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Entertainment, media companies to grow to $2.2 trillion in 2012; face collaboration imperative: PwC news
18 June 2008

Entertainment and media (E&M) companies hoping to drive growth over the next five years will need to accommodate dramatic changes in devices, market and consumer behaviour through striking strategic business alliances, according to PricewaterhouseCoopers' Global Entertainment and Media Outlook: 2008-2012, released today.

The report also underscores the importance of continuing to extract revenues from traditional business segments while emerging technologies continue to solidify their consumer position. The highly anticipated annual report pegs global compound annual growth rate (CAGR) at 6.6 per cent  for the sector, anticipating it reaching $2.2 trillion in 2012.

''We're seeing a new business model solidify for entertainment and media companies,'' said Marcel Fenez, managing partner, global entertainment and media practice, PricewaterhouseCoopers. ''Some, such as the film industry, have dabbled in this in the past, but those will be small movements compared to what lies ahead. No single company will be able to successfully go it alone over the next five years. The challenges are too significant and the demand for innovation too complete.''

Strategic alliances will replace vertical integration Several critical technologies are now reaching tipping points that will deeply influence both the pace and direction of entertainment and media growth over the next five years. Broadband penetration continues to accelerate globally. Mobile is gaining ground quickly - adding subscribers and upgrading infrastructure to enable the next wave of mobile expansion, driven by internet access, advertising and television. Modern movie houses, digital cinemas and 3-D upgrades are enhancing the cinema-going experience, while high-definition television subscriptions and a resolution of the high definition DVD format wars will invigorate digital living rooms. The impetus behind these new technologies is rarely established companies. The global broadband boom continues unabated, fuelling overall growth, and more than doubling again to 661 million households in 2012, a 16.4 per cent  compound annual increase.

While digital and mobile are driving growth, established and traditional business segments will continue to dominate revenues, with the exception of recorded music, where digital distribution will surpass physical distribution in 2011. Although digital and mobile distribution comprised only 5 per cent  of global E&M spending in 2007, these revenues will account for 24 per cent  of all growth throughout the industry during the next five years. By 2012, digital and mobile revenues will account for just 11 per cent  of total E&M spending, or $234 billion of the $2.2 trillion global market.

Health of media is driven by the 'net generation' and maintained by consumers over the age of 50 The net generation continues to set the pace and direction of change in the entertainment and media industry while exhibiting an influence that is driving new business models that are revolutionizing the relationship between companies and their customers. As they make these technologies regular components of their everyday lives, the net generation is also driving the technology engagement of prior generations, connecting older generations with the latest trends in emerging media technology.

What is more, this is truly a global phenomenon that companies are increasingly paying attention to. Consider: In the BRIC countries, people under the age of 25 comprise at least 31 per cent  of the countries' total populations 43 per cent  in Brazil, 31 per cent  in Russia, 50 per cent  in India and 38 per cent  in China. Meanwhile, in the United States, people under the age of 25 represent 34 per cent  of the total population. The imperative, then, is that companies must expand their global reach to young people who will propel spending on Internet access and digital entertainment and media during the coming years.

Meanwhile, consumers over the age of 50 are creating a balance in the industry by devoting significant amounts of attention to the more traditional media of their generation as the Net Generation drives growth in digital and mobile entertainment. In every region of the world except EMEA, the 50+ population will see double digit growth rates and globally, this population will increase from 1.1 billion to 1.25 billion, a 13.1 per cent  rise through 2012. This growth will help sustain traditional formats even as this generation becomes increasingly interested in the platforms embraced by their children and grandchildren.

Over the next five years, Asia Pacific and Latin America will be the fastest growing regions. Double-digit increases are expected in each region for Internet advertising, Internet access spending, TV subscription and license fees, casino and other regulated gaming and video games. Latin America will total $85 billion in 2012, up from $51 billion in 2007, advancing from a relatively small base at 10.6 per cent  CAGR. Meanwhile, spending in Asia Pacific will average 8.8 per cent  CAGR, the second highest of any region, increasing from $333 billion in 2007 to $508 billion in 2012.

EMEA, the second largest market, will expand at a 6.8 per cent  CAGR to reach $792 billion in 2012. Central and Eastern Europe and Middle East/Africa will fuel growth in this territory. Internet advertising, Internet access spending and video games will continue to average double-digit compound annual increases during the next five years.

The US currently remains the largest but slowest growing E&M market, growing at a 4.8 per cent  compound annual growth rate reaching $759 billion in 2012. Internet advertising and Internet access spending will be the only two segments with double-digit growth during the next five years, boosted by continued growth in broadband.

''In the U.S., consumers are taking a preference for free, or heavily discounted, ad-supported content and services in the new digital and mobile environment,'' said Jim O'Shaughnessy, global chairman, entertainment and media practice, PricewaterhouseCoopers. ''This ensures that the importance of advertising will continue to grow both to entertainment and media companies themselves and to their customers.''

As the trend towards globalisation in the entertainment and media industry continues, Brazil, Russia, India and China will remain important sources for growth throughout the entire sector, driven by rising disposable incomes and an increasingly urbanized middle class. In addition, a large and diverse group of countries are also breaking away from the pack. E&M markets across fifteen countries will expand at double-digit annual rates during the next five years, with Saudi Arabia and the Pan-Arab region experiencing the fastest growth. Vietnam will be the world's fastest-growing television subscription and license fee market over the next five years - growing at 29.3 per cent  CAGR.

Colombia will be the fastest-growing entertainment and media market in Latin America. The internet access market in Saudi Arabia and the pan-Arab states will grow at 30.1 per cent  CAGR, rising to $13.8 billion in 2012, surpassing Russia and rivaling France. Internet advertising, internet access spending and TV subscriptions will lead the industry expansion in these territories the broadband household universe will expand at more than 20 per cent  CAGR.

Segment highlights - Growth is driven by the rising value of online and mobile opportunities

While internet advertising growth will moderate from that in recent years, it will see the most robust growth, at 19.5 per cent  CAGR through to 2012. Internet access (12.1 per cent  CAGR), video games (10.3 per cent  CAGR) and television subscriptions and license fees (10.1 per cent  CAGR) will all experience double-digit growth.

More established segments-television advertising (5.9 per cent  CAGR), theme parks (5 per cent  CAGR), casino gaming (6.5 per cent  CAGR), filmed entertainment (5.3 per cent  CAGR) and sports (6.5 per cent  CAGR)-are all set to grow at between 5 per cent  and 7 per cent  compounded annually.

The publishing segments including Newspapers (2.2 per cent  CAGR), Consumer Magazine (3.5 per cent  CAGR), Consumer & Educational books (2.8 per cent  CAGR), Business-to-business publishing (3.2 per cent  CAGR) as well as recorded music (-0.6 per cent  CAGR) face the stiffest challenges, where the declines in physical distribution are at their most significant and growth in digital distribution-although rapid-is struggling to make up for the shortfall.

''Companies are rapidly embracing new and emerging technologies in the entertainment and media industry, while adapting to the demands of the net generation. And rightly so, because it will help to drive their business forward and remain competitive in a marketplace driven by innovation. However, they must also remain focused on managing their traditional businesses, a key component and driver of their revenues. By effectively managing emerging and traditional business lines, they will be able to identify opportunities they can exploit so they can migrate to the new digital environment and meet the demands of the net-generation,'' added Marcel Fenez.

PricewaterhouseCoopers' Global Entertainment and Media Outlook: 20082012, the ninth annual edition, contains in-depth analyses and forecasts of 15 major industry segments across five regions of the globe the United States, EMEA (Europe, Middle East, Africa), Asia Pacific, Latin America, and Canada plus a Global Overview.

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Entertainment, media companies to grow to $2.2 trillion in 2012; face collaboration imperative: PwC