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Segment definition
Filmed entertainment is distributed by out-of-home and in-home channels. Out-of-home includes cinemas, i.e. consumer spending at the box office. In-home comprises the home viewing of both physical and online films and shows.
In-home physical includes the purchase or rental of videos, CDs and DVDs at video stores and other rental outlets, as well as DVD-by-mail services. In-home physicals includes the purchase of videos, CDs and DVDs at video stores, rentals and DVD-by-mail services.
More than 1 out of 5 Swiss citizens watches Netflix
In-home digital includes on-demand services that offer movies, TV programmes or other premium video content via TV subscription providers (e.g. cable, satellite and telco providers) or over-the-top (OTT) services (e.g. Netflix). Digital home video through TV subscription providers comprises spending on video-on-demand (VoD) and pay-per-view (PPV). Digital home video through OTT services consists of revenues from stand-alone services (e.g. Amazon Prime Video) whose content is accessed via a broadband or wireless Internet connection and viewable on a PC, TV, tablet, smartphone or any other capable device that bypasses TV subscription providers.
Further, these services are divided into transactional video demand (TVOD) and subscription video on demand (SVOD). TVOD services (e.g. iTunes) deliver filmed entertainment content via the open Internet and do not require a subscription. SVOD services (e.g. Netflix) are also delivered over the open Internet, but require a subscription.
This segment includes neither music videos nor short clips, nor ancillary revenues earned by cinemas, such as sales of snacks, beverages or accessories (e.g. 3D glasses).
| Business model | OTT Service | TV Subscription Provider |
1) TVoD Transaction-based Video on Demand User pays per consumed item |
ITunes GooglePlay |
Teleclub | Swisscom Horizon | UPC |
2) SVoD Subscription Video on Demand User pays a monthly subscription fee |
Netflix Hollystar |
Play | Swisscom MyPrime | UPC |
3) AD VoD Advertiser-supported Video on Demand User “pays” by accepting advertising |
YouTube Twitch |
- |
Business innovation
Aside from 3D technology, cinemas have experienced only a very few innovations in the past decades. This can be expected to change, as cinemas enter a new era of data-based advertising. With the application of face recognition and data analysis, interesting opportunities will open up to the world of film.
Through facial expression-tracking neural networks, companies wish to learn and predict how the audience react to a certain film passage. Such a neural network requires a huge dataset of how people express their emotions through gesticulations and facial changes in order to analyse their realtime reactions. This data is later used to predict how a crowd will react to various segments of the film. With this technology, film makers can customise their productions based on the audience’s responses, thereby creating a more appealing content. This may also lead to bespoke productions depending on the target audience or region.
Further applications would be the analysis of the general audience in terms of how many people are present, their age, sex and additional parameters. Through this, advertisers could display more customised ads to different target groups at their cinemas.
The Swiss filmed entertainment market
Market overview
As a result of technological progress and changing consumer behaviours in recent years, the filmed entertainment sector has been greatly affected by a shift to digital. While there are declining revenues in the physical channel and the cinema segment, the digital channels, especially OTT streaming, are currently overcompensating. Driven by digital growth, as well as adjusted subscriber numbers in the OTT streaming and VOD market, the total market revenues expanded by 4.0 per cent to a cumulative CHF 635 million.
“Depending on the age group, there is a growing change in user behaviour in the entertainment industry. While older generations prefer to consume content via linear television, younger generations will more often receive content via on-demand offers. There are already series, which are called up almost 90% through on-demand.”
Physical sell-through and rentals of home video have been declining constantly in recent years and will continue to do so going forward. In 2017, revenues of only CHF 89 million were generated by selling and renting out home video. The physical channel has shrunk by 17.9 per cent due to the increasing dominance of OTT streaming platforms and VOD & PPV TV subscription providers.
Unlike the physical sell and rental revenue streams, the cinema industry can still rely on its unique user experience and early access to blockbusters as differentiation factors to OTT providers. Similar to the past couple of years, the cinema industry is heavily dependent on the availability of quality blockbusters or sequels to well-known movies. As for 2017, the Swiss cinema year ended up with slightly higher figures than in the previous year and revenues for box office amounted for CHF 241 million. Over the course of the year, five new cinemas were opened, one of which a multiplex, while only one had to be closed. Furthermore, Swiss-made films flourished and managed to attract 50% more customers than in the prior year. Aside from this positive development, the top three movies by number of admissions rose to a little over 1.2 million. The movie with the most total admissions was “Despicable Me 3”, followed by “Star Wars: The Last Jedi” and “Fast & Furious 8”. The top of the list is dominated by sequels, once again underscoring the importance of movie franchises for the success of Swiss cinemas. On the whole, 2017 was a good year for the Swiss cinema market, but the comparison with past years also demonstrates its propensity to fluctuate considerably. In general, there were fewer admissions with lower average ticket prices than in 2010. Whereas the normal Swiss citizen used to go to the cinema an average of 2.2 times per year in 2000, this frequency shrunk to 1.6 in 2017.
In Switzerland, multiplex cinemas are still on an upward trend and now constitute approximately one quarter of all screens and seats, with total admissions increasing by 7.2% and representing a 37 per cent overall market share. 3D movies, on the other hand, suffered a decline of 3 per cent compared to 2016.
In 2017, Swiss cinema advertising saw a slight increase after an underwhelming previous year. Cinema advertising revenues grew by 6.9% to a total of CHF 31 million.
Like in other parts of the world, the Swiss OTT market faces intense competition for market shares. In the past year, social media companies have entered the OTT market, thereby going head-to-head with mass-market platforms such as Netflix and broadcasters like Sky and HBO. This battle for viewers overwhelmed Swiss SVOD providers like Swisscoms’ Teleclub and UPC’s MyPrime. OTT applications are now part of the services of Swiss providers. The big differentiation factor to compete in this market (next to popular movies and series) is the ability to offer an appealing user experience, which is heavily dependent on original content. As recent years have shown, OTT platforms that produce their own movies and series are enjoying an immense uptrend.
In 2011, Hulu started this trend with its first series “The Morning After”. Since then, the production of original content has been rising exponentially. Accordingly, the SVOD giants are allocating their budgets in a big way: with 56 productions in 2017 and an overall investment of $6 billion (USD 12-13 billion in 2018) Netflix takes the lead, followed by Amazon Prime Video with 23 and YouTube Red with 16 “in-house” productions. These investments indeed payed off and resulted in a staggering 91 Emmy Awards nominations for Netflix, compared to Hulu’s 18 and Amazon’s 16 nominations. The lead still remains with HBO’s 110 nominations, but the pure OTT platforms are gaining importance. Netflix is projected to spend up to an astonishing $ 22.5 billion on content per year by 2022.
Viu, an Asia-based OTT platform, is focusing on its Viu Original initiative this year, which includes the production of 70 titles and 900 episodes in 2018 alone. Viu targets emerging markets with its freemium model, which already counts 16 million active monthly users.
“In order to differentiate from the major OTT platforms it is increasingly important to introduce local in-house productions to the market. An exclusive offer will continue to be one of vital distinguishing features in the future.”
It is highly unlikely that Swiss SVOD providers will ever be able to compete on the same level with these international giants and their gargantuan budgets for content creation. Nonetheless, there is an opportunity to produce more Swiss content and thereby supply a niche market with original entertainment.
Key Players
Currently, the Swiss cinema landscape encompasses a total of 585 screens, most of which are owned by Kitag, Pathé or Arena cinemas. The fact that only four cantons (Zurich, Vaud, Geneva and Bern) account for over 50 per cent of total admissions in Switzerland speaks volumes about the importance of location. In addition, size is the key when it comes to focusing on economies of scale and the ability to compensate for the high licensing costs of blockbuster movies. This is reflected in the shift from small cinema complexes to multiplexes.
The TV subscription market is led by Swisscom and UPC. Both providers offer a wide range of TV channels as well as VoD services. The overall TVOD and PPV market generated revenues of some CHF 198 million in 2017, accounting for almost one-third of the total Swiss filmed entertainment market.
Thanks to improved metrics of OTT platform subscribers, it was possible to adjust the respective amount of paying users. In the OTT streaming market, Netflix remains by far the largest player and is still growing. One out of five people in Switzerland watches Netflix, but only 13 per cent of them are paying users: a large number of Netflix users tie into the accounts of friends or family and don’t pay for the service themselves. Teleclub Play is the second biggest OTT platform with a share of slightly more than 4 per cent, followed by Amazon and Hollystar with shares under 4 per cent.
Principal drivers
Blockchain as possible game changer
Blockchain is going to be a major focal point for innovative entertainment and media companies in the future. Blockchain enables the possibility of a decentralised, yet tamper-resistant digital marketplace. Transactions are displayed transparently to participants and recorded chronologically in a distributed ledger. However, these transactions are encrypted so nobody can fake or manipulate them. In so-called smart contracts, the transactions can be automated by programming-in agreed business rules, logic and contract terms. Blockchain can help the E&M industry to address significant challenges: for example, security concerns, transparency and monetisation, even as it opens up new possibilities such as improved advertisements or the crowdfunding of creative productions. The years to come will show if the hype surrounding blockchain is justified, but for now the technology offers an opportunity to change the E&M landscape.
New business models for cinemas
As cinemas gradually become fewer, but bigger, their dependency on blockbusters and movie franchises increases, with the emphasis placed on family-oriented animations and superhero films. Pressured by the consumer’s emerging tendency to view new movies directly on the Internet, business models need to be rethought. The traditional “theatrical window” (i.e. where movies can be shown only in cinemas) is threatened. Although it will still remain for big studio movies, many smaller productions could be released simultaneously in cinemas and, with smaller delays, on home-entertainment platforms.
Shift to video consumption anytime, anywhere
With the rise and diffusion of interconnected devices, video consumers are no longer constrained to a single device at home. Moreover, the trend today is for everyone to own at least one, if not multiple devices that are connected to the Internet. In combination with the relentless growth in broadband, viewers can watch their favourite movie or show whenever and wherever they like. Thus physical video sales, and in particular video rentals, are continuously being supplanted by offerings via the Internet, from SVOD platforms to live linear online TV.
The content war
Like last year, the production of original content has been determined the main differentiation factor for OTT companies in what is still an increasingly fragmented video market. Major SVOD market players are investing heavily in original content by tripling their cumulative spend on originals (estimated to be an annual USD 10 billion through 2022). Recently successful series like “Big Mouth” or “Master of None” received excellent critiques while targeting different audiences on the same platform. These investments serve as part of an acquisition strategy for new customers as well as to retain existing subscribers even as subscription rates increase.
Direct-to-customer
Media enterprises have recognised the significance of direct customer contact. As users consider original content to be most important, the media landscape has been carved up in an attempt to create and provide content directly to end users. Exemplary for this is Disney’s decision in 2017 to create its own OTT platform. Because building an exclusive media pipeline and library is extremely time- and cost-intensive, companies tend to buy the relevant components. Disney acquired the rights to the Star Wars Saga and the Marvel Universe and is presently in a deal to acquire 21st Century Fox. For those aiming to enter the D2C segment, expect mergers and acquisitions to be a key focal point in 2018.
Market growth
Revenues in the physical content segment are rapidly declining and should record a CAGR of minus 17.9 per cent through 2022. This equates to overall revenue of CHF 32 million in physical sell-throughs and an almost negligible CHF 1 million in physical rentals revenue.
The cinema market is usually dependent on high-grossing blockbusters or movie franchises, with the result being sizeable yearly fluctuations in overall revenues. Moreover, the cinema market is challenged by alternative leisure options in the form of growing international competition from OTT streaming platforms and other VOD providers. While cinema advertising revenues remain an important income stream, the CAGR over the next five years is estimated at 1.5 per cent.
The digital home video channel, with revenues of CHF 305 million in 2017, is the clear winner in the filmed entertainment industry. As a result, the digital sector the first time now accounts for almost half of the overall segment revenue. In the next five years, the digital segment is expected to grow at a 4.2% CAGR, thereby strengthening its importance. The development of the market is mainly driven by international OTT platform providers, but also by VOD and PPV TV subscription providers. It should be borne in mind that the income of international OTT platforms will not flow into the Swiss market.
Comparison to Western Europe
The physical home video market will decline sharply in all of the Western Europe markets, with double-digit negative rates not being the exception. Countries like Germany, France and Spain show a negative CAGR of almost up to minus 15 per cent. At the same time, this loss in revenues will be compensated by the growth of digital home video, especially by the new leading-edge entertainment offerings via the Internet. OTT platform services like Netflix, Amazon and local providers intensify the competition for the markets across Western Europe and their growing customer bases. This competitive market environment, supported by improving broadband and wireless infrastructure, will allow users to consume content on all kinds of digital device and therefore accelerate market growth.
Across Western Europe, the cinema markets should experience positive CAGRs through 2021, with fluctuations (due to changing numbers of admissions) dependent on the availability of high-profile movies. Especially in Denmark, Finland and Spain, cinema is regaining importance as reflected in rising revenues and admissions. The UK currently is the biggest market for cinema in Western Europe, followed by France and Germany. Overall, the cinema market should grow slightly over the next five years in all Western European countries.
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Contact us
Bogdan Sutter
Director Advisory, Strategy and Digital Change Expert, Bern, PwC Switzerland
Tel: +41 58 792 77 51
