Net Generation drives a changing media landscape - Challenging times for media and entertainment industry in the short-term.

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 behaviour through striking strategic business alliances, according to PricewaterhouseCoopers' latest annual Entertainment and Media Report. The report also underscores the dominant role of traditional revenue streams, while emerging technologies continue to solidify their consumer position.

Overall, the Net Generation will continue to set the pace and direction of change in the entertainment and media sector. This large demographic is accelerating the digital/mobile transition and driving the industry toward a future in which content and advertising are tailored to the wants and needs of individual consumers.

However, as the global financial turmoil continues, there are challenging times ahead for the media and entertainment industry, especially in relation to advertising expenditure. Advertising reacts much more quickly to the economic cycle as consumer cutbacks hit major advertising categories - financial services, automobiles and airlines - the hardest. Advertising revenues are expected to be weak for the latter half of 2008 and for 2009. However, it remains to be seen what impact the downturn will have on end-user spending. For example, in previous downturns, end-user spending was less affected, with consumers tending to spend more time at home using more entertainment products and services - televison, video games, internet etc.

The current turmoil will impact all companies in the entertainment & media industries with growth predictions being restated. But the underlying trends remain as stated - digital, mobile and internet related businesses will continue to grow, driven by the demands of the Net Generation.

Launching PwC's latest Entertainment and Media Report, Eamon Ryan, T.D., Minister for Communications, Energy and Natural Resources said:

"The Communications sector is developing at an exponential pace, with new technologies being made available on an almost daily basis. The entertainment and media industries must take advantage of these developments, and I have no doubt that they will.

In the coming years, Ireland will be making the switchover from analogue to digital terrestrial television, in a move coordinated by my Department. Our broadband services are moving to Next Generation and we have more mobile phones than people on this island.

Even in less favourable economic times, the conditions for the successful growth of the entertainment and media industries, are optimal. Now is the time for innovators to succeed.

I commend PricewaterhouseCoopers for publishing this report, which gives a clear indication as to the future of the media and entertainment industries. If the positive developments in the communications sector are seized, this is certainly a future that looks bright"

Globally, the key findings include:

  • EMEA is expected to overtake the United States in 2012 as the world's largest region for internet advertising;
  • While digital and mobile technologies will drive future growth, traditional business segments, such as television and newspaper, will continue to dominate revenues;
  • Across virtually every sector, growth in the market will be driven by the rising value of online and mobile opportunities;
  • Overall, the Net Generation continues to set the pace and direction of change in the entertainment and media sector;
  • Emerging markets will be the key growth engines over the next 5 years. Collectively the BRIC nations (Brazil, Russia, India and China) will have a collective CAGR of 13.6%. EMEA, the second largest market, will experience CAGR of 6.8%. Meanwhile, the US, remaining the largest market will experience the slowest CAGR of 4.8%;
  • Global revenues from mobile advertising is expected to show continued growth;
  • The global video game advertising market will more than double in 2012;
  • The rising penetration of DVRs should have a positive impact on TV advertising;
  • On a global basis, sports sponsorship (including merchandising) is projected to show a 7% annual growth for the sector in the period, with the UK remaining the fastest growing sports industry in Europe.

Speaking at the launch of the PwC report, John Herlihy, Vice President, Online Sales and Operations, EMEA, Google said:

"I am delighted to see that for the first time, PwC's Global Entertainment and Media Outlook has a dedicated chapter on internet advertising and it is forecasting that EMEA will overtake the US as the world's biggest market for online advertising by 2012. Google in Dublin is at the heart of this growth. We have over 1,000 people working with companies in over 40 countries across EMEA, helping them to innovate, to build stronger brands and more successful businesses online.

"I believe that in the current economic climate, internet advertising will continue to secure a growing share of advertising budgets. Spending will be buoyed by advertisers looking for more cost effective and measurable ad campaigns.

"I congratulate PwC on publishing this important report. The media industry depends more than most on good quality forecasting. PwC's Global Entertainment and Media Outlook is an excellent overview of the key trends and provides essential benchmarking for investment decisions"

Marcel Fenez, Managing Partner, Global Entertainment & Media Practice, PwC said:

"Business is facing very challenging times and the entertainment and media sector will not be immune to the downturn, in particular advertising. We're seeing a new business model solidify for entertainment and media companies. 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 intense."

Bartley O'Connor, Associate Director, PwC Ireland Entertainment & Media Practice added:

"In line with global markets, we expect the current financial turmoil to also impact the Irish Media and Entertainment industry, particularly for the remainder of 2008 and 2009. However, over the next 5 years we expect to see continued growth in a number of areas, in particular, internet access, internet advertising and video games, driven to a large extent by continued demand from the younger Net Generation for digital and online services".

The key challenge for Irish companies operating in the Entertainment & Media sector will be to carefully manage the impact the downturn is having on their business. Companies will need to review all aspects of their strategy to ensure they are managing their business for profitability and long term sustainability"

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 3-D 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 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 in the industry during the next five years.

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. This generation, defined as people born between 1977 and 1997, is exhibiting an influence that is driving new business models which are revolutionising the relationship between companies and their customers. As these technologies become 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 sustain 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, 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.

Bartley O'Connor, Associate Director, PwC Ireland Entertainment & Media Practice said:

"Consumers are taking a preference for free, or heavily discounted, ad-supported content and services in the new digital and mobile environment. This ensures that the importance of advertising will continue to grow - both to entertainment and media companies themselves and to their customers."

Sports

Major international events, including the Beijing Olympics in 2008, the Vancouver Olympics in 2010, the London Olympics in 2012 and the FIFA World Cup to be held in South Africa in 2010 will boost TV rights fees and sponsorship revenues in all regions in which they will be held. Competition between pay TV providers and over-the-air networks will fuel demand for TV rights fees while mobile and online rights will ensure a relatively healthy market in all regions.

O'Connor concluded:

"Companies are rapidly embracing new and emerging technologies in the entertainment and media industry, while adapting to the demands of the net generation. 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, the primary 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".

ENDS

Notes to Editor:

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 (Europe, Middle East, Africa), Asia Pacific, Latin America, and Canada – plus a Global Overview. To obtain information about how to obtain copies of the book please contact Johanna Dehaene on email: johanna.dehaene@ie.pwc.com

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