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Media and entertainment - The Bigger Picture
Phil Stokes details the market analysis of media and entertainment development, and the trends likely to generate real revenue in the future
The entertainment and media (E&M) market in Europe, the Middle East and Africa (EMEA) is set to outpace the US over the period to 2010, growing at a compound annual rate of 6.1 per cent compared to 5.6 per cent in the US. But the US will remain the world's biggest E&M market by a wide margin – and EMEA's growth will be left trailing by the smaller but increasingly dynamic Asia Pacific and Latin American markets.
These are just some of the findings of PricewaterhouseCoopers' Global Entertainment and Media Outlook: 2006-2010, our annual analysis and forecast of E&M revenue trends worldwide. In it, we predict that the global E&M industry will register solid compound annual growth of 6.6 per cent a year to reach US$1.8 trillion (E1.4 trillion) in 2010, driven in part by continuing expansion in new revenue streams from digital and online media, as companies and consumers migrate from physical to digital formats.
The steady compound annual growth ranging between 5.6 and 6.1 per cent we are predicting for EMEA, the US and Canada will be supported by continuing solid overall expansion in GDP – although the pace of general economic growth will show a cyclical dip towards the end of the period.
These industry growth rates will see EMEA retain its existing position as the world's second-largest regional E&M market after the US throughout the forecast period. However, compound annual growth of some 9.2 per cent will see the market in the Asia Pacific region narrow the gap on EMEA. Not surprisingly, this strong growth in Asia Pacific will be driven primarily by China, which will overtake Japan in 2009 as the region's biggest national market.
Our analysis of current trends in the global E&M market shows that while the growth of physical media formats – from CDs to newspapers – has slowed, new revenue streams are growing rapidly enough to more than offset this impact. At the same time, the increasing availability of licensed digital distribution is providing consumers with an increasing range of alternatives to piracy, helping to address the loss of revenues from that source.
New media - new revenues
The issue of piracy aside, the overall picture is that digital technologies are providing increasingly lucrative distribution channels, and are helping to drive a sea-change in the way people acquire and consume E&M content. The most marked trend in developed countries is that rapid growth in broadband penetration is increasing the availability of high-quality, legally-acquired digital content for consumers who want their E&M products to be delivered in ways that match their personal lifestyles.
These developments show up clearly in the Outlook's projections. Our estimates indicate that global spending via online and wireless channels was US$19 billion (E15 billion) in 2005, and will increase more than threefold to US$67 billion (E53 billion) by 2010. This projection takes in five categories of digital technology – online rental subscriptions and digital streaming in filmed entertainment, licensed digital downloads and mobile music in recorded music, online and wireless video games, electronic books, and online casino gaming.
As this revenue forecast suggests, the worldwide shift across virtually every E&M segment from physical to digital distribution is set to accelerate. Our view is that E&M companies should not fear this shift towards digital distribution, because it will drive the emergence of more revenue opportunities rather than less.
For example, take the worldwide explosion in broadband Internet access. Rich content can be downloaded much faster through broadband, making that content more attractive to consumers. In 2005, the global broadband universe totalled 187 million, up from less than 5 million in 2000. By 2010 there will be an additional 246 million broadband households, bringing the total to 433 million. As the broadband market powers ahead, demand for content distributed online will soar.
EMEA: the UK stays ahead
Within EMEA, our analysis also reveals some interesting trends at the regional and country level. During the next five years, TV distribution, Internet advertising and access spending, video games and gaming (both in physical and online environments) across EMEA will continue to record double-digit percentage increases, as will video games. New consoles and online and wireless gaming will help to drive the video game market, increases in subscription TV penetration will boost revenues in TV distribution, broadband growth and surging online advertising will fuel the internet market, and online gaming will continue to grow strongly.
In terms of Europe's national markets, our analysis suggests the UK will retain first place throughout the period, growing from US$90 billion (E71 billion) in 2005 to US$118 billion (E93 billion) in 2010 – a compound annual growth rate of 5.5 per cent, compared to 5.0 per cent for Western Europe as a whole. This UK growth will also outpace the next two biggest markets in EMEA – Germany and France – which will grow at 4.0 and 4.7 per cent respectively.
However, the real action in terms of growth in EMEA will happen further east. Led by Russia, Central and Eastern Europe will be the fastest-growing area in EMEA, expanding at a compound annual rate of 12 per cent, driven by double-digit growth in Internet and access spending, radio and out-of-home advertising, TV distribution, TV networks and video games. During the period, Russia's E&M market will expand – albeit from a relatively small base – at an impressive 15.7 percent compounded annually.
Exciting times
The clear message from all our detailed analysis and forecasts is that these are enormously exciting times for E&M businesses and their customers. Amid the disruption, change and uncertainty created by the migration to digital, the industry is well into a recovery pattern. And continuing expansion in the broadband household universe, together with developments such as the rollout of next generation wireless handsets and high-speed wireless networks, promise new revenue growth and fresh vistas of commercial opportunity. As new technologies emerge, what does not change is people's willingness to pay for the E&M they want through the channel that suits their lifestyle. For that reason alone, the outlook for E&M in Europe is bright – and will remain so.
• The Global Entertainment and Media Outlook: 2006-2010 is the seventh edition of PwC's annual in-depth analysis of the trends and drivers in the global Entertainment & Media (E&M) industry. As in previous editions, PwC's researchers and industry specialists have translated this analysis into cashflow forecasts for 14 major E&M 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. The report is available in hard copy or electronically (PDF) for US$995 at http://www.pwc.com/outlook. The “Global Overview” is available separately for US$95 in hard copy or electronically, and individual segment chapters are also available for US$95 in electronic format only.
Phil Stokes is UK leader of entertainment and media, PricewaterhouseCoopers LLP. He can be contacted via tel: +44 20 780 44072; e-mail: phil.stokes@uk.pwc.com)
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