The games industry, with the potential to become the world’s largest media and entertainment sector by revenue, is undergoing profound transformation.
The consolidation of major developers is a response to a revenue model pivoting toward subscription, with direct consequences for those already in the subscription space: film, TV and music.
A technology-led creative medium, with an audience approaching three billion gamers, is seeing its franchises become more valuable and useful than ever.
The pandemic years boosted many businesses selling services on subscription in the UK: work-from-home gave people more time and money to widen the services they enjoyed in the home, such as gaming, entertainment and music, also boosting engagement with trusted news
The cost-of-living crisis dented the number of subscribers to OTT SVOD and news services in Q2 2022. Broadband and mobile are must-have; bundles of services (e.g. Sky’s pay-TV and broadband or mobile) are more resilient; yearly and multi-year contracts prevent churn relative to monthly contracts; and services that cater to passions (e.g. football) are always need-to-have
Subscription (or supporter) media and news services reaped the demand for trusted news through the pandemic, but now face a tough challenge to their toplines from the economic downturn—and also to transition to a sustainable business model for media audiences, while advertisers are also feeling the heat
For an unproven service to attract 1.3 million active users in its first five weeks is impressive. But by its own account, Quibi’s launch underwhelmed.
Sizeable subscriber targets—7 million by year one and 16 million by year three—justify a level of spend never seen in short-form video, but are ambitious for an experimental start-up with limited brand equity.
The service’s failure to recognise the social side of mobile media, restricted use case and, critically, lack of a hit show increased scepticism of product/market fit. Now Quibi must adapt the product with knowledge of user preferences and reassess its targets, provided it can afford to do so.
In response to COVID-19 and the associated lockdown and economic crash, advertisers have slashed budgets. Online budgets are not immune.
This has clarified features of the online ad market: it is demand-driven, relies heavily on SMEs and startups, and is built on direct response campaigns.
We expect online advertising to outperform other media, and for platforms to further gain share. But with a very few exceptions, this health and economic disaster is good for nobody.
Amazon’s recent deals with Apple in TV, music and device sales mark a turning point after a decade of frosty relations
The context for this involves shifting priorities at both firms, growing pressure on Apple’s iPhone business, and rivals in common — first and foremost Google, but also the likes of Netflix and Spotify
The uneasy alliance helps both companies consolidate their strengths in the platform competition over media and the connected home — but trouble already brews
Amazon is finding women’s fashion, a missing piece of its household-centric model, a tougher nut to crack than downmarket apparel.
Higher-end US department stores are pushing back with an omnichannel model, emphasising long-term partnerships, a clever full-price/outlet model, and experiences which cross the online-offline divide.
In apparel, Amazon and big box retailers have already triumphed over lower-tier American department stores, and even prestigious fashion brands are finding it harder and harder to refuse cooperation with the giants.
Online advertising became the majority of all UK ad spend last year, in step with China but ahead of all other major markets.
Direct response has further increased its share to 54% of UK ad spend, fuelled by the self-serve platforms of Google, Facebook and Amazon, while content media nets just 11% of the online advertising pot.
We estimate that all online-delivered channels - including "pure play" online properties, broadcaster VOD, digital out-of-home and online radio - could account for well over 60% of UK ad spend by 2020, but only with improved commitment to industry governance.
We estimate that UK online ad spend grew by 12.3% this year, with growth concentrated almost exclusively in mobile search and social in-feed advertising (particularly video), and mostly incremental to overall ad spend
Even after payments to publishers and distributors, Google and Facebook captured 80% of all net new spend in the market, and 96% of it flowed through their platforms
Despite improving standardisation and disclosure, the outstanding issues around measurement, the ad-tech supply chain, and particularly the obscure and growing Google/Facebook/Amazon segment, lead us to identify a large portion of digital advertising as a “grey market”: difficult to get a handle on, with uncertain beneficiaries and slippery definitions
Digital advertising in the UK has been a phenomenal success story, but a concentrated one, such that many online media companies have not found a sustainable model
User payments are growing, but are currently focused on large, expensive bundles: Spotify, Netflix, the New York Times. This implements a hard division between free and paid and limits the potential audience
Micropayments and microsubscriptions are alternative models which content owners in certain media can use to address more types of demand. Multiple obstacles remain but for many companies the need to experiment has become critical
The successful launch of the Nintendo Switch creates a new console model, and demonstrates the staying power and long term value of great franchises
Microsoft reveals the specification for Scorpio, but it won’t be enough to catch up to Sony. New franchises, and probably new leadership, will be the key to stopping Xbox sliding into irrelevance outside North America
Sony’s PlayStation 4 now exceeds 60m units worldwide, allowing Sony more freedom to publish a wide range of challenging creative console games, while VR games continue to gain momentum