The end of the digital beginning: challenge for media companies now lies in how to implement their digital strategies

Digital migration is increasingly playing out differently across the various segments and geographies of the entertainment and media industry says PwC’s Global Entertainment and Media Outlook 2012-2016

Singapore, 12 June 2012 - Despite ongoing economic uncertainty, the past year has seen global sales of tablets and smart devices reach record levels once again. The trend underlines the growing revenue opportunities from digital delivery of entertainment and media (E&M) content and advertising to increasingly connected, and particularly mobile, consumers.

According to PwC’s annual Global Entertainment and Media Outlook 2012-2016, released today, digital opportunities are now well understood by media companies, advertising agencies and advertisers themselves: the industry is approaching the ‘end of the digital beginning’ as rising comfort levels with digital mean that it is becoming business-as-usual. Although the ‘fog’ experienced in the past few years around strategic options is lifting, there is more to be done: today’s challenge is in the implementation of those digital strategies.

A world of difference

PwC believes that though the focus may still be on digital migration, challenges for E&M companies differ according to diverging market pictures across segments and geographies.

Charlotte Hsu, Partner and Singapore Entertainment and Media Leader, PwC LLP, says:

“The Singapore entertainment and media market at 5.8 percent compound annual growth rate is uniquely positioned, straddling between the maturity of certain markets and the growth of this sector within the Asia Pacific region. Mobile and internet penetration and digital infrastructure in Singapore, fuelled by the rapid uptake of tablets and smart devices, is closer to the more mature markets in the United States, Europe and Japan. But at the same time, the strength of certain segments such as internet advertising is clearly energised by the rapid and dynamic growth in Asia. Digital prospects will be dictated by how well companies embrace digital strategies as its core strategy, and how it uses digital social media and other data collaborative tools to drive that growth.”

Tipping points and contrasting market development rates globally and in Singapore as highlighted by this year’s Outlook data and analysis show:

Growth of E&M spending on digital closing in on non-digital share of market

  • Singapore’s digital spending will grow at 10 percent per annum from 2012 to 2016, from a total entertainment and media market size of US$4.3 billion in 2012 to a projected size of US$5.3 billion in 2016. By 2016, digital spending will increase to nearly half of entertainment and media spend from 39 percent in 2012 to 45 percent in 2016.
  • The trend in Singapore closely follows global levels - global entertainment and media spending on digital advertising and consumer formats increased by 17.6 percent in 2011 compared with only a 0.6 percent rise in non-digital spending. Digital’s share of total spend will grow from 28 percent in 2011 to 37.5 percent in 2016, and digital spending will account for 67 percent of total E&M spending growth to 2016.
  • Digital consumer spending in Singapore at 13 percent in 2011 to 20 percent in 2016 will grow at a faster pace than global consumer spending from 7 percent in 2011 to 11 percent in 2016. Singapore advertising spending will grow at 5.6 percent CAGR to 2016 – with digital advertising (inclusive of online and mobile TV and newspaper digital advertising spending) increasing from 10 percent in 2011 to 19 percent in 2016.

Strong showing in Singapore’s internet advertising spending growth

  • While digital maturity varies widely at a segment level (in the case of Singapore, at 18.1 percent CAGR to 2016), Singapore’s internet advertising growth is clearly well above global levels at 15.9 percent, and mature markets at 13.4 percent.
  • Singapore is expected to lead in overall advertising spending growth in segments, including in segments such as video games (at CAGR to 2016 of 14.9 percent), cinema (at CAGR to 2016 of 10.8 percent), as well as in consumer magazines and newspapers.
  • Advertising in newspaper publishing in Singapore will be positive at compound annual growth rate of more than 2 percent compared to negative growth in other mature markets, but it will be lower than the fast growing emerging markets represented by the BRIC economies.

Consumer spending in video games and music expected to be fastest growing segments in Singapore

  • Global consumer spending growth will be led by growth in video games (at 7 percent) and TV subscriptions (at 6.8 percent). With video games, growth is driven by online and wireless games and casual gaming. Global spending on online and wireless video games is expected to overtake console and PC games revenues in 2013.
  • In Singapore, consumer spending in video games will grow at a compound annual rate of 8 percent, and much of its growth will be driven by the double digit online and wireless games outlook for Singapore at a compound annual rate of 10.9 percent to 2016, mirroring global trends. Singapore’s online and wireless games had already overtaken console and PC growth in 2009.
  • Global spending on music rose 1.3 percent in 2011, the first gain in many years, thanks to growth in the concert and music festival market and a slower decline in recorded music. Singapore’s music industry reflects strong consumer spending at compound annual growth rate of 6.1 percent compared to 3.7 percent globally and 3.3 percent in mature markets.
  • Consumer spending in Singapore in business to business at compound annual rate of 5.9 percent and in filmed entertainment at 5.5 percent is also significantly higher than global or mature markets levels.

TV subscription and advertising trend in Singapore energised by growth in the region

  • Singapore’s consumer spending in TV subscription at 5 percent (CAGR to 2016) is higher than aggregate mature markets at 4.7 percent but is considerably lower than global level at 6.8 percent.
  • Singapore’s TV advertising trends mirrors the mature markets closely at compound annual rates of 5.6 percent. However, as a region, TV advertising in Southeast Asia region will see strong growth, led by Indonesia at 15.1 percent and Thailand at 7.4 percent. Against this backdrop is the significant growth in TV subscription experienced in the more mature markets.
  • In the worldwide filmed entertainment market, over-the-top/streaming services will grow at a 21 percent CAGR to $11 billion in 2016, and will overtake spending through TV subscription providers in 2012.
  • Filmed entertainment market in Singapore will grow at a compound annual rate of 5.6 percent. However, the growth in consumer spending is dominated largely by VOD (through TV subscription providers) at US$33 million in 2012 compared to over-the-top/streaming services at US$3 million.  By 2016, over-the-top streamed home video spending could pick up to US$9 million compared to US$55 million in VOD growth.  

Adrian Seto, Associate Director, Entertainment and Media, PwC LLP Singapore, says:

“Singapore is at a different stage of digital development across the different segments within the E&M sector. Internet advertising spending clearly takes the lion’s share of growth in spending compared to other digital segments. The industry is still dominated by the key players in TV and newspapers but as they have made the commitment to a digital future and it becomes core to the enterprise we see them strive to make the necessary changes to their products, distribution and organisations."

Entertainment and media companies reshape and retool for life in the digital new normal

According to the Outlook, the challenge now for E&M companies in a world where digital is established as ‘business as usual’ – and in those markets where the infrastructure is suitably developed to support digital distribution and consumption – is to focus on planning out and executing their digital strategies. Uncertainty in past years triggered by digital migration is giving way to a sharper focus on identifying, choosing and executing the business models, organisational structures and skill sets to harness new consumer behaviours and deliver rising future value.

  • A finger on the consumer’s pulse
    E&M companies need more than ever to understand consumer behaviours and motivations in order to engage with and immerse consumers in their connected, multi-screen environment. Data analytics tools are required to mine the mass of customer data, however the development of such tools may be triggering consumer fears over risks to their privacy. PwC believes that avoiding this will require a shift of industry mindset from ‘customer ownership’, towards facilitating a position where the customer is ‘in control’.

Companies will find that giving consumers more control over how their personal data is used may deliver higher benefits back to consumers, encouraging them to volunteer even more information, as well as providing better value for advertisers and higher rewards for media owners. Businesses need to aim for a win-win model in which the medium, the advertiser and the consumer all collaborate and benefit. Ultimately, the only person who ‘owns’ the customer – and the customer’s data – is the customer him or herself.

  • New roles emerge across the E&M value chain
    E&M companies need to identify the role or roles they will occupy as new structures emerge across the digital value chain, and work collaboratively with other providers with complementary capabilities.

According to the Outlook, these roles could include:

  • acting as the online destination or physical auditorium that hosts the customer experience (the ‘venue’)
  • aggregating and filtering consumers’ content requirements (the ‘community curator’)
  • providing exclusive content (the ‘content monopoliser’)
  • being the ‘device developer’
  • acting as the consumer’s trusted content companion across devices (the ‘digital services champion’)
  • being the third-party specialist supporting experimentation, innovation and execution (the ‘ideas generator’)

For creative and media agencies, the rise of unpaid or earned media reflects an innovative new fusion of advertising, content and analytics, and presents an opportunity for sweeping change in their roles and business models. Advancing socialization is feeding into the widely-accepted concept among agencies and advertisers of “bought, owned and earned” advertising. A fourth category is emerging -- “managed” advertising, (the orchestrated use of social media, such as engagement via bloggers). Everything that agencies do for their clients now has an embedded digital component and agencies are directing clients’ attention toward output measures such as earned/unpaid media reach, and purchasing intentions.

There are therefore opportunities for agencies to act as digital marketing and brand consultants, guiding their clients with insights into opportunities around the aggregation of data, socialization and content – particularly as the historical distinction between traditional and digital disappears.

  • The benefits of reorganising around digital
    To date, many E&M businesses have developed digital as an adjacent operating group, with separate infrastructure, solutions and staff. But in the ‘new normal’, PwC believes that companies need to move away from this siloed approach, instead embedding and integrating their digital operations into the main enterprise, and driving improvements in three key areas: profitability, by reducing operational costs through common platforms and integrated business processes; scalability, gaining greater agility to grow and flex the business; and innovation, through integration, automation and talent.

To realise these benefits, companies will have to tackle challenges around rights, royalties and piracy – areas where many E&M companies are often burdened by rigid, complex, bespoke legacy systems There are additional issues  in leading and marshalling the talent and culture of innovation, needed to make digital implementation a reality, particularly in meeting the distinctive employment needs and expectations of the Millennial generation.

Greg Unsworth, Asia Pacific Technology Industry Practice Leader, PwC LLP Singapore, says:

“The growth in the entertainment and media sector is fuelled not only by the growth in use of tablets and smart phones. The rise of cloud computing and innovation within the financial services and payment industry will lend a hand in advancing consumer experiences in this sector. Within organisations, we will see how the new digital strategies and cloud technology drive down the barriers around individuals and silo business units. The right talent and the development of new performance indicators, business process and operating behaviours will change the game for businesses, or otherwise, they face the risk of being left behind as the digital generation moves past them.”

The end of the ‘digital beginning’ arrives

In the face of sweeping change and uncertainty, the E&M industry has spent the past few years seeking effective business and operating models for the new world, through a cycle of constant experimentation, ongoing innovation and targeted analysis of the results. This will continue. But with digital now at the core of business-as- usual, PwC believes that experimentation and execution are no longer sequential but will proceed in parallel, enabling E&M companies to press ahead into the ‘new normal’ with confidence.

Greg Unsworth adds:

“We have arrived at the tipping point where digital has become the new standard to meet consumer needs. Businesses have to embed digital in its core strategies, to operate within such an environment and find ways to capitalise on it.”

ENDS
 

Notes:

Press access to Outlook content online
To request press access to the online Global Entertainment and Media Outlook 2012-2016, contact Radhika Nanda at radhika.nanda@uk.pwc.com. This will allow you to illustrate this and other media stories both by extracting detail from the full Outlook dataset and analysis at a segment and territory level, and by creating charts on-screen that can be exported for use with your stories.

Outlook spokespeople
Lisa LY Chong (Direct Line: +65 6236 3972, e-mail: lisa.ly.chong@sg.pwc.com)
Jesslyn CL Foo (Direct Line: +65 6236 7257, e-mail: jesslyn.cl.foo@sg.pwc.com)
Chen Yih Lin (Direct Line: +65 6236 3960, e-mail: yih.lin.chen@sg.pwc.com)

 

About the Outlook

PwC’s Global Entertainment and Media Outlook 2012-2016, the 13th annual edition, contains in-depth analysis and historical and forecast data for advertising and consumer/end-user spending in 13 major industry segments across 48 countries. Find out more at http://www.pwc.com/outlook.

Segments covered by the Outlook

Business-to-business, Consumer and educational books, Consumer magazine publishing, Filmed entertainment, Internet access spending: wired and mobile, Internet advertising: wired and mobile, Newspaper publishing, Out-of-home advertising, Radio, Music, Television advertising, TV Subscriptions and license fees, Video games.

Digital spending

Digital spending consists of broadband and mobile Internet access; online and mobile Internet advertising; 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.