PricewaterhouseCoopers: Entertainment and Media in Strong Position for Growth

Posted on August 5, 2005

The global entertainment and media (E&M) industry is in its strongest position since 2000, and will increase at a 7.3 percent compound annual growth rate (CAGR) to $1.8 trillion in 2009, according to PricewaterhouseCoopers' Global Entertainment and Media Outlook: 2005-2009. Improved economic conditions and an advertising upswing, combined with expanding online distribution of music, films, books and video games, will be key drivers triggering end-user spending.

The Outlook predicts that new spending streams triggered by broadband Internet and wireless technologies will account for a significant portion of total growth in global spending. Total revenues from new spending streams will increase significantly from $11.4 billion in 2004 to nearly $73 billion worldwide by 2009, according to predictions published in the new edition of the Outlook.

The report found that Asia/Pacific will remain the fastest-growing region during the next five years and that China will lead this growth and overtake Japan as the region's biggest market by 2008. Growth in the region will be led by double-digit increases in the Internet, video games, casino gaming, TV distribution and recorded music segments.

The outlook says a favorable economic environment and new spending streams will offset declining categories. Broadband Internet will be the major growth catalyst across all regions, boosting overall Internet access spending and creating new opportunities for online advertising and making it easier to conduct online transactions. In addition, entertainment companies are increasingly licensing a greater amount of content to digital distribution services, which will help to alleviate the negative impact of piracy.

Online and wireless games are the fastest-growing components of the video game market, and online film rental subscriptions will boost the home video rental market. Electronic books represent a small but expanding area that will bolster the professional and college book markets and provide new distribution opportunities for consumer books. Video-on-demand (VOD) and satellite radio are emerging new spending streams contributing to growth.

Here are the key findings for each segment according to a release from PricewaterhouseCoopers.

Recorded Music: In 2004, the recorded music market finally reversed course and grew by 5.7 percent to $38 billion. Ring tone spending and an expanding digital distribution market are the biggest growth drivers. Globally, recorded music spending will rise at an 8.3 percent CAGR to $56 billion in 2009. Spending in the U.S. will rise to $18.8 billion in 2009, an 8.0 percent CAGR.

Filmed Entertainment: Rising DVD household penetration and DVD sell-through will continue to drive home video spending, but generally at the expense of in-store rentals. An emerging online film rental subscription market will buttress rental spending, but continued piracy will cut growth, particularly in Asia/Pacific and Latin America. Box office in EMEA, Asia/Pacific, and Latin America will benefit from modernized theaters and more screens. Nevertheless, as the DVD hardware market begins to approach maturity, growth will moderate. Spending will increase at a 7.1 percent CAGR, rising to $119 billion in 2009.

Internet Access & Advertising: Broadband will be the principal driver of access spending during the next five years and will surpass the dial-up market. There is still huge potential for subscriber growth in Asia/Pacific, where access spending is expected to more than triple. In the U.S., EMEA and Canada, however, penetration is approaching saturation, and access spending will slow. Internet advertising will grow rapidly, fueled by an expanding broadband subscriber base and ad formats geared to broadband, such as keyword search and full-motion video. Spending is expected to more than double during the next five years, increasing to $289 billion in 2009, growing at a 16.9 percent compound annual rate.

Television Networks (Broadcast and Cable): Digital television will add to the number of outlets and fuel multi-channel advertising, which will be the principal driver. Public TV license fees in EMEA and Asia/Pacific will continue to be slow-growing components of the market. Spending will increase at a 6.0 percent CAGR annually to $204 billion in 2009 from $152 billion in 2004.

Television Distribution (Station, Cable and DBS): Subscription TV household growth will drive spending in Asia/Pacific, Latin America, and EMEA, while saturated markets will dampen growth in the United States and Canada. VOD and pay-per-view will contribute to growth in the United States, EMEA and Canada, but piracy will remain a problem, particularly in Asia/Pacific and Latin America. The market will reach $210 billion in 2009 from $146 billion in 2004, a 7.4 percent compound annual increase.

Video Games: After a drop to single-digit growth in 2005 as the current generation of consoles enters its last year, growth will ramp up in 2006 as the next generation of console hardware is introduced, leading to a new round of console game software spending. Online and wireless will become important distribution channels for video games, helped by growing broadband penetration and new mobile phones that will be used as much for entertainment as for communication. Overall, the video game market will expand at a 16.5 percent CAGR to $55 billion in 2009 driven by growth in Asia/Pacific, the largest market.