Market Environment

What matters to consumers?

As service providers, we are the final step in realising a production. Therefore, it’s our job to be one step ahead of industry trends to fully understand the needs and creative ambitions of our clients before they reach our stage in the production process.

2018 was a year of single use plastics, GDPR concerns, the announcement of BritBox, increased diversity in films, app monopolies and advances in artificial intelligence. Social media and technology have continued to influence new trends in consumer culture, which in turn has forced businesses to focus on awareness and accessibility when targeting their markets.

“It is our place to attempt to understand how consumers are reacting to these market developments”

Recent studies (across film, TV, commercials and stills) show that consumers are driven by ultra-convenience, diversity of choice and a personalised experience.

As the ‘Golden Age of Television’ continues with more demand for content and subsequent investment than ever before, the streaming options for consumers are endless. Despite economic challenges, advertising expenditure also experienced another year of growth fulfilling the financial expectations made in 2016 by advertising expenditure forecaster, Zenith, and encouraging an optimistic upturn for the production business.

This report reflects on the trends that have appeared over the past year as the film, tv, advertising and stills industries continue to evolve and adapt to the ever-changing landscape of digital innovation.

Broader but growing: Ad spend 2018

On a global scale, consumption of visual content is greater than ever before across a range of channels, platforms and devices. IPA Touchpoint findings from this year revealed that British people are consuming on average 8 hours and 11 minutes of all media (television, radio, social networking/messaging, internet, cinema and more) per day, with 3% increase year-on-year and 17% increase from 2005.

The advances in smart phones and social media have made advertising more ingrained in modern visual media and thus the avenues of brand-consumer contact have diversified to an unprecedented degree. This has been a contributing factor to a continuous increase in advertising expenditure as production of content creation shifts in part from television to social media.

Zenith ’s report of global advertising expenditure over the last decade (shown below) demonstrates how the steady growth since 2011 has experienced mild fluctuations across the international markets with minimal anomalies.

Global Ad Spend Growth Worldwide

Source: Zenith @ statista.com

Another area of consistency is the ranking of the top four markets for ad spend; US, China, Japan and UK, which have remained the same for three years in a row. (Zenith ROI Agency’s forecast report: ‘Global Intelligence: Data & Insights for the new age of communication’)

Whilst spending in Europe remained on a positive trajectory during 2018, at the other end of the spectrum, adspend in MENA (The Middle East and North Africa) was -4.9 % in 2016 and by Q3 of 2018 this figure had fallen to -5.5%. Forecasts from 2017 to 2020 predict that Eastern Europe and Central Asia will experience the highest rate of expansion.

Despite the general increase in spending, budgets have remained low, spreading more widely and thinly across TVC, stills and social media. Looking forward, Zenith’s 2018-2021 projections suggest international growth of 4-5% at the “pace it has held since 2011” despite a potential minor decrease in 2020 directly correlating with the percentage drop in predicted global GDP. Ultimately, the advertising industry has adapted to the diversification of viewing platforms and is benefitting from technological advances.

New competitors join the programming arms race

Over the past two years, our trends reports have addressed the growth and proliferation of SVoDs (Subscription-based-Video-on-Demand) with commissions on the rise and traditional broadcasters striving to challenge online competitors with higher and higher budgets. This year, we continue to evaluate the competition between streaming services as the industry diversifies and delivers more content than ever before. The overwhelming success of Netflix and Amazon Prime has not only demonstrated the increasing popularity of online viewing but also the potential profitability of this service, prompting other major media companies to join the race to the top.

As a business, we have first-hand experience of the dramatic increase in volume of longform projects from the UK and US market to cater to this recent demand for more TV series and films; we regularly work with Netflix, Amazon Prime, HBO, BBC, BBC America, ITV Studios, MGM among others.

Pieces of the Streaming Pie

    Source: CNBC

    Netflix Revenues

    Source: statista.com

    Amazon Prime’s Video Content Budget

    Source: statista.com

    BFI’s round up 2018 for ‘Film, high-end television and animation programmes production in the UK’ revealed that this year 202 feature films started principal photography in the UK, with a total spend in the UK of £1,924 million. In fact, this past year is the second highest recorded figure since measurement began in 1994. However, it is a down 11% from the record high of £2,153 million last year.

    As a content production house, it is our place to understand how consumers are reacting to these changing budgets; what is driving their behaviour and ultimately, the commissioning demand.

    The data from September’s IPA Touchpoint study reveals general growth of SVoDs along with highlighting viewer trends such as binging, preference of SVoDs over other mediums, multitasking audiences and a 50% decrease in younger viewers watching live TV.

    There has also been a transformation of viewing trends as this year British consumers have spent more hours per day watching television/video than ever before – averaging at 4 hours and 41 minutes per day. Meanwhile, Americans are watching less pay-tv and go to the cinema less often.

    It is crucial to recognize the development of SVoDs and the transformative impact it could have on the TVC industry. In fact, one of the key viewer motivations in subscribing to SVoDs is to avoid the constant interruption of adverts. However, IPA President, Sarah Golding, takes an optimistic standpoint advocating “the power television in reaching consumers” through advertising and recommends creative content with a “tailored” approach to each channel and each device to engage the end-user.

    Netflix

    Netflix is now the most popular SVoD on a global scale supporting 23 languages and holds the 6th position of the most watched British television channels after BBC One, ITV/STV, Channel 4, BBC Two, and Channel 5. The business had a head start due to its established position in industry and now dominates the US market with 51% of all US streaming subscriptions belonging to Netflix. However, they operate on a profit-and-loss basis meaning economic instability or rising interest rates could hurt its ability to borrow. The Economist magazine highlights that the company has more than $10bn debt and spends $3bn of cash per year. Netflix’s market cap in October 2018 was $131 billion, with shares priced at $300.

    A recent E-Marketer study into Netflix’s user penetration revealed that Norway, Canada, Denmark, Sweden were ranked in the top five countries with the highest percentage of digital viewers who used Netflix once per month in relation to population size.

    One of the most significant changes this year was Netflix’s staggering expenditure on original content, allocating 85% of their rumored $8 billion content budget on their own projects. Looking forward, Economist Magazine quotes Netflix’s expected spend for 2019 at approximately $15 billion for its 139 million subscribers.

    Amazon Prime

    2018 also saw the expansion of Amazon Prime which grew to 11.7% reach of adults in the UK, up from 8% in 2017, according to IPA Statistics. However, it still sits in firmly in second place with only 4.8 million subscribers compared to Netflix’s 9.1 million. Estimates suggest that Amazon have, for a second year in a row, invested heavily in video and music content over the past year to attract potential consumers.

    Disney

    Whilst these front-runners contend for the top spot, others major media enterprises have also started appearing as a result of their success. Disney, for example, announced their plans to launch a SVoD platform for their family viewers. Throughout the year, Netflix has lost a large portion of its Marvel Studios films and series as Disney attempts to isolate their content for their own platform. Disney will use their film franchises to draw in family audiences to Disney+ to compensate for decreasing rates of cinema-goers.

    Apple

    Arrangements are underway for the launch of Apple TV in March 2019 and the business is thought to have spent $2bn on original shows so far. Apple’s ability to advertise their shows directly to all 1.4 billion of their devices in circulation, is one of their unique selling points in this market. Moreover, their financial stability allows for billions of-dollars-worth of spend year on year to establish their position in the market. There have even been industry speculations that Apple will buy Netflix to eradicate the potential competition for their upcoming platform, Apple TV.

    Britbox

    In 2018 we again saw rising SVOD commissioning budgets so this year traditional broadcasters upped production budgets but some have changed their strategy like BBC and ITV who have revealed that they will be launching a joint streaming service in the UK by the end of 2019. Despite positioning itself as an alternative complementary service to Netflix and not a competitor, a recent IHS Markit article reveals that there are already signs of impact on the UK market. The UK broadcasters aim to rework their existing platforms ITV Hub and iPlayer to capitalise on the increasing demand by combining archive content featuring popular series such as series like Victoria, Broadchurch and Les Miserables, as well as original content. ITV has pledged to invest £25 million in 2019 and another £40 million the following year.

    This race to invest in new subscription services hints at a future whereby viewers revert to a channel system in which loyalty and popular shows are split across a selection of broadcasters opposed to a single service. The vast diversity of choice aims to accommodate for everybody but some fear that the myriad of options available today are leaving audiences with choice paralysis. Looking forward it will be interesting to observe how these competitors cope with this challenge to differentiate in the coming year.

    With so many contenders, exponential growth of all these SVoDs seems unrealistic and maybe even unsustainable. However, the current uptake for long format production has had a significant impact on the production service industry prompting larger budgets, investment in technology, more adventurous briefs and a wider range of locations. Whatever the outcome of this competition in the market, it will have a dramatically transformative effect on the landscape of modern media.

     

    Times are changing: Diversity in Film

    Our report last year on women in production outlined shifting gender equality in the film industry. Studies from this past year suggest this trend has continued signalled by an overall reduction in pay inequality and greater representation for female directors and technicians year on year. This year, Palma Pictures got the chance to work with Director, Sarah Adina Smith, and DOP, Kate Reid during the filming of Amazon Prime’s new hit series, Hanna. Conversely, drastic change is yet to be seen in terms of racial diversity in the UK and US film industries in spite of a recent array of nominations and awards for black American and British films, crew and actors. Expanding our terms of diversity to include cinematic representation for all, this report discusses the trends in opportunities, perceptions and inclusion of minorities in the film industry over the past year.

    The Oscar nominations for 2018 hinted at increased diversity in major motion pictures including ‘Black Panther’, ‘Black Klansman’, ‘Green Book’ and ‘Roma’ for Best Picture. ‘Black Panther’ with its all-star black cast and diverse crew, experienced unprecedented success as a Comic movie during awards season collecting a total of seven Oscar nominations, three wins and three Golden Globe nominations whilst also becoming the 12th highest grossing movie of all time (worldwide) and earning an estimated $1.35 billion. It also made history for the first black designer to win the Academy Award for Best Achievement in Costume Design, (Ruth E. Carter) and signaled a greater demand for industry recognition and celebration of African and African/American culture.

    Netflix’s first original foreign language film ‘Roma’ also broke records as the Oscars’ front runner to win Best Picture 2019. Picking up a further nine nominations made it one of the highest nominated foreign language film of all time and opening the door to non-English film-makers and actors alike.

    Nevertheless, there has been much criticism of racial equality in Film & TV over the past decade. Not only are there limited numbers of roles for minorities but also these minority actors are often required to play stereotyped inferior figures who lack authenticity. YouGov’s market research article titled ‘Representation in film matters to minorities’ reveals that 49% of black viewers, 49% of Hispanic viewers and 58% of other minorities viewers agreed that “Characters like me are often portrayed as the sidekick” as seen in the graph below. Some have voiced concerns about the challenging trope of Hollywood film commissioners creating roles for minority actors that are limited exclusively to plots which convey “whitened versions of slavery or civil rights events” to capitalise for the demand ‘woke’ cinema and television. (Huffington Post Article).

    Audiences are not only concerned by the questionable depiction of minority characters but also the sheer lack of representation of these groups. The UCLA Hollywood Diversity Report which collected studies from 2011-2016 revealed that the vast majority (78.1%) of major US film roles were held by white actors despite constituting only 63.1% of the US population. Black representation averaged at 12.5% representation versus the actual 13.3% of population and Latino, Mixed, Asian, Native, LGBTQ+ communities were all significantly under-represented. Whilst the report recognized that there had been “some notable advances in overall cast diversity” for film, broadcast and cable television (including increase in share of broadcasted scripted leads), women and minorities remain underrepresented.

    Even though iconic black directors like Spike Lee were recognized with nominations this season, the chart below shows that increased recognition and artistic freedom to explore controversial topics is not always enough. There is still a lot of progress to be made in terms of the pay gap between white and minority directors of US feature films paid over $250,000.

    The film industry has witnessed minor improvements in terms of diversification over the past year but the path to true equality in this business remains long and complex. At Palma Pictures, our international outlook means we strive to employ a wide range of people of various ethnicities, backgrounds and abilities.

    Progression is possible with initiatives such as employment quotas for women and people from low socio-economic backgrounds, as well as greater accessibility to opportunities for entry-level positions in the film business and training programs focused on inclusion and diversity.

    Sustainable Shoots

    Whilst we welcome growth in the industry, it is important to recognize the effect that increased shooting has on the environment. This year heralded a new wave of sustainability as environmental movements have grown exponentially following the European Parliament’s decision to ban single-use plastics in March paired with the UN Intergovernmental Panel on Climate Change report which stated that as a global community, we only have 12 years to control emissions, wastage and pollution before damage to the planet becomes irreparable.

    The statistics below from ‘The New Sustainability: Regeneration’ 2018 report by JWT Intelligence reveal the complexities of consumer behaviour in which audiences are now more aware and recognize their responsibility to actively alter their lifestyles to “do less harm” towards the environment but struggle to implement sustainable practices in day-to-day life.

    As one of the leading sustainable businesses in Mallorca, holding EMAS certification for over 9 years, we have observed a significant rise in environmental concern on the island, culminating in renewable energy initiatives and increased enforcement of environmental permits to shoot in rural locations.

    Industry experts have long realised the environmental impact of shooting for film and television production due to the size and scale of projects. Since 2011, the BAFTA and BBC supported project .albert has made waves in these industries by providing expertise to operate sustainably, with critical tools like carbon-footprint calculation for shoots. This year, they held several events including talks on sourcing, manufacturing and implementing sustainable products for Lighting and Costume Departments. This project has expanded their network of environmentally proactive businesses like the production services and design organisation DRESD, who were nominated for Best Production Design for Underwire festival in October, showing that repurposing and up-cycling Art Department materials does not compromise creative outputs.

    On a smaller scale, these trends have been reflected in the advertising industry and 2018 saw the proliferation of the UK sustainability initiative, Adgreen which aims to make commercials greener with the support of the APA. This project has created a ‘Sustainable Production Agreement’ for production companies to sign and adhere to, along with a growing list of operational suggestions to make a difference, a scheme we have been part of since 2014.

    Adgreen has attempted to tackle the problem of food waste on set by promoting several companies like City Harvest London who gather edible prop or food styling leftovers from set/studio and deliver them to organisations that provide meals to groups such as homeless shelters, soup kitchens, centres for veterans, and organisations that assist people with alcohol or drug addictions.

    More innovations have materialised in the Lighting and Technical Departments as leading equipment suppliers like Arri Media, Panalux, Green Kit and Version 2 are all providing more sustainable alternatives to curb energy usage. Greenkit’s development of biodegradable plant-based poly made from the waste products of sugar cane suggesting an optimistic future of zero-waste sets.

    Despite the increasing availability of resources and information on sustainable shooting for advertising, figures suggest the uptake for environmental pledges is still low in comparison to Film & TV. The upfront overhead costs for production companies and agencies are daunting and often deliver the highest gain on a long-term basis. Much like the introduction of UK Health & Safety regulations in the 1970’s, the introduction of sustainable practices into this industry will take an extended period of time to become a regular consideration for budgets, on set and in offices instead of a supplementary addition.

    92%

    of consumers are trying to live more sustainably, but 54% think they could be doing more.

    92%

    of consumers say sustainable business practices should now be standard.

    90%

    feel that companies/brands have a responsibility to take care of the planet ant its people.

    91%

    thinks companies/brands that pollute the environment should be fined.