PwC Entertainment & Media Outlook 2010-2014

Global entertainment and media outlook 2010-2014

Towards 2014: the search for positionin the digital value chain

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Presenters

Jerry Brown

Associate Partner, Entertainment & Media Practice

Michael Paterson

Partner, Entertainment & Media Practice

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Consumer and advertising spending forecasts in 48 countries

• Internet access spending

• Internet advertising

• TV subscriptions and license fees

• Television advertising

• Recorded music

• Filmed entertainment

• Video games

• Consumer magazine publishing

• Newspaper publishing

• Radio

• Out-of-home advertising

• Consumer and educational book publishing

• Business-to-business

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Towards2014:

the searchfor positionin the digitalvalue chain

• 2009: the economy took center stage

• The Outlook to 2014

Part one

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2009: the economytook centre stage

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Pace of change faster than expected

Projected and Actual Global Growth by Segment - 2009

2009 Projected2009 Actual

-15 -10 -5 0 5 10

Video Games

Filmed Entertainment

TV Subscriptions and License Fees

Internet Access

Consumer and educational books

Recorded music

Radio

TV Advertising

Business-to-business

Consumer magazine publishing

Newspaper publishing

Out-of-home

Internet Advertising

% Growth

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-20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

Video Games

Filmed Entertainment

TV Subscriptions and License Fees

Internet Access

2009 Actual 2009 Projected

Projected and Actual Canadian Growth by Segment – 2009

Internet Advertising

Consumer / Educational Book Publishing

Recorded Music

Radio

TV Advertising

Business-to-Business

Consumer Magazine Publishing

Newspaper Publishing

Out-of-Home Advertising

% Growth

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The Outlook to 2014

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%G

row

thDigital dampens spending growth; E&M lags behind GDP

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Canada - Digital dampens spending growth; E&M lags behind GDP%

Gro

wth

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Canadian Nominal GDP Canadian Internet Access Spending

Canadian Advertising Canadian Consumer/End-User Spending

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E&M market growth 2010-2014

2010-14 CAGR

North America

3.9%

Latin America

8.8%

Europe, MiddleEast, Africa (EMEA)

4.6%Asia Pacific

6.4%

USA

3.8%

Brazil

8.7%

China

12.0%

UK

3.7%Germany

3.3%

India

11.8%

Russia

9.3%

Saudi Arabia/Pan Arab

16.5%

Global:

5.0% CAGR, $1.7 trillion

Canada

5.0%

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Component share of Canadian E&M spend

2009 2014

Internetaccess12%

Consumer/end-user

52%Advertising

29%

Consumer/end-user

50%

Internetaccess16%

Advertising26%

Total spending 2009: US$36.77 billion Total spending 2014: US$47.52 billion

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Component share of global E&M spend

2009 2014

Total spending 2009: US$1.32 trillion Total spending 2014: US$1.69 trillion

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Global growth by segment

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Canadian growth by segment

1.2

-0.7

0.7

-1.1

3.1

4.1

4.0

4.4

3.8

6.8

12.0

6.6

11.7

-2 0 2 4 6 8 10 12 14

Consumer Magazine Publishing

Business-to-Business

Consumer and Educational Book Publishing

Radio

Out-of-Home

Filmed Entertainment

TV Advertising

TV Subscriptions and License Fees

Internet Access

Video Games

Internet Advertising

Recorded Music

Newspaper Publishing

% CAGR 2010 2014

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Advertising spending – selected territories

0

20

40

60

80

100

120

140

160

180

200

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

United States

Russia

Germany

Canada

Saudi Arabia/Pan Arab

China

India

Japan

Brazil

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Global advertising spending by segment

CAGR

US$ billions

5.1%

0.1%

11.4%

-4.6%

3.9%

0.1%

4.5%

-0.9%

12.9%

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Canadian advertising spending by segment

0 500 1000 1500 2000 2500 3000 3500

Video Games

Trade Magazines - print

Out-of-Home

Consumer Magazines - print

Radio

Directories - print

Internet advertising

Newspapers - print

Television - excl. mobile and online

2009

2014

US$ millions

3.8%

1.0%

-0.4%

11.7%

-0.2%

2.7%

4.0%

1.8 %

12.0%

CAGR

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Global advertising spending by segment

2009 2014

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Canadian advertising spending by segment

2009

Television -excl. mobileand online

30%

Newspapers– print18%

Internetadvertising17%

Directories -print10%

Radio13%

Television -excl. mobileand online

30%

Newspapers– print15%

Internetadvertising

25%

Directories - print7%

Radio11%

Video Games1%

Trade Magazines – print2%

Out-of-Home4% Consumer

Magazines – print5%

Video Games2%

Trade Magazines – print1%

Out-of-Home4% Consumer

Magazines – print5%

2014

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Global consumer/end-user spending

CAGR

10.5%

6.8%

4.8%

2.9%

1.9%

1.5%

1.1%

0.8%

0.3%

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Canadian consumer/end-user spending

-5 0 5 10 15 20

Business-to-Business

Consumer and Educational Books

Satellite Radio

Filmed Entertainment

TV Subscriptions and License Fees

Video Games

%

Recorded Music

Newspapers

Consumer Magazines

6.0%

6.8%

4.4%

17.4%

3.1%

0.8%

-1.1%

0.7%

0.8%

CAGR

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Internet Access – wired and mobile households

562 million

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Digital migration

Digital share of Canadian E&M spending

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Excluding Internet Access Including Internet Access

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Digital migration

Canadian digital and non-digital spending growth

-10.00

-5.00

0.00

5.00

10.00

15.00

20.00

25.00

30.00

2006 2007 2008 2010 2011 2012 2013 2014

Digital Non-Digital

2009

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0% 20% 40% 60% 80% 100%

India

Brazil

Saudi Arabia/Pan Arab

South Korea

United Kingdom

Canada

China

Japan

United States

Digital Non-digital

Geographical diversity – including Canada

Digital / non-digital share of total revenues – 2014:

including Internet Access

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0% 20% 40% 60% 80% 100%

India

Canada

Saudi Arabia/Pan Arab

South Korea

United Kingdom

Germany

China

Japan

United States

Digital Non-digital

Geographical diversity – including Canada

Digital / non-digital share of total revenues – 2014:

excluding Internet Access

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The enduring importance of non-digital revenues

Global segment revenues in 2014

US$ billions

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The enduring importance of non-digital revenues

Canadian segment revenues in 2014

US$ millions0 2,000 4,000 6,000 8,000 10,000

Recorded Music

Out-of-Home Advertising

Radio

Consumer Magazine Publishing

Video Games

Internet Advertising

Filmed Entertainment

Consumer and Educational Book Publishing

Business-to-Business

Newspaper Publishing

TV Advertising

TV Subscriptions and License Fees

Digital

Non-digital

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Television Subscription Spending

• Overall spending will grow by 6.8% CAGR.Driven by a recovering economy andconsumer willingness to pay

• Within the overall growth the key driver will beVideo on Demand (16.0% CAGR) as anincreasing number of households move todigital services (9.5% CAGR for cable) andIPTV (45.5% CAGR) is rolled out..

• Mobile TV will also start to be rolled out. Paysubscription services have not worked welloverall in other markets but there is strongdemand from consumers

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Television Advertising

• Overall TV advertising market will grow at3.8% CAGR

• Conventional TV advertising market willgrow at 2.4% CAGR to US $2,167 million.Continues to be the largest component ofthe TV advertising market by a widemargin.

• Specialty advertising market will grow at4.6% CAGR to US$1,086 million

• On-line and mobile TV advertising marketwill contribute US$169 million by 2014

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Filmed Entertainment

• Overall Canadian film entertainment marketwill grow at 4.4% CAGR

• Box office revenues will grow at 5.3% CAGRdriven by 0.7% increase in attendance andremainder driven by price increases supportedby 3-D

• Physical sell through and rental market willgrow marginally as digital downloads and theon-line rental market takes off

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Video Games

• Canadian video game market will grow at6.6% to US$1.953 billion.

• On-line and wireless game market will grow atfastest rates at 9.0% and 7.5% supported bysocial gaming and increased access to newgames via smart phones and other devices.

• Console games while more mature willcontinue to introduce new technology and willgrow at 5.7%. Consoles continue to innovateto attempt to take over our living rooms andbecome media centers.

• The PC based game market will bechallenged given competing technologieswhich are more interactive.

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Towards2014:

the searchfor positionin the digitalvalue chain

• Consumer behaviour drives change

• Experimenting with business models

• Imperatives in the search for positionin the digital value chain

Part two

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Consumer behaviourdrives change

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• Mobile comes ofage in 2010-2011

• Mobile will bedriven further andfaster by NGNs

Mobile markets in selected countries

SaudiA

rabia

/Pan

Ara

b

United

Kin

gdom

Chin

a

Germ

any

Italy

Japan

South

Kore

a

United

Sta

tes

Theme 1:The rising power of mobilityAND devices

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Theme 1:The rising power of mobilityAND devices

• Loyalty shifts from service provider todevice and content

• Open or closed systems?

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Theme 2:The growingdominance ofthe Internetexperience

I love my TVseries, and weleave Facebookstatuscomments:‘Watch this,don’t watch that.’I’ve introduced alot of my friendsto the seriesCalifornication.

-- Capetown,19-year-old

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I basically thinkthat movies aregoing to be storedin one location atyour home andyou can justtransmit them toany media thatyou own, whetherit be a laptop or aPC, or your TV oryour cell phone.You can just pusha button and themovie shows upon whatever yousend it to.

-- Los Angeles,28-year-old

Theme 2:The growing dominance

of the Internet experience

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Theme 3:Increasing engagement andreadiness to pay for content…driven by improved consumptionexperiences and convenience

• Experience drives revenue

• Convenience pays off

• Going “hyperlocal” to boostengagement

• Media consumption returns to being acollective social experience

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Theme 3:Media consumptionreturns to being acollective social experience

I’d rather chat onthe Xbox onlinewith friends.Sometimes, ifthere’s a TVprogram we like,we keep theXbox on, and wecan talk to eachother in thechatroom whilewe’re watching it

-- 14-year-oldLondon, UK

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Experimenting withbusiness models

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Experimenting with business models

• Future hope for digitalad revenues?

• Testing the limits ofpaid-for content

• From ad-supported to“hybrid”

Addressableadvertising?

Paywalls?

Micro-payments?

Freemium?

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Imperatives in the

search for position

in the digital value chain

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Four legacy challenges

IP RightsDigital rights are often uncertain, andat worst impossible to untangle 1

Operational stepchange

Delivery of strategic intent requiresdeep understanding of own operatingmodel

4

Release windowsGeography and platforms won’t workas basis for release windows in multi-channel world

2

RegulationPolicymakers struggle to keep pace,and E&M companies need a firmgrasp on trends

3

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Redrawing the valuechain: where –and how – will you fit in?

www.pwc.com/outlook

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