Indian E&M sector to witness fastest growth in APac: PwC

MUMBAI: The Indian entertainment and media (E&M) sector is poised to witness the fastest growth in the Asia Pacific region during the next five years, with a projected 18.5& compound annual increase. The growth will be fueled by rapid economic growth and the opening up of E&M markets.

According to a study titled ‘Global Entertainment and Media Outlook 2008-2012’ released by PricewaterhouseCoopers, the E&M growth in the BRIC nations – Brazil, Russia, India & China – will outpace GDP growth with a collective compound annual growth rate (CAGR) of 13.6 per cent versus 5.9 per cent for the rest of the world.

India will also be the focus of intense collaboration and investment by many of the world’s leading E&M companies. The Indian E&M sector will witness double-digit annual growth in every segment except recorded music, professional books, and consumer and educational book publishing.

The PwC report pegs global CAGR at 6.6 per cent for the sector, anticipating it reaching $2.2 trillion in 2012.

As per the report, E&M companies hoping to drive growth over the next five years will need to accommodate dramatic changes in devices, market and consumer behaviour through striking strategic business alliances. The study also underscores the importance of continuing to extract revenues from traditional business segments while emerging technologies continue to solidify their consumer position.

“We’re seeing a new business model solidify for entertainment and media companies. Some, such as the film industry, have dabbled in this in the past, but those will be small movements compared to what lies ahead. No single company will be able to successfully go it alone over the next five years. The challenges are too significant and the demand for innovation too complete,” said PricewaterhouseCoopers managing partner, global entertainment and media practice Marcel Fenez.

For online access & advertising to grow in India, the following are imperative:
• Broadband availability is limited; 1.3% penetration.
• Government funding & private initiatives needed to enhance broadband infrastructure and promotion.
• Investments in landline infrastructure and reach will lead to growth in dial-up subscribers and, as broadband becomes available, migration to broadband.

The Outlook for India: E&M Spending

Consumer/ End-User Spending
  2012 ($ Million) 2008-12 CAGR 2012 ($ Million) 2008-12 CAGR 2012 ($ Million) 2008-12 CAGR
Internet Access 5,572 45.5 5,572 45.5
Internet Advt 326 35.3 326 35.3
TV Sub. & License Fees 10,012 24.8 10,012 24.8
TV Advertising 3,313 13.1 3,313 13.1
Recorded Music 235 5.6 235 5.6
Filmed Entertainment 3,883 15.0 3,883 15.0
Video Games 774 51.5 774 51.5
Radio 484 13.9 484 25.3
Out-of-Home 580 13.9 580 13.9

The Outlook for India: Internet advertising: wired & mobile

India will grow to $326 million with a projected 35.3 per cent growth rate.

The key themes and principal drivers are:

• TV subscription & license fee market
• India will be the fastest-growing country in Asia Pacific in absolute terms, raising its spending by $6.7 billion during the next five years and thereby more than tripling its 2007 total.
• Growth will be fuelled principally by a large jump in the satellite household universe.

Consumer/end-user spending
• Consumer/end-user spending in Asia Pacific increased by 9.7 per cent in 2007.
• This expansion was fuelled by 27.4 per cent growth in casino and other regulated gaming, 26 per cent growth in video games, and double-digit increases in TV subscriptions and license fees and recorded music.

Strategic Alliances Will Replace Vertical Integration

Several critical technologies are now reaching tipping points that will deeply influence both the pace and direction of entertainment and media growth over the next five years. Broadband penetration continues to accelerate globally. Mobile is gaining ground quickly – adding subscribers and upgrading infrastructure to enable the next wave of mobile expansion, driven by Internet access, advertising and television. Modern movie houses, digital cinemas and 3-D upgrades are enhancing the cinema-going experience, while high-definition television subscriptions and a resolution of the high definition DVD format wars will invigorate digital living rooms. The impetus behind these new technologies is rarely established companies. The global broadband boom continues unabated, fuelling overall growth, and more than doubling again to 661 million households in 2012, a 16.4 per cent compound annual increase.

As per the report, while digital and mobile are driving growth, established and traditional business segments will continue to dominate revenues, with the exception of recorded music, where digital distribution will surpass physical distribution in 2011. Although digital and mobile distribution comprised only five per cent of global E&M spending in 2007, these revenues will account for 24 per cent of all growth throughout the industry during the next five years. By 2012, digital and mobile revenues will account for just 11 per cent of total E&M spending, or $234 billion of the $2.2 trillion global market.

Health of media is driven by the Net Generation and maintained by consumers over the age of 50

The Net Generation continues to set the pace and direction of change in the entertainment and media industry while exhibiting an influence that is driving new business models that are revolutionizing the relationship between companies and their customers. As they make these technologies regular components of their everyday lives, the Net Generation is also driving the technology engagement of prior generations, connecting older generations with the latest trends in emerging media technology.

What’s more, this is truly a global phenomenon that companies are increasingly paying attention to. Consider: In the BRIC countries, people under the age of 25 comprise at least 31 per cent of the countries’ total populations – 43 per cent in Brazil, 31 per cent in Russia, 50 per cent in India and 38 per cent in China. Meanwhile, in the United States, people under the age of 25 represent 34 per cent of the total population. The imperative, then, is that companies must expand their global reach to young people who will propel spending on Internet access and digital entertainment and media during the coming years.

Meanwhile, consumers over the age of 50 are creating a balance in the industry by devoting significant amounts of attention to the more traditional media of their generation as the Net Generation drives growth in digital and mobile entertainment. In every region of the world except EMEA, the 50+ population will see double digit growth rates and globally, this population will increase from 1.1 billion to 1.25 billion, a 13.1 per cent rise through 2012. This growth will help sustain traditional formats even as this generation becomes increasingly interested in the platforms embraced by their children and grandchildren.

Over the next five years, Asia Pacific and Latin America will be the fastest growing regions. Double-digit increases are expected in each region for Internet advertising, Internet access spending, TV subscription and license fees, casino and other regulated gaming and video games. Latin America will total $85 billion in 2012, up from $51 billion in 2007, advancing from a relatively small base at 10.6 per cent CAGR. Meanwhile, spending in Asia Pacific will average 8.8 per cent CAGR, the second highest of any region, increasing from $333 billion in 2007 to $508 billion in 2012.

EMEA, the second largest market, will expand at a 6.8 per cent CAGR to reach $792 billion in 2012. Central and Eastern Europe and Middle East/Africa will fuel growth in this territory. Internet advertising, Internet access spending and video games will continue to average double-digit compound annual increases during the next five years.

The US currently remains the largest but slowest growing E&M market, growing at a 4.8 per cent compound annual growth rate reaching $759 billion in 2012. Internet advertising and Internet access spending will be the only two segments with double-digit growth during the next five years, boosted by continued growth in broadband.

“In the US, consumers are taking a preference for free, or heavily discounted, ad-supported content and services in the new digital and mobile environment. This ensures that the importance of advertising will continue to grow – both to entertainment and media companies themselves and to their customers,” said PricewaterhouseCoopers global chairman, entertainment & media practice Jim O’Shaughnessy.

As the trend towards globalization in the entertainment and media industry continues, Brazil, Russia, India and China will remain important sources for growth throughout the entire sector, driven by rising disposable incomes and an increasingly urbanized middle class.

In addition, a large and diverse group of countries are also breaking away from the pack. E&M markets across fifteen countries will expand at double-digit annual rates during the next five years, with Saudi Arabia and the Pan-Arab region experiencing the fastest growth. Vietnam will be the world’s fastest-growing television subscription and license fee market over the next five years—growing at 29.3 per cent CAGR.

Colombia will be the fastest-growing entertainment and media market in Latin America. The Internet access market in Saudi Arabia and the pan-Arab states will grow at 30.1 per cent CAGR, rising to $13.8 billion in 2012, surpassing Russia and rivalling France. Internet advertising, Internet access spending and TV subscriptions will lead the industry expansion in these territories – the broadband household universe will expand at more than 20 per cent CAGR.

Segment highlights – Growth is driven by the rising value of online and mobile opportunities

While Internet advertising growth will moderate from that in recent years, it will see the most robust growth, at 19.5 per cent CAGR through to 2012. Internet access (12.1 per cent CAGR), video games (10.3 per cent CAGR) and television subscriptions and license fees (10.1 per cent CAGR) will all experience double-digit growth.

More established segments – television advertising (5.9 per cent CAGR), theme parks (5 per cent CAGR), casino gaming (6.5 per cent CAGR), filmed entertainment (5.3 per cent CAGR) and sports (6.5 per cent CAGR) – are all set to grow at between five and seven per cent compounded annually.

The publishing segments including Newspapers (2.2 per cent CAGR), Consumer Magazine (3.5 per cent CAGR), Consumer & Educational books (2.8 per cent CAGR), Business-to-business publishing (3.2 per cent CAGR) as well as recorded music (-0.6 per cent CAGR) face the stiffest challenges, where the declines in physical distribution are at their most significant and growth in digital distribution—although rapid—is struggling to make up for the shortfall.

“Companies are rapidly embracing new and emerging technologies in the entertainment and media industry, while adapting to the demands of the net generation. And rightly so, because it will help to drive their business forward and remain competitive in a marketplace driven by innovation. However, they must also remain focused on managing their traditional businesses, a key component and driver of their revenues. By effectively managing emerging and traditional business lines, they will be able to identify opportunities they can exploit so they can migrate to the new digital environment and meet the demands of the net-generation,” added Fenez.