The war is over. The digital media armies have won and the rest of the UK media industry might as well pack up and go home, or at least that's what the digital evangelists would have us believe. 2006 truly marked the coming of age of digital media: a year in which Google overtook Channel 4 in terms of advertising revenue and demonstrated the scale of its ambitions with the £880m takeover of video website YouTube. This followed News International's purchase of MySpace, underlining how ‘user generated content' businesses have become the most valued commodity in media. According to the Interactive Advertising Bureau, online advertising sales doubled in 2006 and are now worth around £2bn. They expect a further doubling of sales in 2007.
The most obvious loser in the war with digital has been commercial television. ITV's commercial misfortunes have dominated the business pages, but the pain has been shared by all of the major broadcasters. The recent Ofcom announcement that it advocates restricting the advertising of ‘unhealthy' food to under 16s - taking around £39m of advertising sales out of the market - is the final straw for a sector already lacking in confidence. ITV is predicting a stabilization of advertising revenues in 2007 on the back of a £1bn investment in programming on ITV1. It will also receive a boost from the arrival of new executive chairman. Michael Grade. However, broadcasting revenues, as a whole, are predicted to decline by a further 2% next year.
Despite the doom and gloom, there have been some positive developments in the world of television. Channel 4 has not been immune to the commercial pressures felt by the industry as whole, but the channel's continued investment in digital services - this year saw the launch of Film 4 on Freeview - and the recent announcement that it will launch a video-on-demand service demonstrated a willingness to experiment and explore new revenue streams. On the horizon lurks the clumsily named Internet-protocol television: essentially TV over a broadband connection. Once the barrier of limited broadband speeds is overcome, consumers will have the opportunity to surf TV like they surf the Internet today. Homechoice is already offering a limited IPTV service in London and this month marks the long awaited launch of BT's Vision service, featuring a broad range of on-demand programming. These hybrid versions of television and the internet has got the trend watchers very excited, but it is unlikely to provide the salvation for the television market in the near future.
The radio advertising industry may not have suffered to the same extent as television, but is also forecast to decline in 2006: the latest estimates suggest that it will be 2% down year-on-year. One of the most significant attempts to arrest this decline in the value of the traditional spot airtime market - GCap's decision to reduce Capital London's output to just two ads per break - has yet to prove successful. The one bright area has been branded content - sponsorships, promotions, advertorials - which has shown significant growth over the past couple of years. The radio industry's own digital revolution will gather pace in 2007, with penetration of digital radio set to increase from 14% to 21%.
The press and cinema markets appeared to have weathered the digital media storm, with advertising sales during 2006 forecast to increase by 2.5% and 5% respectively. However, whereas the Cinema Advertising Association is predicting a strong 2007, on the back of strong roster of blockbuster movies - including the third installments of Shrek, Spiderman, Pirates of the Caribbean and the Bourne series, plus the latest Harry Potter - the press market is forecast to be flat.
If 2006 was ‘The Year of the Merger' in the movie industry, following Odeon's merger with UCI and Cineworld's merger with UGC, 2007 could be ‘The Year of Digital'. The number of digital movie screens is set to reach 155 next year, providing greater flexibility for distributors and advertisers. Cinema also stands to benefit for the advertising market's current fixation with engagement: the idea that communicating with consumers when they are in an alert and engaged state is far more important than buying millions of ratings. To quote a recent Sunday Times article: ‘Cinema is paramountly the most powerful medium of this century: Power to move, to shock and above all, simply suck the viewer from his seat and absorb him into the screen.'
The press market continues to suffer from declining sales and the inexorable flow of classified advertising to the internet. This year's big news - the battle of the urban free newspapers - may deliver a short-term boost to the press advertising market as a whole, but risk exacerbating its financial difficulties by simply cannibalising sales of paid-for papers.
Despite a poor World Cup, the outdoor industry is also set to end 2006 in reasonably buoyant health. Advertising sales are forecast to increase to 4.4% during the year: a rate of growth that is likely to be sustained through 2007. The biggest news in the outdoor industry in 2006 was Viacom's retention of the London Underground contract. This was secured on the promise of investing in excess of £50m on new digital poster technology, which is why outdoor experts have already christened 2007 as ‘The year of digital'. Viacom's plans for the underground, which include 2,000 new digital screens across 30 stations by the end of 2007, will be mirrored by Clear Channel's investment in roadside digital screens.
2007 will be the year that the digital revolution moves beyond the world of online media. Digital outdoor, digital cinema and digital radio will finally become mainstream technologies, helping these channels compete more effectively with the online leviathan. Meanwhile, the leading press brands will increase the investment in their digital assets as a way of mitigating the effects of the long term decline in print sales. Within the television market, Channel 4's video-on-demand initiative will be replicated elsewhere, but 2007 is likely to be a year of consolidation and stabilisation, rather than growth. The promise of a new television market, driven by broadband interactivity remains a distant one.
