SEPTEMBER 2018

ENTERTAINMENT 5.0 DELIVERING THE FUTURE OF ENTERTAINMENT INTRODUCTION

Introduction

The story of the entertainment industry is and more than half of revenues are accounted for inevitably dominated by the glitz and glamour by ‘access’ models like streaming rather than by of the product itself. And in many ways that’s selling a physical disc or a download. as it should be – music, video and games are In 2018, as ERA celebrates its 30th anniversary businesses which trade in drama and dreams representing the UK’s entertainment retailers and the utterly extraordinary. The job of curating and digital services, it is time for an update of and delivering to the public all of those millions our thinking as we approach the next stage of tracks and albums and movies and TV shows of entertainment’s evolution, a stage we call and games in multiple formats is in its own way Entertainment 5.0. equally extraordinary. This report outlines five challenges the It is that business of digital services and retailers entertainment industry has to meet if it is to which is the subject of this report, the follow-up successfully manage that transition. to 2015’s first ERA Manifesto,Shaping the Future of Entertainment. Because it is an evolutionary process, those five challenges are broadly similar to those Just three years ago many of the ideas in that we identified three years ago. Our key priority publication seemed strange and unfamiliar. remains collaboration with our content partners. Retailers had historically been seen as mere It was after all the focus on collaboration which “outlets” for the entertainment business rather more than anything proved the worth of the first than a progressive force which shapes the ERA Manifesto. entertainment experience. I am delighted to report that the music, video and In 2018 that once novel notion is now undeniable. games sectors have all responded magnificently The surging revenues of the music, video and to our call to work ever more closely together. games sectors which reached a new all-time-high More than anything else it has been the increasing of £7.24bn in 2017 are primarily attributable to closeness of our relationships with them which the new forms of consumption devised by digital has been the greatest legacy of our first Manifesto. services alongside the continuing innovation of ERA 2018 more traditional retailers. It is our warm hope that the same will prove true on this occasion. From a consumer perspective it is arguably the most diverse and healthy entertainment retail landscape the UK has ever seen. 1 Three years on from our first report, the entertainment market has changed dramatically. Nearly three quarters of entertainment market revenues are now accounted for by digital services, ERA 2018 3 exist 15 years ago exist 15 years Over 70% of today’s Over of today’s 70% ENTERTAINMENT 4.0 – THE PRESENT THE – 4.0 ENTERTAINMENT come from retailers and retailers from come entertainment revenues models that did not even models that did not even +49% VIDEO MUSIC GAMES RETAIL INNOVATION INNOVATION RETAIL AND INVESTMENT HASTRANSFORMED THE AND EXPANDED ENTERTAINMENT INDUSTRY 2002 2017 £7.3bn £4.9bn Your High Street High Street Your entertainment expert HMV Instant access to to Instant access you love the films with a download by on DVD copy Sky Virgin Deep music andknowledge selectiona great of vinyl Indies Entertainment in format you’d any it like Amazon

Your High Street Street High Your gaming expert GAME

A weekend treat treat A weekend for the family along with the weekly shop

Asda Morrisons

Entertainment 4.0 is the multichannel, multiformat world we live in now. live Entertainment world we multiformat 4.0 is the multichannel, newly to through Itstreaming of technology data big the from ranges the audiocassette. and even such as vinyl formats reborn and in and streams downloads In DVD to and Blu-ray video it ranges from bite-size mobile triple-Agaming it ranges from games to console gaming. It is co-existence services at its best. Digital different targeting and retailers very offering by distinctive benefits. groups want it. want it, when you you Entertainment want it, where you how Entertainment 4.0 Entertainment – TODAY’S THE PRESENT MULTI CHANNEL MULTI WORLD– 2018 2009 FORMAT – 2018: 2009 That last minute That last minute chart CD or DVD need a when you gift in a hurry All the music All the music in the world 24/7 on available devices multiple Tesco Express Tesco ENTERTAINMENT 4.0 – THE PRESENT THE – 4.0 ENTERTAINMENT Sainsburys Local Spotify Deezer 2

YouTube Music YouTube ERA 2018 ENTERTAINMENT 4.0 – THE PRESENT ENTERTAINMENT 4.0 – THE PRESENT INNOVATION AND RETAIL EXPERTISE INVESTMENT THE PERFECT Less than two years after the launch of the Amazon Echo smart COMPLEMENT TO speaker in the UK, ERA’s Consumer Tracking Study revealed that 1 more than 18% of UK consumers are using smart speakers. CONTENT CREATORS

Virtual reality specialist Melody VR is pioneering new forms of Digital services and retailers occupy a central role in entertainment’s entertainment putting music fans in the middle of live music supply chain. While labels and studios find and invest in talent, retailers 2 shows using virtual reality technology. bring the fruits of their endeavours to the ultimate consumer – the video or games or music fan.

Sky Store has created an entirely new hybrid video market with Just as labels and studios are rightly proud of their record in attracting its Buy & Keep offering giving the instant gratification of a digital and marketing creative talent, so too digital services and physical retailers 3 download and satisfying the desire for physical ownership with a add their own value to the equation, aggregating and curating music, disc delivered through the post. video and games to attract and inspire consumers.

As sales of physical discs have peaked, retailers have added more Talent Suppliers Retailers Public and more convenience and non-traditional outlets to maximise 4 their reach into the remaining physical market.

Retail investment in new digital services is having a dramatic impact on the efficiency of the entire sector: Revenue per retail stream it BUYS: 5 employee increased from £255,000 to £458,000 between 2014 and • 1,790,000 CD’s sell the vinyl 2017. • 464,000 downloads puts the CD • 61,000 vinyl invests and markets into convenience stores STREAMS: Digital services are broadening cultural experience, transcending Ed Sheeran the recording • 781,000 album the limits of physical shelf space and offering literally tens of creates Divide sells 6 millions of pieces of content – not just benefiting consumers, the download equivalents ERA 2018 but also making available the work of countless thousands of ERA 2018 musicians, filmmakers and games producers.

Platforms like Twitch have created entirely sells digital 4 new revenue streams for gamers by BUYS: 5 sells Blu-ray 7 capitalising on social media and the fan’s • 1,000,000 DVDs desire to passively partake in gaming. puts • 180,000 Blu-ray produces, markets DVD front of store • 578,000 movie Written by Jenny Bicks and finances film mail you downloads and Bill Condon the disc ENTERTAINMENT 4.0 – THE PRESENT ENTERTAINMENT 4.0 – THE PRESENT

THE EXPANDING FROM OWNERSHIP TO REACH OF ACCESS TO EXPERIENCE

ENTERTAINMENT Historically, entertainment retailing was about selling “stuff”, either discs or tapes, for customers to take home and play. RETAIL Propelled by the launch of new digital discs like the CD, DVD and console games for the Playstation and Xbox this traditional business reached its peak in 2004. Physical entertainment formats like the CD and DVD may be well off their Over the past decade entertainment on disc has been joined by digital peak and some notable High Street names may be no more, but physical downloads and, most radically of all, new subscription-based digital services retail has not thrown in the towel. which allow access typically for a monthly fee. Far from it. Instead physical retailers have invested in extending their reach, Streaming services add another option for entertainment fans in a similar thus maximising the remaining physical market. way that Uber has created new mobility options and Airbnb has created Retailers have more than doubled the number of physical outlets selling new accommodation options for travellers. entertainment since 2008. The addition of access models to the entertainment industry creates new Much of the increase has been accounted for by non-traditional and ongoing customer relationships with fans and the potential to generate convenience outlets offering a heavily-edited range of impulse and gift useful data which optimises the consumer experience and deepens the titles. But just as notable has been the striking revival in the number of relationship between content creators and their followers. independent record shops – up from just 299 in 2009 to 406 less than a decade later. OWNERSHIP V ACCESS Retail investment is proving the UK public’s continuing appetite for physical 2OO8 – 2O17 formats – a striking example of how retailers do not simply satisfy demand. 100% They help create it. 90% HOW THE 80% NUMBER OF PHYSICAL 15,875 70% ENTERTAINMENT 2017 60% STORES HAS DOUBLED IN 50% ERA 2018 10 YEARS ERA 2018 40%

30%

6 20% 7

10% OWNERSHIP 7,817 0% ACCESS 2008 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Unique outlets selling entertainment Source: ERA Yearbook, Official Charts, IHS ENTERTAINMENT 3.0 – THE PAST ENTERTAINMENT 3.0 – THE PAST 1999 – 2008 THE BEST ANTIDOTE Entertainment 3.0 TO PIRACY IS LEGAL THE PAST – DIGITAL SERVICES OFFERING A DESTRUCTION BETTER EXPERIENCE THAN THE PIRATE ALTERNATIVE Proof positive of what happens when there is no legal alternative to piracy came in the initial disruptive period of the internet beginning in 1999. Thanks to the relatively small file size of individual songs, music was the first sector to be affected with the launch of the original unlicensed Napster which gave music fans unlimited access to illegal downloads. 1088m 440m 341m 197m TRACKS TRACKS DOWNLOADS DOWNLOADS Napster was soon followed by a host of imitators offering music but also 2014 2017 2014 2017 films and TV series too. While the content industries tried to sue them out of existence, the real problem was there was no legal digital alternative. MUSIC PIRACY VIDEO PIRACY The impact was massive: between 2000 and 2009 the number of DOWN DOWN independent record stores fell by two-thirds and number of entertainment Source: Ofcom, Official Charts, IHS, outlets by nearly 20%. 59% 42% ERA estimates. Addressing piracy only became a reality with the launch step-by-step of new digital services such as OD2 (1999), Wippit (2001), the iTunes Store (2003), Steam (2004), Amazon Video (2006) and Spotify (2008). They proved that the best antidote to piracy is legal services offering a better 1999 2003 2006 2008 2012 2018 experience than the pirate alternative. LEGAL ALTERNATIVES OD2 1999 – 2009 1999 2000 2001 2003 2005 2015 iTunes 2003 – to date THE PIRATES 7digital 2004 – to date Steam 2004 – to date

ERA 2018 Napster 1999 – 2002 ERA 2018 Amazon Video 2006 – to date Kazaa 2000 – 2008 Amazon Music 2007 – to date Grokster 2001 – 2005 Deezer 2007 – to date The Pirate Bay 2003 – 2015 8 Spotify 2008 – to date 9 Megaupload 2005 – 2012 Google Play 2012 – to date Kickass Torrents 2008 – 2014 Rakuten TV 2013 – to date Sky Buy and Keep 2014 – to date YouTube Music 2018 – to date Virgin Media Store 2018 – to date ENTERTAINMENT 2.0 – THE PAST ENTERTAINMENT 1.0 – THE PAST

1977 – 1999 1921 – 1977 Entertainment 2.0 Entertainment 1.0 THE PAST – ENTERTAINMENT THE PAST – ANALOGUE: GOES DIGITAL WHERE IT ALL BEGAN

The launch of the Atari Video Computer System in Modern entertainment retailing in the UK began with the opening in 1921 of the 1977, the compact disc in 1983 and the DVD in 1998 original HMV store in London’s Oxford Street. were the most significant events in the history of the The dominant entertainment format at that time was the 78rpm record, and light modern entertainment retailing business, and laid classical music from the likes of Eric Coates – best known these days for the theme the foundations of the new digital entertainment music to Desert Island Discs – was all the rage. business. By today’s standards, 78rpm technology looks prehistoric. While Atari was a shortlived success, it paved the way for the Gameboy (1989), the Sega Mega Drive But it established the point that technology has consistently proven to be a friend of (1990), Super Nintendo (1992) and ultimately the Sony Playstation (1995) the entertainment industry. and Microsoft Xbox (2002). The 78 paved the way for the launch of the vinyl 33rpm album in 1948 and the The CD and DVD remain respectively the most successful music and video 45rpm single a year later which were together the engine of the new rock ‘n’ roll era formats in entertainment history. of the 1950s. By providing compact, convenient, robust and high quality ways to enjoy Vinyl ruled the roost for more than 30 years, with a fragmented retail scene divided entertainment, they enabled the rapid growth of High Street entertainment between independent and family-owned companies (like NEMS the Liverpool- retailing. Because they were physically smaller and commanded a higher based chain owned by the family of Beatles manager Brian Epstein), electrical stores price than their predecessor formats, retailers were able to offer a much (such as Rumbelows) and multiples (such as Woolworths, Boots and WH Smith). wider range, offering deep catalogue as well as current chart hits. Vinyl was joined by two tape-based formats in 1963, the compact cassette and The biggest stores became like huge libraries of every imaginable 8 track. Tape failed to achieve real mass market appeal until Sony launched its music, video or games title, reaching their ultimate expression in huge Walkman player in 1979, giving the compact cassette a new lease of life. ERA 2018 ERA 2018 London “megastores” such as the 25,000 sqft Tower Records outlet in The broadening of what had been a home entertainment business dominated by Piccadilly Circus (1985-2003) and HMV’s 150 Oxford Street at 60,000 music came with the then-revolutionary launch of the VHS videocassette in 1977. sqft, the biggest entertainment store in the world (1986-2014). For the first time consumers could rent or buy feature films to watch at home – and As the specialists offered even deeper ranges, supermarkets 10 its launch led to dramatic growth in the sector. 11 entered the sector, further growing the market as an album, video or game became just another addition to the weekly shop. Even in its analogue era, entertainment was driven by technology. ERA 2018 13 ENTERTAINMENT 5.0 – THE FUTURE THE – 5.0 ENTERTAINMENT MAINTAINING MAINTAINING DIVERSITY – THE KEY ACCESS MAXIMISING TO AND CHOICE ERA BELIEVES THAT MAINTAINING THE DIVERSITY THE OF MAINTAINING THAT BELIEVES ERA MAXIMISING TO KEY IS RETAILING ENTERTAINMENT REVENUE. DRIVING TO AND – CHOICE AND ACCESS Today’s entertainment landscape is more diverse than it has ever been. entertainment than it has ever diverse landscape is more Today’s and physical number of digital British a greater The public enjoys variety of technologies, entertainment of business models, a greater outlets, in history. of price-points before of content, than ever and of workforce Such diversity is not just a buzzword. Diversity in entertainment retailing they want to the content giving them access by …benefits consumers they want it and how when, where reach an audience to enabling them creators, …benefits content a variety as wide by promoting of content …benefits British culture as possible entertainmentby maximising the …benefits the entire business ecosystem of the industry. and revenues reach 1 Modernising the supply chain Putting consumers and creators centre and front Maintaining diversity – the key – the key Maintaining diversity choice to maximising access and Sustainability – fairly rewarding and digital servicesretailers Enabling licensing – the route to innovation ENTERTAINMENT’S FIVE KEY CHALLENGES ENTERTAINMENT’S 3 4 5 1 2 Entertainment 5.0 Entertainment – IT’S THE FUTURE SHAPE OURS TO 2018 – ENTERTAINMENT 5.0 – THE FUTURE THE – 5.0 ENTERTAINMENT

ERA 2018 12 ERA 2018 15 ENTERTAINMENT 5.0 – THE FUTURE THE – 5.0 ENTERTAINMENT ENABLING LICENSING – ENABLING TO THE ROUTE INNOVATION ERA BELIEVES THAT ENABLING LICENSING IS THE THE IS LICENSING ENABLING THAT BELIEVES ERA PROSPERITY AND THE FOR INNOVATION TO ROUTE BUSINESS. ENTERTAINMENT An increasingly digital entertainment digital An increasingly is a business defined business licensing. by entertainment from Licences digital models business the define companies territory to content - from availabilityservices operate to to to allowed are pricing itself. concerns about services’ in easing digital progress has been significant There models. business the difficulties of licensing new and innovative In sector around virtuallyclusteringof the music streaming digital entire the a single business model – the all-you-can-eat £9.99 monthly subscription be done. is still work to plan – raises concerns that there In video and games the evidence of the market open to is that licensing is to licensing continues business models although a wide variety of different shape industry practices and pricing. such as windowing 3 SUSTAINABILITY – SUSTAINABILITY REWARDING FAIRLY AND DIGITAL RETAILERS SERVICES ERA BELIEVES THAT FAIRLY REWARDING RETAILERS AND AND RETAILERS REWARDING FAIRLY THAT BELIEVES ERA SUSTAINABLE A CREATING TO KEY IS SERVICES DIGITAL ECOSYSTEM. ENTERTAINMENT Digital services done the heavyDigital lifting the of transforming have and retailers entertainment industry age. the digital for essentially do the same While film and games and music companies in and done – finding and investing always valuable job they have incredibly marketing new entertainment services and digital invested – retailers have entertainment. for new ecosystem in an entire heavily which do models by business justified has been Muchinvestment of that but on selling advertising simply on selling content or it not rely around it. play devices to historically sold instance, Supermarkets, for is not in itself new. This and of adding a bit of “basket value” entertainment of increasing as a way the weekly generator. to shop rather than as a profit ‘glamour’ disguise the fact to that selling business models tend alternative These entertainment business. or no-margin it is often a low- or access to of global entertainment services growth The is not just a reflection of the bring to such services required market, to huge investments but also a a profit. to generate required reflection of the huge scale 2 ENTERTAINMENT 5.0 – THE FUTURE THE – 5.0 ENTERTAINMENT

ERA 2018 14 ENTERTAINMENT 5.0 – THE FUTURE ENTERTAINMENT 5.0 – THE FUTURE

MODERNISING THE PUTTING CONSUMERS 4 SUPPLY CHAIN 5 AND CREATORS FRONT

In order for digital services and retailers to take entertainment content to the AND CENTRE public, the content has first to get to them.

The processes and systems which enable this to happen are what’s known Digital services and retailers recognise they are intermediaries. as the supply chain. They justify their existence by the value they add to consumers – and An inefficient supply chain can reduce revenues (for instance when product to creators. is out-of-stock) thus hurting both retailers and suppliers and increasing costs (for instance when digital metadata is inaccurate or inconsistent), reducing Far from “disintermediating” retailers, digital technology has made them the profitability of retailers and the flow of income to content owners and even more important, but the key to success is delivering what consumers potentially increasing prices to consumers. and creators want.

Inefficiency in the supply chain benefits no one. Currently, this is not always the case. Release schedules which load blockbusters in video, games and music into the fourth quarter of the year or The entertainment business faces significant challenges in both its physical restricting consumer choice through which channels products are available, and digital supply chains. for instance, may make short-term commercial sense at the expense of irritating consumers. In the physical world, suppliers are increasingly reluctant to invest in a market they believe has a limited future but are running the risk of making New business models need to be assessed in the context of how they affect entertainment an even less attractive prospect for some major retailers. the ability of creators to make a living.

Meanwhile digital services have to deal with content often delivered in entirely different formats by different suppliers, metadata which is regularly ERA BELIEVES THAT THE INTERESTS AND PREFERENCES inaccurate or incomplete and a fragmented rights landscape requiring a OF CONSUMERS AND CREATORS SHOULD INFORM THE dozen or more parties to be paid for a single stream. DEBATE ABOUT THE FUTURE OF THE ENTERTAINMENT INDUSTRY.

ERA 2018 ERA BELIEVES THAT MODERNISING ENTERTAINMENT’S ERA 2018 SUPPLY CHAIN OFFERS THE POSSIBILITY OF UNLOCKING GROWTH AND REDUCING COSTS FOR DIGITAL SERVICES, RETAILERS AND SUPPLIERS ALIKE. 16 17 ERA 2018 19 ENTERTAINMENT 5.0 ENTERTAINMENT Insight Days (2016) most important among ERA’s insight is and of research provision The services whole benefit the to insight promises members but when to the thinking That’s is little benefit in keeping it a secret. there sector, with its partnerbehind a series ERA has organised of joint insight days in entertainmentorganisations – on everything smart from speakers video. analytics to data to Official Charts Company (1997) Official Charts a common currencyCharts of provides sales data on retail based the entertainmentsuccess for works ERA with its partner industry. market and collate licence, to and games video music, in organisations a 50/50 the Official through that data – most notably Charts Company, trade association the BPI. companies’ with record joint venture (1998) Copyright Protection biggest contribution the fight against piracy to is creating While retail’s ERA also (see p9), it redundant which render the legal alternatives IP for Industryliaises closely with keyTrust The industry allies such as A Genuine‘Get Site’ It Right From IP and the Alliance for The Awareness, supportedcampaign the UK Government. by BRITISH PHONOGRAPHIC INDUSTRY

Let’s Play May (2018) Let’s and Day Store Record the lessons learned May took from Play Let’s to the games the first time Must See Movies and applied them for drive games to designed sales promotion business – a collaborative sales. National Album Day (2018) as a pan music industry is designed National Album Day to initiative series and activities. of events the album with a week-long celebrate Must See Movies (2017) See Movies Must growing and ERA’s Day Store Building on the success of Record expertise Must entertainment See in creating sales promotions, Movies is a pan industry of catalogue video based on close promotion video companies and their cooperation, between ERA, its members, trade association BASE. Record Store Day (2008) Store Record industryexamples of outstanding most of the One in collaboration a revival of focus the only become has not Day action, Store Record it shops and sparked revival, in the fortunes the vinyl of indie record of the past has become the most successful new promotion music spirit not only of collaboration its success – an organic to Core 20 years. also between but the shops and themselves, between indie stores labels. record

Our rallying cry caught the imagination of the entire sector and in recent years we have seen a flowering seen a flowering have we Our rallying cry years sector in recent and of the entire caught the imagination and games. video projects in music, of collaborative A commitment to workingA commitment to suppliers and partner with together the centrepiece formed organisations of Entertainment” Future . The “Shaping 2015 manifesto of ERA’s

ENTERTAINMENT 5.0 ENTERTAINMENT COLLABORATION IN ACTION IN COLLABORATION

ERA 2018 18 THANK YOU THANK the thank make all those who to like ERA would business of entertainment possible. chief executives to developers games From and musicians from and A&R executives; sales managers area and to songwriters product from managers to screenwriters; efforts collective it is your which make PAs: the business of digital services and retailers possible. art. for your thank you we Most of all, you inspire game film or Whether in music, thrilling of delighting, the work continue us to and entertaining Britain and the world.

organisation as the Entertainmentorganisation Retailers after the arrival years in few in 2005 a Association CEO. 2002 of Kim Bayley, history been and agenda has naturally ERA’s the fortunes by of the sectorinformed it represents. the by been dominated have last 15 years The was a 100% physical balance of what changing the time of writing one which at business to is quartersthree digital. who 7digital member was first digital ERA’s joined in 2005, although entertainment did not become a majority business until 2014. digital first outlined in the Our key philosophy, in 2015, is that this is ERA manifesto original spirit in a true best achieved of collaboration and both among members and with suppliers partner organisations. HISTORY OF ERA HISTORY of Record as the British Association ERA began life Dealers the passion of a handful in 1988, driven by perspective the retail of individuals who believed often disregarded. was too Thirtyearlyon, some of its years concerns – establishing a common industry for standard to cards CD inlay securing replacement barcodes, those which had been shoplifted - seem replace collectivea without but voice basic, incredibly make to managed previously never had retailers on these points. progress first retailers takingThe key was achievement music charts by stakean ownership in the UK’s now BPI, the with newa venture joint creating the successful Official Charts Company. a truly multi-sector of BARD into evolution The active video as and games in organisation the of renaming the with came music as well ERA is the trade association representing the representing ERA is the trade association servicesvast majority and digital of UK retailers video and games. Its members music, offering shops (Reflex, independent record range from Sky, Google, services Ray) digital Sister to (Spotify, (Amazon) internet retailers to 7digital) Deezer, Game) (HMV, specialist High operators to Street and supermarkets Asda, Sainsbury’s, (Tesco, Morrisons). which data sales the supply members ERA the Officialpowers Charts (music Company and GSD and video charts) and GfK Chart-Track companies’ with record Together (videogames). the Official owns BPI, it the association trade Charts Company. organisations ERA works its sister closely with a strong and games and is video in music, and markets,open of standards open proponent consumer choice. ABOUT ERA ABOUT

ERA 2018 20 ©Copyright 2018 Entertainment Retailers Association [email protected] www.eraltd.org

Design Creativebyte Print Yellowbox Written by Steve Redmond with Kim Bayley