WWW.IBISWORLD.COM January August 2017 2014 1 3 Follow US Markets on head Reshaped on Master By Tech page Giants A August 2017 Three Traditional US Markets Reshaped by Tech Giants By Devin McGinley These tech giants will use thier advantages in financing, technology and information to shape these US industries for years to come. Major supermarket chains have largely trimmed their physical expansion plans as Online Grocery Sales have surged The giants of Silicon Valley have built their reputations on splashy breakthroughs. Much of their mostanticipated moves are focused on new technology, like Google s self-driving cars or Amazon s drone fleet. While neither of these concepts are likely to come to fruition in 2017, millions of consumers may experience the influence of these companies in smaller ways, as they shop at Amazon-owned grocery stores, watch live sports on YouTube or see a Netflix film in theaters. Over the past year, these tech giants have become increasingly involved in more mature markets, and will likely use their advantages in financing, technology and information to shape these industries for years to come. These are the three industries most likely to feel the influence of new investments by technology companies. Supermarkets and Grocery Stores in the US (IBISWorld report 44511) Amazon s recently announced acquisition of Whole Foods for $13.7 billion is a surprising entry into the physical grocery business for a company closely associated with the decline of brick-and-mortar retail. Amazon acquired the grocery chain s 460 US and Canadian locations at a time when supermarkets are generally scaling back. Revenue in the Supermarkets and Grocery Stores industry has stagnated over the past five years and, according to IBISWorld estimates, the number of establishments in the industry has dropped an annualized 0.5% since 2012. Major supermarket chains have largely trimmed their physical expansion plans as Online Grocery Sales (IBISWorld report OD5085) have surged, rising at an estimated annualized rate of 10.1% over the five years to 2017. Physical supermarkets, however, are a promising proposition for Amazon, which has been gradually entering the grocery space for several years. Since 2013, the ecommerce giant has expanded its AmazonFresh grocery delivery service into several major US cities, and in 2016 it launched Wickedly Prime, a private-label packaged food brand. The Whole Foods acquisition will cause the company s popular in-house brand 365 Everyday Value to join Amazon s private label products, which will add Whole Foods credibility among consumers to Amazon s new packaged food offerings. Meanwhile, the massive expansion of Amazon s physical footprint will boost the efficiency of its delivery services. This level of vertical integration will be one of Amazon s major advantages as it moves to compete directly with www.ibisworld.com 1-800-330-3772 info@ibisworld.com
WWW.IBISWORLD.COM August 2017 2 supermarkets and grocery stores. As a national player, Amazon will likely be able to negotiate more favorable pricing than the regional chains that comprise the bulk of the industry. Amazon is already well known for its aggressive pricing strategy, and its willingness to sacrifice short-term margins for longterm gains in market share. Given the already-thin margins of grocery retail, as low as 2.0% for the Supermarkets and Grocery Stores industry, the company s streamlined distribution to consumers will be difficult for traditional supermarkets to compete with. As it moves into supplying groceries through its new private labels, it will also likely leverage its trove of consumer data to move much more quickly than traditional players in catering to shifting tastes. Movie Theaters in the US (IBISWorld report 51213) Amazon, along with Netflix, has led Silicon Valley s foray into Movie and Video production (IBISWorld report 51211a). The two companies have mainly acquired or developed content for their respective streaming platforms, and poured billions into the effort, exceeding some of the established industry players. For example, Netflix spent about $6.0 billion on content in 2016, roughly double the budget of Time Warner s HBO. The influx of new films and television series has upended the video distribution market, including the Movie Theaters industry, by offering consumers increasing in-home entertainment alternatives. Yet, these companies have begun to look more like traditional film distributors (IBISWorld report 51212), over the past two years. Both companies have aggressively acquired films on the festival circuit, and have begun releasing films in traditional theaters. In 2016, Amazon became the first streaming service to win an Oscar for a feature-length film, with its theatrical Tech Giants Revenue Growth 2012-2016* 35 30 Amazon Google Netflix % growth 25 20 15 10 2012-2013 2013-2014 2014-2015 2015-2016 *Latest available data
WWW.IBISWORLD.COM August 2017 3 release Manchester by the Sea. Theatrical distribution is important in gaining critical recognition and attracting talent, and the two companies entry into the conventional film market can be viewed as a play to bolster the competitiveness of their streaming content, rather than a commitment to the cinematic experience. Movie theaters have already been challenged by the proliferation of video streaming options, and the major US chains have perceived Netflix s theatrical release strategy as a serious competitive threat. The streaming service has insisted on same-day theatrical and online release, and major chains have pushed back, refusing to exhibit the company s films. Amazon has been more flexible, but still releases its films online only four to eight weeks after their theatrical debut, shorter than the 90 days generally preferred by the industry. As both companies continue to acquire film properties at a rapid pace, and leverage their consumer viewing data to home in on the most popular titles, major theater chains may be less able to resist the shortening or all-out elimination of exclusive theatrical release windows. With theaters less able to rely on exclusive exhibition of new releases, they will have to continue to find other ways to differentiate themselves from home entertainment, such as through added amenities and concessions. From 2012 to 2016, inflation-adjusted US box office sales declined an annualized 0.1%. For film studios, which rely on theatrical exhibition for much of the return on new releases, stagnant box office sales have made the theatrical market a zero-sum game, and new competition from wellfinanced players will ultimately cut into their revenue. Cable Providers in the US (IBISWorld report 51711a) Similar to the film market, video streaming options have posed a challenge to television distributors in recent years. Over the five years to 2017, % growth 8 7 6 5 4 3 2 1 0-1 Industry Revenue Growth 2012-2017 Cable Providers Movie Theaters Supermarkets & Grocery Stores 2012 2013 2014 2015 2016 2017
WWW.IBISWORLD.COM August 2017 4 About IBISWorld Inc. Recognized as the nation s most trusted independent source of industry and market research, IBISWorld offers a comprehensive database of unique information and analysis on every US industry. With an extensive online portfolio, valued for its depth and scope, the company equips clients with the insight necessary to make better business decisions. Headquartered in Los Angeles, IBISWorld serves a range of business, professional service and government organizations through more than 10 locations worldwide. For more information, visit www.ibisworld.com or call 1-800-330-3772. IBISWorld expects the number of cable television subscriptions to decline at an annualized rate of 1.7%. Consumers have increasingly dropped expensive programming bundles in favor of a-la-carte streaming options, and revenue for the Cable Providers industry has roughly stagnated, growing at an annualized rate of only 0.6% over the past five years, the result of upselling to existing customers. YouTube, a division of Alphabet Inc., launched a live television service in April that may exacerbate this trend. At $35 per month, YouTube TV currently offers a minimalist basic package of about 50 broadcast and cable networks. Although reaching licensing agreements with local broadcast affiliates appeared to be a significant hurdle at the outset, the service has since quickly expanded to metropolitan areas comprising more than half of the US population. As of July, the analytics firms Sensor Tower and App Annie reported the app had 2.0 million downloads, though it s unclear how many have translated into subscriptions. In any case, the company s massive user base (185.6 million monthly viewers, according to emarketer) positions the service for growth. According to the company, YouTube viewing via traditional television screens grew 90.0% in 2016. Alphabet faces many competitors in the streaming television space, but its wide brand recognition and fast-growing presence in living rooms may make it a natural leader in live television streaming. Notably, its most significant competitors were existing television distributors that launched streaming services as a hedge against the decline of traditional viewing: Hulu is a joint venture between Disney, 21st Century Fox, Comcast and Time Warner; and Sling TV and DirecTV Now are owned by satellite operators Dish Network and DirecTV, respectively. Without legacy distribution networks to support, Alphabet can and has priced the YouTube TV package at about the cost of licensing fees, undercutting its competition. The company will generate revenue from the service through advertising, where Google s ad networks will be able to provide a level of targeting and personalization unmatched anywhere in the current live television market. Contact: Media Relations media@ibisworld.com IBISWorld Sales & Subscriptions Phone: 1-917-267-0351 www.ibisworld.com
WWW.IBISWORLD.COM August 2017 5 3 www.ibisworld.com US Markets Reshaped 1-800-330-3772 By Tech Giants info@ibisworld.com At IBISWorld we know that industry intelligence is more than assembling facts. It is combining data with analysis to answer the questions that successful businesses ask. Identify high growth, emerging and shrinking markets Arm yourself with the latest industry intelligence Assess competitive threats from existing and new entrants Benchmark your performance against the competition Make speedy market-ready, profit-maximizing decisions Who is IBISWorld? We are strategists, analysts, researchers and marketers. We provide answers to information-hungry, time-poor businesses. Our goal is to give you the real-world answers that matter to your business in our 700 US industry reports. When tough strategic, budget, sales and marketing decisions need to be made, our suite of Industry and Risk intelligence products give you deeply researched answers quickly. IBISWorld Membership IBISWorld offers tailored membership packages to meet your needs. Join and become an industry expert! Disclaimer This product has been supplied by IBISWorld Inc. ( IBISWorld ) solely for use by its authorized licenses strictly in accordance with their license agreements with IBISWorld. IBISWorld makes no representation to any other person with regard to the completeness or accuracy of the data or information contained herein, and it accepts no responsibility and disclaims all liability (save for liability which cannot be lawfully disclaimed) for loss or damage whatsoever suffered or incurred by any other person resulting from the use of, or reliance upon, the data or information contained herein. Copyright in this publication is owned by IBISWorld Inc. The publication is sold on the basis that the purchaser agrees not to copy the material contained within it for other than the purchasers own purposes. In the event that the purchaser uses or quotes from the material in this publication - in papers, reports, or opinions prepared for any other person - it is agreed that it will be sourced to: IBISWorld Inc. Copyright 2017 IBISWorld Inc