Global entertainment and media (E&M) industry spending will increase at a 6.3 percent compound annual growth rate (CAGR) to $1.7 trillion in 2008, according to a PricewaterhouseCoopers report released Tuesday.
The industry's positive momentum will be sparked by an impressive 9.8 percent CAGR for the Asia/Pacific regional E&M market, and globally by improved economic conditions, the availability of new distribution channels, and continued adoption of next-generation technologies.
After three years of sluggish growth, the E&M industry has begun a solid upturn, with spending rising 4.2 percent in 2003 to $1.2 trillion, and growth prospects looking brighter now than they have since the late 1990s.
Growth will pick up to 5.7 percent globally in 2004 and sustain faster increases through 2008, according to predictions published in the new edition of the annual PricewaterhouseCoopers GLOBAL ENTERTAINMENT AND MEDIA OUTLOOK: 2004- 2008.
"After a few years of economic uncertainty, our projections for industry growth are encouraging across the board, highlighted by particularly swift gains in the video games and Internet advertising and access spending segments," said Wayne Jackson, Global Leader of PricewaterhouseCoopers' Entertainment & Media Practice.
"However, while the global outlook is stronger than in the previous few years, budgetary pressures such as rising energy costs and increased defense and domestic security spending will limit the resources available to the entertainment and media industry."
Asia/Pacific is emerging as a key driver of E&M industry growth fueled largely by the People's Republic of China (PRC) and India, both of which are investing heavily in communications and media infrastructure and opening up their markets.
Both countries have huge populations and low media penetration, providing significant room for expansion. The Asia/Pacific region's video games and Internet segments will be the world's largest and fastest-growing, and television distribution will benefit from the addition of 96 million multichannel households in India and the PRC.
"We're expecting Asia/Pacific to be the fastest-growing region in the world during the next five years as a result of several exciting opportunities for industry growth and expansion, particularly in China and India," said Marcel Fenez, Asia/Pacific Leader of PricewaterhouseCoopers' Entertainment & Media Practice.
"Although piracy remains a negative force, efforts to stem its affects combined with domestic and foreign industry investments will drive growth in the region."
The five-year outlook for Europe, the Middle East and Africa (EMEA) will be divided between rapidly growing segments and slow-growing segments.
Driven by penetration of new technologies and broadband, industry segments including filmed entertainment, TV distribution, the Internet and video games will average double-digit growth compounded annually through 2008.
Even music, after years of negative growth, will expand due to licensed digital distribution and recovery of CD sales model.
"The pace of growth in EMEA will soon begin to quicken buoyed by a few segments that will experience significant growth," said Robert Boyle, European Leader of PricewaterhouseCoopers' Entertainment & Media Practice.
"New distribution channels and technologies - such as broadband, mobile communications and digital products like the DVD - will continue to contribute to growth in every industry segment."
Principal E&M Drivers
The E&M industry is experiencing a major shift in the way entertainment is distributed, with new distribution channels, such as broadband Internet access and wireless communications, driving significant growth in the industry.
During the next five years, the number of broadband households will grow at a 31.3 percent CAGR, surpassing the 300 million mark for the first time in 2008.
This shift will start to positively impact a number of industry segments, such as recorded music. The music segment had its fourth consecutive year of decline in 2003, hurt by unauthorized downloading of music from the Internet and CD burning.
Legal measures against piracy, lower prices, and an improved economy will help start turning the music industry around in 2005, with a projected 2 percent CAGR for the 2004-2008 period.
"The Internet has evolved into a vital distribution channel, despite piracy issues faced by the music and movie industries," stated Mr. Jackson.
"In 2003, licensed online music services began acquiring paying customers, showing that consumers will pay for high-quality entertainment that is easily accessible online."
"We expect to see the expansion of digital and online subscription services not only begin to lift the music industry later in the forecast period, but also positively impact segments such as film, video games and business information."
Next-generation technologies will reinvigorate maturing segments and drive E&M growth. Digital television is replacing analog, thus expanding the potential market for advertisers and subscribers; online and wireless video games are bridging the gap until the introduction of new console platforms scheduled for 2006-07;
and digital audio broadcasting (DAB) and satellite radio are helping attract new national advertisers. Additionally, DVDs have revitalized home video, with rapid growth in the sell-through market driving growth at the expense of rental.
Global Advertising Solid, Highlighted by Internet Ad Rebound
Global advertising spending will increase at a solid 5.3 percent CAGR during the 2004-08 period, rising to $412 billion in 2008 from $318 billion in 2003.
Television advertising is projected to expand at a 6.5 percent CAGR during the 2004-2008 period, boosted by new channels as well as advertising associated with the 2004, 2006 and 2008 Olympic Games, and the 2006 FIFA World Cup. Television remains the largest advertising medium, rising to $164 billion in 2008.
Internet advertising spending rebounded strongly in 2003, with a 22.9 percent increase after a weak 2001-2002.
"Paid-search and rich media propelled spending in 2003, and the growing number of broadband households along with expanding e-commerce makes the Internet more attractive to advertisers," said Mr. Jackson.
Despite being the smallest of the six advertising media tracked by PricewaterhouseCoopers, the Internet will remain the fastest-growing advertising medium, growing to a projected $18.9 billion in 2008 with a 12.7 percent CAGR.
Due to overall economic growth, print advertising will improve slowly during the forecast period - by a 4.3 percent CAGR for magazines and a 3.3 percent CAGR for newspapers.
However, print media advertising will continue to lose share to electronic media as advertisers continue to be attracted by broadcasting's superior reach and younger demographics.
Growth by Region
The U.S. remains the largest entertainment and media market, projected to rise by 5.4 percent CAGR and reach $680 billion in 2008, followed by EMEA reaching $549 billion in 2008 at a 5.5 percent CAGR.
Asia/Pacific, despite becoming the fastest-growing region, will remain the world's third-largest region. It is projected to average 9.8 percent annual growth, increasing to $366 billion in 2008.
Latin America's E&M market is projected to rise at a solid 6.5 percent CAGR to $44.7 billion in 2008. During the next five years, 9.2 percent growth is anticipated in television distribution, as low Internet and multichannel penetration rates leave substantial room for expansion.
Canada is projected to expand at a 5.9 percent CAGR to $31.4 billion in 2008, driven by double- digit increases in video games and the Internet.
Key Findings by Segment
Filmed Entertainment: Rapid growth in DVD sell-through, shorter theatrical-to-video release windows, and the transition from VHS to DVD will drive home video growth.
Subscription services such as mail-order DVD rentals and growing DVD hardware penetration will also boost global spending, which is projected to reach $108 billion in 2008 from $75.3 billion in 2003, rising at a 7.5 percent CAGR.
Television Networks (Broadcast and Cable): Television networks are among the earliest beneficiaries of improved economic conditions because advertisers value the medium with the largest reach. Global spending is projected to increase at a 5.9 percent CAGR to $174 billion in 2008.
Television Distribution (Station, Cable and DBS): Large increases in subscription spending in Asia/Pacific are expected, as the multichannel universe in that region expands.
Maturing markets in other regions nearing saturation will keep growth in the single digits, with a projected 7.1 percent CAGR bringing total global spending to $183 billion in 2008.
Additionally, satellite will gain market share at the expense of cable, and Pay-Per-View and Video-On-Demand will grow rapidly during this period.
Recorded Music: Increased spending on licensed digital music combined with stabilized sales of Cds will lead to a rebound in spending, with expansion projected for 2006, following after five consecutive years of decline and flat sales projected for 2005.
Piracy will continue to dampen growth in the near- term, but legal measures to against piracy - along with lower prices and an improved economy - will stem the decline in spending during the next three years.
By 2008, global spending on recorded music will total an estimated $33.7 billion, growing at a 2.0 percent CAGR.
Video Games: The fastest-growing segment during the next five years, global video game spending will increase to $55.6 billion in 2008, at a 20.1 percent CAGR.
By 2008, online and wireless will be major distribution channels, spurred by broadband penetration and new mobile phones that will be used as much for entertainment as for communication.
The PC game market will shrink, and console game spending will grow as next generation consoles are introduced.
The E&M Outlook also includes in-depth global analyses and five-year market forecasts for nine other industry segments, including: radio and out- of-home advertising, Internet advertising and access spending, newspaper publishing, magazine publishing, business information, consumer book publishing, educational and professional books and training, theme parks and amusement parks, and sports.
PWC GEM Outlook
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