E&M industry at the end of the digital beginning: PwC Study

The Entertainment & Media (E&M) industry is approaching the ‘end of the digital beginning” with the digital now embedded in business-as-usual and moving to the heart of many E&M companies. This are the key findings of Pricewaterhouse Cooper's, ‘Annual Global Entertainment and Media Outlook 2012-2016’, an in-depth five-year outlook report for global consumer spending and advertising revenues directly related to entertainment and media content. The report says that record global sales of tablets and smart devices are underlining the rising revenue opportunities from digital delivery of E&M content and advertising to increasingly connected and mobile consumers. 
 
The report finds that growth in digital E&M spending will continue to significantly outpace growth in non-digital spending during the next five years. Digital spending is expected to account for 67 percent of all growth in spending during the next five years, globally. The U.S. E&M market experienced the largest increase since 2007 with faster growth expected, growing at 5.2 percent CAGR reaching $597 billion in 2016, from $464 billion in 2011. Going forward, digital spending in the U.S. is expected to account for 31.5 percent of all E&M spending in 2016, up from 21.7 percent in 2011. The Outlook forecasts that global E&M spending is expected to rise from $1.6 trillion in 2011 to $2.1 trillion by 2016, growing at a compound annual growth rate (CAGR) of 5.7 percent.
 
"Change in consumer behavior is pervasive and accelerating and the E&M industry is in the front line of this change," said Ken Sharkey, entertainment, media & communications US practice leader, PwC. "The past uncertainty triggered by the digital migration has given way to a sharper focus of E&M companies on executing their digital strategies. While experimentation will continue, the way forward is becoming clearer as companies focus on identifying, choosing and executing the right business models, organizational structures and developing the skill sets to understand consumer behaviors and motivations in their connected, multi-screen environments."
According to the Outlook, the challenge ahead is in the implementation of digital strategies and the E&M industry is reshaping itself around three perspectives:
 
Understanding the connected consumer - To engage and immerse consumers in the connected multi-screen future, companies need to understand their behaviors and motivations. Data analytics tools are required to mine the mass of customer data. However, consumers' fears over privacy risk triggering a public and regulatory backlash. PwC believes that avoiding this will require a shift of industry mindset from 'customer ownership' to putting the 'customer in control.'
 
New business models to reinvent the value proposition of advertising and content - Digitally-derived insights are now redefining advertising and expanding its value proposition, enabling it to become paid, earned and socialized. This is driving new performance metrics, new roles for agencies and other participants in the value chain and new flexible pricing models.
 
Developing organizational models to harness new behaviors and grow revenues in the 'new normal' - To date, many E&M businesses have developed digital as an adjacent operating group, with separate infrastructure, solutions and staff. In the 'new normal,' this siloed approach no longer works. Companies are now embedding and integrating their digital operations into the main enterprise, driving improved profitability, scalability and innovation. Realizing these benefits means tackling challenges around right, royalties and piracy.
 
By embracing digital as the engine of their business and using it to integrate and automate processes from content production to rights management, E&M companies are well positioned to meet the fast changing consumer demands through any channel and format more effectively and drive greater revenue growth than before.
 
According to the Outlook, the rise of unpaid or earned media reflects an innovative new mix of advertising, content and analytics, bringing sweeping change to the roles and business models in advertising. The rise of socialization is feeding into the widely-accepted concept of bought, owned and earned advertising among agencies and advertisers.
 
A fourth category is emerging - 'managed' advertising, which involves the orchestrated use of social media, such as engagement with bloggers. Everything that agencies do for their clients now has an embedded digital component with the attention on measurement shifted towards earned, unpaid media reach and purchasing intentions.
Some of the findings and forecasts made in the Outlook are: 
  • Global E&M spending on digital advertising and consumer formats will grow from 28 per cent in 2011 to 37.50 per cent in 2016 and will account for 67 per cent of total spends. The same increased by 17.6 percent in 2011 compared to only 0.6 percent rise in non-digital spending.
  • Global spending on digital recorded music formats will outstrip physical distribution and account for 55 percent of total revenues in 2016. Similarly online and wireless video games will overtake console and PC games revenues in 2013. At the opposite end the slow movers will be consumer magazines will account for only 10.4 percent of digital spending by 2016, up a mere 3.1 percent in 2011.
  • The fastest subscriber growing mobile markets will continue to be India and China. Digital spending will more than double between 2011 to2016 at 2.9 billion, of which almost one billion will be in China. The Indian mobile market at a growth rate of 50.80 per cent will become the fastest growth market for mobile internet in the world.
  • By 2016, global mobile internet advertising revenues of $24.5 billion will grow at 36.5 percent compounded annually, to almost match the size of the classified internet advertising market. However, paid search at $78.1 billion and banner/display at $46.6 billion will retain the lion’s share of the market in 2016. China’s mobile internet advertising market will grow at a compound rate of 68.4 percent to reach $6.2 billion in 2016, making it the second largest market in the world behind the United States at $9.4 billion.
  • As far as newspaper publishing segment is concerned, growth will be mixed – declining in mature markets like the USA and growing in less mature markets like Argentina, Indonesia and India. United States market will decline 1.4 percent compounded annually by while Argentina will grow at a CAGR of 11.9 per cent; Indonesia 11.2 per cent and India 9.6 per cent.
  • In the TV advertising segment, by 2016, Russia will overtake the UK, Germany, Italy, and France to become the largest TV advertising market in EMEA (Europe, Middle East and Africa).
  • Over-the-top/streaming services will grow at a 21.0 percent CAGR to $11 billion in 2016, and will overtake spending through TV subscription providers in 2012 in the film entertainment market.
Segments covered by the Outlook are Business-to-business, consumer and educational books, consumer magazine publishing, filmed entertainment, Internet access spending: wired and mobile, Internet advertising: wired and mobile, newspaper publishing, out-of-home advertising, radio, music, television advertising, TV Subscriptions and license fees and video games.
 
Digital spending consists of broadband and mobile Internet access; online and mobile Internet advertising; mobile TV subscriptions; digital music; electronic home video; online and wireless video games; digital consumer magazine circulation spending; digital newspaper circulation spending; digital trade magazine circulation spending; electronic consumer, educational, and professional books; and satellite radio subscriptions.
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