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The end of the digital beginning: The challenge for media companies now lies in how to implement their digital strategies

According to PwC’s latest Global Entertainment & Media Outlook 2012-2016, the UK entertainment and media (E&M) market will grow by 3.1% compounded annually (CAGR) from 2012 – 2016 to a value of £63 billion.  In 2011, the UK had the second largest E&M market in EMEA at £54 billion. 

The only segment of the UK market set again for double digit growth over the period (2012-2016) will be internet advertising, at 12% CAGR. In 2011, the UK was the leading internet advertising territory in EMEA, at £4.96 billion and this will grow to £8.75 billion in 2016, representing almost half of the UK’s total 2016 advertising market.

Television continues to be an important medium with advertising – broadcast and online/mobile TV together – set to grow at 2.2% CAGR to £4.1 billion and TV subscriptions to grow by 4.9% CAGR to £6.8 billion in 2016.

The UK has the largest video game market in EMEA, at £2.43 billion in 2011 and the UK is expected to maintain its dominance, growing 4.4% to £3 billion in 2016.

Newspapers still represent a significant market at £5.7 billion in 2011, but this market fell by 8% last year, reflecting an 11.1% decrease in print advertising and a 6.1% decrease in print circulation spending. Continued declines in print circulation and near-term decreases in print advertising will lead to a 1.6% compound annual decrease during the next five years to £5.25 billion in 2016.

Despite the ongoing economic uncertainty, the past year has seen global sales of tablets and smart devices reach record levels once again, underlining the growing revenue opportunities from digital delivery of E&M content and advertising to increasingly connected, and particularly mobile, consumers.

Digital is now embedded in business as usual, as digital moves to the heart of many media companies, and presents the greatest opportunity for growth going forward.

Phil Stokes, lead entertainment and media partner at PwC, said:

“The various segments of the E&M sector are at different stages of digital development, but in all cases, digital is now embedded in day-to-day business.  Consumers are demanding digital content that meets their needs – which are increasingly for on-demand entertainment, education and information on mobile devices – and companies have moved past initial experimentation and into a new normal.

“E&M companies have reached what we’re calling the ‘end of the digital beginning’: they’ve made the commitment to a digital future, and are now striving to make the necessary changes to their products, distribution and organisations to deliver sustainable – and profitable – growth.”

To do this successfully, E&M companies need to make clear and committed choices about what role or roles they should play in the digital value chain, and understand and harness the rapid and irreversible changes underway in the behaviour of consumers and employees.

These behavioural changes are driving three parallel global shifts in industry value:

From print to digital: E.g. electronic books’ share of total spending on consumer and educational books will rise from 5% in 2011 to 18% in 2016 (globally).

From fixed to mobile-driven consumption: Mobile internet access increased from 26% of total internet access spending in 2007 to 40% in 2011 – and will account for 46% in 2016 (globally).

From West to East, and North to South: Total E&M revenue growth, during the next five years, in the East (Central and Eastern Europe/Asia Pacific) will average 7.2% compounded annually, compared with a 4.3% CAGR for the West (North America/Western Europe). And growth in the South (Latin America/Middle East/Africa) will average 10% compounded annually—more than twice the 4.5% CAGR in the North (North America/Europe).

Against this background, the reshaping of the industry will focus around three perspectives:

Consumers: The creation of more-compelling, more-immersive, and increasingly shared experiences by understanding what connected consumers want—by finding the right little data amid the big data.

Advertisers and value chain partners: The design of new business models that reinvent and expand the value proposition of advertising through innovation.

The industry: Development of the right organisational and operational models to understand and harness new behaviours inside and outside organisations in order to grow their revenues and/or margins in the ‘new normal’.

In the face of sweeping change and uncertainty, the E&M industry has spent the past few years seeking effective business and operating models for the new world, through a cycle of constant experimentation, ongoing innovation and targeted analysis of the results. This will continue. But with digital now at the core of business-as- usual, PwC believes that experimentation and execution are no longer sequential but will proceed in parallel, enabling E&M companies to press ahead into the ‘new normal’ with confidence.

Phil Stokes, lead entertainment and media partner at PwC, said:

“The new world is hugely more complicated than the old world and companies have to work harder and faster to stay relevant to consumers.  However, we’ve reached a time when talking specifically about ‘digital’ increasingly misses the point.  As digital becomes a fully-established part of structures within companies and the services offered to consumers, its rising penetration ceases to be a topic for discussion in itself.

What matters now is how companies capitalise on it and operate within it.”

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