THE FUTURE IS NOW:  AMID GENERATION #HASHTAG'S DOMINANCE, ‘NATIVE DIGITAL' CONTENT AND PROFIT MODELS ARE ‘MUST HAVES' FOR SUCCESS IN THE MEDIA INDUSTRY

Bain & Company's annual media report identifies five imperatives for media companies in the native-digital era

Paris – Oct. 13, 2015 – Think native-digital first.  That is the advice to entertainment, media and even publishing and services companies from Bain & Company in its annual report, Generation #hashtag ascendant: Think native digital first.  According to Bain, Generation #hashtag – those who, regardless of age, prefer content that has been designed and distributed exclusively through digital channels, particularly mobile – now comprises nearly half of all media consumers and, contrary to conventional wisdom, a growing cohort of younger consumers is increasingly willing to pay for content, despite slimmer wallets and access to illegal alternatives.  The ability of media companies to successfully ride this wave of change depends on understanding consumer pain points and preferences and adopting a native-digital-first mindset, rather than digitizing existing content and business models.

In its survey of more than 7,000 consumers across 10 countries, Bain found that native digital consumption is nearly as high in emerging markets as in developed ones:

• Entertainment has passed a point of no return in its transition to digital with 47 percent of consumers making up Generation #hashtag across video, music and games in France, Germany, Sweden, the U.K., and the U.S., and 37 percent across emerging markets (Russia, South Africa, India, China, and Brazil), up from just 24 percent in 2014.
• Online news and magazines have reached staggering digital penetrations of 89 percent and 65 percent respectively.  Overall, 30 percent of readers belong to Generation #hashtag across developed and emerging markets. 
• The services category, which includes real estate, jobs, travel and sharing sites, such as Yelp, AirBnB and Uber, is rapidly becoming a native-digital-first space.  Surprisingly, while millennials led the charge in entertainment, services show a surprising even pace across generations with more than 30 percent of those over 30 using native digital formats compared to 20 percent of younger consumers.

"Generation #hashtag is fast approaching a tipping point, driven by adoption of digital media and services from power users as much as new customers, but many media companies – traditional and native – still haven't cracked the code on profitability for native formats," said Laurent Colombani, a partner in Bain's Media Practice and lead author of the study. "There is a delicate balance to strike between getting users to adopt native models and getting them to actually pay for them."

New platforms – particularly mobile – offer renewed hope for paying customers.  Bain's survey finds that mobile-equipped consumers are more likely to pay for digital native content:  the penetration of digital consumer pay models for video is more than 25 percent for those who own a smartphone and just half that number among those who don't.  This, says Bain, may partially explain why younger cohorts, more prone to use their smartphone to access media content, appear more comfortable with consumer-pay models.

Yet, for all of the positive momentum, the native digital approach to monetization has a long way to go before catching up with revenue levels of their more traditional counterparts. Native digital models are aggressively fighting for global leadership across the media landscape and directly challenging historical leaders for scale. However, bigger is not always better. Early indicators show that even the champions of scale are introducing premium content and services to more effectively reach their full market potential.

"Success in the native digital era boils down to gathering more arrows in the monetization quiver and adapting to entirely new payment structures," said Colombani. "Just as incumbents need to embrace native models, native players may also have to learn some of the old dogs' tricks."

Mastering the new monetization options for the digital native era requires that media companies upgrade their capabilities with an emphasis on five imperatives:

• Rethink the content strategy – Media companies need to build content for the world we live in, rather than translate old recipes to new screens. Successful content is user-influenced, if not user generated.
• Secure distribution routes – In an increasingly over-crowded digital space, the old paradigm that "good content will always sell" may no longer hold true. Securing the right distribution to ensure that great content finds its consumers is all the more critical as audiences become increasingly fragmented across media and platforms.
• Embrace the new rules of advertising – As top marketers embrace digital not only for direct marketing but also branding campaigns, such new formats are changing the rules for the advertising market overall: individual targeting, social engagement, measurability and return on investment, have joined, and sometimes replaced, reach and affinity in the advertiser handbook.
• Earn customer data – In a demand-driven economy, deep insight into consumer behavior is more critical than ever.  Media companies need to earn consumer's trust and develop the right incentives and rewards for customers to provide their data willingly.
• Revisit the M&A toolkit – The history of digital transformations is littered with examples of failed acquisitions and value destruction. Traditional media executives will need to set up specific approaches to digital M&A, both in terms of deal-making and integration. Becoming more agile in acquiring and integrating native digital businesses will become an essential skill for companies that want to embrace the next wave of digital change.

Editor's Note: To receive a copy of Generation #hashtag ascendant: Think native digital first," or to arrange an interview with its authors:

• International media: contact Dan Pinkney at dan.pinkney@bain.com or +1 646-562-8102
• French media: contact Stéphanie Herrmann at stephanie.herrmann@bain.com or +33 1-4455-7765

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