E & M - Consumers Are Calling The Shots: Better Get Used To It

Thu, 09/30/2010 - 8:45pm
Craig Kuhl, Contributing Editor

Consumers’ fickle behavior and digital technology are driving new business models

Apple's iPadTraditional entertainment and media (E&M) business models are being turned on their heads thanks to advancing digital technologies and consumers behaving, well, abnormally.

Long gone is the one-size-fits-all model once embraced by cable, telecom and wireless service providers. The new model must now track fickle and demanding consumer behavior being driven by new-era digital technology and the dizzying pace of anytime, anywhere connectivity and content.

 “We’re in a new revolution with digital transition increasing, so businesses like cable need to be open to experimentation and monetization and invest cash flow in infrastructure. They need to become the key providers of content in the value chain,” says Stefanie Kane, partner with PricewaterhouseCoopers’ E&M communications practice, whose recent report – “Global Entertainment & Media Outlook: 2010-2014” – found changing consumer behavior and digital technology as the two engines driving the new business model mentality.

Digital spending – which includes a lengthy list of media that includes broadband and mobile access, VOD, mobile TV, online and mobile TV advertising, and more – is expected to account for 26 percent of all E&M, with the U.S. market expected to reach $517 billion, the report forecasts.

Advanced advertising is playing a vital role in the shifting of new business models, with TV advertising and subscriptions predicted to grow 6 percent compounded annually, while Internet access and Internet advertising will continue to outperform all other E&M segments, the report says.

Major players in the manufacturing sector such as Nokia Siemens, whose footprint extends into a variety of telecom and cable sectors, see both digital technology and changing consumer behavior as crucial components to advancing the new E&M business models.

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“Consumer behavior is the driver of change, and it’s happening now. And a big factor is digital technology, which is ready to start connecting more than just people. Both have created greater expectations and are having an impact on business models,” says Claudio Frascoli, head of business unit marketing for Nokia Siemens.

Nokia put its money where its business model is by recently acquiring Motorola’s wireless network assets for $1.2 billion.

Android 2.0Advertising money will help power the changes. PwC’s forecast is for U.S. advertising to increase by 2.6 percent CAGR (compound annual growth rate) to $180 billion in 2014, with ad spends for Internet, TV, radio, out-of-home and video games expected to be larger in 2014 than in 2009.

 Though not exactly off the chart, those gains in the midst of a nasty recession are considered at least decent.

A big reason, the PwC report found, is that by 2014, U.S. mobile Internet access subscriptions are projected to top 96 million, with mobile TV subscriptions b r e a k i n g the $1 billion mark in revenue spend.

“That starts hitting a core penetration base, which is critical to the E&M industry, especially cable and telecom,” Kane notes.

 The new business models must also factor in the projected 5 billion devices connected to the Internet, reports IMS Research, with 6 billion cell phones in use globally by 2020 and 2.5 billion TVs, many of which will be replaced by Internet-connected sets – either directly or via set-top boxes.

Those eye-popping numbers are pushing companies playing in the E&M space to recalibrate and rethink their traditional business models, particularly with multichannel service providers losing subscribers for the first time in history, reports SNL Kagan. Cable alone lost 711,000 video subscribers in Q2 2010.

The alarming results mixed with advancing digital technologies and changing consumer behavior are prompting the new-look business models. Crucial to that thought process, the PwC report suggests, is recognizing consumer demand for ubiquity and the ability to consume and interact with content anytime, anywhere.

Consumers, according to a report by the research group In-Stat, come in three flavors: power, social and passive. It’s the social network group that is expected to be most crucial to the digital value chain, with 49 percent of consumers falling into that segment. But the power users will blaze the trail.

“Service providers need to watch what the power users are doing. They lead the key growth opportunities and are 18 to 24 months ahead of the other consumers. They’re the leading indicators,” said Gerry Kaufhold, principal analyst for In-Stat.

The indications thus far call for evolving business models to embrace digital technology and to closely monitor just how the mercurial consumer is behaving.


  • Strategic flexibility
  • Delivery of engagement and relationship with the customer through the consumption experience
  • Economics of scale and scope
  • Speed of decision-making and execution, with the appetite to experiment and fail
  • Agility in talent management
  • Ability to monetize brand/rights across platforms
  • Strong capabilities in partnership structuring and M&A targeting and integration.


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