High security co-media: digital disruption awaits entertainment and media

The coronavirus pandemic has placed billions of people under “house arrest” and they have plenty of free time. But the leisure industry was not quite ready for this, and the digitalization of the industry had to be implemented “from the wheels”

The global entertainment and media industry entered 2020 with a growth ceiling. Back in the fall of 2019, the consulting agency Accenture released a review of this market, which became a kind of warning. The growth of operating costs outstrips revenue, the drop in business margins is perceived as a harbinger of an imminent crisis in the media market. To get out of this situation, the authors of the report suggested that market participants combine three tactics:

The key task of analytics from Accenture was called drawing up a clear plan for the digitalization of the company and defining its model: whether it’s a cross-platform service, vertically integrated or completely digital.

For their part, experts from the World Economic Forum (WEF) note that the entertainment and mass media industry has already experienced several digital transformations over the past 20 years. In total, they have four similar waves:

However, new generations of consumers require information as personalized as possible, and when and where it is more convenient for them to receive it. Digital is so important today that the line between media and technology has become blurred. This is a challenge for both traditional sources of information and fully digital startups. “Considering that gigabits of content appear on the Internet every second, the media business is forced to bite into the field of consumer attention with fangs,” WEF analysts write. In the future, they say, the entertainment industry will be driven by three main trends:

• personalization — appealing directly to the consumer as a person in the conditions of his information overload,
• fragmentation – distribution, even “smearing” of content across various distribution channels,
• Partnership — the formation of flexible teams in the market that specialize in one thing and unite to create unique content.

The fact that the entertainment industry is moving from extensive development (in breadth) to intensive development (in depth) is evidenced by the example of the American video streaming service Netflix. In the second quarter of 2019, the company saw a drop in U.S. subscribers for the first time in eight years and the most modest increase in global subscribers in three years.

If only Newman had known how right he would be.

The WEF study mentioned above was prepared in 2015, and little has changed in the market since then. The entertainment industry needed a big boost to kickstart its digital transformation, and it got it. The coronavirus pandemic in the first months of 2020 swept the whole world, forcing the governments of many countries to take unprecedented measures at the cost of suspending economic life: billions of people were ordered to stay at home for weeks. Many recluses suddenly had a lot of free time, which radically changed the structure of information consumption.

During the quarantine period, all kinds of offline events occasionally go online (for example, home concerts of pop stars), but are more often canceled. The closure of clubs and cinemas, the postponement of concerts and sporting events – even those events that most people can safely watch on stream from home simply cannot take place due to the self-isolation regime. And it’s not the lack of digitalization, but the very nature of these events. The same attempts to hold a football championship without spectators in the stands eventually ran into increased quarantine measures.

Offline film distribution suffered serious losses in the entertainment sector. For example, in China, according to the consulting firm Artisan Gateway, during the month of the New Year holidays, which just happened to be the peak of the spread of the coronavirus, cinema revenues amounted to $4,2 million compared to $1,8 billion in the same period in 2019. Many these days have simply transferred the premiere of films from offline to online, as, for example, the creators of the Chinese comedy Lost in Our Country did.

The total loss of the global film industry due to COVID-19, according to the most conservative estimates, will amount to $5 billion (but may exceed $20 billion). The Cannes Film Festival has been rescheduled from May to at least the end of June. Festivals planned for the second half of the year (for example, in Locarno and Toronto) have not yet been postponed, but their management is closely monitoring the situation and, together with online cinemas, is already launching paid services with movie retrospectives for moviegoers sitting at home.

In turn, providers note an increase in the number of purchases of video content, not only in the form of long-term subscriptions (SVoD), but also one-time transactions (TVoD and EST). According to the press service of the ER-Telecom provider (operating under the Dom.ru brand), in the two weeks from March 20 to April 3, the number of films purchased via the TVoD and EST systems doubled, even though that until the end of April, the company opened its customers access to paid services.

The demand for home cinema could theoretically breathe new life into the business of the same Internet giant Netflix, but here we must remember the following.

• Firstly, in the US market – the company’s main one – 61 million households already have a subscription, and the growth prospects here are small, especially given the emergence of new competitors in the video streaming market: Apple, Disney, AT&T and others.
• Secondly, in recent years, Netflix has relied on the production of its own content, and the company’s recent decision to suspend film production will not be reflected in the business. We will see the results in the report for the first quarter of 2020.

In addition, the possibilities of video services are limited technically: it takes years to lay new high-speed cables around the Earth, and it is necessary to meet the increased demand now.

According to Sandvine, 60% of the world’s traffic that providers provide to private customers is video. Netflix and YouTube account for 12% of all Internet traffic. On mobile devices, the share of video streaming is even slightly higher and reaches 65%. Because of this, the load on the network increases significantly. According to ER-Telecom, in March 2020, compared to March of the previous year, the growth of Internet traffic for the company’s customers increased by 35–40%, mainly due to video streaming. In general, the load growth rates around the world are approximately comparable to those in Russia, which forced Netflix and YouTube to limit video quality for a month.

Games — computer and mobile — have become an alternative to movies and TV shows in terms of leisure within the four walls. According to the Financial Times, during the month of the New Year holidays in China, which coincided with the introduction of quarantine first in the city of Wuhan, then throughout the country, the number of downloads of mobile applications in the Games category increased by 80% compared to the same period in 2019. Following by a huge margin is the segment “Education” (20% growth). The 2012 multi-platform game Plague Inc., where the task is to create and spread an infection in order to destroy humanity, topped the global AppStore rating in terms of the number of downloads, including in its Chinese segment, until it was banned in China.

Do not lag behind in popularity and computer games. During March, the Steam gaming platform set new attendance records every week. On Sunday, March 29, the Steam network broke two historical records at the same time: the number of active users per day (23,4 million) and the number of concurrent players (7,3 million people). Although online services allow you to buy new games and add-ons directly from home, many people prefer to take care of their leisure time in advance. So, in the week of March 15-21, sales of games on physical media in Britain rose to almost half a million copies – three times more than a week earlier.

But the acute phase of the epidemic will pass sooner or later. In the same China, the growth in the number of infected people stopped by mid-February, and over the next month and a half, public life resumed almost in full. How will the entertainment industry come out of this crisis?

Many experts agree on one thing: the virtual reality boom will be a key consequence of the current crisis. It is not enough to sit at home and watch a good movie, listen to your favorite music – you still want to go to a concert (on Baikal, in Ancient Rome or a virtual bar – substitute the right one). “Suddenly, industry players have the luxury of experimenting with VR/AR technologies, content and presentation, and in any case, the consumer will take it with joy, as a cure for growing claustrophobia,” says Forbes columnist Nelson Granados.

The growth of the virtual reality economy is also ranked first by analysts from the Dutch company TrendWatching in the list of “ten consumer trends after the outbreak of COVID-19”.

The most important event in the leisure industry in connection with the coronavirus pandemic is the decision of Universal Studios to develop video streaming, the same VoD, says Thiago Romariz, director of content and public relations for the Brazilian fintech company EBANX. If other giants of Hollywood follow it, this may become a signal of the wholesale digitalization of the delivery of services within the framework of the same old scheme of relations between producer and user. But it’s too early to say that the entertainment industry will change beyond recognition, and it’s too early to judge where exactly the vector of change will lie, adds Romariz.

Timur Bekmambetov, producer, head of BAZELEVS studio:

Mikhail Oseevsky, President of PJSC Rostelecom:

Bob Iger, President of The Walt Disney Company:

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