PwC: Convergence Enters New Phase, Digital Ups Share of E&M Market

The latest edition of PwC’s Global Entertainment & Media Outlook sees total spending on the sector rising to $2.4 trillion in 2022, up from $1.9 trillion in 2017, as digital continues to reshape the industry and we enter a phase the company has dubbed “Convergence 3.0.”

“Amid growth that is broad-based and consistent—but unevenly distributed—three imperatives are affecting every company in the industry: convergence, connecting with consumers and the need to build trust,” PwC says in the 2018-2022 edition of the Outlook. The new wave of convergence, PwC explains, is creating an expanding group of deep-pocketed “supercompetitors” and niche brands angling for the time and wallet share of demanding consumers.

“To the casual observer, it will appear as though it’s the supercompetitors that are taking over the world and absorbing all the incremental growth. But those who look more closely can clearly see space beneath the ambit of the global giants in which comparatively smaller and more focused companies can mine a rich vein of revenues.”

The report continues, “The borders that once separated the entertainment and media, technology and telecom industries are dissolving,” PwC notes. “In the process, business models are being reinvented so all companies can tap into new revenue streams and create relevance at scale. Some required capabilities include targeting fans and connecting more effectively with consumers to develop a membership mindset. Amid these changes and ongoing advances in technology, the challenge to build and sustain consumer and public trust is growing more critical and the pace of change will only accelerate.”

Digital industries will lead in terms of revenue growth, PwC says, with VR at the forefront with a five-year compound annual growth rate (CAGR) of 40.4 percent; total E&M spending will only have a 4.4 percent CAGR, while traditional TV will grow at a CAGR of less than 2 percent. OTT spending will grow at a CAGR of 10.1 percent through 2022. Global TV advertising will grow at a CAGR of 2.7 percent, although it did fall for the first time last year. Terrestrial television still leads globally at 70 percent of the $168.2 billion TV ad market last year. Its share will drop to 67 percent of the $192.1 billion TV ad pie in 2022.

Building new revenue streams is critical, PwC notes, as old business models continue to see disruption. Key approaches include maximizing the exploitation of IP across new channels—examples include HBO Now and CBS All Access—developing new ad products, brand extensions such as licensing and merchandising opportunities, driving a subscription mindset and geographic expansion globally.

Geographically, the fastest-rising markets through 2022 will be Nigeria (21.1 percent CAGR) and Egypt (17.2 percent), driven by spending on internet access. Excluding internet access spending, India is the fastest-growing territory with a 10.4 percent CAGR, followed by Indonesia at 8.4 percent. Growth in Western European and North American markets won’t top 3 percent CAGR.

Christopher Vollmer, global advisory leader for entertainment and media at PwC US notes, “To succeed in the future that’s taking shape, companies must revisit every aspect of what they do and how they do it. This means going ‘above and beyond’ in how they envision their business, generate revenues, create and organize their capabilities and build and retain trust. And given the pace and scale of change under way, speed is vital. For many companies, the models, assets, practices and capabilities that support their businesses today will simply not be enough in the future. Standing still is not an option.”