Media and Entertainment - Milken Institute · 2014-08-20 · Profitability in media and entertainment vs. stock indices Average EBITDA margin percentage between 2006 and 2009 * The

Media and Entertainment:

The Fight for Consumers’ Time and Money

Growth in media and entertainment

EBITDA CAGR between 2006 and 2010

Source: Ernst & Young report “Spotlight on profitable growth – Media & Entertainment, Volume III”.

15% 14%

10% 10% 9%7%

3%

-1%-4% -5%

-10%

0%

10%

20%

Profitability in media and entertainment

Average EBITDA margin percentage between 2006 and 2010


38%35%

31%27%

20% 19% 18%

11% 11% 11%

0%

10%

20%

30%

40%

Growth in media and entertainment vs. stock indices

EBITDA CAGR between 2006 and 2009

* The ten sectors of the media and entertainment industry measured by Ernst & Young consisting of cable operators, interactive media, cable networks, satellite television,

publishing, conglomerates, television broadcast, film and television production, electronic games and music.


5%

-5% -5%

-13% -14%-17%

-20%

-15%

-10%

-5%

0%

5%

10%

E&M* CAC 40 Nikkei S&P 500 DAX 30 FTSE 100M&E*

Profitability in media and entertainment

vs. stock indices

Average EBITDA margin percentage between 2006 and 2009

* The ten sectors of the media and entertainment industry measured by Ernst & Young consisting of cable operators, interactive media, cable networks, satellite television,

publishing, conglomerates, television broadcast, film and television production, electronic games and music.


23%22% 22%

17%16%

13%

0%

5%

10%

15%

20%

25%

E&M* S&P 500 FTSE 100 CAC 40 DAX 30 NikkeiM&E*

Global TV subscriptions - market components

Percentage CAGR 2011 to 2015

Source: PricewaterhouseCoopers LLP.

51.6%

25.1%

13.6%

7.6%

-0.2%

-10%

0%

10%

20%

30%

40%

50%

60%

Over-the-top Mobile TV Video-on-demand Subscriptions Pay-per-view

Global TV subscriptions - regional growth

Percentage CAGR 2011 to 2015


12.5% 12.1%

7.5%

5.8%

0%

2%

4%

6%

8%

10%

12%

14%

Latin America Asia Pacific EMEA North America

Global TV advertising

Percentage share by component 2010 and 2015


Terrestrial,

69.9%

Multichannel,

27.9%

Online,

1.8%

Mobile,

0.4%

2010

Terrestrial,

64.8%

Multichannel,

30.4%

Online,

3.6%

Mobile,

1.3%

2015 (projection)

Global entertainment spending

Digital vs. non-digital percentage change 2010 to 2015


Non-digital,

74%

Digital,

26%

2010 2015

Non-digital,

66%

Digital,

34%

2015 (projection)

Newspaper circulation growth worldwide

Global paid-for daily newspaper, 2008 to 2009 and 2004 to 2009

Source: World Association of Newspapers and News Publishers' (WAN-IFRA) annual world press trends 2010.

1-year growth (2008 to 2009) 5-year growth (2004 to 2009)

-8%

-6%

-4%

-2%

0%

2%

4%

6%

-15%

-5%

5%

15%

25%

35%

Newspaper titles growth worldwide

Daily newspaper titles, 2008 to 2009


2.7%

1.3%1.0%

0.2%0.0% 0.0%

1.7%

0%

1%

2%

3%

Five largest markets for newspapers

Average number of copies sold daily in 2009, millions


110 109

50 46

20

-

20

40

60

80

100

120

India China Japan United States Germany

E-books: A skyrocketing market Trade wholesale electronic book sales, United States

Sources: Amazon, International Digital Publishing Forum.

Q3 2010 = $119.7 million

0

20

40

60

80

100

120

Q1 02

Q1 03

Q1 04

Q1 05

Q1 06

Q1 07

Q1 08

Q1 09

Q1 10

US$ millions

0

10

20

30

40

50

60

70

80

90

100

2008 2009 2010 2011 2012 2013 2014 2015

Percent Desktop sales Notebook/laptop sales Netbook/mini PC sales Tablet PC sales

Tablets will take 1 in 4 PC sales by 2015 Percentage of PC unit sales, United States

Source: Forrester Research eReader Forecast, GigaOM.

Mobile behaviors in Japan, U.S., and Europe

By percent of total mobile audience, 2010

0%

5%

10%

15%

20%

25%

30%

Accessed social

networking

site/blog

Listened to music on

mobile phone

Captured video

Watched TV and/or video

on mobile

phone

Played games

Japan U.S. Europe

Sources: comScore MobiLens, June 2010, Japan, United States, and EU5 (UK, DE, FR, ES, and IT).

Smartphones surpass global PC shipments

for the first time in history

63.7 66.3

80.889.6

83.2

66

89.7 92.1

34.941.9 42.8

53.9 54.763

81.1

100.9

0

20

40

60

80

100

120

Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010

Million

PC shipments Smartphone shipments

Source: International Data Corp.

Number of mobile-only Internet users

expected to climb significantly

Source: eMarketer, Cisco VNI Mobile.

400505

657

860

1,135

1,413

0

200

400

600

800

1000

1200

1400

1600

1800

2008 2009 2010 2011 2012 2013

Million Mobile Internet users

Global

U.S.

1432

79 188

487

788

0

100

200

300

400

500

600

700

800

900

2010 2011 2012 2013 2014 2015

Million Mobile-only Internet users

Global

North America

Globalization of media and entertainment

Viacom revenue distribution between U.S. and international

Source: Viacom annual reports from 2006 to 2010.

78% 76% 71% 72% 72%

22% 24% 29% 28% 28%

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010

Domestic Foreign


News Corp. revenue distribution between U.S. and international

Source: News Corp. annual reports from 2006 to 2010.

54% 53% 50% 53% 53%

46% 47% 50% 47% 47%

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010

Domestic Foreign

77% 77% 75% 76% 74%

23% 23% 25% 24% 26%

0%

20%

40%

60%

80%

100%

2006 2007 2008 2009 2010

Domestic Foreign


Disney revenue distribution between U.S. and international

Source: Disney annual reports from 2006 to 2010.

Sources: Michael Schwirtz, “Home of the Mouse Finds Box Office Success in the Land of the Bear”, New York Times, Nov 2009. John Hopewell, “Brazilian co-prods boom as int'l

partners get real,” Variety, May 2011. Karen Chu, “Fox Filmed Entertainment's Jim Gianopulos: 'Theft' Is the Film Industry's Biggest Problem”, Hollywood Report, June 2011.

• Domestic films grew to 25 percent of the Russian market in 2008 from

4 percent at the start of the decade.

• Disney made a first attempt at a film specifically for a Russian-speaking

audience with a Russian cast and Russian writers, directors and producers.

• The film reflects a new reality at Disney and in Hollywood generally that

dubbed American blockbusters are no longer enough to maintain a foothold in

lucrative foreign markets.

• The approximately 80 Brazilian films (including international co-productions)

released in 2009 accounted for 15 percent of the local market, a 50 percent

increase compared to 2008.

Effect of globalization on creative direction

The rise of local content, Russia and Brazil

Sources: Michael Schwirtz, “Home of the Mouse Finds Box Office Success in the Land of the Bear”, New York Times, Nov 2009. John Hopewell, “Brazilian co-prods boom as int'l

partners get real,” Variety, May 2011. Karen Chu, “Fox Filmed Entertainment's Jim Gianopulos: 'Theft' Is the Film Industry's Biggest Problem”, Hollywood Report, June 2011.

Effect of globalization on creative direction

The rise of local content, China and India

• Fox International Productions is co-financing and co-creating foreign-

language films for local audiences, like “My Name Is Khan” in India and

“Hot Summer Days” in China.

• “… our local production in China was the number one film in China on

the same weekend our local film was the number one film in India… So

we’d like to continue our local strategy in… markets around the world

that have high quality local filmmaking talents, and an audience that is

hungry for films that reflect their culture," Fox Filmed Entertainment

chairman Jim Gianopulos.

Innovations in technology & business models

Online streaming: Netflix

Source: Panos Mourdoukoutas, “What is wrong with Netflix's business model?”, Forbes, September 2011.

• Netflix is a home entertainment service provider that currently distributes via DVDs and online

streaming (similar to LoveFilm in Europe).

• The Netflix business model is profitable in the short run particularly because it does not have high

costs of ownership (e.g. production facilities, warehouses).

• The company’s stock was doing phenomenally will in the previous 2 years (until recent missteps),

powered by a push towards streaming, however…

• Its recent contract negotiations proved who has the upper hand in the video streaming

business: Content providers.

• Content providers can sell their content directly to consumers or sell it to the highest bidder.

As streaming becomes the norm due to adequate Internet speeds, how will business models

evolve to optimally monetize the value chain for both content and service providers?

Innovations in technology & business models

Platform-agnostic entertainment: iCloud

Source: “Apple Introduces iCloud”, Apple, June 2011. Ethan Smith, "Disney Touts a Way to Ditch the DVD“, WSJ, November 2009.

• Cloud computing is where computing is provided as a

service rather than a product.

• Apple will be one of the leading providers of this service

via iCloud, which will work seamlessly with applications

on iPhones, iPads, iPod touches, Macs or PC’s.

• Disney also plans to launch a similar service

specifically for VOD called Keychest, with a goal

of providing digital media to customers through

any Internet-enabled device.

As entertainment becomes platform-agnostic, what is

the optimal business model for service providers to

cater for consumers’ needs while compensating content

providers previously individual platform rights?

Live Nation Entertainment

Live event attendance

Source: Live Nation Entertainment annual reports.

64

5752

47

0

10

20

30

40

50

60

70

2007 2008 2009 2010

Number of attendees, millions

Notes: Artist Nation segment primarily provides management services to music recording artists in exchange for a commission on the earnings of these artists,

eCommerce manages our consumer websites.

Source: Live Nation Entertainment annual reports.

-350

-300

-250

-200

-150

-100

-50

0

50

100

150

Concerts Ticketing Artist Nation eCommerce Sponsorship

2008 2009 2010Profit, US$m

Live Nation Entertainment

Operating profits by segment

Top-grossing films Worldwide, 2010

Source: Box Office Mojo.

Rank

Film

Gross earnings

(US$ millions)

Domestic

(% earnings)

Overseas

(% earnings)

1 Toy Story 3 $1,063.2 39.0 61.0

2 Alice in Wonderland $1,024.3 32.6 67.4

3 Harry Potter and the Deathly

Hallows Part 1 $953.0 31.0 69.0

4 Inception $825.5 35.4 64.6

5 Shrek Forever After $752.6 31.7 68.3

6 The Twilight Saga: Eclipse $698.5 43.0 57.0

7 Iron Man 2 $622.1 50.2 49.8

8 Tangled $576.5 34.6 65.4

9 Despicable Me $543.1 46.3 53.7

10 How to Train Your Dragon $494.9 44.0 56.0

Top-grossing films United States, 2010


Rank

Film

Gross earnings

(US$ millions)

1 Toy Story 3 $415.0

2 Alice in Wonderland $334.2

3 Iron Man 2 $312.4

4 The Twilight Saga: Eclipse $300.5

5 Harry Potter and the Deathly Hallows

Part 1 $295.0

6 Inception $292.6

7 Despicable Me $251.5

8 Shrek Forever After $238.7

9 How to Train Your Dragon $217.6

10 Tangled $199.6

Top-grossing films Outside of United States, 2010


Rank Film Gross earnings

(US$ millions)

1 Alice in Wonderland $690.1

2 Harry Potter and the Deathly Hallows

Part 1 $658.0

3 Toy Story 3 $648.2

4 Inception $533.0

5 Shrek Forever After $513.9

6 The Twilight Saga: Eclipse $398.0

7 Tangled $376.9

8 Clash of the Titans $330.0

9 The Chronicles of Narnia: The Voyage

of the Dawn Treader $310.3

10 Iron Man 2 $309.6

Top-grossing films of all time Worldwide


Rank Film Gross earnings

(US$ millions)

Domestic

(% earnings)

Overseas

(% earnings)

1 Avatar (2009) $2,782 27.3% 72.7%

2 Titanic (1997) $1,843 32.6% 67.4%

3 The Lord of the Rings:

The Return of the King (2003) $1,119 33.7% 66.3%

4 Pirates of the Caribbean:

Dead Man's Chest (2006) $1,066 39.7% 60.3%

5 Toy Story 3 (2010) $1,063 39.0% 61.0%

Video streaming YouTube statistics

Source: ReelSEO.com.

• 35 hours of video footage is uploaded to the site every minute.

• Over 13 million hours of footage were uploaded in 2010.

• More video is uploaded every 60 days than the three major U.S. television

networks produced in 60 years.

• Each week, YouTube receives the equivalent of 115,000 full-length feature

films in uploads.

• 70% of YouTube traffic comes from outside the U.S.

• The base age demographic for YouTube is 18-54.

Piracy figures

Source: The Directors Guild of America, Peer Media Technology.

• Video will make up 90% of all Internet traffic in 2013

• Wireless data traffic will increase 131% per year through 2013

• File-sharing accounts for almost 28% of all Internet traffic, and

of that amount, almost 18% is television content.

• South Korea has seen a 95% decline in the home video market

since 2000, coinciding with increased broadband speeds

(5 times the average speed the U.S.)

Market for home entertainment

North America, US$ billions

Source: PricewaterhouseCoopers LLP, Wilkofsky Guen Associates.

201020092008200720062005200420032002200120001999

22

20

18

16

14

12

US$ billions

Home entertainment rental and sell-through spending

United States

Source: Digital Entertainment Group.

2013201220112010200920082007200620052004

26

24

22

20

18

16

US$ billions

Cable vs. network advertising market

United States

Sources: Canadian Radio-Television and Telecommunication Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky.

Network

Cable

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Media and Entertainment - Milken Institute · 2014-08-20 · Profitability in media and entertainment vs. stock indices Average EBITDA margin percentage between 2006 and 2009 * The