MEDIA 2020 a Universe of Digital Opportunities

BEYOND MAINSTREAM

MEDIA 2020 A universe of digital opportunities

JULY 2014 THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

THE BIG 3 1 >50% of French smartphone owners use their device for browsing, playing, … while watching TV: media-meshing and media-stacking are two new trends p. 5 2 45% of device owners use their smartphones in restaurants and transports, or their tablet in the bedroom: connected objects are ubiquitous and are opening new paths to reach the consumer p. 8 3 150 times or more: it is the potential value increase of personal data captured: a goldmine for media players, if they accept to reinvent themselves p. 8

2 ROLAND BERGER STRATEGY CONSULTANTS THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

Traditional media are facing multiple revolutions: meshing and stacking consumption patterns as well as business models disruptions. Only those with a clear and innovative strategy and action plan will manage to claim their spot in the new value chain.

A. EXECUTIVE SUMMARY Traditional media companies need to move from their historical silos / mono-channel structure and develop Consumers are now over-equipped with internet- digital know-how, to accompany a new pull-market connected devices (laptops, smartphones, tablets, where the ability to generate, capture and analyze etc.) and the arrival of any new connected-product data has become a key success factor to address cus- tends to be adopted at a faster pace than the previous tomers and monetized media offers. generation. In this new game, over-the-top players have the up- Traditional time and space constraints progressive- per-hand. Digital-native companies such as Google, ly disappear; consumers can access online contents Amazon, Facebook and Apple have progressively col- round the clock through multiple channels and devices, lected comprehensive data on their clients and already enhancing a NEW "MEDIA-MESHING" EXPERIENCE. started to monetize this knowledge. This brutal com- For media players, a direct consequence is a strong petition has generated great deal value for GAFA dilution of consumer's attention, weakening their tradi- shareholders but also created friction in the media tional business relying mostly on advertising. However, ecosystem. those new behavior patterns simultaneously create However, the die is not cast yet for traditional me- strong business opportunities. Customers are now dia companies and lessons can be learnt from US OTT reachable at any time and through all sort of devices, giants. First success stories confirm the path to follow and huge amounts of information regarding their pref- to adapt to the new deal : Axel Springer, Hachette, erences and personal life are becoming available. Schibsted, Solocal, and many others… This is a GAME-CHANGER for the traditional me- GOING DIGITAL may be complex and traditional dia industry and most incumbent media companies media company may consider they have a lot to lose in need to reinvent themselves in order to meet the new this new playing field, still a universe of digital oppor- requirements expressed by their clients. tunities is available for those who should move fast and bold.

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B. INTRODUCTION stations, CDs, television channels, DVDs, etc. – because of users' multi-equipments, have to adapt Snapping your fingers or speaking a word aloud is all it to new ways of producing and circulating contents. takes to silence the smartphone alarm, ask digital as- The rate of adoption accelerates markedly with sistant Siri to announce all the news you are interested each new product. For instance, in 2001, it took 400 in before you even get out of bed, or comment on the days for one million iPods to be sold while it took only first Facebook postings of the day while brushing your 30 days for the iPad in 2010. In this context, the up- teeth and switching on the espresso machine. coming worldwide expected release of an iTV or any You worked late and missed your favorite show on other significant innovation (Amazon Fire TV or Chrome- TV: press "play" on the ad-free replay of "The Voice" on cast device) could prove particularly disruptive. your smartphone and the face of the judges appear on your TV. You immediately share on Facebook the video Consumers strongly enhance their of your favourite candidate perfoming a David Bowie media experience through "media song. meshing". Time to leave: you lock the doors with your smartphone and watch the last viral-ad of Volvo starring Zla- With the multiplication of internet-connected devices tan Ibrahimovic while waiting for the bus, send it via in homes and in consumers hands and with the con- Twitter to a friend you met in Hong Kong last week. As stant availability of access to media through tablets or you are boarding, he calls you on Skype, both of you smartphones and fast networks, pure cannibalization speaking in your own language, being simultaneously of traditional media supports (radio and TV) by newer translated and appearing as an hologram on the top of ones could have been expected and therefore overall your phone. stable media consumption trends. It is in fact not the In short, the digital transformation is turning our case, on the contrary, as CONSUMPTION BECOMES day-to-day lives upside down. As it does for the media CROSS-DEVICES. Proof is that TV consumption will industry. reach new highs with average time spent in front of a TV screen expected to increase from 230 minutes to 250 minutes in 2015. Why is that? In reality, "me- C. THE NEW MEDIA CONSUMER: dia-meshing" has strongly enhanced our media experi- OVER-EQUIPPED AND EAGER FOR ence by allowing a multi-devices interaction pattern CONTENT…BUT WITH SHORT with the content being consumed. For instance there is ATTENTION SPAN a strong correlation between Facebook and Twitter ac- tivity and TV shows being watched, as consumers en- Consumers are over-equipped. joy commenting them with their friends (and more globally) on social medias. Technology is the first force for change, and even more Before the technological revolution brought by smart- so the generalization of connected devices. In 2012, phones and tablets, media consumption followed what more than 50% of the population owns a smartphone could be called an established agenda. We would read in Europe and the increasing penetration trend is ex- newspapers during breakfast, listen to the radio in the pected to continue until market saturation. In addition, car on the way to work and maybe watch a movie on TV a strong purchase intention (30%) is likely to increase once back home leaving behind the working-day. Such the penetration of tablets in Europe to over 35% in a a description is just a reminiscence of an ancient world near future. This means that traditional media chan- far away for our modern daily lives. Media consump- nels and products – newspapers, magazines, radio tion is now both NON-LINEAR AND SEAMLESS. A

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1 As a result, consumers' attention is strongly diluted. There is no doubt: A direct consequence of media content overload and maintaining of the multiplication of channels, our attention has never been as diluted as it is now, as reflected in "me- audience attention dia-stacking" figures. Surveys shows that in the UK, almost 50% of adults conduct non-media-related and commitment, tasks while watching the news or listening to the radio (such as text-messaging, writing emails, checking even more than Facebook or tweeting). In parallel to lowering their attention levels, con- getting "traffic", sumers are increasingly program-hopping. Access to a large diversity of media content has evolved dramati- will be a key chal- cally with the rise of new technologies and services. With TV-programs and videos on demand services, lenge for media with streaming technology (YouTube, Netflix, Hulu..), with radio podcasts and with air-play devices (Google companies in the Chromecast,…), media consumption now follows a logic of CONTINUOUS DIVERSIFIED FLOW rather coming years. than stock. In a nutshell, consumers can access a de- sired content at any given time, on any device, and is no longer bound to make do with what is broadcasted on TV or on the radio. B As a result, traditional business models relying mostly on advertising revenues are being weakened by these new behaviors. With the abundance of available contents, people are increasingly bypassing TV ads. On the internet, add-blockers are being increasingly adopted. In reality, customers are not becoming aller- gic to adds, they just do not want to undergo them but rather enjoy them, as illustrated by the 24 million tweets related to the Super Bowl half-time ads.

ROLAND BERGER STRATEGY CONSULTANTS 5 THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

"MEDIA MESHING" CONSUMERS STRONGLY ENHANCE THEIR MEDIA EXPERIENCE

A MEDIA CONSUMPTION IS NOW BOTH NON-LINEAR AND SEAMLESS

Time (hours) 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Past

TV Offline Radio Press Magazines / Radio News TV Shows

Future

Offline Radio Linear TV

Online Online News Streaming / VOD

Online games

E-mail

Social Networks

Mobile Social Networks

Surfing E-Books

Online news / Podcasting Messaging

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B USE OF SMARTPHONE WHILE MULTI-TASKING France Use a smartphone while… Listening Watching Surfing Reading Playing Watching Reading to music TV on the net magazines video games a movie a book 78% /news papers Germany 69% 9% 9% 10%

13%

18% 19%

25% 25%

32%

36%

43%

47% 49%

52%

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D. SIMULTANEOUSLY, THE ABILITY For example, Wikipedia, the online encyclopedia, com- TO REACH TO CONSUMERS HAS bines creative participation of contributors, interactive BECOME MUCH MORE DEVELOPED feedback of users and creation of a participative community of editors and donors for the benefit of 2 Round the clock access to non-community readers. consumers is made possible through Even traditional offline medias such as TV channels multiple channels and devices. and radio stations are beginning to enhance this interactive relationship with their audience by developing Consumers who own multiple devices with online ca- websites or apps though which users can share per- pabilities tend to over-consume media ; ever since the sonal preferences and opinions. US TV show "Fringe" smartphone, tablet and connected-TV began their tri- for example has been renewed thanks to users de- umphal march, we have been online almost perma- mand on social networks for the production of a fifth nently, often through multiple devices simultaneously. season. This trend can be seen in France too, where Worldwide data usage trends show that apart from "Plus belle la vie", a hit soap on France3, will allow when we are asleep, there is no time when we do not viewers to choose storyline arcs through votes and engage in online communication. And that is only the comments on the show's webpage. beginning. Facebook, Twitter or Google+ gather and concate- Customers have never been as much REACHABLE nate significant amounts of personal data though login as they are today for media companies and advertis- data, "likes, the people we follow, the content we ers. Furthermore, this trend is expected to continue as share, … More generally, all media companies may even traditional devices such as TV screens are bound collect a tremendous amount of data on each and ev- to become "connected" with the increasing penetra- ery user; when they connect, how often, where, though tion of the iTV, Chromecast or Amazon Fire TV. what devices, what are their hobbies and interests… The race for multi-devices services is only begin- those are all information that users provide them each ning and will ramp up rapidly with the arrival of new time they surf on a website or use a mobile applica- connected products such as smart-watches from Sony tion. Like it or not, there is little privacy regarding digi- or Samsung. Smartglasses are being developed by tal life. Sony in order to compete with Google's reference product, the GoogleGlass. If the market still seems to Media companies and advertisers can 3 be incipient, 23% of France population is already using make the most of these information. a connected objet for entertainment, safety or health. The potential audience is broader than ever and the A real gold mine lies within these accumulated person- focus has moved towards how to catch its attention. 3 al information. The ability to gather, organize and cor- relate fine and numerous data on consumers and to Huge amounts of information regard- match them with behaviors is now becoming highly ing consumers' personal lives and valued. As an illustration, basic data like age and ad- preferences are becoming available. dress are worth $ 0,5 per thousand while a qualified list of recent parents or new homeowners is valued at Most connected media services are interactive; this $ 85 per thousand: a 170-times fold. implies that while consuming media contents, users In association with the digital transformation of are giving back information about themselves. This media, advertising, commerce and usages, the pur- may be via subscription, interactive user feedback, cre- chasing behavior of consumers went from a response ative participation or simply by consumption patterns. to an identified stimulus (TV add, promotion, …) to the

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3 GEOGRAPHICAL CONTEXT INTERNET ACCESS DEPENDING ON MOBILE SUPPORT IN EUROPE [2012]

At Home

LIVING ROOM BEDROOM KITCHEN GARDEN

51% 44% 39% 53%

62% 45% 30% 21%

Nomadism

WORKPLACE RESTAURANT/COFFEE TRANSPORTS CAR

43% 45% 45% 43%

19% 16% 15% 13%

Smartphone Tablet

ROLAND BERGER STRATEGY CONSULTANTS 9 THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

result of a more comprehensive cross-canal process of Other Internet leaders that do not benefit from social online information seeking (as introduced by Google as media data quickly grasped the opportunity. Compa- the "ZMOT"), product selection, purchase, post-pur- nies such as Google or Amazon have been collecting chase feedbacks posting and after-sale service re- large amounts of user data from their beginnings and quests. The possibility to reach a customer during its then made moves towards big data leverage by adapt- entire purchase process in a reliable way thus rep- ing their business models. resents a highly valuable asset in the eyes of an an- Most traditional media companies such as TV and nouncer. radio broadcasters are lagging behind. In order to col- Leveraging on those data can also strongly en- lect users data they need to go digital full-scale and hance the media experience of the consumer. Netflix this implies a disrupting business model turnaround for example has directly linked its content curation and for these companies. Some of those corporate players production to the personal data of its viewers; its most already have made the move (for example Time Warner popular show "House of cards" is the result cross-ref- Cable) and are now multi-modal players. Most of tradi- erencing viewers preferences and habits as observed tional terrestrial TV broadcasters are still struggling on the website: it features a famous director, a popular with a decreasing market and have not yet captured actor and a successful English TV show with strong the data opportunity. correlations in consumers preferences. It’s the first time that programs have been developed with the use E. CURRENT MARKET CHANGES ARE of big data algorithms and it has been worth it: a few SO DEEP AND BRUTAL THAT MOST month after its unveiling, the show has been awarded INCUMBENT MEDIA COMPANIES an Emmy. NEED TO REINVENT THEMSELVES Media companies will strive to be Media companies are historically able to exploit and leverage the data structured in silos – mono-channel. they own. Newspapers companies focused on selling daily, By doing so the aim is twofold: better know the audi- weekly or monthly papers while broadcasters worried ence in order to offer the most relevant content on the mostly about TV or radio audience. Business models one hand and on the other hand be able to sell from an other time. As demonstrated by users and by high-value targeted ads to advertisers. Big data allows new players, borders between different supports or for a better alignment of the sales department and the channels have disappeared (or are disappearing de- marketing department with two very compatible objec- pending on markets historical strengths and maturity) tives: increase advertising revenues per viewer or time and content is all that matters. It has to be available at spent and increase audience. once, everywhere and anytime. The different players are not equal in this new mul- Media companies used to have a clear focus on a timodal access and data collection. For social media single business, with a very specific value chain, busi- companies, capitalization on user's data has always ness model and even a strong and distinct corporate been the cornerstone of value creation and of their structure. Radio and TV channels, newspapers, mov- business models: those are obviously internet behe- ies and others content-related industries used to be moths such as Facebook, Twitter or LinkedIn. Those perceived as businesses so different that one would sites, that are based on user-generated content, col- not even try going on another's turf. lect in essence personal data on each and every user. During the last decade, newspapers like other traditional medias faced the need for a radical change in

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their internal organizations in order to adapt to the new and through television programs. The app identifies digital environment. As of today, many "digital + print" the content being watched through live tags, manual organizational models exist, from entirely separate connection with the TV or even sound recognition, col- news operations – duplicating resources for media and lecting massive amounts of real-time personal data in for print – to full integration of activities and operations the process. Once the content is identified, purchase across platforms. In the latter case, all notion of seg- options and customized experiences (additional infor- mentation between channels, from commercial and mation, additional content,…) as well as a social plat- editorial activities to technological and human pro- form to interact with other viewers (chats, polls,…)are cesses disappears. offered to the customer during the show. The app has In the United States, most large newspapers such reached 1 million downloads in 3 months in the US, as the New York Times or the Wall Street Journal began quickly becoming a leader in the field and across TV integrating their newsroom between 2000 and 2005, channels. at a time when French newspapers still barely considered their online contributors as journalists. Inspiration A second challenge is to develop an from the US newsrooms and the need for a viable busi- offer bridging end-users and adver- ness model brought a change and many French news- tisers. papers such as Libération, Le Monde or Les Echos have been transitioning for the past few years towards Big Data has allowed the convergence of their inter- a unique organization. This implies the pooling of all ests: a better targeted audience increases the adds resources into a single newsroom therefore responsi- relevance for end-users while improving the quality of ble for both the daily print edition and for live informa- qualified leads for advertisers. For Time Warner Cable, tion on the website. Despite the difficulty of switching one of America's largest cable and broadband provid- from a print writing style to a web style and coping with ers, Big Data has become a strong advertising tool, by two completely different rhythms for publication, inte- giving TWC the ability to sell custom online campaigns gration allows historical press companies to address that are tailored to geographic and / or demographic the challenge of digitalization with more coherence in micro-segments of users, which have been identified terms of content, resource allocation and allows con- through what they watch mixed with publicly available sumers to switch from a channel to another with more information. fluid interactions. The ability to generate, capture and analyze data is a key success factor for monetization. Companies such New capabilities and new cultures in as Dell have chosen to involve consumers in their deci- term of technologies and customers sional process by gauging customers ideas on a are urgently required. web-platform: Ideastorm.com has been created as a platform for Dell's users (they can add articles, pro- As described, collecting users data means going digi- mote, demote and comment them) in order to identify tal as a prerequisite. And if going digital may seem to what was more important for them. Dell thus extracts be a clear direction, it requires money and experience. the best ideas to be implemented and benefits from Media companies first need to manage new soft- live feedback on its products. ware/app capabilities with excellent customer experience. The story of Zeebox, a "TV side-kick" and a best practice in this field, provides a good example of what can be done in second-screening. This social network app enables constant and enriched interaction with

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From "Push" to "Pull" issues. F. IN THE SHORT TERM, OVER THE TOP (OTT) PLAYERS WILL KEEP Those deep market transformations are not limited to THE LEADERSHIP IN LEVERAGING services (such as support) or technology. Content pro- CUSTOMER KNOWLEDGE duction for example, the first step of the media value chain, is also deeply impacted. Traditional media com- OTTs have much better customers panies are based on "Push" models that try to antici- knowledge than traditional players. pate consumers expectations in terms of content, in order to create a standardized program, and "push" Amazon (over 230 active customer accounts), Apple the program into people's home, using "broad- (over 575 million iOS / Mac OS installed-base devic- cast-type" distribution channels (TV, radio, news pa- es), Facebook (over 750 million users), Google (over pers,…) and marketing. Over-The-Top players have 540 unique searchers worldwide) and Microsoft (over jump-started a transition to a "pull" model. It generally 300 million Skype users), among other "digital native" takes form of a collaborative production platform that companies currently dominate the OTT game. They uses digital technologies to produce customized pro- have our data and they are not afraid to use it. Total grams and services, usually in a rapid manner, based and relevant personalization makes them indispens- on users' preferences. able. They are our daily companions because nearly all of us use their services. They also beat incumbent me- Despite moves towards a global dia companies in terms of financial results and of inno- value chain, situations remain very vation – a fact that stock markets have rewarded with heterogeneous. considerable increases in their valuation in some cas- es. If the above describes general trends based on obser- When accused of disloyal competition by incum- vations, but there remains specificities in the media bent media players, "GAFA" (Google – Amazon – Face- ecosystem that have to be taken into account when book – Apple) answer that they just know the users considering the transition. Some captive uses partially better and provide them with the exact content they protect the value of traditional media industries. For need. The reason lying behind this hard fact is quite instance, while driving your car on your way to work, simple: they receive a huge amount of information should you want to learn about the news, the most from users and have the ability to convert this tremen- convenient media should remain radio for many years dous amount of data to "profile" clients and provide or a few decades... Other sectors remain somehow them with what they are looking for. protected from market transformations thanks to the exclusivity and innovation of their contents. For in- OTTs are also better at monetization stance, in this same over-challenged environment, the personal data. film industry has learned its game as there is no substitution possible for the block-busters creation. To a With such an intimate knowledge of users, OTT compa- certain extent, there are similar examples in the TV in- nies have access to a "modern oil field", i.e. fast rich- dustry with the successful production of reality TV es. They sell it for top bucks to advertisers for which shows in the recent years. 4 precisely targeted ads represented a pure and distant dream until now. Let's take an example. It is time to replace your old family car with a brand new German sedan so you go visit the Audi website via a Google search.

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4 EXAMPLE DISRUPTIONS ALONG THE VIDEO VALUE CHAIN CAUSED BY DATA-DRIVEN BUSINESS MODELS

Content CONTENT Tech. platform, Devices INVENTORY Creation, AGGREGATION distribution UTILIZATION acquisition

Current Disney Content CREATORS RTL aggregation CBS based on viewer Warner Bros. feedback for own Sony content

Content Disney Sky Optimized inven- Current tory utilization AGGREGATORS creation based RTL M6 on extended CBS Netflix due to detailed data analysis Amazon Rai understanding of viewer

Current Creation of VOD Verizon Detailed recording Detailed DISTRIBUTORS offerings based Kabel Deutschland of viewer behavior recording of on analysis of UPC for driving content viewer behavior viewer behavior DirectTV via own interface for optimized use of inventory

Current Use of usage data Sony Creation of new DEVICE on device for own Chromecast inventory via own content offers Xbox devices and VOD VENDORS Samsung offerings Amazon Apple Android

Current Extensive, global Facebook INVENTORY data profiles as Twitter PROVIDERS Disruption new revenue Google risk stream Groupm P&G

Disruption risk

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You soon start receiving Audi ads on the news site you innovative online advertising techniques, new pay use. You receive an email offering to test the last Audi models (e.g. apps, video-on-demand) and intensified car and then when driving back home, passing by an consumer targeting (consumer intelligence), with an in- Audi dealership you receive a text message informing creasingly measurable impact on the bottom line (e.g. you of the last special discount. Google initiative to track return on social-media-origi- Companies' ability to monetize users collected nated "customer conversions"). At the same time, data is extremely valued by financial markets and thus costs need to be contained, e.g. by creating synergies can create a great deal of value for their shareholders. across channels/brands and cross-fertilizing creative As an illustration, GAFA, with stellar track record in talent. In these uncertain times, the focus must be on monetizing users data, have an enterprise value by ac- design-to-value, which in turn requires clear top-down tive user up to 16 times higher than French incumbent choices and company-wide implementation. telco / media players such as Orange or TF1. 5 Going one step further, LESSONS CAN BE LEARNT FROM US OTT GIANTS which give us more The skew towards OTT generates insights on the golden rules to create value on this ever frictions in the media ecosystem. changing market environment, although successful models need to be derived from market specific cir- In this context, frictions are reaching new heights be- cumstances, including infrastructure and device prolif- tween OTT and media companies. The growth and rise eration, content preferences, demographics, legal to predominance of OTT leaves incumbents bitter, as frameworks. they feel OTT cheaply derive content for their own prof- The OTT upraise should now be considered as a its over the producers'. Hence an increased number of cold fact and incumbents need to design the appropri- legal and commercial disputes regarding value shar- ate strategic responses. Truth is, most of the moves to ing. In a way, incumbents feel their turf is being invad- loosen the grasp of OTT are already known. Difficulty ed by OTT and come to realize the real competition is lies in the time needed by heavy organizations to ad- no more that much between traditional media compa- just their strategic vision. The traditional value chain of nies but rather versus OTT and have hard time adjust- media changed dramatically. In a nutshell, value add- ing to this new market deal. On top of that, traditional ed for media companies moved at both extremities of media companies are under the threat of disintermedi- the media value chain. OTT upraise makes edition and ation by OTT. As an illustration, on Google news, or on distribution/broadcasting mere commodities while Facebook recently released functionality "Paper", customer knowledge and content generation are at the news articles from online newspapers are referenced heart of traffic and so monetization. and available directly to users based on their profile. The more complex the media offer becomes, the Meaning that viewers traffic is diverted from the online more important consumers will place on personally news papers websites to Google or Facebook websites tailored, functioning offerings that meet all their needs. while those do not invest in producing content. 6 The difficulty of the matter is now to determine the optimal distribution of efforts and budget in the global G. FIRST SUCCESS STORIES re-shuffling of media resources induced by this struc- CONFIRM THE PATH TO FOLLOW tural change in the value chain. 7 FOR TRADITIONAL MEDIA TO ADAPT We have to keep in mind that to be pushed out by TO THE NEW DEAL OTT is definitely not a fatality for media players. Schib- sted and Axel Springer among others successfully The challenge but also opportunity for media compa- jumped on the digital bandwagon and now make the nies lies in finding new sources of income, through e.g. most of the internet economy.

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5 WORLWIDE TECH PLAYERS / INCUMBENTS EUROPEAN TELCO/MEDIA PLAYERS

Enterprise value / # active users [$] Enterprise value [Bn $] # Active Users [M]

WORLWIDE TECH PLAYERS

Apple 800 460 575 Google 639 345 540 Amazon 448 106 237 Facebook 169 128 757 Groupon 26 5 250

INCUMBENTS EUROPEAN TELCO/MEDIA PLAYERS

Deutsche Telekom 423 81 191 312 x1 to 74 236 Orange x16 TF1 54 2 45

6 MAIN MEDIA COMPANIES WORLDWIDE VERSUS EUROPEAN MEDIA COMPANIES

Aggregated turnover of three main players for each category [EUR Bn] 5 years CAGR (%; aggregated) WORLWIDE

Incumbents TimeWarner News Corporation 80 4.7 Disney

Pure Player Web Google Yahoo 59 18 Netflix

EUROPE Bertelsmann Vivendi 71 -0.1 Lagardère

GERMANY ProSiebenSat.1 ARD 12 -0.1 Axel Springer

FRANCE Canal+ M6 7 -0.4 TF1

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7 EVOLUTION OF THE TRADITIONAL MEDIA VALUE CHAIN

PUSH - Old value chain

Edition Distribution / Diffusion Optimal PULL - New value chain equilibrium to determine Content Edition Distribution Customers / Diffusion knowledge

Differentiating factor Control of the secondary diffusion and Better customer amid the hyper-abun- accessible to all: Google, Youtube, Netflix, knowledge: evolution dance of media Amazon, Hulu, Free, Orange of data mining contents What future for publishers / broadcasters? Optimization of Headlights contents/ customer experience exclusive with high value added vs. Monetization of data "commodity" content first party available on several platforms

AXEL SPRINGER: a proven strategy of "build & run" HACHETTE: collaboration with OTT with online media companies At the turn of the previous decade, Hachette (world #2 Axel Springer is a German-based publishing group with book publisher) reckoned the digital revolution was operation in all Europe, realizing a 5% growth p.a. changing the dynamics of the book publishing busi- since 2008. Its late entry into the digital media com- ness worldwide. Hand-held devices were turned into petition did not prevent this historical publishing house individual points of sale offering an infinite choice of from becoming one of the largest media company in books, and long out-of-print and hard-to-find works Europe. In its will to become 1 or 3 player in rather were made available at the touch of a button. established market (no seed funding) the company re- From the outset, Hachette has been in the vanguard alized aggressive growth through segment and region- of the book industry’s response to the world of opportu- al expansion. nity that this revolution has opened up, by developing a AS made acquisition of major players to strengthen partnership with Google. This partnership could be its position where technology was needed like in ad- seen as unnatural when you know Google underwent vertising, and entered attractive markets like classi- legal actions for violation of intellectual property with fieds websites (Immonet.de or StepStone) to reinforce its massive books digitalization campaigns. Hachette sectors where AS historically missed-out on building had the sense Google could never challenge it on a its strong print position. The company also invested in publisher core business: detecting future best-sellers. new businesses opportunistically like price compara- But Hachette leverages Google fantastic digital distri- tors or niche communities. AS turnover reaches 2,8 bution capabilities worldwide and all the while makes EUR bn in 2013, with almost 60% of its profit made sure, as a company primarily involved in content and as from digital businesses. a depository of its authors’ fiduciary interests, that its

16 ROLAND BERGER STRATEGY CONSULTANTS THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

position in the new value chain was acknowledged and The group had to develop a sophisticated array of pric- that it received an adequate share of the revenue ing practices, to better adapt the value of its advertis- stream. Hachette edited books are also distributed on ing products to its customers (this value is directly Amazon and the Apple Store. linked to the return on investment they get, but strong- Hachette is a case in point of successful coopera- ly depends on usages and their evolution: offline vs. tion between traditional media companies and OTT online, mobile vs. fixed,…). Today, the ads are price depending on the channel (Print, fixed Internet , mo- SCHIBSTED: the niche specialization model bile Internet), region (and thus the penetration of digi- Schibsted: a success story in the online classifieds tal usages among users and advertisers) and industry market. Schibsted Media Group is a Norwegian media (competition between advertisers for visibility in the group with operations in 29 countries and realizing a media does not have the same intensity, values of a turnover of NOK 15 bn. Historically, Schibsted's activi- qualified contact also varies) . ties were related to media products in the field of Offers are "verticalized" and the products offered newspapers, publishing, multimedia services. Since are different for estate agents and car dealerships, for 2006, Schibsted moved to digital by acquiring online hotels and restaurants, or to health professions (these classifieds players at early stage, funded their growth professions with very different communication needs). until they reach critical size and then focused on mon- This sophistication and its constant renewal has etization. This early move into the niche market that is enabled the group to reach today 60% of its turnover online classifieds proved hugely successful for Schib- through digital media: PagesJaunes is by far the direc- sted. Since 2006, digital made up for the drop in prof- tory company that best handled the digital transition in itability of traditional media businesses. Digital busi- the world, and the group is de facto in the world's top nesses now represent more than two third of Schibsted 10 operators of digital advertising. profits versus less than a third in 2006. To deploy such a sophisticated offer requires mobi- lizing huge data sets, both in terms of customers SOLOCAL: Pages Jaunes: the well-managed revenue knowledge (their specificities, their needs, their substitution means,…) and in terms of users knowledge (their The best way out is only achievable once the dilemma needs, their usage evolutions, their behaviors from of digital monetization has been addressed: no mas- search to transaction,…) which is generally not the sive online audience exists without "free" content... strong asset of media groups. However, the latter have but no profit without "paying" content (including ads) little choice: the 10 past years have taught us that the at the right price. To combine these opposites, the volume of media content available on the Internet is CRM Excellence becomes a decisive weapon. growing exponentially faster than users, implying that PagesJaunes is, by nature, at the heart of this di- CPM of undifferentiated offers (non-targeted in terms lemma: its promise of exhaustivity and reliability to the of users and advertisers), already not very attractive, user (i.e. in the answer lists to queries), which is re- are condemned to decline. quired in order to support the audience, cannot be full- filled if all professionals have to pay in order to be well referenced: appearing in the directory has to be free (and even more so in the age of "universal search" as introduced by Google). But the company makes profits only from the sale of richer ads, that are more sophisticated, supply more "access points" and carry the promise of a positive return on investment.

ROLAND BERGER STRATEGY CONSULTANTS 17 THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

DEFENSIVE ALLIANCE WITH COMPARABLE ACTORS TO RESIST GAFA Incumbent alliance defense moves to face GAFA's aggressive competition has encountered uneven suc- cesses depending on the markets. As an example, Hulu started as an association of several TV channels to set up a common Video on Demand platform in clear intent to resist You Tube and Netflix. If none of its 20 original series released in 2013 made it to the Emmy like Netflix's "House of Cards", the company has reached $ 1 billion revenues in 2013, up from $ 700 millions in 2012, and more than 5 millions paying sub- scribers for the service. On the same idea, eight French newspapers created an online kiosk called ePresse allowing the access Beside the need of to all the articles for a fixed fee. The association had only 8% of market share in 2013, and daily newspa- dramatically change pers like Les Echos (also member of ePresse) and Le Monde have decided to join Apple's Newsstand at the their business end of the year. Their search engine presse.lemoteur.fr launched in 2012 elaborated with Orange seems to models to stay have vanished from French media landscape. We can see in these examples the complexity of ahead in the race, taking the turn of digital for incumbent media companies, as well as for new entrants. Media companies there is also a real have a lot to lose in this new playing fields (intermedi- ation in client relationships, obsoletes offering and opportunity for them business/revenue models, …). to be positioned as central pivots in this changing media market, should they move fast and bold.

18 ROLAND BERGER STRATEGY CONSULTANTS THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

FOUR KEY PRIORITIES INCUMBENT PLAYERS SHALL ADDRESS FOUR KEY PRIORITIES AND FOLLOW LEADERS PRINCIPLES

Lead a digital Set-up Strategy maturing assessment and bold initiatives

The path and steps to follow differ de- Value chain is changing and moves are pending on the current company, competi- mandatory, in a ecosystem where some tion and market situation. A few questions partnerships can be strongly needed to must be answered first: face new players:

How knowledgeable and experienced is On which part of the value chain does the the organization with digital tools? value concentrate?

What were the impacts of digital solutions What would be the key impacts of initia- on market segments comparable to mine? tives to implement on the value chain?

What could be the next promising busi- Who are the best potential business part- ness models on the European market? ners to support my strategy? What kind of cooperation should be adopted?

Design Data collection Define target Capabilities roadmap and valuation and quick wins

In this new world, Data is always part of the Pragmatism remains key, and quickwins solution (even though not fully the solution). initiatives have many benefits, from cultur- Therefore, a specific assessment must be al change to "test&learn" attitude (and of led regarding data opportunities: course business benefits):

How much do I know my clients and their What are the in-house resources I already needs? own to implement changes?

What are the digital / IT tools and means What should be my first moves on the available to date? short-run?

How could I extract value from Big Data? How to assess and monitor the relevance of my strategy?

19 ROLAND BERGER STRATEGY CONSULTANTS THINK ACT MEDIA 2020 - A UNIVERSE OF DIGITAL OPPORTUNITIES

FIVE KEY PRINCIPLES APPLY THE FIVE KEY PRINCIPLES FROM ONLINE LEADERS

Know the customer e.g. GOOGLE tracking all of its users behaviors and offering the best products and services – even with its users help – such as Google Now.

Help the customer e.g. AMAZON pushing relevant offers – unobtrusively and with a benefit for the customer – and providing a one-stop-shop convenient and reliable service.

Own the customer e.g. APPLE designing the right products (hardware and software) in order to remain an intermediary in a large range of usages, as with in-app purchases.

Start a conversation e.g. BUZZFEED aggressively pushing content across social media and measuring impact.

Build an ecosystem e.g. CRITEO offering innovative advertising solutions thanks to critical mass allowed by access to both advertisers websites, customers cookies and cheap media inventory.

ROLAND BERGER STRATEGY CONSULTANTS 20 THINK ACT TOPIC OF THE ISSUE

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LIGHT FOOTPRINT HOME AUTOMATION: MANAGEMENT: Leadership the next big move in the in times of change utilities and telecom industries A consensus is emerging that the business environment has Home automation solutions become too volatile, complex are becoming mature, with and unpredictable for convincing products already conventional management being marketed. The smart approaches to handle. In his home market is seen as a latest book, Charles-Edouard required strategic move for Bouée suggests that compa- all players. Utilities and nies can learn how to survive telcos will setup balanced and thrive in the new world partnerships to smoothly mix from recent developments in their skills and assets. military doctrine and a new approach to business management emerging in China.

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