Celtic project CP5-013
MARCH - Multilink architecture for multiplay services
Deliverable D3.5
Consumer spending and forecast for
content and communication services
Issue date:
30.05.2011
Version:
1.0
Security group:
Public
Author(s):
Daniel Seixas (editor), Telvent
Antonio Alfaro, TCLM
Hanne Kristine Hallingby, Telenor
Kjell Stordahl, Telenor
MARCH D3.5
Consumer spending and forecasts for content and communication services
Executive summary
Fixed and mobile Internet traffic will grow at a high rate the next five years. Investments in
new technology, e.g. Multilink, must be justified by a sustainable revenue stream. However,
so far the size of revenues for online services and video services in particular has not been
large. For the Telcos it is a challenge to charge the end-users more for their use of capacity
demanding services.
We have examined revenue streams and pricing models for content such as video. We have
done this to justify if there will be willingness to pay for digital services including
functionality such as Multilink, and why an Internet access provider (IAP) should invest in
Multilink technology. We have performed the analysis on four levels:

Discussed the market for Internet access and content services as a two-sided market

Identified potential digital revenue streams between end-user and content provider

Documented household spending in general, and on content and telecommunications

Developed forecasting models for spending and possible future substitution
The first level has explored the structure and direction of the revenue streams, and the balance
between parts. The second level describes size of revenue streams, and discuss if they may
finance Internet access providers’ investments in technologies such as Multilink. The third
level document household spending and explore the possibilities for a possible substitution
between traditional content spending and telecommunications. The fourth level develops
models for forecasts and substitution.
Based on the logic of a two-sided market it is the IAP that somehow has to finance the
Multilink operator or invest in the technology. Hence, for the Multilink technology it is
necessary to verify that someone is willing to pay the IAP, which is again based on two
business models: 1) the end-user pays the IAP to reach the content provider, or 2) the content
provider pays the IAP to reach the end-user. The former is the current model for IAPs, and
now challenged by price pressure and demand for further investments. This model must be
developed to be sustainable, through increasing end-users’ value and willingness to pay for
attractive content and services. In the latter model 2) the IAP charges the content provider,
and subsidizes the end-user. In parallel the end-user pays directly to the content provider,
which finances the sum it will have to pay to the IAP.
It is difficult to identify criteria for the right balance between sides in a two-sided market, but
one general rule has emerged. It is the side that “cares” more about the other side that should
pay more, all else equal. In addition end-user’s demand for content variety in time and scope
imply that content providers pay the platform. For a shift in market balance in the two-sided
market we should expect the content providers to “care” more about reaching the customers
than vice versa, and the end-users to be more interested in varied offerings over time and
scope. The current vast volumes of information and actors on the Internet are indications of
customer preferences for variance. Today – opposed to the early days of Internet – providers
of content, business in general and public are critically dependent on online presence and
reaching their customers. Hence content providers might by now be more willing to pay the
IAP for access to end-users and IAP-related services, and in parallel establish direct customer
relationships to the end-user.
There are very few examples of such changes in pricing strategies, and probably optimistic to
hope for it. This leaves the IAPs with the opportunity to make the access more valuable to the
end-users, get them to pay more/enough and optimize the cost side. Consequently, for IAPs
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Consumer spending and forecasts for content and communication services
vertical integration or tight partnerships with content providers remains an obvious strategy
for repositioning in this market.
When examining different types of digital content markets we find indications of future
sustainable online business. The music industry still need several years and structural changes
to prove it has gained momentum. The game industry has already proved to transform and
grow at the same time. The large video industry – film and TV – has potential for a successful
transformation. The most promising indications are the large volume of both consumption and
provisioning of online video, making Internet into a platform for professional entertainment.
Our conclusion is that there also in future will be demand for, and willingness to pay for
content. We are more uncertain on which business models, actors, market structures and
alliances that will shape the future industry.
The music industry has been through ten years of digitalization and revenue decrease, and is
not able invest the same amount in the core of the business – the artists. The digital share is by
2010 29%, growing by more than 20% worldwide. However, there are positive signs, and the
most important is the consistent interest in and demand for music. Also there are examples of
business models for provisioning of music that may stop the downturn and slowly gain
momentum. The subscription models for large catalogues of music, in parallel with
partnerships with Internet and content access providers have brought hope for regaining
revenues. Pay-per-tune is still the most common model, and it remains to be seen how these
models will evolve as complements or satisfy different needs.
Summed up the game industry seems to be prepared for a complete transformation to online
games. The total revenues grow worldwide, and digital share accounts for 39% and grows by
25%. This is a story of how traditional products successfully have adjusted to the Internet.
Some of the market tension is between new and old online games. The sustainability and
potential future growth must be found in online games with new types of business models,
e.g. micro transactions, virtual goods and games as a service (as opposed to subscription
models).
All in all the film and TV market has not transformed into a large online business, between 510% of the revenues are digital. The growth is higher for this industry, estimated to be at least
36% worldwide. We see a continued interest in traditional platforms together with new and
small total yearly growth. However, recently some entrants – e.g. Netflix in US – have
managed to build a large online subscriber base for streaming of films with subsequent
revenues. They indicate a large future digital growth. Other incumbent TV actors provide
content as an add-on to their existing offerings, already paid for external to the Internet.
Although some predict that the TV industry will meet a meltdown equivalent to the music
industry, this is so far not the case. We should still expect fierce competition among actors,
new entrants replacing existing, new types of online positions and refining of content and
versioning of content towards different segments. The result might still be that the level of
revenues is kept, however with a large digital share.
When we look into the existing business models for paid content they are different across
media verticals. Music is slowly building subscription models but still collect most of the
revenues from sales of single tunes. TV-content online has mainly been ad-financed, but
providers with subscription models are gaining market shares. The games industry has come a
long way with sales of games with Internet functionality and subscription; however models
based on micro transactions are growing. It is a paradox that one model – subscription – is
regarded as promising for one type of content and about to be left for another. However, also
when we discuss different type of content this may be explained by end-user’s demand for
variety and which side “cares” the most for reaching the other.
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Consumer spending and forecasts for content and communication services
For the Multilink technology this analysis implies that the IAPs are important customers. In
the short run the most promising customers are IAPs vertically integrated or in tight
partnerships with other actors, providing different accesses and content to end-users. In the
long run IAPs that have established two-sided market with paying content providers are
potential customers and investors in the Multilink technology.
To further assess the future willingness to pay an IAP for content services we have examined
household spending. We have analysed data representing the evolution of household spending
in general, spending on content and spending on telecommunication. It is natural to analyse
the spending budget for households in order to estimate the revenue potential for broadband
content both for fixed network broadband services and mobile broadband services. The
hypotheses is: Part of the spending categories, which the household now pay for, will in the
future be partially substituted by use of services in the mobile and fixed broadband networks.
The estimated potential will be an upper limit for a long-term evolution.
We document substantial potential revenue possibilities for the mobile and fixed broadband
market. It is expected that part of the future household expenditure on content may be utilized
through fixed and mobile broadband networks. The Western European mobile and fixed
network markets have grown significantly during the last years. Several drivers have initiated
the very strong growth and new drivers are initiated. Distribution of network based broadband
digital content is in a growth phase. The analysis and the results concentrate mainly on the
residential broadband market. The residential market is also the dominant part of the
broadband market today regarding both accumulated traffic, number of accesses and revenue.
Based on the assumption of a future substitution between traditional content expenditure and
fixed/mobile broadband spending (including content and services) we have suggested a set of
forecasting models:
- Fixed broadband penetration forecasting models and forecasts
- Mobile broadband penetration forecasting models and forecasts
- Forecasts/forecasting methods for expenditure categories
- Forecasting models for part (fraction) of the expenditure substituted by
telecommunications
The forecasts for the first three listed models are quantified. The forecasting model for the
fraction of the expenditure substituted by telecommunications is only given as an example. It
is necessary to quantify the possible fraction for substitution in order to allocate the different
expenditure categories. All the forecasting models are put together in one last equation which
expresses the future expenditure substituted by fixed and mobile broadband, but which is still
dependent on identifying the fraction.
It is important to know that the potential identified revenue potentials will be shared between
different players in the value system: content creators, content brokers, service providers,
network operators and others. This again emphasizes that to make this evolution a success, it
is important to develop the right business models between the players and also implement
tariff procedures and principles for sharing the added broadband value among players.
In more than 10 years the flat rate principle with no charge for additional traffic has been the
business model for fixed broadband traffic. During the last years the traffic has increased
exponentially partly because significant growth of content applications. The operators have no
incentives to expand their networks to carry all offered broadband traffic without getting paid
for the transport. AT&T introduced in 2010 monthly traffic volume cap and payment for
exceeding traffic. The Canadian telecom regulator, CRTC, fights for similar volume cap
regulation for the whole Canada. Hence, there are registered initiatives to establish new
business models for fixed broadband.
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Consumer spending and forecasts for content and communication services
Abstract
In this report we have performed four main analyses. In part one we have described the
Internet access provider as a platform for a two-sided market, the sides being the end-user and
the content provider. The current balance between the sides and a possible shift has been
discussed. We think it is productive to regard the marked as two-sided. In any versions of
such a market the Internet access provider is an important customer for Multilink technology.
In the second part we have examined the revenue potential for different types of content, with
special attention to video distribution. Business and pricing models have been identified and
discussed. Both an effective market model and sufficient digital revenues are critical success
factors for Multilink technology, and both are uncertain. The status vary for content
industries, however we find that there already is and will be large digital content revenue
streams. The third part has examined European historic household spending in general, on
content and telecommunication, this study has been detailed in to particular scenarios, southEuropean countries and the rural European areas. The hypothesis is that part of the content
spending categories that the household now pay for, will be partially substituted by use of
services in the mobile and fixed broadband network. We have developed forecasting models
for the spending categories and possible substitution. However the possible substitution
fraction is an issue for further research.
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Consumer spending and forecasts for content and communication services
Table of contents
EXECUTIVE SUMMARY
1
ABSTRACT
4
1
INTRODUCTION
7
2
A SHIFT OF PRICING BALANCE IN THE MARKET
9
2.1
Two-sided market – in principle
10
2.2
Case 1 – end-user pays the platform
11
2.3
Case 2 – CAS pays the platform
11
2.4
Who is asking for Multilink functionality?
13
2.5
Summary two-sided market and shift of balance
14
3
POTENTIAL REVENUE STREAMS AND BUSINESS MODELS
16
3.1 User practices
3.1.1
Multitasking grows
3.1.2
Cross media consumption is prevalent
3.1.3
Media are social
3.1.4
From household to individual solutions
17
17
18
18
18
3.2
19
Digital content – overview
3.3 Video content – TV and film
3.3.1
Digital video is entertainment
3.3.2
Digital video has become professional
3.3.3
High growth in online video consumption
3.3.4
High growth in online provisioning of content
3.3.5
Online video, business models and market share
22
22
23
24
27
29
3.4 Music
3.4.1
High growth in consumption of music
3.4.2
Broad supply of digital music
3.4.3
Online music, business models and market share
31
32
33
33
3.5 Games
3.5.1
High level and growth in consumption of online games
3.5.2
Online games, business models and market share
35
35
37
3.6
Summary online revenues and business models
40
4
CONSUMER SPENDING AND FORECASTS
4.1
Western European market idiosyncrasy
42
4.2
Western Europe and the demography
42
5
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Consumer spending and forecasts for content and communication services
4.3
Household expenditure
44
4.4
Content services and applications
47
4.5
European fixed and mobile broadband
48
4.6 European household spending on content applications
4.6.1
Recording media
4.6.2
Games, toys and hobbies
4.6.3
Cultural services and entertainments
4.6.4
Games of chance
4.6.5
Books, Newspapers and Periodicals
4.6.6
Education
51
51
52
53
55
56
57
4.7
57
European telecommunication expenditure/revenue for usage
4.8 Case of study: South Europe (Spain, Portugal and Italy)
4.8.1
Economic Context
4.8.2
Broadband Context
4.8.3
Service consumption
4.8.4
Conclusions
58
59
61
64
68
4.9 Case of study: Rural areas in the European Union
4.9.1
Fixed and mobile broadband in European rural areas
4.9.2
Content potentials and household spending in European rural areas
4.9.3
Conclusions
69
72
74
77
5
MODELS FOR FORECASTING NEW REVENUE STREAMS
5.1
Forecasts for broadband accesses
78
5.2
Household expenditure statistics and predictions
81
5.3
Fraction of expenditure for telecommunication substitution
82
5.4
Model for potential revenue content forecasts
84
5.5
Additional considerations
85
6
CONCLUSIONS
88
7
REFERENCES
90
8
LIST OF TABLES
96
9
LIST OF FIGURES
99
10
ACRONYMS AND ABBREVIATIONS
78
101
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Consumer spending and forecasts for content and communication services
1 Introduction
Fixed and mobile Internet traffic will grow at a high rate the next five years (Stordahl 2010).
The growth is to a large degree due to consumer practices, e.g. video consumption, and more
and larger screens. Multilink is a technology that could relief traffic congestion and
bottlenecks. Theoretically – or perhaps fairly – the increased costs of providing sufficient
network capacity for their usage should be put directly on the consumers. Investments in new
technology, e.g. Multilink, must be justified by a sustainable revenue stream. However, so far
the size of revenues for online services and video services in particular has not been large.
The challenges Telcos have with charging end-users for their use of capacity demanding
services are described by for instance Telco 2.0 (2010).
“Some telcos think that certain other large and bandwidth-hungry applications are receiving a ‘free ride’ on their
networks, and their corporate owners consequently receiving the benefits of expensive network investments
without contribution.” (Telco 2.0, 2010)
The March project itself is based on a scenario of:
“easy, ubiquitous access to advanced broadband services. People will expect to be able to connect to a broadband
network for business and personal use, irrespective of time, terminal and location. The consumed content may be
generated in any part of the network and will include both professional production and user generated content.
Access to content will involve both peer-to-peer usages as well as centralised service delivery”
This assumption might be a realistic description of consumers’ expectations, but does not
touch upon how the costs are redistributed across actors in the belonging eco-system. This
challenge will vary with different contexts. March’s understanding is in line with the “net
neutrality side” in the debate and ideas like “right to unfettered internet access” (Telco 2.0
2010).
In this analysis we will explore revenue streams and pricing models for content such as video.
We do this to justify if there will be willingness to pay for digital services including
functionality such as Multilink, and why an Internet access provider should invest in
Multilink technology. Because of the current imbalance between revenues and costs in the
Internet access market we have to perform the analysis on four levels.

Seeing the Internet access and content services as a two-sided market: as-is and future
o the balance of pricing between the two parts; end user and content provider
o who pays for what

The revenue streams between end-user and content provider: as-is and future
o Direct end-user payment, e.g. subscription or unit purchases
o Advertising financing consumption

Household spending in general, on content and telecommunications
o Historic spending trends
o Spending forecasts

Forecasting models for spending and possible future substitution
o Substitution possibilities between traditional content spending and content
included in telecommunication spending
o Forecasting models for substitution fraction
The first level will explore the structure and direction of the revenue streams, and the balance
between parts. We will also discuss how contextual conditions may alter the market balance,
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Consumer spending and forecasts for content and communication services
such as the Internet penetration reached, institutional dependence on Internet and
digitalization of the media industry. The second level will describe size of revenue streams,
and discuss if they may finance Internet access providers’ investments in technologies such as
Multilink. The third level will examine European historic spending patterns and suggest
forecasts. We explore the potential for a future where household spending on content is
moved from traditional channels to be included in telecommunication spending. This could
include both the growth of the different content types, but also the existing levels of spending.
On the fourth level we suggest models for forecasts, but the possible substitution fraction is an
issue for further research.
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Consumer spending and forecasts for content and communication services
2 A shift of pricing balance in the market
Bandwidth growth is strong, but online content revenues are for the most part disconnected
from bandwidth consumption. E.g., the huge YouTube video volumes do not extract the
corresponding revenues. Therefore we need to define and discuss which type of market
models Multilink is thought to be implemented into.
The two archetypes of content and digital content business models are:
• Vertical alliances and ubiquitous access to network resources
Content bundled with distribution (traditional TV-model)
Premium content
This model continues how content and access are financed today, however is challenged
by the Internet and digitalized economy.
• Layered market and ubiquitous access to network resources
Ubiquitous access financed directly by user - agnostic to content
Content financed with ads and premium business models
This model is based on, and implies that premium content business models will emerge on
Internet, and a corresponding willingness to pay directly for content
In the vertical model the provider1 can bundle both different accesses and types of content and
services, presumably based in scale economy mechanisms, and reduced churn and customer
acquisition costs due to higher perceived customer value. An investment in Multilink
technology may give the opportunity to both optimize cost and enhance customer value with
sufficient control of increased revenues or profits. I.e. the part who invests is also profiting
from the investment.
The other model is the layered market. In a layered market – from the consumer perspective –
she pays the access provider a flat fee for best effort access whereas the content and services
are financed either by advertising or her direct consumer payment to the content provider. In
this context the access provider’s investment in more efficient technology will only support
other providers of capacity demanding content and customers, leaving the access provider
with a continued flat fee at a higher cost. The competition has been tough on the access side,
putting pressure on fees together with an increased actual use of access capacity and hence
cost (Telco 2.0 2010). Providers of fixed Internet access (as opposed to e.g. cable operators
who bundle with TV and content) in a mature and competitive market will be reluctant to new
investments with uncertain revenue streams, such as Multilink technology. In the layered
model there is an implicit market pressure towards horizontal and vertical integration and
bundles, but that is another story. In this note we want to explore the layered Internet model
and possible business models in more detail.
There is already an existing market for transit of content (capacity) (Ou 2009 a, b). The
content, application or service (CAS) provider has to pay to get the content to the Internet
access provider (IAP) with the Internet access customers, either by transit, leased lines,
content distribution networks or caching locally – or some mix of these. Many of the large
CASs already optimizes their transit costs, e.g. Google and Amazon. Access providers on the
other hand, are still in a dilemma considering investments with uncertain revenues. There is
an end-user demand for increased access capacity in order to take full advantage of new
services. For the access provider this sometimes imply even increased variable content costs
1
E.g. Comcast, BSkyB
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Consumer spending and forecasts for content and communication services
due to paid peering settlements (paying for content coming from a source outside own
network – off-net) – with small opportunities to charge end-user for this.
In this context we will explore different type of digital/online content and the belonging
revenue streams and price models. To put it short, there has been very little willingness to pay
directly for online content so far, however with some changes the last couple of years. On the
other side, historically consumers have been willing to pay for content such as music,
newspapers and TV. And whereas the balance of interdependence between actors has
changed, there still is some form of dependence between CAS, network, access and users.
Based on this we will discuss whether it is possible for some form of two sided market to
emerge – or perhaps to shift the directions of the revenue streams in the existing market – and
hence whether there will be conditions stable enough for investments in technologies like
Multilink. The case of vertical integration is of course one possible outcome, but we will not
discuss this in detail since it will be a repetition of already proven models.
2.1 Two-sided market – in principle
We identify five types of possible roles and actors in possible two sided markets:

Network: CDN, leased lines, transit provider, Internet

Advertisers

Internet access providers (IAP)

End-users

Content, application or service (CAS) provider
The network role is in this case regarded as a part of the infrastructure that has to be taken into
account as a cost to reach the end-users for CASs (Ou 2009a, b). I.e it may be the CDN or
transit provider that actually pays the IAP, but the original revenue streams will come from
the content provider – the CAS. The advertising financing a lot of the Internet content market
is well established. Both roles are probably some sort of two-sided markets which today partly
finance the total market costs, but not alone will finance the future Internet – new sources of
revenues have to be added. We will keep these roles out of the models and discussion on the
two-sided market.
A principal model of two-sided markets – Figure 2.1 – is suggested by Rochet&Tirole (2005)
and the basis of our definition of the core – the platform2 – of the market we want to discuss.
The Internet access providers are the actors that will find it interesting to invest in Multilink
technology and therefore we regard these as the possible platform for a two-sided market.
Platform
Internet access provider
Fixed and usage
charges
Fixed and usage
charges
End-user
Interaction with
or without payment
Content provider
Figure 2.1Principal model of two-sided market (Rochet&Tirole 2005)
2
Platform is an expression used to describe the unit around which a two-sided market emerge (Evans et al 2006)
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Consumer spending and forecasts for content and communication services
In a two-sided market, one side would typically pay the platform provider, whereas the other
part gets the services for free, or subsidized (Evans et al 2006). The two possible scenarios are
when the end-user pays the platform provider for reaching the CAS, or vice versa. There are
probably many nuances to these, especially for the traditional Internet services that are not
actually capacity demanding. It is however in the case of capacity demanding content such as
video, that it is interesting to more principally discuss the realism in new models and where
Multilink has a value proposition.
2.2
Case 1 – end-user pays the platform
Money
Platform
Internet access provider
Content
(CAS)
Fixed charges
End-user
Interaction without
payment
Content provider
Figure 2.2 Two-sided market- end-user pays the platform
As we already have described, the case 1 is the current model: the end-user pays the platform
provider for Internet access, in order to reach the CAS – as in Figure 2.2. The CAS pays for
connecting to the Internet, but not to the access provider for reaching their customers. This
case can be understood as already being a two-sided market, but also as a traditional sellingbuying relationship. In any case they seem dysfunctional. The model may have been effective
in the building of an Internet with sufficient users and providers of content, applications and
services. However today this model is under pressure, and investing in new technology on the
access side is challenging. Prices are dropping, fixed and variable costs increase. At the same
time we have so far seen only small signs of end-users willingness to pay directly to CAS, in
addition to the fixed access fees to the platform provider. This may be a sign of an imbalanced
two-sided market which must expect structural changes. It might be possible to find a new
balance where the end-users perceive the services they access more valuable (again pressure
for vertical integration), and hence are willing to pay more to the access provider. Another
alternative is a shift in the balance towards the CAS becoming the paying part.
2.3 Case 2 – CAS pays the platform
To explore the opportunities with two-sided markets we can shift the price balance between
the two parts – end-user and CAS – as illustrated in Figure 2.3. What if we do not expect the
end-user to cover the full cost of their use of the access, and the CAS providers pay the access
provider (platform) for getting access to their customers with their products? One immediate
question is how the CAS should finance this cost. There are two main models of this:
A. The end-user pays directly for the service to the CAS, e.g. video/TV, other entertainment,
games, applications, secure transactions
B. The use of the access is integrated into an offer from the CAS where the main revenue
streams are external to the Internet:
o Banking, shopping, public health, public education
o Events, live performance (music)
o Devices (e.g. Apple)
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Money
Platform
Internet access provider
Fixed/zero
charges
End-user
Content
(CAS)
Fixed and usage
charges
A: Interaction with
payment
Content provider
B: Interaction with
payment external to
Internet
Figure 2.3 Two-sided market – CAS pays the platform
In addition to the access to customers, the Internet access provider can provide services to
CAS such as paying mechanisms and quality of services.
There are some elements of the current status of the Internet market that support this twosided model. Internet has become a critical part of many institutions’ infrastructure and value
creation: e.g. banks, education and other public institutions. In Norway 21% of all trade is
digital, meaning up till 68BEUR (Eurostat 2011 a&b). Digital trade is increasing in all
developed economies (OECD 2010, Eurostat 2011 a). Apple has succeeded in establishing a
market for iPhone-applications, however the main revenue stream is from the sale of the
device iPhone.
The imbalance between the two sides is the challenge in the existing business model regime,
and the reason for a potential shift in market structure. According to Evans&Schmalensee
(2007) it is vital to set a pricing structure in order to build a sustainable two-sided market. In
addition the mixture of fixed and usage charges to the two sides have to be optimized, and this
will vary with each market. Evans et al (2006) report that it has been difficult to identify
criteria for the right balance between the sides, but that one general rule has emerged. It is the
side that “cares” more about the other side that should pay more, all else equal. We must ask
if we now find indications of the content providers caring relatively more about reaching the
end-users than we have seen historically. Further Evans et al have found that when the user
side demand more variety of applications/games/content, it is easier for the content provider
to get directly paid from the end-user. Hence, under such circumstances the platform/IAP will
be able to charge the content-provider.
It is possible that in the building of a market for Internet access, the circumstances were that
end-users cared more about content, but had less interest in variation in the offerings from
content providers. For a shift in market balance we should expect the content providers to care
more about reaching the customers, and the end-users to be more interested in varied offerings
over time and scope. The current vast volumes of information and actors on the Internet, and
potentially more varying network conditions are indications of the latter description to be the
case. Alas, Evans et al (2006) find very few examples in such evolution of pricing strategies,
and it is probably optimistic to hope for such a change3. This – once more – leaves the IAPs
with the opportunity to make the access more valuable to the end-users, get them to pay
more/enough and optimize the cost side. However, our ambition is to identify the
opportunities and prerequisites for a shift in balance in the two-sided market.
3
Within telecom the operators have been able to extract revenues from receivers of calls, in addition to the
custom of calling part pays. One example is a company’s customer service, where it obviously is the company
that cares more about facilitating that customers reach them, than vice versa.
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2.4 Who is asking for Multilink functionality?
Now returning to the assumption Multilink technology is built upon; the easy, ubiquitous
access to advanced broadband services across time, terminal and location. The fact at least in
developed economies is that people use several devices and accesses to Internet (Stordahl
2010, Zagaeski 2010). Services are to some degree designed to fulfil a need to be accessed
through different devices and accesses, e.g. Facebook and Youtube. The Multilink technology
aims to optimize the use of access resources, but who is the customer of this functionality?
The vertically integrated company offering bundles of accesses and content would use
Multilink to decrease costs and offer enhanced values to customer. In the layered market it is
more diffuse:

End-user uses several devices and accesses from different providers

CAS providers offer (ideally) service indifferent of access and device (however putting
different demands on the access network)

Internet access providers are standalone actors (e.g. fixed and mobile are not integrated)
Under such conditions the end-users value proposition would be a stable service (no reduced
quality due to congestions and bottlenecks) and an expectation towards services independent
of device and accesses. The CAS provider’s value proposition would be an ensured quality
deliverance of service across devices and accesses. The Internet standalone access providers’
value proposition would be to be able to avoid congestions and bottlenecks – and hence a
predictable quality of service provided to both CAS and end-users.
In order to consider the willingness to pay we must remember the challenges of this market as
it is. The already high pressure on end-user access prices indicates that the consumer probably
would be reluctant to pay directly to a Multilink operator to get a better and more certain
quality, but rather expect this included in either the access or content service. There is no
reason why a CAS provider should pay directly to a Multilink operator as long as it already is
reluctant to pay to the Internet access provider. That leaves us with the Internet access
operator somehow paying to a Multilink operator or investing in the technology – and they
have to find the customers and business models financing this. This is the same discussion as
above; the end-user/customer has to pay more or the revenue streams have to shift direction or
structure in order to finance the Multilink technology.
It all boils down to a question of how the CAS provider gets paid from the end-user, online or
offline. Recall the principal figure of a two-sided market which included a dotted line
indicating an interaction between CAS and end-user, with or without a revenue stream. For a
lot of the activities on Internet there are substantial revenue streams between the parts.

The end-user purchase directly online some non-digital service (services like flights,
tickets)

The end-user purchase directly online some non-digital product (consumer electronics,
consumer products in general, business-to-business orders)

The end-user purchase services and products that imply online services and updates
(banks, software)

Online services in general to support purchased end-user products and services
(automobile, post)

Marketing and add-ons of products and services having their main revenue source offline
(so far), e.g. music events, TV, newspaper
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Consumer spending and forecasts for content and communication services
Services in general to support public institutions: education, health, welfare, taxation –
financed by taxes
Advertising which is regarded as the main financial source on Internet, is small compared to
the sums of such activities. E.g. in Norway the digital trade is more than 21% of total trade –
meaning up till 68BEUR (Eurostat 2011 a&b) – whereas the digital advertising market
accounts for about 3BNOK4 (Aegis 2011). Hence, the size of the already existing transactions
online is substantial. This is analogue to other two-sided markets. E.g. in the market of credit
cards the transaction between the merchant and buyer is much larger than the credit card
market itself.
Digital products like newspapers, video sites (online-publishing) etc are still small compared
to a lot of the above value creation, however large offline. So far such products have to a large
degree been complementary. Eventually they might find their basic business model based in a
digital context, as we now see for games and music. For the media industry the challenge is to
get the end-users to pay for their products, either directly or with an advertising model. For
the video industry the challenge is even more challenging because the cost of distribution to a
larger degree is continued on Internet, with high demand on capacity in the access network
and larger sensitivity to quality failures. The Internet access provider has to facilitate and
work for a change to happen; the end-users to be willing to pay the content providers, which
in turns pay the access provider.
2.5 Summary two-sided market and shift of balance
Based on the logic of a two-sided market it is the IAP that somehow has to finance the
Multilink operator or invest in the technology. Hence, for the Multilink technology it is
necessary to verify that someone is willing to pay the IAP, which is again based on two
business models: 1) the end-user pays the IAP to reach the content provider, or 2) the content
provider pays the IAP to reach the end-user. The former is the current model for IAPs, and
now challenged by price pressure and demand for further investments. This model must be
developed to be sustainable, through increasing end-users’ value and willingness to pay for
attractive content and services. In the latter model 2) the IAP charges the content provider,
and subsidizes the end-user. In parallel the end-user pays directly to the content provider,
which finances the sum it will have to pay to the IAP.
Evans et al (2006) report that it is difficult to identify criteria for the right balance between
sides in a two-sided market, but one general rule has emerged. It is the side that “cares” more
about the other side that should pay more, all else equal. In addition end-user’s demand for
content variety in time and scope imply that content providers pay the platform. Put simply,
end-user’s demand for variety and content provider’s eagerness to access end-users are
compatible with microtransactions directly between end-user and content provider, enabled by
an operator/platform charging the content provider. On the other hand, the eagerness of enduser to reach certain content providers and less need for variety (between providers) is
compatible with more long term pricing models, e.g. end-user subscriptions potentially
handled by the IAP.
Hence - for a shift in market balance we should expect the content providers to care more
about reaching the customers than vice versa, and the end-users to be more interested in
varied offerings over time and scope. The current vast volumes of information and actors on
the Internet are indications of customer preferences for variance. Today – opposed to the early
days of Internet – providers of content, business in general and public are critically dependent
4
We estimate Google to account for about 1 NOK billion in 2010.
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Consumer spending and forecasts for content and communication services
on online presence and reaching their customers. Content providers might by now be more
willing to pay the IAP for access to end-users and IAP-related services, and in parallel
establish direct customer relationships to the end-user. As already pointed out, there are very
few examples of such changes in pricing strategies, and probably optimistic to hope for it.
This leaves the IAPs with the opportunity to make the access more valuable to the end-users,
get them to pay more/enough and optimize the cost side. Consequently, for IAPs vertical
integration or tight partnerships with content providers remains an obvious strategy for
repositioning in this market.
There are of course several obstacles with a transformation to a two-sided market where the
content provider pays for the capacity requirements of the services. We will only shortly
mention some of them that might disturb the sustainability of the model.
A soon as the access providers start getting paid from content providers, they will have less
incentives to keep the end-user prices high. We will get a price competition in order to
maximize end-users and the basis for being attractive to content providers. Another aspect is
whether it is at all possible to effectively identify and bill the content providers that drive
demand. In any case we might get a situation where some large CASs subsidize a large
volume of others that are not capacity demanding.
On the other hand, it might be possible for access providers to identify other types of services
that require low capacity/bandwidth but provide a lot of value to both the end-user and CASs.
Such services and willingness to pay might be found close to the large trade volumes on
Internet, or as a consequence of society’s – both business and public – dependence on Internet
as a fundamental infrastructure. Hence high value services would subsidize other services,
both low and high bandwidth demanding.
In the next chapter we will discuss the end-users’ willingness to pay for digital content, and
implicitly the possibility of establishing revenue streams that are large enough to cover
capacity costs and Multilink investments.
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Consumer spending and forecasts for content and communication services
3 Potential revenue streams and business models
In the first section of this note we have discussed how existing business models for Internet
challenge investments in technologies like Multilink, and possibilities for structural changes
that help Multilink. In this section we will examine size of digital revenue streams and price
models, and discuss whether they may finance Internet access providers’ investments in
technologies such as Multilink.
The media industry is changing, due to the digitalization of content and Internet connectivity.
Content may be distributed, consumed, shared, and communicated about in formats different
than the traditional newspaper, cd, game console or scheduled TV. At this point of time there
seem to be sufficient broadband capacity, available content, devices and user competence to
build a digital content economy5. However, for a long time the digital shift has mostly meant
a decrease in total media revenue streams, and mixed signs of new opportunities. We will
explore some industry trends that are important indicators of a possible sustainable digital
economy.
Fixed and mobile Internet traffic continue to grow at a steady rate the next five years
(Stordahl 2010), and Internet penetration is high in developed economies. This is both an
indicator of what is possible to do on the Internet, as well as the volumes actually consumed.
Recent years the available content has actually increased dramatically, both content that does
and does not demand high capacity. Video content has become large, first with user generated
content such as YouTube videos and later loads for professional content, legal and illegal.
Music services additional to iTunes are more common, and games is the media vertical that
has developed the farthest into Internet.
The number of different devices used for digital content has increased. In addition to well
known iPods and PCs we can now play around with iPhone, iPad, Kindle, TVs and game
consoles. In addition to playing digital content, these devices are Internet enabled to a larger
degree. The flow of devices is most of all an enabling factor for the growing consumption of
digital content, and will play a role both with regards to the difficulties of remaining existing
business models and building new.
Online content consumption has grown in recent years. People read newspaper, listen to
music, watch videos and TV, and play games on the Internet. They even multitask, and
consume several media in parallel. Ant the content they consume – or the different aspects of
it – they consume across the TV, computer and mobile. Media consumption is intertwined
with their offline social life, as well as the extensive digital social life many have built on
social networks. The individual character of the new digital services has not yet found its
position within the household, and we should expect both users and providers to come up with
solutions for this.
Although the users consume large volumes of digital content on the Internet, the money does
not seem to flow as willingly at first sight. The industry continuously discusses how to
monetize their digital content, and transform their business onto the Internet. The reasons
suggested for user reluctance are many; available illegal content, not effective and trustworthy
paying mechanisms, content regarded as already paid for in existing verticals (e.g. TV).
While we wait to see the signs of users willing to pay for digital content, e-commerce has
grown at a high pace recent years. In some developed countries the rate is between 10 and 20
5
In many cases new services may be complements to existing, which we will not discuss in this paper. Our aim
is to explore the possibilities of building a new, digital economy.
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Consumer spending and forecasts for content and communication services
percent (OECD 2010).The reasons for why people will not leave their money with digital
content must be found within the industry itself, and not in contextual factors.
One explanation very often used for little willingness to pay is that people are used to free
content – or to more precise – to advertising financed content which is the dominant Internet
business model in the end-user market. Another obvious explanation is the characteristics of
Internet that are very similar to a very competitive market. There is full information about
products and providers, many actors and most things are easy to copy. Along with low
variable costs (and higher fixed costs/investments) this is driving prices towards zero.
When we look into the existing models for paid content they are different across media
verticals. Music is slowly building subscription models but still collect most of the revenues
from sales of single tunes. TV-content online has mainly been ad-financed, but providers with
subscription models are gaining market shares. The games industry has come a long way with
sales of games with Internet functionality and subscription, however models based on micro
transactions are growing.
When examining different types of digital content markets we find indications of sustainable
online business. The music industry still need several years and structural changes to prove it
has gained momentum. The game industry has already proved to transform and grow at the
same time. The large video industry – film and TV – has potential for a successful
transformation. The most promising indications are the large volume of both consumption and
provisioning of online video, making Internet into a platform for professional entertainment.
We will conclude that there also in future will be demand for and willingness to pay for
content. We are more uncertain on which business models, actors, market structures and
alliances that will shape the future industry.
3.1 User practices
Online content consumption has grown in recent years. People read newspaper, listen to
music, watch videos and TV, and play games on the Internet. They even multitask, and
consume several media in parallel. Ant the content they consume – or the different aspects of
it – they consume across the TV, computer and mobile. Media consumption is intertwined
with their offline social life, as well as the extensive digital social life many have built on
social networks. The individual character of the new digital services has not yet found its
position within the household, and we should expect both users and providers to come up with
solutions for this.
3.1.1 Multitasking grows
All over the world people multitask, the practice of using one other medium in parallel with
watching TV. One third of US online men multitask by 2010, and one fourth of women do the
same (eMarketer 2010). By 2008 already 22% of all Europeans are using TV and Internet
simultaneously (EIAA 2009). In China by 2010 44% of those with Internet access multitask
(Nielsen 2010 c).
Instead of substituting the time used for TV viewing, people have found it convenient to
extend their total media time with the smaller laptop, mobile and ipad on their laps. It is
discussed whether people really manage to keep concentrated on several media, but the
popularity of the phenomenon has surprised many observers. This ability to absorb more and
more content, gives new input how to understand and predict media consumption and
provisioning. It further opens both challenging demands and opportunities for providers of
content and services on integrating the user experience across devices and accesses.
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Consumer spending and forecasts for content and communication services
3.1.2 Cross media consumption is prevalent
Whereas multitasking is about using several media in parallel, cross media consumption is
about consuming and relating to the same content – or modifications and extra material – on
different media (media meaning some mix of providers, devices, applications and accesses).
E.g. you watch an episode your favourite TV-series on traditional TV, rewatch sequences on
YouTube, read about celebrities in the news and follow them on the blog. Both comScore
(Yuki 2010) and Nielsen (2010) report how consumers are optimizing their TV-viewing by
time-shifting and catching up on TV content both online and on their video recorders.
You can also visit a music festival for your favourite artist, use her “edited music choices” on
your music streamer, update on her recordings on her YouTube channel, and read about her in
the news. For the consumer such behaviour is completely natural and the different media
perfect complements. The industry has always taken advantages of such mechanisms. As such
we should expect also this mechanism to drive demand and provisioning for content. It is the
new situation where the different platforms may compete for the revenues that is the
challenge for the industry, and that will decide the final combination of different media.
3.1.3 Media are social
Media such as TV and music are social in two ways, you consume the content together with
others and you socialize about it afterwards. Socializing about content is a fundamental
human way of processing and interpreting impressions and brings added value to the
experience. Some content types are more social than others, e.g. we often watch TV with
others and talk about content the following day – the so-called water cooler effect. The
opportunity to watch TV whatever, whenever and wherever you want also support the social
aspects of content consumption. The most common reason to watch TV online is to catch up
on something you missed – to be able to take part in the talk about your favourite show the
next day (Hallingby&Jakobsen, 2011). The huge use of Twitter in e.g. US and UK as a way to
socialize across living rooms is further a sign of the need and enjoyment of a shared
experience (Tsotis 2010, Anstead&O’Loughlin 2010). This is a sign of how digital social
media facilitate socializing about content. However, the face-to-face socializing is still
important to people, and the digital activity is to a large degree a reflection of the physical life
(Ito et al 2008, Schmidt et al, 2009). Internet as such has been discussed as an enabler or
disabler of social interaction. So far it seems like social and communicative people are able to
extract support for this need from Internet (Rice et al 2007).
3.1.4 From household to individual solutions
By observation and experiences we find that many of the services currently provided on
Internet by nature are individual, e.g. individual single stream music and video services,
personal apps subscriptions and digital memberships. Also the new devices are more
individual; the laptop, tablet, e-reader, and the most personal of them all – the mobile. The
intention of former content products and services such as CDs, TV, games, desktop and fixed
line etc were perhaps not always intentionally to serve the household. However, the media
were more easily shared across individuals in a household. This is not necessarily a problem,
but all types of providers will have to solve the broader range of requirements – both from a
household and individual perspective. With the need for socializing about content, making
content consumption a shared experience is important. Technologies and services will have to
be tuned or adjusted for different segments. Pricing will be an issue – a household would
probably more easily accept new services which give them the same scale advantages as they
have had. A service like Multilink is at the centre of these market changes, and will have to
find the right position.
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3.2 Digital content – overview
The growth of digital content has been large in recent years. In later sections we will return to
the growth in digital consumption and provisioning within different media. In this section we
will give an overview of the more general trends in the digitalization of media. If not
mentioned otherwise, this chapter is based on OECD Information Technology Outlook
(2010).
Figure 3.1 Global Digital revenue shares for some content types (IFPI 2010)
The industries games and music already in 2009 collect respectively 32% and 27% (2009
numbers, IFPI 2010) of their revenues from digital content. The annual growth rates are high
also for other industries such as film, but the digital shares of total revenues are reported to be
5% or lower. Even though numbers have changed since 2009, they are developing in the
same direction however different for each industry. The games industry has experienced at
total market growth included the transmission to digital, with a high digital share jumping
from 30% in 2008 to 39% in 2010, illustrated in Figure 3.1. The music industry sees a total
market decline and digital share that grows only from 25% to 29 % from 2008 to 2010. The
overall picture is that the downturn of the music industry is continuing, e.g. in Norway where
the music market is halved from 2000 to 2010 (Gjestad 2011). The growing digital share so
far does not make up for the total downturn in the music industry. The numbers are
summarized in Table 3.1.
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Consumer spending and forecasts for content and communication services
Table 3.1Content industries, traditional and digital retail revenues 20086
(OECD 2010, IFPI 2011)
Games1
Music2
Global revenues 2008
USD 51.4 billion
USD 29.6 billion
USD 84 billion
USD 182 billion
Global market growth, 2007-08
Online revenues
18 %
USD 15.3 billion
but all new
games are
increasingly
Internet-enabled
25 %
30 %
30-32-39 %
Low but growing
for Internetenabled games
(e.g. ”server
piracy”)
–10%
USD 7.6 billion7
0%
USD 3.2 billion
–5%
USD 6 billion
22 %
25 %
25-27-29 %
High
36 %
4%
4-5-? %
Medium and
growing
9%
3%
3-4-4 %
Low
Online market growth, 2007-08
Online share in total
Online share in total: 08-09-10
Scope of unauthorised
downloading of online content
Film3
News4
Behind these growing financial numbers we find growing volumes of both provisioning and
consumption of digital content which again are reflected in the increasing bandwidth
consumption. These volumes will of course vary with different markets, but the growing
trends are similar in developed economies. Piracy and illegal downloading has of course been
a large problem for all these industries, especially for music (IFPI 2011). By 2011 the piracy
of films and TV-series are growing, and especially streaming of TV-content is a widespread
practice. Since streaming is regarded as a legal activity for the end-user, it is the uploading
and provisioning of content that is considered illegal and the focus of interest for the industry.
In the perspective of a broadband operator’s benefits from a capacity optimizing service like
Multilink, it is relevant to consider the bandwidth requirements of the different digital sectors.
In general text demands less capacity, whereas video and real-time-response demands more
both capacity and speed. News has been on the low-demanding side, music in the middle
whereas video and video games demand from high to very high bandwidth. The digital
product that has the largest share of digital revenues – games – is also the one OECD (2010)
considers demanding the most of bandwidth. This is mostly because its demands for high
speed to get the sufficient latency. According to Cisco, games are far from the capacity
requirements video puts on the Internet (Cisco 2010 a, b). Cisco forecasts on future video
capacity demand are illustrated in Figure 3.2.
6
1. Global computer and video games revenues comprise consoles and console games, PC games, online games, and mobile
phone games. Online revenues include casual online games, online subscriptions and paid downloads to computers and mobile
phones.
2. Global music revenues include physical and digital music. Online revenues include PC and mobile downloads and
subscriptions.
3. Global film and video revenues do not include television licensing. Online revenues include paid movie downloads, streaming,
and (mobile) subscriptions; they do not cover IPTV.
4. Global newspaper revenues cover advertising and circulation. Online revenues include online newspaper advertising
revenues.
7
IFPI reports a total digital music sale of USD 4.6 billion in 2010, 29% share of total, meaning about USD 15,9
billion total music industry revenues. This number for total industry revenues is significantly lower than the
OECD numbers and probably due to OECD numbers are on the retail side, while IFPI numbers are wholesale.
However, the digital share seems to be consistent across sources.
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Consumer spending and forecasts for content and communication services
Figure 3.2 Top 50 global sites by traffic volume and activity/hits (Cisco 2010)
The dominant business model for digital content on the Internet has been advertising based
revenues, e.g. news, blogs and search. Apple managed to establish a pay-per-track model for
the music industry with iTunes, and pay-per-track is still the model contributing the most to
digital music revenues (IFPI 2011). By 2011 subscription based revenues are expected to
grow in importance, e.g. with music services such as Spotify and Deezer as examples. The US
based provider of online films and TV-content – Netflix – has also managed successfully to
transform from a provider of DVD-rental through post services to digital subscription. Even
though the DVD market is falling by 5-10% the online video is still not a major share of the
total market, but the subscription model seems like a breakthrough for online video. The
computer and video games industry have been selling console games with Internet
functionality and is also to a large degree subscription based. Virtual items and micro
transactions have been a growing source of revenues for this industry, partly as a way of being
less affected by a piracy. Game platforms have traditions for a two-sided market models,
subsidizing end-user consoles and getting the main revenues from the game developers – with
a separate direct transaction between the two (Evans et al 2006). This model might be more
compatible with the Internet industry and might explain how the gaming industry has
managed to grow the total industry, increase the digital share, demand higher digital prices
and require more bandwidth and network latency/responsiveness. There are also other
business models on the Internet, some based in the sharing culture of Internet and others due
to the now large volume of users and use. Donations and voluntary contributions to services
such as Wikipedia are important, as well as User-generated content up-loaded on sites such as
YouTube. All new services striving to finally find the ultimate business model – such as
Facebook, Twitter and also Akamai– are eager to monetize their data on customer practices
for marketing purposes. The different digital content broadband business models are
summarized by OECD in Figure 3.3.
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Consumer spending and forecasts for content and communication services
Figure 3.3: Digital broadband content business models (OECD 2010)
3.3 Video content – TV and film
In order to consider the potential for content such as video we have to disclose what type of
content that hides within it. The high degree of Internet used for entertainment tells us
whether or not to expect the entertainment industry to find online customers at all. The
growing volumes of both provisioning and consumption of content illustrate that there is an
interest on the user side, and also a will to meet these needs from the providers’ side. Finally,
professional content – different from user generated content (UGC) – seems to attract
advertisers and also users have been willing to pay for video content directly. This is an
indication of a future sustainable revenue streams for video content online.
3.3.1 Digital video is entertainment
We have to recognize that for many people Internet is most of all a source for entertainment
and also socializing (Cardoso et al 2009), however varying from region to region. In Europe
the Internet traditionally has been more focused on information and communication, whereas
the Chinese focus has been completely on entertainment. The American and Australian focus
has been a mix of entertainment, communication and information. According to European
Interactive Advertising Association (EIAA 2010) the Internet continues to prove a popular
source of entertainment. One quarter of Europeans (25%) are gaming or listening to the radio
online (25%), and one third watching films, TV or video clips online (32%) at least once a
month. The use of Internet for fun is in addition to using the net for functional activities (such
as e-commerce and banking) and high levels of communication.
The Online Publishers Association in US provides an Internet Activity Index together with
Nielsen Online8. Almost 40% of the time spent online in the US has been consuming content,
i.e. news, information and entertainment. About 25% of total time is used for communities
such as Facebook and MySpace, which also include a lot of, gaming, music and video
consumption (Cisco 2010 a, Nielsen 2011). In addition about 20% of time is used for
communications, 10% for e-commerce and 5% for search. Hence, a substantial share of the
time spent online is entertainment. The users are willing to invest their time, which is a basis
8
Online Publishers Association, 2010, Internet Activity Index, http://www.online-publishers.org/internetactivity-index?dt=sharetime#end Numbers exclude .gov and .edu Web sites, and pornographic domains.
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Consumer spending and forecasts for content and communication services
for building profitable advertising business. However, a lot of the entertaining content on the
web have been user generated content uploaded e.g. on YouTube.
ComScore also conclude that entertainment is one of the drivers behind the web usage
together with portals and conversational media, illustrated in Figure 3.4 (comScore 2010).
Figure 3.4: Online categories that drive web usage (comScore 2010)
3.3.2 Digital video has become professional
The unpredictable content context has been the main obstacle for the growth of YouTube’s
advertising business, and the main reason for their recent changes of content strategy towards
professionalization of content. The creation of the US music branch of the site, VEVO, is the
most prominent example of its professionalization9. In general music videos, film trailers and
TV-clips have high scores on YouTube’s most watched listings and they have developed a
partner program to further professionalize their content (Tay 2009). YouTube is the most
watched in December 2010, VEVO third although launched only a year ago Facebook slow
growth to the sixth place of the list, and otherwise many broadcasters providing their long
form content online (Piech 2011).
Long form content providers have brought their content online, also on YouTube. According
to comScore (2010) time spent in US streaming videos has increased with 48% to 15 hours
from October 09 to 10 due to long form professional content from broadcasters. Of the top ten
video sites in US five are based in the TV-industry, indicating the influence of this content
(comScore 2011).
9
http://comingsoon.vevo.com/
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Consumer spending and forecasts for content and communication services
Numbers – Figure 3.5 – from Germany (SevenOneMedia 2009) shows that a large share of
the videos seen on web is original TV-content. Of those who watch video content online, a
third of them report that the content they watch has its origin in TV.
Figure 3.5Overview of the share of TV-content of total online video consumption
(SevenOneMedia 2009)
All in all, the notion that professional/edited content is large and growing is valid.
3.3.3 High growth in online video consumption
In most developed economies the share of the population watching online video has either
matured and come large, or are still in a high growth phase (Table 3.2).
Table 3.2 Overview of online consumption in some countries (Sources – see below)
Country
% of Internet Numbers of
population
viewers
Videos
viewed
Videos per Viewing hours per
person
person
US*, **
85%
180MM
36B
200
15,0hr
UK**
81%
35MM
6B
-
16,0hr
Japan**, ***
78%
56MM
9B
163
19,0hr
China***
76%
205MM
-
53
7,5hr
Australia***
81%
11M
-
90
7,1hr
*Piech 2011 **Benini 2010 ***comScore 2010 b
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Consumer spending and forecasts for content and communication services
According to Oswald (2009) Germans watched Online videos 1.1 hour per week in 2009,
compared to the US 5 hours per month. Finger (2009) reports that the hours of TV
consumption in Germany are 6.8 per month. By now these numbers are outdated, but still
indicate a similar level in user consumption also in Germany.
Piech describes 2006 as the year of early adopters, and 2010 as the year the late majority of
video consumers in US. Any country with a similar share of Internet penetration should
probably expect the same patterns of development. The pattern is the same across age groups,
meaning that also people older than 45 years old watch video on Internet, both in US and UK
(Piech 2011, Benini 2010). Younger people however watch more hours according to Piech’s
speech on the same numbers10.
Hours watched in the US have increased with 48% from October 2009 till October 2010, from
10.8 hours to 15 hours. The amount of videos has also increased, and minutes per video
(Piech 2011, comScore 2010). According to Piech this is due to the longform, professional
content that now has been made available on the Internet. From 2009 till 2010 broadcast sites
have increased the share of their viewer who watch video every dag from 4 to 8%. This
indicates a shift going on from sporadic viewing to a more habitual pattern. Advertising
videos accounted for 16.4% of all videos viewed and 1.6%of all minutes spent viewing video
online (comScore 2011).
In Nielsen’s11 January 2011 report on US online video usage (Figure 3.6), the usage this last
year has grown with 45%. The numbers of users grows very little, which indicate a mature
stage like comScore is indicating – however the activity among these users grows. The
numbers also reveals that although Youtube is large according to unique viewers and streams,
people spent more time watching video on professional sites such as Netflix and Hulu. People
also spend more time on a site known to provide easy access to pirated TV and film content –
i.e. Tudou.com (Wigley 2011).
Although it is certain that the growth of online web has been tremendous it is still a minor
activity compared to the amount of linear TV watched, and even recorded TV. Although the
Nielsen numbers on time used for watching video on Internet in US in general are lower than
comScore’s numbers, they are still interesting for comparison with other video watching
activities (Nielsen 2010 b). Slightly more than three hours per month is used for watching
video online, compared to 158 hours of watching TV in the home. Even comScore’s 15 hours
per month is less than 10% of total time. For our purpose this tells us something about the
scope for the potential growth of online video consumption.
10
Piech, 2011, Speech on The state of online video, comScore,
http://www.comscore.com/Press_Events/Presentations_Whitepapers/2011/The_State_of_Online_Video/%28lang
uage%29/eng-US
11
Nielsen 2011
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Consumer spending and forecasts for content and communication services
Figure 3.6 Three screen numbers – US, (Source: Nielsen Three screen report, 2010)
Nielsen has provided a global comparison of video consumption on different screens. Again it
has to be said that these numbers are different from comScore, but still very interesting when
it comes to comparing different countries, and more details into the European market.
However, also Nielsen reports that globally more than 70% of online consumers watch video
on Internet (Nielsen 2010). However, less online users in Europe watch online video
compared to the rest of the world, as the index in Figure 3.7 illustrates. Europe under-indexes
for online video penetration by 23 points, while North America under-indexes by 11. Nielsen
has performed a metering of online video sites that confirm the impression that European
countries and US underperform on the index.
Figure 3.7 Index of Online Video Usage by market, Nielsen2010
From the Nielsen index we find that US, UK and Japan under-indexes. ComScore’s numbers
on these countries where more similar, and it is not straightforward to explain this difference.
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Consumer spending and forecasts for content and communication services
However, video consumption seems to be a practice that follows the Internet penetration and
general usage. According to comScore the driver of the increase in consumption in US has
been available longform content from broadcasters, hence we should expect such content to
increase video viewing in Europe. According to Nielsen the access to content from traditional
TV-networks has been restricted – e.g. in Germany – and might explain the differences. In
Asia and especially China, the high degree of video viewing might be due to the pirated
content that used to be on sites like tudou.com and youku.com (Wigley 2011). These sites
accounted for 82% of time spent watching videos online in 2010 in China (Xiang 2010). All
in all we should expect video watching to grow into maturity by share of users, and probably
a continuous growth in hours in all markets.
Another sign of growth in video consumption is the popularity of Netflix in the US, providing
a subscription based service for streamed online films and TV-series. Netflix has by the end
of 2010 more than 20 million individual subscribers, and is recognized to account for about
20% of peak downstream last-mile Internet traffic Internet traffic in North America (Netflix
2011, Sandvine 2010). Cisco reports that globally 26% of all broadband traffic is online
video (includes streaming video, flash and Internet TV), and that one-third of the top 50 sites
by volume are video sites. Among the top sites by traffic are MySpace and Facebook video
(Cisco 2010).
Based in France we find Dailymotion – now acquired by Orange – as the second largest video
site worldwide with a billion videos watched each month and 93 million unique visitors. 80%
of its users are located outside France. Dailymotion and Orange hope to grow in Europe using
the presence of the Orange group in 32 countries (Orange 2011).
Such numbers indicate large consumption volumes, and also an availability of video content
worldwide. Cisco (2010 b) predicts that the global online video growth will continue. Global
IP traffic will quadruple from 2009 to 2014, to a large degree due to the expected growth in
online video. There will be a growth all over the world, however somewhat steeper in Europe
probably due to some countries lagging behind in present video consumption (e.g. Italy). The
global online community will surpass one billion by 2014. Also interesting, almost 66 percent
of the world’s mobile data traffic will be video by 2014.
Some of Cisco global forecast video highlights:
 The sum of all forms of video (TV, video on demand, Internet, and P2P) will continue to
exceed 91 percent of global consumer traffic by 2014. Internet video alone will account
for 57 percent of all consumer Internet traffic in 2014.
 Advanced Internet video (3D and HD) will increase 23-fold between 2009 and 2014. By
2014, 3D and HD Internet video will comprise 46 percent of consumer Internet video
traffic.
 Real-time video is growing in importance. By 2014, Internet TV will be over 8 percent of
consumer Internet traffic, and ambient video will be an additional 5 percent of consumer
Internet traffic. Live TV has gained substantial ground in the past few years. Globally,
P2P TV is now over 280 petabytes per month.
 Video-on-demand (VoD) traffic will double every two and a half years through 2014.
Consumer IPTV and CATV traffic will grow at a 33 percent CAGR between 2009 and
2014.
3.3.4 High growth in online provisioning of content
From 2006 till 2010 the number of videos uploaded on the Internet has increased with 600%
according to comScore (2011), from 63 billion videos to 441 billion videos. Youtube
continues to offer more and more content to its users (YouTube). By October 2010 35 hours
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Consumer spending and forecasts for content and communication services
of video is uploaded to YouTube every minute, shown in Figure 3.8. Even on YouTube
professional content is very popular, with music videos and film trailers as reoccurring on the
top-ten list. It is also a lot of content that origins in TV-shows, with TheXFactorUK and BBC
as examples of highly exposed YouTube partners.
Figure 3.8 YouTube upload of videos each minute (YouTube 2010)
In US the TV-industry is commercial, not supported from public licences. Still a large share
of the content becomes available online, both on the networks homepages and through
aggregators like Hulu (Guillermo 2010).




90% of shows became available online
50% of episodes came online within a day of their original air date
60% of episodes went offline within three weeks of their original air date
Free broadcast content is only available online for a limited time.
The TV-content available in US is known and popular across the world. In the local US
market the TV industry can effectively manage the interplay between linear and online TV, to
the benefit of consumers and providers. For the popular TV content the reselling rights
become a challenge in other countries with regards to provide both linear and online rights,
and widespread pirated content available.
Also the online video service Netflix has become an important provider of TV-series and
films in the US, by the end of 2010 with more than 20 million subscribers in US and Canada
and a high growth (Netflix 2011). Netflix is long established in postal video subscriptions,
and has transformed its business into a all- you-can-eat subscription on the Internet. 20
percent of all content streamed in the US in November 2010 (Sandvine 2010) was due to
Netflix. So far Netflix regard itself as a complement to the traditional TV-industries, however
competing with the physical rental DVD business and perhaps such as the premium Huluservice. Either way, its success has fuelled the debate about how OTT services challenge both
the traditional TV-distributors as well as IAPs who have to carry the demand for capacity.
Netflix also reports on new content included in their catalogues. This, growth in subscribers
as well as the reported usage volume is signs of a growth in the video industry.
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Public TV broadcasters have a strong position in both UK and Norway. In these countries, as
well as in Germany, content has enthusiastically been provided on to the Internet, based on
the mandate of being a public broadcaster. Copyright regimes for purchased content limit the
Internet distribution, but content controlled by the broadcasters is as a rule published online.
Commercial broadcasters have been sceptical to these practices of free flow of content, due to
their own challenges of finding sustainable business models for Internet distribution. The
different commercial broadcasters face this challenge in a number of ways. Some replicate the
public broadcasters and put all their content free out on the web (e.g. TV3 Norway), while
others strictly keep it within subscription walls (e.g. TV 2 Norway) or they charge on a payper-view basis (e.g. TVNorge Norway). Time will show how business models for provisioned
content eventually end. It is however interesting to observe that many US-based commercial
broadcasters so far have chosen to publish a lot of content on the Internet. The main reason
for this is that there is a large degree of complementarity between content on the traditional
TV and the web, mainly due to the catch-up and timeshift practices appreciated by viewers12.
There is no doubt that the provisioning of content has grown dramatically. The volume of
consumption is as we have shown in other chapters, to a large degree attached to the content
that so far is freely available. This is a sign of the consumers’ willingness to invest time and
involvement with video content on the Internet, in addition to and complement to time on
traditional TV. Even though we may see different dominant business models we should
expect a high volume of both content provisioning and consumption. Consumers’ attention is
the critical parameter in the TV industry due to the advertising business model, and the
industry will find solutions where this advantage is balanced with other revenue sources.
3.3.5 Online video, business models and market share
In former chapters we have documented the large provisioning and consumption of online
video, and a recent growth to a large degree driven by longform professional video. Still
OECD and IFPI (2010) report that digital content accounts for only 5% of the total market. As
a comparison Netflix relate its 2010 results of 2,163M$13 to the US 2009 66B$14 TV
subscription home market, see for instance Figure 3.9. This leaves Netflix with three percent
of the total market, however a substantially larger share when compared to the premium
market. Netflix has by January 2011 20 million individual subscribers compared to the 100
million household TV subscribers in the US, which is a substantial market penetration. The
global film entertainment market is about 88B$ (OECD), and North America has about 38B$
of this in 2008. The home video market is about 70% of this, including both physical DVDs
and online films. We assume that a small growth towards 2010, and subtracting Canada
leaves us with about 38B$ also in 2010. This means that Netflix accounts for about 5,6%
market share of the US film market.
12
References: Hallingby&Jakobsen 2011, Due, Hallingby, Krogstad 2011, Nielsen 2010 b
13
(Netflix 2011) Canada is included in these numbers, but account for only about 50M$.
14
Information on Netflix site with referral to numbers from PriceWaterhouseCoopers (retrieved at
ir.netflix.com/# 23 January 2011) – confer Figure 3.9.
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Consumer spending and forecasts for content and communication services
Figure 3.9: US TV-subscription market (Source: Netflix and PriceWaterhouseCoopers
(retrieved at ir.netflix.com/# 23 January 2011))
Predictions on the TV-market so far do not expect a decrease in total revenues even in US, but
a small stable growth including the new digital revenues. Advertising revenues in the TVbusiness are not included in the above numbers. Compared to the music industry which has
experienced a large decrease in total revenues, this is fairly optimistic. But even though there
was a lot of discussion on “cord-cutting” in 201015, there has been no clear proof for
substitution. Even Netflix claim themselves to be a complement to other video formats. The
industry should probably expect some sort of reallocating of preferred watcher practices and
hence influential providers, but it is possible that all in all the new digital opportunities will
extend the total market.
The dominant business models within digital video have been either as an extended service to
traditional broadcasters, or advertising. To some degree, best exemplified with Netflix, the
subscription model has grown in significance. The industry, especially the ones opposing the
incumbents are very optimistic on behalf of this model. Netflix’ digital subscription today
(digital only) is a one stream only service, directed at the individual. How to combine the
individual and household offer is a future challenge, and Netflix plans to provide a household
subscription at a higher price. The tension between individual and household subscription and
practices will be a challenge even for services such as Multilink, especially when
subscriptions are attached to individual services such as a mobile.
The advertising spending attached to online videos in US in 2010 was 1,440M$ (Piech 2011),
about two thirds of the 2,163M$ Netflix subscription business. These two revenue streams
(3,603M$) constitute respectively about 5.5% and 9.5% of the 66B$ TV subscription
industry, and 38B$ film industry. If we recognize e.g. Netflix provides both film and TV
15
See for instance the series of cord-cutting articles at Gigaom.com: http://gigaom.com/video/cord-cutterssurvival-stories-netflix-changedeverything/?utm_source=GigaOM+Daily+Newsletters&utm_campaign=5f58aeea05-c%3Avid+d%3A0124&utm_medium=email
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content we might add the two industries, and the digital share then is about 3,5%. There is
probably some other online on demand businesses also contributing to digital content – e.g.
iTunes and Amazon – and Netflix’ high growth might not have been taken into predictions as
such from OECD and IFPI. The digital revenue share is therefore probably somewhere
between 5% and 15% percent as of 2011.
We should also expect the digital video content industry to grow further. E.g. Netflix expects
a substantial growth in its business in coming years. The advertising spending has grown
344% in the years between 2006 and 2010. Despite this growth Piech (2011) find that online
video has much unused potential when it comes to monetization. Compared to the number of
available videos which has grown with 600% in the same period – included an increasing
share of professional content – the price per video has decreased. In addition the time share
spent viewing ads online is only 1.6%, compared to 20-30% on TV. Although many people
appreciate online videos without ads, there still are room for capturing some time and money
with the advertising model. All in all this indicates a continued growing revenue stream for
online video, and maybe even an overall growing market extended by these new
opportunities.
The US numbers and situation is not exactly the same or at the same development phase in
Europe, but in developed economies with a high Internet penetration we should expect the
same trends. As we have mentioned France Telecom has acquired a large video aggregator,
and especially in UK many companies are very active online, e.g. bSkyb and BBC. We do not
have explicit numbers on online video advertising spending for the different European
countries, e.g. in Norway only Internet advertising spending as such are released. In China – a
not so developed economy, with lower Internet penetration – online video advertising
spending was 86,5M$ in Q1 2010, i.e. probably at least 340M$ in 2010 total. The numbers are
steadily increasing and accounted for more than 50% of the total online advertising (Xiang
2010).
All in all the film and TV market has not transformed into a large online business, between 510% of the revenues are digital. We see a continued interest in traditional platforms together
with new, and small yearly growth. However, recently some entrants – e.g. Netflix in US –
have managed to build a large online subscriber base for streaming of films with subsequent
revenues. They indicate a large future digital growth. Other incumbent TV actors provide
content as an add-on to their existing offerings, already paid for external to the Internet.
Although some predict that the TV industry will meet a meltdown equivalent to the music
industry, this is so far not the case. We should still expect fierce competition among actors,
new entrants replacing existing, new types of online positions and refining of content and
versioning of content towards different segments. The result might still be that the level of
revenues is kept, however with a large digital share.
3.4 Music
The digitalization of the music market has come a long way, and it has meant a decrease in
the overall market (IFPI 2011)16. The digital business is growing, however so far has not
replaced the traditional revenue streams. The broadband capacity requirements for music do
not seem too extensive, even though people are supposed to listen to more music than ever
before. Pay-per-tune is still the dominant pricing model, but both advertising and subscription
models have been tested. Also extensive cooperation with digital distribution partners has
been tested by the music industry.
16
Numbers in this chapter on music are from IFPI Digital music report 2011 when no other source given.
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Consumer spending and forecasts for content and communication services
3.4.1 High growth in consumption of music
Digital music is consumed over many different devices and type of services. The iPod and
music enabled mobiles have been important, but services such as music videos from VEVO
and ad based music streaming Spotify are consumed on the PC. 16.5 of Internet users 13+ in
US are purchasing digital music. In UK 14% of Internet users aged 16-54 frequently purchase
music online. In Norway one million – one fifth of the population – had joined the digital
streaming service Spotify, either the ad based or premium model (Aftenposten 2011).
Throughout its European footprint Spotify has 750,000 paying subscribers, and 10 million
users of the advertising based service (Malik, 2010).
The different user practices and devices will vary with both user preferences, functionality
with the services and financial models. Living rooms and car are common places to listen to
music, and the PC to a smaller degree, as in Figure 3.10. All these settings are more
physically fixed than the iPod and mobile. The music industry expects and eager for new
services and business models to be combined with other fixed services such as Internet and
TV access. The ultimate solutions will be the combination of such fixed settings and mobile
devices.
Figure 3.10 How and where do people listen to music (IFPI 2011)
Download of music – e.g. iTunes – is still the dominant way of purchasing music and grew
throughout 2010, and the digital album increases more than singles. Online music videos are
combining the businesses of music and video. Music videos account for 43% of the online
videos watched in the top three European markets (UK, Germany and France) or some 8.7
billion videos watched per month. It is mainly ad-based business models such as YouTube
and VEVO.
It is a part of the consumption picture that people to a large degree consume music illegally.
Across Europe 23% of active Internet users visited unlicensed music services during one
month, in Spain this number is 45%. In UK it is found that 76% of all music obtained – by
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Consumer spending and forecasts for content and communication services
yourself or you got it from your peers – is unlicensed music. The main reason for people to
use pirated music content is that it is free, and not elements such as choice and functionality.
According to Cisco online music is not among the most capacity demanding activities on the
Internet (Cisco 2010a, b). Online music accounts for only 2% of the top 50 global sites by
traffic volume, compared to online video with 36%. However, music requires more traffic
volume than playing games.
3.4.2 Broad supply of digital music
Worldwide there are more than 400 music services licensing 13 million tracks, many
operating in Europe across countries. In France there were 39 different services in 2010, in
Spain 30, in Norway 15 and Israel one. The numbers and competition vary across countries.
These services are of course very different, both when it comes to type of service and business
model. Spotify is the biggest digital retailer in Norway and Sweden, and number two across
Europe. In France Deezer is used by more than 13% of active Internet users.
According to OECD (2010) there are still large shares of the available recordings that are not
included in streaming services and some are withheld due to copyright concerns, e.g. Beatles.
Although it is a tendency to consume mostly the same mainstream content, we should expect
an extension of catalogues to increase volumes.
3.4.3 Online music, business models and market share
Within the music industry the market for physical units has steadily decreased the last years,
from 2004 to 2010 there was a 31% decline in the global recorded music market. The global
(wholesale) music market according to IFPI (2011) is 15.9B$17, digital music accounting for
29% or 4.6B$. The global growth of digital music revenues in 2010 were 6%. The Norwegian
market was halved the last ten years18, dropped 15% in 2010, and has now a digital share of
about 28% of the total 503MNOK19 market. The digital growth however from 09-10 was
60%20, a lot higher than global growth. In Spain music sales fell around 55% between 2005
and 2010, in 2010 alone the market fell by 22%. US is the largest digital music market in the
world, with almost half of music revenues being digital. The growth was less than 10%, due
to the steep decline in e.g. ringtone business. In Europe the digital growth was almost 20%,
also way higher than the global average, and the digital share about 20%. The growth in
Europe came from download stores, but also subscription services such as Spotify. There are
different contexts in these markets that explain the differences in digital share and growth
around the world, e.g. Internet and device penetration, the local structure of record industry
and local music initiatives. With a continued high digital growth the digital music market will
be able to re-establish the music industry at the same financial level as ten years ago. In
Norway it is the market for music subscription services that accounts for the most of the
growth, with more than a tenfold from 3.5MNOK in 2009 to 44MNOK in 2010. About
17
IFPI reports a total digital music sale of USD 4,6 billion in 2010, 29% share of total, meaning about USD 15,9
billion total music industry revenues. This is significantly lower than the OECD numbers and probably due to
OECD numbers are on the retail side, while IFPI numbers are wholesale. However, the digital share seems to be
consistent across sources.
18
Gjestad 2011
19
IFPI Norway 2010, 2010 statistics
20
IFPI Norway 2010, 2010 statistics
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Consumer spending and forecasts for content and communication services
75 000 people of a five million population subscribed to a streaming service at a wholesale
price of NOK 50/month21.
There is no clear evidence that the decline in the music recording industry has been
compensated by other complementary music businesses such as touring, even though the
music industry work hard to extend their revenue streams. The live performance market has
decreased with 12% for the top 50 tours. Established artist have more opportunities to make
money on tours, but for the less known and new artists it is not reported to be more lucrative
than before. The decreased investment in new artists due to the total downturn of the music
industry has led to subsequent fall in newcomers both in the recording business and on tours.
Since the additional digital music market still is in an introduction phase, the industry has to
identify and grow all other opportunities to build sustainable revenue streams and be able to
invest.
There are four prevailing business models for digital music at the moment:
 Pay-per-tune – downloads: albums and singles
 Advertising – streaming music only, or music videos
 Subscription models
 Bundling models – IAP, TV, devices
Digital consumption take different forms, pay-per-tune with iTunes was the first one and in
2010 still accounting for the majority of digital revenues. Advertising has been important for
the music industry in recent years. For services such as YouTube music videos have been
professional and predictable enough to attract advertisers. The main reason for YouTube to
isolate the music video service VEVO is to monetize this content, and perhaps the driving
factor for YouTube’s rumoured doubling of revenues in 2010 (Lawler 2011). The business
models of streaming have not yet proven a success for the providers, although the use of
especially the ad-based services has been large. However, Spotify in Europe is considered to
have good opportunities to deliver positive results for 2010, at least 2011 with a healthy
growth of paying subscribers (Malik, 2010). As we have indicated the Norwegian wholesale
numbers are growing at a very high rate, and accordingly the number of subscribers. For
comparison, Spotify revenues are estimated to be about 134M$ for 2010 compared to digital
wholesale revenues globally of 4,6B$ (or about the double in retail numbers – confer OECD
numbers). All in all we must expect a tremendous growth of digital music subscriptions to
contribute substantially to both the digital and total music market.
Streaming combined with either a direct end-user subscription or some Internet access are
expected to be important forms of music distribution and revenue streams in times to come. A
combination with the IAPs need for churn reduction and handset manufacturers’ aim to
become Internet companies might increase the possibility. Although the bundled models
might fuel streaming services such as Spotify, it also blurs the complete picture of size and
development of the other business models for digital paid music. In February 2011 the
Norwegian TV-distributor Canal digital decided to include the music streaming service WiMP
in the TV-subscription without any additional costs (Canal Digital 2011). Altogether there are
many signs of a continued growth of provisioning of digital music, as well as consumption of
it.
21
IFPI Norway estimates the wholesale market to be half of the retail market. Gjestad, RH. 2011. Platesalget
halvert på 10 år. Aftenposten. 11.01.11. http://www.aftenposten.no/kul_und/article3984181.ece
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The sustainability of digital music services is also dependent on what the artists in the end
ends up getting. It is observed that streaming services so far does not leave the artist with a lot
of revenues (informationisbeatuiful.com 2010) related to volume of consumption needed to
reach a certain income level. It might be argued that artist do not have any better options than
releasing their music freely onto online music services, and even consider this as advertising
for their products. The dynamic between content right costs (artist income) and how artists
use streaming services for publishing music will influence the streaming service’s possibility
to sustain a decent level for subscriptions and hence their profitability.
Of course pirated content – for free – is a phenomenon that puts price pressure on the music
market. The concept of a very competitive market is met for music on the Internet - easy to
copy, available and with full information.
Digital music might require broadband (included mobile broadband) capacity that eventually
will have a cost side. However, according to Cisco the music streaming capacity requirements
are not overwhelming compared to video, e.g. music videos (Cisco 2010a, b). In addition we
can expect effective offline service to offload broadband networks.
The music industry has been through ten years of digitalization and revenue decrease, and is
not able invest the same amount in the core of the business – the artists. However, there are
positive signs, and the most important is the consistent interest in and demand for music. Also
there are examples of business models for provisioning of music that may stop the downturn
and slowly gain momentum. The subscription models for large catalogs of music, in parallel
with partnerships with Internet and content access providers have brought hope for regaining
revenues. Pay-per-tune is still the most common model, and it remains to be seen how these
models will evolve as complements or satisfy different needs.
3.5 Games
25% of European adults play games, almost 60 % of young people. 70% played online games,
however only 20% paying for online games. Still, the game industry seems to be prepared for
a complete transformation to online games. The total revenues grow, and digital share
accounts for a large and growing share. The sustainability and potential future growth must be
found in online games with new types of business models, e.g. microtransactions, virtual
goods and games as a service. The industry has interesting opportunities in extending the
share of paying gamers with finetuned business models and prices.
3.5.1 High level and growth in consumption of online games
ISFE (International Software Federation of Europe, 2010) has conducted a large study on
gaming practices across Europe and unless otherwise mentioned this will be the basis for our
documentation on user practices with online games. The data from eight countries22 surveyed
are used to estimate additional 10 European countries23. Gamers of the age 16 and up where
surveyed, which means that a lot of younger gamers’ practices are not included in these
results.
24.4% of adults played games the last six months, a total of 79.2 million gamers or 95.2 in the
extended Europe. 57% of young people play games, and as many as 29% of 30-49 years old.
32% of the gamers are rather committed, leaving us with a rather large group that are
occasional players. The more committed and younger males use more hours and money for
22
Countries included in the survey are: UK, France, Germany, Italy, Spain, Sweden, Netherlands, Poland
23
Countries also surveyed and/or where the results from other countries are used for estimates: Norway, Finland,
Denmark, Belgium, Switzerland, Austria, Latvia, Czech Republic, Hungary, Portugal.
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Consumer spending and forecasts for content and communication services
gaming. In Italy and Poland a large proportion of very committed gamers use more hours but
buy fewer games, probably due to lower budgets.
The degree of commitment is among other things based on hours used for gaming. The
patterns vary for how and how long time games are played. Of those playing games there is a
larger share who are not regular players, and who play on other devices and contexts. 76% of
gamers play less than five hours a week, and do not seem very committed to this pastime
activity. The remaining 25 % that play more than five hours a week are more likely to play
strategic types of games, on a PC or specialized devices such as PS3. This pattern matches the
growing popularity of casual and social games on both the PC and other devices. In the US
27% of the online audience is expected to play at least one game on a social network in 2011,
and this number will grow further (eMarketer.com 2011).
The most popular system for games, i.e. the system used most often, is the PC – see Figure
3.11. For the more committed gamers the specialized systems are somewhat more popular but
not as popular as the PC. This is due to their higher time consumption with such systems.
Figure 3.11 Three most popular systems by region (ISFE 2010)
When asked which system people use most often for playing, the category “Other phone”
ranks three in all Europe, and keeps ranking high with the different specialized user groups. In
many of the European countries the mobile is a very important platform for gaming, e.g.
Spain and Portugal. This indicates a practice of using the mobile as a gaming platform, more
common than e.g. the handy Gameboy. Even the handheld devices (including both mobile and
other systems) are mostly played at home. However it is common to play mobile devices
when travelling or when you are waiting for someone. In general most people play because it
is fun, to pass time and relax. For the handheld games the number one reason for playing is to
pass time, and this matches the context these games often are played, “waiting for someone”.
To socialize is among many other lower rated reasons, although “to chat or spend time with
friends” is the number one favourite activity for gamers when not gaming.
Throughout Europe 68% of gamers watch TV more than six hours during the week, which
makes this the activity they use most time for beside surfing the Internet and socializing.
About half of all gamers use their consoles for watching DVDs, listening to music and watch
films. This indicates that gamers are high volume consumers of content across media, and
used to utilizing the systems they operate for many purposes.
71% of gamers played some online game the past three months. 68% played free online
games, illustrated in Figure 3.12. Free games on games websites (55%) and social networking
sites (37%) are most popular online games, and respectively Puzzle, Board, Gameshow,
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Consumer spending and forecasts for content and communication services
Trivia and Card games – the casual sort of games – are the most played online games. These
are played by 58%, but the categories Action, Sport and Strategy, and minigames are also
played by about 50% of gamers. Massively Multiplayer Online games (MMO games) are
played by 26%. 68% play by themselves. 95% of online gamers play games online at home.
When online gamers play with others, 20 % play with people in the same room and in more
than 50% of the occasions they are present via a network.
Figure 3.12 Online gaming activity by region (ISFE, 2010)
Although already being a large digital industry games are not requiring a lot of network
capacity according to Cisco (2010 a, b). OECD claims that games have medium to high
capacity demands, based on the latency requirements – requirement s on a sufficient speed for
perceived real-time responses.
3.5.2 Online games, business models and market share
The games industry so far seem to have established a sound digital business, extending the
total market. PC games are steadily decreasing, console games growing more slowly, and
online and wireless game growing at a high rate (Isfe-eu.org 2011). Hence online games so far
drive both the total market and contribute with an ever increasing digital share, illustrated in
Figure 3.13.
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Consumer spending and forecasts for content and communication services
Figure 3.13 The world gaming market by segment (Isfe-eu.org 2011)
According to OECD (2010) the global gaming industry accounted for 51.4B$ in 2008, with a
global 18% total growth, and about 30% digital share. By 2010 the digital share is raised to
39% according to IFPI (2011). Takahashi (2010) reports that the games industry is expected
to reach 70B$ by 2015 (console, portable, PC, online), up from 60.4B$ in 2009. The growth
slows down and the industry grows only 16% on the whole this period. Adding 4% growth to
2009 numbers 60.4B$ gives us 62.8B$, and 39% of this is 24.5B$ online games revenues in
2010. The slow growth is due to expected lower prices, and together with a growing number
of users this implies lower revenues per user. Also in the game industry spending patterns will
change away from packaged products to online services and subscription models. In the short
run online models will bring in less money, but in the long run continue to increase the total
market.
Nicholas Levell estimated the 2010 online revenues to be 20B$ in 2010 (Levell 2010). At this
high level estimate, this number must be considered in line with the 24.5B$ referred above.
Of more interest is Levell’s more specific numbers on online revenues in the traditional
gaming sector, and in new types of gaming.
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Consumer spending and forecasts for content and communication services
Table 3.3 Online game forecast, based on input from Colin Sebastian, Lazard Capital markets
(Levell 2010)
The numbers on online gaming in Table 3.3 explain in more detail the steep growth in this
sector. Levell makes the point that New Gaming Online is twice as big as Old Gaming
Online. The Old Gaming Online regime is about building games that originally are products
that need to be shipped, and apply them to the online world. This category includes World of
Warcraft, Iphone games, Xbox Live etc. New Gaming is the categories China Online, Korea
Online, RoW, virtual worlds, social networking, casual games and EA digital. The differ by
being a service, not based in a product.To predict the future growth and digital share and
success it is necessary to understand the interplay between old and new types of products. It is
uncertain whether traditional games will continue to find online activity as a complement
extending the market, or the New Gaming regime is a substitute to at least the business model.
China is large on online gaming. Tencent alone will account for a total revenue between 2.5
and 3B$ in 2010, with a large share from end-users paying for New Gaming Online (Tencent
2010). According to Levell virtual goods accounts for about 30% of the online market, and
decreasing. This means that other forms of online business models are growing at a higher
pace. Free-to-play games, games as a service and microtransactions, are the suggested
business model of the future, i.e. subscription based games such as World of Warcraft will
decrease their dominance. The reasons suggested for this are based in users’ shifting playing
preferences, and the individual ability and willingness to pay for playing the many games they
relate to (Levell 2009).
ISFE (2010) reports in detail on surveyed purchasing practices among gamers.

Almost 40% of people playing games have not bought or been given a game for
themselves in the last 12 months, they are playing the games others have bought
39
MARCH D3.5




Consumer spending and forecasts for content and communication services
14% of Gamers are buying more than 3 games a year and together this group account for
56% of all games purchases
Numbers of purchases are highest in the UFIGS24 countries: These range from 2.7 games
per gamer in the UK to 1.4 games per gamer in North Eastern Europe
Only 40% of the games bought are bought new/at full price (bought on sale or second
hand)
19% of gamers paid for online games. Games where you have to pay for software and
then play online are the most prevalent form of paid games – 14% has done this. 6% has
paid subscriptions for games such as World of Warcraft, and 7% has used pay per play
models.
Hence the share prepared to somehow pay for online games is potentially higher than the 6%
that subscribed to an online game.
Summed up the game industry seems to be prepared for a complete transformation to online
games. The total revenues grow, and digital share accounts for a large and growing share.
This is a story of how traditional products successfully have adjusted to the Internet. Some of
the market tension is between new and old online games. The sustainability and potential
future growth must be found in online games with new types of business models, e.g.
microtransactions, virtual goods and games as a service (as opposed to subscription models).
The industry should extend the share of paying gamers with finetuned business models and
prices.
3.6 Summary online revenues and business models
When examining different types of digital content markets we find indications of future
sustainable online business. The music industry still need several years and structural changes
to prove it has gained momentum. The game industry has already proved to transform and
grow at the same time. The large video industry – film and TV – has potential for a successful
transformation. The most promising indications are the large volume of both consumption and
provisioning of online video, making Internet into a platform for professional entertainment.
Our conclusion is that there also in future will be demand for, and willingness to pay for
content. We are more uncertain on which business models, actors, market structures and
alliances that will shape the future industry.
The music industry has been through ten years of digitalization and revenue decrease, and is
not able invest the same amount in the core of the business – the artists. The digital share is by
2010 29%, growing by more than 20% worldwide. However, there are positive signs, and the
most important is the consistent interest in and demand for music. Also there are examples of
business models for provisioning of music that may stop the downturn and slowly gain
momentum. The subscription models for large catalogues of music, in parallel with
partnerships with Internet and content access providers have brought hope for regaining
revenues. Pay-per-tune is still the most common model, and it remains to be seen how these
models will evolve as complements or satisfy different needs.
Summed up the game industry seems to be prepared for a complete transformation to online
games. The total revenues grow worldwide, and digital share accounts for 39% and grows by
25%. This is a story of how traditional products successfully have adjusted to the Internet.
Some of the market tension is between new and old online games. The sustainability and
potential future growth must be found in online games with new types of business models,
24
UFIGS countries in ISFE (2010): UK, France, Italy, Germany, Spain/Portugal
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Consumer spending and forecasts for content and communication services
e.g. microtransactions, virtual goods and games as a service (as opposed to subscription
models).
All in all the film and TV market has not transformed into a large online business, and
probably between 5-15% of the revenues are digital. The growth is higher for this industry,
estimated to be at least 36% worldwide. We see a continued interest in traditional platforms
together with new, and small total yearly growth. However, recently some entrants – e.g.
Netflix in US – have managed to build a large online subscriber base for streaming of films
with subsequent revenues. They indicate a large future digital growth. Other incumbent TV
actors provide content as an add-on to their existing offerings, already paid for external to the
Internet. Although some predict that the TV industry will meet a meltdown equivalent to the
music industry, this is so far not the case. We should still expect fierce competition among
actors, new entrants replacing existing, new types of online positions and refining of content
and versioning of content towards different segments. The result might still be that the level
of revenues is kept, however with a large digital share.
When we look into the existing business models for paid content they are different across
media verticals. Music is slowly building subscription models but still collect most of the
revenues from sales of single tunes. TV-content online has mainly been ad-financed, but
providers with subscription models are gaining market shares. The games industry has come a
long way with sales of games with Internet functionality and subscription; however models
based on micro transactions are growing.
It is a paradox that one model – subscription – is regarded as promising for one type of
content and about to be left for another. We might find some of the answer in Evans et al’s
(2006) explanation of how to know how to balance price between end-users and contentproviders in a two-sided market. Whether the end-user or the content provider pay depends on
who “cares” the most, and on the end-user’s demand for content variety in time and scope.
Put simply, end-user’s demand for variety and content provider’s eagerness to access endusers are compatible with microtransactions directly between end-user and content provider,
enabled by an operator/platform charging the content provider. On the other hand, the
eagerness of end-user to reach certain content providers and less need for variety (between
providers) is compatible with more long term pricing models, i.e. subscriptions.
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Consumer spending and forecasts for content and communication services
4 Consumer spending and forecasts
4.1 Western European market idiosyncrasy
This chapter examines new potential revenue streams for the fixed and mobile broadband
market based on household spending. Detailed expenditure data up to 2009 is presented for
Norway (Norwegian statistics. 2010). The data is classified according to Eurostat COICOP
(Eurostat 2008 a). In addition COICOP data is shown up to 2005 for Western European
countries (Eurostat 2008 b). The COICOP data base will be updated with sampling survey
data for 2010, but still only data up to 2005 are available. The Norwegian data which covers
the period 2001 – 2009, will be used to give indications of the future development in Western
Europe.
The COICOP data representing the evolution of household spending have been analysed.
Especially, new services have been classified and a framework for forecasting models for
potential new broadband revenues has been developed. The chapter documents substantial
potential revenue possibilities for the mobile and fixed broadband market.
The Western European mobile and fixed network markets have grown significantly during the
last years. Several drivers have initiated the very strong growth and new drivers are initiated.
Distribution of network based broadband digital content is in a growth phase.
The analysis and the results in this chapter concentrate mainly on the residential broadband
market. The residential market is also the dominant part of the broadband market today
regarding both accumulated traffic, number of accesses and revenue.
The main part of the paper analyses the evolution of the household spending for Western
European countries. The data collection process has been difficult because the needed detailed
spending data cannot be extracted from the usual national statistics.
It is natural to analyse the spending budget for households in order to estimate the revenue
potential for broadband content both for fixed network broadband services and mobile
broadband services. The hypothesis is: Part of the spending categories, which the household
now pay for, will in the future be partially substituted by use of services in the mobile and
fixed broadband networks. The estimated potential will be an upper limit for a long-term
evolution. It is important to know that the identified revenue potentials will be shared between
different players in the value chain: content creators, content brokers, service providers,
network operators and others.
To make this evolution a success, it is important to develop the right business models between
the players and also implement tariff procedures and principles for sharing the added
broadband value among players.
4.2 Western Europe and the demography
Western Europe is one of the most advanced telecommunications areas. Mobile networks was
already introduced in the Nordic countries in 1981(NMT) and the fixed mobile and broadband
penetration is for the moment reasonably high and for some countries the fixed broadband
penetration are approaching saturation.
In this deliverable Western Europe is defined as Belgium, Denmark, Germany, Greece, Spain,
France, Ireland, Italy, Luxembourg, Netherlands, Austria, Portugal, Finland, Sweden, United
Kingdom (EU15) and Iceland, Norway and Switzerland.
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Consumer spending and forecasts for content and communication services
The population in 2010 is 411 millions and the number of households is 178 millions
according to European statistics (Eurostat. 2010).
Table 4.1 shows the population and population increase during the last 10 years and number
of households and persons per household in 2010.
Table 4.1 Number of inhabitants 2000 – 2010 and number of households 2010 and number of
persons per household in 2010.
Number of inhabitants in millions (Population)
Year
Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Iceland
Norway
Switzerland
Western Europe
2000
10,24
5,33
82,16
10,90
40,05
60,55
3,78
56,92
0,43
15,86
8,00
10,20
5,17
8,86
58,79
0,28
4,48
7,16
389,17
2002
10,31
5,37
82,44
10,97
40,96
61,42
3,90
56,99
0,44
16,11
8,06
10,33
5,19
8,91
59,22
0,29
4,52
7,26
392,70
2004
10,40
5,40
82,53
11,04
42,35
62,29
4,03
57,89
0,45
16,26
8,14
10,47
5,22
8,98
59,70
0,29
4,58
7,36
397,37
2006
10,51
5,43
82,44
11,13
43,76
63,00
4,21
58,75
0,47
16,33
8,25
10,57
5,26
9,05
60,41
0,30
4,64
7,46
401,96
2008
10,67
5,48
82,22
11,21
45,28
64,00
4,45
59,62
0,48
16,41
8,32
10,62
5,30
9,18
61,19
0,32
4,74
7,59
407,08
No of persons
per houshold
2010
2010
10,84
2,3
5,53
2,29
81,80
2,09
11,31
2,49
45,99
2,73
64,71
2,26
4,47
2,63
60,34
2,46
0,50
2,42
16,57
2,27
8,38
2,34
10,64
2,65
5,35
2,02
9,34
2,06
62,01
2,23
0,32
2,2
4,86
2,19
7,79
2,18
410,75
2,30
Number of households in millions
2010
4,71
2,42
39,14
4,54
16,85
28,63
1,70
24,53
0,21
7,30
3,58
4,01
2,65
4,53
27,81
0,32
2,22
3,57
178,72
The table shows that there has been a stable increase in all Western European countries the
last years. The number of persons per households is mainly increasing and also the number of
households. The dominating countries are Germany, France, United Kingdom and Italy.
Figure 4.1 shows that the population are growing significantly year by year. The yearly
growth varies between 0,38 % and 0,65 % the last 10 years.
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MARCH D3.5
Consumer spending and forecasts for content and communication services
Figure 4.1 Population and household growth in Western Europe 2000 -2010
During the period 2000 - 2010 the population has increased with 22 million which is close to
50 % of all inhabitants in Spain.
The figure also shows the household growth in the same period. The yearly percentage
household growth varies between 1,0 % and 1,3 % and is larger than the population growth.
This is due to the continuous reduction in mean number of persons in a household.
The EU report: “Trends in households in the European Union: 1995 – 2025” (Eurostat. 2003)
states that number of households of EU15 in 1961 was 92 millions. In 1995 it had risen to 148
millions. The 2025 high forecasts (family forecasts) made in 2003 was 180 million
households, while the basic forecasts was 176 million. However already in 2010, the number
of households in EU15 is about 178 millions.
It is interesting to note that average number of persons in a household was 3,3 in 1961, while
the average number in 2010 is 2,3. During the last 50 years the divorce frequency has
increased significantly and there are more one-person households now. In 1961 the number of
one-person households was 14 million, while the number was tripled to 42 million in 1995.
Also the increased immigration growth to Western European countries explains the household
growth.
Important drivers for the content evolution is the mass market and of course the market size.
Hence the household growth is an important factor for the broadband subscription increase,
while the population growth is important for the mobile broadband increase.
4.3 Household expenditure
To get an overview of the household budget situation, the distribution of household spending
of main expenditure categories is shown (Eurostat. 2008 b). The main categories according to
Eurostat COICOP (Eurostat. 2008 a) classification are: Food, Alcohol/tobacco, Clothes/shoes,
House/dwelling/power, Furniture/household equipment, Health articles/services, Transport,
Communications/post, Culture/leisure, Education, Restaurants/hotels, Other
services/commodities.
Figure 4.2 EU Consumption expenditure of households on goods and services, EU-27, 2006
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MARCH D3.5
Consumer spending and forecasts for content and communication services
The figure shows that the categories
- Housing/dwelling/power,
- Transport
- Food
generate the highest expenditure.
Table 4.2 shows the evolution of household spending in EU15 countries and Norway. Data
for Iceland and Switzerland were not available in this statistics. The Table is based on
consumption surveys carried out in 1988, 1994, 1999 and 2005. The next one is performed in
2010, but the data is still not available.
Table 4.2 Average household expenditure in € 1988 – 2005 for EU15 countries and Norway
(Eurostat)
GEO/TIME
European Union (25 countries)
European Union (15 countries)
Belgium
Denmark
Germany (including ex-GDR from 1991)
Ireland
Greece
Spain
France
Italy
Luxembourg (Grand-Duché)
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Norway
1988
:
:
16882
:
18809
:
11314
12591
17304
16370
26736
17448
:
6660
:
:
16593
:
1994
:
20965
23858
24899
23231
19899
13754
16404
24507
19531
38777
21451
26766
11333
18547
21641
18433
:
1999
:
25114
27188
29255
25228
28709
19147
17076
25876
24081
44190
24607
28145
13418
21571
28883
29850
:
2005
25827
29403
31521
33241
29232
44909
27081
23682
29632
28053
52754
30360
30428
17607
29705
29885
34859
40328
The EU15 mean in 2005 was 29.403€, while the mean for EU25 was significantly lower:
25.827€. From 1994 to 2005 the household expenditure for EU15 has risen with 40%. Hence,
the households have during this period increased their purchase power significantly.
Especially Luxembourg followed by Ireland and Norway had the highest consumption in
2005. Now, Ireland has got serious financial problems and is not expected to be on the top of
the 2010 list.
Figure 4.3 shows the consumption as a fraction of Gross Domestic Product. Some countries
are obviously more careful not to use to much of what they are producing. Examples of this
type of countries was in 2004, the Scandinavian countries, and Finland and in addition
Netherland and Ireland. This means that the countries are saving financial means. Hence there
should also be potential means for the households in the long run increase purchase power to
be used for example on online content.
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Consumer spending and forecasts for content and communication services
Figure 4.3 Consumption as a proportion of GDP European countries in 2004
(Eurostat 2008 b)
Norwegian statistics (Statistisk sentralbyrå) (Norwegian statistics 2010) has each year
conducted consumer expenditure surveys among Norwegian households. The last consumer
expenditure survey available is
Figure 4.4 Yearly household expenditure consumption in € in Norway 2000 - 2009
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MARCH D3.5
Consumer spending and forecasts for content and communication services
from 2009. However, because of limited samples, Norwegian statistics is smoothing their
consumption data, and they are presenting the data as three years mean. The evolution of the
expenditure consumption in Norway is shown in figure 4.4.
The survey expresses the expenditures in Norwegian kroner (NOK). The exchange rate
NOK/Euro from 2000 – 2009 from Norwegian bank is used for transforming Norwegian
kroner (NOK) to Euro for these years. However, there are some uncertainties. Based on
Norwegian Statistics the households consumption expenditure average 2004 - 2006 is
reported to be about 43.000 €, while the Norwegian household consumption in Table 4.2 is
about 40.000 €.
It is interesting to see that expenditure consumption per household in Norway has increased
with 30 % (from about 38.000€ to 48.000€) in the period 2001 – 2008. The growth were
reasonable stable in NOK, but varies more in Euro because of changes in the exchange rate
over these years.
4.4 Content services and applications
The objective with the overview of services and applications is to make a structure for
modelling the evolution of additional broadband revenue for mobile and fixed broadband.
The hypothesis is that part of the household expenditure (COICOP categories) in the future
will be substituted by communications either by using the fixed broadband or mobile
broadband.
The segmentation is valid for the residential market, while the business market is more
differentiated. Home office is a segment in between the residential and the business market –
sometimes financed by the companies.
COICOP classification of potential content expenditure substitutes
Today most of the income streams for content services and applications are not part of the
revenue for telecommunications service providers and network operators. However,
broadband networks are able to transfer new broadband content applications and capture part
of these income streams.
The following COICO classes identify household expenditure where there are definite
possibilities for substitution effect by content services and applications:
Recording media (COICOP 09.1.4)
Purchase of movies, VHS, DVD
Purchase of music, cassettes, CD, DVD
Leasing of movies (subscription), video on demand
Leasing of music (subscription), music on demand
Games, toys and hobbies (COICOP 09.3.1)
Downloading and updating of gaming software
Online games
Cultural services and entertainment (COICOP 09.4.2)
Video from program library, video on demand
Events on demand
Pay TV
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Consumer spending and forecasts for content and communication services
News, sports, adult, life style programs, health, lifeTV, etc
Theatre, concerts, opera, cinema, other performances, museums, etc
Lotteries and gambling (Games of chance COICOP 09.4.3)
Online gambling
Automat gambling
Online betting
Video background information
Video transmission of the gambling event
Books, newspapers, newsletters, journals (Newspapers, books and stationary COICOP 09.5)
Books (COICOP 09.5.1)
Newspapers, Dedicated newspapers, Magazines, Other periodicals (COICOP 09.5.2)
Education
Tertiary education (COICOP 10.4)
Additional education (COICOP 10.5)
The analyses in this deliverable will mainly concentrate on substitution effect based on part of
the expenditure identified in the listed COICOP classifications.
Information retrieval, browsing, surfing, peer to peer
Most of the content so far is transferred on the fixed and mobile broadband networks without
any payment for the transmission. The payment for the usage of the fixed broadband network
and mainly for the mobile broadband network is done via the subscription fee. Hence most of
the content transmission is paid as a part of the COICOP 08 Communication category.
The traditional free surfing and browsing applications are parts of this type of traffic.
Exchange of personal information, participation in film- and music clubs, blogs, establishing
of homepage, shareware (exchange of software), video-, Webtelephony, video conference,
social media, Facebook, Twitter, YouTube, location based social networks, photography and
art sharing, game sharing, etc generates continuously increased broadband traffic.
Information transfer for network based storage of photos, films, backups, is another
application. Surveillance services for elderly/sick at home and long distance medical
assistance at home are other applications for the residential market.
4.5 European fixed and mobile broadband
To be able to transfer all content information it is crucial to continue to build out and expand
the fixed and mobile broadband networks.
Fixed broadband access has during several years been booming in Europe. Fixed broadband
was introduced in most Western European countries in 1999 - 2001. After a few years with
limited growth, the market for broadband access accelerated significantly. The maximum
yearly growth was reached around 2005. Now, the yearly growth is decreasing and will within
some years move closer to saturation. There are of course differences in the penetration
evolution among the European countries.
In most countries, broadband access is now a commodity service that is widely available, but
still there are rural areas which have no broadband coverage. The broadband evolution has
resulted in intensified competition. Important competition factors are choice and introduction
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Consumer spending and forecasts for content and communication services
of services, affordable pricing, higher speeds and growing awareness among the customers.
These factors have made broadband access the main alternative for Internet access. Migration
from dial-up service took place faster than initially expected and companies are also replacing
leased lines with broadband connections.
The growth over the next years will be significant. However, the high growth rates for basic
broadband access are expected to level off in the long term. In 2010, the number of fixed
broadband accesses is estimated to 107 million for Western European residential market. DSL
accounts for around 80% of these accesses; about 16% is Hybrid Coax Fibre (HFC), about
2 % Fibre accesses and 1 % fixed wireless accesses. Beyond the basic Internet access, new
services and content applications are enriching the accesses, to compensate its dropping prices
as well as the decreasing traditional revenue streams.
Most of the growth for broadband is in the residential sector, mainly over a DSL or HFC
access. Users, initially attracted by entry-level plans are migrating to plans offering higher
data rates and greater download allowances. As city consumers are generally the main target
for service provider, complete availability of these services in most urban regions is a reality
in most Western European countries. But coverage of small rural areas remains to be greatly
improved.
The development in mobile data communication or mobile broadband is very fast. Mobile
broadband was mainly introduced in the Western European market in 2006 – 2007. Since then
the development has been extraordinary with fast increase of number of subscriptions and an
exponential traffic growth each year. Mobile broadband has higher long-term potentials than
fixed broadband since the mobile broadband target group is the population, while the fixed
broadband target group is the households.
More and more handsets and different devices will have connecting possibilities to the mobile
networks. One classification of the devices could be: devices for the pocket, for the home, for
the job and for the car. In addition different devices will be used for surveillance,
measurements and registrations. This is denoted as M2M equipment. Examples of portable
devices are: Digital cameras, Portable media player, Ebook (Dedicated reader device),
Portable game console, Smartbook (browsing and cloud based), Tablets or iPAD (PCs with
touch screen, browsing, email, video, imaging, E-book), Netbook (PC based, browsing, email,
music, video), Notebook (PC based, thin and light), Mobile Internet Device (MID – mobile
multimedia adapted equipment).
In addition new generations of handset will be produced including an enormous growth in the
number of applications. The replacement time of the devices of about 1.5 years creates an
innovation running race between the manufacturers. Strategy Analytics has started to group
the handsets in: Feature phones, Smartphones and Superphones. The last one is an advanced
PC with 4 inches screen and 16Hz processor. It is expected that iPhone with Apple operation
system and Android will catch increasing market share.
It is important to distinguish between the different ways to use mobile data communication.
The four main alternatives are:
- Large screen (Computing device) contract
- Small screen contract (Different type of surfing)
- Smartphone (iPhone, Android) contracts
- Mobile broadband data communication without contract (Pay as you go)
Operators hopefully expect revenues from the new offerings enriching the fixed and mobile
broadband Internet accesses that can be considered as a pillar ensuring competitive business
for operators. However, due to the battle of tariffs and competition, the revenues has been
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Consumer spending and forecasts for content and communication services
squeezed. The possibilities to increase them will be very much in relation to the market,
business models and ability to deploy the necessary infrastructure after deep analysis of
technical possibilities and demand.
In a "virtual society", communications networks are expected to provide resources for
education, games, programs and shopping, available in a personalized way. Children find it
natural to carry cell phones, iPods, PlayStations. New generations are used to videogames,
music downloads, instant messaging and unlimited TV channels, always accessible, any time,
any place.
To meet these needs, telecom networks must evolve and be able to offer extended capacity
and good performance. Telecom operators have to build infrastructure for video and data
applications, delivered with high quality and reliability over the fixed and mobile broadband
networks. New applications as well as general information, movies, music, TV programs and
other media applications, will stream into the home, workplace and portable devices.
Broadband is no longer just high speed Internet access. It has evolved to become the enabler
of a bouquet of IP services. Although Internet access remains the most important application
for the short or medium terms, voice and video over broadband can currently be considered as
cornerstones of successful broadband strategies.
Operators will provide bundles of services to attract new customers and retain existing clients.
However, if the customer experiences poor performances for even one service of the bundle,
the entire service package can be rejected. Then, service providers may lose the bundling
business opportunity.
The development of broadband access market was in the beginning mainly driven by high
speed Internet access. Broadband connections facilitate Internet centric usage types, like
surfing, e-mailing, file-sharing, instant messaging. Surfing was the main driver the first years.
Now, filesharing and peer to peer (P2P) has been very important for the traffic growth. File
sharing is distributing or providing access to digitally stored information, such as computer
programs, multi-media (audio, video), documents, or electronic books. It may be implemented
through a variety of storage, transmission, and distribution models. Common methods of file
sharing incorporate manual sharing using removable media, centralized computer file server
installations on computer networks, World Wide Web-based hyperlinked documents. Peer-topeer computing or networking is a distributed application architecture that partitions the tasks
or workloads between the users. The most important P2P applications are BitTorrent,
Limewar, Shareza, Kazaa, iMesh and eDonkey.
File sharing and peer to peer is widely used on film/movie file exchange. During the last years
it is identified that less than 10 % of the customers generate more than 90 % of the traffic.
Still peer to peer is the most dominant driver. However, the picture is changing. Cisco (Cisco
2009) forecasts that global video communication, especially internet video to PC and internet
video to TV, will dominate the market in the future and already at the end of 2010 generate
more traffic than P2P.
Now the operators have launched additional applications, or enriched existing ones, to
increase the appeal of broadband portfolios, expand the potential market and increase revenue
streams. Voice and video are still key applications. An increasing number of operators now
offer triple play bundles, including voice, video and Internet access.
As a result of intense competition, incumbent operators have included broadband telephony in
their portfolio, in addition to the traditional PSTN subscription, which is losing market share,
to retain their customers. Lower cost is the key selling argument. A number of operators are
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Consumer spending and forecasts for content and communication services
offering low cost or even free second line services. This alternative allows increasing the
bundle of products and services that together represent value for the customers.
Video is a major area of activity for broadband operators. The technology allows operators
offering quality video services to users over IP connections or on demand. IPTV is a new
market segment for broadband providers. With revenues for fixed voice decreasing, and
prices for basic broadband access dropping, new revenue streams are becoming crucial for
many players. TVoDSL also contributes to keep customers or even attract some already
served by cable operators. These services allow 1 or 2 channels of standard quality to be
delivered at the same time. For competitive TV over IP offerings, multiple TV streams are
delivered simultaneously, to allow for multiple TVs and a personal video recorder per
household. As HDTV is becoming popular, the demand for bandwidth requirements will
increase further and the same for 3D.
In addition to voice and video, other applications can provide high value for customers when
combined with broadband access, such as a broadband IP VPN, which can be an alternative
for a company instead of leased lines. Other applications, like online/multiplayer gaming;
video-telephony, e-Commerce, e-Learning, e-Government, e-Health, Security services are
certainly of interest for business customers and may in some cases interest households.
In the last few years, operators have increased average downstream speed per broadband
connections, often with no extra charge for the customer. This increase, enabled by
technology advance, pushed by competition and allows bandwidth intensive video content
services available for households. The penetration of services like IPTV has an impact on the
average bandwidth per connection.
Some recent services could be used in the home area network, meeting the needs of family
members that live far from one another, for them to be able to communicate visually by
adding a video feature to the telephone like videophony and a videophonic gatekeeper.
4.6 European household spending on content applications
The relevant household expenditure COICOP categories with substitutions possibilities by
using fixed and mobile broadband, is described in chapter 4.3. Here, appurtenant expenditure
statistics are presented for the selected categories.
As mentioned in chapter 4.2 Eurostat has carried out their household expenditure surveys for
1988, 1994, 1999 and 2005. A new survey has been performed in 2010, but the data is not yet
available. Hence, statistics for countries in Western Europe up to 2005 will be shown for
different categories. In addition data from Norwegian consumer surveys up to 2009 will be
presented for giving some supplementary information.
4.6.1 Recording media
The expenditure CIOCOP 09.1.4 Recording media constitutes of the following sub categories:
− Records and compact discs;
− Pre-recorded tapes, cassettes, video cassettes, diskettes and CD-ROMs for tape
recorders, cassette recorders, video recorders and personal computers;
− Unrecorded tapes, cassettes, video cassettes, diskettes and CD-ROMs for tape
recorders, cassette recorders, video recorders and personal computers;
− Unexposed films, cartridges and discs for photographic and cinematographic use.
Parts of these expenses will in the long run be substituted by using telecommunications.
Especially leasing video cassettes from video shops, buying video cassettes, leasing music
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MARCH D3.5
Consumer spending and forecasts for content and communication services
cassettes and buying music tapes, CDs, DVDs, cassettes are potentials for direct transmissions
from different forms for libraries.
Table 4.3 shows how recording media household expenditures have evolved the among EU15
countries in the period 1998 – 2005.
Table 4.3 Recording media expenditure in € per household 1988 – 2005, EU15 countries
GEO/TIME
1988
1994
1999
2005
Belgium
59
280
271
323
Denmark
:
282
288
228
Germany
:
361
157
:
Ireland
:
296
625
550
Greece
261
208
777
479
Spain
71
101
95
114
France
338
520
546
536
Italy
224
285
425
:
Luxembourg
165
650
611
666
Netherlands
222
195
220
249
Austria
:
:
543
554
Portugal
258
458
463
389
Finland
:
307
368
449
Sweden
:
347
493
394
United Kingdom
249
377
600
684
Norway
:
:
:
581
The EU statistics shows that the expenditure per household in Norway was 581€ in 2005.
The analogue evolution of the household expenditure for Norway in the period 2000 – 2009
relative to year 2005 (100 %), is shown in Table 4.4
Table 4.4 Recording media expenditure per household 2000 – 2009 in Norway
relative to the 2005 level
Year
Recording media
2000-2002 2001-2003 2002-2004 2003-2005 2004-2006 2005-2007 2006-2008 2007-2009
91 %
99 %
108 %
105 %
100 %
105 %
98 %
89 %
Table 4.3 shows that the expenditure changes from 1999 to 2005 are not very large. Also
Table 4.4 describes that the relative change in Norway from 2000-2002 to the mean value
2004-2006 is not more than 10 %. The Norwegian data also show limited decrease in
spending from 2005 to 2009.
4.6.2 Games, toys and hobbies
The expenditure CIOCOP 09.3.1 Games, toys and hobbies constitute the following sub
categories:
− Card games, parlour games, chess sets and the like;
− Toys of all kinds including dolls, soft toys, toy cars and trains, toy bicycles and
tricycles, toy construction sets, puzzles, plasticine, electronic games, masks, disguises,
jokes, novelties, fireworks and rockets, festoons and Christmas tree decorations;
− Stamp-collecting requisites (used or cancelled postage stamps, stamp albums, etc.),
other items for collections (coins, medals, minerals, zoological and botanical
specimens, etc.) and other tools and articles n.e.c. for hobbies.
CIOCOP 09.3.1 includes video-game software; video-game computers that plug into a
television set; videogame cassettes and video-game CD-ROMs.
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Consumer spending and forecasts for content and communication services
A significant part of this expenditure class includes traditional games, toys and hobby
equipment, but parts of it are video-game software, computers, cassettes and CD-ROMs.
However, only a minor part of these expenses are expenditures for online gaming (Video
games) and downloading of supplementary game software. Hence, only a very small part of
the expenditure shown in Table 4.5, are future potential for content generated revenue.
Table 4.5 Games, toys and hobbies expenditure in € per household 1988 – 2005,
EU15 countries
GEO/TIME
Belgium
Denmark
Germany
Ireland
Greece
Spain
France
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Norway
1988
80
:
:
:
397
271
465
659
323
185
:
212
:
:
412
1994
272
190
263
655
520
189
352
777
475
237
:
272
307
264
623
1999
381
258
311
903
415
175
429
734
284
287
579
361
326
492
770
2005
498
312
:
900
576
299
615
798
331
327
697
271
380
397
854
724
Table 4.5 shows that the Norwegian household spending on this category is close to the mean
spending among Western European countries. Relative to 2005 household spending in
Norway (100 %), the spending was 94 % in 2001 and increased to 115 % in 2008. In other
words: during the period 2005 – 2008 the household spending has increased with 15 %.
4.6.3 Cultural services and entertainments
The expenditure CIOCOP 09.4.2 Cultural services and entertainment constitute the following
sub categories:
− Cinemas, theatres, opera houses, concert halls, music halls, circuses, sound and
light shows;
− Museums, libraries, art galleries, exhibitions;
− Historic monuments, national parks, zoological and botanical gardens, aquaria;
− Hire of equipment and accessories for culture, such as television sets, video
cassettes, etc.;
− Television and radio broadcasting, in particular license fees for television equipment
and subscriptions to television networks;
− Services of photographers such as film developing, print processing, enlarging,
portrait photography, wedding photography, etc.
This is an important class for content expenses. Distinct parts of these content expenditures
are or will in the future be potentials for content transmission in the fixed and mobile
broadband networks.
The time budget is often a key factor for family members in a busy week day. Instead of
visiting a lot of museums, galleries and exhibitions, possibilities will be established to use
TV/video to get the same experience. Now, also specific online systems have been developed
where the user virtually can control a camera and move around in the areas based on own
53
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Consumer spending and forecasts for content and communication services
choices. In addition there is possible to search up different geographic areas around the whole
world for example by using Google map.
Television is another important area. The expenses constitute licence fee and subscriptions to
the television network which also includes type of Pay TV licences and on demand delivery.
The television world is in dramatic change. TV broadcasting has traditionally been
transmitted airborne by satellite (DTH), by Cable Television networks and by Digital
Terrestrial Television networks. Now, broadband technology with fibre, HFC and VDSL
accesses can be used for transmission of a large selection of TV channels. IPTV and TVoDSL
are the relevant technologies. In addition dedicated TV programs and video can be transferred
on broadband to give the customers the TV programs (Internet TV and Web TV) and Internet
video when they want them and also where they want to see them using the fixed and mobile
broadband networks. These possibilities increase the busy hour traffic tremendously.
Therefore, market for multilink equipment for utilising network capacity in more optimal
ways is increasing.
Also the future demand for HDTV, 3D TV and Video 3D will increase the broadband busy
hour traffic which seems to follow an exponential growth.
The expenditure of Cultural services and entertainments is shown in Table 4.6
Table 4.6 Expenditure of cultural services and entertainments in € per household
1988 – 2005, EU15 countries
GEO/TIME
Belgium
Denmark
Germany
Ireland
Greece
Spain
France
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Norway
1988
313
:
:
:
143
295
286
639
374
413
:
145
:
:
419
:
1994
1001
588
598
797
115
517
452
819
710
535
:
136
519
527
602
:
1999
804
706
675
969
321
518
679
708
835
506
1107
259
485
840
1032
:
2005
749
732
804
1565
359
716
801
836
790
569
1387
560
709
843
1303
1369
The table shows that Austria and Norway have the highest expenses among Western
European counties in 2005. The average for EU15 is about half of these expenses.
The Norwegian expenditure statistics is available on a more detailed level. Table 4.7 shows
the relative growth relative to the year 2005.
Table 4.7 Expenditure of the categories Cinemas, theatres, concerts and Museums, zoological
gardens and such and Television, radio and such per household 2000 – 2009 in Norway
54
MARCH D3.5
Consumer spending and forecasts for content and communication services
relative to the 2005 level
Year
2000-2002 2001-2003 2002-2004 2003-2005 2004-2006 2005-2007 2006-2008 2007-2009
Cinemas, theatres, concerts
76 %
83 %
86 %
96 %
100 %
114 %
117 %
124 %
Museums, zoological gardens etc60 %
69 %
80 %
88 %
100 %
114 %
117 %
124 %
Television, radio and such
86 %
91 %
95 %
104 %
100 %
105 %
102 %
116 %
The table shows that all three categories for the Norwegian market have a very significant
growth both from 2000 – 2005 and from 2005 to 2009. Probably there will be a similar in the
period 2005 – 2009 in the Western European market.
4.6.4 Games of chance
The expenditure CIOCOP 09.4.3 Games of chance constitutes the following sub categories:
− Service charges for lotteries, bookmakers, totalisators, casinos and other gambling
establishments, gaming machines, bingo halls, scratch cards, sweepstakes, etc.
(Service charge is defined as the difference between the amounts paid for lottery
tickets or placed in bets and the amounts paid out to winners.)
For 50 years ago the traditional lotteries were based on once a week betting and the size of the
first prizes was moderate compared with nowadays. The whole market has evolved
tremendously and also the sales and turnover. The turnover and market share for on-line
betting have increased very significantly. On-line betting has been played against bookmakers
for many years. However, there has been an evolution where the on-line betting on Casino
games like Black Jack and later Net poker have been very popular.
The turnover is rather high in this area. But still it is an open question how business models
for network operators and service providers can be established to capture some small part of
this turnover.
Table 4.8 shows the gambling expenditure per households.
Table 4.8 Expenditure of Games of chance in € per household 1988 – 2005, EU15 countries
GEO/TIME
Belgium
Denmark
Germany
Ireland
Greece
Spain
France
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Norway
1988
30
:
:
:
204
40
215
171
142
80
:
237
:
:
1780
:
1994
268
326
284
233
526
174
284
188
246
145
:
280
299
377
275
:
1999
247
429
277
455
489
323
312
402
278
221
456
353
365
533
599
:
2005
283
462
:
565
771
391
468
345
328
238
486
496
484
411
480
675
The betting expenditure per household is highest in Greece and Norway. Examination of the
betting expenditure in Norway in the period 2001 – 2009 show a very stable evolution, there
are only some percentage changes over the whole period.
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MARCH D3.5
Consumer spending and forecasts for content and communication services
4.6.5 Books, Newspapers and Periodicals
The expenditure CIOCOP 09.5.1 Books constitute the following sub categories:
− Books, including atlases, dictionaries, encyclopaedias, text books, guidebooks and
musical scores.
Includes: scrapbooks and albums for children; book binding.
The expenditure CIOCOP 09.5.2 Newspapers and periodicals constitute the following sub
categories:
− Newspapers, magazines and other periodicals.
The two categories are very interesting since they generate large volume of pages which
obviously have potentials for distribution via broadband networks. The newspapers
have during many years published their main news as on-line newspapers. Now, their
turnovers have started to decrease significantly. Hence, they are also losing advertising
revenue. The next step will for some newspapers be to charge their customers for the
usage either as a function of consumed volume or by subscription charge.
The same business model is already used by some magazines/periodicals for on-line
consumption.
In the future, it is expected that both the magazines/periodicals and the newspapers will
be able to tailor their publications in order to satisfy their customer demand. The
customers could specify proportion of different information in the publication – for
example the amount of news, sports, health etc.
Also here, there will be an interesting question about relevant business models also
taking into account the transferring costs on the fixed and mobile broadband networks.
Table 4.9 Expenditure of Books, Newspapers and periodicals in € per household
1988 – 2005, EU15 countries
COICOP
GEO/TIME
Belgium
Denmark
Germany
Ireland
Greece
Spain
France
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Norway
1988
50
:
:
:
87
53
218
262
93
100
:
119
:
:
112
:
Books
1994
:
256
164
213
323
165
413
298
265
181
566
232
477
322
361
:
1999
378
350
221
602
813
194
500
995
315
295
567
241
535
658
433
:
2005
408
362
:
632
407
238
528
1016
364
316
635
295
622
615
446
840
Newspapers
GEO/TIME
1988
Belgium
119
Denmark
:
Germany
:
Ireland
:
Greece
82
Spain
56
France
99
Italy
141
Luxembourg
156
Netherlands
110
Austria
:
Portugal
89
Finland
:
Sweden
:
United Kingdom 140
Norway
:
and periodicals
1994
1999
:
249
267
290
197
115
172
338
92
263
94
220
214
210
176
351
306
299
263
289
124
320
160
200
268
284
230
484
236
250
:
:
2005
257
257
:
342
322
246
240
371
168
308
337
188
343
311
262
380
The table shows that there are large variations in book expenses per household among the
Western European countries, while the expenditures on newspapers and periodicals are more
evenly distributed.
The Norwegian sampling data show a very stable evolution of the expenditure per household
of newspapers and periodicals for the whole period 2001 – 2009. For book expenses, there has
been 7 % reduction from 2005 to 2009.
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Consumer spending and forecasts for content and communication services
4.6.6 Education
The COICOP category 10 covers education, which is classified in pre-primary, primary,
second primary, post secondary, tertiary and other type of education. Educational
Material, such as Books and Stationery are not included in this category.
There are definite potential for long distance learning in this category. However, it is difficult
to estimate the potential and how this fraction of the total education expenditure is evolving. It
is important to note that the government financing and support of the education area is
different in the Western European countries. For instance, most of the expenses are financed
by the Governments in the Nordic countries.
Hence, because of the complexity, more detailed analyses in not performed here.
4.7 European telecommunication expenditure/revenue for usage
The COICOP category 8 covers: Post COICOP 8.1, Communication equipment COICOP 8.2
and Communication usage COICOP 8.3.
It is important to note that telecommunication expenditure for households are revenue for the
telecommunication service providers and operators.
The relevant category for examining is Communication usage, COICOP 8.3 which includes
installation and subscription fee and expenditure for usage. The traditional definition of
COICOP has been to account for telephone, telefax, telegraph and telex. However, telephone
is now classified as fixed and mobile telephone. Fixed and mobile broadband must be
included in the definitions and for the business market also data communication and leased
lines must be included.
There are two main drivers for further evolution of the household expenditure one negative
and on positive drivers: New services, new content applications and distribution of new
content on the fixed and mobile networks are drivers for additional household expenditure.
On the other hand, regulation, competition, press on the prices are factors which reduces the
household expenditure. Table 4.10 shows the communication expenditure per household.
Table 4.10 Expenditure of Communication usage in € per household 1988 – 2005,
EU15 countries
GEO/TIME
Belgium
Denmark
Germany
Ireland
Greece
Spain
France
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United
Kingdom
Norway
1988
259
:
362
:
245
197
370
321
182
285
:
281
:
:
1994
418
395
451
591
318
334
453
474
533
359
794
440
338
684
1999
841
498
585
807
793
437
606
696
924
575
1435
699
527
570
2005
1010
596
836
1274
1178
715
947
662
1173
913
1537
703
701
802
345
:
449
:
647
:
887
1260
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MARCH D3.5
Consumer spending and forecasts for content and communication services
The table shows that Austria had higher telecommunication expenditure than Norway, while
Ireland, Greece and Luxembourg were on the same level in year 2005. It could also be noted
that there have been a significant increase in the telecommunication expenditure usage form
1988 and 1994 to 1999/2005.
The analogue evolution of Communication usage expenditure per household for Norway in
the period 2000 – 2009 is shown in Table 4.11
Table 4.11 Expenditure of Communication usage in € per household 2001 -2009 for Norway
relative to 2005 expenditure communication usage
Year
Communication usage
2000-2002
84 %
2001-2003 2002-2004 2003-2005
102 %
102 %
100 %
2004-2006
100 %
2005-2007
86 %
2006-2008 2007-2009
85 %
85 %
The table show an interesting evolution. During the last 10 years the telecommunication
expenditure usage was highest in 2001 - 2004 and expenditure has significantly since 2006
fallen with 15%.
Especially international regulation has opened the telecommunication market, made
recommendations with less favourable possibilities for the incumbents, generated more
intensive market competition and press on the telecommunication prices.
Hence, the different actors in the telecommunication market search for new opportunities and
revenue possibilities to compensate for lost communication revenue the last years.
4.8 Case of study: South Europe (Spain, Portugal and Italy)
In this section, the potential south European countries as target markets are going to be
described. With a major focus in Spain, as a partner country two other countries, Italy and
Portugal are going to be included in this study due the similarities in location and uses of their
inhabitants
Although immersed in a deep crisis, the growth of the Internet use has been growing steadily
for the last 10 years as shown in figure 4.5.
Figure 4.5: Internet users as percentage of population (source Banco Mundial)
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Consumer spending and forecasts for content and communication services
4.8.1 Economic Context
The root cause of this crisis is the sudden rise of the scale of the deficit finance of each
government triggered by increased government spending in order to settle the global financial
crisis. In this respect, with Greece first in order, the scale of the deficit finance of 4 southern
European countries has attached to about 80%. 16 countries among 27 countries within
Eurozone already belong to this scope. Particularly, in the last October 21st, Greece, one of
PIGS (Portugal, Italy, Ireland, Greece and Spain) as the seismic centre of this crisis, reported
the corrected estimation on deficit finance to Eurostat. According to the report, in late 2009,
the ratio of the deficit finance versus the GDP is increased from 3.7% (6 month ago) to
12.7%. Moreover, the national debt is expected to reach to 112.6% versus the GDP.
Simultaneously, this triggered the drastic surge of CDS (Credit Default Swap), which shows
the condition of sovereign risk. Furthermore, as below, it is expected that the fiscal account of
these countries in 2011 will be rapidly reduced compared with that of 2008.
Figure 4.6: Output Gap in percent of potential GDP (Source IMF)
The fiscal structural vulnerability of Europe does not feel renewed. It is originated from the
higher welfare. Moreover, since the advent of the global financial crisis, it has been all more
deteriorated. Particularly, indeed, this situation has been reflected in the credit rating by
global credit rating agencies to each European country including PIGS.
Spain, the fifth largest economy in the EU and 13th largest in the world, is staggering under a
combination of debt and growth-killing austerity, and the balance books in Italy, the Union’s
fourth largest economy, don’t look much better. Indeed, Italy’s national debt is higher than
that of Greece, Ireland or Portugal, three countries that have been forced to apply for bailouts.
Spain is a victim of the same real estate bubble that tanked the Irish economy. In fact, house
prices in both countries rose at almost exactly the same rate: 500 percent over the decade. A
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Consumer spending and forecasts for content and communication services
feeding frenzy of speculation, fuelled by generous banks and accommodating governments,
saw tens of thousands of housing units built that were never inhabited. There are currently
50,000 unsold units in Madrid alone and, according to the web site Pisosembargados, Spanish
banks are on track to eventually repossess upwards of 300,000 units.
Bailing out Ireland, Portugal and Greece has strained the financial resources of the EU and the
International Monetary Fund (IMF), but rescuing Spain would be considerably more
expensive. If Italy goes—with an economy a third larger than Spain’s and more than twice as
big as that of the EU’s three current basket cases—it is not clear the Union or its currency, the
Euro, could survive.
Given the current tack being taken by EU and the IMF, that might not be the worst outcome
for the distressed countries involved. The current formula for “saving” economies in Ireland
and Greece consists of severely depressing economic activity that is likely to lock those
countries into a downward spiral of poverty and unemployment that will last at least a decade.
First, it is important to understand that the so-called “bailouts” of Greece and Ireland, and the
one proposed for Portugal, will not “save” those countries’ economies. As Simon Tilford,
chief economist for Centre for European Reform, points out, the money is being borrowed—
at a high interest rate—to bail out speculators in Germany, France and Britain. It is German,
French, British, and Dutch banks that will profit from these “packages,” not the citizens of
Ireland, Greece, or Portugal.
Indeed, Portugal was forced to ask for a bailout, not because its economy is in particularly bad
shape, but because speculators in other EU countries drove up borrowing rates to a level that
the government could no longer afford. Rather than intervening to nip off the speculators, the
European Central Bank sat on its hands until the damage was done, the government fell, and
Portugal was essentially forced to sue for peace. The price for that will be steep: severe
austerity, brutal cutbacks, rising unemployment, and a stagnant economy.
Spain and Italy are vulnerable to the same forces that forced Portugal to its knees, only they
are far bigger countries whose economic distress will have global effects.
The current blueprint for reducing debt is to cut spending and privatize. But in a recession,
cutbacks increase unemployment, which reduces tax revenues. That requires governments to
borrow money, which increases debt and leads to yet more cutbacks. Once an economy is
caught in this “debt trap,” it is very difficult to break out. And when economies do improve,
cutbacks to education, health care, housing and transportation put those countries at a
competitive disadvantage.
For instance, Spain has drastically cut its education budget, resulting in a wave of “early
leaving” students—at a rate that is double that of the EU as a whole—and a drop in reading,
math and science skills. Those figures hardly bode well for an economy in the information
age.
These countries face a very hard situation in the following years. As the government debt
increases – Figure 4.7 - , there is not a good forecast for economical restoration.
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Figure 4.7: Government gross debt as percentage of GDP (Source IMF)
4.8.2 Broadband Context
In spite of the economical context, and similar to other regions around the planet, Spanish
broadband has been in a process of continuous grow. During 2010 has overpass the symbolic
number of 10 million broadband landlines, of which 80% are using ADSL technology and
18% uses cable. This difference is even more accused in the enterprise scenario raising up to
93% the number of xDSL fixed broadband lines.
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Figure 4.8: Contracted services bundles typology in Spain (source CMT)
In Spain there are 9 millions of family homes that has access to Internet – Figure 4.8- , with a
growth of more than 700,000 houses since 2009. Arround 8 millions of homes have a
broadband connection to Internet, which involves a increment of more than 900,000 homes
against the former year. In Italy, these figures reach up to 10 Millions homes and in Portugal,
which has a much lesser population, there are almost 2 Millions homes with Internet.
2nd 3-Month period 2010
Figure 4.9: Broadband lines per technology (source CMT)
On the other hand, mobile broadband connections has a growth in Spain of 6,6 points and
reaches a coverage of 11,7% of the Internet access homes (source INE).
Regarding penetration, broadband represents 51% of Spanish homes, so it’s below the
European average. Nonetheless, the penetration of broadband that already have an internet
connection is greater in 11 percent points than the UE-27 average, which indicates that in
terms of quality Spain has a very good position in reference to the rest of Europe. Regarding
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companies, Spanish situation has also an advantage of 11 percent points compared to the
European average in terms of availability. This advantage instead of decreasing as time goes
by, has become wider.
Figure 10 3G mobile-capable in Spain (source NetSize)
Broadband commercialization is mainly done using a service package. This is a very
significant data as more than 90% of all broadband lines are purchased as a part of a bundle of
two or more services, which uses to be landline telephone and television services.
Figure 4.11: Fixed broadband penetration in Spain and Europe (source Eurostat)
During 2010 mobile broadband has powerful entry in the Spanish market. Incomes related to
the mobile Internet have grown exponentially, from the almost non-existent a few years ago
till reaching 1,496 Millions of Euros in 2009, in contrast to the income stabilization of nonmobile broadband – Figure 4.9-. This evolution has provoked that nowadays the mobile
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Internet incomes equals half the fixed Internet incomes (source CMT). Even existing a greater
importance in the fixed broadband compared to the mobile one, in terms of users, turnover
and capabilities, we’re assisting to a trend change, and hereby a change in the fabric of the
Spanish broadband market.
In order to give some numbers, from the second three month period of 2009 till the second
three month period of 2010 a fixed broadband growth of 784,000 new lines (a growth of
8.4%), the number of data cards has grown in 900,000 units (60% more) – Figure 4.12-,
which had to be increased in 4,5 millions of users that access to the internet using their
broadband mobile phone (source INE).
Doubtless, according to Telefonica, this mobile broadband could not been possible without
the unprecedented effort of deployment and update of new infrastructures, which have
multiplied 6 times the download speed in just 3 years. This process will continue the
following years by implanting the LTE technology (currently in test). This trend also has also
been possible due the major welcome from the users of 3G phones and smartphones, causing
that 3G terminals quota increased by an annual 10% during the last two years, so Spain has
reached one of the first positions in the ranking of mobile Internet access capability.
Figure 4.12: Data cards growth during last year in Spain (source CMT)
4.8.3 Service consumption
EIAA Mediascope Europe study of media use, indicate that more than 9 in 10 people in all 15
European markets surveyed watch TV in a typical week, 64% listen to the radio, 65% read
newspapers, 57% read magazines and more than half (53%) use the internet either via their
PC/laptop or mobile phone.
The number of people watching or downloading film, video or TV via the internet has
reached 120m (43%) across the 15 European countries surveyed with almost a third of
European internet (32%) watching clips, 24% downloading clips and 11% using on demand
TV. This particular online activity is most popular in central Europe, especially the UK.
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Looking at 10 market data for trends we can see that over the 6 years of the study there hasn’t
been much change in the percentage of people watching TV (not through the internet). On
average 94% watch TV, slightly up on 2008, perhaps because the survey was conducted
further into the winter months but it’s down 3% since 2004 (Figure 4.13).
Figure 4.13: % of people watching TV in a typical week (source EIAA)
Regarding Internet use, during 2010 Italy had the highest growth from 2008, up +15%,
closely followed by Spain (+10%), as shown in figure 4.14.
Figure 4.14: % of people using Internet in a typical week (source EIAA)
This Internet usage involves a time spent using it. Last year Portugal headed the southern
Europe list (14,1%) closely followed by Spain (13,6%) and the last (both Europe 15 and
southern Europe) was Italy (9,8%) -Figure 4.15.
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Figure 4.15: Hours of Internet usage in a typical week (source EIAA)
In this usage scenario users can connect to the Internet using broadband or not. Good news is
that all three countries are above the EU15 average of broadband access Internet users, with
Portugal (93%) once again heading the list, followed by Spain (90%) and Italy (86%),
although in total numbers Italy would have 19.9M of users, Spain 18.1M and Portugal 4.3M.
This implies that even with a newer fleet of users, the new user is directly contracting
broadband services –Figure 4.16.
Figure 4.16:: % of broadband users out of total Internet users (source EIAA)
There is also a major growth in the use of wireless connection in the Internet usage, with a
similar distribution of countries Portugal (64%), Spain (57%) and Italy (52%).
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Figure 4.17: % of wireless connections to access Internet (source EIAA)
Regarding the mobile market once again Portugal (71%) leads by far the mobile devices with
Internet access, bearing in mind that Portugal is the country with the most expensive costs of
mobile services, this is a really significant number. Italy (57%) takes the second place and
Spain (46%) closes the list.
Figure 4.18: % of mobile devices with and without Internet access (source EIAA)
The gender split of the mobile Internet users in Spain is currently 60:40 male:female. While
many of the other ‘Big 5’ markets see the under 25 age group accounting for a
disproportionately large proportion of users, in Spain the mobile Internet user is likely to be
slightly older, with the bulk of users being in the 35 to 55 age group.
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Portugal, as an emerging market within this industry, has the lowest rate in Europe. The PC
Internet penetration is 10 times higher than mobile. The mobile Internet population is strongly
characterised by the male gender and the youth: 72% are male and 68% are under 35.
The gender split of the mobile Internet users in Italy is currently around 60:40 male:female.
While many of the other ‘Big 5’ markets see the under 25 age group accounting for a
disproportionately large proportion of users, in Italy the mobile Internet user is likely to be
slightly older, with the bulk of users being in the 35 to 55 age group.
Figure 4.19: Mobile Internet users 16+ (source EIAA)
Finally, in this analysis and as MARCH main intention is the use of multiple networks, in the
following figure we can see the media mesh with mobile Internet use. As more and more
devices and capabilities appear more meaningful is the use of MARCH technology to take
advantage of each capability and network in each device.
TV
Radio
Internet on PC
Newspaper
Internet on Mobile
Spain
16%
12%
3%
4%
1%
Portugal
45%
20%
10%
5%
4%
Italy
60%
20%
8%
8%
21%
Figure 4.20: Media mesh usage mobile Internet users 16+ (source EIAA)
4.8.4 Conclusions
Based on the previous study, the south European countries are a potential market for
MARCH. Even more if we bear in mind the last figure – figure 4.20 – from the last bullet.
There is a significant increase of media mesh usage, that creates a breeding ground for
MARCH usage allowing that all the media that a household may have can work together to
create a more reliable and a wider home network.
Also, reading from the idiosyncrasy of these countries, a services approach would be
recommended in order to provide a successful market penetration of MARCH technology.
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4.9 Case of study: Rural areas in the European Union
Rural areas in the European Union represent over 56 % of the population in the 27 Member
States, and cover 91% of the territory25. Therefore, taking this information into account, it is
essential to consider the specificities, special needs and characteristics of rural areas in the
study of future trends, technology usage/penetration and digital content consume patterns.
Defining ‘Rural’
The European Commission regards ‘rural areas’ as a spatial phenomenon that extends
across regions, landscapes, natural areas, agricultural land, villages and other larger urban
centres, pockets of industrialisation and regional centres. It encompasses a diverse and
complex economic and social fabric. It is the home of a great wealth of natural and cultural
resources and traditions. It is becoming more important as a place for relaxation and leisure
activities.
This definition illustrates the breadth of the issue, but is not useful from an analytical point of
view. Both the OECD and EUROSTAT define rural areas in terms of population density. For
the OECD, rural areas are those with less than 150 inhabitants/sq. km while EUROSTAT uses
a figure of 100 inhabitants/sq. km.
The following figures show the classification of European Regions according to their ruralurban nature (first image, according to the OCED, 2010) and their economic development
status (second image, according to EC Structural funds classification for the period 20072013).
As it can be appreciated in these figures, rural areas and less developed regions are mainly
concentrated in the Eastern and Southern Europe, while central Europe is mainly an urban and
sub-urban area.
As it will be further described in the following chapters, broadband connectivity (both fixed
and mobile) are key enabling factors for the deployment of new services and applications
associated to the consumption of digital content. These new services/applications around the
distribution of digital content usually imply a high amount of data and consequently high rate
broadband connectivity is essential to successfully deploy these services with the expected
quality of service and user experience.
Consumers’ profiles and digital content consumption patterns in rural areas are not so
different from those corresponding to urban users and therefore the technological capacity of
telecommunication networks turns out to be a key factor and at the same time a bottleneck for
these services to deploy in EU rural areas. In this aspect, the results of MARCH will have a
tremendous impact in European rural areas since thanks to them it will be possible to offer
high rate broadband connectivity in rural areas through the multi-link architecture.
Currently European underserved regions and rural areas do have access to limited broadband
(insufficient to efficiently offer advanced services based on digital content distribution) or no
access at all to broadband (More than 30% in rural zones of EU-27 has no access to
broadband).
25
Data from the EU Rural Development policy 2007-2013-
http://ec.europa.eu/agriculture/rurdev/index_en.htm
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Figure 4.21: OCDE urban-rural typology
In figure 4.21, it can be appreciated the weight that rural areas have in the overall European
territory.
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Figure 4.22: Convergence Regions in the EU according to Structural Funds 2007-2013
The figure 4.22 shows the European Regions classification according to their economic
development status. Convergence and phasing-out Regions usually also correspond to rural
areas where broadband penetration is low and where broadband is available it use to be of low
quality (slow broadband not able to support advanced services/applications). These regions
correspond to Portugal, Greece, south of Spain and Italy and most of the European Eastern
Member States.
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4.9.1 Fixed and mobile broadband in European rural areas
EU fixed penetration by Member State in January 2009 is shown in the following table in
broadband lines per 100 inhabitants (Data from Eurostat). In this table it can be seen that EU
average penetration is slightly over 20% with many Member States in a clearly under-served
situation.
Figure 4.23: EU Broadband penetration rate – BB lines per 100 population
This situation is eve worst if we focus on the situation for mobile broadband, represented in
the following graph (figure 4.24):
Figure 4.24: Mobile BB penetration rate – dedicated data service cards/modems/keys
And we should still go one step further in the analysis and evaluate not only the penetration
rate but also the quality of the broadband connectivity offered in each one of these Member
States. This aspect is extremely important since it is clear that higher speeds allow faster use
of richer services and have a direct impact in the quality of the services and the user
experience.
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It is also very important to consider upload speed of these connections in this analysis since
user-generated content is one of the most powerful trends and basic for many of the new
services and applications that are being created.
In the following figure – figure 4.25 - it is possible to appreciate the fixed broadband line
speeds in January 2009 per Member State:
Figure 4.25: Fixed broadband lines by speeds
This table confirms that in addition to low broadband penetration, in some cases the
broadband connection has low speed and therefore it makes difficult to enjoy new services
and applications that require high-speed connectivity.
Internet traffic will have increased six times by 2012 (with respect to 2010) as more users
view and post videos online. Internet traffic is growing at an annual growth rate of 46 per cent
and this is being driven by video and user-generated content explosion. Video overcomes
barriers of language, local content and literacy, he said, allowing users to interact more easily
with the Internet.
In Figure 4.26 an estimation of mobile network traffic growth is analysed by the nature of the
service that causes the traffic growth. Video is clearly the driven service.
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Figure 4.26: Forecast of global mobile data traffic and its components
4.9.2 Content potentials and household spending in European rural areas
The analysis and the results in this chapter concentrate mainly on the residential and mobile
broadband market in rural areas. The residential market is still the dominant part of the
broadband market in rural areas regarding both accumulated traffic, number of accesses and
revenue, but mobile traffic is experiencing a continuous growth that make it the natural
alternative to residential broadband in rural areas. In this case we will consider a detailed
analysis on the Castilla-La Mancha Region as a representative case of European rural
regions.
Castilla-La Mancha has the lowest fixed broadband penetration rate in Spain with a 36% of
households. In contrast with this fact a recent study highlighted that around 80% of mobile
phones in Castilla-La Mancha are already smart phones and 60% of them are used on a daily
basis to connect to Internet (Social networks, music/video streaming and e-mail are the main
usages).
When we analyse the average expenditure per household in Castilla-La Mancha with respect
to the Spanish average we find out the although bellow the national average the difference is
not as large as it could have been expected (13% of difference in the average household
expenditure).
Table 4.12: Total, average and index expenditure
Castilla-La Mancha
Spain
16.967.890
466.058.239
Average household spending (€)
25.495
29.393
Average spending (per person) (€)
8.945
10.632
Index related to personal average spending
84,13
100,00
Total spending (k€)
Source: INE (2007)
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In fact, if we go deeper in the analysis of household expenditures it can be appreciated that the
difference in the amount spent in communications (08) and entertainment (09) represents a
8,65% of the overall household expenditure for Castilla-La Mancha while it represents a
9,66% for the national average in Spain. This second analysis confirms that the profile of the
users that can be found in rural regions (even if these regions are also poorly economically
developed, as it is the case for Castilla-La Mancha) is very similar to the users’ profiles in
urban areas, with similar needs and requests. Particularly relevant is the minimal difference in
the communications expenditures, which shows how global the communications needs are.
Source: INE (2007)
Figure interpretation: Rows:01-Food and non-alcoholic drinks, 02-Alcoholic drinks, tobacco and other
narcotics, 03-Cloths and shoes, 04-Housing, water, electricity, gas and other combustibles, 05 -Furnishings,
and other home equipment, 06-Health, 07-Transport, 08-Communications, 09-Entertainment and culture, 10Learning, 11-Hotels and restaurants, 12-Other services. Columns: Average per house hold, average per person
and percentage (Both for Castilla-La Mancha and Spain).
Figure 4.27: Family budget distribution
If we analyse the profile of the users according the their age we can find out that a relevant
difference appears in Castilla-La Mancha with respect to the national average in the age range
25-34. In Castilla-La Mancha this age range represents a lower percentage of the overall
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expenditure, which could be justified by the late incorporation to the professional market and
the high unemployment rate existing in this range.
Source: INE (2007)
Figure interpretation: Rows: 08-Communications, 09-Entertainment and culture, Columns: Age ranges both
for Castilla-La Mancha and Spain.
Figure 4.28: Communication and leisure expenditure per age
Another important factor for defining the profile of the average users in rural regions is the
education level reached. In the following table expenditures are classified according the
educational level of the user. As it can be seen, the percentage of users with poor and very
poor education (stages 1 and 2 represent 49% of expenditures) is much higher than the users
with university grades (20%):
Source: INE (2007)
Figure interpretation: Rows: 08-Communications, 09-Entertainment and culture, Columns: From left to
right: illiterate, first grade, secondary school 1 st level, secondary school 2 nd level, Non-university superior
studies, university degree 1 st level, university degree 2 nd and 3 rd levels, Special education, .
Figure 4.29: Communication and leisure percentage per educational level
When we analyze the national average it can be seen that the educational level increases and
the two lower levels only represent the 33% of the total expenditures (Difference of 17% with
Castilla-La Mancha).
Source: INE (2007)
Figure interpretation: Rows: 08-Communications, 09-Entertainment and culture, Columns: From left to
right: illiterate, first grade, secondary school 1 st level, secondary school 2 nd level, Non-university superior
studies, university degree 1 st level, university degree 2 nd and 3 rd levels, Special education,
Figure 4.30: Communication and leisure expenditure increase per educational level
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4.9.3 Conclusions
Based on the previous characterization of the average consumer and household expenditure in
Castilla-La Mancha it can be confirmed that the general hypothesis assumed by MARCH in
the deliverable D3.5 can be applied to rural areas. This hypothesis says that:
The hypothesis is that part of the household expenditure (COICOP categories) in the
future will be substituted by communications either by using the fixed broadband or
mobile broadband.
Therefore, the COICOP classes identified in D3.5 as household expenditures where there are
possibilities for substitution effect by content services and applications can be also applied to
Castilla-La Mancha and in general to other rural regions. Nonetheless, in order to have a more
accurate result in rural regions, a correction factor shall be applied in order to adjust the final
results in these rural areas. The correction is justified based on the fact that the identified
COICOP classes generally represent a lower percentage in rural areas than in urban areas.
Also the lower weight of communications/entertainment expenditures in rural areas shall be
considered in the adjustment. This correction factor is defined as -6,7% of the results obtained
for urban users/areas.
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5 Models for forecasting new revenue streams
Section 5 described the household expenditure evolution for different categories. It is
expected that part of this expenditure will be utilised through usage of the fixed and mobile
broadband networks. However, the households will still be rational in their
telecommunication usage.
Section 6 describes a set of separate models necessary for making forecasts for new content
based revenue streams. The separate models are:
-
Fixed broadband penetration forecasting models and forecasts
Mobile broadband penetration forecasting models and forecasts
Forecasts/forecasting methods for expenditure categories
Forecasting models for part (fraction) of the expenditure substituted by
telecommunications
These forecasts are put together in equation (5.5), which expresses the future expenditure
substituted by fixed and mobile broadband. The forecasts for the first three listed models are
quantified. The last one: Forecasting model for fraction of the expenditure substituted by
telecommunications is illustrated by figure 5.4 as an example. However, more research is
necessary to quantify these fractions for the different expenditure categories.
5.1 Forecasts for broadband accesses
A key factor for increased spending is access to the fixed and mobile broadband networks.
Especially, the growing demand of broadband accesses will have significant impact on
household spending on new services.
Long-term access penetration forecasts for fixed broadband have been developed and are
documented in the MARCH project deliverable D3.4 (Stordahl 2010). Figure 5.1 shows the
long-term penetration forecasts for the residential market, Western Europe. Analyses of the
penetration 2000 – 2009, show an excellent fit by using a four parameter Logistic model.
Hence, this model is also used for the long-term forecasts.
Figure 5.1 Broadband penetration forecasts, Western Europe, residential market 2010 – 2018
The main technologies for the fixed broadband network are: DSL, HFC (Hybrid Fiber Coax),
Fiber and FWA(Fixed Wireless Access). The MARCH deliverable D3.4 (Stordahl, 2010)
analyses the evolution of the market share between the main technologies 2000 – 2009 and
develop long-term market share forecasts up to 2018.
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These long-term market share forecasts are multiplied with the long-term penetration
forecasts. The resulting forecasts give the penetration forecasts for DSL, HFC, Fibre and
FWA for the identical Western European market.
These forecasts are important for the revenue modelling. Households without access are not
able to utilise the new broadband services. Figure 5.2 shows the broadband penetration
forecasts for West European countries.
Figure 5.2 Penetration forecasts DSL, HFC, Fiber and FWA, Western Europe, residential
market, 2010 -2018
The number of broadband subscribers is found by multiplying number of households in
Western Europe with the penetration forecasts. Table 4.1 shows that the number of
households in Western Europe was 178 millions in 2010.
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Let fB(t) be the fixed broadband access forecasts for the residential market at time t. The
forecasts reflect total fixed broadband accesses.
The access capacity of the various broadband technologies is different. The DSL capacity
depends on the copper cable diameter and loop length. For short distances VDSL with 20
Mbps speed or more can be offered. Fiber/FTTx and HFC with DOCSIS protocol 3.0 offer
high speed broadband with sufficient capacity for mainly all broadband applications. FWA
access offer in principle up to 18 Mbps (WiMAX), but the radio system is a shared resource,
which means that the system capacity depends on number of users in the busy hour.
The long-term forecasts for mobile broadband penetration are documented in the MARCH
project deliverable D3.4 (Stordahl 2010). The mobile broadband consumer and business
market are modelled separately. In spite of limited yearly data the evolutions so far shows that
Logistic models fit the historical data. In this deliverable the long-term mobile broadband
forecasts based on four parameter Logistic models for the residential market are used.
Figure 5.3 shows the mobile broadband penetration forecasts for West European countries.
The forecasts are separated in Large and Small screen forecasts. Here, the penetration is given
as number of subscriptions divided by number of inhabitants.
Figure 5.3 Consumer market: Mobile broadband small screen and large screen penetration
forecasts, Western Europe, 2010 -2015
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The long-term subscription forecasts for Western Europe are found by multiplying the
penetration forecasts with the population size.
The figure shows that small screen subscriptions were offered from 2009. Hence there are
significant uncertainties in these forecasts. It should be noted that official statistics mainly
presents Large screen connections. For more information see (Stordahl 2010).
5.2 Household expenditure statistics and predictions
Table 4.2 shows that the mean household expenditure for EU15 increased from 25.114 € in
1999 to 29.403 € in 2005, which is an average increase of about 3 % per year. Calculations
based on data from figure 4.4 gives a yearly household increase of about 4 % for Norwegian
households in the period 2005 – 2008. The relative increase was higher in the 1990th than
during the recent years.
Chapter 5 showed the household expenditure of the following COICOP categories:
- Recording media (CIOCOP 09.1.4)
- Games, toys and hobbies (COICOP 09.3.1)
- Cultural services and entertainments COICOP 09.4.2)
- Games of chance (COICOP 09.4.3)
- Books (COICOP 09.5.1)
- Newspapers, magazines and other periodicals (COICOP 09.5.2)
The evolution of the household expenditures for the different categories has been described
for 15 Western European countries 1988 – 2005. In addition the evolution of the
corresponding expenditures was shown for Norway 2001 – 2009.
Six expenditure categories are analysed.
Let the spending categories be numbered j = 1, 2 - - - N. Here N = 6.
Let the annual household spending in each category be: Sj(t) at time t.
An important part of the modelling is to make forecasts for future expenditure of each of these
categories. Based on earlier history and related considerations household expenditure
forecasts can be developed for each category j: Sj(t), t = 2011, 2012 – 2015.
The statistics show individual variations in the household expenditure growth.
Recording media had a significant expenditure growth up to 1999, but the mean values for
EU15 countries have since then been flatting out. The same evolution is seen for the
Norwegian market up to 2008.
Long-term prediction for the Western European market will be household expenditure growth
close to 0 the next years.
Games, toys and hobbies show a steady expenditure growth. In the Norwegian market the
growth in about 5% yearly the last years. This is significantly higher than the increase in most
of the EU15 countries, which was about 3 % yearly growth in the period 1999 -2005.
Long-term prediction is 2 – 3 % yearly growth the next years.
Cultural services and entertainments had a year growth of about 7 % as an average for EU
counties in the period 1999 – 2005. It is about the same growth rate as in the Norwegian
market 2005 – 2008.
Long-term prediction is 5 – 7 % yearly growth the next years.
Games of chance had a very modest evolution, 1-2 % yearly growth for the EU15 countries as
a whole. The growth in the Norwegian market was even less than that. However, it is
important to note that there are definite uncertainties in the gambling expenditure reporting in
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the sampling surveys. The households tend to underestimate their gambling spending.
Long-term prediction is 3 % yearly growth the next years.
Books had a similar expenditure growth as recording media, with a significant growth up to
1999. Then the mean values for the EU15 countries have flattening out. The household
expenditure in the Norwegian market has been rather stable, but the last years up to 2008
there have a yearly decrease of about 3 %.
Long-term prediction is -3 % yearly growth the next years.
Newspapers, magazines and other periodicals expenditures are also as Books flattening out.
The evolution is seen for mean value of EU15 countries 1999 – 2005 and for the Norwegian
market 2001 – 2008. It is interesting to see that in spite of the growing offer of online
newspapers, the household expenditure has still not started to decrease. Now, there are
discussions of establishing payment models for online newspapers. This may in the long run
change the expenditure pattern to a certain degree.
Long-term prediction is -3 % yearly growths the next years.
5.3 Fraction of expenditure for telecommunication substitution
As mentioned parts of the expenditure in the categories analysed will be target for
telecommunication substitution either by the fixed or mobile broadband.
Relevant areas for substitution are:
- Purchase of films, videos, music
- Leasing of films, videos, music
- Video games (On line gaming)
- TV licences and pay TV
- Cinema, theatre, concerts
- Gambling
- Books
- Newspapers, newsletters and journals
Suppose that j(t) is the fraction of spending category Sj(t) at time t, which will be substituted
by use of telecommunications per household. One way to describe the evolution is to analyse
these fractions on long-term. Let the long-term fraction for spending category j be j().
Hence, one possibility is to make assumptions of the long-term fraction and then make
forecasts, which reach that level in the long run.
Questions to be answered are:
- How much of film, video, music market (both purchase and leasing) will be transferred by
telecommunications in the long run?
- What will be the fraction of payment for individual TV demand compared with the
traditional licence fee in the long run?
- How will the substitutions be distributed between fixed and mobile broadband?
- How much of the book, newspaper, newsletter, journal market will be transferred by
telecommunication in the long run?
- How will the business models develop for payment for different expenditure categories?
Another aspect of substitution effects for the telecommunications is also creation of additional
values. It is seen from the significant increase in the household spending on
telecommunication the last few years – especially caused by extended mobile usage.
Another important factor for future revenues in this sector is the evolution and growth in the
household spending in general. We see the spending over time change between categories, but
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for some of the countries, there is also a significant growth in the total spending. Part of this
growth may be used on telecommunications.
There are a lot of different difficult questions to be answered.
To estimate and forecast the long run fractions will be out of scope for this deliverable.
However, the forecasting approach will be described here.
Thej(t) is the fraction of spending category Sj(t) at time t. Now, this fraction is divided in:
jB(t) is the fraction of spending category Sj(t) at time t which could be substituted by
broadband, j = 1,2 - - - N
- jM(t) is the fraction of spending category Sj(t) at time t which could be substituted by new
mobile systems, j = 1,2 - - - N
It is suggested that these fractions follows a Logistic model which is S- shaped. The
forecasting function follows an exponential increase in the start, then a linear growth and then
decreased growth which is approaching a saturation level. This level, (), is the maximum
proportion of the expenditure which will be substituted by telecommunications.
-
Hence () is the saturation parameter in the Logistic model. The fraction will be in the
interval between 0 and 1.
Figure 5.4 illustrate as an example fraction forecasts for fixed and mobile broadband
substitution.
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Figure 5.4 Example of fraction forecasts of expenditure category S(t) for Fixed broadband
(FBB) and Mobile Broadband (MBB) substitution. jB() = 20% and jM() = 10%
Here, jB() = 20% and jM() = 10%. The long-run substitution effects in this example is
totally assumed to be 10 % + 20 % = 30 %. The figure shows that the substitution effect in
2015 is about 15 %.
These fractions will be different for the various categories and the substitution speed will also
be different.
5.4 Model for potential revenue content forecasts
Finally it is possible to put all forecasts from chapter 5.1 to 5.3 together for making the total
forecasting model for revenue content. As mentioned in chapter 5.3 additional work has to be
done to quantify the proportion of expenditure in the different categories which can be
substituted by fixed and mobile broadband.
The long-term estimates for broadband and mobile content potential revenue respectively, are:

jB() Sj(), j = 1,2 - - - N
jM() Sj(), j = 1,2 - - - N
(5.1)
(5.2)
Since the applications are rather new, it is natural to model the evolution with a diffusion
model. Here, Logistic models are used.
Let the Logistic model for fixed and mobile broadband spending categories be respectively
YjB(t) and YjM(t). Then the forecasts are expressed by:
YjB(t) = jB() Sj(t) / ( 1 + exp (jBjB t))jB

YjM(t) = jM() Sj(t) / ( 1 + exp (jMjM t))jM 

(5.3)


(5.4)
where YjB(t) and YjM(t) are demand forecasts at time t, jB() Sj() and jM() Sj() are the
saturation levels and jBjM,jB, jM jBjM are growth parameters.
The next part of the forecasting model includes:
- fB(t) broadband access forecasts (households)
- fM(t) mobile access forecasts (persons)
To be able to use the applications there are needs for broadband access and an advanced
mobile handset. The forecasts are found in section 5.1. As mentioned the forecasts could be
differentiated depending of spending category/applications.
Hence, the potential revenue content forecasting model R(t), consisting on a fixed broadband
part and a mobile broadband part is given by:
R(t) = [fB(t) j=1, --nYjB(t)] + [fM(t) j=1, --nYjM(t)]
(5.5)
The forecasting model covers the defined household expenditure categories. The forecasting
functions (5.3) and (5.4) should be used.
Based on the information in chapter 4 and 5.2 predictions of household expenditure growth
Sj(t), j = 1, 2, --- are made.
In addition long-term fixed and mobile broadband penetration forecasts for are made.
The next step is to estimate jB() and jM(), the long-term saturation level for fraction of
household expenditure which can be substituted by fixed and mobile broadband respectively.
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However, more research is needed to give reasonably good estimates of these fractions. The
other growth parameters will be easier to stipulate when the long-term fractions are known.
5.5 Additional considerations
So far there has been limited willingness to pay for content. However, the possibilities have
also been limited and the availability, the quality and the offers are not on an expected level.
In addition the costumers are used to get free offers by using Internet.
The Eurostat Community Survey (EU Commission 2009) describes the habits in 2008
regarding paying for content in the European community.
Figure 5.5 Paying for content habits and interest
Results from the survey show that less than 5 % of Europeans had paid for online content the
last 3 months. For approximately 30% of users lower prices would be an incentive to pay. In
2008 nearly 50 % of the respondents said that they were not willing to pay for content. The
limited willingness to pay in return for service improvements is that many of these services
are free because of Internet. The demand will increase with wider range of content, better
quality, more convenient payment methods and better quality. Once the connection to the
Internet is established, it is just a matter of streaming or downloading and copying the content
of choice.
Advertisement is a key factor for content distribution. The advertisement strategy changes as
a function of availability of different media. Hence, when the newspapers are losing
customers, they are also losing advertisements support. But, the advertisement money is
available. It is more a matter of “choosing” the right media channel. Therefore, there will be
available content supported by advertisements, which limits the payments and increase the
willingness to pay for content.
The content revenue will be shared among different players. The primary source is of course
the content owner. There may also be content brokers and aggregators who negotiate with
network operators and content owners. The revenue sharing differentiates between household
spending categories and applications and depends on how much resources are used by the
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players. It is important to separate between services for content categories, which is not based
on ownership of contents. Estimation of the revenue parts between these players is important
to follow up in the future.
This analysis is mainly concentrated on potential COICOP content expenditures and
substitutions. There are in addition much content generated, which cannot be covered by these
categories. The payments can be done indirectly through subscription fee for fixed broadband
or by a combination of subscription fee and traffic charge for mobile broadband. Services
based on information exchange, surfing, storing may in the long run give significant revenue
possibilities. Examples of such applications are: Surfing, purchasing, electronic commerce,
storing and backup, auctions, videograms, exchange of personal content, exchange of
downloaded content (shareware software, film clubs), video conferences etc. This is a part of
the household communication expenditure described in chapter 4.6.
User created content refers to content made publicly available through telecommunication
networks, reflecting a certain amount of creative efforts and created outside professional
routines and practices. The user created content is a complement to content categories
analysed in chapter 4. Business models for "user created content" can be established much
more easily than professionally-produced content offers, simply because they carry lower
development costs. The opportunities it represents are developed more by new entrants in the
media industry, such as YouTube, Twitter, Facebook etc, than by "traditional" media
distribution companies which are lagging behind.
Another point is the evolution of business models for content. From a network operator ‘s
point of view, the flat rate principle has been dominating. MARCH deliverable 3.4 (Stordahl,
2010) shows that the busy hour traffic forecasts for Western Europe increases exponentially
both for mobile and fixed broadband. So far, the network operators have increased their traffic
capacity to carry the offered traffic. The necessary investments are fetched from the
subscription tariffs, which mean that all users independent of traffic usage pays the same.
Now, the mobile operators are throttling high volume mobile broadband traffic, but this does
not solve the traffic problems.
AT&T started in 2010 to introduce volume cap and traffic payment proportional with
additional usage. Other mobile operators evaluate similar solutions.
In beginning of 2011, AT&T has also introduced the same charging principles for fixed
broadband traffic.
Canadian Radio-television and Telecommunications Commission, CRTC, the Canadian
Telecommunication regulator decided in February 2011 to promote a recommendation for
traffic volume based charging of fixed broadband traffic prevailing for all Canadian fixed
broadband operators. However, the Canadian Government has been seriously pressed by
lobby groups and has decided to overrule the proposed recommendation. (Toronto Sun 2011).
During the next years many operators will face exponential traffic (Stordahl 2010, Cisco 2010
a, Cisco 2010 b), increased broadband capacity investments and lack of means to carry high
quality traffic. There are reasons to believe that some type of payment models will be
initiated, especially for high priority traffic – traffic with high performance level. This
evolution will probably clear the way for content business models from operators’ point of
view.
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6 Conclusions
We have found indicators of a future sustainable digital economy. This is an important step
when discussing how Multilink technology could be financed. The different industries we
have looked into vary significantly. The music industry still need several years and structural
changes to prove it has gained momentum. The game industry has already proved to
transform and grow at the same time. The large video industry – film and TV – has potential
for a successful transformation. The most promising indications are the large volume of both
consumption and provisioning of online video, making Internet into a platform for
professional entertainment. Our conclusion is that there also in future will be demand for and
willingness to pay for content. We are more uncertain on which business models, actors,
market structures and alliances that will shape the future industries.
When we look into the existing business models for paid content they are different across
media verticals. Music is slowly building subscription models but still collect most of the
revenues from sales of single tunes. TV-content online has mainly been ad-financed, but
providers with subscription models are gaining market shares. The games industry has come a
long way with sales of games with Internet functionality and subscription, however models
based on micro transactions are growing.
The look into these revenue streams does not give any clear promises on end-users
willingness to pay directly for a Multilink service. The most important indication for this to
happen is the continued willingness to pay for content also in a digital context. In order to
identify other types of customers Multilink will have to address, we have examined the
different potential market structures, roles, business models and pricing structures in more
detail. Based on the logic of a two-sided market it is the Internet Access Provider (IAP) that
somehow has to finance the Multilink operator or invest in the technology. Hence, for the
Multilink technology it is necessary to verify that someone is willing to pay the IAP, which is
again based on two business models: 1) the end-user pays the IAP to reach the content
provider, or 2) the content provider pays the IAP to reach the end-user. The former is the
current model for IAPs, and now challenged by price pressure and demand for further
investments. This model must be developed to be sustainable, increasing the value and
willingness to pay for end-users through attractive content and services. The ongoing
integration and partnerships between IAPs and the music and video industry are signs of some
validity for the model. In the latter model 2) the IAP charges the content provider, and
subsidizes the end-user. In parallel the end-user pays directly to the content provider, which
finances the sum it will have to pay to the IAP.
It is difficult to identify criteria for the right balance between sides in a two-sided market, but
one general rule has emerged. It is the side that “cares” more about the other side that should
pay more, all else equal. In addition end-user’s demand for content variety in time and scope
imply that content providers pay the platform. For a shift in market balance in the two-sided
market we should expect the content providers to “care” more about reaching the customers
than vice versa, and the end-users to be more interested in varied offerings over time and
scope. The current vast volumes of information and actors on the Internet are indications of
customer preferences for variance. Today – opposed to the early days of Internet – providers
of content, business in general and public are critically dependent on online presence and
reaching their customers. Hence content providers might by now be more willing to pay the
IAP for access to end-users and IAP-related services, and in parallel establish direct customer
relationships to the end-user. There are very few examples of such changes in pricing
strategies, and probably optimistic to hope for it. This leaves the IAPs with the opportunity to
make the access more valuable to the end-users, get them to pay more/enough and optimize
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the cost side. Consequently, for IAPs vertical integration or tight partnerships with content
providers is an obvious strategy for repositioning in this market.
For the Multilink technology this implies that the IAPs are important customers. In the short
run the most promising customers are IAPs vertically integrated or in tight partnerships with
other actors, providing different accesses and content to end-users. In the long run IAPs that
have established two-sided market with paying content providers are potential customers and
investors in the Multilink technology.
To further assess the future willingness to pay an IAP for content services we have examined
household spending. We have analysed data representing the evolution of household spending
in general, spending on content and spending on telecommunication. It is natural to analyse
the spending budget for households in order to estimate the revenue potential for broadband
content both for fixed network broadband services and mobile broadband services. The
hypotheses is: Part of the spending categories, which the household now pay for, will in the
future be partially substituted by use of services in the mobile and fixed broadband networks.
The estimated potential will be an upper limit for a long-term evolution.
We document substantial potential revenue possibilities for the mobile and fixed broadband
market. It is expected that part of the future household expenditure on content may be utilixed
through fixed and mobile broadband networks. The Western European mobile and fixed
network markets have grown significantly during the last years. Several drivers have initiated
the very strong growth and new drivers are initiated. Distribution of network based broadband
digital content is in a growth phase. The analysis and the results concentrate mainly on the
residential broadband market. The residential market is also the dominant part of the
broadband market today regarding both accumulated traffic, number of accesses and revenue.
Based on the assumption of a future substitution between traditional content expenditure and
fixed/mobile broadband spending (including content and services) we have suggested a set of
forecasting models:
- Fixed broadband penetration forecasting models and forecasts
- Mobile broadband penetration forecasting models and forecasts
- Forecasts/forecasting methods for expenditure categories
- Forecasting models for part (fraction) of the expenditure substituted by
telecommunications
The forecasts for the first three listed models are quantified. The forecasting model for the
fraction of the expenditure substituted by telecommunications is only given as an example. It
is necessary to quantify the possible fraction for substitution in order to allocate the different
expenditure categories. All the forecasting models are put together in one last equation which
expresses the future expenditure substituted by fixed and mobile broadband, but which is still
dependent on identifying the fraction.
It is important to know that the potential identified revenue potentials will be shared between
different players in the value system: content creators, content brokers, service providers,
network operators and others. This again emphasizes that to make this evolution a success, it
is important to develop the right business models between the players and also implement
tariff procedures and principles for sharing the added broadband value among players.
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http://www.tencent.com/en-us/content/at/2010/attachments/20101110.pdf
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94
MARCH D3.5
Consumer spending and forecasts for content and communication services
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Broadcasting ourselves, 10 November 2010. Retrieved 23 February 2011: http://youtubeglobal.blogspot.com/2010/11/great-scott-over-35-hours-of-video.html
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95
MARCH D3.5
Consumer spending and forecasts for content and communication services
8 List of tables
Table 3.1Content industries, traditional and digital retail revenues 2008 (OECD 2010, IFPI
2011) ________________________________________________________________ 20
Table 3.2 Overview of online consumption in some countries (Sources – see below) ______ 24
Table 3.3 Online game forecast, based on input from Colin Sebastian, Lazard Capital markets
(Levell 2010) __________________________________________________________ 39
Table 4.1 Number of inhabitants 2000 – 2010 and number of households 2010 and number of
persons per household in 2010.
Number of inhabitants in millions (Population)
Year
Belgium
Denmark
Germany
Greece
Spain
France
Ireland
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Iceland
Norway
Switzerland
Western Europe
2000
10,24
5,33
82,16
10,90
40,05
60,55
3,78
56,92
0,43
15,86
8,00
10,20
5,17
8,86
58,79
0,28
4,48
7,16
389,17
2002
10,31
5,37
82,44
10,97
40,96
61,42
3,90
56,99
0,44
16,11
8,06
10,33
5,19
8,91
59,22
0,29
4,52
7,26
392,70
2004
10,40
5,40
82,53
11,04
42,35
62,29
4,03
57,89
0,45
16,26
8,14
10,47
5,22
8,98
59,70
0,29
4,58
7,36
397,37
2006
10,51
5,43
82,44
11,13
43,76
63,00
4,21
58,75
0,47
16,33
8,25
10,57
5,26
9,05
60,41
0,30
4,64
7,46
401,96
2008
10,67
5,48
82,22
11,21
45,28
64,00
4,45
59,62
0,48
16,41
8,32
10,62
5,30
9,18
61,19
0,32
4,74
7,59
407,08
No of persons
per houshold
2010
2010
10,84
2,3
5,53
2,29
81,80
2,09
11,31
2,49
45,99
2,73
64,71
2,26
4,47
2,63
60,34
2,46
0,50
2,42
16,57
2,27
8,38
2,34
10,64
2,65
5,35
2,02
9,34
2,06
62,01
2,23
0,32
2,2
4,86
2,19
7,79
2,18
410,75
2,30
Number of households in millions
2010
4,71
2,42
39,14
4,54
16,85
28,63
1,70
24,53
0,21
7,30
3,58
4,01
2,65
4,53
27,81
0,32
2,22
3,57
178,72
_____________________________________________________________________ 43
Table 4.2 Average household expenditure in € 1988 – 2005 for EU15 countries and Norway
(Eurostat) _____________________________________________________________ 45
Figure 4.4 Yearly household expenditure consumption in € in Norway 2000 - 2009 ______ 46
96
MARCH D3.5
Consumer spending and forecasts for content and communication services
Table 4.3 Recording media expenditure in € per household 1988 – 2005, EU15 countries
GEO/TIME
1988
1994
1999
2005
Belgium
59
280
271
323
Denmark
:
282
288
228
Germany
:
361
157
:
Ireland
:
296
625
550
Greece
261
208
777
479
Spain
71
101
95
114
France
338
520
546
536
Italy
224
285
425
:
Luxembourg
165
650
611
666
Netherlands
222
195
220
249
Austria
:
:
543
554
Portugal
258
458
463
389
Finland
:
307
368
449
Sweden
:
347
493
394
United Kingdom
249
377
600
684
Norway
:
:
:
581
________________________ 52
Table 4.4 Recording media expenditure per household 2000 – 2009 in Norway relative to the
2005 level
Year
2000-2002 2001-2003 2002-2004 2003-2005 2004-2006 2005-2007 2006-2008 2007-2009
Recording media
91 %
99 %
108 %
105 %
100 %
105 %
98 %
89 %
_____________________________________________________________________ 52
Table 4.5 Games, toys and hobbies expenditure in € per household 1988 – 2005, EU15
countries
GEO/TIME
Belgium
Denmark
Germany
Ireland
Greece
Spain
France
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Norway
1988
80
:
:
:
397
271
465
659
323
185
:
212
:
:
412
1994
272
190
263
655
520
189
352
777
475
237
:
272
307
264
623
97
1999
381
258
311
903
415
175
429
734
284
287
579
361
326
492
770
2005
498
312
:
900
576
299
615
798
331
327
697
271
380
397
854
724
________________ 53
MARCH D3.5
Consumer spending and forecasts for content and communication services
Table 4.6 Expenditure of cultural services and entertainments in € per household 1988 –
2005, EU15 countries
GEO/TIME
Belgium
Denmark
Germany
Ireland
Greece
Spain
France
Italy
Luxembourg
Netherlands
Austria
Portugal
Finland
Sweden
United Kingdom
Norway
1988
313
:
:
:
143
295
286
639
374
413
:
145
:
:
419
:
1994
1001
588
598
797
115
517
452
819
710
535
:
136
519
527
602
:
1999
804
706
675
969
321
518
679
708
835
506
1107
259
485
840
1032
:
2005
749
732
804
1565
359
716
801
836
790
569
1387
560
709
843
1303
1369
______ 54
Table 4.7 Expenditure of the categories Cinemas, theatres, concerts and Museums, zoological
gardens and such and Television, radio and such per household 2000 – 2009 in Norway
relative to the 2005 level
Year
2000-2002 2001-20032002-2004 2003-2005 2004-2006 2005-2007 2006-2008 2007-2009
Cinemas, theatres, concerts
76 %
83 %
86 %
96 %
100 %
114 %
117 %
124 %
Museums, zoological gardens etc60 %
69 %
80 %
88 %
100 %
114 %
117 %
124 %
Television, radio and such
86 %
91 %
95 %
104 %
100 %
105 %
102 %
116 %
_____________________________________________________________________ 54
Table 4.8 Expenditure of Games of chance in € per household 1988 – 2005, EU15 countries55
Table 4.9 Expenditure of Books, Newspapers and periodicals in € per household 1988 –
2005, EU15 countries ___________________________________________________ 56
Table 4.10 Expenditure of Communication usage in € per household 1988 – 2005, EU15
countries _____________________________________________________________ 57
Table 4.11 Expenditure of Communication usage in € per household 2001 -2009 for Norway
relative to 2005 expenditure communication usage
Year
Communication usage
2000-2002
84 %
2001-2003 2002-2004 2003-2005
102 %
102 %
100 %
2004-2006
100 %
2005-2007
86 %
2006-2008 2007-2009
85 %
85 %
_____________________________________________________________________ 58
Table 4.12: Total, average and index expenditure _________________________________ 74
98
MARCH D3.5
Consumer spending and forecasts for content and communication services
9 List of figures
Figure 2.1Principal model of two-sided market (Rochet&Tirole 2005) _________________ 10
Figure 2.2 Two-sided market- end-user pays the platform ___________________________ 11
Figure 2.3 Two-sided market – CAS pays the platform _____________________________ 12
Figure 3.1 Global Digital revenue shares for some content types (IFPI 2010) ____________ 19
Figure 3.2 Top 50 global sites by traffic volume and activity/hits (Cisco 2010) __________ 21
Figure 3.3: Digital broadband content business models (OECD 2010) _________________ 22
Figure 3.4: Online categories that drive web usage (comScore 2010) __________________ 23
Figure 3.5Overview of the share of TV-content of total online video consumption
(SevenOneMedia 2009)__________________________________________________ 24
Figure 3.6 Three screen numbers – US, (Source: Nielsen Three screen report, 2010) ______ 26
Figure 3.7 Index of Online Video Usage by market, Nielsen2010 _____________________ 26
Figure 3.8 YouTube upload of videos each minute (YouTube 2010) __________________ 28
Figure 3.9: US TV-subscription market (Source: Netflix and PriceWaterhouseCoopers
(retrieved at ir.netflix.com/# 23 January 2011)) _______________________________ 30
Figure 3.10 How and where do people listen to music (IFPI 2011) ____________________ 32
Figure 3.11 Three most popular systems by region (ISFE 2010) ______________________ 36
Figure 3.12 Online gaming activity by region (ISFE, 2010) _________________________ 37
Figure 3.13 The world gaming market by segment (Isfe-eu.org 2011) _________________ 38
Figure 4.1 Population and household growth in Western Europe 2000 -2010 ____________ 44
Figure 4.2 EU Consumption expenditure of households on goods and services, EU-27, 2006
_____________________________________________________________________ 44
Figure 4.3 Consumption as a proportion of GDP European countries in 2004 (Eurostat 2008
b) ___________________________________________________________________ 46
Figure 4.5: Internet users as percentage of population (source Banco Mundial) __________ 58
Figure 4.6: Output Gap in percent of potential GDP (Source IMF) ____________ 59
Figure 4.7: Government gross debt as percentage of GDP (Source IMF) ______ 61
Figure 4.8: Contracted services bundles typology in Spain (source CMT) ______________ 62
Figure 4.9: Broadband lines per technology (source CMT) __________________________ 62
Figure 10 3G mobile-capable in Spain (source NetSize) ____________________________ 63
Figure 4.11: Fixed broadband penetration in Spain and Europe (source Eurostat) ________ 63
Figure 4.12: Data cards growth during last year in Spain (source CMT) ________________ 64
Figure 4.13: % of people watching TV in a typical week (source EIAA) _______________ 65
Figure 4.14: % of people using Internet in a typical week (source EIAA) _______________ 65
Figure 4.15: Hours of Internet usage in a typical week (source EIAA) _________________ 66
99
MARCH D3.5
Consumer spending and forecasts for content and communication services
Figure 4.16:: % of broadband users out of total Internet users (source EIAA)____________ 66
Figure 4.17: % of wireless connections to access Internet (source EIAA) _______________ 67
Figure 4.18: % of mobile devices with and without Internet access (source EIAA) _______ 67
Figure 4.19: Mobile Internet users 16+ (source EIAA) _____________________________ 68
Figure 4.20: Media mesh usage mobile Internet users 16+ (source EIAA) ______________ 68
Figure 4.21: OCDE urban-rural typology ________________________________________ 70
Figure 4.22: Convergence Regions in the EU according to Structural Funds 2007-2013 ___ 71
Figure 4.23: EU Broadband penetration rate – BB lines per 100 population _____________ 72
Figure 4.24: Mobile BB penetration rate – dedicated data service cards/modems/keys _____ 72
Figure 4.25: Fixed broadband lines by speeds ____________________________________ 73
Figure 4.26: Forecast of global mobile data traffic and its components _________________ 74
Figure 4.27: Family budget distribution _________________________________________ 75
Figure 4.28: Communication and leisure expenditure per age ________________________ 76
Figure 4.29: Communication and leisure percentage per educational level ______________ 76
Figure 4.30: Communication and leisure expenditure increase per educational level ______ 76
Figure 5.1 Broadband penetration forecasts, Western Europe, residential market 2010 – 2018
_____________________________________________________________________ 78
Figure 5.2 Penetration forecasts DSL, HFC, Fiber and FWA, Western Europe, residential
market, 2010 -2018 _____________________________________________________ 79
Figure 5.3 Consumer market: Mobile broadband small screen and large screen penetration
forecasts, Western Europe, 2010 -2015 _____________________________________ 80
Figure 5.4 Example of fraction forecasts of expenditure category S(t) for Fixed broadband
(FBB) and Mobile Broadband (MBB) substitution. jB() = 20% and jM() = 10% _ 84
100
MARCH D3.5
Consumer spending and forecasts for content and communication services
10 Acronyms and abbreviations
3D TV: TV for 3D-Imaging
CAS provider: Content, application or service provider
CDN: Content delivery network
COICOP: Classification of individual Consumption by purpose.
http://stats.oecd.org/glossary/detail.asp?ID=352
CRTC: Canadian radio-television and telecommunication regulator
DOCSIS: Data over cable service interface specification
DTH: Direct to the home satellite
DVD: Optical Disk Storage
EIAA: European Interactive Advertising Association
EU15: Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy,
Luxembourg, the Netherlands, Portugal, Spain, Sweden and the United Kingdom.
EU27: EU’s currently 27 member countries
Eurostat: European Commission Statistics.
http://epp.eurostat.ec.europa.eu/portal/page/portal/eurostat/home/
GDP: Gross Domestic Product
HDTV: High Definition TV
HFC: Hybrid Fiber Coax
IAP: Internet access provider
IMF: International Monetary Fund
IPTV: Internet protokol television
M2M: Machine To Machine
MMO games: Massively Multiplayer Online games
NMT: Nordic Mobil Telephone. http://en.wikipedia.org/wiki/Nordic_Mobile_Telephone
OTT services: Over the top services
PIGS: Portugal, Ireland, Italy, Greece and Spain
TVoDSL: TV over DSL line
UFIGS countries: UK, France, Italy, Germany, Spain/Portugal
UGC: user generated content
VHS: Video Home System
101