i3 - July/August 2019 - 46

Business

By Rick Kowalski

BY T H E N U M B E RS

onnectivity is enabling new business models and innovative services, but it has also dramatically transformed
established businesses. Nowhere is this better seen than
in the monumental shift away from physical media.
The music industry highlights this phenomenon, where the primary method of
content delivery changed from CDs to
digital downloads, and then to streaming. Just 10 years ago, 40 million portable media players shipped to the U.S. In
2019, this number will drop to 5.3 million. Meanwhile, spending on subscription music streaming services in 2019 is
expected to be $7.7 billion, while it was
barely a market 10 years ago.
4G wireless connectivity has played a crucial role in music delivery models. Reliable
wireless internet combined with all-youcan-use music services makes it convenient
to access any song, anytime, anywhere.

Video at Home

Reliance on physical media in the home
video industry is also fading. We see evidence of this format shift in hardware
sales over the past 10 years. In 2009,
U.S. shipments of DVD players (Blu-ray
and standard) totaled 28.1 million units;
in 2019, DVD player shipments are
expected to reach 7.8 million - a decline
of over 70 percent.
In contrast, U.S. smart TV shipments
in 2009 totaled 749,000, but will reach
36.3 million in 2019. In 2009, 3.6 million streaming sticks and boxes shipped
to the U.S., compared to 19.7 million
shipping this year. And this does not

Subscription Service Spending
(U.S., Billions)

$29.9
$24.0

$17.1

Video
Music
Gaming
46

JULY/AUGUST 2019

2017

2018

2019

include more popular devices that
stream video, such as smartphones,
notebook PCs and tablets.
Ten years ago, the app ecosystem was
not capable of accommodating the video
quality and streaming services that it
does today. The amount of content
available to video streamers in 2009
was a fraction of what it is now.
Traditional pay-TV companies are taking their cues from trailblazers such as
Netflix and Hulu, gearing their future
business models toward subscription
streaming platforms. Overall, consumers will spend $18.2 billion on subscription video streaming in 2019, an
increase of 27% over 2018.

Game On

The gaming industry may be the next
medium to make the leap to ondemand services. Microsoft recently
released its One S All-Digital console,
which omits the optical disc drive. Alldigital gamers are being directed to
Microsoft's subscription game platform, Xbox Game Pass, to access a
large library of online games. Sony also
offers a subscription gaming platform
called PlayStation Now. With Google
recently announcing its console-less
Stadia game platform, the writing
is likely on the wall for the future
of gaming.
CTA estimates spending on physical
gaming software in 2019 will total $4.5
billion, representing 10% of total gaming
software revenues. This is expected to
shrink to 5% of the market in 2022.
Spending on gaming subscription services
is expected to surpass physical gaming
next year, reaching $4.6 billion in 2020
and growing to $6.6 billion by 2022.
While these format shifts have not
happened overnight, on-demand and
subscription models will shape the
future of entertainment. It'll be exciting
to see how content holders compete in
this new environment. ■
I T I S I N N O VAT I O N

Headphones: Nicholas Rigg/Getty Images

On-Demand Entertainment
Gains Momentum

i3 - July/August 2019

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