The study finds that of the EUR123bn generated in revenues, companies are earning EUR17bn in profits (as measured by EBITDA, or 'earnings before interest, taxes, depreciation and amortization'). The authors suggest that the makeup of profits in 2012, and beyond, may look dramatically different than today depending on actions taken now by industry players in rapidly changing marketplace.

"While the migration toward the digital video age in Europe may face some headwinds, this is no time for industry players to put their strategies into low gear," said Michele Luzi, head of Bain & Company's European Telecommunications, Media and Technology Practice, and study author. "All aspects of the video content value chain are being disrupted, with new risks forming at every juncture."

Though the study finds the "Evolving" scenario to be the most probable future, the authors put forth two additional, though less probable, alternative futures. The "Next generation" scenario, which the authors consider to be the natural next step of "Evolving" is highly skewed towards on-demand and new platforms. In the "Free ride" scenario, established business models collapse but are not adequately replaced by viable new models, with a resulting reduction in returns and investment along the value chain.

Implications for the Industry
The study highlights several imperatives for industry players along the video content value chain:

Content Creators - the challenge for content creators is to stay focused on improving content quality and serving their target audiences. They'll need to explore a new sales model - selling directly to consumers over the Internet - and develop an ability to put their content on all media platforms while maintaining established, low-risk moneymaking outlets. While the priorities are clear, content creators are expected to be cautious. There are the opportunities for staggered releases of content on different media platforms - such as making already-aired television shows available on websites and mobile devices - but content creators will want proof that there is substantial viewer interest in new formats.

Content Aggregators - must learn how to compete in the VOD market, where empowered consumers will increasingly watch their favourite television shows when they want - and not when broadcasters schedule them. A key to success will be making it easy for viewers to find their programs amid hundreds of choices, while at the same time offering quality programming to build and maintain consumer loyalty.

Content Distributors - will have to be both adept content operators and innovators. They must continue operating existing services efficiently, while creating new ones, especially VOD.  Otherwise, established distributors will find it hard to compete against emerging distribution alternatives. The key will be innovating products and services based on compelling content, and technology that improves the customer experience at an attractive price. Just like content aggregators, distributors will learn that a competitive VOD offering is a powerful vehicle for retaining customers.

"European demand for mass-market digital content has yet to emerge in any scale," added James Hadley, Bain partner and co-author of the study. "But there is clearly evidence that digital content industry players risk an uncertain future by not adapting their business models to the changing environment."

Editor's note: To receive a copy of The Digital Video Consumer: Transforming the European Video Content Market, or to arrange an interview with Michele Luzi or James Hadley, please contact Cheryl Krauss at email: cheryl.krauss@bain.com or +1 646-562-7863 or Frank Pinto at email: frank.pinto@bain.com or +1 917-309-1065.

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