Italy’s media industry and digital transformation

Digital transformation in media industry in Italy has its own distinctive features. Here, the relationship with users is fundamental.

Digital transformation has impacted different sectors of the Western economy and society, irreversibly changing many of the habits and behaviors of individuals, as well as the structure and focus of many businesses. Just consider the finance segment, but also banking, food and hospitality: in all these areas the digital transformation has radically changed both the type of services offered and the expectations of consumers/users themselves. These changes, while offering different opportunities for growth in terms of business and reachable audience, have sometimes had a disruptive effect, putting some of the more traditional players in great difficulty.

This is the case, for example, of telecommunications companies that have seen their market area attacked by new players, who have exploited the tools offered by the digital transformation to create new and innovative business models, which have allowed them to take a large number of customers away from the main Telcos.

 

Many segments, one sector

The media industry in Italy has experienced digital transformation in a way that has radically changed its characteristics and production paradigms. This transformation has had some especially unique characteristics in Italy. This is because the sector itself is varied and comprises many different segments. As a result, each of these segments has reacted differently to digital transformation. Some have been able to almost seamlessly integrate new technological solutions while others have struggled to take advantage of digital innovation.

The data on the sector can help us understand what’s working and also help us look ahead to future trends.

 

Between the ups and downs: data on the media industry in Italy

So what is the state of the media industry in Italy?

A PwC Entertainment & Media Outlook report looked at the five-year period 2019-2023, which showed constant growth from 2014 to 2020. This growth is projected out to 2023, with 4.3% annual growth. In addition, this growth rate seems to be widespread among the different segments, with remarkable peaks for areas like augmented reality, which has marked an impressive 22% growth, and OTT, which is in second place thanks to a CAGR of 13.8%.

Even some of the more traditional areas have actually shown positive signs in recent years, showing a good ability to adapt to the latest digital transformations. For example, in 2018, cinema had a total revenue of €615 million and is expected to maintain growth of about 4% by 2023. Or again, the book segment is surprisingly positive, managing to achieve an expected growth rate of +0.2%, also thanks to the fact that ebooks have been in Italy for a number of years and have become a publishing tool capable of giving a boost to the entire segment, while still remaining a “minority” support in Italy compared to elsewhere.

What has been described above is already one of the main peculiarities of the sector, which compared to others has shown a greater capacity to integrate new solutions that have contributed to the growth and further development of the business.

On the other hand, not all segments of the E&M sector have reacted in the same way or have demonstrated the same positive trends. 

For example, books and ebooks is the only segment that has shown growth in the publishing industry. On the contrary, newspapers and magazines continue their slow decline. Among other things, this phenomenon appears more pronounced for national publications. This while information remains an important driver for the consumer. And while the reasons for this crisis are not to be found in digital transformation, the latter has certainly aggravated an already precarious situation.

With the arrival of Facebook and the penetration of the internet, most readers aren’t getting their information from newspapers and magazines, but through social networks, websites, and blogs. As a result, advertisers have also shifted focus and have turned towards much cheaper and more effective media (in terms of impressions), thus causing the cost of print advertising to collapse.

According to eMarketer, between 2016 and 2019, Facebook and Google together collected 50% of the world’s advertising, more than 60% in the United States. If we take this fact into consideration, it’s easy to understand why many newspapers have experienced a crisis with the advent of digital transformation. On closer inspection, the newspaper and magazine segment has had a more traditional trend, one that is in common with other industries who have been put in crisis by digital transformation.

However, we should note that the secret to surviving (and thriving) this crisis is found in digital transformation itself. As a result, many sector leaders have begun to invest in online editorial offices, moving from paper to digital.

Not only that. Some of the top foreign newspapers have also made a courageous decision, suddenly realizing that “being online” does not mean giving away or lowering the level and quality of their content. For this reason, newspapers like The New York Times, The Boston Globe, and The Washington Post have decided to reduce the perimeter of their paywall to a smaller number of articles available for free. Such a courageous choice has borne fruit, confirming that often digitization is not only the cause but is also and above all the solution to critical industry challenges.

As a result of the digital transformation of its content and the reduction of free access, the newspapers mentioned above have increased the number of digital only subscribers—around 2.5 million users—which has led to $1.68 billion in revenue growth, compared to $1.56 billion in the previous year.

 

Television is still television…

How has the television segment reacted to digital transformation?

If you look closely, television is the media which presents the most complex situation to analyze; perhaps precisely for this reason it can be seen as exemplary of the entire sector. It is undeniable, in fact, that television is still a relevant form of media, especially in Italy, both in terms of audience and revenue generated.

Suffice it to say that according to Censis estimates dating back to the end of 2018, more than 90% of the families interviewed (about 20,000) said they owned at least one television set, compared to 22.1% who said they owned a desktop PC,  a laptop (48.1%), and a tablet (26.4%). As far as the frequency of use is concerned, about 86% of respondents confirmed that they watch television at least once a day and overall more than 60% of those who took part in the survey said they watch RAI daily.

On the other hand, it is clear that the attractiveness of investments and the level of revenues that can be generated through advertising is currently very far from even the figures of 10 years ago, since, again according to PwC projections, the CAGR assumed between 2018 and 2023 is -0.7%, therefore just below stability. Likewise, pay-TV has also experienced a substantial slowdown despite significant investments in recent years, with a negative growth rate of 1.9%.

This is because digital transformation has introduced very aggressive competitors into the market, who are changing the rules of the game.

 

…at least until Netflix arrives 

The reduction in revenues and the slowdown of growth in this specific E&M segment is also linked to the arrival of new players such as Netflix, Amazon Prime Video, Disney Plus, and others, which have increased the range of channels and content available, thus removing them from traditional television media. Netflix Italia alone has managed to collect as many as 2 million users in recent years.

The relevance of these platforms is also demonstrated by the fact that Auditel-Censis has begun to take an interest in these new dynamics and has begun reporting data about the number of people watching television and the different ways of viewing, among which we note, without many surprises, a resounding leap forward of mobile.

But the impact of these new subjects is not only quantitative, but also qualitative. Many industry experts point out that digital transformation is substantially changing business models and the way companies should provide their services.

 

The user in charge 

The entire Entertainment and Media sector – media industry in Italy too – is experiencing a phase of “convergence 3.0”, which is leading the different companies to adopt a user-centric approach. In this sense, it’s no coincidence that Netflix and other platforms like this are taking over, at least at the moment.

What consumers are asking for, in fact, is the possibility to build their own schedule, which means being free to independently choose the content and services they will use. Platforms like Netflix and others make this possible, to their own profit. 

Precisely in light of this renewed importance of the user, it has become essential for E&M sector companies to establish a lasting relationship of trust with users in order to improve the value they offer and promote transparency.

To do this, companies must pay attention to the customer experience of users, which must be satisfactory not only in terms of content, but also in terms of how it is made available. In this sense, Big Data becomes fundamental, because it is only through data that you can understand exactly what consumers expect and build your offer accordingly.

 

Personalization, Data, Customer experience and mobile

These are the three key concepts around which E&M sector companies will have to focus in order to continue to grow. Only one thing is missing from this equation: mobile.

Today, users access video content from a mobile device, which works as a substitute for television, but also for radio and books.  Any strategy will have to bear this in mind. Each piece of content will have to be lighter, more comfortable, adaptable to mobile. And even this aspect, if properly approached, can become a remarkable opportunity because it would allow, especially for those who make television or radio, to reach users in new moments. 

Paradoxically, the small screen can find a valuable ally in an even smaller screen. Just think, for example, of the phenomenon of podcasts, which allows users to access the content they want when they want it, versus live broadcasting, which requires users to be present in the very moment of broadcasting.

As always, digital transformation shows itself for what it is: a total paradigm change.  It’s up to those in the middle to interpret it in the best way, exploiting the advantages to trace a different path in a new playing field.