8 May 2017
PwC’s Global entertainment and media outlook 2017 – 2021 highlights the changes of an industry being disrupted. Both globally and locally we continue to see significant changes in how consumers and advertisers spend their time and money.
“The trends and consumer behaviour we see unfolding in NZ are largely in line with global trends, with a slight lag,” says Greg Doone, PwC Director, Digital Strategy. “The influence of millennials and younger generations on the consumption of digital media is also being widely felt. They seek free media, to stream music, watch videos on YouTube and consume free news. And as they become the dominant demographic, these habits look set to stay with them.”
When asked about the threat of industry disruption, 23% of all the leaders who responded to PwC’s annual CEO Survey said technology will reshape their industry over the next five years. But the proportion of entertainment and media CEOs who shared this sentiment was more than twice as high at 56%.
“We see that technological changes in the E&M industry present opportunities for innovative products and business models that revolve around the consumer. From established innovation such as Netflix through to emerging segments such as virtual reality and e-sports with rapid growth at a global level. For NZ this presents an opportunity we could explore quickly because there is unprecedented growth in markets such as China where we have established networks,” says Mr Doone.
Major digital tipping-points across key segments, global and local
Internet Video - In NZ the internet video segment is taking off as the major international players launch and bring premium original content that has been heavily pirated in the past. Despite growth of 15.6% CAGR (compound annual growth rate) producing revenues of $85 million [US$59m] in 2021, this will remain less than half the size of the physical home video market for DVDs and Blu-rays. The physical market is in long-term decline and the gap between the two will continue to narrow as OTT platforms establish themselves.
“Internet video streaming services appeal to many, but specifically to a generation who have never had to rent a video or buy a CD. For media companies, this generational change isn’t about just keeping up with technology but anticipating consumer needs and creating an excellent user experience,” says Mr Doone.
Global internet video revenues will overtake physical home video in 2017. The internet video segment has expanded rapidly in recent years, and will overtake the physical home video market for the first time in 2017. Global internet video revenues are projected to grow at a CAGR of 11.6% to reach $52.7 billion [US$36.7bn] in 2021, while the terminally declining market for DVDs and Blu rays will have fallen to $19.9 billion [US$13.9bn]. Demand has shifted towards the more immediate and convenient video-on-demand (VOD) market, with content accessible via a wide range of connected devices allowing consumers to view when and where they desire. While there remains a strong market for ownership of content through transactional VOD (TVOD) services, growth will be mainly focused on subscription VOD (SVOD) platforms, with subscribers attracted to full seasons of original content and back-catalogues they can binge view.
Internet advertising - New Zealand’s internet advertising market reached $891 million [US$620m] in 2016, just shy of the TV mark. Advertising dollars will continue to shift online, and growing at a CAGR of 9.0%, the market will reach $1.4 billion [US$953m] in 2021, overtaking TV in 2018.
Search engine marketing makes up a significant portion of this in NZ. More than half of New Zealand’s total internet advertising revenue in 2016 was generated by paid search. According to Alexa (Amazon’s intelligent personal assistant), Google is the leading search engine and little competition in the market has pushed up the average cost-per-click (CPC) on Google’s AdWords.
“The data we have shows that global spending on advertising is growing faster than consumer spending but what is worrying traditional media is that advertiser spending on the digital side flows disproportionately to a few large platforms like Facebook and Google,” says Mr Doone.
Internet advertising now generates more revenue than TV advertising globally. In 2016 an important tipping point was reached in the global advertising industry, with revenue from Internet advertising exceeding that generated by TV advertising for the first time. That lead, thanks to the rapid growth of mobile ad revenues in particular, is set to increase significantly in the next five years. Mobile advertising grew by 54% in the past year. Through 2021, that number will grow at a 17.1% CAGR.
Newspaper circulation - New Zealand’s newspaper market will continue to endure pronounced revenue contraction, as publishers struggle to find a solution for declining paid subscribers and to solve a marked deterioration in advertising revenue.
Print copies are shedding circulation at a -10.5% CAGR, meaning circulation numbers will more than halve between 2012 and 2021, to 246,000 daily copies, though price rises and the introduction of digital charges will mitigate some of the associated revenue decline.
But advertising is in freefall, as media buyers follow consumers away. More New Zealanders now use the internet at breakfast than read a newspaper, according to one study. New Zealand publishers have long operated popular online services like Stuff.co.nz, and cross-platform reader strategies are successful, with more than half of each major title’s audience now coming via web or app. But monetisation is proving elusive – digital advertising revenue made up just 13.6% of total newspaper advertising revenue in 2016 and is forecast to grow by only 2.8% CAGR.
“Publishers say they are challenged by the dominance of Facebook and Google in online ad sales. The industry’s prospects will depend on publishers’ ability to convert audiences into revenue, as well as on ownership structure,” says Mr Doone.
Global newspaper circulation revenue overtook global advertising revenue in 2016. While newspaper circulation revenue has been on a downward trajectory since 2015, publishers have had the useful lever of cover price rises to partly offset the rapid fall in units. However, the year-on-year falls in newspaper advertising revenue have been more pronounced, with advertisers deserting print editions in large numbers, and publishers increasingly being squeezed out of the digital ad space by Google and Facebook. The upshot is a historic shift in the dominant revenue streams, as newspaper circulation eclipses advertising. By 2021, global total newspaper circulation revenue will account for 54% of total newspaper revenue.
Radio Revenue - New Zealand’s total radio revenue reached $290 million [US$202mn] in 2016, up just 0.9% on the previous year. The market is made up of radio advertising revenue only and growth is expected to remain weak over the forecast period. With a forecast CAGR of 0.4%, total radio advertising revenue will amount to US$206mn in 2021.
Consumers are increasingly going online and mobile, and digital strategies are becoming important to broadcasters. For example, MediaWorks announced it will launch a digital audio streaming platform in 2017 that will bring together all their radio stations in one place.
“Radio has traditionally proved to be resilient to the disruptive forces in play across the rest of the media landscape. This forecast points to a slight weakening, but ultimately a continuation of this stability,” says Mr Doone.
As the third-largest global radio market behind the US and Germany in terms of revenue, China will drive growth in the Asia Pacific region with a 4.5% CAGR over the next five years to reach $4.2 billion [US$2.9bn] in total radio revenue in 2021. The region itself will grow at a 3.5% CAGR from $9.1 billion [US$6.3bn] in total radio revenue in 2016 to $10.8 billion [US$7.5bn] in 2021.
Global total radio revenue grew by 2.5% in 2016 to reach $63.4 billion [US$44.1bn]. The main source of revenue (75.9%) was radio advertising, which amounted to $48.1 billion [US$33.5bn] in 2016. Radio advertising revenue is forecast to increase globally between 2016 and 2021 at a 2.0% CAGR to reach $ 53.2 billion [US$37.0bn], with its share of total global radio revenue falling a little to 75.6%. Overall the outlook for the global radio market remains positive. It is forecast to increase at a 2.1% CAGR over the next five years, to reach total radio revenue of $70.3 billion [US$49.0bn] in 2021.