The digital future of creative Europe: The impact of digitization and the Internet on the creative industries in Europe
Digitization has had a particularly profound impact upon the creative sector, which includes the industries of book publishing, print publishing, film and television, music, and gaming. The distribution of content on-line is changing the revenue sources and the very nature of all of these industries in ways that Strategy& continues to measure in this study of the creative sector in Europe, a follow-up to a study that appeared in 2013. The objective of this report is to provide an updated comprehensive view of the impact digitization has had on the creative sector as a whole, with analyses of its effect on consumers, creators, distributors, and publishers.
The digital future of creative Europe The impact of digitization and the Internet on the creative industries in Europe
Berlin/New York Florian Gröne Partner +49-30-88705-844 florian.groene @strategyand.pwc.com
Frankfurt Olaf Acker Partner +49-69-97167-453 olaf.acker @strategyand.pwc.com
About the authors
Olaf Acker is a partner with Strategy& based in the firm’s Frankfurt office. He focuses on business technology strategy and digital transformation programs for global media, communications, and technology companies. Florian Gröne is a partner with Strategy& based in Berlin and New York. He works with media, communications, and technology companies on new customer experiences, products, and services, and on building operating models for the digital age. Thierry Lefort is an associate with Strategy& based in Amsterdam. He works with media, communications, and technology industry players on defining their go-to-market strategies and operating models in a context of evolving ecosystems. Laura Kropiunigg is a senior consultant with Strategy& based in Vienna. She works with media, consumer, retail, and communications companies and focuses on digital innovation and next-generation ecosystem strategies.
The authors would like to acknowledge the central role of numerous participants in meetings and interviews across Europe. Without their expert insights, the study would not have been possible in the present form. We thank individuals from the following organizations for their time, insights, and thoughts: 4T2 (U.K.) Adese (ES) Aeria Games Europe (D) Allianz Deutscher Produzenten (D) All3media (U.K.) Audioteka (PL) Aufeminin.com (F) Baltic Creative (U.K.) Base Creative Agency (U.K.) Base79 (U.K.) Beatpick e Soundreef (I) CD Projekt RED (PL) Colorado Film (I) Creative England (U.K.) DCMS (U.K.) DemosEuropa (PL) De Tullio & Partners (I) Double Negative (U.K.) Fapae (ES) FAPAV (I) Federazione Industria Musicale Italiana (I)
D = Germany ES = Spain F = France I = Italy PL = Poland U.K. = United Kingdom
Fedicine (ES) Finetunes (D) Fluffy Logic (U.K.) FU Berlin (D) Gamfi (PL) Goldmedia (D) Institut für Internet und Gesellschaft (D) La Stampa (I) MediosOn (ES) MillionYou.com (PL) Ministère de la Culture (F) Ministry of Economy (PL) MTV Northern Europe (D) My-Music.pl (PL) Nesta (U.K.) Newbaz (U.K.) Northern Town (U.K.) Piano Media (PL) Platige Image (PL) Promusicae (ES) Qobuz Music Group (F)
RAI Cinema (I) Sapienza Università di Roma (I) SPI International Poland (PL) Spotify (U.K.) Startnext Lab Berlin (D) Studio Garamond (I) The Fifth Sector (U.K.) Tuenti (ES) Two Sugars (U.K.) Université de Paris IV Sorbonne (F) Uria Menendez Law Firm (ES) VeDrò (I) Warner Bros. (I) Warner Music Poland (PL) Wolters Kluwer Polska (PL) Yam112003 (I) ZAIKS Society of Authors (PL) Zed (ES)
This report was originally published by Booz & Company in 2013, and has been thoroughly reviewed and updated for 2015. This report was financed by Google Inc., and independently researched and written by Strategy&, drawing on expertise from its communications, media, and technology practice and its digital team, and on academic and public research, public information, and primary research.
Context. . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............................................ 6 Key highlights: Creative growth is digital............................................ 8
1. Introduction: Setting the pace for change........................................ 9 2. Shifting value in the creative sector. . . . . .......................................... 13 3. The consumer’s perspective. . . . . . . . . . . . . . . . ........................................... 27 4. Impact on creative production and output...................................... 33 5. Varying digital maturity across creative industries. . ....................... 40 6. Opportunities in a new creative ecosystem.................................... 72
Appendix: Methodology. . . . . . . . . . . . . . . . . . . . . . . . . . .......................................... 77 Endnotes. . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .......................................... 79
Digitization — the mass adoption of Internet-connected digital technologies and applications by consumers, enterprises, and governments — is a global phenomenon that touches every industry and nearly every consumer in the world. For every industry, digitization changes the way products are made, sold, and distributed, as well as how companies are managed, and how and with whom they compete. For many industries, digitization is completely revolutionizing the way companies interact with their customers. Among the industries most profoundly affected by digitization are those engaged in creating content, which this study defines as including the book publishing, periodicals publishing, film and television, music, and gaming sectors. Nearly all of these sectors have been fundamentally altered by the penetration of digital media into everyday life. Some sectors, such as the music industry, have been wrestling with digitization for a decade or more; others, like periodicals publishing, are only now feeling its full impact. And in just the past couple of years, we have seen the emergence of new players in the creative industries, such as 3D printing creative services and digital museums, which are likely to become new sectors in their own right. The objective of this report is to provide a comprehensive view of the impact that digitization has had on the creative industries as a whole, including its effect on consumers, creators, distributors, and publishers. It is particularly important to look more closely at the prevailing myth of digital erosion — the idea that online media and the accompanying “for free” culture have led to a slowdown in growth and a loss of jobs. Indeed, digitization and the Internet are often named as the root causes for some of the creative industries’ problems — a perspective that fails to take into account many of the benefits of digitization. This report was financed by Google Inc., and independently researched and written by Strategy&. It was first published by Booz & Company in 2013, and was thoroughly reviewed and updated in 2015.
In this report, we take a more differentiated perspective, looking at each sector in detail. Our conclusion: The vast majority of all growth generated in today’s creative industries is digital. Depending on the sector, the non-digital part of the business is generally stagnating or even shrinking, but the overall revenue picture is strong. All of the sectors have one thing in common: The digital side of the business is growing, enabling a 1.2 percent annual growth for the creative sector overall since 2003. This growth is primarily driven by direct consumer payments, which rose 22 percent between 2003 and 2013 — underlining the point that consumers continue to be willing to pay for creative content. Furthermore, overall employment in the creative industries has been stable over the past 10 years, whether that is despite digitization or (more likely) because of it. Finally, digitization has significantly benefited consumers: Access to creative products and services has increased, and so has consumers’ use of them. This report presents data and case studies on how some creative industries and companies across Europe are successfully leveraging these developments and seizing the new opportunities they present, even as others are struggling to maintain their position. Digital is and will be at the heart of the future of the creative industries, if only because the consumer has decided it should be.
Key highlights: Creative growth is digital
Mass adoption and high usage of the Internet have revolutionized the creative industries — but the biggest changes are yet to come. Overall, creative industry revenues in the EU-27, including digital and non-digital businesses, grew 1.2 percent compounded annually between 2003 and 2013, a total gain of 12 percent during the period, from €176.2 billion (US$190.5 billion) in 2003 to €197.7 billion in 2013. All of the growth in the creative industries comes from digital. Creative sector revenues grew by €22 billion between 2003 and 2013. Non-digital revenue was down €14 billion during that period, to €140 billion, but the loss was offset by an increase of €36 billion in revenue from digital, to €58 billion. Consumer media usage continues to grow at a 4 percent annual clip, and across all the European countries we studied. With revenues increasing 12 percent compounded annually, digital gaming has outgrown all other sectors. The film and television sector shows a steady 3 percent increase, and book publishing comes in at 1 percent, right around the industry average. Periodicals and music have seen a 2 percent average decline, a trend that is continuing for periodicals, but that is slowly turning around for music, which has been growing slightly from its low point in 2010. Music sector revenues going to artists and labels remained constant between 2003 and 2013, because their percentage of the total doubled, to 66 percent. Between 2003 and 2013, advertisingbased revenues dropped by an average 1.5 percent annually, offset by 2 percent average annual growth in pay-based revenues such as subscriptions, streaming fees, and purchases of digital content. The overall number of jobs in the creative sector in Europe has been stable at 1.2 million. Gaming and film and television added jobs, while all other sectors shed jobs. Consumers continue to benefit from a greater variety of content available anytime and anywhere, generally at lower prices. Content creators are benefiting from easier access to distribution and more channels of communication with their audiences; the value they have captured seems to be stable, if not growing, in most sectors. The transformation to digital has been challenging for many creative industry players, particularly those established players that focus on the packaging and distribution of content. They include many recorded music companies, which have found it difficult to transfer their capabilities and business models to the digital ecosystem. New entrants and local companies, however, have gained easier access to global consumers. The Internet has unearthed efficiencies in the creative industries, especially in manufacturing and distribution. Lower revenues are not necessarily a sign of weakness in these industries, as they are often accompanied by lower costs. Thus, the impact on profits varies significantly depending on each company’s cost structure. The new ecosystem architecture now emerging as a result of digitization is presenting great opportunities. At the heart of the most successful business models is a seamless consumer experience, increasingly being created by new market entrants, often in partnership with incumbent players.
1. Introduction: Setting the pace for change
Digitization changes the way products and services are produced, marketed, and consumed, a transformation that is especially pronounced in the creative industries. Consumers now expect to find information about media and entertainment on the Internet, shop online for the media they buy, and often receive the product online in fully digitized form, as a download of a movie, software package, publication, audio recording, or game. One primary enabler of this shift has been the build-out of broadband infrastructure. This development is already quite advanced in the mature European economies, where broadband usage has been massively adopted over the past 10 years. In the EU-27 countries today, 75 percent of all inhabitants use the Internet (see Exhibit 1, next page). Although there are still large disparities among even the larger markets — in 2013, Internet usage ranged from 90 percent of the population in the U.K. to 58 percent in Italy — the penetration of digital infrastructure and services is generally high. All indications suggest that the impact of digitization will only increase during the next few years. The European Commission’s Digital Agenda is actively promoting digitization; one of its key objectives is 100 percent population coverage with 30 Mbps+ broadband by 2020.1 Technological change also has its own momentum. According to a study by Ericsson, by the year 2020, the number of smartphone subscriptions in relation to the population will reach 95 percent in Europe.2 That will enable more and more people to communicate conveniently, to access digital services, and to receive personalized and localized information on the go. Generation C3 — the cohort born after 1990, always connected, communicating, and clicking — already behaves in that way, and other demographic groups will follow suit. Older generations will use different services, such as online health monitoring and specific modes of communication, but they will go digital as well. This is all welcome news. A 2012 study conducted by Strategy& for the World Economic Forum found that a higher degree of digitization tends to benefit consumers and the economy at large.4 In Europe, performance
Exhibit 1 Internet usage has grown significantly over the past decade
Internet usage between 2003 and 2013
EU-27, 2003–13, percentage of inhabitants 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 42% 45% 51% 52% 57% 62% 65% 69% 71% 74% 75% Leading E.U. countries: Sweden 95% Denmark 95% Netherlands 94%
Internet usage in last three months
Focus countries, 2013, percentage of inhabitants Italy Poland Spain France Germany U.K. 58% 63% 72% 82% 84% 90%
Source: Eurostat; Strategy& analysis
indicators of economic and societal well-being, such as GDP and the Better Life Index of the Organisation for Economic Co-operation and Development (OECD),5 are positively influenced by increases in the ubiquity, reliability, and speed of digital services. These factors are all used in determining a country or region’s score on the Strategy& Digitization Index. In other words, the higher a country scores on the Digitization Index, the higher it is likely to rank in dimensions such as GDP per capita and the Better Life and Human Development indexes (see Exhibit 2, next page). Digitization will bring changes in industries far beyond the media and entertainment sector. For example, innovation in digital fabrication (including 3D printing), machine-to-machine communication, and wearable computing will lead to the emergence of an “Internet of Things” in which material goods become far more fungible and customizable than they are today. Indeed, the issues facing the creative sector now will pose challenges to every industry in just a few years. By putting the right kinds of measures in place to understand the effect of digitization on the creative industries today, society has an opportunity to ensure that the continued rollout of digital development will be beneficial to all concerned.
Exhibit 2 The correlation between digitization and quality of life is high
GDP per capita
(37 European countries)
Better Life Index
(34 OECD countries)
Human Development Index
(120 countries) Human Development Index 1.0 0.8 0.6 0.4 0.2 0.0
GDP per capita (in US$ thousands) 70 60 50 40 30 20 10 0 20 40 60 80 Digitization score
y = 1.2236x – 30.292 R² = 0.6364
Better Life Index 9 8 7 6 5 4 3 2 1 0 20 40 60 80 Digitization score
y = 0.1289x + 0.095 R² = 0.5141
y = 0.2311ln(x) – 0.0684 R² = 0.8721
Note: GDP per capita is real GDP 2011. Better Life Index brings together internationally comparable measures of well-being (Stiglitz-Sen-Fitoussi Commission). Human Development Index is a composite statistic of life expectancy, education, and income indexes. Source: OECD Better Life Index; Gallup-Healthways Well-Being Index; UNDP HDI; Oxford Economics; Strategy& analysis
2. Shifting value in the creative sector
Everyone has a basic understanding of what is meant by the “creative sector,” but there is no uniform definition. In the broadest terms, the sector has been defined to include everything from arts and crafts, architecture, design, publishing, film, television, music, radio, museums, galleries, and libraries, to public relations, marketing and advertising, and even IT services.6 To apply an even wider lens, the “creative sector” has been defined to include not only creative activities and occupations within creative companies and institutions, but also noncreative activities in support of creation (like accounting and administrative functions), as well as creative activities by sole contributors or independent contractors and in noncreative companies and institutions (such as public relations and graphics design functions in industries like banking and industrials).7 To provide a basis for a more focused assessment and discussion of digitization as a driving force in this sector, and to create a common ground to allow for comparisons across the EU-27 countries, this report defines the sector as “the end-user-directed creative industries,” which are part of the broader information and entertainment ecosystem. Our research focuses on five creative industry subsectors: periodicals publishing (newspapers and magazines), book publishing, film and television, music, and electronic gaming. These five are the major industries that depend on copyright from a revenue perspective, and our assessment includes both their digital and non-digital revenue-generating activities. We have also looked at emerging 3D-printing services and the growing digitization of the cultural sphere, particularly within the realms of museums and education. As such, we have specifically excluded a number of industry subsectors, including live performing arts and sports events, fine arts (such as painting and photography), blogs and other content production activities not organized into a commercial format, and all B2B-directed creative production, including product design and architecture. And though the creative sector is invariably intertwined with such “enabling industries” as advertising
agencies, search engines, and social media, we have excluded these providers from our research on the creative industries as well, even though the revenues from such diverse activities do ultimately boost overall revenues for the creative industries. (We do include advertising-supported media, such as television and online periodicals, but not the advertising industry itself.) In short, our goal is to capture the impact of digitization on specifically consumer-oriented creative media, where the product has a for-profit, commercial purpose (see Exhibit 3, next page). All the creative industries we studied include physical products and services as well as digital ones. Book publishers, for example, still produce hardcover and paperback print volumes as well as e-books. Still, in all five industries, the major trends in digitization are clear. The film and television industry has seen the introduction of a wide array of digital products — including Internet Protocol TV (IPTV), over-the-top (OTT) streaming, video-on-demand, and TV Everywhere — revolutionizing the industry and pushing revenues to new levels. The music industry has experienced a dramatic shift in distribution and consumption patterns, and the periodicals industry is beginning to undergo a similar shift. The gaming industry saw the introduction of completely new creative opportunities and revenue models. Finally, the book publishing industry is at the starting point of a paradigm shift, as more and more people receive and read their books on e-readers and tablets. The creative industries, of course, are part of a social system that includes, at its outer layer, a country’s or region’s language and culture, which provides the basis and context for all creative production. This report covers the EU-27 (also referred to simply as Europe), while zooming in on six focus countries: France, Germany, Italy, Poland, Spain, and the United Kingdom. These six jointly account for more than 70 percent of Europe’s population and GDP. Our study of the creative sector in these countries has yielded a number of observations: • All growth is digital. The creative sector generated €22 billion in revenue growth between 2003 and 2013, with €36 billion from digital activities offsetting losses from other delivery platforms (see Exhibit 4, page 16). In some sectors, digital revenues are already making up the losses in non-digital revenue; in both film and television and book publishing, for example, consumer experiences emerging from digital media have started to mature and can now be monetized by industry players.
All the creative industries we studied include physical products and services as well as digital ones.
Exhibit 3 This study focuses on the largest consumer-oriented creative industries
Deﬁnition of focus sectors
Culture and language Museum Education Creative ecosystem
– Overall environment of people in a local culture/ country (e.g., language)
– Disorganized creative production (e.g., blogs) – Organized creative industries, mostly proﬁt-oriented
Organized creative industries 3D creative services
– Organized creative industries directed toward businesses as well as individuals
Creative industries in focus Film and television Periodicals publishing Book publishing Music Gaming
– Consumer-oriented creative industries in the larger information and entertainment business
– Enabling industries that support the distribution and monetization of creative content (e.g., ad sales)
Source: Strategy& analysis
Exhibit 4 Overall, the creative sector has grown, with all the growth coming from digital products and services
Total digital and non-digital creative sector revenues
EU-27, 2003–13, in € billions 198 176 155 140
-1.0% CAGR 2003–13 1.2%
200 160 120 80 40
10.4% Total revenue Non-digital revenue Digital revenue
22 0 2003
Source: PWC; eMarketer; Oxford Economics; Euromonitor; Strategy& company analysis
• Creative industries dominate leisure time. The importance of the creative sector is best illustrated by the share of time people spend consuming creative products. Of the approximately seven hours per day the average European consumer has available for activities other than work, meals, sleep, and household chores, more than 60 percent are spent consuming creative industry products. This includes reading the newspaper and watching television (see Exhibit 5, next page). The role this sector plays in people’s lives can hardly be overstated. • Different segments are developing at different rates. The revenues for the creative sector were €197.7 billion across the EU-27 in 2013, up from €176.3 billion in 2003 — a compound annual growth rate of 1.2 percent (see Exhibit 6, page 18). This growth rate, which includes both the gains in digital revenues and the losses in non-digital, is below Europe’s overall GDP growth rate for the same period, but growth rates vary considerably among the individual segments. The periodicals publishing sector and the music sector have both contributed negatively to the creative industries’ top-line performance, showing, on average, negative growth rates over the
Exhibit 5 The creative industries’ products and services dominate leisure time in Europe
Average day time split
EU-27, 2011 24.0 hours
Eating/cooking Household chores Working hours
2.5 1.0 5.4
Other/ free time 39%
Media usage 61%
Source: Eurostat; IAB Europe’s Mediascope Europe; Strategy& analysis
past 10 years. On the other hand, gaming and the film and television sector have outpaced Europe’s GDP growth. The film and television sector accounts for nearly 50 percent of the creative industry’s total revenue, as well as for a major share of its growth. This segment has seen consistent growth over the years and was barely hit by the economic downturn in 2009. The main driver of film and television growth is the increase in subscription revenues, including those for premium cable and IPTV channels. Subscription revenues have grown by nearly €17 billion since 2003, almost doubling their size. Overall, this industry has benefited dramatically from the digitization of distribution networks, including IPTV and digital terrestrial television, as well as from the growth of new services such as Amazon Prime, Apple TV, Dailymotion, iTunes, Netflix, Maxdome, Watchever, and YouView, and innovations in video formats such as short-form digital video. Online gaming has also proved to be a strong and steady growth segment over the past 10 years, with growth unaffected by the economic downturn in 2009. Developments in video console
Exhibit 6 The creative industries have been growing 1.2 percent annually, but growth rates vary among sectors
Creative sector revenue by industry
EU-27, 2003–13, in € billions
Share CAGR of total 2003–2013
24.7% 62.4 63.1 60.9 55.1 55.0 53.7 50.7 48.9
Book publishing Periodicals publishing Film and television Music Gaming
Note: Includes consumer spend and advertising revenues. Copyright fees are not included here. Numbers may not add up due to rounding. Source: PwC; eMarketer; Oxford Economics; Euromonitor; Strategy& analysis
games, however, have been sporadic, and the segment’s revenues were particularly affected between 2009 and 2011, resulting in negative growth. The book publishing sector has grown only slightly in the past 10 years, at an annual average of about 0.5 percent. Growth in traditional book publishing slowed between 2003 and 2007, and turned negative in 2008. Strong growth from e-books starting in 2008, however, has partially offset the downturn in traditional book publishing. E-books made up about 5 percent of the total consumer and educational book market value in 2013, but so far, the digital revolution in the book publishing market has mainly been in e-commerce platforms (such as Amazon) and not in the product itself. Periodicals publishing has experienced challenging times over the past 10 years, with a compounded growth rate of negative 2 percent. A shift in consumer behavior and changing usage patterns have led to declining offline circulation and dramatically decreased offline advertising revenues, which are down by €9.6 billion over the 10 years since 2003, while revenues from digital periodicals have increased by about €2.4 billion. The contrast only highlights how important it is for the industry to transition to commercially viable digital formats and business models that meet consumer needs and expectations, but it must further embrace the Internet as an attractive source of advertising eyeballs and pay revenues. Some publishers have shown that digital content can be monetized through new value propositions, and that consumers are willing to pay for it (see “The Financial Times and its subscription model,” next page). This trend is also evident in recent successes in the U.S., including the metered model for innovative Web presences adopted by the New York Times and more than 75 local newspapers published by Gannett.8 No industry has been transformed by shifting consumption patterns and changing revenue streams as much as the music business. Since 2003, overall revenues for recorded music and concerts have decreased by more than 2 percent annually. Revenues for recorded music sales, both digital and physical, have declined almost 45 percent, driven by a rapid drop in revenues from the sale of physical music, which are just 40 percent of their 2003 level. Still, on average, the decrease in revenues has not led to declines in the income of artists and labels. Moreover, income from concerts and, particularly, digital music sales is growing — digital music revenues have increased by an average of 28 percent annually since 2007, offsetting the decline in overall revenues since 2010 and driving modest overall revenue growth between 2011 and 2013. With respect to recorded music sales, however, the anticipated return to
Strong growth from e-books starting in 2008 has partially offset the downturn in traditional book publishing.
The Financial Times and its subscription model
One of the most successful examples of digital pay revenues for newspapers is the Financial Times. As early as 2001, it introduced a version of paid online content. In its current model, which dates back to 2007, users get a certain number of free articles each month, after which they have to buy a subscription. According to the newspaper’s managing editor, “The Internet paywall was an incredibly good decision. It has probably guaranteed us survival. We can now see a future ahead of us.”9 Key financial figures confirm this statement. In 2013 digital and services revenues accounted for 55 percent of the FT Group’s revenues. In mid-2012, digital subscriptions topped 300,000 users for the first time, surpassing the number of print subscribers. Today, this number has risen to 455,000, representing almost two-thirds of the newspaper’s total paying audience (see Exhibit A, next page). FT.com offers a subscription package that works on PCs, mobile devices, and tablets, with mobile increasingly one of the most important channels. Today about 62 percent of subscribers’ consumption is through mobile devices. The FT app now counts more than 5 million users, with new mobile offerings via Google Newsstand and Flipboard further strengthening the company’s offerings.10 A yearly subscription to the print edition plus online access costs £13.50 (US$20.13) per week, the premium digital subscription (including e-paper access) costs £7.15 per week, and the standard online subscription costs £5.19 per week. Subscription income has risen to 63 percent of revenues while the share from advertising has decreased to 37 percent. This is in stark contrast to the ratio more than 10 years ago, when advertising still represented about 85 percent of revenues. According to John Ridding, chief executive of the Financial Times, “It is very unlikely that advertising will support the kind of newsrooms that produce good quality journalism.”11
Exhibit A Digital subscriptions to the Financial Times continue to grow strongly
Financial Times digital subscriptions
In thousands, 2008–2013 450 400 350 300 250 200 150 100 50 0
Note: Strong subscription growth after 2010 is mainly due to new features such as the introduction of mandatory registration for all users and new/improved access on mobile devices.
2008 2009 2010 2011 2012 2013
Source: Financial Times; Strategy& analysis
growth in 2012 and 2013, thanks to newly developed revenue models such as music streaming that have been gaining traction with consumers, has not yet occurred, though the rate of revenue decline has decreased significantly. (See “The Spotify story,” next page.) • The creative industry is growing in most countries. Of the six focus countries we studied, only Poland’s creative industry grew faster than the country’s GDP — though its share of the European total is small — while revenues for the creative industry in Spain actually declined, driven primarily by a decline in the non-digital segments of its creative sectors (see Exhibit 7 ). Germany and the U.K. lead the focus countries in terms of absolute revenue contribution, but both exhibited weak revenue growth rates of no more than 1 percent since 2003. Despite these differences, the general industry trends are very similar across the six countries: Periodicals publishing is declining, music is stabilizing thanks to the growing importance of digital sales, and both the film and television and gaming sectors have developed into growing industries. Despite solid growth over the past 10 years, the share of the creative industries in Europe relative to GDP has decreased, falling from about 1.8 percent in 2003 to around 1.5 percent in 2013. However, as explained later in this report, the most important reason for the lag in revenue development relative to GDP is a shift in the industries’
Exhibit 7 Since 2003, creative sector revenue growth has varied considerably from country to country
Creative sector revenue by country
Focus countries, in € billions
France Germany Italy Poland Spain U.K. 27.4 37.2 17.9 2.9 12.0 34.6
34.1 40.9 18.3 4.3 11.2 37.2
2.2% 1.0% 0.2% 4.0% –0.7% 0.7%
Source: PwC; eMarketer; Oxford Economics; Euromonitor; Strategy& analysis
The Spotify story
Spotify represents one of the clearest cases in which the benefits of digitization have created an entirely new value proposition for the consumer. This and similar services have revolutionized the music industry by providing a valid digital business model beyond paid downloads. Launched in 2008 as a Swedish startup, Spotify delivered its services to 50 million users in 55 countries in 2014, with about 12.5 million paying subscribers.12 It is the leading music streaming service in Europe, with growth to match; revenues have at least doubled each year for the past three years, reaching an estimated €750 million in 2013.13 Spotify users can choose between a free basic streaming service financed by advertising and a premium service for a subscription fee (€9.99 a month for full access, including mobile) that allows music streaming to multiple devices, an offline listening mode, better sound quality, and exclusive content — all without advertising. With its two-tiered model, Spotify has successfully taken advantage of several current digital trends to deliver a better product to the consumer: • Superior discovery and search functions allow users to navigate through a vast musical repertoire. • Personalized radio channels, recommendations based on the music users usually listen to, and personal ratings help find new favorite songs and artists. • Offline and online modes as well as mobile solutions and broad platform compatibility allow subscribers to listen to music everywhere and on almost any device. • Social integration features enable users to integrate their Spotify accounts with existing Facebook and Twitter accounts and share music and playlists with friends and followers. Notwithstanding its success with consumers, Spotify’s commercial viability is still to be determined. Up to now, losses have been mounting, because the majority of users are free subscribers and the company has not succeeded in sufficiently monetizing the model through advertising. Industry sources had expected the company to break even for the first time in 2013,14 but that didn’t happen — losses amounted to about €60 million. Losses as a share of revenues, however, declined considerably, from 38 percent in 2010 to 8 percent in 2013. And one record label recently pushed the company to further restrict the availability of free content in hopes of driving more users to its paid model. Spotify’s potential for profitability remains significant, and its commercial dynamics will likely change with further growth, due to the nature of the contract that Spotify has signed with record labels (a minimum of 70 percent of total revenues is distributed to artists and labels) and its tremendous growth so far. According to Ken Park, chief content officer at Spotify, “This is the way people are consuming music, so the debate about whether it’s a model to embrace has been put to rest over the last year.”15
value distribution, with intermediaries in particular losing revenues as electronic distribution eliminates parts of the manufacturing and distribution chain and costs. As a result, though the revenue figures lag GDP growth, the profitability of individual companies has in many cases increased. Adding it all up, this is still a sizable industry and it remains an important part of the European economy (see Exhibit 8). The overall number of jobs in the creative sector has remained constant at about 1.2 million over the past 10 years (see Exhibit 9, next page). However, the pattern of job growth varies by sector. As with revenue development, the film and television sector is a significant driver of job growth. The gaming sector presents a growth story, with employment tripling between 2003 and 2013. In contrast, music and periodicals and book publishing have all experienced considerable job losses in the past 10 years. What these figures do not show at the aggregate level is the significant change in job profiles and employment patterns across the various sectors’ value chains.
Exhibit 8 Europe’s creative industries have declined slightly as a percentage of the continent’s GDP
Creative industries’ share of GDP
EU-27 and focus countries, 2003–13
% of GDP
2.6% 2.4% 2.2% 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
U.K. France Germany EU-27 Italy Poland Spain
Source: PwC; Oxford Economics; eMarketer; Strategy& analysis
Exhibit 9 The number of jobs in the creative industries has remained constant over the past decade
Jobs in the creative industries
EU-27, 2003–13, in thousands
1,237 1,204 141 141 140 138 1,185
477 Book publishing Periodicals publishing Film and television Music Gaming
Note: Numbers may not add up due to rounding. Source: Eurostat; national statistical offices; national business associations; Strategy& analysis
New digital-centric business models and associated processes, services, and skills are driving a number of changes — notably a migration of jobs from traditional employers, such as publishers and television networks, to new types of digital enabler businesses, including digital agencies and specialized technology service providers, which serve more traditional players as they themselves transition to digital business and production models. This movement has also given rise to a new generation of independent contractors, digital consultants, and creative freelancers, who value their independence and ability to pursue new opportunities in this rapidly evolving ecosystem. The number of contractors, consultants, and freelancers is not measured in our study, but digital platforms designed to match freelancers with clients are another growth industry. Freelancer.com, which is now a major player after a string of acquisitions, has more than 72,000 publishers registered on its U.K. site. TotalProfessions.com, a U.K.-based career site, estimates that about 500,000 people work in the creative media sectors in England, more than a quarter of whom are freelancers. Broadly speaking, while established employers are facing considerable workforce restructuring challenges as they cope with the demand for new skills, and are contracting as a result, a new class of small to medium-size employers is taking shape. It remains to be seen whether the established players will internalize new capabilities through acquisitions, or if the balance in employment patterns is shifting permanently.
3. The consumer’s perspective
There is little doubt: Thanks to easier access to more extensive, more diverse, and more relevant content, the consumer has been a huge beneficiary of digitization in the creative industries.16 This view of the consumer’s digital dividend appears to be widely shared among representatives of the creative industries. In our survey of experts, nearly all the respondents agreed that consumers use more creative content than ever before and that they gain access to more relevant content as a result of digitization. Consumers benefit from a rising number of TV channels, online access to nearly the entire music catalog through streaming or downloading platforms, access to global news providers across the world, insights into recommendations from friends and opinion leaders, and much more. A key driver of change is the proliferation of new devices. Starting in 2010, many more consumers started to access the Internet through platforms other than the PC, especially smartphones and tablets. According to a 2013 report by IAB Europe, 12 percent of Internet users in Europe accessed the Internet via tablets, while in the U.K. and Italy the figure was estimated at 25 and 19 percent, respectively. Furthermore, ownership of Internet-enabled mobile phones has increased by 42 percent in the past three years, leading to strong growth in time spent on the Internet via mobile devices.17 Smartphones and other mobile devices are enabling a growing number of local services, such as Facebook’s check-in feature, which allows people to use their smartphones to tag themselves with their current location as a way to connect with friends who may be nearby. This is partly driven by new access models; nearly 50 percent of users regularly access social networks via mobile phones’ apps or browsers. Furthermore, social networks are not a phenomenon of the young anymore; 37 percent of people 55 and older use social media channels daily.18 Clearly, the current buzz around consumers going “social, local, mobile” couldn’t be more true.
With most new platforms, consumers get the opportunity to participate — in everything from rating restaurants to uploading videos to commenting on articles to participating in the democratic process. The spread of digitization is rapidly changing the very nature of consumer demand. Here are some of the most important developments we are seeing: • Growing consumption of creative products: Since 2003, the average time spent daily on all digital and non-digital media platforms has increased by close to 50 percent, to more than four hours in 2012 (see Exhibit 10, next page). The main driver of this development has been the increase in film and television usage, and especially Internet usage — the time spent online increased more than threefold across the EU-27 during the period. This is due, in part, to an overall increase in media consumption, but it has also come at the expense of the consumption of periodicals. The growth in Internet usage was particularly pronounced in 2011 and 2012, which suggests that Internet usage will only increase further in the years ahead. • Increased time spent on the Internet is driven by a multitude of factors, not just the proliferation of smartphones and tablet devices. New and improved product offerings for media consumption, e-commerce, and social networks have contributed greatly to increased usage. According to research conducted by GO-Gulf, only an estimated 20 percent of time on the Internet is dedicated to reading content, with another 13 percent spent on multimedia sites. The rest is split among social networking (22 percent), search (21 percent), email and communication (19 percent), and online shopping (5 percent). Nevertheless, the increase in time spent online has led to a substantial increase in media usage overall. Bottom line: Between 2003 and 2012, media usage increased by almost 50 percent. • Different stages of development: The degree to which technology and usage patterns are changing varies considerably among European countries. Yet all of the countries have one thing in common: TV is the most frequently used platform, closely followed by the Internet (see Exhibit 11, page 30). However, the increased penetration of Internet television, IPTV, and OTT technologies such as Netflix, Maxdome, Amazon Prime, and WhereverTV is blurring the lines between traditional linear TV and Internet usage. • Different usage patterns: Absolute time spent with the Internet exceeds time spent with periodicals publishing in every focus country. However, a closer look at the share of Internet usage
All of the countries have one thing in common: TV is the most frequently used platform.
Exhibit 10 Most of the growth in media usage in Europe has occurred in film and television and the Internet
EU-27, 2003–12, in hours per day +4%
4.46 3.82 3.97 3.70 4.17 3.78 3.84 2.17 2.04 2.03 2.09 1.85 1.91 1.99 2.10
3.52 3.03 1.98 1.87
0.57 0.47 0.28 0.41 0.34 0.62
0.56 0.34 0.73
0.55 0.33 0.91
0.58 0.30 1.00
0.50 0.30 1.05
0.48 0.28 1.11
0.45 0.29 1.11
Television Newspapers Magazines Internet
Note: Numbers may not add up due to rounding. Source: IAB Europe’s Mediascope Europe; Strategy& analysis
Exhibit 11 How media is consumed varies from country to country
Media usage split
EU-27, 2003–12, in hours and in percentage of total 4.8 4.2
no historical data available
4.4 3.9 3.6 53% 48%
4.1 46% 3.1 2.9 8% 60% 9% 60% 12% 9% 14% 12% 14% 36% 17% 9% 14% 30% 16% 11% 13% 60% 49% 2.7
53% 66% 9% 6%
9% 8% 6% 30% 8%
9% 4% 15% 35% 7% 12% 37%
16% 8% 13%
Television Newspapers Magazines Total Internet
2003 2012 France
2003 2012 Germany
2003 2012 Italy
2003 2012 Poland
2003 2012 Spain
2003 2012 U.K.
Note: Sums may not total 100 due to rounding. Source: IAB Europe’s Mediascope Europe; Strategy& analysis
reveals some critical differences. In Italy, for example, the share of Internet usage is only about 25 percent, far from the 37 percent usage in the United Kingdom. The reason for the difference is not the intensity of the Italians’ daily usage (the time spent online) but the penetration of access (the percentage of people with access to broadband). Industry experts point toward a renewal of government interest in supporting broadband penetration in Italy and the rollout of mobile technologies, which will likely increase broadband access throughout the country during the coming years. • Management of perceived risks: Several concerns among the media-consuming public have affected attitudes toward digitization, including data security, fear of online fraud, and concerns about viruses and malware. Though all these concerns must be taken seriously, they can be managed through appropriate technological and governance mechanisms. Ensuring that consumers can feel confident about their time spent online will depend on the willingness of online services to boost their own privacy and security efforts.19 These include threshold standards for network integrity and quality of service, protections for privacy and data security, protection of minors, and avoidance of theft. Ignoring such measures will slow the spread of digitization, which could have detrimental effects on a country’s economy as a whole. Public awareness of digital privacy and security risks has been spurred by recent news concerning apps that transmit consumer data; current legislative efforts involving privacy, piracy, and ancillary copyright; and the emergence of “pirate parties” — political movements centered in Sweden and Germany that aim to prevent legislative efforts to limit the freedom of the Internet. • Willingness to pay: Analysis shows that consumers remain willing to pay for content in the digital arena. Some observers question whether current online business models for the creative industries are sustainable, and many believe that consumers are less willing to pay for digital products than their physical equivalents. But recent research is leading to a different conclusion: Consumers overall are spending more on products and services from the creative industries than ever before, and this revenue stream will continue to constitute the creative industries’ largest and most promising growth opportunity. The significant increase in media usage is reflected in increasing pay revenues from online products and services in Europe, which are up 29 percent compounded annually between 2003 and 2013. Pay revenues per usage hour have increased by 25 percent for film and television, decreased by 4 percent for the publishing industry,
Consumers are spending more on products and services from the creative industries than ever before.
and increased by more than 160 percent for Internet-related products and services such as digital newspaper editions and online games (see Exhibit 12). The pay monetization of Internet usage hours shown in the exhibit is relatively small, for two reasons: First, usage is split among many more outlets and providers than in print publishing or film and television, so on average, each collects a smaller share of overall revenues. Second, the usage hours also include all products and services currently available free of charge. For example, most news websites are still available without a paywall and supported solely by advertising. If we excluded nonpaid content usage from the analysis (assumed at 80 percent of time spent on the Internet), the monetization per paid usage hour in 2003 would jump to the level of print monetization. The results of a survey conducted with more than 100 representatives from the creative industries in the focus countries suggest a similar perspective: Only 21 percent of respondents believe that the willingness to pay is declining. About 57 percent saw clear improvements, and another 21 percent saw no change.
Exhibit 12 Overall, the monetization of media usage in Europe has risen considerably
Media usage pay monetization
EU-27, 2003 and 2012, in € per hour
2003 2012 1/5 paid content assumption
Film and television
Source: PwC; eMarketer; Oxford Economics; Euromonitor; IAB Europe’s Mediascope Europe; Strategy& analysis
4. Impact on creative production and output
Creators are benefiting almost as much from the digital revolution as consumers are. In nearly every sector, they are using the Internet and other digital technologies not just to make the content they sell but also to distribute it more efficiently and present it more effectively to their audiences. There are several reasons for this. First, digitization has revolutionized the way creators work and collaborate. Even data-heavy film production is fully digitized today, and collaborators from around the globe can access the same video material in real time. Second, digitization has brought the creator a lot closer to the consumer. As a result, distribution of content has become less of a bottleneck in many markets. It is possible for creators to reach the consumer directly by complementing or circumventing intermediaries and gatekeepers. To be sure, this power shift implies a significantly changed economic model in most of the creative industries, but it also gives creators the opportunity to build closer relationships with their audience, learn more about consumer preferences, and tailor their products to the consumer’s needs. Third, digitization enables a greater pipeline of creative material generated by consumers themselves. Today, a much broader set of people can become creators, with the same chance — at least theoretically — of reaching a mass audience and achieving mass success. In other words, the distinction between consumers and creators has become blurred. This is often perceived as a threat to creators, but it also represents a promise: that as the audience becomes more sophisticated and engaged, its level of interest and awareness in all forms of creative content will only increase. This is one of the reasons the music industry has been able to reverse the past trend of declining revenues, with new models building on this promise. A shift in value distribution away from intermediaries and toward consumers and creators has accompanied this change. Digital innovation has made creative production and distribution more
Distribution of content has become less of a bottleneck in many markets.
efficient, driving down the overall top line of the sector but not necessarily affecting the bottom line. That’s why the creative industry remains profitable. For the creators, a higher share of value partly compensates for the overall lower revenue of the sector. This dynamic is most evident in the music industry, the most digitally advanced creative business. With the establishment of digital downloads as an alternative to physical recordings, the economics of the industry fundamentally changed. About 66 percent of revenues from a download go to the artist and label, compared to around 32 percent for a CD sale. The additional share for artists and labels is coming almost entirely from intermediary and distribution costs that have been reduced as a result of the new format (see Exhibit 13, next page). Despite the general decline in recorded music revenues since 2003, the overall artist and label revenues have remained largely constant (see Exhibit 14, next page). In 2013, the split of artist and label revenues was around 28 percent from recorded music (compared with 39 percent in 2003), 44 percent from copyright licensing (compared with 36 percent), and 29 percent from concerts and festivals (compared with 25 percent). This indicates a significant diversification of revenue streams beyond recordings for artists and labels. In fact, with the emergence of digital platforms and technology, the music industry has shifted toward a mixed economy dependent on a wide variety of artist and label revenue streams, some of which did not exist just a few years ago. As a result, the dynamics of the industry have changed. Among the revenue streams that either are new or have been expanded by the possibilities of the Internet and digital evolution: • Digital sales are generated by selling music digitally or online, with the revenue paid directly to labels or to artists via digital aggregators such as Zebralution, the Orchard, and Believe Digital. • Internet retail sales are generated by large online retailers such as Amazon as well as new, dedicated online music stores such as Nimbit, Bleep, and CD Baby, to name a few. • Digital performance royalties are revenues generated for artists and labels when music is played via platforms such as Spotify, Last.fm, and Deezer. • Cloud storage payments are revenues generated for artists or labels by services that store music for customers in the cloud. The funds are provided directly to the labels or to artists via digital aggregators. • Master use and sync licenses involve licensing of existing recordings for movies, TV, commercials, video games, and the like. The growth
Despite the decline in recorded music revenues, the overall artist and label revenues have remained largely constant.
Exhibit 13 Digitization has dramatically changed the distribution of profits from music sales
Proﬁt distribution from physical sale/online download
As percentage of sales price
Sales tax Trade Intermediary fee Distribution Publishing Manufacturing Artist and label
14% 13% 7%
19% 5% 8%
Note: Based on 99-cent download and 65-cent PPD (published price to distributors). Sales tax based on 16% VAT rate. Source: Interviews; collection societies; PwC; Oxford Economics; Strategy& analysis
Exhibit 14 Total revenues and profits for artists and labels have been essentially flat since 2003
Artist and label revenues
EU-27, 2003–2013, in € billions 0.15% 7.8 7.9
Digital recorded music Physical recorded music Copyright licensing Concerts
Note: Artist share of concert revenues estimated at 30%. Numbers may not add up due to rounding.
2.2 2.2 2.3
Source: PwC; eMarketer; Oxford Economics; Euromonitor; CISAC; Strategy& analysis
of digital platforms, particularly YouTube, has also seen the establishment of new rights such as digital synchronization. • Ringtone revenues are generated by licensing songs for use as ringtones. Brand-related revenues also contribute: • The YouTube Partner Program provides advertising revenue, paid to partners by YouTube. • Advertising revenues are generated by the artist’s or label’s individual website properties and can be measured by number of click-throughs or by total sales commissions. • Fanfunding provides revenue streams directly from the fan base to support recording, tours, and the like, through crowdfunding platforms such as Kickstarter, AkaStarter, and Rocket Fuel, to name a few.20 New digital platforms and technologies have particularly changed the dynamics for artists. Traditionally, artists relied on four key revenue streams: live performances, record sales, royalties from public performances and/or licensing, and merchandise. Furthermore, a distinct split existed in the music industry between artists signed to major labels with access to large-scale promotional capabilities and independent artists, who were largely excluded from commercial marketing. Now, however, the growing importance of the Internet and the vast range of new distribution and social platforms have opened up unprecedented access to global promotional and distribution services for signed as well as unsigned artists. That, in turn, has not only reduced the barrier of entry to the music industry for all artists but also given them global reach. Today, every artist has the option to publish his or her content via streaming and Web-casting platforms and receive compensation in the form of royalties.21 This development has also opened up opportunities for artists who have been dropped by their label to seek out alternative channels. Furthermore, consumers today have the choice of buying single tracks rather than whole albums, significantly lowering the barrier to music discovery. And digital platforms offer new ways to discover music and artists, through social sharing, algorithm-based recommendation engines built into streaming and other distribution platforms, or curation services by friends or (self-proclaimed) experts and opinion leaders. Industry experts seem to agree on the potential of finding great new music through “serendipity.”22
All this has also affected the sheer number of active artists, according to Jacob Herbst, head of digital sales and business development at Sony. “We now pay out royalties to more artists than ever before,” he says. “Ten years ago, the vast majority of our revenue came from a smaller number of artists,”23 a shift that arguably democratizes the music industry. Because the shift toward this more democratic, mixed economy is fairly recent, the true benefits to artists have yet to be demonstrated. Much will depend on how the royalty terms offered to artists and labels will develop. In fact, fair artist compensation is subject to ongoing heated debate, engaging prominent artists such as Radiohead front man Thom Yorke24 and former Talking Head David Byrne.25 More recently, Taylor Swift removed her music from streaming distribution entirely.26 This indicates that the search for sustainable digital music business models that are mutually beneficial for artists, labels, and distributors will likely continue. Furthermore, it is questionable whether these developments hold true for the whole of the industry and whether genres such as classical music and jazz, which have generally been insulated from the commercial aspects of the music businesses, will be equally affected by the new market dynamics. In short, although recorded music revenues are down about 27 percent from 10 years ago, most of the decline took place in the early stages of change. Since 2007, mainly as a result of increasing digital sales, recorded music revenues have remained more or less stable. Helping to make up the lost revenue from recorded music sales has been the increase in licensing fees paid to artists and labels, which rose from €2.9 billion in 2003 to €3.5 billion in 2013 across Europe. (These licensing fees are not explicitly covered in the overall music numbers, which is why this view of artist revenues does not match the music industry revenues.) Copyright licensing has benefited from the increased use of music in a rising number of TV channels, more flexible online fee structures that enable new business models (such as Spotify) to prosper, and improved international licensing. Furthermore, concerts have remained a stable source of revenue for artists through the years. The effects of digitization on those value pools are almost paradoxical: Even as revenue from sales of recorded music has gone down, the digitization of TV distribution has led to a plethora of new channels, significantly driving up the use of music and resulting licensing fees. The fourth reason that creators are major beneficiaries of the digital revolution is that new models like crowdfunding are complementing traditional creative financing models. A major obstacle for the “consumer/creator” model (in which the boundaries between consumer and creator are blurred) has been access to the financing needed to make professional products that consumers are willing to pay for.
The search for sustainable digital music business models that are mutually beneficial for artists, labels, and distributors will likely continue.
Traditional artists with a proven track record continue to have easier access to financing than the independent consumer/creator does. However, new sources of funding, such as European crowdfunding platforms, are establishing new niche markets where anyone can pitch projects to the “crowd” in order to receive financing from multiple (mostly small) donations. In return, donors receive the to-be-created product and other benefits such as access to special concerts and events. The crowdfunding industry is still in its infancy but has shown tremendous growth in the past few years: Total funds raised in 2011 reached more than €1.1 billion worldwide and, as projected, almost doubled in 2012, to about €2 billion.27 Growth was particularly strong in Europe, which achieved 65 percent higher volumes and collective growth of 125 percent.28 (See “Studying Startnext,” next page.) As crowdfunding picks up momentum across Europe, the European Commission is recognizing its importance as a viable financial instrument, recently publishing a communication on unleashing the potential of crowdfunding in the European Union (E.U.). The communication, among other issues, highlights the importance of harmonizing standards at the national and European levels and endeavors to launch a study to examine existing national self-regulatory bodies to explore the potential of establishing a European quality label for crowdfunding.29
Startnext is one of the most successful German crowdfunding platforms, with a market share of about 85 percent of crowdfunded projects in Germany in 2014. In a nascent market, Startnext has already received €10 million in funding for creative projects since its launch in 2010. Generally, two main crowdfunding models are available: • Equity-based funding, wherein the financial backers take an equity stake in the firm — an extension of the family and friends founding rounds, to some extent • Reward-based funding, wherein the creator receives backing for a defined product or service he or she promises to deliver in order to satisfy the donors In Europe, both the reward- and equitybased funding options are popular. By contrast, in the U.S., because of current regulation, equity-based funding is negligible. Startnext has a clear focus on the reward-based model, which is also the most suitable approach for creators to achieve financing. Of the more than 3,000 active projects in December 2014, the most popular creative products looking for crowdsourcing were small film or video productions (839 proj