PWC Forecasts Growth For Global Entertainment and Media

Posted on June 6, 2001

Buoyed by the growing importance of the Internet as a distribution medium, and overcoming the 2001 U.S. economic slowdown, the global entertainment and media industry will reach $1.2 trillion by 2005, growing at a 7.2 percent compound annual rate. These predictions were published in the latest edition of the annual PricewaterhouseCoopers Global Entertainment and Media Outlook: 2001-2005.

Notwithstanding the recent drop in Internet sector market values, the Outlook finds the Internet to be as compelling a distribution medium in 2001 as it was in 2000. Growing consumer demand for online music, books, newspapers, and magazines, coupled with increased broadband Internet access, will allow online distribution of filmed entertainment to become a reality. Over its five-year forecast period, the Outlook sees the industry developing new business models that will stimulate the conversion from free distribution to paid Internet subscriptions, while solving copyright issues.

``The Internet now plays a key role in the business model of virtually every entertainment and media industry segment,'' notes Kevin Carton, Global Leader of PricewaterhouseCoopers' Entertainment & Media Practice. ``As with any new distribution model there is some turbulence, but we believe in the Internet's transformational impact on this industry -- particularly as a distribution medium given increasing broadband and wireless access. Online distribution of content will continue to be a principal driver of growth, creating opportunities throughout all segments of the entertainment and media industry, which in itself is a key component of the world economy.''

Carton also noted that, ``Double-digit Internet advertising and access spending growth will not only drive the U.S. market with a 14 percent CAGR by 2005, it will also be the fastest growing segment globally over the next five years.''

The benefits to the survivors of industry consolidation will continue to be substantial. The ability of global media players to distribute their product and content throughout the world will make media companies stronger and better able to provide advertisers with efficient and cost-effective platforms to reach consumers -- particularly valuable niche audiences. Expanded reach of operations across different types of media, industry segments and national boundaries has positioned these companies to attract more advertising, and will benefit advertisers who have historically paid a premium for extended reach.

Key findings concerning the future of the entertainment and media industry, by segment, include:

Filmed Entertainment -- Spending worldwide will rise at a 6.6 percent CAGR, reaching $93 billion by 2005 from $68 billion in 2000. Expect Latin America to be the fastest-growing region, posting a 10 percent CAGR, as theater expansions and modernizations fuel double-digit growth in box office spending. The U.S. market should reach $55 billion by 2005, as home video sell-through and increases in television program spending offset modest box office growth. A reduction in the number of screens, the result of oversaturation, will hurt admissions in the near term. Explosive growth in DVDs will fuel both the sell-through and the rental home video markets in all regions.

Television Content (Broadcast and Cable Networks) -- The market will reach $168 billion in 2005 from $107 billion in 2000, growing at a 9.4 percent compound annual rate. Overall television watching has actually increased, attracting advertising dollars to the market and dispelling reports that the Internet has cut into television viewing. Interactive television will gain a foothold in the market, but it will be used in conjunction with scheduled programs rather than as a substitute. Digital and satellite television will become a factor in many of the markets in 2001.

TV Distribution (Station, Cable and DBS) -- With a 7.8 percent CAGR, spending will reach $221 billion by 2005. Asia/Pacific ($36 billion in 2005) and Latin America ($9 billion in 2005) will be the fastest-growing regions, fueled by large increases in multichannel penetration. The U.S. will be the slowest-growing market, with a CAGR of 6.9 percent. Sluggish growth in television station advertising will offset rising DBS and digital cable subscriptions. Subscriber growth and household spending will be boosted in EMEA by the introduction of new services including digital cable, Internet access and telephony.

Recorded Music -- Spending will grow at an estimated 5.1 percent compound annual rate over the next five years, reaching $49 billion in 2005. Latin America will be the fastest-growing region, with a CAGR of 11.8 percent, due to the economic recovery and successful efforts to stem piracy. In the U.S., fee-based online distribution of music, primarily through subscriptions, will become a significant factor in the market over the next two years, though physical distribution will remain dominant. The music business in the U.S. and European markets is relatively flat or growing slowly. Growth will come from new markets in Eastern Europe, Latin America and smaller Asia/Pacific countries, and from online digital distribution.

Internet Advertising and Access Spending -- Double-digit growth is expected in all regions, with overall spending jumping from $40 billion in 2000 to $90 billion in 2005 for a CAGR of 17.5 percent. Latin America, the smallest market, will be the fastest growing, with a projected 40.6 percent CAGR, followed by Asia/Pacific at 26.3 percent CAGR. Streaming media will revitalize the Internet advertising market and online retailers will integrate their activities with catalog and brick-and-mortar outlets to incorporate the benefits of traditional retailing. The U.S. market will reach $38 billion by 2005, for a CAGR of 14 percent.

Magazine Publishing -- Spending will grow at a 5.8 percent CAGR, increasing from $84 billion in 2000 to $111 billion in 2005. After a huge year in 2000, the U.S. market will grow by only 1.7 percent in 2001 due primarily to a slowdown in the economy and the loss of dot-com and tobacco advertising. Latin America will be the fastest-growing region, as big advertising and circulation gains push the market to an 11 percent CAGR.

Newspaper Publishing -- Newspaper publishing globally will increase from $155 billion in 2000 to $197 billion in 2005, for a CAGR of nearly 5 percent. Mid-single-digit increases are anticipated in each region except Latin America, where growth will be at a 9.5 percent compound annual rate, boosted by an expanding economy and circulation growth stemming from rising literacy rates and employment. The Internet is proving to be an engine of growth and an effective companion for newspapers, attracting new readers and additional advertising, and driving print subscriptions. Favorable demographic trends in many regions will lead to a turnaround in overall circulation beginning in 2003.

Book Publishing -- Across all regions, spending will expand at a 4.2 percent CAGR, rising from $85 billion in 2000 to $105 billion in 2005. Latin America will be the fastest-growing region -- with a CAGR of 9.1 percent -- as governments make a concerted effort to promote education and literacy. U.S. book spending will total an estimated $39 billion, compared with $35 billion in EMEA. Electronic books will become a significant component of the U.S. industry, accounting for 30 percent of spending on professional books by 2005, 28 percent of college textbooks, and 11 percent of consumer books.



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