Power shifts: altering the dynamics of the Entertainment & Media industry
Five-year projections of consumer and advertising spending data across 14 segments and 53 territories
UK E&M revenue in 2021, up by £5.9bn from 2020
CAGR of UK advertising spend (digital and non-digital), 2021-2025
CAGR of UK consumer spend on E&M (digital and non-digital), 2021-2025
UK E&M revenue in 2025, up by £16.6bn from 2021
These forecasts have been made against the background of an improving economic outlook. PwC’s projection for UK GDP in 2021 (released in Feb 21) is for growth of between 3.4% and 4.6%, accelerating in 2022 before stabilising from then on. However, the UK recovery could yet be impacted by further lockdowns, so our E&M forecasts may continue to evolve.
While the UK mirrors a number of the macro/global revenue shifts taking place, the UK E&M industry is also experiencing a number of its own distinctive trends. In 2020, the pandemic accelerated changes in consumer behaviour to pull forward digital disruption and tipping points by several years. In 2021 those tipping points have translated into power shifts that are rapidly reshaping the industry.
These shifts are playing out almost everywhere in E&M. But whether it’s box office revenues shifting to streaming platforms, rising eCommerce helping to boost digital advertising, creators of user-generated content tapping into new audiences, or brands looking to find potential customers across new entertainment platforms and games, there’s one common driver: changes in customer behaviour, propelled by habits that were acquired in the pandemic and – in many cases – look set to continue well beyond it.
The UK’s position as an early and heavy adopter of digital solutions has accentuated some key trends. Take UK consumer spending on over-the-top video streaming – expected to be up by 14% in 2021, outpacing global growth, and then set to rise at a CAGR of almost 8% through 2025. Digital advertising in the UK has also benefited from the nation’s high level of digital maturity, use of online/social platforms and ecommerce activity.
“UK digital advertising outperformed expectations in the pandemic, growing by 5% in 2020 overall (with display advertising up 11%). By contrast, non-digital advertising saw significant double-digit declines. This divergence reflects how digital gained share during COVID-19, as consumers moved quickly to online platforms for content, commerce, entertainment and games. And we see digital advertising continuing to forge ahead – rising at a CAGR of almost 8% from 2021 to 2025, twice as fast as non-digital.”
A further differentiating factor for E&M in the UK has been the Government’s heavy spending on advertising. As well as supporting businesses and jobs through tools such as the furlough, the UK Government has also made heavy use of media advertising for pandemic-related messaging, to the extent that The Drum reported it was the country's largest single advertiser in 2020.
As we emerge – hopefully – from the disruption, it’s vital for companies to recognise the realities in those sectors that have seen underlying structural shifts, and where revenues won’t revert back to their old trend line soon, if ever.
One especially fast-growing area of the market will be connected TV, as vendors explore the opportunity between Digital and TV platforms. Connected TV in-stream video internet advertising rose by 20%+ in 2020 and we expect to do so again in 2021 – and will keep rising at a CAGR of 15% through to 2025.
Disrupted sectors still offer value. But players in them must come to terms with sustained changes such as permanently lower ad spend and rising digital revenues, and rethink their business models accordingly. Take newspapers, whose long-term revenue decline was accelerated by the pandemic, and is combined with a long-term rebalancing towards digital revenue streams. Conversely, those sectors that have forged ahead in the pandemic must work out how to sustain their success.
Looking across the sectors covered in the Outlook, it’s always interesting to check last year’s revenue forecasts against this year’s estimates and outcomes. In general our projections were pretty close – no mean feat amid the uncertainty of the pandemic. Where our forecasts were overly optimistic, such as with cinema and exhibitions, it was generally because lockdowns continued longer than expected, a factor beyond anyone’s control.
“Some sectors have found interesting ways to navigate the effects of the pandemic –notable examples include B2B events moving to online/virtual and now increasingly hybrid formats. However, sectors such as live music have struggled to go virtual, as it’s so difficult to replicate the experience online. So there’s pent-up demand in those sectors ready to be released as lockdown ends.”
However, in a couple of sectors our projections in 2020 have proved too pessimistic. One was digital advertising, where we expected last year that spending would have been flat between 2019 and 2020, but now estimate that it rose by 5% overall, partly driven by how the major search, ecommerce and social media platforms prospered during this period. The sector’s growth in 2020 – which we expect to accelerate to almost 13% in 2020-2021 – was held back by a 30% drop in classified advertising as many businesses (e.g. estate agents, car dealers) had to close. Another sector where our forecast was too low was video games, where UK revenues surged by 14.5% in 2020, as gaming increased faster than expected in the extended lockdowns (with both new and returning gamers enjoying the chance to immerse themselves in virtual worlds).
In a forthcoming series of “spotlight” articles, we’ll drill down into each of these activities in turn, examining how the UK Entertainment & Media landscape is evolving and what companies should do about it. Stay tuned.