According to latest research from PwC, overall ad revenues will never fully recover from the current recession, while the downturn is exposing digital’s gain on ‘traditional’ media. The upside, however, is that Asia Pacific is leading global growth, with an annual compound growth rate of 4.5 percent to 2013 – compared to a worldwide CAGR of 2.7 percent over the same period
1 August 2009
Over the next five years, digital technologies will become increasingly widespread across all segments of entertainment & media (E&M) as the digital migration continues to expand according to the PricewaterhouseCoopers (PwC) Global Entertainment & Media Outlook 2009-2013.
“The migration of ad dollars to digital has been on-going,” said Marcel Fenez global managing partner, entertainment and media practice PricewaterhouseCoopers, “but masked to some extent when the economy was strong. Now that we are in recession, digital’s gain at the expense of traditional media is very apparent.”
Fenez told Television Asia Plus that advertising revenues will recover, but will never return to pre-recession levels. “This change is not cyclical, it’s structural; there will be nowhere to hide from digital migration. Even by 2013, advertising revenues will still be below 2007 levels.”
As a whole, the global entertainment and media market, including both consumer and advertising spending, will grow by 2.7 percent compounded annually for the entire forecast period to $1.6 trillion in 2013. PricewaterhouseCoopers expects to see a 3.9 percent drop in 2009 and a mere 0.4 percent advance in 2010, with a period of much faster growth during the remaining period to 7.1 percent in 2013. “What we are sure about is that this recession will last longer than previous ones due to a steeper downturn and that the impact on consumer spending will be much steeper than in the past,” say PwC.
Responses to the recession will vary from country to country and region to region with some territories showing little ill effects while others experience steep declines. Together with Latin America, Asia Pacific leads global growth with an annual compound rate 4.5 percent through to 2013 fuelled by growth in China (9.5 percent CAGR), India (10.7 percent CAGR) and Indonesia (12.9 percent CAGR).
In Hong Kong, the overall entertainment and media spending will decline by seven percent in 2009, commence recovery in 2010 and then grow at a compound annual rate of six percent for the period from 2011 through to 2013. The decline in advertising spend which started in the final quarter of 2008 accounts for the majority of the overall decline as consumer spending in the sector proves to be resilient especially in the areas of spending on internet access and subscription television which both grow. Over the period to 2013 the fastest growing segments of the E&M industry will be subscription television (7.3 percent compounded annually), video games (8.5 percent CAGR), filmed entertainment (4.7 percent CAGR) and internet access spending (5.4 percent CAGR).
The migration to digital The economic downturn does not change the underlying drivers for digital migration and will more likely influence their pace and power and hence the timing of industry change. In short, making it more difficult to hide from the digital migration.
During the period under review, the switch to digital will drive divergences in revenue performance between different segments and geographies. Change will impact the managing of brands, characters, titles and talent across distribution platforms supported by new commercial models.
The case for digital migration, however, will continue to vary across geographies depending on the availability of efficient and cost-effective broadband and mobile infrastructure.
Says Fenez, “Every cloud has a silver lining and in this case, it’s a digital one. Companies who grasp the opportunities which are appearing in this fast changing marketplace and are agile enough to adapt their business models will be able to take full advantage of the potential and new revenue models as they emerge.”
Changes in consumer behaviour The accelerated migration to digital technologies has reinforced and proliferated new consumption habits and ‘digital behaviour’ as consumers seek more control over where, when and how they consume content while, more than ever, watching the pennies and seeking the best value from the choices they make. The advances in digital are enabling this with ease.
Consumers are taking control in various ways. They are adopting ‘time-shifting’, using digital video recorders and video-on-demand to free them up from the TV schedule enabling them to watch what they want when they want. Increased broadband penetration is enabling them to get what they want from wherever they want while improvements in technology allow better downloading and streaming. Growth in mobile access is allowing consumers to access the Internet from any location and giving rise to the popularity of high-end devices such as smartphones, iPods, and the Kindle that combine mobility and access. The advances in digital music are also allowing consumers to purchase songs individually through digital channels (unavailable in physical format) and generating growth in sideloading, which allows consumers to buy music less expensively online, then transfer that music to mobile devices.
Tapping into the massive collective buying-power of online communities is an increasingly central focus of consumer marketing campaigns globally. However, companies are still struggling to adapt their current business models to ensure that they are monetizing their digital content and capturing the revenues.
Changes in advertising Over the next five years, as consumers receive an increasing proportion of their E&M through digital/mobile platforms, advertisers will shift their resources to reflect the increasingly fragmented ad market. In the mobile arena, opportunities across the advertising continuum will enable the growth between brands and consumers, ranging from click-through banner ads and pre-roll ads on video clips through coupons and online subscriptions. In Hong Kong advertising spend on-line will grow at a compound rate of seven percent, taking market share from both television and print. However despite such advances and its high level of digital connectivity, Hong Kong remains behind many developed economies in its adoption of digital advertising due in large part to the unique characteristics of the market and strength of traditional media. The trend nevertheless is clear and Hong Kong is likely to increasingly embrace digital advertising as the consumer increasingly moves on-line.
However, the migration reinforces the need for greater transparency and accuracy over audience metrics which together with accountability for ad results, is becoming a “must have” in this new media world. An ability and willingness to collaborate with partners on revenues to open up and exploit new areas, and ongoing cost-sharing to operationalise the shared benefits will also be vital. Going forward the successful models will be those that provide enough product differentiation from free or low-cost substitutes to generate revenue from either consumers, advertisers or, more likely, both.
Embracing the upturn Accelerated digitization coupled with growing divergence between the revenue performance of different segments and markets will create an E&M landscape characterized by a myriad of business models and a far more tailored approach. An approach which works with one particular type of consumer, form of content or national marketplace may not work in others. The current decline in revenues is not because of declining demand. In fact, demand for E&M appears to be increasing. The challenge is to identify ad models that are able to withstand the downward pressure on ad rates in the digital environment and on subscription models that capture the consumers’ preferences for premium content.
Concludes Fenez, “Though operating in challenging and fast-moving times, this has never been such an exciting time for the industry. The accelerating digitization is why there is no place to hide from new models and dynamics across the industry. The winners will be those players who focus on driving and leading change that delivers real value for consumers. Segments will have to consolidate, the least loyal customers will have already left, higher quality products will be valued by both consumers and advertisers, and digital distribution will have become main stream, commanding fees more in line with its value. But for each of the industry’s diverse segments to participate fully in this growth, they will first need to embrace the digital future.”
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