Market Insights

The Financial Picture

Market Insight 7. Distribution and content businesses are decoupling, transforming their economics.
Audio market Video market

Before the Internet, media companies needed to invest in content and physical distribution. They came as a package: newspapers invested in printing presses and physical distribution networks in order to provide the news; music was pressed onto discs for physical distribution; TV and radio broadcasters invested in transmitters to entertain and inform local audiences; and cable and satellite providers invested in terrestrial and satellite transmission networks to provide a multi-channel universe of viewing choices.

The Internet has profoundly changed this model. In the digital world, the business models for distribution and content have decoupled. While the distribution business is healthy and growing, media businesses have struggled. The profitability of media companies, in aggregate, remains close to the average of all Canadian companies. However, Internet access is the clear top priority for consumers, if revenue is used as a yardstick: broadband Internet revenues are approaching $20 billion and have grown by almost two-thirds in just the last five years. Canadians spend half that amount on subscriptions for content, including traditional and online, both audio and video. This spending is growing, but at a much slower pace.

Market Insight 8. Advertising revenue is flowing more to companies investing in platforms and data, and less to media companies investing in content.
Audio market Video market

Marketers used to be dependent on newspapers, magazines, radio and TV services to advertise and promote their brands and products to audiences. In turn those media companies needed to invest in content, such as news and entertainment, in order to capture audience attention for advertisers. Digital has turned this on its head. Marketers have made multi-billion dollar advertising outlays to digital platforms that leverage free content, predominantly search and social media platforms, and the valuable consumer data that comes with it. This in turn draws advertising away from services that invest in content. The cycle of technological disruption is well advanced in the newspaper sector and is now affecting both TV and radio broadcasters, who are seeing declines in advertising revenues. As marketers increasingly rely on big data to target audiences, the shift to digital will become essential for TV and radio to retain advertisers.

Market Insight 9. Subscriptions are more important than ever.
Audio market Video market

As a proportion of total revenues in the video marketplace, subscriptions make up the vast majority of revenues and this market share is growing. In the audio marketplace, subscriptions represent a smaller source of funding, but there too they are growing.

Market Insight 10. The relationship between radio and the music business has changed.
Audio market

Traditionally, radio airplay helped support artists and labels by encouraging listeners to buy music. The relationship between radio airplay and support for artists and music isn’t as clear-cut anymore, yet radio remains important for the discovery of new artists and music. The most important sources of revenue for music artists are shifting from the sale of discs and digital downloads to streaming services. Also, competition is fiercer than ever as AM/FM radio, satellite radio and streaming music services are all drawing from the same music library to compete for listeners.

Market Insight 11. Public funding is an important component of Canada’s media economy.
Audio market Video market

Public funding makes possible the production of content that wouldn’t be made otherwise and helps stabilize production levels relative to fluctuations in the market. It has become a less prominent component over time as industry revenues have grown but is still significant.