A report issued by PwC has shown that increased Internet access will remain a significant force behind the major growth in the South African entertainment and media industry, reflecting expanded broadband devices and greater use of smart devices.
South Africa’s entertainment and media market (E&M) is set to grow at a compound annual growth rate (CAGR) of 10,9% in the next five years, one of the highest in the world. The E&M market is expected to generate overall revenue of R175-billion in 2017, according to PwC’s South African Entertainment and Media Outlook: 2013-2017 (‘The Outlook’).
Vicki Myburgh, Entertainment & Media Industries Leader for PwC Southern Africa, says: “In South Africa, as in other markets worldwide, consumers’ access to entertainment and media content and experiences are being democratised by the expansion of access to the Internet and the explosive growth in smart devices.
“Even though traditional, non-digital media will continue to dominate overall E&M spending in South Africa over the next five years, much of the growth will come from digital.”
Revenue from Internet access is also expected to enjoy strong growth, increasing from R19,8-billion in 2012 to about R59,6-billion in 2017, at a CAGR of 24,7%. Mobile Internet access will form the bulk of this growth (if mobile Internet access is removed, then the CAGR falls to 5,9%) and growing mobile Internet penetration will help to drive growth in other segments.
The fourth edition of PwC’s South African Entertainment and Media Outlook presents annual historical data for 2008-2012 and provides annual forecasts for 2013-2017 in 12 entertainment and media segments.
The Outlook includes historical and forecast data on the Internet, television, filmed entertainment, radio, recorded music, consumer magazine publishing, newspaper publishing, consumer and educational book publishing, business-to-business publishing, out-of-home advertising, video games and sports. It gives a detailed breakdown of these sectors.
This year, for the first time, The Outlook includes detailed information for Nigeria and Kenya in each of the 12 industry segments.
The slowest growing segment in the E&M industry will be consumer and educational books, states the survey, with a 0,4% CAGR over the next five years.
“Comparatively low literacy levels in the country (although they are rising) and the fact that books don’t cater for multiple languages in use in South Africa, continue to act as a barrier to further growth in this segment.
“Books are also subject to higher VAT at 14% than in most other countries, which means that retail prices remain too high for the majority of South Africans. Magazines and newspapers sell at a much lower cost and are therefore more likely to be read by South Africans than books,” says Myburgh.
The music segment will also continue to struggle, with sales dropping quickly, but not yet being replaced by digital sales.
Aside from the Internet, The Outlook predicts that the fastest growth will also be seen in the video games segment. Growth here will be driven largely by mobile gaming, as comparatively lower levels of broadband will restrict the online gaming industry. Mobile gaming will be focused on smartphones, with tablets remaining a largely untapped market in the short-term due to their high purchase cost.
Revenue flow from the film industry is also expected to grow in the wake of increased Internet access, with electronic home video (including box office) reaching R1 544-million in 2017 and accounting for 66% of the home video market (up from R816-million in 2012 and 49% of the home video market).
Over-the-top (OTT) video services, which deliver video content through the Internet, are predicted to become an important part of the filmed entertainment market in the next five years.
The study shows that advertising accounted for 31% of revenue in the E&M industry in 2012, having fallen from 32% in 2008. This proportion is expected to fall until 2017, when only 26% of revenues will come from advertising. This%age fall will take place largely due to expansion in the entire market.
Radio is also expected to see strong growth in advertising revenue streams, rising from R3,6-billion in 2012 to R5,5-billion in 2017. “As a significant proportion of South Africans lack Internet access, the radio remains one of the few advertising platforms capable of reaching a large audience,” comments Myburgh.
Since South Africa has low broadband penetration, advertising in print media has not suffered as much as in some other countries. Newspaper advertising will grow by an estimated CAGR of 6,2% over the forecast period, with rising urbanisation and improving literacy levels increasing readership.
“Supplying newspapers to some rural areas is a challenge for publishers, as is finding outlets to sell them. Moreover, tablets and smartphones are extremely expensive for many South Africans, ensuring that newspapers will remain a major source of news in the medium term.”
Revenue flow from advertising in consumer magazines will also benefit from rising urbanisation and low Internet penetration. Advertising spend on consumer magazines will rise from R3,1-billion in 2012 to R4,2-billion in 2017.
End-user spending, consisting of spending by consumers and other end-users on products and services produced by the entertainment and media industry, is predicted to increase by an average of 12,3% a year over the forecast period.
The survey also shows that the sports market is one of the largest E&M segments for consumer spending in the country, after Internet access and television.
Revenues generated by the sports market will grow from R13,9-billion in 2012 to an estimated R19,5-billion in 2017, a CAGR of 7,1% as the economy prompts larger sponsorship deals and media rights packages.
Television is the second-largest segment in terms of consumer spending, with revenues projected to grow at a CAGR of 5,2% from R16,1-billion in 2012 to about R20,7-billion in 2017.
The survey shows that music is also a slow-growing segment (0,4% CAGR), with physical sales dropping quickly, but not yet being replaced by digital sales, despite the emergence of a number of new digital music services.
“The E&M industry in South Africa is well placed to benefit from the economic growth the country will experience in the next five years. While many mature countries – such as those in Western Europe – are seeing low levels of growth, the outlook for South Africa is more positive.
“As a result, with more consumers becoming connected (typically through their mobile devices) and with more disposable income available, the opportunities for those selling products and services both digital and physical will be significant.
“E&M businesses must continue to raise their games in agility to change in direct response to consumers’ expectation, while understanding that digital innovation become the new license to operate,” Myburgh concludes.