Disruption - The key theme in 2016

Last year saw plenty of disruption surrounding the way people consume TV, movies, music and games and 2016 is already shaping up to be even more disruptive. With that in mind we have come up with the following thoughts on some of the trends and events that will shape the digital media landscape in 2016.

Virtual reality will be the single hottest new technology in the media & entertainment space in 2016.

This will result in a seismic change in the way large media companies typically embrace a new tech. Media companies usually prefer to experiment with technology, let standards emerge, production costs decline, and allow the installed base of enabling devices grow in order to ensure the best chance of success when they do launch a new product or service.

In the case of virtual reality, despite a miniscule addressable market of VR headsets (though it should be noted that Oculus Rift, PlayStation VR, and HTC Vive will all be joining Samsung Gear VR in early 2016), no standards, high production costs, and lack of a business model, many media companies are throwing caution to the wind and moving aggressively to embrace virtual reality.

Subscription VOD (SVOD) growth is going to slow in the United States.

Not every household in the U.S. is going to subscribe to Netflix, or any SVOD service for that matter. With 56 per cent of broadband households in the U.S. already subscribing to one or more SVOD services, we are on the back side of the SVOD adoption curve. Further limiting growth is the fact that 6 per cent of broadband subscribers use someone else’s SVOD subscription, negating the need for them to pay for one themselves. Increasingly, SVOD providers in the U.S. will have to grow their subscriber bases by either convincing existing Netflix, Amazon, Hulu or HBO Now subscribers to switch services or get them to subscribe to an additional SVOD service.

For new services, such as YouTube Red, which reports indicate is looking to license movies and TV shows while simultaneously creating original content, similar to Netflix, Amazon, and other premium SVOD services, the question is whether they can differentiate themselves in an increasingly competitive market or if it is “too little, too late.”

Ad blocking is a big and growing problem for advertisers.

Ad blocking is not new, for years those technically sophisticated enough could utilise ad blocking software. What’s changed is that ad blocking has gone mainstream. According to Adobe and Pagefair, ad blocking cost advertisers $21.8 billion in lost revenue globally in 2015, and will nearly double in 2016. Compounding advertisers’ ad-blocking woes is Apple’s decision to allow ad-blocking plug-ins for its mobile Safari web browser and now Mozilla’s release of a new ad-blocking app called Focus by Firefox specifically designed for the iPhone and iPad.

To counter this, some publishers will cut back on intrusive ads and clutter, some are paying ad blocking companies to allow their ads to reach customers, a number of publishers have filed lawsuits to prevent ad blocking and many are relying on anti-blocking systems. Despite all this the problem of ad avoidance and ad blocking will persist.

Advertisers must make more creative use of video, social native advertising like influencer marketing, product placement and sponsored content that is harder to detect with ad blocking software and is arguably more effective. As advertisers pushed to make their ads more relevant and useful, native advertising will see a significant increase in spend in 2016, becoming mainstream in the near future.

Apple Music will put significant pressure on Spotify.

According to Apple CEO, Tim Cook, Apple Music has 6.5 million paying subscribers, plus an additional 8.5 million subscribers still in their free 3-month trial as of mid-October. Assuming, Apple Music continues to convert trial subscribers to pay subscribers at a 59 per cent rate, they will easily eclipse 10 million subscribers some time relatively early in 2016, making them the 2nd largest music subscription service. Buoyed by artists beginning to offer their music either first or exclusively to Apple’s paid subscribers and exclusive concert video from artists such as Taylor Swift, Apple is putting Spotify squarely in their crosshairs.

Voice search will begin to impact how TV viewers search for programming.

The coming year will see the adoption of new search behaviors emerge, focused on the conversational nature of voice search. With consumers becoming increasingly familiar with digital personal assistants such as Siri and Cortana the market is being primed for the expansion of voice search with in the connected home.

Mike Goodman, Director, Digital Media Strategies at Strategy Analytics

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