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Entertainment's Best Result Since 2009
By Steve Redmond and Luke Butler
Every year since 2008, ERA's annual Entertainment Monitor has
reported bad news, the market declining year-on-year-on-year to the
extent that 2012 was more than 10% off the 2008 peak.
In 2013 the pattern was finally broken and the entertainment
market returned to growth, recording a 4% gain to reach £5,295.6m,
its best result since 2009. Both videogames (up 6.6%) and video (up
3.7%) grew stronglyand even music declined by just 0.5%, its best
result in a decade. Had its release schedule been better, music too
would have achieved an increase.
Given the 10 years of uncertainty which preceded it, no one
should underestimate the importance of this achievement by
retailers and digital services. After a decade of investment and
the expenditure of hundreds of millions of pounds, it seems that
they have stabilized the cannibalizing effect of digital technology
and in many instances turned it to their advantage.
They have developed new business models based on rental,
streaming and downloads while also supporting new hybrid
technologies (most notably Ultraviolet in video) which aim to
bridge the gap between their existing physical businesses and the
What has emerged is an entertainment business which is broadly
two-fifths videogames, two-fifths video and one fifth music,
reflecting the fact that at the moment video and games more
effectively utilize the high quality displays, accelerometers and
touchscreen capabilities of the most common devices than does
Physical formats continue to be in retreat despite the
continuing and paradoxical increase in the number of physical
retail outlets selling entertainment (see page 16). In 2013 it was
music which suffered the sharpest physical decline (down 7.7%)
while games - cushioned a little by the launch of the new Xbox One
and PS4 platforms (see p 24) had a relatively modest 2.9% fall.
In digital, video was the top performer with sales up over 40%
as the sector benefited from the rapid growth of subscription
models from the likes of Lovefilm and Netflix. Videogames -
entertainment's most digital market - grew digital sales by another
16.4%, while music's digital revenues failed to replicate the kind
of surging growth seen in recent years to register an increase of
The result of all this is an entertainment market which is now
43.4% digital and 56.6% physical. More than half of videogames
revenues are now digital, while video remains the least digital,
with physical still accounting for nearly 70% of revenues.
Digital files and streams are of
course only one element of the internet-powered entertainment
market. Home delivery retailers such as Amazon have taken an
increasing share of the physical market to the extent that they now
account for one in five album sales, (see p16). We have known it
was coming for years, but in 2013 it finally happened: the
combination of digital and home delivery sales means entertainment
is now primarily a market conducted online.
Driven in particular by the rapid
growth of mobile and streaming, in 2013 60% of total sales of
games, video and music were generated either digitally or via the
internet store-fronts of home delivery retailers.
Notes: Games microtransactions are counted within access spend.
All online console transactions are counted within ownership spend
including full game downloads and paid downloadable content.
It is telling that while ownership models feature among the
fastest-growing sectors in the entertainment business, all of the
fastest-falling sectors are ownership models.
The implications for the entertainment sector if this trend
continues are significant. On a banal level it suggests that the
market in the future for all kinds of storage from flash drives and
hard disks through to CD and DVD racking is likely to be
More fundamentally it suggests the need for a fundamental review
of resource allocation and business metrics in a digital world -
with clear implications for the deals retailers strike with
suppliers. In service-based access models customer relationship
management, thinking through an ongoing relationship with known
customers rather than dealing with a series of discrete
transactions, is a core competency. Meanwhile average revenue per
user may be a far more relevant measure in an access-based world
than unit pricing. The optimum pricing level to maximize revenues
may be very different from what it is now.
This is already a live issue in the music streaming market where
there is a growing consensus among services that the current
standard £9.99 per month for a premium mobile subscription is
simply too high to address a mass market.
Whatever the results of that particular discussion it is clear
that the switch to a diverse entertainment ecosystem embracing both
access and ownership models will continue to pose fresh challenges
for both retailers and suppliers alike.