The Impact of the Internet and Digitalization on the European
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April 2017 The impact of the internet and digitalization on the European creative sector by Oliver & Ohlbaum Associates Ltd and Analysys Mason About Oliver & Ohlbaum Oliver & Ohlbaum (O&O) is one of Europe’s leading independent policy and strategy advisors to the media and entertainment industry, where it has unrivalled knowledge and expertise. O&O’s clients include leaders in digital media, digital streaming services and several European television stations. About Analysys Mason Analysys Mason is an international consultancy renowned for its expertise, independence and rigour in the telecoms, media and technology sectors. Its portfolio includes multiple projects on the long-term evolution of TV distribution platforms and work for regulators on the use of data in the media and online publishing sectors. This report was written by Oliver & Ohlbaum Associates Ltd and Analysys Mason, and was commissioned and funded by Google. The opinions stated therein are those of the authors. Every effort has been made to trace copyright holders and obtain permission for the use of such material in this report. The authors apologise for any errors or omissions, and ask that they be notified of any corrections. THE IMPACT OF THE INTERNET ON THE CREATIVE SECTOR Contents Glossary 4 Key facts 6 Summary 7 1 Introduction 13 1.1 Background 13 1.2 Scope 13 1.3 Methodology 14 2 The creative industries 17 2.1 Our definition of the creative industries 17 2.1.1 Four core creative industries and cultural institutions 17 2.1.2 Our definition depends on available data 18 2.2 Historic performance of the European creative industries 18 2.2.1 Creative sector revenues are increasing 19 2.2.2 Creative sector employment is growing 19 3 The internet as an enabler of the creative sector 23 4 TV, film and video 29 4.1 The structure of the sector and its evolution 30 4.1.1 Content owners can now go direct to consumers 30 4.1.2 Revenues have increased in recent years 31 4.1.3 Changes in employment in TV, film and video vary by market 33 4.2 The impact of the internet on TV, film and video 34 4.2.1 Increased access has changed viewing behaviour 34 4.2.2 More competition has led to innovation and new business models 37 4.2.3 Digitalization has resulted in more choice than ever before 43 4.2.4 Digital innovation has led to new AV experiences 47 4.3 Outlook to 2020 51 5 Music 53 5.1 The structure of the sector and its evolution 54 5.1.1 The internet has reshaped the role of intermediaries 54 5.1.2 Increasing digital revenues are driving growth 55 5.1.3 Employment has increased significantly 57 5.2 The impact of the internet on the music sector 57 5.2.1 Digitalization changed the recorded music market 57 5.2.2 Musicians benefited from lower costs and greater engagement with fans 61 5.2.3 Consumers have more choice and can engage with musicians 65 5.3 Outlook to 2020 67 1 Contents 6 Books 69 6.1 The structure of the sector and its evolution 70 6.1.1 Traditional roles remain, but self-publishing is now more realistic 71 6.1.2 Revenue was challenged by digital but is now recovering 71 6.1.3 Employment presents a mixed picture 72 6.2 The impact of the internet and digitalization on the sector 73 6.2.1 The internet has increased access to books 73 6.2.2 Digitalization has increased competition and benefited authors 75 6.2.3 Consumers have more access to more content 79 6.3 Outlook to 2020 81 7 Video games 83 7.1 The structure of the industry and its evolution 84 7.1.1 Digital distribution and self-publishing have fundamentally altered the value chain 84 7.1.2 Video game revenue has increased steadily 85 7.1.3 Employment in the video games industry has increased significantly 86 7.2 The impact of the internet on the industry 87 7.2.1 Digital distribution has led to cost reductions and increased supply 88 7.2.2 Smaller developers have benefited from digitalization in several ways 90 7.2.3 Increased competition has led to a rise in demand and the emergence of new business models 93 7.2.4 There have been significant benefits to consumers and content creators 98 7.3 Outlook to 2020 99 8 Cultural and heritage institutions 101 8.1 The evolution of the sector 103 8.2 New options to preserve collections 104 8.3 More exhibits and greater access 104 8.3.1 Digitalization removes the constraints of physical display space 104 8.3.2 More people can access collections and performances 105 8.4 Creative engagement 109 8.4.1 Crowdsourcing offers a new approach to cultural research 109 8.5 Economic benefits to institutions 111 8.6 Outlook to 2020 111 Appendices 112 2 OLIVER & OHLBAUM ASSOCIATES LTD AND ANALYSYS MASON THE IMPACT OF THE INTERNET ON THE CREATIVE SECTOR Table of Figures Figure 2.1: Our focus industries 18 Figure 2.2: Creative sector revenue by industry, EU28, 2011 to 2015 19 Figure 2.3: Total creative sector employment, EU28, 2011 to 2015 20 Figure 2.4: Creative sector employment in our focus industries, EU28, 2011 to 2015 20 Figure 2.5: Creative sector employment, by industry, by market, 2011 and 2015 21 Figure 3.1: Availability and broadband penetration in EU28 by technology, 2011 to 2015 23 Figure 3.2: Fixed broadband subscriptions by advertised speed in the EU28 and actual cellular mobile speeds in selected countries 24 Figure 3.3: Smartphone and smart TV penetration by market, 2010 to 2015 25 Figure 3.4: Hours spent online in a typical week by consumers in the UK, by location, 2005 to 2014 25 Figure 3.5: Fixed broadband and mobile data usage per subscription in selected countries, 2013 to 2015 26 Figure 4.1: The value chain for television, film, and video 31 Figure 4.2: TV sector revenue by type, nine European markets, 2011 to 2015 32 Figure 4.3: On-demand consumer revenues, for nine European markets, 2011 to 2015 32 Figure 4.4: European box office takings and cinema admissions, for nine European markets, 2011 to 2014/15 33 Figure 4.5: Employment in the TV, film and video sector, by market, 2011 and 2014 34 Figure 4.6: Available nationwide channels, 2003 and 2013 35 Figure 4.7: DVR installed base, percentage of households, 2011 and 2015 35 Figure 4.8: Penetration of SVOD services, 2011 to 2015 36 Figure 4.9: Time spent with AV content 37 Figure 4.10: Percentage of European AV industry revenues and costs across the value chain, 2013 39 Figure 4.11: Producer operating revenues, large European producers, 2010 to 2014 40 Figure 4.12: Typology for OTT services 41 Figure 4.13: Number of on-demand AV services by market, 2015 41 Figure 4.14: UK investment in high-end originations, produced in the UK, 2014 vs 2015 43 Figure 4.15: Number of linear services targeting other markets, 2003 and 2015 44 Figure 4.16: Number of theatrical releases, UK and Ireland, 2011 and 2015 45 Figure 4.17: Uptake of SVOD services by household type in the UK 46 Figure 4.18: Traditional players are investing in short-form content 48 Figure 5.1: The value chain for music 55 Figure 5.2: European music revenue, for nine European markets, 2011 to 2015 56 Figure 5.3: European recorded music revenues, for nine European markets, 2011 to 2015 56 Figure 5.4: Employment in the European music sector, for nine European markets, 2011 to 2015 57 Figure 5.5: Subscription and ad-supported streaming services, global users and revenue, 2015 60 Figure 6.1: The traditional book publishing value chain 71 Figure 6.2: Book market revenues, for nine European markets, 2011 to 2015 72 Figure 6.3: Employment in the book publishing industry, by market, 2011 and 2014 72 Figure 6.4: Unit sales of eReaders worldwide 2010-2015 75 Figure 6.5: eBook sales for the UK Big 5 publishers 77 Figure 6.6: Average eBook prices 78 Figure 6.7: Market share of eBooks by title popularity, selected markets, 2013 to 2015 80 Figure 7.1: Evolving video games industry value chain 85 Figure 7.2: Total video games revenue split by segment, nine European markets, 2011 to 2015 85 Figure 7.3: Employment in the games publishing industry, selected European markets, 2011 vs 2014 86 Figure 7.4: Average number of games per user on Steam, by country 88 Figure 7.5: PC and Console revenue, by type, for nine European markets, 2011 to 2015 89 Figure 7.6: Evolution of mobile and PC games 90 Figure 7.7: Share of total revenues by value chain players globally, 2008 and 2015 91 Figure 7.8: Revenues within the video games industry value chain globally, 2008 and 2015 91 Figure 7.9: Share of self-publishing development studios in France 92 Figure 7.10: Share of independent development studios in France 92 Figure 7.11: Number of people playing games by device in four large EU markets, Q1 2013 to Q1 2016 93 Figure 7.12: Share of total games sessions by country 95 Figure 7.13: Supercell revenues, EBITDA margins and revenue per employee 97 Figure 7.14: iOS revenues of Clash Royale 98 Figure 8.1: Percentage of institutions engaging in digital activities, 2015 103 Figure 8.2: Employment in cultural institutions, selected European markets, 2011 to 2015 103 3 Glossary APS Annual Population Survey: a household survey which uses data from the Labour Force Survey.