Golden Age of the Digitally Empowered Consumer

A new collaborative entertainment & media industry emerges from the global recession

SINGAPORE 14 June 2011 - It’s the golden age of the empowered consumer, with the demand for digital experiences increasing and becoming the norm, according to the latest Global Entertainment & Media Outlook 2011-2015 from PwC. In many markets the Entertainment & Media (E&M) industry emerging from the recession has been profoundly changed as the ongoing consumer migration to digital has accelerated due largely to the device revolution.

2010 saw the global economy begin to recover from its steep decline in 2009 and these improved economic conditions have played a major role in the recovery of overall E&M spending which rose by 4.6 per cent. Some countries, notably China and India, were largely unscathed by the global recession and experienced significantly higher growth rates in E&M spending, but others who were, and are still burdened with high government debt or political unease, are struggling to grow at similar rates.

Over the next five years we forecast that aggregate E&M global spending will rise from US$1.4 trillion in 2010 to $1.9 trillion in 2015, a 5.7 per cent compound annual advance driven by economic growth, but masking the accelerating shift of spending from traditional to digital platforms. Currently digital accounts for 26 per cent of all spending but by 2015 we expect digital’s share to rise to 33.9 per cent.

Advertising, the most cyclically sensitive of the three E&M spending streams, recorded the largest year-on-year swing, rebounding at 5.8 per cent in 2010 from an 11 per cent slump in 2009. Overall global advertising will increase at a 5.5 per cent compound annual rate from $442 billion in 2010 to $578 billion in 2015. Singapore advertising revenue is expected to grow at a 4.8 per cent compound rate to 2015, with online advertising being the fastest growing component.

Consumer/end-user spending also improved, rising 2.2 per cent in 2010 after a fall of 0.4 per cent in 2009. In contrast Internet access spending was barely affected by the economic cycle growing at 9.2 per cent in both 2009 and 2010 and is expected to rise from $270 billion in 2010 to $408 billion in 2015, an 8.6 per cent compound annual increase.

By comparison, the Singapore consumer/end-user spending will grow at a compound rate of 4 per cent to 2015 and internet access spending will maintain its strong momentum growing at 10 per cent over the forecast period.

Overall, entertainment and media spending in Singapore is expected to grow at an annual compound growth rate of 5.5 per cent which is comparable to Asia Pacific’s overall growth at 6.3 per cent (CAR).

On the outlook for Singapore, Greg Unsworth, Singapore Technology, InfoComm, Entertainment and Media Leader of PwC LLP (Singapore), says:

“Singapore will continue to enjoy a rising share of digital revenues in E&M in both advertising and consumer spending. Internet advertising’s growth of 17.2 per cent in Singapore will far exceed the Global average at 13 per cent. Digital consumer spending will also out pace most countries and see an increase in overall share in spending from 11 per cent in 2010 to 19 per cent in 2015.”

“The high broadband and mobile internet penetrations may have accelerated the way for digitisation in Singapore. However, it is the device revolution with the rise and availability of digital technology and content, particularly through social networking, that has created a new normal in the industry as consumers are empowered like never before.”

 

The Digitally Empowered Consumer

The whole E&M industry is being driven to create experiences that engage today’s empowered consumer, by redesigning the content experience to be multi-purpose and multi-platform which, in turn, creates multiple opportunities for monetisation.

Marcel Fenez, Global Leader, E&M practice, PwC says:

“This is a golden age for consumers, who have never had it so good when it comes to accessing premium content (often free) over multiple devices. E&M CEOs are having to adapt business models to capture the shifting nature of consumer demand. The bottom line is that in order to continue to create quality content, someone has to pay.”

Many consumers increasingly expect content to be free. Convincing people to pay will be difficult and require a deep understanding of what consumers’ value. Convenience, experience and quality are the key ingredients that matter to consumers when choosing from the menu of content and delivery channels available. Alongside these sit participation and privilege. Consumers enjoy playing an active role in shaping their content plus they are happy to pay for privileges which enable them to “jump the queue” to get earlier access to content. The challenge for companies is to turn these five attributes – convenience, experience, quality, participation and privilege - into sustainable, profitable and engaged relationships with the consumer by offering advantages which outweigh the attractiveness of free or pirated content.

Establishing content and brand engagement is one half of the equation. The other is the mechanics of how people will pay for the content or enhanced experience. Various models are being tried including freemium, micropayments and selling bundled access to the same content over a variety of platforms. At the same time, a significant shift is emerging away from payments models that involve buying and “owning” content that is stored on a device and towards paying for the right to consume it on a “rented” basis via streaming from cloud-based services.

The migration of the consumer to smart devices is increasing as wireless network upgrades allow for faster download speeds and the markets for smart devices and mobile apps are now driving one another. As well as boosting mobile apps, smartphone growth is a key driver of mobile spending on E&M content and mobile Internet access.

This explosive growth in these various types of mobile devices is set to continue throughout the next five years so the key for E&M content producers is to take a flexible approach and collaborate with other players, be they operators, application providers, or consumer-friendly payment gateways. This will give them the greatest possible scope for moulding their payment models around what the consumer wants, and the ease of payment could influence where the consumer spends his or her money.

The Involved Advertiser

As content providers have set about using creative thinking and innovation to drive digital revenues from consumers, so advertisers and agencies have followed suit becoming increasingly sophisticated in identifying and exploiting the new brand opportunities brought by digital content services and platforms. Advertisers want more information and more verifiable return on investment from their advertising spend. They are also listening to, and engaging directly with, their consumers to a greater extent than ever before.

Advertising agencies are also responding to these needs by providing their clients with new ideas for connecting with consumers via digital platforms which are enhancing advertising effectiveness. They are also exploring new remuneration models for these digital campaigns, some of which, in effect, involve participating in the risks and rewards of a campaign with the brand owners.

These new approaches have helped drive an unexpected strong recovery in advertising led by online and TV, which has helped restore the attractiveness of advertising-funded models, which are often blended with a subscription revenue stream.

The rise of the “Collaborative Digital Enterprise” and the route to competitive advantage

Digitization will continue to open up many more major opportunities for new types of services, business models, collaborative synergies and consumer relationships for organisations of all sizes across the whole industry sector. Advances in all these areas are emerging daily on the back of the ongoing flood of innovation in devices, delivery methods and pricing.

This is leading towards a new operating model specifically designed for the digital ecosystem - the Collaborative Digital Enterprise (CDE) – an enterprise which is technology driven and dynamic, interconnected and continuously engaged with its entire customer, employee and supplier ecosystem.

Adds Fenez:

“The opportunities are huge for those Collaborative Digital Enterprises who are flexible, fearless, and embrace the challenges and changes within the new digital ecosystem. And those who have digital collaboration infused into their company DNA will be the front runners of the E&M industry in 2015 and beyond.”

PwC believes that to be a successful CDE a company needs to embrace three industry-wide dynamics which are the route to success in the emerging digital environment:

  • Digital: the rapid and accelerating digitization of elements including content, business processes, and product innovation. Social media, mobility and the explosion of apps have already had profound impacts which will continue to grow.
  • Demand: Consumers are empowered, connected, able to influence large communities of people, and ready to play an increasingly collaborative role in developing new E&M products and services
  • Data: the proliferation of digitized content, web access and social media means companies have the ability to mine and analyse detailed/contextual information which hasn’t previously been available. Data is key to the interface between consumers, content experience and brand as well as to innovation.

2011 has already shown that companies are switching their focus from inward to outward as they embrace the fact that multi-partner collaboration along the entire value chain is key. Such collaboration has been seen in almost every industry relationship: with consumers through the use of social networking; with advertisers through emerging models; and platforms, through content experiences tailored to specific device capabilities. CEOs see this collaboration as critical to both engagement with their consumers and innovation and it is a trend that will only strengthen and gain momentum over the next five years.

Across the leading digital markets, content owners, device manufacturers, operating systems and app developers will continue to work together in various configurations to produce engaging content experiences which will be shaped by consumer feedback and analytics. The CDE will escalate and elevate this collaboration from the current level of initiatives to a sustainable and interconnected digital ecosystem.

Unsworth concludes:

“Digital will account for 59 per cent of total E&M growth over the next five years. The prospects for the E&M industry in Singapore are bright, with Singapore ahead of the pack when it comes to digital enablement. This will allow late traditional players and new entrants to evaluate their digital positioning and collaborate for success in the digitally led future.”

 

ENDS

 

Key Stats:

  • Latin America will be the fastest-growing region in terms of E&M spending during the next five years, with a projected 10.5 percent compound annual increase to $109 billion in 2015 from $66 billion in 2010. Asia Pacific will be next at 6.5 percent compounded annually from $395 billion to $541 billion. EMEA will expand at a 5.2 percent compound annual rate to $614 billion in 2015 from $477 billion in 2010. North America will increase by 4.7 percent on a compound annual basis from $481 billion to $607 billion. Singapore will record a 5.5 per cent growth compounded annually to nearly $3.9 million in 2015.
  • Twelve countries had spending above $25 billion in 2010. Of the leading countries, China and Brazil will be the fastest growing over the next five years with projected compound annual increases of 11.6 per cent and 11.4 per cent respectively.
  • The Internet will be the fastest-growing advertising segment during the next five years, overtaking newspapers in 2012 to become the second-largest advertising category behind television. Television advertising will continue to benefit from viewing and its association with Internet usage and the major sporting events over the next couple of years, such as the London 2012 Olympics, will drive double-digit increases during this period. The trade magazines sector saw a dramatic decline of 20.4 per cent in 2009 but by 2012 through to 2015 we expect it to be one of the faster growing sectors.
  • Singapore internet advertising will increase at a compound annual growth rate of 17.2 per cent to 2015.
  • In 2010 digital advertising accounted for 15.9 per cent of total global advertising and is projected to account for 22.5 per cent in 2015. Non-digital accounted for 84.1 per cent of total advertising in 2010 and is projected to account for 77.5 per cent in 2015.
  • Overall digital spending increased by 12.9 per cent in 2010 compared with a 2 per cent increase in non-digital spending. This pattern will continue and we project digital’s share to rise to 33.9 per cent by 2015. Digital spending will increase at a projected 11.5 per cent compound annual growth rate during the next 5 years compared to compound annual growth of 3.3 per cent for non-digital spending. Accounting for just a quarter of the market, digital will generate 59 per cent of total E&M spending growth during the next five years.
  • Broadband is a key driver of digital spending as broadband facilitates digital transactions. Latin America and Asia Pacific are currently the regions with the lowest broadband penetration and therefore the regions with the highest potential for growth. Over the next 5 years we expect the number of broadband households to double in Latin America and in Asia Pacific to grow by 75 per cent.
  • Mobile Internet access growth is also an important driver of E&M spending with all regions experiencing significant growth through to 2015 The number of mobile access subscribers will more than double in EMEA and Asia Pacific, will more than triple in North America and will increase by more than 400 per cent in Latin America during the next five years.
  • While there is a continued decline in physical spending in music, the digital market continues to grow and is expected to overtake physical spending by 2014. Nevertheless, overall music spending is expected to fall at a 1.1 per cent compound annual growth rate of $22 billion in 2015 from $23 billion in 2010. Singapore will see digital recorded music revenue increase at a compound growth rate of 20.1 per cent to 2015.
  • The filmed entertainment market is being boosted by 3D, Blu-ray and the growing electronic market. The proliferation of tablets, expanding broadband penetration and faster broadband speeds is contributing to an increase in spending of 5.9 per cent compound annual rate to $115 billion in 2015, from $86 billion in 2010. Asia Pacific and Latin America will be the fastest-growing regions.
  • In the video games market, the overall market is projected to expand to $82 billion in 2015, an 8.2 per cent compound annual increase from $56 billion in 2010. Asia Pacific will be the fastest growing region over the next five years with an 11.8 per cent compound annual increase, mainly fuelled by large increases in online games.

 

Notes:

About the Outlook

PricewaterhouseCoopers Global Entertainment & Media outlook 2011-2015, the 12th annual edition, contains in-depth analysis and forecasts of 13 major industry segments across four regions of the globe: North America (USA and Canada), EMEA (Europe, Middle East and Africa), Asia Pacific and Latin America. To access the Global Entertainment & Media Outlook 2011-2015 online go to: http://www.pwc.com/outlook. For press copies, please contact Chen Yih Lin or Jesslyn Foo.

Digital Spending

Digital spending, as included in the Outlook, consists of broadband and mobile Internet access, online and mobile Internet advertising, video-on-demand, mobile TV subscriptions, digital music, electronic home video, online and wireless video games, digital consumer magazine circulation spending, digital newspaper circulation spending, digital trade magazine circulation spending, electronic consumer, educational and professional books, and satellite radio subscriptions.