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The media: a state of advanced disruption

The essential

The digital revolution underway is disrupting existing advertising models, and the migration of investment toward fixed and mobile online platforms is set to accelerate at the expense of traditional media, including television.

Advertising agencies, which are increasingly acting like consulting firms, have equipped themselves with the resources to play a key role in the digital transformation of companies and tap new sources of revenue.

 

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The digital challenge, or "Uberisation" of the economy

The "Uberisation" of the economy alludes to the challenge posed to traditional economic models by the digital transformation of society. Originally, Uberisation referred to the disintermediation of taxi reservation services brought about by the Uber online app, which allows users to reserve cars with drivers. The app offers a comparable transportation service at slightly higher rates but with greater comfort and reliability: GPS localisation of the nearest driver, prices quoted in advance and automated payment via the app. In just a few months, Uber managed to pose a major challenge to the (closed) economic model of traditional taxi companies.

Nowadays, entire sectors of the economy are exposed, and many companies are at risk of being "Uberised", if this has not already occurred: in retail by Alibaba (which carries no inventory), in accommodation by Booking and Airbnb (which own no real estate), in ride-sharing by BlaBlaCar (which owns no vehicles) and in banking by Lending Club (which does not operate any branches).

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The media sector: the first victim of the digital transformation

In our view, the culture and information industry was one of the first sectors to undergo digital transformation. After all, the media is, by definition, a series of information platforms, and these became digitised virtually overnight as there is not a single text, photo or video that cannot be transformed into a digital file. Thus, the media sector was the first to be forced to undergo digital transformation.

The concept of "Uberisation" is therefore familiar to the media world. The music industry was hit by Napster* a long time ago, a fate later shared by the press industry with the arrival of Google and television with the advent of Netflix. With the proliferation of smart devices, growing access to high-speed Internet, ease of use (anytime, anywhere and from any device) and new services like recommendation engines, the consumption of video on demand has exploded in recent years. Netflix, the champion of video on demand, saw its subscriber base exceed 60 million in 2015. Over 40 million of these customers are located in the United States, representing a spectacular 40% market share for a service that did not exist 10 years ago.

Advertising as a driver of the digital migration

Over the past 15 years, online advertising has seen sustained and regular growth, largely at the expense of printed media such as newspapers and magazines. Nonetheless, television advertising has managed to maintain its share of the advertising mix. Over the next five years, the growth of digital should continue. It is estimated that printed media will continue to decline and television will begin losing ground due to falling audiences, particularly among younger generations.

This migration could already be accelerating. After years spent reflecting on the opportunities of online investment, major advertisers are taking action. The main reasons are: (1) the marked decline in traditional television audiences (at least in the United States) due to cannibalisation by subscription-based video-on-demand services such as Netflix; and (2) the massive increase in the quality and availability of online advertising tools (video inventory) over the past 12 months, offering advertisers what they had been missing: a genuine substitute for television. It is believed that some major categories of advertisers that had previously shied away from digital technology, such as advertisers of consumer goods, could drive and accelerate this growth in the coming years.

An opportunity for advertising agencies?

We believe that advertising agencies could be the big winners of the digital transformation currently underway. They already play a central role in the new digital advertising ecosystem. And they stand to benefit from the expansion of online advertising thanks to their ability to target consumers in real time through complex algorithms.

Outside the advertising field, we believe these agencies could also play a major supporting role for companies undergoing their own digital transformation. Indeed, over the past 10 years, they have acquired expertise in key areas such as e-commerce and customer relationship management. Situated at the confluence of marketing, consulting, technology and commerce, these agencies are well positioned to meet the emerging needs of their clients and are currently taking up high-value-added consulting roles on a par with the most prestigious consulting firms.

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* Napster was a free peer-to-peer music-sharing service.

 

 

 

 

 

 

The culture and information industry was one of the first sectors to undergo digital transformation

 

 

 

 

 

 

 

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Advertising agencies could be the big winners of the digital transformation currently underway and play a major supporting role for companies undergoing their own digital transformation

 

 

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Cross Asset of July-August 2015 in English

Cross Asset de Juillet - Août 2015 en Français

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LABIA Frédéric , Equity Analysis at Amundi
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The media: a state of advanced disruption
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