Consumer behaviour drives change; Entertainment & Media players seek new roles in digital value chain

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15 June 2010

London, 15 JUN 2010 -- Over the next five years digital technologies will progressively increase their impact across all segments of entertainment and media (E&M) as digital transformation continues to expand and escalate. The uncertain economic background has done nothing to slow the pace of change, which has been far quicker than predicted 12 months ago. It is clear that the consumer is firmly in the driving seat of these changes, according to the latest Global Entertainment & Media Outlook 2010-2014, from PricewaterhouseCoopers (PwC).

Following a year of decline in 2009, the global E&M market, as a whole, will grow by 5.0 per cent compounded annually for the entire forecast period to 2014 reaching US$1.7 trillion, up from US$1.3 trillion in 2009. Fastest growing region throughout the forecast period is Latin America growing at 8.8 per cent compound annual rate (CAR) during the next 5 years to US$77 billion in 2014. Asia Pacific is next at 6.4 per cent CAR through to 2014 to US$475 billion. Europe, Middle East and Africa (EMEA) follows at 4.6 per cent to US$581 billion in 2014. The largest, but slowest growing market is North America growing at 3.9 per cent CAR taking it from US$460 billion in 2009 to US$558 billion in 2014.

Consumers are embracing new media experiences with staggering speed. The advancing digital transformation is driving audience fragmentation to a level not previously seen. However, the current wave of change is of a different magnitude from previous ones both in its speed and its simultaneous impact across all segments.

Marcel Fenez, Global Leader, Entertainment & Media practice, PricewaterhouseCoopers said:

“Some companies perceive the continuing fragmentation of the market as a threat but it should be seized upon as an opportunity. It offers companies the chance for creativity around the approaches to their buyers, be it via traditional channels to market or, more importantly, by embracing social media. Either way, it’s imperative that they capture the hearts, minds and money of these consumers.”

Although there is consistency in the inevitable migration to digital, the ways in which this presents itself and the pace of change continues to vary by market. Regional and country variations in current market size and future growth reflect local factors around infrastructure, access availability and consumer behaviour. For example the mobile internet explosion has already happened in Japan, accounting for some 53 per cent of global spending on mobile Internet access in 2009 while other markets are still at the bottom of their growth curve.

Advertising on the rebound

Advertising revenues have been particularly hit by the turbulent markets and while there are signs of a rebound, this is still fragile in nature. Spend is unlikely to return to former levels. By 2014, the US advertising spend is expected to still be 9 per cent below its level in 2006. Overall, global advertising will increase at a 4.2 per cent CAR from US$406 billion in 2009 to US$498 billion in 2014. Internet advertising will join television in 2014 as the only media with spending in excess of US$100 billion.

The projections reflect the fragmentation of the market and behavioural changes of consumers. The advertising industry is responding to consumers’ shifting attention and has embarked upon a long-term journey towards total marketing or total brand communication. Brands are changing their focus from advertising on a medium, to marketing through, and with, content.

Conversing with consumers

Consumer feedback and usage provides the only reliable guide to the commercial viability of products and services, and the global consumer base is being used as a test-bed for new offerings and consumption modes. However, as responses are still evolving it is up to the industry to anticipate and identify where they are heading and pre-empt the needs and wants of consumers. PwC believes that three themes will emerge from changing consumer behaviour:

The rising power of mobility and devices: Advances in technology and products will see increasingly converged, multi-functional and interoperable mobile devices come of age as a consumption platform by the end of 2011. Consumers are increasingly demanding “ubiquity”, with content flowing across different devices to support ever-greater interactivity and convenience. They are using mobile in new ways, and downloading ever-increasing numbers of mobile applications (“apps”) to support their lifestyles. The ability to consume and interact with content anywhere, anytime—and to share and discuss that content experience with other people via social networks—will become an increasingly integral part of people’s lives.

The growing dominance of the Internet experience over all content consumption: Using the Internet is now one of the great unifying experiences of the current era for consumers everywhere—and their expectation of Internet-style interactivity and access to content will continue to expand across media consumption in every segment. This trend is initially at its clearest in television. Equally, people are already consuming magazines and newspapers on Internet-enabled tablets, and streaming personalised music services such as Pandora in preference to buying physical CDs or even digital downloads.

Increasing engagement and readiness to pay for content—driven by improved consumption experiences and convenience: Ongoing fragmentation means that media offerings will need greater consumer engagement and quality to get themselves heard - and paid. Consumers are more willing to pay for content when accompanied by convenience and flexibility in usage, personalisation , and/or a differentiated experience that cannot be created elsewhere. Local relevance will also become important once again as an aspect of convenience and relevance.

Added Fenez:

“The use of the Internet has become one of the great unifying experiences shared by billions of people across the world and this is now causing a parallel trend with the “re-socialisation” of the media consumption experience. Historically reading books or newspapers has been a solitary activity. However the combination of digital access, mobility and social networking is seeing consumption of all forms of media migrate from a solo activity towards being a social experience with viewers use social networking forums to discuss and share their views and content.”

Revolutionising the business

Digital migration and the changes in consumer behaviour have put extreme pressure on existing business models. It has caused the industry to radically rethink its approach to monetising content as it strives to capture new sources of revenue, be it from transactions or from participation with others operating in the evolving digital value chain.

Inevitably this results in individual companies searching for where to position themselves in the new digital world. Partnering with other organisations is becoming imperative in order to create viable commercial content offerings while sharing the costs and risks. Increasingly potential partners are being found from a diverse set of industries.

Whatever the partnership or collaboration we see seven critical factors for operating succesfully in the new value chain:

  • Strategic flexibility
  • Delivery of engagement and reationship with the customer through the consumption experience
  • Economics of scale and scope
  • Speed of decision-making and execution, with the appetite to experiment and fail
  • Agility in talent management
  • Ability to monetise brand/rights across platforms
  • Strong capabilities in partnership structuring and M&A targeting and integration

Fenez concluded:

“Creativity and innovation have always been associated with the entertainment & media industries and now is the time for the industry to tear up their existing business models and embrace the new and emerging opportunities. However they structure themselves, be it via partnerships or collaboration, they need to deliver a superior consumer experience and be sufficiently flexible to capture revenues from an increasingly fragmented market. Those who do, will be the drivers of this exciting but challenging industry.”

And now the numbers!

  • There were 12 countries in 2009 with E&M spending above US$20 billion, led by the United States at US$428 billion and Japan at US$164 billion. Of the leading countries, the People’s Republic of China (PRC) will be by far the fastest growing with a projected 12 per cent compound annual increase, fuelled by a vibrant economy and large increases in broadband penetration that in turn propel other segments. Japan will be the slowest growing of the leading countries at 2.8 per cent compounded annually.
  • Internet access is a key driver of spending in most segments. Increased broadband penetration will boost wired access while growing smartphone penetration and wireless network upgrades will drive mobile access. Spending on wired and mobile Internet access will rise from US$228 billion in 2009 to US$351 billion in 2014.
  • We expect a relatively flat market in aggregate global advertising and consumer/end-user spending in 2010, improved growth in 2011 and a return to mid-single-digit gains during 2014. Overall global advertising will increase at a 4.2 per cent CAR from US$406 billion in 2009 to US$498 billion in 2014. Overall consumer/end-user spending will rise from US$688 billion in 2009 to US$842 billion in 2014, a 4.1 per cent compound annual increase.
  • Globally, the video game market will grow from US$52.5 billion in 2009 to US$86.8 billion in 2014, growing at a compound growth rate of 10.6 per cent. This will make it the second fastest-growing segment of E&M behind internet advertising wired and mobile, but will be the fastest-growing consumer/end user segment ahead of TV subscriptions and license fees.
  • The global television subscription and license fee market will increase from $185.9 billion in 2009 to US$258.1 billion in 2014, a CAGR of 6.8 per cent. This will outpace TV advertising, which will grow at a CAGR of 5.7 per cent. The biggest component of this market is subscription spending and this will increase at 7.5 per cent CAR to US$210.8 billion in 2014. Asia Pacific will be the fastest-growing region with a 10 per cent compund annual increase rising to US$47.1 billion in 2014 from US$29.2 billion in 2009.
  • Total global spending on consumer magazines fell by 10.6 percent in 2009. We project an additional 2.7 per cent decrease in 2010, a flat market in 2011, and modest growth during 2012–14. As a result, spending will total $74 billion in 2014, up 0.7 percent compounded annually from $71.5 billion in 2009.
  • Electronic educational books will grow at a CAGR of 36.5 per cent globally throughout the forecast period yet will still only account for less than 6 per cent of global spend on educational books in 2014.

Notes to Editor:

About the Outlook

  • PricewaterhouseCoopers Global Entertainment & Media Outlook 2010-2014, the 11th annual edition, contains in-depth analyses and forecasts of 13 major industry segments across four regions of the globe: North America (USA, Canada), EMEA (Europe, Middle East and Africa), Asia Pacific and Latin America. To order copies go to: . For press copies contact Fiona Scholes,
  • Digital spending, as referenced in the Outlook, includes: broadband and mobile access; wired and mobile internet advertising; video on demand; mobile TV subscriptions; online and mobile TV advertising; digital recorded music distribution; online movie subscription rentals and digital downloads; online and wireless video games; digital advertising in newspapers and consumer magazines; satellite radio subscriptions and online radio advertising; electronic consumer; education and professional books; digital directory advertising; trade magazine digital advertising.

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