Entertainment and media companies face a collaboration imperative for the next five years

Singapore, 24 June 2008 - Entertainment and media (E&M) companies hoping to drive growth over the next five years will need to accommodate dramatic changes in devices, market and consumer behaviour through striking strategic business alliances, according to PricewaterhouseCoopers’ Global Entertainment and Media Outlook: 2008-2012 , released today. The report also underscores the direction of change being set by the ‘Net Generation’, who are 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.

“We’re seeing a new emerging landscape for entertainment and media companies,” said Greg Unsworth, Partner and Asia Pacific Technology Industry Leader, PwC Singapore. “The industry is grappling with a range of emerging business models, a number of which reflect the transition to more free, ad-supported, on-demand and online distribution of products. No single company will be able to successfully operate independently over the next five years. The challenges and the demand for innovation are too significant. Notwithstanding these trends, traditional and physical format continue to grow, as companies seek to manage the digital transition along with threats of piracy”.

Strategic alliances will replace vertical integration

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. The highly anticipated report showcases the importance of continuing to extract revenues from traditional business segments while emerging technologies continue to solidify their consumer position. Global compound annual growth rate (CAGR) is forecast at 6.6% for the sector, anticipated to reach US$2.2 trillion in 2012.

Several critical technologies are now reaching tipping points that will deeply influence both the pace and direction of E&M growth over the next five years. Broadband penetration is fast expanding given Asia Pacific governments’ view of it as being critical to economic growth and global competitiveness. Strong growth in Internet Protocol Television (IPTV), Internet advertising, and video games are also in the forecast. Asia Pacific’s E&M industry is piqued to reach US$508 billion by 2012, growing at 8.8% CAGR from 2008 to 2012.

Health of media driven by the ‘Net Generation’ and maintained by the over 50s

The ‘Net Generation’, defined as the global, connected youth generation born between 1977 and 1997 who are the first consumers to “grow up digital”, continues to set the pace of change in the global E&M industry while exhibiting an influence that is driving new business models that are revolutionising 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.

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. This growth will help sustain traditional formats even as this generation becomes increasingly interested in the platforms embraced by their children and grandchildren.

Growth continues to be driven by emerging markets

Over the next five years, the Asia Pacific will continue to be one of the fastest growing regions. CAGR for the Asia Pacific E&M market is set to outpace expansion of the global E&M industry at 8.8%, increasing from US$333 billion in 2007 to US$508 billion in 2012, with a distinctive shift from analog to digital media. Excluding Japan, which will experience relatively slower growth, Asia Pacific will grow at a 12.0% compound annual rate.

Although digital and mobile distribution comprised only 5% of total E&M spending in 2007, revenues in Asia Pacific will see double-digit increases over the next five years, with Internet advertising taking the lead with 23.3% CAGR, TV subscriptions and license fees growing at 16.1% CAGR, casino and other regulated gaming 15.4%, video games 11.3% and Internet access 11.3%.

As the trend towards globalisation in the E&M industry continues, Brazil, Russia, India and China (the BRIC countries) will remain important sources for growth throughout the entire sector, driven by rising disposable incomes and an increasingly urbanised middle class. In addition, a large and diverse group of countries are also breaking away from the pack. E&M markets across fifteen 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.

Growth is driven by the rising value of online and mobile opportunities

With the Internet being the fastest growing advertising medium, governments in Asia Pacific are encouraging broadband penetration; with wired broadband access spending being the fastest-growing component, expanding at a projected CAGR of 13.4%, to reach US$46.5 billion in 2012 from US$24.8 billion in 2007.

  • Mobile Internet access
Mobile Internet access is also rapidly gaining ground, with infrastructure upgrades enabling the next wave of expansion, driven by Internet access, advertising and television. In Asia Pacific, access spending is led by Japan, China and South Korea. Wireless upgrades will propel mobile Internet access, which will increase from US$27.3 billion in 2007 to US$48.8 billion in 2012, a 12.3 percent compound annual increase. As a result, Internet access spending (both wired and mobile) is set to rise at 11.3% CAGR to US$103.1 billion in 2012. In Singapore, the government launched the Intelligent Nation 2015 initiative in early 2007, which features the building of a National Broadband Network (NBN). The NBN will consist of both wired and wireless components. The wired component will provide speeds of up to 1 gigabit per second, and the wireless component will extend broadband to the entire country.
  • Video Games
The Asia Pacific region continues to lead the world in video game spending at US$14.8 billion in 2007, and projected to grow at 11.3% CAGR through 2012 to reach US$25.3 billion. The recently introduced generation of consoles as well as the current handheld games will spur the console/handheld market, which will continue to be the most important segment, growing at a 6.7% CAGR to US$10.4 billion in 2012.

Against this background, rising broadband penetration will further drive online gaming in general and multiplayer online games (MMOGs) in particular. Online games will increase at a 13.3% CAGR, reaching US$5.6 billion in 2012. Asia Pacific, being the dominant region applying advanced wireless technologies, will see wireless games growing at a CAGR of 22.2% to US$7.8 billion in 2012 from $2.9 billion in 2007. Together, online and wireless games will comprise 53% of the market in 2012 compared with 40% in 2007.
  • Regulated Gaming
Asia Pacific will be the fastest-growing region, with a projected 15.2% CAGR from US$18.3 billion to US$37.2 billion in 2012, hot on the heels of EMEA. The introduction of destination-style resort casinos in Macau will propel that area to become the largest single casino gaming destination in the world. Elsewhere in the region, Thailand, Japan and Taiwan also are considering legalising casinos. Resort casinos in Singapore are expected to start operations in 2011. Revenues will total an estimated US$796 million in 2012. Once the market becomes fully established, the revenue potential in Singapore will approach US$5 billion.

“Collaboration among the right partners will advance innovation. Catering to Net Generation consumers with higher expectations of a customised, technology-rich and engaging experience across multiple platforms will be increasingly essential. By effectively managing emerging and traditional business lines, E&M players will be able to identify opportunities that can be exploited, so they can migrate to the new digital environment and meet the demands of the ‘Net Generation’,” Mr Unsworth concluded.

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1. 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.

2. About PricewaterhouseCoopers
PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 146,000 people in 150 countries across our network share their thinking, experience and solutions to develop fresh perspectives and practical advice. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

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