Growth in global entertainment and media industry – forecast by PwC to be $2.2 trillion in 2012 – will be driven by strategic alliances
LONDON — Entertainment and media (E&M) companies hoping to drive growth over the next five years will need to accommodate dramatic changes in devices, markets and consumer behaviors by striking strategic business alliances, according to PricewaterhouseCoopers’ “Global Entertainment and Media Outlook: 2008-2012.” The report also underscores the importance of continuing to extract revenues from traditional business segments while emerging technologies continue to solidify their consumer position. The annual report pegs global compound annual growth rate (CAGR) at 6.6% for the sector, anticipating its reaching $2.2 trillion in 2012.
“We’re seeing a new business model solidify for entertainment and media companies,” said Marcel Fenez, managing partner of PwC’s Global Entertainment & Media Practice division. “Some, such as the film industry, have dabbled in this in the past, but those will be small movements compared to what lies ahead. No single company will be able to successfully go it alone over the next five years. The challenges are too significant and the demand for innovation too complete.”
Strategic alliances will replace vertical integration
According to PwC, several critical technologies are now reaching tipping points that will deeply influence both the pace and direction of entertainment and media growth over the next five years. Broadband penetration continues to accelerate globally. Mobile is gaining ground quickly – adding subscribers and upgrading infrastructure to enable the next wave of mobile expansion, driven by Internet access, advertising and television. Modern movie houses, digital cinemas and 3D upgrades are enhancing the cinema-going experience, while high-definition television subscriptions and a resolution of the high definition DVD format wars will invigorate digital living rooms. The impetus behind these new technologies is rarely established companies. The global broadband boom continues unabated, fuelling overall growth, and more than doubling again to 661 million households in 2012, a 16.4% compound annual increase.
While digital and mobile are driving growth, established and traditional business segments will continue to dominate revenues, with the exception of recorded music, where digital distribution will surpass physical distribution in 2011. Although digital and mobile distribution comprised only 5% of global E&M spending in 2007, these revenues will account for 24% of all growth throughout the industry during the next five years. By 2012, digital and mobile revenues will account for just 11% of total E&M spending, or $234 billion of the $2.2 trillion global market.
Health of media is driven by the ‘net generation’ and maintained by consumers over the age of 50
The “net generation” continues to set the pace and direction of change in the entertainment and media industry while exhibiting an influence that is driving new business models that are revolutionizing the relationship between companies and their customers. As they make these technologies regular components of their everyday lives, the net generation is also driving the technology engagement of prior generations, connecting older generations with the latest trends in emerging media technology.
What is more, this is truly a global phenomenon that companies are increasingly paying attention to. Consider: In the BRIC countries, people under the age of 25 comprise at least 31% of the countries’ total populations – 43% in Brazil, 31% in Russia, 50% in India and 38% in China. Meanwhile, in the United States, people under the age of 25 represent 34% of the total population. The imperative, then, is that companies must expand their global reach to young people who will propel spending on Internet access and digital entertainment and media during the coming years.
Meanwhile, consumers over the age of 50 are creating a balance in the industry by devoting significant amounts of attention to the more traditional media of their generation as the Net Generation drives growth in digital and mobile entertainment. In every region of the world except EMEA (Europe, Middle East, Africa), the 50+ population will see double digit growth rates and globally, this population will increase from 1.1 billion to 1.25 billion, a 13.1% rise through 2012. This growth will help sustain traditional formats even as this generation becomes increasingly interested in the platforms embraced by their children and grandchildren.
Over the next five years, Asia Pacific and Latin America will be the fastest growing regions. Double-digit increases are expected in each region for Internet advertising, Internet access spending, TV subscription and license fees, casino and other regulated gaming and video games. Latin America will total $85 billion in 2012, up from $51 billion in 2007, advancing from a relatively small base at 10.6% CAGR. Meanwhile, spending in Asia Pacific will average 8.8% CAGR, the second highest of any region, increasing from $333 billion in 2007 to $508 billion in 2012.
EMEA, the second largest market, will expand at a 6.8% CAGR to reach $792 billion in 2012. Central and Eastern Europe and Middle East/Africa will fuel growth in this territory. Internet advertising, Internet access spending and video games will continue to average double-digit compound annual increases during the next five years.
The U.S. currently remains the largest but slowest growing E&M market, growing at a 4.8% compound annual growth rate reaching $759 billion in 2012. Internet advertising and Internet access spending will be the only two segments with double-digit growth during the next five years, boosted by continued growth in broadband.
“In the U.S., consumers are taking a preference for free, or heavily discounted, ad-supported content and services in the new digital and mobile environment,” said Jim O’Shaughnessy, PwC’s chairman of Entertainment & Media Practice. “This ensures that the importance of advertising will continue to grow – both to entertainment and media companies themselves and to their customers.”
As the trend towards globalization in the entertainment and media industry continues, Brazil, Russia, India and China will remain important sources for growth throughout the entire sector, driven by rising disposable incomes and an increasingly urbanized middle class. In addition, a large and diverse group of countries are also breaking away from the pack. E&M markets across 15 countries will expand at double-digit annual rates during the next five years, with Saudi Arabia and the pan-Arab region experiencing the fastest growth. Vietnam will be the world’s fastest-growing television subscription and license fee market over the next five years – growing at 29.3% CAGR.
Colombia will be the fastest-growing entertainment and media market in Latin America. The Internet access market in Saudi Arabia and the pan-Arab states will grow at 30.1% CAGR, rising to $13.8 billion in 2012, surpassing Russia and rivaling France. Internet advertising, Internet access spending and TV subscriptions will lead the industry expansion in these territories – the broadband household universe will expand at more than 20% CAGR.
Segment highlights: Growth is driven by the rising value of online and mobile opportunities
While Internet advertising growth will moderate from that in recent years, it will see the most robust growth, at 19.5% CAGR through to 2012. Internet access (12.1% CAGR), videogames (10.3% CAGR) and television subscriptions and license fees (10.1% CAGR) will all experience double-digit growth.
More established segments – television advertising (5.9% CAGR), theme parks (5% CAGR), casino gaming (6.5% CAGR), filmed entertainment (5.3% CAGR) and sports (6.5% CAGR) – are all set to grow at between 5% and 7% compounded annually.
The publishing segments including newspapers (2.2% CAGR), consumer magazine (3.5% CAGR), consumer & educational books (2.8% CAGR), business-to-business publishing (3.2% CAGR), as well as recorded music (-0.6% CAGR), face the stiffest challenges, where the declines in physical distribution are at their most significant and growth in digital distribution – although rapid – is struggling to make up for the shortfall.
“Companies are rapidly embracing new and emerging technologies in the entertainment and media industry, while adapting to the demands of the net generation,” Marcel Fenez summed up. “And rightly so, because it will help to drive their business forward and remain competitive in a marketplace driven by innovation. However, they must also remain focused on managing their traditional businesses, a key component and driver of their revenues. By effectively managing emerging and traditional business lines, they will be able to identify opportunities they can exploit so they can migrate to the new digital environment and meet the demands of the net-generation.”
PricewaterhouseCoopers, one of the world’s largest professional services and auditing firms, was created in 1998 with the merger of Price Waterhouse and Coopers & Lybrand, both formed in London with histories dating back to the 19th century. It employs more than 146,000 people in 150 countries.
About the Outlook
PricewaterhouseCoopers’ “Global Entertainment and Media Outlook: 2008-2012,” the ninth annual edition, contains in-depth analyses and forecasts of 15 major industry segments across five regions of the globe – the United States, EMEA, Asia Pacific, Latin America, and Canada – plus a global overview. It is available in hardcopy or electronically for $995 at Global E & M Outlook: 2008-2012. The "Global Overview" is available separately for US$95 in hard copy or electronically, and individual segment chapters are also available for US$95 in electronic format only.