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22 Business models
As distribution splinters, adaptation is the name of the game
26 Value chains
Across E&M, companies chart a direct-to-consumer path
29 Technological change
Driving incremental growth through innovation
32 Content strategy
Adapting to penetrate technological and cultural filters
35 Deals
Strong tailwinds
38 Regulation
Market contrasts, net neutrality, and privacy
Index
Contributors 7
Introduction
1
is discoverable easily on an array of screens and at an
attractive price. Simply capturing the natural growth
in consumers and their uptake of services and content
with existing approaches is no longer sufficient.
Across the industry, the resulting quest to create
the most compelling, engaging, and intuitive user
experiences is now the primary objective for growth
and investment strategies and technology and data
lie at their center. Pursuing these strategies will help
companies thrive in an era of complexity and slowing
top-line growth from the traditional revenue streams
that have nourished the E&M industry to date.
Cool
ablin
er wish lis
Introduction 11
Introduction 13
Global E&M
growth = 4.2%
730
U.S.
China
Japan
Total E&M revenue 2021 (US$ billions)
U.K.
Germany
France South Korea
Canada India
45 Italy Brazil
40 Australia
35 Average market
Spain size = $41 billion
30
25 Mexico Russia
Netherlands Indonesia
20 Switzerland
Sweden Turkey
Thailand
15 Norway
Belgium
Malaysia
10 Denmark U.A.E. Philippines
N.Z.
5 Finland Egypt
Israel Peru Pakistan Nigeria
0 Romania
CAGR 201621
Source: Global entertainment and media outlook 20172021, PwC, Ovum
Switzerland
$2,000 U.S.
$2,260
Slower growth
E&M revenue per capita, 2021
U.K.
$1,447
China
$222
Asia-Pacific markets, in which consumers growth rates. Over the next five years,
spend a lot more than US$500 per most E&M segments will struggle to
capita annually on E&M. In both keep pace with GDP growth. Only two
the U.S. and Switzerland, consumers segments, newspapers and magazines,
spend more than $2,000 per capita. The are declining in absolute terms. But
bottom right quadrant is home to less- other major segments, including TV
developed economies, which, although advertising, B2B content, and cinema,
they may be highly populous, feature will shrink as a share of the global
much lower per capita spending. In five economy between now and 2021. And
of those markets (Pakistan, Nigeria, the areas that are showing growth,
India, Egypt, and Vietnam, which have a such as Internet video and Internet
combined population of 1.9 billion), per
capita E&M spending is less than $50
advertising, are not sufficiently large to
overcome the stagnation in other areas
It could be that as
per year. Although revenues are rising (see Exhibit 6, next page). digital media markets
rapidly in these markets, they are doing
so from a very low base. As a matter of
In other words, we are approaching an mature, and as user
industry plateau. Traditional, mature
mathematics, the rapid growth in the
segments are in decline, the Internet experiences improve,
lower right quadrant cant compensate
for the lower growth in the upper left
and digital E&M content is growing but consumer and
at a slowing rate and the next wave of
quadrant over the forecast period.
content and entertainment is in areas advertising spending
The majority of the traditional industry
segments included in the Outlook
such as e-sports and virtual reality,
which are just beginning to ramp up.
is becoming more
forecast also show a decline in projected According to Nielsens 2016 report on efficient.
Introduction 15
Music -2.0%
Emerging areas
TV advertising -2.8% Theres another possible explanation
for the apparent slowdown in growth.
B2B -2.9% CAGR %
The universe of what is considered
E&M 4.2% E&M spending is clearly expanding, in
Radio -3.4% GDP 5.6% an ever-proliferating range of venues,
platforms, devices, arenas, and consumer
Traditional TV & video -4.2% products. But many of these areas, which
have significant growth potential, are
Books -4.5% not captured directly in the 17 segments
that we follow. Many companies are
Magazines -6.0% channeling portions of their advertising
budgets to e-commerce sites, but those
Newspapers -8.3% totals are not aggregated. The tallies
of cinema box office do not include the
-10% 0 10% 20% growing revenues movie theater owners
realize from using their properties to
GDP CAGR %
stream sporting and music events. Live
Note: E-sports and VR have been excluded from this chart because their very high growth events have great appeal. Live music,
rates (from very low bases) would distort the scale. The data consumption segment is not
a $25.6 billion business, is projected
included here because it is a usage-based metric.
Source: Global entertainment and media outlook 20172021, PwC, Ovum to grow at a 3 percent CAGR through
2021. And we havent traditionally
broken out live theater, which is
booming: Broadway box office sales
in 2016 alone were $1.4 billion.
Introduction 17
Cheaper access
to technology
Source: PwC
Introduction 19
on E&M.
Total
Yes No
Source: Videoquake 4.0: Binge, stream, repeat How video is changing forever,
PwC Consumer Intelligence Series, 2016
purchase content. They stream songs Of course, millennials will probably Conclusion
or watch videos on YouTube instead eventually marry, have children, and Thriving in a world of slower growth,
of buying albums; they consume free purchase homes in greater numbers. But intense competition for attention, and
news on Facebook or Snapchat instead it seems unlikely they will adopt their continual disruption will be challenging.
of spending hundreds of dollars for elders habits when it comes to media But the opportunities inherent in this
home delivery of newspapers. Rather consumption and spending. world are immense. Our data, analysis,
than subscribing to expensive pay-TV and perspective offers compelling
Barring a step change in must
bundles, they source their video through insights into how E&M companies are
have technology (e.g., autonomous
a combination of over-the-top services adapting, investing, experimenting, and
vehicles), profitable growth in the E&M
(see Exhibit 11). According to a recent innovating. As we move forward, we
industry will increasingly come from
study, millennials account for 43 percent know the Outlook will continue to be a
capturing market share, rather than
of the U.S. cordless population those valuable source of nuanced information
from market expansion.
who have never had cable, satellite, or and vital perspective on segments and
fiber-optic cable service and those who geographic markets. Several of our
have cut the cord. Thirty percent of U.S. PwC colleagues have explored the 2017
millennials are now cordless, compared Outlook findings within the context
with just 16 percent of baby boomers, of their specialization and geographic
according to GfK MRIs January 2017 markets. The chapters that follow
Survey of the American Consumer. take you deeper into the analysis and
their insights into industry trends and
challenges across business models, value
chains, technological change, content
strategy, deals, and regulation.
Introduction 21
2
Cinema and celebrity backers including Steven
Cinema serves as a prime example Spielberg announced their investment
of how revenues are being diverted in a startup that would allow people
from existing channels into new ones. willing to pay a premium to watch new
The major studios face steep declines movies at home on the same day they hit
in home entertainment revenue. As theaters. Although the project has since
Exhibit 13 shows, global revenue from lost traction, the debate between studios
the rental and sales of physical home and exhibitors about shortening release
video, which has already been falling delays has continued.
sharply, will decline at an 8.8 percent
Exhibitors also have an opportunity to
CAGR through 2021. In response to such
redefine their value proposition and
changes, and in recognition that viewers
adapt to these changes. For example,
are increasingly agnostic as to the size
movie theater owners, faced with
of the screen on which they view films,
stagnant box office sales for first-run
many major studios are considering new
films, can expand their menu of content
ways to shorten the traditional delay
to include remote-viewing experiences
between the cinematic release of films
for fans of opera, the symphony, sporting
and their availability for home viewing.
events, and pop festivals. In emerging
In 2016, Napster cofounder Sean Parker
markets with a rising middle class,
25 -8.8%
Advertising 20
Pressures on ad-supported business
15
models reflect two stark realities. First,
many consumers, especially among the 10
Business models 23
Business models 25
3
current role in the ecosystem of content, distribution,
and advertising.
Changing consumer
behavior 81%
Value chains 27
51% 91%
2012 2012
49% 9%
43% 62%
2016 2016
57% 38%
37% 44%
2021 2021
63% 56%
The fact that the rising tide will lift only a future, aiming to dominate the online
The robust growth of few very large boats presents increasingly
difficult challenges for traditional media
finance and e-commerce market. Other
companies that have proved to be
Internet advertising segments. The media planning business, powerful magnets for user attention,
as well as newspaper and magazine such as Amazon, Facebook, and Google,
masks an embedded publishers, will come under particularly are moving in a similar direction.
form of inertia. acute pressure.
With each passing month, more of the
Premium brands are In the new environment, value flows to worlds Internet experience is taking
the companies that control the three Cs: place via mobile. But last year, wired
reluctant to take on the content, communication, and commerce. Internet advertising still accounted
perceived risks inherent For Internet advertisers, the route to
control is through focusing on the user
for 61.6 percent of total Internet
advertising (see Exhibit 20). The robust
in concentrating more experience, especially in mobile. The growth of Internet advertising also
growth of Internet advertising is being masks an embedded form of inertia.
of their advertising in powered by mobile advertising, which Premium brands are reluctant to take
digital mediums. grew by 54 percent in the past year, on the perceived risks inherent in
to $43.8 billion. Through 2021, that concentrating more of their advertising
number will grow at a 17.1 percent in digital mediums. Without accepted
CAGR ultimately reaching $96.9 measurement practices that can provide
billion. An example can be seen in transparency on the efficacy and
Chinas Tencent, which is laser-focused efficiency of the major platforms, larger
on creating a mobile ecosystem (pushing agencies and their clients have held back
users from desktop to mobile gaming, for their ad dollars. It often takes a period
example) that is sufficiently compelling of time for advertisers to catch up to
for the user never to leave the Tencent where consumers are spending their
experience. Introduced in 2011, time and attention. In 2016, smartphone
Tencents enormously popular messenger connections accounted for more than
app, WeChat, surpassed 800 million 50 percent of global mobile phone
monthly active users in 2016. Tencent connections, a proportion that will rise to
invests heavily in the mobile commerce more than 75 percent by 2021.
4
e-commerce. Either way, the growing volume of
data and the technologies that allow companies to
mine and deploy it are transforming the ways E&M
companies monetize both content and distribution.
Technological change 29
Median age: 28
6
69% age 1834
Racially diverse 4 China
Technological change 31
5
Decoding content preferences in at which that digital infrastructure is
local markets likely to evolve.
The world may be flat in many ways, but
For all these reasons, even markets that
evidence abounds that it remains very
might appear similar at the surface
spiky in places. Content preferences are
may offer remarkably different revenue
highly influenced by the dynamics and
opportunities (see Exhibit 23). Here are
diversity of culture, language, income,
several examples.
and regulation. All of these factors can
affect companies ability to monetize Magazines. On a per capita basis,
investments in content. The quality of consumers in Portugal spend twice
the underlying digital infrastructure the amount of money on magazines
also varies widely: The relative level of as consumers in Spain, the countrys
Internet access penetration, the speed neighbor on the Iberian Peninsula.
of those connections, the preferred A similar disparity holds between
platforms (mobile or fixed broadband), Scandinavian neighbors Finland
and the variance in the popularity of and Sweden.
devices with which people access content
Internet access. In Asia, China
can differ greatly. And for each market,
and India represent the two most
you have to consider the pace and scale
populous markets and hence
Content strategy 33
6
tailwinds than headwinds for deal activity. We expect
corporate and private equity investments to remain
very active. Deal activity will primarily be aimed
at gaining global scale, diversifying revenues, and
acquiring new capabilities to drive growth.
Deals 35
100
80
60
40
Internet video
20
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
good examples of publicly disclosed deals audiences, and allowing for the
are Disneys 33 percent stake in BAMtech bundling of services.
Companies will use (a technology company spun off from
Changing regulatory environments.
M&A activity to Major League Baseballs digital video
Changes in net neutrality and privacy
streaming unit) and Spotifys recent
get closer to their purchases of four analytics-enabled
regulations across the world could
make the environment more ripe
customers both businesses: Soundwave, Cord Project,
for deal making. In particular, with
CrowdAlbum, and Sonalytic.
to consumers and a change of administration, the
The deals environment should continue U.S. market seems more favorably
to brands. to benefit from three positive trends. positioned for ongoing consolidation
within E&M, and across the broader
Continuing convergence. Companies
TMT universe.
will use M&A activity to get closer to
their customers both to consumers Cross-border investment. In the
and to brands. These vertical introduction of this report, we noted
integration deals are not focused that anti-globalization trends due
on cost synergies. They are aimed to geopolitical factors could affect
at boosting growth, monetizing broader global E&M spending. But
Regulation 37
7
Impacts in specific countries Russia, a 2014 ruling that banned pay-TV
China, the worlds most populous advertising was amended in February
country and the second-largest E&M 2015 to avoid a collapse of multichannel
market, is on the radar screen of every advertising. But the amendment
major E&M organization. But censorship stipulated that channels must show 75
and other regulatory constraints play a percent local content (many top sports
significant role in inhibiting investments. channels have been given an exemption).
Although both Netflix and Amazon
Another example can be seen in the
expanded their services globally in
book industry (see Exhibit 26). In many
2016, neither will compete directly in
markets, a sharp increase in online book
the highly regulated Chinese market. In
sales (of both print and digital books)
withdrawing from its original plan to
has compensated for a decline of sales
operate in China, Netflix announced it
in retail channels. But because so many
will instead license content to existing
countries in Europe, the Middle East,
online distributors in the country.
and Africa (EMEA) have fixed-price book
Chinas streaming markets are not the laws, consumers in those countries have
only markets where new regulations not been able to take advantage of deep
affect local strategies. For example, in discounts from online publishers.
1.0%
North America 2.9%
-1.5%
0.0%
-0.2%
-0.5% EMEA
0.5%
-0.5%
2.5%
2.5%
Asia-Pacific 2.5%
2.2%
0.7%
Latin America 0.6%
0.1%
1.7%
1.1%
Total 1.6%
0.5%
0.5%
Global uncertainty over net Outside the U.S., net neutrality laws
Governments and neutrality have been passed in many markets and
In the U.S., the FCC sets the standards are under consideration in others. The
regulatory bodies for Internet service providers. These Dutch government is taking a tougher
standards encompass net neutrality stance in its interpretation of European
in many markets and there may be changes under the Union (E.U.) rules on net neutrality than
are taking steps to Trump administration. In November many other E.U. member states; it favors
2014, President Obama opposed the banning online service providers from
reduce the dominance practices of blocking or throttling paying for preferential access. At the
of incumbents and content, or offering higher speeds to same time, governments and regulatory
customers willing to pay for them. bodies in many markets are taking
increase competition in Following various court decisions regulatory and legal steps to reduce the
backing the principle of net neutrality dominance of incumbents and increase
both fixed and mobile between 2014 and 2016, the FCC pressed competition in both fixed and mobile
Internet coverage. ahead with its regulatory agenda, Internet coverage. Efforts are particularly
including proposals to unlock the set- notable in some Latin American and
Efforts are notable in top box to usher in a more competitive MENA countries that have been slower to
some Latin American environment for video content. The FCC open to competition than those in other
has launched a proposal to roll back parts of the world.
and MENA countries. the nations net neutrality rules and set
the stage for tech companies and Internet
service providers to reopen the debate
over the future of the Web.
Regulation 39
BC
New user experiences.
New content strategies.
New business models.
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and media.
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Advertising and consumer spending data with expert commentary across 54 countries
Access to 17 segments such as TV advertising, Internet access, Video games, and Music
The ability to compare ve-year historic and ve-year forecast data
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