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18 June 2012 | IPTV
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The End of the Digital Beginning: The Challenge for Media Companies Now Lies in How to Implement their Digital Strategies
The entertainment and media industry is nearing 'the end of the digital beginning', media companies must reshape and retool for life in the new normal...

According to PwC’s latest Global Entertainment & Media Outlook 2012-2016, the UK entertainment and media (E&M) market will grow by 3.1% compounded annually (CAGR) from 2012 – 2016 to a value of £63 billion. In 2011, the UK had the second largest E&M market in EMEA at £54 billion.

The only segment of the UK market set again for double digit growth over the period (2012-2016) will be internet advertising, at 12% CAGR. In 2011, the UK was the leading internet advertising territory in EMEA, at £4.96 billion and this will grow to £8.75 billion in 2016, representing almost half of the UK’s total 2016 advertising market.

Television continues to be an important medium with advertising – broadcast and online/mobile TV together – set to grow at 2.2% CAGR to £4.1 billion and TV subscriptions to grow by 4.9% CAGR to £6.8 billion in 2016.

The UK has the largest video game market in EMEA, at £2.43 billion in 2011 and the UK is expected to maintain its dominance, growing 4.4% to £3 billion in 2016.

Newspapers still represent a significant market at £5.7 billion in 2011, but this market fell by 8% last year, reflecting an 11.1% decrease in print advertising and a 6.1% decrease in print circulation spending. Continued declines in print circulation and near-term decreases in print advertising will lead to a 1.6% compound annual decrease during the next five years to £5.25 billion in 2016.

Despite the ongoing economic uncertainty, the past year has seen global sales of tablets and smart devices reach record levels once again, underlining the growing revenue opportunities from digital delivery of E&M content and advertising to increasingly connected, and particularly mobile, consumers.

Digital is now embedded in business as usual, as digital moves to the heart of many media companies, and presents the greatest opportunity for growth going forward.

 “The various segments of the E&M sector are at different stages of digital development, but in all cases, digital is now embedded in day-to-day business. Consumers are demanding digital content that meets their needs – which are increasingly for on-demand entertainment, education and information on mobile devices – and companies have moved past initial experimentation and into a new normal.

“E&M companies have reached what we’re calling the ‘end of the digital beginning’: they’ve made the commitment to a digital future, and are now striving to make the necessary changes to their products, distribution and organisations to deliver sustainable – and profitable – growth” said Phil Stokes, lead entertainment and media partner at PwC.

To do this successfully, E&M companies need to make clear and committed choices about what role or roles they should play in the digital value chain, and understand and harness the rapid and irreversible changes underway in the behaviour of consumers and employees.

These behavioural changes are driving three parallel global shifts in industry value:

From print to digital: E.g. electronic books’ share of total spending on consumer and educational books will rise from 5% in 2011 to 18% in 2016 (globally).

From fixed to mobile-driven consumption: Mobile internet access increased from 26% of total internet access spending in 2007 to 40% in 2011 – and will account for 46% in 2016 (globally).

From West to East, and North to South: Total E&M revenue growth, during the next five years, in the East (Central and Eastern Europe/Asia Pacific) will average 7.2% compounded annually, compared with a 4.3% CAGR for the West (North America/Western Europe). And growth in the South (Latin America/Middle East/Africa) will average 10% compounded annually—more than twice the 4.5% CAGR in the North (North America/Europe).

Against this background, the reshaping of the industry will focus around three perspectives:

Consumers: The creation of more-compelling, more-immersive, and increasingly shared experiences by understanding what connected consumers want—by finding the right little data amid the big data.

Advertisers and value chain partners: The design of new business models that reinvent and expand the value proposition of advertising through innovation.

The industry: Development of the right organisational and operational models to understand and harness new behaviours inside and outside organisations in order to grow their revenues and/or margins in the ‘new normal’.

In the face of sweeping change and uncertainty, the E&M industry has spent the past few years seeking effective business and operating models for the new world, through a cycle of constant experimentation, ongoing innovation and targeted analysis of the results. This will continue. But with digital now at the core of business-as- usual, PwC believes that experimentation and execution are no longer sequential but will proceed in parallel, enabling E&M companies to press ahead into the ‘new normal’ with confidence.

 “The new world is hugely more complicated than the old world and companies have to work harder and faster to stay relevant to consumers. However, we've reached a time when talking specifically about 'digital' increasingly misses the point. As digital becomes a fully-established part of structures within companies and the services offered to consumers, its rising penetration ceases to be a topic for discussion in itself. What matters now is how companies capitalise on it and operate within it” added Stokes.

Key stats from PwC’s Global Entertainment and Media Outlook 2012-2016:

• Global spending: Over the next five years, global spending on entertainment and media is projected to rise from $1.6 trillion in 2011 to $2.1 trillion in 2016, a 5.7 percent compound annual advance. This growth lags some way behind below the projected 6.6 percent compound annual increase in nominal GDP over the same period, reflecting the ongoing shift from higher-priced physical distribution to lower-priced digital distribution.

• Largest 13 E&M markets: There were 13 countries in 2011 with total E&M spending (combined advertising and consumer/end-user revenues) above $25 billion, led by the United States at $464 billion, Japan at $193 billion, China at $109 billion, and Germany at $99 billion. China passed Germany in 2011 to become the third largest E&M market in the world. Of the leading countries, China and Brazil will be the fastest growing with projected compound annual increases of 12.0 percent and 10.6 percent, respectively. Brazil overtook South Korea in 2011 to move into ninth place, and during the next five years will pass Canada and Italy to become the seventh largest market.

• Advertising spending: The most cyclically sensitive E&M spending stream, advertising spending increased by 3.6 percent in 2011. This represented a slowdown from the 7.0 percent gain in 2010 that was augmented by advertising associated with the FIFA World Cup and Winter Olympics, and by the rebound from a sluggish 2009. In spite of growth during the past two years, advertising still remained lower in 2011 than in 2007, the beginning of the Outlook’s reported period. Overall global advertising will increase at a 6.4 percent compound annual rate from $486 billion in 2011 to $661 billion in 2016.

• Advertising segment growth: Internet advertising will be the fastest-growing advertising category with a 15.9 percent compound annual increase, followed by the small video games advertising market, at 11.2 percent. Television advertising will average 6.6 percent compounded annually through 2016, out-of-home advertising will grow at a projected 5.0 percent compound annual rate, followed by radio at 3.8 percent compounded annually. The print segments—newspapers, consumer magazines, trade magazines, and directories—will average less than 3.5 percent compounded annually.

• Consumer/end-user spending: Overall consumer/end-user spending will rise from $802 billion in 2011 to $966 billion in 2016, a 3.8 percent compound annual increase. Video games are expected to rebound and become the fastest-growing segment of consumer/end-user spending during the next five years with a 7.0 percent compound annual increase, followed by TV subscriptions and license fees at 6.2 percent compounded annually. The remaining segments (see notes) will grow at rates of 4 percent or less.

• Internet access spending: Internet access¾whether wired or mobile¾is not an entertainment and media segment in itself, but is a fee to access content and is a key driver of entertainment and media spending in most segments. Global Internet access spending will rise from $317 billion in 2011 to $493 billion in 2016, a 9.3 percent compound annual increase.

• Mobile Internet access: Spending on mobile access increased from 26 percent of total global Internet access spending in 2007 to 40 percent in 2011¾and will account for 46 percent in 2016, almost catching up with wired access spending.

• Consumer magazines: Overall global spending declined during the past four years, although annual decreases in 2010–11 were less than 1 percent. The market is expected to begin to increase in 2012, averaging 1.3 percent compounded annually to $80 billion in 2016 from $75 billion in 2011.

• Consumer and educational books: global spending on electronic books will rise at a CAGR of 30.3 percent to $20.8 billion in 2016, taking electronic books’ share of total global book spending from 4.9 percent in 2011 to 17.9 percent in 2016.

• Out-of-home advertising: Indonesia, Russia, and India will be the fastest-growing countries for out-of-home spending through 2016, with CAGRs of 11.2 percent, 11.0 percent, and 10.9 percent, respectively.


Notes:

About the Outlook -PwC’s Global Entertainment and Media Outlook 2012-2016, the 13th annual edition, contains in-depth analysis and historical and forecast data for advertising and consumer/end-user spending in 13 major industry segments across 48 countries.

Segments covered by the Outlook -Business-to-business, Consumer and educational books, Consumer magazine publishing, Filmed entertainment, Internet access spending: wired and mobile, Internet advertising: wired and mobile, Newspaper publishing, Out-of-home advertising, Radio, Music, Television advertising, TV Subscriptions and license fees, Video games.


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