Technology, Media &
Telecommunications
Predictions
2014
Contents
Foreword 3
Technology 5
The $750 billion converged living room: a plateau approaches 6
Wearables: the eyes have it 10
One became many: the tablet market stratifies 13
Massive Open Online Courses (MOOCs): not disruptive yet, but the future looks bright 16
eVisits: the 21st century housecall 20
Media 23
Doubling up on pay‑TV 24
Television measurement: for better and worse 26
Broadcast sports rights: premium plus 28
Performance rights lift recorded music revenues 30
‘Cordless’ video‑on‑demand leaps in Sub‑Saharan Africa 32
Telecommunications 35
Short messaging services versus instant messaging: value versus volume 36
Phablets are not a phad 39
The smartphone generation gap: over‑55? There’s no app for that 42
‘Ruggedized’ data devices at $250: reinventing the business case for mobile field force 45
Recent Deloitte thought leadership 47
Contacts at Deloitte Touche Tohmatsu Limited (DTTL) and its member firms 48
Endnotes 49
Technology, Media & Telecommunications Predictions 2014 1
Igal Brightman, 1945‑2013
This edition of TMT Predictions is dedicated to the memory of Igal Brightman
who passed away in August 2013. Igal was the Global Managing Partner and
Chairman of the TMT Industry Group for nine years, and his tireless energy and
enthusiasm helped define much of our practice, including thought leadership.
Igal was a pioneering, unflinching supporter of Deloitte’s research into the TMT
sector. He was a steadfast advocate of the need for professional services firms to
blend functional skills with leading industry knowledge. He was passionate
about investing in research, and through Igal’s support from its launch in 2001,
TMT Predictions has become one of the flagship research titles used by Deloitte
members firms in over 80 countries around the world.
Igal has left us, but his many legacies live on, including Deloitte’s commitment to
thought leadership.
As used in the Predictions, “Deloitte” refers to
the Deloitte Touche Tohmatsu Limited member
firm TMT practices.
2
Welcome to the 2014 edition of Deloitte’s predictions
for the technology, media and telecommunications
(TMT) sectors.
TMT Predictions’ objective is to identify critical inflection
points we believe should inform industry strategic
thinking, and to explain how we think these will
manifest over the next 12-18 months. Our perspectives
are built around hundreds of discussions with industry
executives, analysts and commentators, along with tens
of thousands of consumer interviews.
As in each year that we have published a set of
predictions, the core drivers of disruption in the sector
remain the same: processor speed, connectivity and
storage.
For the past decade, these three drivers have enabled
massive advances in the utility, ubiquity and spend on
connected devices. In 2014, we expect five connected
devices which constitute the converged living room –
TVs, PCs, video game consoles, smartphones (including
phablets) and tablets – to generate $750 billion in
revenue.
Despite launching a mere four years ago, tablets are
already mainstream and approaching maturity, in that
the category now describes a wide, and widening,
range of capabilities, sizes, user bases and uses.
The largest component in the converged living room
group, smartphones ($375 billion revenue in 2014), are
nearing saturation among most age groups, although
there is still a prime opportunity among people older
than 55 – a demographic likely to experience one of the
steepest rises in penetration rate this year.
Smartphone and tablet vendors are emphasizing
ruggedness as a key differentiator, which will make
the cracked screen even less common in 2014.
This focus also has the benefit of making consumer
devices increasingly appropriate for use in non-office
environments, and in 2014 we expect a rugged field-
force device will cost as little as $250.
New device form factors are expected to be launched
in 2014, with wearable computers being one of the
most talked-about categories. We predict sales of smart
glasses, watches and wristbands will reach 10 million
units in total this year, and will generate about $3 billion
in revenue; significant, but modest when compared to
revenues from devices in the converged living room.
By contrast, revenue in the low billions is very significant
for the recorded music industry, which has seen falling
revenues over most of the last two decades. In 2014,
we foresee one component of recorded music,
performance rights fees, which are paid for use of
music in public, to reach $1 billion for the first time ever.
This contrasts with the $25 billion broadcast rights for
premium sports (a 14 percent increase on 2013), or the
$100 billion forecast for text messaging services.
As is common in the TMT market, volume does not
always equal value. While text messages will only
represent about a third of all messages sent from mobile
phones, they will account for close to 100 percent of
revenues, with mobile instant messaging (MIM) services
generating about $2 billion.
A decade ago, broadband started at 128 Kbit/s.
In 2014 multiple markets will feature speeds of over
100 Mbit/s and higher. The steady growth in bandwidth
has enabled, and will continue to enable a steady
widening of the scope of services than can migrate
online. For example, we expect faster broadband will
help move aspects of healthcare online, with 100 million
eVisits – online medical interactions – projected to take
place in 2014.
The super-fast broadband speeds that are now
increasingly available also enable more video to be
delivered online, which is a key factor behind the
tens of millions of homes expected to double up on
pay-TV by subscribing to an additional broadband-
delivered service. As a portion of viewing of TV migrates
online, measurement has to follow to ensure viewing,
particularly among younger viewers is captured.
This year, viewing data for countries representing over
100 million viewers should start to incorporate TV
consumption on laptops, tablets and smartphones.
Foreword
Technology, Media & Telecommunications Predictions 2014 3
Video-on-demand services are predominantly offered
in fast broadband markets, however service is also
possible in regions currently lacking extensive broadband
infrastructure. Satellites can relay movies and TV
programs onto the ever larger hard drives of digital
video recorders (DVRs), enabling providers to offer over
a thousand hours of on-demand programming.
Most of our predictions focus on the next 18 months.
However one topic, the emergence of Massive Open
Online Courses (MOOCs) merits both a near-term
assessment (modest adoption) as well as a longer-term
view (significant take-up).
The focus of our Predictions varies from year-to-year,
but one theme appears constant: the impact of TMT on
our behaviors steadily deepens. In the time it took to
read this foreword, over 100 million messages will have
been sent via smartphones around the world.
We wish you all the best for 2014 and trust you and
your colleagues find this year’s Predictions a useful
stimulant for your strategic thinking and market actions
for the year ahead and beyond.
Jolyon Barker
Managing Director
Global Technology, Media & Telecommunications
Deloitte Touche Tohmatsu Limited
As in each year that we have published a set of
predictions, the core drivers of disruption in the sector
remain the same: processor speed, connectivity and
storage.
4
The $750 billion converged living room: a plateau approaches 6
Wearables: the eyes have it 10
One became many: the tablet market stratifies 13
Massive Open Online Courses (MOOCs): not disruptive yet, but the future looks bright 16
eVisits: the 21st century housecall 20
Technology
Technology, Media & Telecommunications Predictions 2014 5
Deloitte predicts that global sales of smartphones,
tablets, PCs, TV sets and video game consoles will
exceed $750 billion in 2014, up $50 billion from 2013
and almost double the 2007 total (see Figure 1)1.
Combined global sales of these five products have
grown remarkably since 2003, with trailing five-year
compound annual growth (CAGR) of 6-12 percent
per year over a decade (see Figure 2) (although
year-over-year growth has fluctuated from a high
of 27 percent in 2010 to a low of -3 percent in the
recession year of 2009). In contrast, the growth rate for
the global semiconductor industry was only 3.1 percent
between 2000 and the end of 20122. However a
plateau appears likely: sales are expected to continue
growing, but at a slower rate than over the past
10 years, with an estimated ceiling of about $800 billion
per year.
These five categories of consumer electronics devices are
closely related in that they are currently the five largest
by dollar value, are all multi-functional, and each plays
a key role in entertainment and media consumption.
Also, all five of these devices have benefited from
common technology such as processors and screens
(except for video game consoles, all of the devices make
use of high resolution LCD technology)3. In contrast,
other large segments such as portable video games
devices, eReaders and feature phones tend to focus on
a single function and thus have a narrower impact on
general media consumption and entertainment.
Figure 1: Combined global sales revenues of smartphones, tablets, PCs, TV sets, video game consoles (1999‑2018)
0
100
200
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500
600
700
800
900
2018E2017E2016E2015E2014E2013E2012A2011A2010A2009A2008A2007A2006A2005A2004A2003A2002A2001A2000A1999A
PCs Smartphones Video game consoles TVs Tablets
Source: Deloitte, 2013
Figure 2: Five year CAGR (2003‑2018) for combined global sales revenues of smartphones, tablets, PCs, TV sets, video game consoles
0
1
2
3
4
5
6
7
8
9
10
11
12
13
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2018E2017E2016E2015E2014E2013E2012A2011A2010A2009A2008A2007A2006A2005A2004A2003A
5 year trailing CAGR (%)
Source: Deloitte, 2013
The $750 billion converged living room:
a plateau approaches
6
The simultaneous growth of these five devices created
a virtuous circle over the last decade. For example, to
supply the massive volumes of LCD screens required for
large, flat HDTVs, manufacturers built plants capable of
producing 400 million square meters of screens annually
by 20134. This drove prices for laptop screens down,
which in turn focused research and development on
better, smaller screens; which eventually led to high
resolution screens for smartphones and tablets that
made those devices much more appealing and useful.
There has also been a virtuous circle with solid state
memory: the need for gigabytes of flash memory for
each of a billion smartphones and tablets led to new
manufacturing capacity and increased production
volumes that lowered prices, which helped enable the
creation of powerful gaming systems and ultrabooks.
Also, massive economies of scale drove down prices
for lower-end PCs, tablets and smartphones such that
large numbers of less affluent families in emerging and
developed markets could afford them. This further
increased scale and enabled even less expensive devices,
such as the $100 smartphone. Further, the virtuous
circle doesn’t merely enable the low-cost smartphone;
it makes possible the perennially improving smartphone,
as well as the $100 tablet.
These mutually beneficial forces allowed the five
categories to grow at an aggregated average CAGR
of 11.8 percent between 2004 and 2014 (estimated),
almost four times faster than the underlying
semiconductor industry, and almost twice as fast as
global GDP, which in constant dollars grew at an annual
rate of six percent between 2004-2014 (estimated)5.
However, this impressive growth rate appears to be
reaching a plateau.
Between 2006 and 2012, annual PC industry sales
oscillated within a narrow band of $210-$240 billion.
But in 2013, sales declined by 12 percent to under
$200 billion, and many analysts forecast an additional
four percent decline in 20146. A constant decline in
average selling prices (ASPs) means that while PC unit
shipments may shrink by less than five percent annually
over the next five years; revenues may fall at a faster
rate.
The market for TV sets has also been shrinking
since peaking at over 115 billion dollars in 2011: 3D
technology, integrated connectivity, and voice and
gesture control have not enticed consumers to upgrade
their TV sets more frequently or at a higher price.
Television set ASPs have been declining slowly since
2007; however, that erosion might be slowed or even
reversed over the next five years by demand for Ultra
High Definition (UHD) 4K TV sets, which are likely to
command premium prices. Yet even with this possible
boost, TV set sales in 2018 are expected to rise by less
than $10 billion over the 2014 forecast of $105 billion.
New video game consoles were introduced in late
2013. Although early combined sales figures in markets
where the new devices have been released have been
higher than for prior generations of consoles7, the
console business, at around $10 billion per year, is
unlikely to make much of a difference on the more than
$750 billion base.
These trends suggest that smartphones and tablets need
to be the main engines for growth in the connected
living room market.
Technology, Media & Telecommunications Predictions 2014 7
Sales of smartphones should continue to grow, in units
and revenues, but the rate of growth is likely to decline.
Globally, feature phones are now a minority of sales:
the steepest part of the growth curve for transition to
smartphones has already occurred. The smartphone
upgrade cycle is lengthening: while some people still
line up to be the first to own the latest phone, the
average consumer is happy with their current phone
for longer than in 2008 and 2009, when each new
model was a dramatic improvement over the previous
model. Between 2007 and 2013, the handset upgrade
cycle lengthened by over 25 percent, from less than
19 months to more than 24 months8.
The majority of smartphone sales over the next
five years are likely to be in the developing world.
These price-sensitive buyers are already having an
impact on ASPs: in late 2013 the decline in smartphone
ASPs dragged down overall mobile phone ASPs by four
percent. While smartphone sales in 2014 are expected
to rise to about $375 billion, a 12 percent year-on-year
increase, smartphone sales in 2018 are only expected
to rise to $430 billion, a 15 percent increase over
four years.
In 2014, tablet sales are expected to reach 285 million
units and surpass $100 billion. Falling ASPs are being
driven by the growing share of compact tablets
(8.5 inches or smaller), which are typically lower-priced.
ASPs of classic format tablets (nine inches or larger) are
declining. Overall tablet ASPs fell 10 percent in 2013,
and if that price decline continues then annual tablet
sales are likely to remain near the $100 billion level
through 2018.
Revenues for each individual category may turn out
to be somewhat higher or lower than expected, but
combined sales across all five categories are likely to
be fairly steady and predictable – plateauing at roughly
$800 billion annually after a decade of double digit
growth.
Revenues for each individual category may turn out
to be somewhat higher or lower than expected, but
combined sales across all five categories are likely to be
fairly steady and predictable – plateauing at roughly
$800 billion annually after a decade of double digit
growth.
8