The report from Price Waterhouse Coopers, asserts that this growth will not just be about the application of digital technology, but will also require companies to adopt a ‘digital mindset’ to build the right behaviours, advancing from a digital strategy to a business strategy fit for a digital age.
PwC’s 15th annual report, released June 4, reveals that TV advertising will generate $173.7 billion worldwide in 2014 and grow to $214.7 billion in 2018.
During the same period, Internet advertising will grow from $133 billion to $194.5 billion.
PwC does not extrapolate data beyond five years, but its research indicates a 5.5 percent compound annual growth rate for TV advertising compared with 10.7 percent for the Internet, suggesting the latter will pass the former as early as 2020- marking a major shift. As recently as 2010, revenue from TV advertising was more than twice that from Web ads.
The Global entertainment and media outlook 2014-2018.report found that total entertainment and media spending on digital services is forecast to grow at a 12.2 per cent compound annual growth rate (CAGR) between 2013 and 2018 and account for 65 per cent of global entertainment and media spending growth, excluding spending on Internet access.
According to Marcel Fenez, PwC’s Global leader, entertainment and media, the bedrock of a strategy fit for the digital age is the digital mindset: getting ever closer to the customer – across the entire organisation, and in everything it does.
“We now see that mindset embedded in many entertainment and media companies. But the industry needs to get even closer to the consumer and adopt more flexible business models. To do this, companies must exhibit three behaviours: forging trust with consumers; creating the confidence to move with speed and agility; and empowering innovation. This will be an important step in monetising the digital consumer,” he advises.
Key findings from the report are shown below:
- Advertising revenue is outpacing consumer revenue in the migration to digital. Digital revenue from advertising has risen from 14% of total advertising revenue in 2009 to 25% in 2013, and will hit 33% by 2018. In contrast, digital entertainment and media consumer revenue in 2018 will account for just 17% of total entertainment and media consumer revenue. Meanwhile, non-digital advertising revenue will rise at a CAGR of only 1.9% through the forecast period.
- By 2018, Internet advertising will be poised to overtake TV as the largest advertising segment. As recently as 2009, Internet advertising revenue was US$58.7bn and TV advertising revenue was more than twice as big at US$132.0bn. But Internet advertising revenue will rise at a 10.7% CAGR to reach US$194.5bn in 2018, just US$20bn behind TV advertising. We are approaching a major tipping point in the advertising universe.
- The biggest challenge is monetising the digital consumer. Although consumers are embracing digital content experiences, consumer revenue from digital sources – excluding Internet access – will reach only 17% in 2018 from 10% in 2013. More must be done to encourage not just consumers’ digital behaviours, but their digital spending.
- Rising consumer revenue may be driven by 24/7 access. Two of the best-performing consumer sub-segments use a model by which consumers pay for round-the-clock access: digital music streaming, where revenue will grow at a 13.4% CAGR, and electronic home video OTT/streaming, set to rise at a 28.1% CAGR. Growth rates such as these will not only offset a slow-moving non-digital consumer market, but may also point the way forward for other segments.
- Revenue growth is being driven by Internet access rather than content spending. A concern for content providers is that spending on Internet access may be taking share away from spending on content and services. In 2013, 45% of total entertainment and media revenue came from consumers, 30% from advertising and 25% from Internet access. But by 2018 Internet access’s share will rise to 30%, while the proportion from consumers will slip to 41%.
- Two-thirds of revenue growth from consumers and advertising will be digital. Of the US$241bn growth in total entertainment and media consumer and advertising revenue from 2013 to 2018, US$157bn will come from digital sources. So 65% of global entertainment and media growth – almost two in every three extra dollars – will be from digital.
Mobile tipping point
Mobile Internet penetration will reach 55 per cent in 2018, which will help drive digital advertising to increase its share of total advertising revenue to 33 per cent by 2018, up from 14 per cent in 2009. With Internet advertising growing at a 10.7 per cent CAGR (compared to a total advertising CAGR of 4.4 per cent), the industry is approaching a significant tipping point: in 2018, Internet advertising will be poised to surpass TV advertising. In 2009, TV advertising was double that of Internet advertising; in 2018, Internet advertising will trail TV advertising by just $20 billion. Mobile Internet advertising is forecast to grow at a CAGR of 21.5 per cent.
What’s more, mobile advertising will overtake classified Internet advertising in 2014, according to the report. Global mobile Internet advertising revenue is forecast to leapfrog classified Internet advertising to become the third-largest Internet advertising channel with revenues of $18.9 billion in 2014. But after four particularly strong years, driven by the launch of a range of tablets, the annual rate of mobile revenue growth is falling back to the levels seen prior to their introduction. Advertisers now must do more than simply migrate large-screen banners to handhelds to sustain such growth.
Digital consumer magazine advertising revenue is much larger than digital
Nine markets driving growth
Nine high-growth markets are powering global entertainment and media revenue. China, Brazil, Russia, India, Mexico, South Africa, Turkey, Argentina and Indonesia collectively are forecast to account for 21.7 per cent of global entertainment and media revenue in 2018, up from just 12.4 per cent in 2009. Also in 2018, China will overtake Japan as the world’s second-largest entertainment and media market, behind only the US.
Fenez, says that what all these markets have in common is a growing middle class boosting spending in entertainment and media. “But the similarities stop there. Realising the revenue potential of these markets demands a deep understanding of the local context. Given their intimate local market knowledge, domestic organisations are in prime position to realise the opportunity of the emerging middle class The optimal approach for international players will most certainly be to collaborate with local partners,” he suggests.
Rise of Internet TV
The report also found that Internet TV advertising will double its share of total TV advertising revenue in the next five years. Internet TV advertising revenue from traditional broadcasters will increase from $3.7 billion in 2013 to $9.7 billion in 2018, and more than double its share of total TV advertising from 2.2 per cent in 2013 to 4.5 per cent in 2018. Traditional broadcasters still dominate and are adapting to the Internet video opportunity, creating a significant new revenue stream despite competition from Internet rivals.
Online video to lead UK ad growth
The UK market for digital video advertising on social networks and news websites is expected to grow by nearly a quarter every year for the next five years, according to the PWC report.
Total revenues from video adverts that run alongside clips posted on services such as YouTube and Facebook, as well as on news websites, will more than double from £316m this year to £717m in 2018.
Online video will be the fastest growing of all forms of advertising. Google, Facebook and Twitter are expected to battle it out with traditional media for their share of the expected boom.
Overall, the UK mobile advertising market is expected to increase by 17% annually to reach at total of £2.2bn in revenue in 2018.
Phil Stokes, entertainment and media lead partner at PwC, said: “Mobile advertising revenue is expected to outstrip consumer magazine advertising revenue very rapidly. Social networks and messaging services, which themselves are intrinsically mobile, will contribute much of this growth in the future.”
Overall, the media market in Britain is expected to grow strongly compared with most developed markets thanks to a strong national appetite for technology and what PwC said was “a vibrant, and still growing, internet advertising sector”.