World Screen takes a deep dive into PwC’s latest Global Entertainment and Media Outlook, which argues that being “consumer-obsessed” will be imperative as the sector’s growth plateaus.
Companies angling for a bigger slice of global entertainment and media (E&M) revenues—set to rise from $1.8 trillion in 2016 to $2.2 trillion in 2021—must “focus more intensely” on user experiences, according to PwC.
The 18th annual Global Entertainment and Media Outlook 2017-2021 says that revenues will rise at a compound annual growth rate (CAGR) of 4.2 percent in the period, down from the 4.4 percent forecast last year. PwC says that while the sector’s revenues are growing, “an industry plateau” is approaching as traditional, mature segments decline, growth slows in digital, and the next wave, including eSports and VR, is just beginning to pick up speed.
Traditional TV and Home Video
In total, traditional TV and home video revenues will reach $277.4 billion in 2021, reflecting a CAGR of just 1.3 percent. Physical home video revenues will continue to fall, reaching $13.9 billion in 2021 ($3.9 billion from rentals and $10 billion from sell-through). TV subscription revenues, meanwhile, will see a modest 2.3 percent CAGR to reach $233 billion.
In terms of households with subscription TV services, growth is slowing, but PwC forecasts a 2.2 percent CAGR in the five-year period, reaching 989 million in 2021. “With some of the long-established subscription TV markets reaching maturity, there has been a shift in emphasis amongst operators. The focus is now on retaining customers and increasing revenues from within the wider customer base by offering multi-play bundles and upselling households to premium products such as HD, 4K, on-demand programming and the delivery of content to multiple screens,” PwC says. In the wake of competition from OTT, “investment in exclusive entertainment programming, original productions and sporting rights is increasing each year as content becomes king.”
For traditional pay-TV operators, subscriber growth remains a challenge, as does piracy. In terms of the OTT threat, PwC reports, “Signs to date suggest that OTT services are not significantly impacting the value of some content genres (such as sports, news and other live content), but having more of an impact on movies and scripted TV. A widespread move in the direction of OTT retains the potential to significantly change content packages and the make-up of TV subscription revenue. The mindset of OTT as a threat to traditional TV is also evolving. The concept of collaboration is now much more actively under consideration. While such movements are generally viewed as additive and creating healthy relationships, there is an acknowledgment that it is also driving the industry towards new programming bundles and pricing strategies long term.”
Global internet video revenues are expected to surge, with an 11.6 percent CAGR to reach $36.7 billion in 2021. SVOD will dominate, raking in $27.8 billion, largely from North America ($15.2 billion), followed by Asia Pacific ($6.9 billion) and then EMEA ($4.9 billion), with $787 million coming from Latin America. In the internet video market, “new content will increasingly be the differentiating factor,” PwC says. “As avenues to the audience proliferate, content ownership is growing in importance each year.”
Netflix is expected to continue to be dominant in the space globally, despite new competition, PwC says. The report notes that “with the levels of investment in original programming Netflix is exhibiting, it may be difficult for the company to maintain current price levels globally without severely squeezing profit margins. Maintaining current subscription growth rates while keeping a tight control of costs could prove impossible and it is yet to be seen what impact Netflix can have in the non-English-speaking markets.”
Amazon’s price structure has undercut Netflix, PwC says, adding that “households wanting access to a wider range of original content may have to subscribe to both platforms. While Amazon has the potential to reach more viewers with its business model, Netflix has an advantage in content.”
The global TV advertising market appears fairly healthy, according to the PwC outlook, with a 2.8 percent CAGR to reach $194 billion in 2021. Multichannel advertising will rise by a 4.6 percent CAGR to $55.1 billion, with $31.2 billion from North America, $12.3 billion from AsiaPac, $9.5 billion from EMEA and $2.1 billion from LatAm.
Terrestrial advertising will grow at a slower pace—a 1.5 percent CAGR—to reach $128.1 billion, representing a 66 percent share of the overall TV ad pie. The North American market will contract slightly to $40.9 billion, while gains are expected in EMEA (1.8 percent), AsiaPac (2.5 percent) and LatAm (4.2 percent). Online video advertising will see stronger gains, rising by a 12.4 percent CAGR to $10.8 billion, more than half of which will be from North America.
The proportion of global TV advertising revenue from the U.S. is forecast to fall from 41.8 percent last year to 38.8 percent in 2021 as a result of growth in markets like Brazil, Indonesia and China.
“Although advertisers in most markets still look to traditional TV for the largest audiences—and often that means live sporting events—there is an increasing trend towards a multiplatform approach,” PwC observes. “Expensive TV spots alone can fail to engage viewers, particularly [since] the simultaneous use of smartphones and tablets while watching TV is on the rise. Driving consumers online to discuss TV content and advertising through social media, or offering enhanced versions of advertising on video platforms like YouTube, ensures the campaign connects with its audience more effectively.”
PwC stresses the importance of live programming in the face of ad-skipping on DVRs and other devices. “Content that will gain the largest live audience is coming at an increasing premium for broadcasters, pay-TV operators and subsequently advertisers.” As a result, top-flight sports, especially European football, have seen escalating rights costs. “But large outlays on sporting rights are no guarantee of consistently high audiences,” PwC warns.
Charting the Future
“E&M companies are operating amidst a wave of geopolitical turbulence, regulatory changes and technological disruption,” said Mark McCaffrey, PwC’s U.S. Technology, Media, and Telecommunications Leader. “Even if the macro context is set aside, these companies are facing significant pressures on growth. In order to thrive in the marketplace, PwC suggests that these companies understand and develop sustainable relationships with consumers to advance their UX [user experience]. Pursuing a growth and investment strategy to enhance and differentiate the UX will help them flourish in an era where a changing value chain is slowing top-line growth from the traditional revenue streams that have nourished the E&M industry to date. Essentially, we’ve entered The Age of the Consumer. It’s no longer sufficient to be ‘consumer-centric;’ one must be ‘consumer-obsessed.’”
The areas with the biggest potential to improve user experiences are AR and VR, AI, Internet of Things (IoT), data analytics, cloud, 3D printing, access rather than ownership and cyber security.
“The next era of differentiation in E&M is being defined and propelled by consumers’ increased demand for live, immersive, shareable experiences,” said Deborah Bothun, PwC’s Global Entertainment & Media Leader. “Consumers want to get closer, more engaged and better connected with the stories they love—both in the physical and digital worlds. At the same time, companies can start to empower those experiences through a number of emerging technologies. Perhaps big data and artificial intelligence will create the most dramatic change, redefining how the industry can connect with all stakeholders and drive growth. We’re already seeing a number of ways that AI is being used to personalize, customize and curate entertainment content and experiences at scale.”
PwC has VR market estimates for ten territories: the U.S., Japan, China, South Korea, the U.K., France, Germany, Russia, Italy and Spain. It expects 257 million VR headsets to be in use by 2021, up from 17 million last year.
“VR truly started to reach consumers in 2016 and has no legacy issues or false starts to look back on,” PwC says. “The downside is a highly immature market with underdeveloped business models, flaky hardware, and lots of experimental or low-quality content.”
VR content revenue across the ten markets is forecast to reach $15.1 billion by 2021. More than 50 percent of that will be from video and 45.6 percent from gaming. “On the content side, the early revenue will be individual transactions for digital (or even physical) media. This will evolve into a market for video streaming, micro-transactions in interactive experiences and games and—most interestingly—potentially a modest subscription top up for VR video added monthly [to] pay-TV or OTT bills.”
PwC also sees eSports as a major growth area, with a revenue projection for 2021 of $874 million, reflecting a 21.7 percent CAGR.