ParisTech Review

The rapid evolution of technology and the trivialization of its uses have marked people born between 1978 and 1997, which have matured in a technophile environment where computers, video games, MP3 players, webcams and cell phones are ubiquitous. Born into a transformed world, marked by the advent of the Internet and of the new media, they grew up surrounded by mobile, fast and individualistic services and applications.

In a country like France, this population now represents 15.7 million people, i.e. 25% of the metropolitan population and over one third of the workforce. By 2020, half of metropolitan workers will belong to this generation.

They are thus sometimes called “the digital natives”, a term coined for the first time in 2001 by Marc Prensky in a report on education. As early as the turn of the millennium, it became manifest that having grown up with digital technologies implied a change in the way one acts and learns. Marc Prensky diagnosed a cultural divide and campaigned for digital acculturation at school, in order to adapt school to the cultural context of the youth. His stance, generally considered to be simplistic by recent sociological literature, has been criticized on two points: the concept of “digital native” feeds generalizations in the order of caricature that simply confront two generations and it also tends to overlook the existence of social inequalities towards new technologies. It may then seem inappropriate, as such, to postulate the existence of a distinct generation. At most, a particular population can be identified, as agreed by J. Palfrey and Urs Gasser in their book Born Digital; a population which is diverse in its uses and its technological fluency. That said, it should be acknowledged that the intent of Marc Prensky is of another order: to make us attentive to important changes induced by changes in the environment caused by the massive use of new technologies.

Any Time, Any Where, Any Device, Any Content
Born into a society seeking to transcend a mass consumption which is now commonplace, people aged 15-34 favor consumption patterns that enhance their identity and personality. They fall in line with the modern experience, which is caracterized by various forms of individualism and an emphasis on autonomy. However, the weakening of institutions (churches, governments, businesses) and of partisan attachments haven’t led them to disaffiliation, as has been believed, but to new forms of sociability. We know for example that they give more importance to family ties than the previous generation. They even cultivate loyalty, however it is somehow horizontal and plays out, especially, across their social network. Consumption is one of the elements that are driving that sociability: consuming the same thing at the same time brings people together and becomes a factor of identification. This phenomenon is exacerbated on the Internet, which provides an opportunity to meet like-minded people. Web 2.0 and blogging in particular allow to promote and highlight aspects of one’s private life.

Time and speed of access to content play a crucial role. The immediacy of exchanges has altered the relationship this new generation has with time and space. Summarized by the acronym “ATAWAD” (Any Time, Any Where, Any Device, to which some add “Any Content”), the Internet makes it possible to have access to everything, right away. Digital natives expect, and sometimes demand, just the same in the real world. This is reflected even in modes of communication that have become shorter (SMS, Tweets…).

The example of France has been the subject of extensive studies, which allow to better gauge the current trend. Olivier Donnat’s 2008 research on “French cultural practices in the digital age,” published ten years after his first survey on the same topic, revealed the extent of the impact, on the younger generations, of a decade of mutations induced by the boom of digital culture and the Internet. There are many clues that reveal the depth of change when we leave the level of the general public to focus on the behavior of younger generations. People under 35 indeed constitute the segment which is primarily responsible for the decrease in time spent watching television between 1997 and 2008. They assert their preference for films, unlike their elders, and have actively participated in the decline of newspaper reading, preferring dematerialized content on the internet. These trends have sharpened, as demonstrated in a more recent survey by Médiamétrie, released in March 2012. Médiamétrie notes the growing part played by digital media and entertainment among people aged 15-34, and on increasingly diverse media platforms. In just four years, trends that were still soft in 2008 have become dramatic. And that comes as no surprise: let us remember that in 2008, social networking was still in its infancy, whereas today it is the very heart of this generation’s social and cultural practices.

An interesting aspect of this survey is the fate befalling the traditional media. The example of television is significant: digital natives watch it half as much as the rest of the population. This under-consumption is the result of several factors. The age factor should not be underestimated – nor should it be confused with the generation factor: between ages 15 and 34, people are less likely to stay at home, nothing new there. But the real novelty is overconsumption of delinearized online content, that is to say, on-demand consumption of broadcasts, either on a paying mode (VOD, video on demand) or free (catch-up TV ), which is replacing traditional TV content consumption. People 15-34 are strongly attracted by catch-up TV (watching a show online, several days after its first airing), watching it on average four times longer than the rest of the population.

In contrast, radio, despite being a media older than television, remains particularly popular as it successfully addresses new uses, most notably the inclination of digital natives towards mobility. In fact, listening to linear content can be done the conventional way or through web radios on the internet and on smartphones, where broadcasts can be aired outside of real time, via podcasts. Radio has managed to keep its consumption going, however it has lost a significant share of the music distribution market. Industry players who have managed to win the Holy Grail of music by providing a relevant offer to this new audience are the pure players, providing “on demand” content, perfectly addressing the rationale of autonomous choice and instant availability.

The print media industry, meanwhile, has suffered the brunt of the new expectations characteristic of the 15-34 audience: being time-consuming, hardly interactive and less fun to read, the mainstream press has failed to attract the digital natives and is struggling in its attempt of an overhaul that would produce a model better suited for these new modes of communication.

Mainstream media are thus clearly struggling to reinvent themselves and to find an appropriate response to the demand for immediacy of content and to the now major role of social networks. The “hole” thus left in the content offerings of traditional media in recent years has in fact contributed to the success of content sharing platforms and sites.

There is a fine line between sharing and piracy, and some argue that it is essentially a question of semantics. But the focus on piracy tends to conceal a deeper change in habits, one that is not locked up in a cultural vision that would revolve around the notion of intellectual property. Digital natives rarely consider themselves as pirates, and surveys show that those who consume more content illegally also happen to be those who consume the most paid content. But they refuse to be reduced to their wallets, and find backdoors to get media content quickly and freely according to the criteria they have imposed by themselves to the industry. These new modes of consumption require that the media revamp and rebuild the format of their content offerings as well as their business model.

Regulatory bodies, which monitor intellectual property on the net, have in all likelihood curbed, if only temporarily, what beneficiaries deem to be a veritable hemorrhage caused by piracy of protected content. Today, the real challenge is an economic equation which is as simple to formulate as it is hard to solve: how can such a target – digital natives – be monetized?

The challenge of free content
Chris Anderson, then editor in chief of Wired magazine, explained in 2008 that free content is in fact consistent with a classic marketing strategy. The classical example is that of Gillette which gives razors for free but charges for the blades. But with the Internet, free takes a new dimension: in fact, the digitization of content, with almost zero reproduction costs, and the great diversity of access to information have together pulled the offer price close to zero. “There has never been a market more competitive than the Internet, and every day the marginal cost of information is coming closer to zero”, says Anderson.

How can monetizable value be created if the internet offers a multitude of media content for free? The traditional sources of income for the media are, on the one hand, advertising, and on the other hand, sales and subscriptions. Advertising is no doubt a valuable source of income, especially for the most powerful players in the industry. Some media with an established web presence are thus focusing on a strategy consisting in buying keywords to monetize their audience and thus enhance advertisements found on their websites. However, advertising, as we know now, can only provide them a portion of their income. Only giants like Google, which are as large as the Web, are able to make it the core of their business model.

Online subscriptions are now marked by a resurgence of interest, as evidenced by the ever more restrictive policy of media like the New York Times, which identifies regular visitors and restricts access to a few free articles per month. Another trend of the web market, when there are subscription offers for content, is to put in place a system of automatic subscription renewal through prerecorded bank account details, a roundabout way that limits customer churn. But then again, all newspapers do not have the means to compel their readers to subscribe. Only unquestionable quality, a key position, or very specific offering can provide leverage in this respect. The real challenge for media today is how to successfully provide the digital natives with a product they will actually want to buy.

This challenge was met by some smart, audacious players. Their success came as a surprise. In 2003, moderate success had been predicted for the iTunes Store: the business model for digital music was doomed because of piracy. Yet, in the end, and precisely because pirate consumers are also the biggest buyers of online music, iTunes has already sold over 10 billion songs and is now the largest music sales platform in the world. In 2007, during the launch of Amazon’s Kindle, it had been predicted that digital books would never find their space. In the end, in value, digital books already represent more than 30% of the U.S. market for books.

The case of online music is particularly interesting as it highlights the flexibility of new players in the industry. Spotify has managed to develop its offer and has thus created an alternative to piracy by skillfully switching from a free offer to a freemium offer (i.e. an economic model that combines a free-access-free-offer and an upscale “Premium” offer with paid access) that provides additional income and on top of advertising revenues.

This adaptability has been the success of other players, even though they were associated with more traditional distribution modes, but who have been able to skillfully address content dematerialization. The best example is probably Netflix, an American DVD rental service by mail and subscription. Aware that their model could not survive long, its leaders have launched in late 2007 an unlimited online streaming service. Netflix was able to develop its product based on new expectations around a non-binding unlimited offer and a focus on transparency, simplicity and accessibility of content. Netflix is now directly targeting the digital natives: 58% of streaming users are under 35 (40% of them being in the 18-34 age bracket).

Traditional offerings vs. new offerings: a risk of cannibalization?
Traditional players are having a harder time meeting this new demand, and more than anything else they are reluctant to take the risk. They especially fear a cannibalization of their existing offer. The example of television allows to size up the difficulties, but also to identify opportunities.

For television channels, and more specifically those of digital terrestrial television, advertising revenues have shrunk and there is a fragmentation of audiences. Yet in parallel to that dull landscape, there are many opportunities: connected TV, Social TV, video on demand… The current media landscape gives a glimpse of whatever emerging trends are there for anyone to grasp. The development of smart devices (smartphones, tablets, connected TV), which enables multi-screen consumption of interconnected and delinearized media, has shown there is complementarity between Internet and television uses. The cardinal question is implementing it all.

VOD and catch-up TV are the most frequent uses of connected TV. This trend suggests that the boundaries between TV and the Internet are going to fade.

According to a GfK survey conducted in the first quarter of 2012, nearly three million French households are equipped with connected TV (where the television set is directly connected to Internet, barring triple play). Within two years, this ever growing figure is expected to increase to four million. This phenomenon is raising concern among some professionals. The risk posed by connected TV offerings is a loss of attractiveness for linear TV offerings. Pierre Lescure, the former Canal+ CEO, explains that “with connected TV, piracy will be unstoppable; once you have your flat screen on, four clicks are enough to take you to a free download site.”

This opinion is not shared by all: some players see it as an opportunity. With the assumption that the overall consumption of video content is growing rapidly and that access to content is becoming easier every day, one can consider there is in fact complementarity between the consumption of online video and traditional consumption.

Complementarity strategies
Let us take the example of Axel Springer, who has keenly developed a cross digital media business model. The German giant has successfully addressed the challenges of digitization and changes in media uses by building on three pillars: digitization of its traditional activities, an aggressive acquisition strategy in the digital industry, and the development of a “cross-media” business model.

Firstly, the group digitized its traditional activities, for instance launching the digital channel Axel Springer in 2006 and launching Die Welt Online in 2007.

Secondly, the group has conducted an aggressive acquisition strategy. Over the last six years, the group has been investing in the digital industry every other week. If repurchases were primarily German at first, today, they are international. Online activities now account for more than half its advertising revenue, at a time the print media are losing their clout. Continuing its strategy of expansion in the digital world, the Springer group has recently acquired, among other things, the Polish internet portal Onet.pl and the British job portal Totaljobs.com. Now, Axel Springer’s “Digital Media” division amounts for 31% of total revenue and has grown 20% between 2010 and 2011.

Thirdly, in the context of its “cross-media” strategy, the group is pooling all its content on multiple media platforms (i.e. an article on Autobild.de is included in the car magazine Autobild in which a link refers to a television show on Axel Springer TV that addresses the same subject). The group also offers its advertisers tailored cross-media advertising campaigns conducted on several media platforms pertaining to the Axel Springer group, which are based on the geography, age, and interests of the intended target.

Axel Springer has thus ventured into this diversification and digitizing strategy – despite high risks of cannibalization. And this bold strategy has proved its worth. Eventually, the group will doubtlessly put an end to its position as a key player in the print media, to become leader online. One advice to remember is to focus on the launch of tomorrow’s offerings, rather than dwelling on the survival of historical ones – even if that means cannibalizing the latter.

Taking the plunge
The print media portion of the press is probably the area that suffers most at the moment, but is also the place where the boldest strategies can be observed: some media, with their backs to the wall, have decided to take the plunge and to go fully digital.

In the paid press, advertising revenues and paid distribution are falling while, at the same time, the audience of online information is becoming massive, attracting more and more advertisers to digital formats. Naturally, the majority of media companies are trying to reverse the trend, but few dare to abandon paper for digital platforms.

This is precisely what Newsweek has just done. The second American information weekly after Time did not overcome the drop in sales and advertising revenue. The number of copies sold each week plummeted, going from 4 to 1.5 million between 2000 and 2012, while The Daily Beast, launched online exclusively in 2008 by Tina Brown, and whose newsroom was merged with Newsweek’s in 2010, has almost quadrupled its web audience in just four years (going from 4 to 15 million unique visitors between 2008 and 2012). “We have reached a tipping point where the magazine can more effectively reach its readers through all its digital formats”, says Tina Brown, managing editor, who announced in October 2012 that the paper edition of the magazine was stopping in favor of a 100% digital edition, for smartphones and tablets, called Newsweek Global.

The new digital consumption habits are disrupting companies, but also, and more broadly, the media landscape: some players are gaining power and newcomers appear, while others find themselves relegated to the fringes of the market. However, if the current turmoil befalling this landscape is indeed a threat for traditional media, it should not be perceived as just that: it is, in fact, also their opportunity to become “digital companies”, placing things digital at the core of their thinking and their model.

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