As the entertainment and media (E&M) industry emerges from the recession, one of the key characteristics of its recovery is the rapid consumer migration to digital formats, triggered in large part by the device revolution.
These include Internet-enabled devices such as smartphones, advanced next generation network infrastructure, mobile applications, social media, web-enabled TV, and tablets and netbooks. In South Africa, increased affordability and availability of broadband and mobile infrastructure is also driving this trend.
“Companies in the E&M industry are searching for position in the digital value chain that is now taking shape” says Vicki Myburgh, PricewaterhouseCoopers SA E&M sector leader. “Business models are being shaped and developed, characterised by widespread experimentation and innovation involving a widening diversity of service offerings, revenue models, technology platforms and collaborative structures.”
The PwC report, South African entertainment and media outlook: 2011–2015, notes that in 2010 the local economy began to recover from its steep decline of 2009. Helped by the FIFA World Cup, total E&M spending (being advertising and end user spend) in South Africa for 2010 rose by 21,1% to R98-billion. This comprises R24-billion from advertising and R74 billion from end user spend. Such growth contrasts with the modest 3,7% growth seen in 2009 and the 4,6% growth experienced globally in 2010.
The sports segment which had a lift from the World Cup, grew total spend by 84,6% to R18,5-billion. The Internet was the second fastest-growing segment in 2010 with a 41,4% increase in total spend to R12-billion, boosted by growth in broadband, mobile access and advertising. PwC expects total internet users in South Africa to increase to 22,8-million in 2015 (from 6-million in 2010), with 17,5-million of these being mobile broadband.
“In the medium term, the demand for digital experiences will become the norm” says Myburgh. “In this dynamic environment, we are seeing an upsurge in collaborative partnering, which is transforming the E&M industry into a digital collaborative ecosystem.”
Off the 2010 base which includes FIFA World Cup spend, PwC expects total spend in the E&M market to decline by 0.6% in 2011, and then to grow by around 9% to 10% each year to reach R140-billion in 2015. During this period, the Internet will be the only segment to average double-digit annual growth, with a projected 24,8% compound annual increase to reach total spend of R37,7-billion in 2015.
Myburgh cautions that structural changes in the E&M market, principally the ongoing shift from higher priced physical distribution to lower-priced digital distribution, will limit spending in the sector. “Online ad rates are substantially lower than those in the traditional advertising media, and end-user prices for digital content are also generally lower than prices for physical content. As a result, the shift in usage from traditional media to digital media is not revenue neutral.”
As the digital share of the E&M market increases, total spending in this sector will lag behind nominal GDP growth in SA. “In previous periods of economic expansion, E&M spending would typically rise faster than nominal GDP” says Myburgh.
“But digital migration has led to a decoupling in the historical relationship between E&M and GDP. PwC forecasts that during the next five years, South African E&M spending will grow at a 7,4% compound annual rate to the forecast R140-billion. This is well below the projected 9,5% compound annual increase in nominal GDP.”
She notes that the sector will ultimately have to convince consumers to start paying for content. “A situation in which content cannot be effectively monetised is unsustainable. Companies must therefore aim to become trusted providers of paid-for content experiences that consumers will value above the no-charge alternatives.”
This is the second edition of PwC’s South African entertainment and media outlook. It presents annual historical data for 2006-2010 and provides a five year annual forecast for 2011-2015 in 13 entertainment and media segments.
Total spend in most segments were given a boost in 2010 by the FIFA World Cup, and other key findings in the report include:
* Television spend was the third fastest growing segment in 2010 (after sport and Internet), at 18,8% to R19,3-billion. This was fuelled by a jump in advertising as well as ongoing double-digit growth in subscription spending;
* Out-of-home grew at 13,8% to R1,2-billion; radio grew at 11,5% to R3,5-billion; gaming rose by 6,7% to R17,2-billion;
* Filmed entertainment rose by 6,2% to R2,9-billion, boosted by growth in box office spending and cinema advertising, which offset a flat home video market;
* Growth in the print categories such as consumer and trade magazines, and newspapers, was modest, reflecting a shift in the share of spending from print to electronic media;
* The music sector was the only one to post a negative change in spending, impacted by the shift from physical to digital, a trend in which South Africa has lagged the rest of the world.