The Effect of Tablets on US Content Consumption

10 – 12 October 2011, Vienna, Reed Messe Wien

Media Port
Session: Tablet Publishing Trends
Title: The Effect of Tablets on US Content Consumption
Speaker: Bruce Benson, Senior Managing Director,
FTI Economic Consulting, USA

FTI Consulting
Communications, Media & Entertainment Practice

September, 2011

© Copyright 2011, all rights reserved, FTI Consulting, Inc.

Table of Contents

I.  Introduction to FTI Consulting
II.  The Effect of Tablets on Content Consumption
■  Overview

■  Digital Engagement & Substitution

■  Television, Movies and DVD

■  Newspapers and Magazines

■  Music
III. Contact Us

CONFIDENTIAL & PROPRIETARY

© 2011 all rights reserved by FTI Consulting, Inc. −2−

Introduction to FTI Consulting
Communications, Media & Entertainment

FTI: A Leading Global Services Firm

  A $2 billion NYSE traded consulting firm (FCN)
  One of the fastest growing companies in the US
(Fortune)
  Over 2,000 Consultants in 30 countries
  Specialization in corporate finance, economics,
marketing, forensic accounting, and corporate
communications


Select Media
Engagements

  A&E Television   Edwards Theatres   Musicland   Sony Pictures / Sony Music (/   The Washington Post
  Advanstar Communications   EMI – Capital Records   Muzak BMG)   Tower Records
  AMC Theatres   Equifax   NBC Universal   Sotheby's   Tribune
  Blockbuster Entertainment   Gannett   NBC Vivendi   Star Telegram   United Artist Theatres
  Broadstripe   GateHouse Media   Paramount   Star Tribune   USA Network
  Charter   General Cinemas   Petro   The Advocate   Vertis Communications
  Chicago Sun-Times   Grande Communications   Philadelphia Daily News   The Coca-Cola Company   Viacom
  Chicago Tribune   HiT entertainment   Rambus   The Denver Post   Viacom
  Citadel Broadcasting Corp.   HiT Entertainment   RCN   The Mercury News   Vitamin Water
  Clear Channel   Journal Register Company   Readers Digest   The News Hour   Walt Disney Company
  Coldwell Banker   Lionsgate   Regal Cinemas   The Orange County Register   WestStar Cinemas (Mann)
  Comcast   Local Matters   RHDonnelley   The Philadelphia Inquirer   Westwood One Radio
  Cox Media Group   Los Angeles Times   RHI Entertainment   The Sacramento Bee Networks
  Diageo   Marvel Entertainment Group   Rodale   The San Diego Union Tribune   Wyndham Hotels & Resorts
  Discovery Zone   Media News   Sandy Alexander   The Star   Yari Film Group
  Disney   Midway   Scripps   The Star Ledger   Young Broadcasting Inc.
  Dow   Midway Games   Sesame Street   The Tampa Tribune
  Duane Reade   Morris   Sesame Street   The Terminator (IV)


The Effect of Tablets on US Content Consumption

Proprietary FTI Research Study

Study Overview

© 2011 all rights reserved by FTI Consulting, Inc.

Objectives of Study
FTI’s recently completed Mobile Device & Digital Media Survey sought to determine how content is consumed
online among US and UK respondents, as well as how tablet ownership affects digital media engagement and
respondents’ willingness to pay for content.

  The emergence of tablets has been an important catalyst for change in media
consumption during 2011.

  The FTI study highlights critical indicative trends impacting media companies
across the TV, motion picture, magazine, newspaper and music industries in both
countries. While there are many studies on consumer’s digital engagement, the
study focused on consumption patterns among tablet and non-tablet users.

  Specifically, we sought to determine the following:
■  When, where and how often individuals use mobile devices

■  What types of media individuals are accessing on their mobile devices

■  Their willingness to pay for that content

■  What will motivate consumers to pay for content when they are not today

■  How does tablet ownership effect their engagement in offline media, their use
of digital alternatives and their willingness to pay relative to non-tablet owners

■  What are the differences in usage among age and income group, country,
and types of devices on which content publishers and producers from around
the globe can adapt their digital media strategies


Methodology

  The data was collected through an online survey conducted between May 24, 2011 and June 2, 2011. A total of 1,541
individuals responded to the survey (~1,000 in the US and 500 in the UK).

  Because the study was intended to focus on digitally savvy respondents, respondents had to be a current user of at
least one of the following devices:
  Laptop or desktop computer

  Smartphone (e.g. Blackberry, iPhone, Android, etc.)

  Tablet (iPad, Android, etc.)

  e-Reader (kindle, Sony, Nook, etc.)

As a result, this study will differ, sometimes significantly, from studies of digital consumption across the more
general population of all consumers.

  The study did not address questions of pricing because such issues require more reach and are more nuanced than
this study was designed to provide for.

  In addition, while this report touches briefly on social media, web behavior and digital games, we drill down more deeply
in newspapers, magazines, TV, motion pictures and music because our interest is to explore the effect of digital
devices, especially tablets, on the demand for printed and traditional entertainment content.


Summary of Key Findings
While still comprised significantly of early-adopters, tablet owners today consume more content and have greater
willingness to pay for it.

Principal findings include:

■  Tablet users consume more online and off-line content than non-tablet users.

■  Digital alternatives are cannibalizing all conventional media, but tablet owners show a stronger
inclination to shift online.

■  Resistance to paying for digital content is high, but differs across media types. Most consumers expect
to pay less for digital content.

■  Proportionately, tablet users are willing to pay more than non-tablet users for digital content

■  Subscription TV spending increases with tablet ownership, particularly among consumers more than 35
years of age and earning more than $50,000 per year (males slightly more than females).

■  For music, there is a strong preference for downloading over streaming.

■  There is also a strong preference and willingness to pay for music that can be easily shared across
various devices.

© 2011 all rights reserved by FTI Consulting, Inc. − 10 −

Digital Engagement and Substitution


Digital Engagement with Media
News and social networks are cited as the most common forms of content accessed online.

Content Accessed Online   News, social networking and music lead the
pack in digital consumption among
respondents in both countries, though UK
respondents consume fewer movies and play
less digital games than do their US
counterparts:
  More than three quarters of respondents
indicate that they access news and social
networks online – a notably higher percentage
than all other forms of content.
  Music is the third most popular form of online
content, as 60% of respondents claim to
Segmented (by country) download or stream digital music.
  Somewhat less than half of respondents watch
TV shows or movies online.
  Magazines have significantly lower levels of
online viewership than news and newspapers.

− 12 −

Engagement by Age Group
“Common wisdom” assumes that digital content is for the younger consumer, but the responses show that this is
not universally true – most notably for News / Newspapers.


Digital Substitution
All media have suffered digital substitution, led by newspapers. Tablet users substitute more.

Our study asked respondents about their tendencies either to reduce or to abandon the use of conventional media when
online media was available.
  Disturbingly, many people admit either to reducing or abandoning their use of some conventional media.

  In contrast, we also found that television subscribers often upgraded their subscriptions of conventional cable when
presented with online digital content options.

Reductions vs. Increases Tablet users reduce/stop more than non-users


Digital Substitution continued
Substitution is not equal across age groups or content types

  More respondents said they had stopped paying for or reduced purchases of newspapers than of any other
type of media.

  Hard copy movies and television show rentals and purchases (including movie tickets) are also hard hit, followed
closely by magazines.

  On average, respondents under age 35 in the US are more willing to reduce or cancel their use of conventional media
than are older groups.

Changes in Media Consumption Changes in Media Consumption by Age Group


TV, Movies and DVD

− 16 − © 2011 all rights reserved by FTI Consulting, Inc.

Preferred Viewing Device & Willingness to Pay
Most digitally savvy consumers, regardless of age, Until age 54, tablet owners pay to watch online TV far
still prefer to watch TV shows on good old TV sets. more than non-tablet owners.

Preferred TV Viewing Device Willingness to Pay for Online TV

Those who prefer TV (by age):
  TV is clearly the
preferred device for
watching, well, TV. And
this preference is   Only 17% of 18-24 year olds that own a tablet have
shared among all age never paid for online TV viewing
groups   Generally, until the age of 54, tablet users pay to watch
TV online
  While TV Sets are still the preference, tablet owners are
clearly shifting away from laptops to tablets
  Low smartphone scores argue against the efforts of
some companies to bring television to the smartphone


What They Are Willing to Pay For?
Approximately 40% of those who have not paid to watch TV shows online said they would pay something to avoid
commercials.

  Of the 83% of respondents who said the would not pay Features That Would Induce Paying for Online TV*
to stream online TV, 37% of non-tablet users and 25%
of tablet users said they still would not pay despite any
of the offered features
  44% of non-tablet owners under 24 would pay to avoid
commercials
  More then 48% of respondents over 55+ would not pay
for online TV regardless of the features offered
* Respondents who do not pay for Online TV

Features Worth Paying For By Age – Even the young will pay to avoid commercials


Increase in TV Subscriptions
24% of tablet owners and 15% of non-tablet owners claim to have increased their TV subscriptions because of
increased programming available online.

  7%-8% of respondents have cancelled their existing TV Subscription Changes Because of Online
subscriptions because of the availability of online Alternatives*
alternatives, and 12 -13% have reduced their
subscriptions
  However, 24% of tablet owners and 15% of non-tablet
owners claim they have increased their subscriptions to
include more channels or access due to the availability
of online content
  Possibly, the effect from exposure to new shows online
has induced them to upgrade service to access those
shows through their television (the preferred viewing
device)
* US Only
  No significant differences in upgrade behavior due to
income Age of Subscription Upgraders
  35-44 year old tablet users upgraded the most, whereas
45+ year old non-tablet users exceed tablet users in
subscription upgrades in their age group


Income & Gender Effect on Willingness to Pay

Gender has little influence whereas income can have a dramatic effect

65% of the top income bracket have paid to watch TV Desire for commercial free viewing for respondents
online making under $25k dramatically exceeds their
propensity not to pay
Never Infrequently Sometimes Often Regularly


Digital Usage
Summary of Findings: Movies
Tablet owners are twice as willing to pay to watch movies online as they are to watch
TV shows online.

Preferred Movie Viewing Device Frequency on Online Paid Movie
Viewing

 Tablet Owners
 Non-Tablet Owners

Movie Features Worth Paying For (By Age)
Tablet Users Non-Tablet Users


Online Effect on DVD Sales and Rental
More than 1/3 of respondents say they have stopped or reduced buying or renting TV shows on DVD when there
was an online alternative available.

Change in Purchase & rental of TV Shows Change in Movie Engagement Because of
on DVD Online Access

  Respondents stopped or reduced DVD purchases or
  47% of tablet owners have reduced or stopped buying rentals by 38% and 36% respectively
DVDs as opposed to 36% of non-tablet owners   Tablet users stop or reduce their movie-going, renting
  Neither Income nor age seem to be a factor when and DVD purchasing in greater numbers than do non-
consumers reduce or stop DVD consumption tablet users
  This result to some degree reflects the cannibalizing   Respondents age 34 and under also reduced or have
effect of online availability of product over conventional stopped their engagement with all conventional movie
packaged media distribution channels in greater numbers than did older
respondents


Newspapers and Magazines


Newspapers - Willingness to Pay
Willingness to Subscribe to print declines with age 53% might or would pay more for digital + print offer

Newspaper circulation is at its
lowest point since 1954, even
though the number of
households has more than
doubled.

50% of respondents do / do not take a printed newspaper
subscription or single copy purchase (slightly less than UK
respondents).

  Overall, 53% or respondents said “yes” or
“maybe” regarding their willingness to pay for a
print and digital pay offering.
  Tablet users age 18-24 have a strong
willingness to pay for a print + digital
combination bundle.


Digital News: Willingness to Pay (continued)
Only 7% thought they would pay for digital news And would pay less for it than print

Mixed blessing for newspapers: While more tablet owners are willing to pay for news than are non tablet users,
on average they want to pay less for it.

  While 74% of respondents read news in digital formats, when surveyed only 7% said that they are willing to pay
for news. 13% of tablet users indicated that they were willing to pay for news online (total not shown on chart).
  18% of 35-44 year old tablet users said they would be willing to pay for online news, as opposed to only 5% of
those who do not own a tablet.
  While tablet users are more willing to pay for online news (left chart), non-tablet users are more inclined to think
digital news is the same or more valuable than print.


Willingness to Pay & Content Preferences
38% of non-payers said they might pay for digital content for the right features

  We asked current non-payers, what features they would be willing to pay for. On average, 56% would not pay for
content regardless of features.
  Tablet users much more likely to pay (38% more) than non-tablet users.
  The two groups have different feature priorities.
Features worth paying for Tablet & Non-tablet users have different priorities

 Tablet Owners
 Non-Tablet Owners More like an app… More like a web site…

Tablet Users Non-Tablet Users
1.  Exclusive Content Exclusive Content
2.  Custom Content Custom Content
3.  App App
4.  High Quality Photos Breaking news
5.  Breaking news Industry-specific
6.  Regular news Local news
7.  Weather Weather
8.  Exclusive Video Exclusive Video
9.  Local Content High-quality video
10.  Industry-specific Regular news
11.  Sports In-dept editorial
12.  Book / movie reviews Sports
13.  In-depth editorial Book / Movie review
14.  Opinions / Features Opinions / features
15.  Other Other

− 26 −

The Effect of Income & Gender on Willingness to Pay
While gender has a nominal effect on decisions, income impacts the decision with 60% of respondents that make
more then $150k willing to pay more or the same for online as they would for print

72% of respondents under $25k would pay more for But that same group has no desire to pay more for just
print if it included an online component an online offering compared to hardcopy

Yes Maybe No More The Same Less


Converting Consumers to Digital Pay Models
More than 50% of online respondents are paying or might pay for digital news – more than one approach required

  21% say they already pay for online
news access
  An additional 7% said they would pay
for online access
  38% say they would pay for some
types of news content (includes the
7%)
  This group wants unique feature set
and a mobile app

  53% said they might pay for a digital
and print combo subscription
  Most are probably already print
buyers

  Probably the “lowest-hanging fruit”


Digital Usage
Magazines
Unlike newspapers, where buying habits were sensitive to differences in age,
magazine buying does not differ dramatically by age group, including those age
groups that do not buy at all.

Acquiring Hardcopy Magazines Reductions in Magazine Purchases in
Light of Digital Alternatives

US Digital Magazine Consumption


Music


Digital Usage
Summary of Findings: Music
Tablet users and Non Tablet users alike indicated an overwhelming preference for the
ability to share music across various devices.

Preferred Method of Listening to Music Features Worth Paying for (By Age)

Device & Access Preferences


Contact Us


Bruce Benson, Digital & Media Practice Leader
Mr. Benson is a senior managing director in FTI’s Economic Consulting practice and is the global leader of FTI’s
digital and media practice. He has more than 20 years of professional experience in all aspects of media and
technology. He has consulted in a broad range of areas including strategy and market planning, economic analysis,
operational effectiveness, intellectual property management and IT preparedness. He was also Chairman of the
Board of Ziff Davis Media until its recent sale. He has just been elected to Adobe’s newly formed product advisory
board to help the company focus on the media and education space. His previous background includes SVP of
Corporate Strategy at Young & Rubicam, CEO of a leading digital advertising delivery firm, SVP of Sony
Entertainment, and managing partner of PWC’s entertainment practice in New York.
Mr. Benson is a recognized expert in media and advertising and has helped some of the world’s leading companies
achieve their strategic goals, including Sony Music, Microsoft, Bertelsmann, Viacom, Young & Rubicam, Ogilvy,
Harper Collins, NBC, Sesame Street, Sotheby’s and Pearson. Mr. Benson has led over 200 projects with clients and
Bruce Benson as a media executive both in the US and overseas. These projects have focused on strategic planning, revenue
optimization, operational effectiveness and cost containment, internet distribution and large-scale IT project
Senior Managing management.
Director Prior to joining FTI, Mr. Benson was leader of PW’s media practice in New York. Key clients included NBC,
Showtime, MTV, Nielsen, ABC, Sony Entertainment, Simon & Shuster, Random House, Harcourt, Pearson and
3 Times Square Discovery. He led various projects for these clients including global performance optimization, IT transformation, ad
11th Floor sales optimization and various M&A activities.
New York, NY 10036
From 2003-2005 Mr. Benson led SAP’s media practice where he led their investment & development of SAP’s media
solutions. While at SAP he oversaw projects at New York Times, Washington Post, Cox Ohio Publishing, Atlanta
Tel: (646) 453-1289
Fax: (208) 988-1613 Journal Constitution, Toronto Globe and Mail, Boston Globe, International Herald Tribune, Times of India. His teams
Cell: (203) 606-3854 also oversaw the launch of iTunes for Apple, whose transactions are settled through SAP. He also oversaw the
bruce.benson@fticonsulting.com development of various TV and film rights systems, digital delivery systems and ad sales systems.
Mr. Benson is also a recognized expert in digital media and online advertising. He recently worked with Sesame
Street to launch their broadband portal and their historic shift from TV to the web. Sesame Street won the first Emmy
ever for a website because of this work. He has advised ABC.com with ad revenue enhancement strategies, and
helped NBCU and Disney with their digital distribution architecture and ad management platforms. He is also has
advised T-Mobile on their market strategy for new ad-based offerings for consumers and ad-based application
developers in the mobile market.
Mr. Benson is a frequent key note speaker and author of many articles on digital strategy and media, and co-led
conferences with key Harvard strategists on intellectual property management and copyright law. Mr. Benson has
pioneered various new forms of digital distribution and advertising over the internet, including dynamic ad insertion
into tablets and the tracking of ad behaviors online and off-line. Mr. Benson has submitted various patents on
electronic book delivery, the internet delivery of ad-supported video content over peer-to-peer networks, and mark-up
animation languages for web development.

The Effect of Tablets on US Content Consumption

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