Fast Changing Consumer Behavior Expected to Spur New Business Models In Entertainment and Media Market over Next Five Years

Rise in Mobility and Social Networking Speeds Digital Migration; Digital Expected to Account for 26 Percent Share of U.S. E&M Market by 2014

Jun 15, 2010, 08:00 ET from PricewaterhouseCoopers

NEW YORK, June 15 /PRNewswire/ -- With economic conditions remaining uncertain and advertising showing a modest return to stability, consumer behavior is expected to be the catalyst of entertainment and media (E&M) industry change over the next five years, according to PricewaterhouseCoopers' Global Entertainment and Media Outlook: 2010-2014 (Outlook), released today.  The report affirms that digital technology is expected to progressively increase its impact across every E&M segment as digital transformation continues to expand and escalate.  Following a year of decline in 2009, the Outlook forecasts that global entertainment and media spending is expected to rise from $1.3 trillion to $1.7 trillion by 2014, growing at a compound annual growth rate (CAGR) of 5.0 percent.  The U.S. E&M market is expected to grow at 3.8 percent CAGR reaching $517 billion in 2014, from $428 billion in 2009.    

"The digital pace of change has proven to be even quicker than anticipated with consumers embracing new media experiences and digital downloads at often-unexpected speeds," said Ken Sharkey, U.S. leader, entertainment, media & communications practice, PricewaterhouseCoopers. "There is no 'one-size-fits-all' approach for E&M companies to stake their position in the digital value chain.  The continued fragmentation of the E&M sector will fuel greater experimentation by both established industry giants and niche players in adopting business models that include hybrid combinations of advertising and subscription approaches."

While digital services continue to be the primary growth engine, traditional revenue streams are expected to remain significantly larger throughout the forecast period.  The industry will need to embrace digital not as a competitor to traditional services, but as a complement. Digital spending in the U.S. is expected to account for 26 percent of all E&M spending in 2014, up from 19 percent in 2009.  

Advertising rebounds, recovery remains fragile

While there are signs of a rebound, advertising revenues remain fragile in nature and spending is unlikely to return to former levels. By 2014, the U.S. advertising spend is expected to still be 9 percent below its level in 2007.  Overall U.S. advertising is expected to increase at a 2.6 percent CAGR from $159 billion in 2009 to $180 billion in 2014.  In the U.S., Internet advertising is expected to surpass newspaper advertising spend in 2010.  

Advertising spending for Internet, television, radio, out-of-home, and video games are expected to be larger in 2014 than in 2009, while consumer magazines, newspapers, directories and trade magazines are expected to be smaller. These projections reflect the market fragmentation and consumer behavioral changes. The advertising industry is responding to consumers' shifting attention and migrating towards total marketing or total brand communication.  Brands are changing their focus from advertising on a medium, to marketing through, and with, content.

Consumer behavior dominant driver of change

Consumer feedback and usage provides the only reliable guide to the commercial viability of products and services, and the global consumer base is being used as a test-bed for new offerings and consumption models.  PwC has identified three themes that are expected to emerge from changing consumer behavior and the industry must anticipate and pre-empt the needs and wants of consumers.  

Rising power of mobility and devices: Advances in technology are expected to see increasingly converged, multi-functional mobile devices come of age as a consumption platform by the end of 2011. Consumers are increasingly demanding ubiquity and the ability to consume and interact with content anywhere, anytime -- and to share and discuss that content experience with others via social networks -- is expected to become an increasingly integral part of people's lives. By 2014, U.S. mobile Internet access subscribers are projected to increase to 96.1 million, a 40 percent CAGR from 2009.

Growing dominance of Internet experience over all content consumption: Increasingly, the consumer has moved beyond thinking of the Internet as an end in itself, and expects all forms of media to embed the convenience, immediacy and interactivity of the Internet. This trend is becoming more evident in television with the new generation of Web-enabled TV.  Equally, people are already consuming magazines and newspapers on Internet-enabled tablets, and streaming personalized music services such as Pandora in preference to buying physical CDs or even digital downloads.

Increasing engagement and readiness to pay for content -- driven by improved consumption experiences and convenience: Ongoing fragmentation means that media offerings will need greater consumer engagement and quality to be heard and purchased. Consumers are more willing to pay for content when accompanied by convenience and flexibility in usage, personalization and a differentiated experience that cannot be created elsewhere. Local relevance is also expected to boost consumers' engagement with content services and enhance the content providers' ability to charge.

Fueling digital business model experimentation

Digital migration and consumer behavior changes have put extreme pressure on existing business models.  The proliferation of platforms and rising consumer expectations mean companies can no longer 'be everything.'

"The industry must radically rethink its approach to monetizing content in capturing new revenue sources, from transactions or from participation with others operating in the evolving digital value chain. Collaboration will be imperative in creating viable commercial content offerings while sharing the costs and risks with partners that will come from diverse industries," added Ken Sharkey.  

According to PwC, finding a place in the new digital value chain will require focus on the following seven critical factors:

  • Strategic flexibility
  • Delivery of engagement and relationship with the customer through the consumption experience
  • Economics of scale and scope
  • Speed of decision-making and execution, with the appetite to experiment and fail
  • Agility in talent management
  • Ability to monetize brand / rights across platforms
  • Strong capabilities in partnership structuring and M&A targeting and integration

U.S. segment highlights

In the U.S., Internet access and Internet advertising is expected to continue to outperform the other E&M segments, with 8.8 percent and 7.7 percent CAGR, respectively.  Video games (6.4 percent CAGR), TV subscriptions (6.5 percent CAGR) and TV advertising (5.3 percent CAGR) are set to grow more than 5 percent compounded annually.  Radio (4.6 percent CAGR), filmed entertainment (3.6 percent CAGR), out-of-home advertising (3.2 percent CAGR), consumer and educational book publishing (2.5 percent CAGR), and business-to-business publishing (0.9 percent CAGR) are expected to generate modest growth.  Spending on recorded music (-2.4 CAGR), newspaper publishing (-2.8 CAGR), and consumer magazine publishing (-0.5 CAGR) are expected to each be lower in 2014 than in 2009.  Overall, U.S. consumer/end-user spending is expected to grow by 3.7 percent CAGR.

About the Outlook

PricewaterhouseCoopers' Global Entertainment & Media Outlook 2010-2014, the 11th annual edition, contains in-depth analyses and forecasts of 13 major industry segments across four global regions: North America (USA, Canada), EMEA (Europe, Middle East, Africa), Asia Pacific and Latin America.  To order copies, go to:

Digital spending, as referenced in the Outlook, includes: broadband and mobile access; wired and mobile internet advertising; video on demand; mobile TV subscriptions; online and mobile TV advertising; digital recorded music distribution; online movie subscription rentals and digital downloads; online and wireless video games; digital advertising in newspapers and consumer magazines; satellite radio subscriptions and online radio advertising; electronic consumer; education and professional books; digital directory advertising; trade magazine digital advertising.

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SOURCE PricewaterhouseCoopers