Different Digital Disruptions – Guest Post By Duncan Stewart

Technological change is almost always told as a story of destruction. A new thing is invented, and it crushes everything in its path. From Frankenstein’s monster terrorising villagers in 1818, through post-nuclear Godzilla stomping Tokyo flat, we have ended up in 2015 with Benedict Evans telling us that “mobile is eating the world.”

But is that view of technology, innovation, and disruption always true?

It sure is some of the time! From 2002 to 2015, US print newspaper ad revenues in constant dollars fell 78%, with a compound annual decline of almost 10%. Coin-operated arcade game revenue fell 89% between 1992 and 2015, again in constant dollars. The largest video rental company in the US went from $6 billion in revenues in 2004 to bankruptcy and zero revenues in 2010, at least in part due to streaming video on demand services. But that was a single company, not an entire industry: the real poster child for digital destruction is what happened to sales of recorded music after the MP3 file and the various players. From 1999 to 2015, US compact disc sales fell 92% in constant dollars.

Can you even imagine being in an industry where revenues – not profits, but revenues – fell 92%? Even Godzilla left more buildings standing!

Based on these examples, it is clear that growth in new technologies always means the end for old industries: digital destroys the old ways of doing news, games, video and music. Case closed.

Not so fast. Being able to read text on a screen has truly changed the world of print newspapers (not to mention print magazines, print directories and print catalogues.) One would therefore reasonably expect the same disruption to occur for print books. Famously, Nicholas Negroponte predicted in 2010 that print books would be dead in five years. Here it is in 2015, and not only are eBook sales stuck under 20% of all books purchased in the US, but sales are actually declining while print book sales are rising.

The gaming market is certainly influenced by new technologies. The rise of the smartphone, tablet and casual games has changed the market, with mobile games surpassing console games in 2015 and predicted to exceed PC games revenues in 2016. But although mobile will be the single largest gaming market, both console and PC games are still growing, up an anticipated five and six percent respectively in 2016. Further, although PC and console titles are not the only game in town (as it were), they will still represent over 60% of the global market in 2016; a far cry from the fate of coin operated arcade games.

Streaming video disruption led to boarded up video rental stores across North America and the largest player will have over 70 million subscribers in over 60 countries by the start of 2016. But what impact has streaming had on traditional TV in North America so far? Although there were fears that 20% of the nearly 100 million subscribers to pay TV service would cancel and ‘cut the cord’ as long ago as 2012, the actual decline was fewer than 170,000 subscribers in 2013 and 2014, and fewer than 10,000 subscribers in 2012. Or between 0.01% and 0.2%. Further, the monthly price paid for pay TV in the US is still rising, and even the number of minutes of TV watched daily has fallen by only seven percent from the peak (of 334 minutes of live and time-shifted TV per day) in 2013. The rise of streaming has had a negative effect on the traditional TV business, but it is orders of magnitude smaller than what happened to rental stores.

Finally, let’s go back to our digital destruction poster child: the music industry. The MP3 file didn’t just change CD revenues into some other kind of physical format revenues, or even into digital revenues, instead the growth and ease of piracy has caused ALL music sales to collapse, right? In fact, between 2008 and 2015 one US live music company saw its concert revenues grow 23% in constant dollars, or 2.8% annually. The digital trend that almost obliterated the CD industry a) didn’t seem to hurt live music at all, and b) may in fact have freed up consumer dollars for spending on live concerts.

Writing from Paris in 1913, Gertrude Stein said “A rose is a rose is a rose is a rose.” She didn’t write it on a smartphone, and a century later I want to modify her quote: digital is not digital is not digital. The forces unleashed by innovation and disruption are not the universal and obliterating things that we imagine or read in the media. The same digital trend that is crushing print in many forms is leaving print books more or less intact. Live music is benefitting from piracy. Sometimes disruption destroys a traditional industry, sometimes it hurts it a bit, and sometimes it actually helps.

Duncan Stewart,
Director of Research at Deloitte Canada