The Effect of Tablets on US Content Consumption

10_– 12 October 2011, Vienna, Reed Messe Wien

Session: Tablet Publishing TrendsTitle: The Effect of Tablets on US Content ConsumptionSpeaker: Bruce Benson, Senior Managing Director,FTI Economic Consulting, USA

Media Port

FTI Consulting Communications, Media & Entertainment Practice

September, 2011

© Copyright 2011, all rights reserved, FTI Consulting, Inc.

© 2011 all rights reserved by FTI Consulting, Inc.

Table of Contents

CONFIDENTIAL & PROPRIETARY

I.  Introduction to FTI Consulting II.  The Effect of Tablets on Content Consumption

■  Overview

■  Digital Engagement & Substitution

■  Television, Movies and DVD

■  Newspapers and Magazines

■  Music

III. Contact Us

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Introduction to FTI Consulting

Communications, Media & Entertainment


FTI: A Leading Global Services Firm

  A $2 billion NYSE traded consulting firm (FCN)

  One of the fastest growing companies in the US (Fortune)

  Over 2,000 Consultants in 30 countries

  Specialization in corporate finance, economics, marketing, forensic accounting, and corporate communications

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Select Media Engagements

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  A&E Television   Advanstar Communications   AMC Theatres   Blockbuster Entertainment   Broadstripe   Charter   Chicago Sun-Times   Chicago Tribune   Citadel Broadcasting Corp.   Clear Channel   Coldwell Banker   Comcast   Cox Media Group   Diageo   Discovery Zone   Disney   Dow   Duane Reade

  Edwards Theatres   EMI – Capital Records   Equifax   Gannett   GateHouse Media   General Cinemas   Grande Communications   HiT entertainment   HiT Entertainment   Journal Register Company   Lionsgate   Local Matters   Los Angeles Times   Marvel Entertainment Group   Media News   Midway   Midway Games   Morris

  Musicland   Muzak   NBC Universal   NBC Vivendi   Paramount   Petro   Philadelphia Daily News   Rambus   RCN   Readers Digest   Regal Cinemas   RHDonnelley   RHI Entertainment   Rodale   Sandy Alexander   Scripps   Sesame Street   Sesame Street

  Sony Pictures / Sony Music (/BMG)

  Sotheby's   Star Telegram   Star Tribune   The Advocate   The Coca-Cola Company   The Denver Post   The Mercury News   The News Hour   The Orange County Register   The Philadelphia Inquirer   The Sacramento Bee   The San Diego Union Tribune   The Star   The Star Ledger   The Tampa Tribune   The Terminator (IV)

  The Washington Post   Tower Records   Tribune   United Artist Theatres   USA Network   Vertis Communications   Viacom   Viacom   Vitamin Water   Walt Disney Company   WestStar Cinemas (Mann)   Westwood One Radio

Networks   Wyndham Hotels & Resorts   Yari Film Group   Young Broadcasting Inc.

The Effect of Tablets on US Content Consumption

Proprietary FTI Research Study


Study Overview


Objectives of Study

  The emergence of tablets has been an important catalyst for change in media consumption during 2011.

  The FTI study highlights critical indicative trends impacting media companies across the TV, motion picture, magazine, newspaper and music industries in both countries. While there are many studies on consumer’s digital engagement, the study focused on consumption patterns among tablet and non-tablet users.

  Specifically, we sought to determine the following:

■  When, where and how often individuals use mobile devices

■  What types of media individuals are accessing on their mobile devices

■  Their willingness to pay for that content

■  What will motivate consumers to pay for content when they are not today

■  How does tablet ownership effect their engagement in offline media, their use of digital alternatives and their willingness to pay relative to non-tablet owners

■  What are the differences in usage among age and income group, country, and types of devices on which content publishers and producers from around the globe can adapt their digital media strategies

FTI’s recently completed Mobile Device & Digital Media Survey sought to determine how content is consumed online among US and UK respondents, as well as how tablet ownership affects digital media engagement and respondents’ willingness to pay for content.

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Methodology

  The data was collected through an online survey conducted between May 24, 2011 and June 2, 2011. A total of 1,541 individuals responded to the survey (~1,000 in the US and 500 in the UK).

  Because the study was intended to focus on digitally savvy respondents, respondents had to be a current user of at least one of the following devices:

  Laptop or desktop computer

  Smartphone (e.g. Blackberry, iPhone, Android, etc.)

  Tablet (iPad, Android, etc.)

  e-Reader (kindle, Sony, Nook, etc.)

  The study did not address questions of pricing because such issues require more reach and are more nuanced than this study was designed to provide for.

  In addition, while this report touches briefly on social media, web behavior and digital games, we drill down more deeply in newspapers, magazines, TV, motion pictures and music because our interest is to explore the effect of digital devices, especially tablets, on the demand for printed and traditional entertainment content.

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As a result, this study will differ, sometimes significantly, from studies of digital consumption across the more general population of all consumers.


Summary of Key Findings

Principal findings include:

■  Tablet users consume more online and off-line content than non-tablet users.

■  Digital alternatives are cannibalizing all conventional media, but tablet owners show a stronger inclination to shift online.

■  Resistance to paying for digital content is high, but differs across media types. Most consumers expect to pay less for digital content.

■  Proportionately, tablet users are willing to pay more than non-tablet users for digital content

■  Subscription TV spending increases with tablet ownership, particularly among consumers more than 35 years of age and earning more than $50,000 per year (males slightly more than females).

■  For music, there is a strong preference for downloading over streaming.

■  There is also a strong preference and willingness to pay for music that can be easily shared across various devices.

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While still comprised significantly of early-adopters, tablet owners today consume more content and have greater willingness to pay for it.


Digital Engagement and Substitution


Digital Engagement with Media

News and social networks are cited as the most common forms of content accessed online.

Content Accessed Online

Segmented (by country)

  News, social networking and music lead the pack in digital consumption among respondents in both countries, though UK respondents consume fewer movies and play less digital games than do their US counterparts:

  More than three quarters of respondents indicate that they access news and social networks online – a notably higher percentage than all other forms of content.

  Music is the third most popular form of online content, as 60% of respondents claim to download or stream digital music.

  Somewhat less than half of respondents watch TV shows or movies online.

  Magazines have significantly lower levels of online viewership than news and newspapers.

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“Common wisdom” assumes that digital content is for the younger consumer, but the responses show that this is not universally true – most notably for News / Newspapers.

Engagement by Age Group

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All media have suffered digital substitution, led by newspapers. Tablet users substitute more.

Digital Substitution

Our study asked respondents about their tendencies either to reduce or to abandon the use of conventional media when online media was available.

  Disturbingly, many people admit either to reducing or abandoning their use of some conventional media.

  In contrast, we also found that television subscribers often upgraded their subscriptions of conventional cable when presented with online digital content options.

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Reductions vs. Increases Tablet users reduce/stop more than non-users


Substitution is not equal across age groups or content types

  More respondents said they had stopped paying for or reduced purchases of newspapers than of any other type of media.

  Hard copy movies and television show rentals and purchases (including movie tickets) are also hard hit, followed closely by magazines.

  On average, respondents under age 35 in the US are more willing to reduce or cancel their use of conventional media than are older groups.

Digital Substitution continued

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Changes in Media Consumption Changes in Media Consumption by Age Group


TV, Movies and DVD

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Most digitally savvy consumers, regardless of age, still prefer to watch TV shows on good old TV sets.

Preferred Viewing Device & Willingness to Pay

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Until age 54, tablet owners pay to watch online TV far more than non-tablet owners.

Willingness to Pay for Online TV Preferred TV Viewing Device

  While TV Sets are still the preference, tablet owners are clearly shifting away from laptops to tablets

  Low smartphone scores argue against the efforts of some companies to bring television to the smartphone

  Only 17% of 18-24 year olds that own a tablet have never paid for online TV viewing

  Generally, until the age of 54, tablet users pay to watch TV online

  TV is clearly the preferred device for watching, well, TV. And this preference is shared among all age groups

Those who prefer TV (by age):


Approximately 40% of those who have not paid to watch TV shows online said they would pay something to avoid commercials.

What They Are Willing to Pay For?

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Features Worth Paying For By Age – Even the young will pay to avoid commercials

Features That Would Induce Paying for Online TV*

* Respondents who do not pay for Online TV

  Of the 83% of respondents who said the would not pay to stream online TV, 37% of non-tablet users and 25% of tablet users said they still would not pay despite any of the offered features

  44% of non-tablet owners under 24 would pay to avoid commercials

  More then 48% of respondents over 55+ would not pay for online TV regardless of the features offered


24% of tablet owners and 15% of non-tablet owners claim to have increased their TV subscriptions because of increased programming available online.

Increase in TV Subscriptions

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TV Subscription Changes Because of Online Alternatives*

Age of Subscription Upgraders

  7%-8% of respondents have cancelled their existing subscriptions because of the availability of online alternatives, and 12 -13% have reduced their subscriptions

  However, 24% of tablet owners and 15% of non-tablet owners claim they have increased their subscriptions to include more channels or access due to the availability of online content

  Possibly, the effect from exposure to new shows online has induced them to upgrade service to access those shows through their television (the preferred viewing device)

  No significant differences in upgrade behavior due to income

  35-44 year old tablet users upgraded the most, whereas 45+ year old non-tablet users exceed tablet users in subscription upgrades in their age group

* US Only


Gender has little influence whereas income can have a dramatic effect

Income & Gender Effect on Willingness to Pay

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Desire for commercial free viewing for respondents making under $25k dramatically exceeds their propensity not to pay

65% of the top income bracket have paid to watch TV online

Never Infrequently Sometimes Often Regularly


Tablet owners are twice as willing to pay to watch movies online as they are to watch TV shows online.

Summary of Findings: Movies

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Digital Usage

Tablet Users Non-Tablet Users

Movie Features Worth Paying For (By Age)

Frequency on Online Paid Movie Viewing

Preferred Movie Viewing Device

 Tablet Owners  Non-Tablet Owners


More than 1/3 of respondents say they have stopped or reduced buying or renting TV shows on DVD when there was an online alternative available.

Online Effect on DVD Sales and Rental

  47% of tablet owners have reduced or stopped buying DVDs as opposed to 36% of non-tablet owners

  Neither Income nor age seem to be a factor when consumers reduce or stop DVD consumption

  This result to some degree reflects the cannibalizing effect of online availability of product over conventional packaged media

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  Respondents stopped or reduced DVD purchases or rentals by 38% and 36% respectively

  Tablet users stop or reduce their movie-going, renting and DVD purchasing in greater numbers than do non-tablet users

  Respondents age 34 and under also reduced or have stopped their engagement with all conventional movie distribution channels in greater numbers than did older respondents

Change in Purchase & rental of TV Shows on DVD

Change in Movie Engagement Because of Online Access


Newspapers and Magazines

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Willingness to Subscribe to print declines with age

Newspapers - Willingness to Pay

50% of respondents do / do not take a printed newspaper subscription or single copy purchase (slightly less than UK respondents).

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53% might or would pay more for digital + print offer

  Overall, 53% or respondents said “yes” or “maybe” regarding their willingness to pay for a print and digital pay offering.

  Tablet users age 18-24 have a strong willingness to pay for a print + digital combination bundle.

Newspaper circulation is at its lowest point since 1954, even though the number of households has more than doubled.


Digital News: Willingness to Pay (continued)

  While 74% of respondents read news in digital formats, when surveyed only 7% said that they are willing to pay for news. 13% of tablet users indicated that they were willing to pay for news online (total not shown on chart).

  18% of 35-44 year old tablet users said they would be willing to pay for online news, as opposed to only 5% of those who do not own a tablet.

  While tablet users are more willing to pay for online news (left chart), non-tablet users are more inclined to think digital news is the same or more valuable than print.

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And would pay less for it than print

Mixed blessing for newspapers: While more tablet owners are willing to pay for news than are non tablet users, on average they want to pay less for it.

Only 7% thought they would pay for digital news


38% of non-payers said they might pay for digital content for the right features

Willingness to Pay & Content Preferences

  We asked current non-payers, what features they would be willing to pay for. On average, 56% would not pay for content regardless of features.

  Tablet users much more likely to pay (38% more) than non-tablet users.   The two groups have different feature priorities.

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Features worth paying for Tablet & Non-tablet users have different priorities

 Tablet Owners  Non-Tablet Owners More like a web site…

Tablet Users Non-Tablet Users 1.  Exclusive Content Exclusive Content

2.  Custom Content Custom Content

3.  App App

4.  High Quality Photos Breaking news

5.  Breaking news Industry-specific

6.  Regular news Local news

7.  Weather Weather

8.  Exclusive Video Exclusive Video

9.  Local Content High-quality video

10.  Industry-specific Regular news

11.  Sports In-dept editorial

12.  Book / movie reviews Sports

13.  In-depth editorial Book / Movie review

14.  Opinions / Features Opinions / features

15.  Other Other

More like an app…


While gender has a nominal effect on decisions, income impacts the decision with 60% of respondents that make more then $150k willing to pay more or the same for online as they would for print

The Effect of Income & Gender on Willingness to Pay

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Less The Same More

But that same group has no desire to pay more for just an online offering compared to hardcopy

72% of respondents under $25k would pay more for print if it included an online component

Yes Maybe No


More than 50% of online respondents are paying or might pay for digital news – more than one approach required

Converting Consumers to Digital Pay Models

  21% say they already pay for online news access

  An additional 7% said they would pay for online access

  38% say they would pay for some types of news content (includes the 7%)

  This group wants unique feature set and a mobile app

  53% said they might pay for a digital and print combo subscription   Most are probably already print

buyers

  Probably the “lowest-hanging fruit”

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Unlike newspapers, where buying habits were sensitive to differences in age, magazine buying does not differ dramatically by age group, including those age groups that do not buy at all.

Magazines

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Digital Usage

US Digital Magazine Consumption

Acquiring Hardcopy Magazines Reductions in Magazine Purchases in Light of Digital Alternatives


Music

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Tablet users and Non Tablet users alike indicated an overwhelming preference for the ability to share music across various devices.

Summary of Findings: Music

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Digital Usage

Features Worth Paying for (By Age) Preferred Method of Listening to Music

Device & Access Preferences


Contact Us

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Bruce Benson, Digital & Media Practice Leader Mr. Benson is a senior managing director in FTI’s Economic Consulting practice and is the global leader of FTI’s digital and media practice. He has more than 20 years of professional experience in all aspects of media and technology. He has consulted in a broad range of areas including strategy and market planning, economic analysis, operational effectiveness, intellectual property management and IT preparedness. He was also Chairman of the Board of Ziff Davis Media until its recent sale. He has just been elected to Adobe’s newly formed product advisory board to help the company focus on the media and education space. His previous background includes SVP of Corporate Strategy at Young & Rubicam, CEO of a leading digital advertising delivery firm, SVP of Sony Entertainment, and managing partner of PWC’s entertainment practice in New York.

Mr. Benson is a recognized expert in media and advertising and has helped some of the world’s leading companies achieve their strategic goals, including Sony Music, Microsoft, Bertelsmann, Viacom, Young & Rubicam, Ogilvy, Harper Collins, NBC, Sesame Street, Sotheby’s and Pearson. Mr. Benson has led over 200 projects with clients and as a media executive both in the US and overseas. These projects have focused on strategic planning, revenue optimization, operational effectiveness and cost containment, internet distribution and large-scale IT project management.

Prior to joining FTI, Mr. Benson was leader of PW’s media practice in New York. Key clients included NBC, Showtime, MTV, Nielsen, ABC, Sony Entertainment, Simon & Shuster, Random House, Harcourt, Pearson and Discovery. He led various projects for these clients including global performance optimization, IT transformation, ad sales optimization and various M&A activities.

From 2003-2005 Mr. Benson led SAP’s media practice where he led their investment & development of SAP’s media solutions. While at SAP he oversaw projects at New York Times, Washington Post, Cox Ohio Publishing, Atlanta Journal Constitution, Toronto Globe and Mail, Boston Globe, International Herald Tribune, Times of India. His teams also oversaw the launch of iTunes for Apple, whose transactions are settled through SAP. He also oversaw the development of various TV and film rights systems, digital delivery systems and ad sales systems.

Mr. Benson is also a recognized expert in digital media and online advertising. He recently worked with Sesame Street to launch their broadband portal and their historic shift from TV to the web. Sesame Street won the first Emmy ever for a website because of this work. He has advised ABC.com with ad revenue enhancement strategies, and helped NBCU and Disney with their digital distribution architecture and ad management platforms. He is also has advised T-Mobile on their market strategy for new ad-based offerings for consumers and ad-based application developers in the mobile market.

Mr. Benson is a frequent key note speaker and author of many articles on digital strategy and media, and co-led conferences with key Harvard strategists on intellectual property management and copyright law. Mr. Benson has pioneered various new forms of digital distribution and advertising over the internet, including dynamic ad insertion into tablets and the tracking of ad behaviors online and off-line. Mr. Benson has submitted various patents on electronic book delivery, the internet delivery of ad-supported video content over peer-to-peer networks, and mark-up animation languages for web development.

Bruce Benson Senior Managing

Director

3 Times Square 11th Floor

New York, NY 10036

Tel: (646) 453-1289 Fax: (208) 988-1613 Cell: (203) 606-3854

[email protected]

© 2011 all rights reserved by FTI Consulting, Inc. − 34 −

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The Effect of Tablets on US Content Consumption