Pulling the future forward: The entertainment and media industry reconfigures amid recovery
The COVID-19 pandemic has accelerated and amplified ongoing shifts in consumers’ behaviour, pulling forward digital disruption and forging industry tipping points that wouldn’t have been reached for many years. Digitalisation, one of the major forces shaping all industries, has been intensified by social distancing and mobility restrictions. As a result, the Entertainment and Media (E&M) world in 2020 has become more remote, more virtual, more streamed, more personal and – for now at least – more centred on the home than anyone anticipated at the start of the year. Numerous signs of this change are highlighted in the Outlook. Reading the report we are confident that you will find relevant cues for better understanding and shaping the strategic evolution of your business.
In our Entertainment & Media (E&M) Outlook in Italy 2020-2024, we predict that total E&M revenues in Italy will rise at a compound annual growth rate (CAGR) of 3.0% to reach €39.5bn in 2024. This will represent a strong recovery from the -9.5% decline in revenues expected in 2020 under the impact of the lockdowns and economic recession triggered by COVID-19. For this reason, this year the publication of the Outlook was delayed in order to get a clearer view of the pandemic’s impacts.
Indeed, in these months the main question we’ve asked ourselves is how this pandemic will reshape the entertainment and media industry and, despite this year have seen the sharpest fall in global entertainment and media revenue ever recorded, there have been a handful of sectors to actually benefits from COVID-19 and its fallout, from video games to OTT.
We expect the media sector to demonstrate its agility once more, and rebound strongly as the economy re-opens and this prospect is reflected in our revenue forecasts through to 2024.
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Italy, total books revenue by sector, 2019-2024 (€mn)
The Italian books market, like almost all aspects of the Italian and global economy, will be affected by the COVID-19 pandemic. Total books revenue increased by 2.7% to €2.1bn in 2019, which indicates the strength of the sector before the sudden downturn. These revenues will fall by -11.5% in 2020 before rebounding by 11.3% in 2021 and 3.5% in 2022, which will take the market above pre-pandemic revenues.
Italy, Total B2B revenue, 2019-2024 (€mn)
The COVID-19 pandemic of 2020 has challenged revenues in almost all sectors of Italy’s economy and the B2B industry is no exception. The public health precautions taken by the Italian government, as in virtually all other countries, have had a severe negative impact upon B2B spend. The market is forecast to contract sharply, by -23.6% in 2020 to €2.2bn. This equates to an annual revenue loss of €669mn.
Italy, Cinema market, 2019-2024 (€mn)
In 2019, box office revenue in Italy rose significantly, a 15.3% jump taking the figure to €668mn, from €579mn in 2018. Adding advertising means that total cinema revenue reached €698mn, and this will rise at a CAGR of 1.2% to 2024 to reach €740mn.
In 2019 there was a strong uplift in box office revenue to €668mn, the highest figure since 2016 and ending two years of decline. Looked at over a five-year period, box office revenue will rise slightly to €709mn at a 1.2% CAGR;
Cinema advertising had a similarly strong 2019, rising 13.8% year on year to €30mn and set to increase still further to €31mn by 2024;
The onset of Covid-19 and measures taken to address the virus have had extremely strong effects on the cinema industry, with cinemas closed until June 15th. It is likely that effects will last into 2021, with 2022 returning to close to normal;
The government has taken measures to address the effects on the cinema industry of Covid-19, with a €130mn package to help the film and TV sector announced in March 2020;
Netflix has also worked with the Italian Film Commissions to establish a Film and TV Emergency Relief Fund – part of a wider global initiative.
Italy, Data consumed, 2019-2024 (MB mn)
Total data consumed in Italy will reach 57.4trn MB during 2024, having grown at a 19.2% CAGR over the forecast period. The 2020 outbreak of COVID-19 disrupted data consumption globally, causing significant short-term spikes in demand as large sections of the population quarantined at home. The outbreak in Italy was one of most severe in the world and the country was the first in Europe to implement lockdown measures.
Total data consumed in Italy will reach 57.4trn MB during 2024, having increased at a 19.2% CAGR over the forecast period.
Smartphones will remain the most significant single device driving data consumption, aided by the rollout of 5G, although its share will begin to plateau.
Video content will continue to account for the vast majority of all data consumed, growing to a share of over 70% thanks to a strong video-on-demand sector.
Responses to the 2020 outbreak of COVID-19 have caused significant short-term changes in data consumption that will translate into milder long-term shifts.
The government’s national broadband plan has improved connection speeds but progress has been affected by disputes between providers.
Commercial 5G rollout has begun, with providers sharing network coverage to increase availability.
Italy, Mobile Internet access revenue split by category, 2019-2024 (€mn)
There is continued pressure on operators to offer subscribers more data at lower costs. The enhanced capacity of 5G supports a move towards lower costs per bit, though the expenditure on 5G is significant. The road to launching 5G networks began in 2018 with the auction of spectrum licenses to support the new networks. The auction included 700MHz, 3.63.8GHz and 26GHz spectrum. Costs ballooned, with the auction raising €6.6bn – some €4.0bn above the original target.
The road to launching 5G networks in Italy began in 2018 with the auction of spectrum licenses to support the new networks. The auction raised €6.6bn, significantly more than expected.
The next generation of mobile networks launched in Italy in June 2019. While Italy has launched 5G early, initial uptake is limited, with 256,000 5G connections at the end of 2019.
Monthly 5G tariffs are currently cut far below the launch price and it is clear that 5G will have limited impact on total operator ARPU’s long term. Some subscribers will shift upwards as tariffs with large amounts of bundled or unlimited data offers prove attractive, but the premium is limited and with moves to unlimited tariffs there will be less room for price differentiation.
5G is designed to support a range of services, such as VR streaming, video broadcast, self-driving cars and drones, and IoT networks. These will have many industrial and commercial use cases which it is hoped will support investment in the networks.
Gaming is viewed as a key consumer opportunity for 5G and the 5G tariffs released by both 5G operators in Italy feature free period promotions for gaming services.
Italy, Internet access market, 2019-2024 (€mn)
Q1 2020 results from telco firms in Italy highlighted the trends brought about by the COVID-19 lockdown: higher traffic volumes, data usage and out-of-bundle revenues. There was lower churn but also lower mobile subscription growth and very aggressive mobile pricing. There are questions about whether the demand for content and entertainment will continue, or if customers will cut back to basic packages as the economy slows. Alongside this, the market will have to consider how sustainable the current increased data limits are in terms of revenue generation, and what and how much will customers pay for before they consider switching packages. Operators will have to tread a delicate balance between continuing to support their customers and trying to increase digital engagement and generating revenue to invest in the infrastructure required to sustain and revitalise the economy. Revenue and subscription growth will slow in 2020 as the country moves into the next phase of adjusting to the COVID-19 pandemic but will show signs of recovery from 2021.
As Italy emerges from the COVID-19 lockdown, telecoms operators need supportive government policies to ensure they can continue their next-generation access network (NGAN) deployment plans.
Private equity-backed KKR has made an offer for a stake in the incumbent TIM’s last mile network as part of a “dual track” approach to creating a single infrastructure through the integration of Open Fiber (OF). As it stands, the Italian government has approved the deal and TIM’s board is expected to do the same.
Several of Italy’s leading providers have secured network-sharing agreements which should enable them to reduce the costs, time and environmental impact involved in the rollout of NGAN infrastructure. The growth and maintenance of robust and reliable high-speed infrastructure will be vital in helping the economy to weather and recover from the anticipated recession.
Telecoms providers raised data allowances and introduced promotional tariffs to help customers through the lockdown. They now need to strike a careful pricing balance between customer retention and generating revenue for future investment.
Converged services remain an important way of reducing churn and raising ARPU. TIM has put convergence at the heart of its current three-year plan, intending to expand its converged offers into adjacent markets.
Italy, Internet advertising market, 2019-2024 (€mn)
The Italian digital advertising market reached total revenue of €3.3bn in 2019, an 11.0% year-on-year increase from 2018. The market is projected to grow to total revenue of €4.5bn by the end of the forecast period in 2024, at a 6.1% CAGR, although this expansion will not be straightforward. Having recovered more slowly from the 2008 recession than most countries in Western Europe, Italy now finds this situation compounded by the global COVID-19 pandemic, which struck Italy earlier and more severely than many of its neighbours. The pandemic will have a significant short-term impact on the digital advertising market, with a -9.5% fall in revenue in 2020, followed by a smaller than previously forecast total in 2021. The outlook is brighter towards the end of the forecast period, though, when the market is expected to have substantially recovered.
Italy, magazine publishing market, 2019-2024 (€mn)
Revenue from consumer magazines will decrease from €1.4bn in 2019 to €1.2bn in 2024, at a -3.1% CAGR, while the trade magazine sector will also witness a revenue decline over the same period from €252mn to €229mn at a -1.9% CAGR. As a result, total revenue from the Italian magazine market will fall from €1.6bn in 2019 to €1.4bn in 2024 at a -2.9% CAGR.
Italy, music, radio and podcast market, 2019-2024 (€mn)
Music revenue in Italy totalled €1.0bn in 2019, an increase of 5.3% on the previous year, and up from €863mn in 2015. Total music revenue is forecast to increase to €1.1bn in 2024, equivalent to a 2.2% CAGR. Recorded music revenue will rise at a faster rate over the forecast period, increasing at a 3.8% CAGR to reach €360mn in 2024. The live music segment will increase at a 1.5% CAGR to be worth €758mn in the same year.
Italy, Newspaper publishing market, 2019-2024 (€mn)
According to the Italian socio-economic research organisation Censis, the readership of print newspapers dropped to a 37.3% penetration in 2019. While this figure represents a sharp fall from 2007, when 67% of Italians were reading printed newspapers, it is only 0.1% down from 2018, giving rise to publishers’ hopes that the mass departure of readers to other news media is stabilising. Perhaps more disappointing, though, is the Censis data showing that online readership of newspapers had also remained flat at 26.4% in 2019, up just 0.1% from the previous year. In metropolitan areas (more than 500,000 inhabitants), newspaper readership stands at only 20.4% while in the less urban areas (less than 10,000 inhabitants), newspaper readership almost doubles to 40.5%, confirming the continued appeal of local editions.
Italy, OOH advertising market, 2019-2024 (€mn)
A major turning point was reached in 2020 as the COVID-19 spread from China. In Western Europe, Italy became the first epicentre of the pandemic. Few industries have avoided the negative economic consequences of the pandemic and the OOH advertising market is an especially vulnerable sector due to government lockdowns and self-isolation measures which prevented people from leaving their homes early in the year. OOH advertising revenue spend correlates with outdoor events, which boost footfall rates. Scheduled events for 2020 across the country were cancelled, while public buildings such as museums, churches and football stadiums were temporarily shut to reduce the spread of the virus. Naturally, demand for outdoor advertising in Italy, as in other countries, was negatively impacted by this as advertisers reallocated their budgets to mobile and other media that can reach people under home quarantine.
Italy's OOH market growth, as in every other major country, will be hit hard in 2020 by the global coronavirus pandemic. Annual growth of -28.1% is expected for the year, valuing the market at €135mn compared with €187mn in 2019.
However, Italy’s OOH advertising market will show positive growth over the long term. Over the next five years, OOH revenue will rise at a 1.6% CAGR to reach €202mn in 2024.
The seasonality of the OOH market is especially significant in the context of this pandemic. Advertisers allocate more of their OOH budgets to the summer months and so speed of the social and economic rebound from the current situation will play a large role in determining OOH demand and final annual revenues.
Digital OOH remains on course to be the dominant format by 2023. As of 2019, digital accounted for 39% of total OOH revenues and this will rise to 52% by 2024. Coronavirus is expected to have a stronger dampening effect on physical revenues than digital revenues in 2020.
Italy, OTT video market, 2019-2024 (€mn)
Italy has overcome a relatively late start in the OTT sector to cement its place as one of the biggest and fastest growing markets in Western Europe. The Italian OTT video market will grow at a 19.0% CAGR across the five-year forecast period from €533mn in 2019 to €1.3bn in 2024. In 2015, the year Netflix launched in Italy, marking the start of the SVOD revolution, total OTT revenues were just €117mn. The number of OTT subscribers will rise at a 21.8% CAGR to 2024, but the rate of subscriber growth will slow across the forecast period as the Italian market edges towards saturation, from 47.4% in 2019 to 10.2% in 2024.
SVOD revenues will surge across the forecast period, from €427mn in 2019 to €1.1bn in 2024. 2020 will be a unique year of immense growth as new consumers turn to streaming services while under coronavirus lockdown.
Across the forecast period, TVOD revenues will grow at a 10.8% CAGR, from €107mn in 2019 to €178mn in 2024. The annual rate of revenue growth will be greatest in 2020 at 23.4%, due in part to a surge in home entertainment during virus quarantine.
Mediaset, the largest commercial broadcasting network in Italy, has seen huge growth in usage and technical expansion of its Mediaset Play service as it expands in the OTT sector. Mediaset Play saw a 248% year-on-year increase in video views in the year to the end of February 2020.
Netflix, which is set to open its first office in Italy in 2020, has struck a deal with Mediaset to develop seven feature films. Reed Hastings, chief executive at Netflix, has said the company will invest €200mn in Italian content over the course of two years, with the Mediaset deal being “part of this effort”.
Growth in high-speed fixed broadband households and smartphone ownership will support the OTT sector.
Italy, Traditional TV and home video revenue, 2019-2024 (€mn)
The Italian traditional TV market will decline across the forecast period, contracting at a -0.8% CAGR to total €4.8bn in 2024. IPTV revenues will be the only driver of growth, albeit from a low base, rising at a 24.3% CAGR from €19mn in 2019 to €57mn in 2024.
Subscription TV households totalled 5.5mn in 2019 and will buck the trend of recent years and grow at a 0.4% CAGR to 5.6mn by 2024. This is partly fuelled by Sky Italia’s move to expand beyond the satellite dish to enable households with high-speed broadband connections to receive a full pay-TV service.
2020 will be home to a string of high-profile launches seeking to unseat incumbents such as Netflix and Amazon, and increase pressure on the core pay-TV subscriber bases of traditional TV and video operators. The new service set to have the most significant impact on European operators is Disney+, which launched in Italy on 24th March 2020.
Content remains crucial to winning, and retaining, viewers and subscribers. To keep pace in the content wars, Sky committed to making 80 original TV series available across its European operations, including Italy – its biggest slate of programmes ever.
The coronavirus lockdown kept the Italian population housebound for months in early 2020, resulting in a huge surge in TV viewing. However, with businesses from travel to retail unable to operate, advertising budgets have been put on hold – leaving those broadcasters who rely on advertising struggling.
Italy, TV advertising market, 2019-2024 (€mn)
The Italian traditional TV market will decline across the forecast period, contracting at a -0.8% CAGR to total €4.8bn in 2024. IPTV revenues will be the only driver of growth, albeit from a low base, rising at a 24.3% CAGR from €19mn in 2019 to €57mn in 2024.
Total TV advertising will grow at a 0.3% CAGR from €3.0bn in 2019 to €3.1bn in 2024. Broadcast TV advertising revenue will remain the dominant medium across the forecast period, accounting for 90.4% of the €3.1bn total Italian TV advertising market in 2024.
Free-to-air broadcasting remains unparalleled in providing advertisers the ability to reach audiences on a mass scale. This sub-sector, dominated by Mediaset and public broadcaster RAI, accounted for 82.8% of total TV advertising revenue in 2019.
The most prominent trend across the forecast period will be the rapid maturing of the online TV market. Online TV advertising will grow its share from just 6.2% of the total TV advertising market in 2019 to 9.6% in 2024.
While TV viewing boomed under lockdown conditions as a result of COVID-19, broadcasters did not see an accompanying surge in TV ad spend. The total TV advertising market is set to fall by -14.9% in 2020 to €2.6bn, with revenues down -€453mn on 2019.
The businesses that pose the biggest threat to TV advertising share one common denominator: global scale. From Google and Facebook’s billions of users luring TV spend from advertisers, to the seemingly inexhaustible budgets of Netflix, Amazon and Disney+ attracting viewers away from the ad-funded TV eco-system, it is size that matters.
Italy, video games and esports market, 2019-2024 (€mn)
The video games and esports sector continues to be one of the stronger growth areas in Italy’s entertainment and media market with revenue increasing by 15.7% in 2019 to €2.1bn. The traditional gaming formats of console and PC continue to see expansion driven by improvements in hardware and business models. But the primary driver is mobile gaming. Social/casual gaming revenue, however, remains the biggest segment, exceeding revenue from all other categories combined since 2018. Although no longer the largest component of the market, console games remain very important to Italy’s video games business, and still the flag-bearer of leading premium games titles.
The Italian video games market continues to grow, largely driven by the success of the social/casual segment. Total video games and esports revenue will increase from €2.1bn to €3.7bn in 2024. As the mobile games market matures towards the end of the forecast period, this growth will slow down.
The Covid-19 pandemic has meant that country’s game developers have been negatively impacted, mainly due to the cancellation of major industry events. However, as seen globally, there has been a surge in the number of people playing games.
Italy’s social/casual gaming segment is set to grow strongly over the forecast period, from €1.2bn in 2019 to €2.5bn in 2024, increasing at a 15.8% CAGR – much higher than the growth of the traditional gaming segment. “Traditional” gaming companies increasing their involvement in the mobile space have greatly contributed to this growth.
Italian console gaming revenue will be boosted thanks to the launch of the PS5 and Xbox Series X, which are both still due for a Q4 2020 launch, despite the supply chain being impacted by the COVID-19 crisis. Console games revenue will grow to €885mn in 2024, at a 4.3% CAGR.
A focus on the free-to-play monetisation model by major game publishers has boosted online/microtransactions revenue in traditional gaming, which will surpass the €1.0bn mark in 2022.
It’s early days for cloud gaming in the country, but new service launches such as Stadia are raising awareness. Local network operators are also embracing this new platform, with cloud gaming as the flagship consumer use case for promoting network plans (including 5G).
Italian total esports revenue reached €8.6mn in 2019, up a strong 71.0%. Further great progress is expected to 2024 as revenue is forecast to hit €46mn, at a 40.1% CAGR.
As 5G gradually becomes established over the next five years, it will enable far more advanced and compelling mobile games and, therefore, mobile esports.
Italy, total VR revenue, 2019-2024 (€mn)
As it is the case globally, the Italian VR market didn’t live up to early growth expectations set back in 2015 and 2016. The VR industry is now coming to terms with the reality that any new technology takes many years to perfect and become a mainstream proposition. VR faced several major adoption inhibitors, including limited value proposition; insufficient differentiation to consumers who already had access to existing entertainment mediums; a diminished social experience when using VR; form factor challenges such as motion sickness; and, importantly, a small amount of truly compelling VR content.
Italy’s VR market is growing, but not at the pace initially predicted five years ago. Content revenue will increase from €42mn in 2019 to €106mn in 2024 at an impressive 20.3% CAGR.
Italian consumers are steadily moving away from cheap mobile VR headsets, to more-capable home VR and standalone VR headsets – a positive trend that is now seen globally.
PC or console-tethered ‘home VR’ and all-in-one ‘standalone VR’ headsets will be responsible for growth, with the latter comprising the biggest share by 2024. These devices are more engaging and will have a positive impact on content spend.
The total number of VR headsets in Italy are predicted to grow from just 352,000 units in 2019 to 827,000 units in 2024.
VR gaming revenue will increase to €55mn in 2024, at a 17.8% CAGR. The second-biggest category, VR video, will grow from €15mn in 2019 to more than €45mn in 2024. The smallest segment, VR app revenue will grow from €3.0mn to just €5.9mn in the same period.
