Executive Summary

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Out with the old, in with the new – or rather, in with the Internet. That was 2015’s story, and indeed, it is the story of the decade. Internet Access and Internet Advertising accounted for a quarter of Switzerland’s Entertainment and Media (E&M) revenues in 2010, today it’s 40%, and by 2020 it will be nearly half.

The Internet obviously is driving Internet Access and Internet Advertising, and only slightly-less-obviously is it driving the other E&M segments. TV Subscriptions, Video Games, Out of Home Advertising, Radio, Music and Filmed Entertainment are all riding the Internet rocket, to a greater or lesser extent. TV Advertising is being somewhat burnt by the rocket, as viewers use new technologies and formats to avoid adverts. Completely scorched by the rocket’s exhaust are the once-proud Consumer Magazines and Newspapers segments, whose size and influence have fallen faster than most anyone could have imagined.

The actual functions of the Internet are evolving as well. There is an ongoing move from personal computers to tablets and smartphones. Streaming is replacing downloads and pay-per-view. Media such as TV, films, video games, radio, even magazines and newspapers are being distributed online – with greater and lesser success. Sales of ‘hard copy’ physical product are diving. Substitution is rampant: E&M segments are much more turbulent than their aggregated revenues suggest.

Total E&M revenues climbed by 5.6 per cent in 2015 to CHF 14.2 billion (thousand millions). A number of segments outperformed their 2010-2020 trendlines, as Switzerland’s economy recovered from its early-2014 stumble when the Euro/Franc exchange rate was unloosed. The only real outlier last year was Filmed Entertainment. Thanks mainly to a triplet of blockbusters that packed cinemas, the segment’s revenues jumped 19 per cent to CHF 600 million. More blockbusters are expected in 2017-2018, but these will compensate losses elsewhere only in part, leaving the segment in modest decline.

2016 will see a cooling in E&M growth to 2.8 per cent, near to the 2.4 per cent compound annual growth rate (CAGR) forecast for 2015-2020. The biggest advances will come in – what else? – Internet Access and Internet Advertising. Bringing up the rear will be – what else? – Consumer Magazines and Newspapers. By 2020, Switzerland’s E&M industry is expected to top CHF 16 billion.

We’ve all seen the speed at which younger consumers adopt new behaviours, and we’ve recognised their startling ability to multitask in different media. It is precisely these attributes that are leading the way, setting trends and driving demand for E&M around the world. What that means for E&M companies in Switzerland is clear: to secure future revenues, companies must understand the needs of the younger generations. And these will change, as evidenced by changes to date: from music downloads to streaming, from desktop PCs to mobile Internet, from linear TV to OTT and time-shifted viewing, from newspapers and magazines to online news and social networks.

In a world where Netflix can launch streaming in 130 countries in a single day, it’s easy to assume that content is becoming more homogeneous. But in fact, the E&M industry is becoming ever more ‘glocalised’. For example, Swiss service providers such as Swisscom create value and earn money by ‘content curation’ (choice of movies for VOD/streaming subscriptions, according to the Swiss-tastes and specific national factors). So we have an industry that is growing more global, yet pitching to cultures and tastes that remain steadfastly local.

Streaming defines a vast shift in the approach to music consumption, just as video streaming is becoming the ‘new normal’ for digital natives to watch TV. This is driving a change of business models, from on demand (pay per view/download/article) to monthly subscriptions. “The shift from VOD offers towards monthly subscriptions is comparable to the transformation seen in telephony, says Swisscom’s senior strategy manager Matthias Schmidt. “Customers do not pay per unit anymore. Instead, packages and monthly subscriptions grant unlimited access.” Providers are moving to ‘omni-channel’ offerings for TV, laptops, tablets and smartphones. These appeal to consumers who still want a one-stop-shop. A good example is the @12 app from a Swiss publisher – offering 12 articles per day from various magazines and newspapers, on a monthly subscription.

Platforms have developed independently of existing structures/infrastructure, and they are focused on content distribution, not its production. They function as gatekeepers, controlling access of millions of consumers to content, and vice versa. Major platforms (such as YouTube, Netflix, Spotify, Facebook and Snapchat) have enormous power to set market rules, such as prices, revenue-sharing terms and technical standards. Media companies (content creators) will increasingly be forced to cooperate with majors to reach consumers. There will be little choice but to ‘play by their rules’ – i.e. the distributors’ rules.

The turbulence of ongoing change is reordering the way many E&M companies work. Advertising, for example. Huge, integrated data sets, smart analytics, new visualization and delivery platforms — combined with the growth of programmatic advertising and the advent of native content — would seem to significantly undermine the roles of traditional agencies and media companies. Revenues are migrating from companies who sell ‘big ideas’ toward those, like Google and Facebook, whose differentiator is their algorithmic buying platform. Meanwhile, multichannel networks, social media, and content marketing businesses are seeking to grab a slice of the advertising pie. A potential Swiss champion here is Admira, a joint venture of two publishers and a telco. Their complimentary expertise in technology, advertising and marketing are the best prerequisites for future success.

The largest segment of Switzerland’s E&M – accounting for one third of its revenues – is still on a roll, with 6 per cent growth in the cards for 2016. Two main factors are driving expansion. One is increased penetration of mobile devices: the market is headed toward saturation in another 4 years. The other factor is consumer demand for higher fixed-broadband bandwidths. As wired bandwidth prices have remained stable over the last few years, consumers have moved to higher bandwidths. This increases revenues per user, especially in cable. 

Online adverts is the fastest-growing segment of Switzerland’s E&M, with an 11 per cent climb projected for 2016 and a 7.4 per cent CAGR for 2015-2020. This is part of a secular trend: ever more industries are acknowledging the significance of the Internet. They are increasing their presence, by shifting budget from the classic advertising channels like print and television to Internet Advertising, whose share of the 2015 media mix grew to approximately 30%. And it’s not just the Internet’s ubiquity they like, they also value its ability to track and to target advertising.

Cable still predominates in TV transmission, but it is steadily losing subscribers to the upstart IPTV, which is growing at a CAGR of over 4.7 per cent. Royalties are also climbing briskly, at over 5 per cent. Public license fees are holding steady, with a 2015-2020 CAGR of 1 per cent. The dash to digital continues apace. Multi-platforms are all the rage: UPC has signed up over 200’000 customers to its “Horizon Box”; and Sunrise has attracted nearly 150’000 to “Smart TV”. Web TV is also strong, with offerings from Swisscom, Teleboy and others.

This segment lost its predominance to Internet Advertising in 2012, and it is still very challenged by the rise of ‘time-shifted viewing’, whereby viewers can fast forward through or even skip adverts. Nonetheless, TV Advertising will grow 2.7 per cent in 2016, slightly above its CAGR for 2015-2020. The health of the general economy helps here, as do the sporadic, significant revenues delivered by major sporting events.

Revenues here are nearly flat. Growth will be 1 per cent in 2016, and the CAGR for 2015-2020 just slightly lower. But this masks an internal dynamism. Physical sales of CDs are plunging, while digital downloads are falling prey to the boom in streaming. The latter is a battleground between Spotify – which is still operating at a loss – and Apple Music. Live music, at concerts and festivals, is a still-profitable but very mature market in Switzerland.

Netflix and other digital channels are on the rise, while cinema receipts are strong, thanks to an ongoing string of Hollywood blockbusters that pack seats. Still, these won’t be enough in 2016 to compensate for the deep decline in physical product sales: CDs, Blu-Rays and the like. Revenues are expected to fall by 4 per cent this year, and the 2015-2020 CAGR is reckoned at -0.6 per cent. Digital channels will continue to be a major battleground. Existing TV providers Swisscom, and others are offering new subscription services, while international players such as Amazon Prime and HBO are potential entrants to the Swiss market.

‘Gamification’ is a powerful trend, with ‘virtual reality’ and ‘augmented reality’ increasingly becoming just ‘reality.’ The craze for Pokémon GO was typical, and this could spread much further than the traditional gaming industry. Tourism promoters, for instance, could put Pokémons on mountain tops and other attractions to keep the punters coming. Sales of physical games are tumbling as gamers go online, but console and PC revenues are still rising modestly. Social and casual gaming (Angry Birds, Pokémon and co) as well as traditional, online gaming are rocketing, with CAGRs of more than 10 per cent. Overall, the segment’s 2015-2020 CAGR is 4.4 per cent.

As predicted in previous outlooks, radio is still popular in Switzerland and will stay so in future. Revenues will rise modestly – driven by their main source, public license fees – at a 2015-2020 CAGR of 1.1 per cent, thanks mainly to stipulations of a new radio and television law (RTVG). Advertisers are of course tempted by Internet and mobile advertising, but radio is maintaining its market with its unique mix of ‘hyper-local’ news, information and music. Radio is ingrained in many Swiss households and workplaces, so it still offers unique access. On the technical side, conventional FM broadcasting is being overtaken by digital broadcasting for the first time in summer 2016. It will – thanks to government decree – go the way of the dinosaur in the next few years; by 2024 all Swiss radio should be digital.

OOH Advertising revenues are expected to be flat in 2016, but otherwise growing at a 2015-2020 CAGR of 1.2 per cent. The segment’s two giants, APG and Clear Channel Outdoor, are steadily shifting away from non-digital to digital, while keeping a tight grip on available public spaces such as buildings, malls, business centres, ski areas, privately owned car parks and public transportation. A typical OOH innovation is the ‘Rail eBoard’, being installed at railway stations across the country. These have turned arrival/departure boards into huge (60 metres squared) video screens.

Popular magazines will not disappear within the next five years, but their revenues are fading fast. Too many readers expect to get online content for free. Too many advertisers are unwilling to pay the same kind of fees for online advertising as they did for print. And print continues to wither away. Nonetheless, print advertising is still the backbone of the segment’s revenues, and publishers have cut back their costs to make the best of a market that is declining at a 2015-2020 CAGR of -3.9 per cent.

This is the only segment faring worse than consumer magazines, with a 2015-2020 CAGR of -5.5 per cent. Papers have the same problems as magazines, yet they face stiffer competition from conventional news outlets and from newbies like Apple, Facebook and YouTube. Their efforts to go online, and to offer more background and analysis, are laudable, but they have not stemmed the rush of readers to the exits. Especially Sunday papers are suffering heavily, as a sharp decline in advertising revenues in the first half of 2016 indicates.

* As all revenues are quoted as current prices we refer to nominal GDP throughout our publication.