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David Willington, Deloitte's Head of Media in Australia commented, "2005 will see the steady disappearance of the 'mass' market, replaced by an ever-growing number of 'micro' markets that cater to the needs of specific groups or individuals. New devices and media will flourish, along with new forms of advertising, including embedded advertisements in video games, software, and even mobile phones."
"Convergence will give consumers more options, leading to rapid growth in legal music downloads and jointly developed movies and games. Consumers worldwide will spend billions of dollars personalising their mobile phones with ring tones, screensavers, and wallpaper. Meanwhile, the number of sources for content will explode. Digital TV will bring terrestrial broadcasters back into the game, giving consumers one more source for TV programming. An ever-increasing number of print publications and niche journals will be available in electronic form over the internet."

Willington continued, "The impact of these developments will see an ever widening array of distribution channels for content and advertising options. Enhanced consumer choice for the delivery content increases the need for a more flexible approach to cross-media and foreign ownership legislation in Australia.

Regulation surrounding media ownership should change its focus from ownership of certain delivery platforms (such as newspapers, FTA TV and radio) to the ownership of content. It will be more relevant for regulators to control the ownership of content as the number of channels for the distribution of this content continues to fragment."

Three key trends identified in the report are:

1. Music downloading becomes respectable 2005 will see rapid growth in music downloads over the internet.

Illegal downloading will still dominate, but legal sites will significantly increase their share, fuelled by the growing quality of online music stores, a sharp increase in the installed base of digital music players (both portable and for the home), the inclusion of CD burners as standard features in laptop and desktop computers, and the exceptional quality of legal downloads. The music industry will finally begin to recognise and embrace the financial benefits of this new distribution channel for singles and albums, as well as new forms of content, such as ring tones, remixes, live recordings, concert videos, merchandising and concert tickets. By year-end, the growth of illegal downloading will start to slow, with occasional but high-profile litigation scaring off many casual pirates. Nonetheless, illegal downloads will continue to cost the music industry billions of dollars in lost revenue.

2. Advertising gets embedded

To better reach consumers, advertisers will begin embedding advertising - text hyperlinks, software toolbar buttons or even computer graphics will appear in video games, software (particularly freeware), web browsers and even active desktops on mobile phones. These ads will be very precisely targeted as advertisers learn more about each group of consumers. They will be dynamic, updated via an internet connection based on time of day and user activity, and they will need to be far more subtle and sophisticated and less intrusive than the banner ads and pop-ups that currently plague the internet, in order for consumers to accept them. Embedding advertising has the potential to reinvigorate the advertising business - agencies will need to stay abreast of technological progress, and will need to know when the audience is available, what its members are likely to be doing, and most important, how to capture their interest within that context.

3. Simplicity sells content on mobile phones

2005 will see mobile phones in the hands of two billion consumers worldwide, and the commercial opportunity for content producers and resellers will become increasingly tantalising. Faster networks, better processors and brighter screens will make content over mobile phones more appealing, but many experiments will fail, due to a lack of understanding of the way mobile phones are used, the social context of mobile usage and, importantly, the limitations of the mobile device. Most particularly, attempts to offer television programming on mobile will attract little or no interest, because it will be considered neither practical nor relevant on the mobile phone, and its cost will remain disproportionate to established TV offerings. What will sell is simplicity - small, relevant packages of content that serve to customise the mobile device - ring-tones, screensavers, wallpapers and other "disposable" items will contribute to a multi-billion dollar growth industry.

Contact: Judith Brown
Deloitte
Media Manager
61 2 9322 7637

Released by: Deloitte.com
http://www.deloitte.com
Sydney, Australia - February 15, 2005