About his time every year PriceWaterhouseCoopers revives our flagging spirit by predicting that virtually every entertainment market is going to grow exponentially, with its Global Entertainment and Media Outlook, and this year is no different.
A statement about the report talks up spending on entertainment distribution to convergent platforms, PCs, handsets and TV, promising double digit growth for the next five years, and says that half the growth in entertainment will come from online and wireless technologies, with broadband lines growing to reach 540 million subscribers and wireless subscribers rising to 3.4 billion.
There’s not much there that we haven’t preached week by week in these pages, and PWC says that the entire business of entertainment will be a $2 trillion business by 2011.
Jim O’Shaughnessy, Global Chairman, Entertainment & Media practice, PricewaterhouseCoopers, said, ‘Content, distribution and technology companies need to aggressively seek out new relationships to accommodate the shift towards convergence. Furthermore, companies will need to test new business models to address increased fragmentation and intellectual property in a digital era. Deal activity across the entertainment and media sector is accelerating, driven by the migration to digital formats.’
It does sound rather splendid with everyone getting rich, but as we have reminded people time and time again, failure to seek out new relationships, failure to shift towards convergence and failure to address entertainment fragmentation will end in just that, failure.
Advertising is set to rise at a 5.4% annually during the forecast period, rising to $531 billion in 2011 from $407 billion in 2006. Internet will remain the fastest-growing advertising medium, with a projected 18.3% compound annual increase to $73 billion in 2011. Advertising on the internet will comprise 14% of the global advertising market. Out-of-home will be the second fastest growing advertising medium, with a projected 6.5% compound annual increase.
And once again what this doesn’t say is that in order to have any chance of seeing any of this increase in spend, the advertising industries have to chase content addressable and demographically addressable digital campaigns, chase video onto the internet and allow broadcast TV advertising and local radio to shrink radically. Once again failure etc’ results in corporate failure.
In among all of this good news we can’t remember a tougher time for those responsible for bringing multinational corporate branding messages to the great unwashed. Stick with national broadcast TV footprints and clients will witness the failure of their campaigns, end up with brand fragmentation and dump their advertising partners for companies that understand the new age ad wonders ‘ the Googles and Joosts of this world.
The PWC report says that Asia Pacific will be the fastest-growing convergent platform region with a projected 13.5% increase, while double-digit growth is expected in Latin America as Internet and broadband penetration there begins to gain momentum. So while the US and Europe have already achieved major ad spend on the internet, Asia Pacific and Latin America are now set to play catch up.
The report says the same about media markets in Brazil, Russia, India and China (BRIC), which will be led by India and China, with entertainment spending growing at double-digit annual rates ending up becoming 24% of global E&M growth during the next five years. Note that’s not 24% of the spend, but 24% of the growth dollars, so the new spend.
What a lot of this means is that China will develop more online entertainment revenues. This will likely be spent with Chinese companies, as it tends to be today, create even bigger Chinese giants that will want to burst out of their economy and stake claims in other markets. China and India are already those economies that most threaten Hollywood in revenue terms with home grown content, and so this is set to rise and rise and in turn threaten the rest of the world.
Entertainment spending for the BRIC countries will increase by 14.7% annually, expanding from $127 billion in 2006, to $251.5 billion in 2011. That gain will be nearly three times the gains in other parts of the world.
The report said, ‘Broadband growth is driving online advertising while the proliferation of next-generation wireless devices designed to play digital music, video games and receive TV programming is fuelling mobile distribution. For example, Asia Pacific spending on distribution of television programming on mobile phones is expected to reach $6.5 billion in 2011 from just $26 million in 2006.’
And all the time the US will remain the largest but slowest growing entertainment market, growing at a 5.3% annual rate and reaching just $754 billion in 2011. US spending on Internet advertising and access will surpass spending on newspaper publishing in 2009.
EMEA, already the second biggest market will also grow the slowest apart from the US, and its is the under developed parts of EMEA such as Saudi Arabia and other Arab states, and South Africa, which are growing fastest. The Asia Pacific will remain the fastest-growing region during the next five years, with the fastest economic growth and double digit increases in Internet, TV distribution, casino and other regulated gaming and video games. But China will beat them all growing at an average of 16.8% every year to 2011.
Globally monies for internet access grew during 2006 by 18.8%, while internet advertising rose at 37.9%. The migration of Internet subscribers from dial-up to broadband is the principal driver. Cable operators and telephone companies have introduced triple play packages that combine broadband with television and telephone service. Globally, Internet advertising and access spending is expected to grow from $177 billion in 2006 to $332 billion in 2011.
The global television distribution market, the second fastest growing segment, increased by 9.4% in 2006 and will grow to $251 billion, mostly on the back of IPTV and digital cable and VoD. Mobile television is emerging as an important distribution channel, particularly in Asia Pacific, boosted by new service rollouts and enhanced wireless devices.
Video Games are also resurgent now that there are a new generation of game consoles and spending rose by 14.3% in 2006 will rise from $32 billion in 2006 to $49 billion by 2011, the report says.
The total revenue for filmed entertainment went up in 2006 by just 2.9% after a 2.6% decline in 2005. Our view here is that this is a gross manipulation of the box office, by bringing films to market quicker and getting money from them more rapidly in quick fire theatrical release followed closely by DVD revenues. That rate can’t be sustainable and while there will be revenues in the download-to-own and streaming internet market, this is likely to be double counting where these revenues are taken as increases in internet advertising among free to web filmed entertainment.
PWC thinks that spending on filmed entertainment will rise from $81 billion in 2006 to $103 billion in 2011.
The report costs $995 and we’re sure that it makes good reading, but be very careful that its positive tone doesn’t lull you and your organization into a false sense of security and a complete failure to react to the changing digital entertainment landscape. Our own report, Danger on the Digital Horizon, is still available and points to every one of these trends, but spends more time analyzing the difficulty of moving into new digital business models, sector by sector.