Constant Digital Innovation Becomes the New Licence to Operate for E&M Businesses

Across the world, consumers’ access to entertainment and media (E&M) content and experiences is being democratised globally by ever increasing access to the Internet and explosive growth in the ownership of smart devices.

 

According to PwC’s annual Global Entertainment and Media Outlook 2013-2017 (Outlook), while spending on non-digital media will continue to dominate throughout the coming five years, the growth is coming from spending related to media delivered digitally.  In response, E&M businesses are continuing to raise their game in terms of customer insight and in business model and operating agility, as constant digital innovation becomes the industry’s new licence to operate.

 

China, Brazil, India, Russia, the Middle East and North Africa, Mexico, Indonesia, and Argentina—will see the most growth nearly doubling their share of total E&M revenues during the Outlook forecast period (2013-2017).

 

The average compound annual growth rate (CAGR) for these markets is more than double that of the E&M industry as a whole; they will account for 22% of total global E&M revenues in 2017, almost doubling from 12% in 2008. 

 

In addition the impact of a growing middle class and increased urbanisation in these markets will help reverse the fortunes of some segments of the industry.

 

Given the high levels of mobile and fixed internet penetration, Hong Kong will see continued growth in digital services. 

 

Internet advertising is forecast to grow at 11.3% CAGR, driven by video advertising at 40% CAGR and mobile advertising at 19% CAGR. 

 

“While few people use a mobile device as their primary source of Internet access in Hong Kong, mobile media is incredibly popular making Hong Kongers a captive audience for mobile marketing,” says Cecilia Yau, PwC Hong Kong Entertainment & Media Partner.

 

TV remains the most popular and increasingly competitive advertising medium in Hong Kong at around 30% of total spend, compared with newspapers at 20%. 

 

The vast majority of advertising spend remains focused on terrestrial channels (86%) despite the high take-up of subscription pay-TV.  In the next five years, TV advertising will grow by 8.5% CAGR and will still dominate the advertising market in Hong Kong.  The overall advertising market will grow by 5.6% CAGR from 2013-2017.

 

Overall consumer spending on entertainment and media in Hong Kong will grow by 3.2% CAGR in the next five years, as innovation and greater availability of legal digital content become more pervasive.  As an example, spending on music in Hong Kong will benefit from streaming music services resulting in overall growth of 5.8% CAGR.

 

With the vast majority of homes are already receiving digital pay-TV, and with increasing competition from digital terrestrial television (DTT), pay TV operators will focus on developing value-added services in order to attract higher-value customers.  Pay TV spending in Hong Kong is forecast to grow by 4.4% in the next five years.

 

“Although overall spending on filmed entertainment will remain flat, one ray of sunshine is Hong Kong’s box office, which is forecast to increase by a CAGR of 3.9%,” adds Yau.  “This is a clear sign of the continued appeal of the movie going experience to Hong Kong consumers and of innovations within the cinema industry.”

 

Through to 2017, overall advertising spending in China is projected to grow by 12.4% compounded annually, led by internet advertising with a CAGR of 21.5%.  China is the world’s second largest internet advertising market.  Consumer spending on entertainment and media will grow by 8% CAGR, driven by filmed entertainment at 14.7% CAGR and pay TV subscriptions at 13.5%. 

 

Opportunities and challenges vary by market and industry segment
As digital innovation and growth continues to dominate the E&M industry landscape, so new trends will emerge in the coming years. The impact of these trends are forecast to vary by market and by segment, and are reflected in this year’s Outlook as tipping points or contrasting market rates. 

 

China, Brazil, India, Russia, the Middle East and North Africa, Mexico, Indonesia, and Argentina will see the most growth and will challenge the existing ranking of markets by revenue.

 

While there is no change in the markets in the top 10, there is considerable reshuffling. Looking solely at consumer spending on E&M, China will rise from fifth in 2012 to third in 2017, surpassing the UK in 2013 and Germany in 2016.

 

Brazil will also grow, surpassing Canada in 2014 and South Korea and Italy in 2016 to reach number seven. India will pass Australia in 2014 but remain just outside the top 10 consumer spending markets.

 

When including all TV revenues China surpasses both UK and Japan in 2014 to reach the third spot (behind the US and Germany). China will also jump beyond Germany in 2015 to become the second largest TV market.

 

Indonesia will be the fastest-growing TV market with 21% CAGR in revenues and a market set to be worth US$1.7 billion in 2017, while Kenya, Thailand and Vietnam also all show impressive growth (13%+ CAGR). In the mature markets of Europe growth will generally be limited to 1-3%.

 

The global trade-show business will be worth in excess of US$36 billion in 2017, up from approximately US$29.4 billion in 2012. The US, Germany, France, the UK and Japan will again be the key markets. However, China can expect to surpass the UK and Japan in 2014 to reach number four.

 

“The growing affluence of a rapidly emerging middle class consumer with a propensity to spend on entertainment and media experiences, combined with improving infrastructure in many high growth markets is bolstering overall growth rates in a number of key segments," says Marcel Fenez, Global Leader, Entertainment & Media, PwC. "Universally, E&M companies need to invest in developing and distributing content in ways that compel customers to loyalty and take advantage of their propensity to engage in sharing content experiences.” 

 

Industry trends are having profound effects on key stakeholders
To harness growth, E&M companies are evaluating their competitive advantages and redefining their positions in the evolving ecosystem, with the connected consumer at its core. 

 

Industry participants need to invest in constant innovation that encompasses its products and services, its operating and business models and—most importantly—its customer experience, understanding and engagement.

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