Entertainment software provided on physical disc – CD, DVD, video games – is in terminal decline. Paradoxically, this means that the content industries need to provide more support to the tangible medium, not less. The disc is still a hugely important part of the revenues of the entertainment sector.

Discs provide irreplaceable services. They can be easily bought on impulse, as a gift and for shared use of family and friends. Even dedicated digital buyers still purchase physical discs of the material that has greatest emotional relevance to them.

People over 35 are generally reluctant to switch to all-digital purchasing. These consumers now buy a clear majority of all entertainment software and will simply stop buying films and music when the disc dies. The content industries should spend more time and effort serving these people, slowing the decline of physical media.

The development of the Digital Britain infrastructure, introduction of tablets, increasing connectivity of TV sets and launch of on demand OTT services over the internet have greatly intensified interest in connected viewing and its impact on the traditional broadcast model No single source of audience measurement for viewing of long- and short- form video content across all screens yet exists, though current market data suggest that connected viewing occupies a c. 8.5% share of total viewing across all screens By 2020, we project the connected viewing share of total viewing across all screens will reach 20%, with tablets being the primary drivers of growth, in part incremental and in part substitutional to viewing to the TV set, where we expect the connected viewing share to remain under 5%

Persistent, anaemic economic growth continues to constrict all spend on recreation and culture, especially for lower income consumers. Female readers, the bedrock of the magazine industry, will be especially hard hit by government austerity measures, which will begin to bite in 2013

Smartphone and tablet ownership amongst wealthier consumers has already impacted their spend on magazines. The industry can expect further shocks as mobile device penetration grows among older and also lower income demographics

New publishing platforms pose familiar challenges: publishers must compete with new online players from very different sectors; complexity and rapid change are a constant; historically low print magazine subscription volumes make the transition for publishers to data strategies and to develop flexible charging models more demanding than might otherwise be the case

Facebook’s announcement of Graph Search, the company’s first move into socially-powered search which now in beta trial in the US, leaves many details unanswered including full launch and monetisation plans. Reliance on user-generated content from Facebook friends limits the usefulness of Graph Search as a conventional search engine and hence its impact on Google and other web search businesses in the near term. In the longer term, Graph Search could become a powerful recommendation engine for certain categories like travel, but its dependence on user data and privacy restrictions are likely to limit its wider utility and revenue potential.

Press advertising performed worse than we expected in 2012, with double digit declines both last year and this year now a very real possibility.

Previously resilient areas of the press have weakened. Popular national titles have seen sharp advertising declines, while faltering circulation in celebrity magazines exposes an underlying decline in demand.

Retail and services advertisers continue to pull spend from print, largely in favour of online, though TV is also very resilient. Industry efforts to offset these structural shifts include the development of trading platforms, further consolidation and a number of commercial editorial tactics.

YouTube continues to evolve away from user-generated content with the expansion of its native Original Channels initiative in the US, Europe and Japan

Professional and semi-professional content is key to increasing YouTube’s sellable video inventory, raising advertising yield and attracting brand advertisers

Whilst YouTube is the leading global distribution platform for professional short-form video, it poses little immediate threat to TV viewing or revenues

On 29 November, the Leveson Inquiry into the culture, practices and ethics of the press finally issued its report. Its verdicts on the conduct of the press, politicians and police were less severe than expected.

The three main political parties have accepted most of the report’s recommendations, but have disagreed over the use of statute. As expected, the Conservatives are against, while Labour and the Lib Dems are in favour.

Subsequent cross-party talks and negotiations between editors have so far failed to produce agreement, with the process only becoming more opaque as time goes on. The shape of the future regulatory system remains uncertain.

Smartphones and tablets running iOS and Android will outsell PCs by more than 2:1 in 2012. There will be 1bn of these devices in use by the end of the year, compared to around 1.5-1.6bn

PCs The hardware business continues to polarise, with Samsung and Apple dominating revenue and revenue growth and most other branded manufactures looking distinctly sub-scale. Samsung and Apple are using their scale to cement their position

Though Apple and Android now dominate the smart devices market, it remains subject to massive uncertainty at every level, with almost all sectors and companies facing major, often existential challenges in the next year

UK mobile service revenue growth nudged down in Q3 2012 by 2.0ppts to -3.8%, with 0.5ppts driven by an increase in the effect of regulated MTR cuts and 1.5ppts caused by underlying factors, largely driven by a weakening UK economy

In October EE launched its new brand and 4G service to great fanfare. The response of the other operators has been very mixed; Vodafone has indicated that it will launch a better 4G network next year, H3G has emphasised the merits of its 3G network, and O2 has not focused on networks at all. We continue to believe that EE’s 4G products will be good for its ARPU but not necessarily raw subscriber numbers, with the rebrand exercise bringing additional synergy benefits to its bottom line

The overall outlook is looking tough for the next six months, with consumer confidence still low and unlimited tariffs hitting pricing, but more promising thereafter, as the 4G premium becomes more material, and the regulated MTR cuts finally start to moderate in Q2 2013

European mobile market service revenue growth dropped again in Q3, by 1.9ppts to -6.2%. This was not helped by a substantial increase in the MTR impact, driven by a big cut in Italy, but underlying revenue growth still fell by 1.3ppts In stark contrast to Europe, the US mobile market continues to grow apace, with there being over 10ppts between the growth rates of the two regions. The most obvious difference between the markets is the very much higher levels of capex spent by the US incumbents, which drives their superior network quality and coverage, and hence price premia, and hence superior growth The European incumbents have not (yet) used their greater ability to spend on capex to increase the spending gap with smaller operators, with 4G launches (mostly) being low profile with low initial coverage (the UK being a notable exception to this). While this is an understandable approach given the prevailing macroeconomic conditions, it does mean that closing the growth gap with the US remains a distant prospect