Deloitte has been publishing “Predictions” reports about the technology, media, and telecommunications (TMT) sectors since 2001, and I have been co-authoring these reports since 2007. After 13 years, the company has gotten pretty good at it.
Our 2013 list of predictions was 85% accurate. Here, I share with you the most important short-term trends in the TMT space today, and what they mean for the media industry.
1. The decade of the device is over.
Globally, we have seen a remarkable growth in consumer hardware in the last 10 years: The global dollar value of all TVs, PCs, tablets, smartphones, and gaming consoles has gone from US$250 billion in 2004 to a projected US$768 billion in 2014. That tripling in size represents an annual compounded growth rate of nearly 12%, and is unprecedented in the history of consumer electronics.
However, that period of hypergrowth appears to be at an end, with Deloitte predicting that sales of those five devices will plateau and still be under US$800 billion by 2018. Although unit sales will continue to grow, falling prices (especially in the developing world) will cause annual growth in dollars to fall to almost zero by 2018.
The first implication is that we will likely see a shift or re-allocation in consumer spending: Lower growth for hardware almost certainly means more growth for software, services, and content.
By 2018, an incremental US$250 billion may be available for mobile apps, higher speed or bigger data plans, and media content, whether one-off buys or monthly subscriptions such as newspaper paywalls. That won’t radically transform those industries, which already have revenues of more than US$2 trillion, but a tail wind is always appreciated!
Secondly, the growth in the device industry may have been great for hardware manufacturers, but it was a headache for those who designed content to fit on those devices. Screen sizes and aspect ratios proliferated, operating systems grew and fragmented, and connection speeds varied.
Anyone who wanted to make a newspaper that was readable across the likely user base had to spend a lot, continuously update, and still end up having to try to pick winners and neglect parts of the market. A plateau in hardware growth may bring some measure of stability to what has been a madly fluctuating ecosystem.
2. Phablets are phabulous — for both texting and reading newspapers!
In most of the Americas and Europe, phones with screens larger than 5-inches are objects of derision. These smartphones, sharing some of the attributes of both phones and tablets, are said to be too big to type on one handed, don’t fit in your jeans, and you look like an idiot holding them up to your head when making a phone call.
Plus almost no one likes the name! In a recent Canadian poll, more than half of those surveyed said that they were “very unlikely” to ever buy such a big phone.
But as I travel the world on the “Predictions” road show, I can tell you that while phablets are seldom seen in Denmark or Denver, they are everywhere in Singapore … and elsewhere in Asia.
One of the reasons for their popularity is that entering text in most Western languages is more-or-less equally convenient on a 3.5-inch touch screen as a 6.3-inch screen. This is not true in many Asian languages: The extra real estate of the phablet makes texting significantly faster.
As a result, we are predicting that more than 25% of all smartphone sales in 2014 will be phablets: more than 300 million devices, worth US$125 billion this year alone.
The first implication is for those who design content to be read on a mobile screen. A 6.3-inch screen (which is what I have on my Galaxy Mega) is almost 150% larger in area than the screen on a 4-inch phone. Designers can make text larger, add more text, add more display advertising, or make existing display ads more effective.
Since the phablet is halfway between a smartphone and a tablet, it might be instructive to look at Deloitte’s estimate of ad revenues for each device. In 2013, each smartphone generated around US$0.60 in display ads, while each tablet generated more than US$7.
I guess size does matter.
The second lesson is a bit trickier to explain. For a couple of years now, smartphones have been more than capable of displaying long-form video. Networks were fast enough, screens were clear enough, and the processors and such could render full-frame video crisply.
Yet despite that, almost no one watches any significant amount of video on smartphones – the average American spent less than two minutes per day watching video on a mobile phone in 2013, according to Nielsen.
But phablets are tremendous drivers of video consumption and high speed data. Their huge screens make watching video not merely possible, but pleasurable!
But the weird thing is (and this is the tricky bit) it appears that most buyers of phablets did not buy them as video machines. Instead issues like taking notes or texting in Asian languages may have been the initial reason for purchase, and the fact that they were great video devices only came afterwards.
That’s a frequent pattern for technology: the reason that a device gets adopted may not be why it continues to be used. As an example, in a recent poll of British teens, making voice calls on their smartphone was only the sixth most-important function of the device!
3. The death of TV has been exaggerated.
Despite all the headlines around declining TV viewing, North American viewing habits have not changed in the last few years. The average American watches just under five hours of traditional TV per day, while the average Canadian is watching a bit less than four hours per day. Europeans tend to watch even less, at around 3.5 hours per day, and that number is rising, not falling.
Further, the stories around TV cord-cutting are almost entirely misleading. By my count, there were more than 15,000 media stories in Canada about how 20% to 30% of Canadians were planning on cancelling pay TV. The actual number who subscribe to a monthly service from a cable company, telco, or satellite provider fell by less than 11,000 homes in 2013.
That’s right – there were more stories about cord cuttING than there were actual cord cuttERS! The number in the United States is identical: The number of pay TV subscribers fell by less than 0.1% in the year.
Well OK then. Nothing to worry about, right?
Although the average number of TV hours isn’t changing, that average can be deceptive.
Those who watch the most traditional TV are watching more hours, but those who watch the least are watching less. The almost 80 million North Americans who are light consumers of traditional TV are watching nearly 50% fewer hours than five years ago, and that decline may be accelerating.
According to proprietary data analysis Deloitte has done, we believe that the largest factor in this decline in traditional TV viewing is due to substitution from over the top Internet alternatives like Netflix. To be clear, streaming Internet video on demand appears to be complementary to TV viewing for most of the audience; it is only for a subset where it is acting as a replacement for some portion of viewing behaviour.
What does this mean?
First, although cord-cutting has not been seen in large numbers thus far, that may be about to change. Speaking for my own house, I had no trouble justifying US$50 per month when I used to watch more than an hour a day a few years ago. Last year, when I only watched about 30 minutes a day, I started questioning that bill.
And if my viewing falls to 15 minutes a day, as it seems likely to … will I still keep that monthly subscription? It seems probable that there may be a tipping point approaching for tens of millions of North Americans (and Swedes and Danes, etc.).
Next, those who are watching less traditional TV are different from the average in some interesting ways. They tend to be younger, female, higher income, and more educated. In Canada, they tend to be English rather than French, and in the United States, Asians are over represented while African-Americans are under-represented.
Obviously, questions of ethnicity or language can be sensitive topics in each country, but the data is all publicly available.
The important thing isn’t that those who are watching more or less TV are better or worse than anyone else, but different. Historically, and like many other traditional media, TV was a big tent. While certain shows may have attracted a more targeted demographic, the medium as a whole was consumed by the entire population.
In a digital world, and at an accelerating rate, this seems to be becoming untrue. For a few years, the newspaper industry has seen its ad revenues decline, while TV hung in there. If that starts changing, the ability of newspaper digital editions to compete for ad dollars may be about to improve.
4. Some younger people consume ZERO traditional media.
It has long been known that younger people were consuming traditional media less, and digital media more: digital natives, as opposed to digital immigrants.
But there were two assumptions:
- While they might partake of one or more media in digital form (newspapers, perhaps), they still were part of the audience for some other analog media, like TV or magazines and/or radio.
- While they might consume less traditional media than their parents, they still consumed some.
It appears likely that there is a new class of media consumption — those who consume ONLY digital media, and watch, read, and listen to literally zero minutes or pages of traditional TV, print newspapers, print magazines, and broadcast radio in the average week.
This seems almost inconceivable to those over the age of 30, or perhaps even 25. But these young people are only reading Web magazines and newspapers, only music services over the Internet, and only Internet (or torrented) TV.
I was in a room of 400 people in Israel last week, and I asked who did not have a passport: zero out of 400. In contrast, more than 40% of Americans don’t have one, with 60% of those believing (according to a 2013 survey) that everything worth seeing in the world was available within the borders of their own country.
In the same way, there is a new and emerging group of young people who see no reason to ever travel beyond their digital homeland to analog shores.
My first observation is that this is new, and it is probably still very rare. And one of my research topics for the next Predictions report is to figure out just how rare! In an utterly unscientific survey (my four kids at a recent dinner and their own circle of close friends), the percentage of those who only consume digital media was estimated to be 80% to 90%.
Self-reported estimates of media consumption are notoriously inaccurate; there’s almost no way that figure could be correct. But what is the right number?
Next, what are the demographic characteristics of those who consume zero traditional media? We know they are young, but there are likely to be other commonalities? More educated seems probable, but I am sure there are others.
The related issue will be of great interest to marketers. If a specific audience consumes no traditional media, then the need to correctly reach them via digital advertising becomes pressing.
Finally, there is an odd exception to their overwhelming digital preference: the book. Even though this group of young people are technologically sophisticated, own eReaders and tablets, and cheerfully consume newspapers and magazines on screens, they still read paper books on a regular basis.
Why is that? It can’t be the lack of advertising; these same young people stopped listening to ad-free CDs for digital MP3 files. If paper is still a viable medium for books, is it possible that the future of print newspapers isn’t as dire as we think? How can newspapers become more like books?
I have been trying to predict what will happen next since 1990, both as a market analyst and at Deloitte. In many ways, the pace of change in hardware and telecommunication technologies is beginning to slow. But I believe that the biggest changes in human behaviour, and therefore media consumption, are not in the past, but ahead of us.
The changes in the past few years have been almost entirely negative for the newspaper industry. The coming changes will have their challenges, but there may be some opportunities too.