Dramatic shifts are underway on how entertainment and media (E&M) companies compete and generate value, as the quality of the experience they deliver to consumers becomes their primary basis for strategic differentiation and revenue growth.
To thrive in a marketplace that’s increasingly competitive and crowded, companies are developing strategies and building capabilities to engage and monetize their most loyal and passionate users — their fans.
According to PwC’s Global entertainment and media outlook 2017-2021, this means they must combine compelling content with breadth and depth of distribution, then connect it all to a great user experience, where content is easily discoverable on an array of screens and at an attractive price.
Rapid advances in technology drive D2C strategies
As companies compete to create the most desired user experiences, advances in technology are at the heart of their strategies. Combined with great user experience, companies can harness technology and data to create a virtuous circle – one in which increasing consumer engagement and attention lead to the capture of more data and more insights into what users want. This understanding allows companies to further target and engage their core audiences, opening up new opportunities to generate revenue. Increasingly, the models used to achieve this monetization are founded on direct-to-consumer (D2C) strategies, which are enabled by technology and characterized by greater choice and user control.
E&M growth will lag GDP as advertising comes under pressure
The focus on realizing new revenues by turning consumers into fans is being intensified by a slowdown in overall E&M industry growth and pressures on advertising models. This slowdown reflects pressures on ad-supported business models – consumers now prefer ad-free experiences and advertisers are dissatisfied with the current measurement capabilities available with digital media. While advertisers are still willing to spend, growth in ad spend is now overwhelmingly driven by internet advertising.
Mobile advertising is growing apace – but still needs better measurement practices
Growth of internet advertising is being powered by mobile advertising, which grew 58.7 percent in the past year, and will continue to expand at an 18.5 percent compound annual growth rate (CAGR) through 2021. However, without accepted measurement practices that can provide transparency on the efficacy and efficiency of the major platforms, premium brands are reluctant to take on the perceived risks inherent in concentrating more of their advertising in digital mediums.
Major digital tipping-points are occurring, or in prospect across all segments globally…
• Internet advertising now generates more revenue than TV advertising globally. In 2016, an important tipping point was reached in the global advertising industry. Revenue from internet advertising exceeded that generated by TV advertising for the first time. That lead – thanks to the rapid expansion of mobile ad revenues in particular – is set to increase significantly in the next five years. Both platforms are important to consumers, so brands seeking to engage future audiences effectively will need to keep developing and growing their ability to plan, deliver and measure coordinated campaigns across multiple platforms.
• Internet video revenues will overtake physical home video in 2017. The internet video segment has expanded rapidly over recent years, and will overtake the physical home video market for the first time in 2017. Demand has shifted toward the more immediate and convenient video-on-demand (VOD) market, with content accessible via a wide range of connected devices, allowing consumers to view when and where they desire.
• Global newspaper circulation revenue overtook global advertising revenue in 2016. While newspaper circulation revenue has been on a downward trajectory since 2015, publishers have had the useful lever of cover price rises to partly offset the rapid fall in units. However, the year-on-year falls in newspaper advertising revenue have been more pronounced, with advertisers deserting print editions in large numbers, and publishers increasingly being squeezed out of the digital ad space by Google and Facebook.
• In 2016, total digital recorded music revenue overtook physical – and streamed music overtook downloads. The digital recorded music segment was worth US$10.7 billion in 2016, surpassing that for physical recorded music, at US$8.5 billion, for the first time. Music streaming services grew apace during 2016, pushing global digital revenues up by $1.8 billion year-on-year, or 20.3 percent, as the physical segment declined 9.6 percent. While digital recorded music accounted for 55.7 percent of overall recorded music revenues in 2016, that proportion is set to rise to 80.3 percent in 2021.
• Smartphone traffic will exceed fixed broadband data traffic in 2020. Although mobile usage is a key driver of growth in overall data traffic, fixed broadband will continue to account for the majority of data. Many consumers still prefer to access data-heavy content – notably high-quality video – via fixed broadband rather than their mobile device. But the shift toward the smartphone will continue, especially in developing markets, so that by 2020, overall smartphone data traffic will exceed fixed broadband data traffic for the first time.
Amid shifting consumer preferences, rapid advances in technology and ongoing disruption to business models, the new strategic imperative for E&M companies is to turn customers into fans – by innovating to create the most compelling, engaging, and intuitive user experiences – as Deborah Bothun, PwC Global Entertainment and Media Leader, comments:
“A raft of changes in technology, user behavior and business models have opened up a gap between how consumers want to experience and pay for E&M offerings, and how companies produce and distribute them.
The right user experience bridges this gap. To deliver it, companies must pursue two related strategies. First, build businesses and brands anchored by active, high-value communities of fans, united by shared passions, values and interests. And second, capitalize on emerging technologies to delight users in new ways and provide superior user experiences.”
Nelson Charsegun L. Aquino is an assurance partner at Technology, Information, Communication and Entertainment (TICE) and methodology leader. Email your comments and questions to firstname.lastname@example.org. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.