Viewers may be replacing traditional TV channels and DVDs with on-demand content, but research seen exclusively by Marketing Week reveals the tipping point will not come until marketers pitch digital viewing as a value-for-money experience.
While downloading films and TV shows is something done by more than half the UK population, research exclusive to Marketing Week shows there is still a way to go before it signifies a profit for some of the brands involved.
The British Video Association’s (BVA) Trends in Digital Content study questioned 15,000 people through Kantar Worldpanel, revealing how the high level of consumers watching free services legally is driving digital penetration.
Traditional modes of consumption, such as the TV and DVD player, have been joined by an array of free and paid-for extras, including 3D TVs, set-top boxes, Blu-ray players, smart TVs, tablet devices, home computers and laptops. These options, facilitated by the internet, are aiding and persuading consumers to watch digital content anytime and anywhere.
And as consumers turn their backs on physical copies of their TV or film favourites, retailers, publishers, rights owners and broadcasters are having to adapt their revenue models.
The BVA study shows that 52% of the population has accessed free digital content, primarily through catch-up services such as BBC iPlayer and Channel 4’s 4oD. Just over a quarter has paid for TV or film downloads with 18% paying more than twice for services such as pay per view on Sky Box Office.
BVA vice-chairman Paul Dempsey, who runs BBC Worldwide’s consumer products division, says brands can make big money from digital.
Out of those who pay for digital content, renting (31.8%) is the most popular way of accessing TV and film, followed by downloading (27.1%) and through a set-top box (11.5%).
The Kantar study reveals how people are spending on average 9.2% less on physical DVDs (excluding Blu-rays), while spending on physical products is down 10.8% among those who have paid for digital content. Downloading TV, particularly whole series, has a greater effect on physical TV video sales (down 18.9%) than downloading movies does on film DVDs (down 1.4%).
The Kantar study did not ask about illegal viewing habits or whether those people no longer buying physical copies are using illegal file-sharing sites.
However, Kantar describes more than half (59%) of the population as digital sceptics who cannot imagine a time when most or all of their film or TV programme purchasing will be digital streaming or downloading.
The brands most successful at converting people into regular users are Lovefilm (67%) and BT Vision (63%), while Apple’s iTunes the most popular download service converts 58% of those who try out the service, according to the report.
Fiona Keenan, consumer insight director at Kantar Worldpanel, says scepticism among consumers, particularly women, means short-term growth in digital revenues will come from those already paying for content. She adds that any shift in the number of people engaged in digital activity is likely to come initially from catch-up TV.
High street and online retailers must adapt to the ongoing decline in physical sales to protect their market share. At the moment, more than 40% of physical trade occurs at the end of the year as big family and blockbuster titles fuel a gift market which is not yet there when it comes to buying digital content. “The people buying entertainment digitally are not buying from the multiple grocers’ websites,” says Keenan.
Retailers are responding, with Tesco acquiring an 80% stake in video-on-demand website Blinkbox in April and Amazon taking full control of Lovefilm earlier this year.
80.6% Of the UK video market was due to physical retail sales in 2010, down from 83.5% in 2009.
Another challenge for retail brands is how to encourage impulse purchases of digital download. “Our research shows this will not be an easy win for the industry because people need to be on a specific website,” says Keenan. “Entertainment brands could convert some of this spend by promoting the convenience aspect of digital content.”
How digital content is priced in future will be crucial to its success. According to Kantar, price and convenience are more important to film consumers, while spontaneity and portability are what drives TV viewers to digital. Of course, most consumers buy both genres.
The industry hopes consumers will pay a premium to watch TV and film instantly and more conveniently than going to a shop to buy or rent.
However, feedback from a digital focus group held by Kantar reveals that some consumers feel that they might as well purchase a physical copy if the price is the same. There is also a perception that if prices are too similar, the industry must be getting a larger cut at the expense of consumers, who may be deterred from accessing content digitally.
However, many titles continue to be priced at similar levels. For example, box office hits The Social Network and Red were being sold on iTunes and on DVD by Amazon for £9.99 earlier this year.
2.9% – Digital retail has more than doubled its value share in one year from 1.4% to 2.9% and digital rental has risen from 7.6% to 8.5%
Lavinia Carey, director-general at the BVA, says the industry still has marketing and digitising expenses. She also points out that sales of audio visual products are very different from the sales of music, which has gone through its own bumpy physical-to-digital journey.
“People do not consume audio visual in the same way they consume music and we need to maintain a financial ecosystem where the industry still gets a return and we don’t lose sight of the value of this business,” says Carey. “The industry still gets 47% of its revenue from physical DVDs and we must be careful not to hasten the death of the high street while also balancing the needs of consumers who are more digitally-aware and will pay for the convenience.”
She believes initiatives such as the shared cloud-based account and digital rights locker system UltraViolet will persuade consumers to pay a premium for the benefits of digital content.
UltraViolet is being launched by the Digital Entertainment Content Ecosystem (DECE), an industry consortium of more than 70 movie studios, technology providers, consumer device makers, entertainment retailers and video service providers.
UltraViolet should ease concerns about sharing and the permanence of content, which the Kantar study hints is making some people reluctant to pay for digital content.
Consumers can create their own libraries and access movies and TV shows at home or on the move across multiple devices. Content can be downloaded or shared among 12 UltraViolet compatible apps or devices such as computers, games consoles and smartphones.
Mobile is crucial to the growth of paid-for digital content with Kantar revealing that 10.7% of people say they are likely to watch a full TV episode on their mobile in future.
For now, men aged under 35 remain the most enthusiastic about all things digital, but the technology will engage a wider demographic as more consumers buy smartphones and install larger TV screens in their homes.
The frontline: we ask marketers on the frontline whether our “trends” research matches their experience on the ground
Head of marketing
I look forward to the time when the word ’digital’ ceases to exist. Content is content and even the most technophobic of viewers are beginning to see it this way.
Channel 4 was the first broadcaster to launch an on-demand service and our strategy for 4oD has been to increase the amount of content available and the number of platforms that can access that content.
The success of this strategy has been borne out by the various initiatives we’ve launched, particularly online premieres. These drive awareness of new or returning series and we get additional online views. When we made the first episode of The IT Crowd available in advance online, 69% went on to watch the programme again when it was in the linear schedule.
There are challenges, in particular from people illegally accessing content online. The best way of dealing with this is to provide free, legal quality content, accessible from a plethora of places, alongside education and enforcement work.
Many of our shows are relevant and appealing to a younger audience who are naturally predisposed to access content in this way. But crucially people search for content first and platform second so they’d only come to us if the content was worth it.
Chief operating officer and co-founder
The large number of people watching free content is driving penetration, which is something we have always seen in TV and film. Sky would not have been a success without the 50 years of free television that helped people to appreciate the value of sport and movies.
Watching via home computers is only stage one because that is very much a solo experience, whereas TV is still a shared experience, particularly for movies.
A tablet device experience is fine for catch-up television which does tend to be watched alone, but films are still associated with a shared event. Our own research shows that this is still the case.
People will value the digital experience and be prepared to pay for the spontaneity and convenience when they can watch content on bigger screens.
Tesco has an 80% stake in Blinkbox and has a stronger relationship than we do with the studios because of its physical sales. We now have access to millions of Clubcard holders.
Head of marketing and audiences
BBC Future Media
Since its launch in 2007, iPlayer has encouraged people to watch TV again. In the past 12 months, 1.7 billion programmes have been watched on BBC iPlayer and the aim is to reach all licence-fee payers. There are about 8 million weekly viewers but this is a mere 21% of the UK’s online population.
Women have been late adopters to the technology, as the Kantar research also suggests. In 2008 they represented only 18% of iPlayer viewers but by June 2011 that was 48%.
The BBC has a responsibility to bring new technologies to audiences. We did it with colour television and the Red Button and we are doing the same thing here.
BBC iPlayer is now available on hundreds of platforms and devices and the BBC iPlayer iTunes app is set to hit 1 million downloads, with more than 300,000 downloads already for the Android app.
In August we launched BBC iPlayer for TV with a version specifically designed for the living room. There has been a five-fold growth of iPlayer on TV in the past six months and if this rate continues we could see more than half of iPlayer use directly on the living room TV within a few years.
General manager and executive director
Digital Entertainment Content Ecosystem
The underlying concern for consumers is that they don’t really ’own’ their content. Their hard drives crash or are full or they cannot move their collection when they get a new PC. These all pose dilemmas.
There is also the inability to use retailers and devices or apps interchangeably as consumers can with DVDs or Blu-ray discs, which means they can’t see their collection all in one place. They worry about being ’locked in’ to a single retailer or device brand.
UltraViolet was not designed to replace the sale of physical DVDs, but to complement it.
For many consumers, the enhanced form of digital ownership that UltraViolet brings will be a companion to physical media.
Several retailers, including Best Buy and Tesco, are already members of the DECE. They understand that UltraViolet is a hybrid delivery system where downloads, streaming and discs all have a place.
UltraViolet will help reignite consumer excitement and perceptions of value in owning and collecting content.
How any content provider chooses to use UltraViolet’s incremental value within its marketing and pricing strategies is up to them