will continue to develop popular content brands such as Marvel, Lego, and Star Wars. While Disney has the financing to incubate new brands, its future appears to be focused on using their content to promote merchandise sales to offset SVOD losses. Disney has a large library of nostalgic classics that can keep subscribers engaged until the next big hit.
HBO (AT&T); has a strong track record of tentpole shows and will need to continue investing in quality writers and production to keep subscribers on their books. Although HBO may lack the scale of Disney or predictive capability of Netflix, HBO has already built a strong brand with a tentpole pipeline lined up for the next decade. As a result, subscribers are likely to continue sampling HBO content, given its position as the default source of great content. To maximise their investment in SVOD platforms, HBO Max may expand beyond the US into Australia. This will impact players, such as Foxtel, that currently licence HBO content.
Of the key SVOD players, Netflix is likely to continue as the clear leader for three reasons:
Netflix’s operations are profitable; it achieved a 12.68% net margin for the third 2019 quarter[4]
Netflix has one of the largest production budgets for SVOD-dedicated original content; globally, we estimate Netflix will spend US$7bn on original content in 2020.
Disney is expected to dedicate US$2.5bn to original content for its Disney+ platform in 2024, up from US$1bn in 2020.Netflix is the dominant player in the SVOD space; Venture Insights forecast Netflix’s SVOD subscribe share to stay dominant at 56% by 2023, well above Stan (16%) and Disney+ (10%)
Non-pure play SVOD platforms, such as Amazon Prime Video and Apple TV+, will continue to exist because of the synergies it offers to their wider ecosystem. SVOD becomes part of their strategy to keep consumers in the Amazon or Apple ecosystem, which is also where their major profit pools exist. Although they can invest in large production budgets, their brands lack the tentpole content or market share that define the market leaders and are likely to remain as challenger SVOD platforms.
This means that other pure-play platforms, such as Stan, Foxtel, and Hulu, are at risk in the SVOD wars. If they are unable to licence or independently produce quality content, they will find themselves merging either together or with larger players to amass a sizeable library that viewers are willing to pay for.
Trend 2: BVOD becoming the centrepiece for ‘Total TV’
BVOD consumption will continue to grow
In response to the rise of SVOD, broadcasters are increasing their digital capabilities to offer its FTA audiences an online, on-demand alternative; Broadcast Video-On-Demand (BVOD). While FTA TV consumption is known to be falling, ThinkTV reports that BVOD consumption has increased significantly over the past 3 years.
Figure 3. BVOD consumption by calendar half (million hours)
SOURCE: THINKTV FACT PACT
We expect this trend to continue to in 2020 for two reasons:
Viewing habits will continue to shift towards smart devices; their increasing penetration is shifting attention away from broadcast FTA TV. In addition, tech-savvy Millennials are favouring on-demand platforms over linear broadcast TV. As the largest consumer group in the world, they have a growing influence over how TV is consumed in the home.
Broadcasters have improved the quality of their BVOD services; through ongoing investment, BVOD platforms are now more user friendly, powered by modern infrastructure to minimise technical issues and buffering, with deeper content libraries available. Seven West Media, Nine Entertainment, and Network Ten have all turned to AWS’ cloud to support and improve the content delivery of their BVOD platforms.
Total TV measurements to revitalise the value of TV
BVOD is not a new concept, with the ABC launching iView back in 2008. However, 2020 will be Australia’s major TV networks each have a stand-alone BVOD platform to encompass their catch-up services, including a collaborative aggregator service under Freeview (Figure 4).
Figure 4. Australian Free-to-air BVOD apps
SOURCE: COMPANY WEBSITES
Yet, broadcasters have been slow to effectively monetise the growing platform; the $128m BVOD revenue in FY19 was less than 10% of the total $1.3bn Australian digital video ad market in CY2018[5]. This is due to two barriers:
There has not been a measurement system for unique audiences across both digital and linear platforms; BVOD is considered an add-on to FTA advertising and fails to capture the attention of marketers. The small audience size and difficulty in de-duplicating audiences are failing to make BVOD an attractive alternative to FTA campaigns, or Facebook and Youtube video advertising.
There has not been a cross-channel platform to allow advertisers to purchase across linear and BVOD. As a result, BVOD is considered an ‘add-on’ to linear programming by advertisers.
2020 is the year where this will change as it marks the launch of VOZ (Virtual Australia), the world’s first ‘Total TV’ measurement currency in Australia. VOZ is an industry initiative to aggregate and attribute linear and BVOD audiences as one entity, de-duplicating viewing across screens to provide more informative reach and targeting data for marketers. This will enable marketers to run multi-platform campaigns across both TV and BVOD.
The differentiating point of VOZ compared to other next-generation TV measurement initiatives lies in its ability to integrate broadcaster, advertiser, and third-party data. As a result, VOZ will enable granular audience targeting on behaviour, interests, and needs. Combined with the reach of linear programming, this should unlock the revenue potential in BVOD. In addition to VOZ, Nine, Seven West Media, Network Ten, Foxtel, and SBS have combined efforts to build an ad platform across traditional mass media to improve sales across linear programming and BVOD in a single ‘Total TV’ ecosystem[6].
Trend 3: Ephemeral Social Media gaining the attention of more than just goldfish
Short-attention spans are disrupting social media marketing
In the past five years, ephemeral content has emerged as a new social media platform. Pioneered by Snapchat, ephemeral social media involves the creation and sharing of short videos less than one minute in length that can expire or exist permanently on the platform. Facebook’s Instagram realised this growing trend and moved quickly to implement their own ephemeral version of ‘Snapchat Stories’, creatively named ‘Instagram Stories’. With their larger userbase generating greater network effects, Instagram Stories surpassed Snapchat’s daily active user count within one year of its 2016 launch. Ephemeral media has been a boon for marketers for two reasons:
They can achieve greater engagement with their target audiences. A survey conducted on behalf of Facebook claims that 66% of respondents actively use Instagram because it enables them to interact with brands[7]. Furthermore, it found that a third of Instagram daily active users became more interested in a product after seeing it on Instagram stories.
They can target valuable audiences that cannot be reached through traditional channels such as TV. Millennials are projected to spend US$1.4 trillion globally in 2020, making it crucial for marketers to reach them. While the Pew Research Centre reports over 50% of U.S. adults aged between 18-49 use Instagram or Snapchat[8], Facebook reports that 41% report of Instagram users do not regularly watch TV.
Figure 5. Facebook and Instagram’s estimated quarterly ad revenue (US$bn)
SOURCE: RECODE
As a result of this increased engagement of the world’s most valuable consumer group, marketers have shifted their ad spend accordingly. According to research from Socialbakers[9], Instagram Stories accounts for 10% of total ad spending on Facebook’s platforms as of September 2019. The full Instagram platform is also driving the next phase of growth for Facebook. Estimates from Andy Hargreaves, a research analyst with KeyBanc Capital Markets, suggest that Instagram will account for almost 30% of all Facebook revenue and contribute more than two-thirds of Facebook’s new revenue by 2020 (Figure 5). In conjunction with the superior audience engagement of Instagram Stories, we can expect Instagram Stories to account for a growing share of total spending on ephemeral social media.
Time is ticking for Facebook to curb the TikTok threat
However, moving into 2020, TikTok will be the new dominant player in ephemeral social media. According to Sensor Tower, TikTok surpassed Instagram in global app stores to hit 1 billion downloads in February 2019, less than three years after its September 2016 launch. This 1-billion figure did not include Android installs from China, have connected to the real number of installs to be much higher. Of these billion app downloads, 800 million have converted to monthly active users according to a leaked advertising pitch deck from TikTok in October 2019[10]. This pitch deck also reportedly uncovers some of their monetisation strategy, including a ‘hashtag challenge’ that starts at US$150,000 a day and ad technology that offers advertisers automated campaign tracking and measurement.
Figure 6. TikTok is increasing monetisation efforts of its massive global userbase
SOURCE: SENOR TOWER STORE INTELLIGENCE
Facebook joined the rise of TikTok’s concept with the launch of their competing app, Lasso, in November 2018. Although this copy-cat strategy worked well against Snapchat, TikTok has already amassed a much larger global userbase than Snapchat’s 150m daily active users when Instagram Stories first entered as a competitor. However, China-US tensions have created concerns about TikTok and its Chinese parent, ByteDance; parts of the US government have banned TikTok from personnel smartphones citing cybersecurity concerns[11]. Considering the US response to Huawei’s market dominance, there is a possibility that TikTok will lose the US as its second-largest revenue generating market. However, TikTok’s global popularity will increasingly threaten Instagram’s global growth ambitions in 2020.
Trend 4: Podcast monetisation reaches higher highs
Podcast to form a core revenue source for audio players
Spotify no longer brands itself as a music streaming platform. It now brands itself as an ‘audio company’ to include its focus in growing its podcast division. Podcasts are expected to form a growing proportion of revenue for players such as Spotify as podcast monetisation unlocks new value for advertisers. Since launching podcasts in 2015, Spotify’s Q3 2019 earnings reports that podcast revenues accounted for almost 10% of its total advertising revenues.
Going into 2020, the global podcast industry is expected to continue its strong growth. In the US market alone, IAB estimates that total podcast revenues will grow by 27%. This revenue growth is driven by the increasing listener base (Figure 7). Roy Morgan’s Australian podcast survey results show a similar trend[12]; over 1.6 million Australians downloading podcasts monthly over 2019, representing an increase of 23.6% from 2018.
Figure 7. US podcast total advertising revenue has increased in lockstep with monthly active users
SOURCE: EDISON RESEARCH AND TRITON DIGITAL, IAB
Not only have podcasts increased in popularity over the past 4 years, they have also generated a valuable listener base for advertisers; engaged, educated, and informed. The ABC’s 2019 Podcast Survey[13] reports that the average surveyed listener will listen to 6 episodes and 4 series a week, finishing 80% of the podcasts started. 70% of respondents also cited that the ability to pick content that can entertain, teach, and inform as the main reasons why they choose to listen to podcasts. Furthermore, 53% of the survey respondents were aged between 18 – 34 years old, giving advertisers another channel to reach consumers that cannot be reached through traditional means, such as TV.
Infrastructure now set to drive strong podcast growth in 2020
However, in the same ABC survey, 1-in-2 podcast listeners survey noted that they are overwhelmed by the increasing choice of podcasts available. Furthermore, the lack of targeted audience metrics per show and constrained supply make it difficult for podcasts to offer custom, targeted campaigns. By improving the podcast platform for both consumers and advertisers, the industry could unlock nascent value in its path to monetisation.
We expect significant industry investments to come to fruition in 2020. These include the launch of multiple new tools to simplify the podcast experience, ranging from podcast creation, discovery, and curation, to improved listener metrics and programmatic purchasing for advertisers (Figure 8).
Podcast Creation
Without bespoke software, editing and transcribing podcast audio files involves a tedious manual process. However, 2019 put the spotlight on a few apps that simplified and amplified the process of editing podcasts. The two most notable apps include Anchor and Descript. Anchor is an app that serves as the one-stop shop for podcast creation, including recording, editing, hosting, publishing, distribution, and analytics. Anchor was acquired by Spotify in Feb 2019 and has since been integrated into the Spotify app to spread its presence to upcoming podcasters. Descript is a multimedia editing platform and launched a bespoke podcast product in September 2019. Its use of natural language processing puts it on an edge above Anchor, allowing AI-based transcription and dubbing over any mistakes recorded.
Figure 8. Examples of recent podcast infrastructure developments
SOURCE: COMPANY WEBSITES
Podcast Discovery
According to Forbes, there are over 54 million podcast episodes available worldwide. With such a large library of content available, it is unsurprising that podcast listeners are overwhelmed. This has galvanised the industry to develop new discovery solutions for podcasts. Search giant Google recently launched small features that will help make big in-roads for podcast discovery. At I/O 2019, Google announced that it was indexing podcasts to show alongside text and video search results and upgraded Google Assistant on 6 December 2019 to offer voice-based topical podcast searches.
Late 2019 also saw the launch of Spkr. Spkr is the first podcast discovery service that promises a seamless, personalised podcast curation and discovery experience. With new discovery platforms, Apple Podcasts will continue to lose market share having already slipped from 80% to 63% in the past few years[14]. Apple’s stranglehold on the podcast market share has been a significant barrier to the industry’s attempts at podcast monetisation, and any reduction in their market share will be beneficial for monetisation.
Podcast Programmatic Advertising
Programmatic advertising had historically been a challenge for two reasons;
Most ads were sold as podcaster readouts inserted during creation, which does not scale nor offer advertisers a simple method to purchase campaigns.
There were few metrics available for advertisers, with many campaigns sold on a CPM-basis using downloads as the sole performance metric
The industry has recently started to deploy adtech solutions to improve podcast ad inventory and measurement. On 16 October 2019, AdsWizz announced ‘PodScribe’, a tool that promises to offer a scalable way to target podcast campaigns. This is achieved by combining speech-to-text transcription technology to analyse podcast contents with their partner’s (Comscore) targeting capabilities. However, Spotify has recently announced SAI, its own programmatic advertising platform. This will combine Spotify’s data-rich userbase with their streaming adtech.
As this new podcast infrastructure embeds itself with the industry, we expect significant growth in both hours listened and ad revenues. There remains an opportunity for existing players to capitalise on plugging the gap in podcast advertising platforms, but this window is quickly closing. To learn more about the rise of podcasts, see the report ‘In Pod we trust? The rise and rise of podcasts, and where to next’.
Trend 5: Opportunity for local digital players to level the playing field against tech giants
Government regulation may help level the local playing field
The Government’s acceptance of the key recommendations from the ACCC’s Digital Platforms Inquiry is expected to lead to new regulation in 2020 to level the local playing field between tech giants— namely Google and Facebook — and local media players. For a full run-down of all the ACCC’s recommendations, see the report ‘ACCC Digital Platforms Inquiry Final Report – much needed digital reforms have arrived’.
Some of the key catalysts we expect in 2020 that will boost local competitiveness against global tech giants include:
A $27m commitment towards the setup of the Digital Platforms Branch special unit within the ACCC. This special unit will pro-actively monitor competition and consumer protection in digital platform markets. Online advertising and ad-tech services from offshore tech giants will be under scrutiny, giving local players the opportunity to prove advertisers can trust their new digital products, e.g. the FTA TV’s Total TV advertising platform
Reforming media regulation towards a platform-neutral regulatory framework to cover both online and offline delivery of media content. This will place all media platforms under fair, equitable regulatory requirements. Facebook and Google are expected to have more stringent regulatory requirements they need to satisfy, while local players may have some conditions relaxed
Requiring SVOD services to satisfy Australian local content obligations. Netflix has had similar local content obligations in the EU; in France, they are required to devote a minimum 16% of revenues derived from French subscribers to the production and output of French content. This has resulted in a large push by Netflix into the local talent and production industry. Currently in Australia, local TV and radio broadcasters are required to abide by strict local content minimums while the popular SVOD platforms have no regulatory requirements. If SVOD platforms like Netflix were required to meet a quota for Australia content, the outcome for Australian local producers and talent industry would see a similar boon to the French post-regulation
Increased consumer privacy protections on social media and online platforms, restricting Facebook and Google from exploiting Australian consumer data. Tech giants are coming under increasing pressure around the world due to privacy concerns and a lack of action against misinformation campaigns. Negative public opinion is likely to flow into the Australian market, with consumers increasingly wary about the data they share with tech giants
Tech giants to still dominate the Australian ad market
However, while there is an opportunity for local players to level the playing field, consumer preferences are not expected to shift dramatically away from the digital platforms of the tech giants. These tech firms are expected to have the capability and funding available to manage the additional regulatory burden without significantly affecting their core products. Their native digital status and competitive edge will sustain throughout 2020, and local players will continue to find difficulty in stopping the haemorrhage of ad dollars to the big tech players.
Figure 9. Total Australian advertising expenditure (% of Australian advertising spend)
SOURCE: ACCC DIGITAL PLATFORMS INQUIRY FINAL REPORT
To counter this, local players are expected to band together to build digital platforms that can rival larger offshore competition. While the FTA TV broadcasters are currently in the process of doing so, other platform players such as Stan are yet to do so.
Bringing it all together
2020 will be a defining year for the media industry, setting the tone for the coming decade. SVOD platforms will see increasing competition, and only those that can continuously leverage their content to draw and retain viewers will survive the wars. More locally, the push towards Total TV will see BVOD play a greater role for FTA TV advertising strategies. However, while Total TV is promised to deliver the cross-platform mass marketing product for advertisers, it will also bring into question the viability and value of Australian BVOD if it were to fail. On the social media front, more eyes are shifting towards ephemeral media, such as Instagram Stories, Snapchat Stories, and TikTok. In parallel, brands are moving their marketing dollars to these more engaging mediums to interact with their customers directly.
Our ears are also increasingly moving to podcasts. While podcast interest and listener bases have grown steadily over the past 4 years, 2020 will see the first year where all aspects of the podcast value chain are simplified and made to be effective for increased adoption, discovery, and advertising management and analytics. These shifts in consumer behaviour to increasingly rely on digital platforms has also resulted in the Australian government step into the space. 2020 will see government intervention provide a modern update to industry regulations and provide an opportunity for local players to compete against the dominance of the global tech giants.
[4] 2019 Netflix, Third Quarter Earnings
[5] 2019 IAB Australia, Total Australian Advertising Market CY2018