The $1.7 trillion global entertainment & media market growth rate is slowly decreasing as old business models are swept aside by technological disrupters. Internet access, advertising, video games and video entertainment remain relatively strong growth areas, driven by changes in demographics and technology, while publishing and music find it hard to gain traction in the new environment.
Research from PwC and Strategy& into the entertainment & media (E&M) segment, in its ‘Global Entertainment & Media Outlook 2016-2020’ report, highlights that considerable changes are afoot. According to the consultancy, five key factors are complicit in the changes: demography, competition, consumption, geography, and business models. Below, the larger picture is considered along with two of the key factors affecting the market, namely demographics and business models.
The growth of entertainment and media (E&M) has been gradually slowing since a peak of 6% in 2014. This year it is projected to cross the growth rate of nominal PPP GDP as it ticks upwards, and, by 2020 a divergence of 2% is projected. The slowdown in the E&M market reflects a range of changing fundamentals, from demographics to technology.
While the global average picture sees a slowdown of compound growth, there are a range of bright spots within the global landscape where growth is considerably more robust. The percentage-point difference in growth rates of E&M spending and GDP, for 2016, in Venezuela stands at 14%, while for Argentina it stands at just above 9%. Brazil, Egypt and Russia too have substantially higher spending patterns on E&M, highlighting that, even while in recession, people are still willing to pay for entertainment.
The research also finds that growth within the E&M landscape is relatively diverse, with a number of segments, including internet (CAGR 7.8% from 2015 to 2020) and video games (4.8%) growing relatively quickly, while other segments, such as music (2.3%) and publishing (1.1%) remain relatively flat. In terms of spending on E&M, the consumer spending business model continues to pull in the largest amount at $800 billion by 2020, with a CARG of 2.6% from 2015 to 2020. Advertising, even in the face of ad blockers, will continue to grow relatively strongly at CAGR of 4.9% to around $500 billion. Internet access, however, is the fastest growing business model, with the cost of data generating CARG of 6.8% to reach close to the $450 billion.
Demographics and models
The research also considers the effect of age on E&M spending growth, finding that there is a relatively strong correlation between spending growth and the relative age. The larger the percentage of those under the age of 35 is, the larger the growth on E&M spending.
For instance, countries such as Indonesia, India, Brazil and the Philippines have relatively young populations, with 60% under 35, and relatively high rates of spending growth, at 13%, 10% and 8% respectively. China, while greying, has grown to become a middle-income economy, which may be creating the conditions for increased spending growth.
Most of the European countries, in many of which the number of those under the age of 35 is below 30%, have considerably lower levels of spending growth – at 2-3%. Japan in particular, with its rapidly aging population, will see low spending increases in entertainment between 2015 and 2020 – although even there growth remains.
Another major trend affecting the E&M market is the changes in consumer behaviour through the wider array of services that provide more selectively for their needs. Traditionally companies sold people bundles of services, from television channels to albums. The internet, and a range of streaming services, allows users to pick and choose which items they consume from a wide range of undifferentiated items.
Global subscription spending on Netflix and other OTT subscription video-on-demand (SVOD) services grew by 33.8% in 2014 and 32.3% in 2015 — that’s 77% in two years. The launch of Apple Music provided a major boost to digital music streaming revenue, and other streaming companies, such as Tidal, Beatport, Deezer, Earbits, Pandora, Spotify, and Rhapsody – to name but a few – arguably saw a boost due to the enhanced awareness Apple Music created among consumers. By 2020, the streaming market will grow from $15 billion in 2015 to more than $30 billion. The fastest growing segment is the online-video streaming segment. By 2020, the entire segment will account for 4% of all consumer revenue.
The growth of streaming is not necessarily the death knell for the traditional music or television industry. Careful planning and a strong range of content rich propositions may still provide a way to retain or grow market share.