Emerging markets and the net drive advertising spend

Emerging markets and new media, including the internet, have shown the largest growth in media spend and experts predict even further growth in this sector according to a Global Media Forecast released by PricewaterhouseCoopers (PwC).

The special report on global entertainment and media forecast, now in its ninth year, marks emerging-market growth, in addition to unprecedented established-market gains.

The report pegs global compound annual growth rate (CAGR) at 6.6 per cent for the sector, anticipating it to reach $2.2 trillion (Dh8.08trn) in 2012.

"We're seeing a new business model solidify for the entertainment and media companies," said Marcel Fenez, Managing Partner, Global Entertainment and Media Practice, PwC. "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."

Internet advertising and spending posted notable gains during the past 18 months, and is projected to steadily increase over the next five years. In general, and with the exception of the lapsing recorded-music sector and a struggling newspaper market, the media industry has done well for itself of late.

PwC estimates total global media and entertainment spending rose 6.4 per cent in 2007, with internet-access spending in particular posting a 16.7 per cent increase.

PwC's Global Entertainment and Media Outlook: 2008–2012, 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. 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 the special report.

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 five-yearly report takes a look at the forecasts for several of the media market's largest sectors, including internet-access spending and internet advertising, TV advertising and subscriptions, newspaper and magazine publishing, radio and out-of-home advertising, and recorded music, film and video games.

Advertising on the net also witnessed an unprecedented growth of 33.2 per cent in 2007, significantly surpassing prediction by industry experts by almost five per cent. Experts credit increasing availability of wired and wireless broadband in driving spending, thus upping the allure of advertising.

Through 2012, internet-access spending is expected to see double-digit growth globally, reaching $340.9 billion by the end of the five-year period. That is a big jump, even by industry standards, from the $85.7bn seen in 2003. Advertising on the web is likewise expected to surge, rising by 22.1 per cent to reach $77.1bn next year. By 2012, that number will almost double to $120.3bn.

Infrastructure upgrades are the chief catalysts in the Saudi Arabia/Pan-Arab region (including the UAE, Egypt, Kuwait, Qatar and others), where countries are expected to post the greatest growth in entertainment and media markets – 19.1 per cent annually.

Emerging markets in various parts of the world including India (18.5 per cent), Indonesia (18.1 per cent) and Turkey (16.7 per cent) recorded the fastest growth and seem to be climbing at a steady pace, says the report.

Competition across the board has reduced pricing for basic wired broadband services, and as a result, spending for such services is expected to reach $209bn in five years. Coupled with wireless network upgrades and 3G service rollouts accounting for $118bn in that same time frame, the overall internet-access market is set for a 12.1 per cent expansion.

Internationally, a handful of countries bear watching, including Pakistan, China, Colombia and the Philippines. The PwC report cites "strong economic expansion" in the media-related increases expected in these and other growing markets abroad.

The internet-access market in that region is forecasted to grow at a 30.1 per cent annual rate, rising to $13.8bn by 2012 – figures that exceed both the Russian and French markets.

New technologies are now influencing both the pace and direction of entertainment and media growth over the next five years. Broadband penetration continues to accelerate globally. The mobile sector is gaining ground quickly – adding subscribers and upgrading infrastructure to enable the next wave of expansion, driven by internet access, advertising and television.

Modern movie houses with 3D and digital capability 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 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 five 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 $234bn of the $2.2trn global market.

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 revolutionising the relationship between companies and their customers. This is truly a global phenomenon that companies are increasingly paying attention to. Consider: In the BRIC (Brazil, Russia, India and China) countries, people under the age of 25 comprise at least 31 per cent of their total populations – 43 per cent in Brazil, 31 per cent in Russia, 50 per cent in India and 38 per cent in China.

As for the conventional media and advertising on the small screen, it picked up by 3.7 per cent last year, and is expected to touch $216bn in 2012. Subscription and licence fees likewise are experiencing growth. A global estimate puts the value at $280.7bn in 2012, an increase of more than $107bn from 2007.

Print media maintained a pinnacle with a marginal increase of 0.1 per cent in 2007 to $186bn globally. In the next five years, international newspapers will post stable figures, growing at a 2.2 per cent compounded annual rate to $208bn.

The US, however, showed signs of recession in the print media also. Newspapers suffered a drop of 6.7 per cent, down from almost $60bn in 2006 to $55.8bn. Steady margins over the next five years will ultimately see a 2.4 per cent upswing for the US in 2012 – all the way to $53.8bn – but not before more losses.

While consumer magazine publishing is still doing better than its newspaper counterpart, the industry only enjoyed a 2.1 per cent increase globally in 2007, resulting in $80.2bn for this sector. A 3.5 per cent compound annual rate of expansion is expected through 2012 to a total global take of $95bn.

Age is also coming to the rescue of conventional media. 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-plus 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.

Spending in Asia Pacific will average 8.8 per cent CAGR, the second highest of any region, increasing from $333bn in 2007 to $508bn in 2012.

EMEA, the second largest market, will expand at a 6.8 per cent CAGR to reach $792bn 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.

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 sector, driven by rising disposable incomes and an increasingly urbanised middle class. In addition, a large and diverse group of countries are also breaking away from the traditional pack.

The internet-access market in Saudi Arabia and the pan-Arab countries will grow at a 30.1 per cent CAGR, rising to $13.8bn in 2012, surpassing Russia and rivalling France. Internet advertising, internet-access spending and TV subscriptions will lead the industry expansion in these territories.