Pulling the future forward: The entertainment and media industry reconfigures amid recovery
Five-year projections of consumer and advertising spending data across 14 segments and 53 territories
E&M revenue in 2024, growing by £10bn
UK’s data consumption to more than double 2019 levels by 2024
Subscription VOD revenue to overtake cinema revenue in 2020
Video games and esports sectors expected to rise to £5.3bn in 2020
In our 2020 Global Entertainment & Media (E&M) Outlook, we predict that total E&M revenues in the UK will rise at a compound annual growth rate (CAGR) of 2.8% to reach £79.8bn in 2024. This will represent a [strong] recovery from the -6.7% decline in revenues expected in 2020 under the impact of the lockdowns and economic recession triggered by COVID-19.
This year, we’ve delayed publication of the Outlook to get a clearer view of the pandemic’s impacts. And we’d like to make two points about our resulting forecasts and analysis. First, while we’re confident our projections are robust, their future accuracy could clearly be affected by the continued rapid changes related to the pandemic, including policy responses from the Government. So, to get our very latest view, please speak to us directly.
Second, while the pandemic had a significant impact on the UK media industry as a whole, its effects on specific sub-sectors have varied widely. As social distancing and self-isolation saw the UK consumer head indoors, this was generally good news for those serving up engaging in-home content, such as over-the-top (OTT) video services, video gaming, music, podcasts, and internet access. But it was less good news – in the short term at least – for services that require people to be out and about, such as cinema, events, live music, magazines bought on impulse and outdoor advertising.
That said, across all sub-sectors the pandemic has also opened up the possibility of new revenue models and new ways to engage with audiences: witness how some live music and B2B events have gone virtual, some sports broadcasts going free to air, and many more. Also, the UK media industry of 2020 is much better placed to cope with a disruptive event such as this pandemic than it was at the beginning of the century. There is less reliance on print, there are more subscriptions rather than ad-funded models, streaming is mainstream, and many media companies are more ‘digitally’ enabled to facilitate remote working/collaboration and continue content creation and distribution.
We expect the media sector to demonstrate its agility once more, and rebound strongly as the economy re-opens. This prospect is reflected in our revenue forecasts through to 2024.
The UK is Europe’s biggest OTT video market by some margin and will retain that lead through to 2024, buoyed this year by the impact of the pandemic as people entertained themselves more at home. In 2020, this effect is expected to help total OTT revenues in the UK to surge by an impressive 18.6% to £1.7bn. The fastest-growing sub-sector will have been subscription video-on-demand (SVOD)—including the likes of Netflix and Amazon Prime⎯where revenues are anticipated to leap by 21.9% during the year to £1.2bn.
Aside from COVID-19, growth will also have been buoyed by several other significant developments in the UK OTT market in the past year. These included the launch in November 2019 of BritBox, 90% controlled by ITV alongside the BBC. Apple TV+ launched in the UK in the same month as part of a global rollout. And Disney+ launched in early 2020, attracting 4.3m UK subscribers by June. We project that OTT video will continue to see healthy revenue growth in the UK through 2024, with overall OTT rising at a five-year CAGR of 10.5%, and SVOD outpacing it at a CAGR of 11.7%.
Like OTT video streaming, video game and esports revenues in the UK emerged as one of the beneficiaries of lock-downs and people spending more time keeping safe at home. The sub-sector’s total UK revenue is expected to have risen by 9.4% in 2020 to £5.3bn. And it is projected to continue to rise at a CAGR of 7.3% over the five years to 2024. The video games industry has benefited from the increased demand for immersive, engaging content at home – with digital/mobile downloads seeing very strong growth during lockdown, and consumers able to consume the rich libraries of available content.
Traditional gaming remains the cornerstone of the UK video games market, albeit the continued rise of digital and mobile gaming drives the majority of growth. In addition, subscription-based cloud gaming is starting to gain ground, including the launch of Google Stadia in the UK in November 2019, albeit this still has a long way to go. Public awareness of esports in the UK has lagged behind other markets in the past. But the Premier League’s involvement with FIFA publisher EA means every top-flight football club in the UK is automatically represented in the ePremier League. This also launched in 2019, providing a more familiar and accessible format for gamers and fans. The BBC has also shown coverage of other well-established esports competitions including League of Legends this summer.
Even before COVID-19, the increasing accessibility and affordability of broadband – and trends such as rising consumption of OTT video – were driving robust growth in UK internet access spending. If confirmation were needed that broadband is now a necessity rather than a discretionary item, the pandemic provided it. With people using video streaming for everything from meeting friends to consulting their doctors, broadband – and increasingly. mobile broadband – became an even more vital part of staying connected and everyday life. Not all of this extra demand was converted into higher revenue. For example, the UK Government restricted price increases to ensure lower income groups were not impacted by the stay/work-at-home policies during lockdown.
A major tipping-point was almost reached in 2019, when UK mobile access spending very nearly caught up with spending on fixed broadband. This year it is believed that this tipping-point was decisively passed, with mobile access spending projected to have risen by 4.7% to £7.8bn, compared to fixed access spending rising by just 1.1% to £7.5bn.
Over the five years to 2024 mobile access revenue will continue to surge ever further ahead, rising at a projected CAGR of 7.3%, more than twice the anticipated growth rate of fixed access at 3.4%. Another tipping point is expected to occur in 2022 when mobile internet penetration overtakes fixed broadband penetration in the UK.
The global advertising market has had a tough time during the pandemic. Advertising suffered much larger falls than consumer spending on E&M, as companies selling products that rely on consumers leaving their homes stopped placing ads on various media. While digital advertising was affected, the impact on it was relatively mild compared to that on other advertising options such as print newspapers, cinema and out-of-home. We anticipate that total UK internet advertising (across display, search and classifieds) – will be down c.5%t in 2020. By way of comparison, print newspaper advertising is expected to have slumped by 24% and out-of-home (both digital and physical) by 30%.
As ad revenues recover from the pandemic, digital advertising is set to continue to outperform other forms of advertising, enabling it to rebound more robustly from the temporary setback. As with consumer spending, the pandemic has not just sustained the shift to digital in the advertising market, but actively accelerated it. Coming out of Covid-19, brands will increasingly need to invest in their digital platforms, and ecommerce platforms, whilst engaging with consumers across a wider range of digital media channels / touchpoints. This will also underpin a rebound in digital advertising revenues over time.
With lockdowns stopping the trade show industry dead in its tracks, the UK business-to-business (B2B) market as a whole was inevitably hit hard by the pandemic. However, within this turmoil the B2B information market remained a relatively bright spot, with revenue expected to be down just 3.9% in 2020 as companies continued to seek out intelligence to help them navigate through the crisis, and subscription products sustained revenues.
Over the five-year forecast period as whole, B2B information revenues are projected to rise at 1.7% compounded annually. For B2B events, it will be interesting to see how the current shift towards online and hybrid online/physical trade shows plays out – just one of myriad imponderables across the UK E&M market.
Like OTT video, digital music streaming appears a natural choice for consumers in a lockdown. There is some offset to this though, as people would often listen while at home or in the gym. Overall, we project revenue growth of 22.7% in 2020, the vast majority of it from subscriptions. The longer-term trend of music streaming is not significantly altered however, which is continuing to slow down gradually as the available target market of music fans without a subscription gets progressively smaller.
Perhaps more significant are the shifts underway in the content that people are consuming via these services. Podcasts have been a big success during the pandemic – and while these were initially available mainly on podcast-specific apps and platforms, they have recently been snapped up by music subscription services as a value add-on. Spotify, for example, has acquired several podcast companies and signed deals with talent such as comedian Joe Rogan.
In the wake of the pandemic, changing consumer behaviours will clearly disrupt some business models – but will also open up new opportunities for capturing growth. We see consumer change generating seven long-term growth opportunities across the E&M industry.
During the crisis, consumers have sought out entertainment and media content that is easy to access and easy to use (at home). Consumers are likely to hold on to some of their newly acquired habits: more time at home, less international travel, more workouts at home as opposed to the gym, fewer live events, and more playing games or socialising online with friends and family. Why go back to the old way of doing things if they’re a less convenient or efficient use of time? E&M businesses that can cater to these enduring shifts in consumers’ behaviour by providing them with convenient and accessible content are likely to continue to prosper.
Companies can tap into unmet demand arising in the “new normal” by exposing consumers to new types of (digital) media tailored to the unique needs of individuals. Areas of opportunity include people’s increased focus on socialising virtually, and the potential to capture content in digital spaces such as gaming and VR/AR. Consumers have also invested time during the lockdown in new or re-discovered hobbies and personal content, such as crafts, baking, music and fitness (witness the growth of Peloton). E&M businesses that can continue to create new relevant digital content – closely tracking these new hobbies and subject interests – will realise new revenue streams.
As consumers have more and more content to choose from, and become more and more demanding about the content they want to consume, players that cater to this need through unique content and state-of-the-art recommendation engines are going to capture a bigger share of wallet.
While consumers will try out new products and services, they will also cut expenses where possible – and expect higher-quality content for which they are reluctant to pay a premium. This means providers have to re-price regular products to match demand and supply in such a way as to capture the full elasticity of demand. In slack economic times, people are willing to pay for products and services that provide value, underpinned by consumers’ higher appreciation of all-you-can-eat business models. During the pandemic, many of the biggest platforms saw impressive growth on top of their already-large bases. E&M businesses with a higher proportion of subscriptions in their revenue mix or re-optimised pricing models will emerge more resilient.
COVID-19 has afforded brands an opportunity to step up and deliver on their promise to society. Many have done so: examples include news organisations taking down paywalls for COVID-19 coverage, streamers reducing fees, networks hosting fundraisers and manufacturers producing ventilators. Having seen the actions taken by companies during the COVID-19 crisis, many consumers will increasingly focus on and engage with E&M brands that have shown themselves to be trustworthy, whose values they share, and/or who are good citizens in their local communities.
The pandemic has created a global scarcity of production capacity, which is likely to persist long into the future. To protect against this, players need to act fast to mitigate increasing content costs; review mid-term content programmes for improvement opportunities and gaps; strike attractive long term deals; and diversify content sourcing and production. As an example, some visual effects and gaming studios (typically a data-intensive industry) have been able work remotely and flexibly by using cloud-based platforms to undertake activities like design, rendering, editing and colouring, with less dependency on ‘on-premise’ software or hardware. Companies able to produce high-quality content remotely will thrive as we emerge from the COVID-19 disruption
In order to meet consumer demand and keep pace with changing habits, resilient organisations may have to strike new types of alliances or connections. There may be potential for new asset combinations, with ‘at home’ content owners taking centre stage, such as those more closely aligned with distribution platforms. We may also see OTT players acquiring assets more rapidly to gain exclusive control of key content – film, sports, drama – and a stronger position at the negotiating table.
The media industry has proved highly agile and responsive through previous economic and technological cycles, pivoting towards new digital platforms and harnessing its creative skills to generate new and engaging content. In the aftermath of COVID-19 it will need to demonstrate this agility once again. However, this time, riding out the disruption will require more than agility. Because as COVID-19 pulls the future forward, it is radically changing how consumers behave and forcing a fundamental rethink of how businesses operate.
The result? In light of the shifting landscape, CEOs have been given a quasi-mandate to experiment and try new things. This is a unique window of opportunity to transform E&M businesses and make them more resilient to changing consumer behaviour. Going forward, perhaps this resilience – together with planning for a wider range of scenarios – will become companies’ defensible advantage, the new “moat” that everyone strives to build. Put simply, for E&M companies – as for so many other industries – COVID-19 has changed the world.
At a global level, PwC’s Global Entertainment & Media Outlook 2020–2024 paints a picture of a challenging and disruptive year for many segments of E&M. Yet what also shines through is that consumer demand for the varied and expanding array of media choices now on offer continues to grow. While the revenue figures in this year’s Outlook reflect the full force of the economic downturns and digital acceleration triggered by COVID-19, the longer-term outlook for the E&M industry as a whole remains bright. However, as normality slowly returns, it’s also clear that there will continue to be winners and losers.
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