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India’s M&E sector to grow faster than global average; pay TV rev to touch Rs 907 bn in 2021: PwC
MUMBAI: While the television sector will see sluggish growth in the US and other matured markets, India will buck the trend to grow at a CAGR of 11.4% between 2017-21.
India’s media and entertainment sector (M&E) sector will also grow at a much faster pace compared to the modest-to-slow growth in the US, trends from a PwC forecast report show.
In its new outlook, PwC has forecast India’s M&E sector to grow at a CAGR of 10.5% during 2017-21 compared to the global average of 4.2% CAGR. The consulting firm has predicted growth across 54 top countries.
The industry in India will size up to over Rs 291,000 crore by 2021. M&E revenue is expected to rise to $2.2 trillion (from $1.8 trillion). In the US, growth will even be slower, rising from $635 billion in 2016 to $759 billion by 2021. This translates into a CAGR of 3.6%.
TV subscription revenues are expected to grow from Rs 52,755 crore in 2016 to Rs 90,713 crore in 2021 at a CAGR of 11.6%.
Though subscriber numbers are still growing, explosive growth levels of the recent past will not be replicated in the future. The cable market is approaching a saturation point but will still account for over 55% of the total pay TV market in 2021.
In terms of advertising, TV will continue to hold the larger share of the pie from Rs 21,874 crore in 2016 to Rs 37,315 crore in 2021, even though internet advertising is expected to growth a much faster rate of 18.6% as opposed to TV advertising at 11.1% from 2017–21.
India will be the third-largest cinema market in the world by 2021 with a CAGR of 10.4%.
India’s cinema sector is expected to experience strong growth throughout the forecast period. Box office revenue will rise from Rs 10,957 crore in 2016 to Rs 18,047 crore in 2021, at a healthy CAGR of 10.4%, the PwC report said.
Admissions will rise from an estimated 200 crore in 2016 to 230 crore in 2021 (at a CAGR of 2.4%) and ticket prices will rise at a CAGR of 7.9% in the same period.
India is one of the few major cinema markets in which 100% digitisation of screens has not yet been achieved—and it is not expected to occur over the forecast period.
PwC India partner, leader, entertainment and media, Frank D’Souza noted that an increase in the screen density in the country is needed along with a creeping rise in ticket rates and digitisation of screens. These factors will help boost revenue in this segment.
D’Souza also noted that theatrical footfalls in the country are high, which is why, though the ticket price is less than $2, theatrical revenue will rise. China has a ticket price of $6–7, and in the US, it is $11–12. He noted that GST is a good thing for cinema. The issue is that GST does not prevent local bodies from bringing in local tax in another form.
The Indian newspaper industry will continue to grow from Rs 23,161 crore in 2016 to Rs 24,447 crore in 2021, but the growth rate is tailing off as the effects of digital disruption begin to be felt in a market that had long enjoyed print expansion.
Publishing in India is expected to grow from RS 38,601 Cr in 2016 to Rs 44,391 crore in 2021 at a CAGR of 3.1%.
Book publishing is projected to grow at 6.1% CAGR over 2017–21 whereas magazines are expected to grow at a CAGR of 3.3% for the same period.
In terms of internet ad revenue, India is ranked eighth in the Asia Pacific region. One reason for the immature online ad market is the lack of internet access among Indians—fixed broadband penetration remains low at just 6.9% in 2016. Today, mobile internet advertising only comprises 27.6% of total online spending, marking a clear gap between Indians with mobile access and brands reaching out to the mobile audience.
India’s internet video segment has produced revenues of Rs 560 crore in 2016 and will grow at 22.4% CAGR to reach a new high of Rs 1,540 crore in 2021. Transactional video-on-demand (VoD) will account for over 61% of total internet video revenues in 2021, with many households not wanting to commit to the regular payments of subscription VoD.
The US market
As far as the US is concerned, PwC said that a particularly notable challenge to current business models exists in the US market, where cable TV and telecoms bundling strategies for pay TV and internet access are coming under pressure.
Pay TV challenges: As streaming platforms and networks proliferate, sport has been a powerful magnet keeping consumers attracted to traditional pay TV subscription models. But that’s changing. Viewership for many of cable’s top sports properties—the NFL, the Olympics, Major League Baseball, and NASCAR—is shrinking. And as more consumers have been cutting the cord, some premium cable channels have seen their number of subscribers fall. It’s not that people are watching fewer events, it’s that they have migrated to digital platforms—and to the ever-expanding array of available streaming services and apps. The growth options for both television networks and pay TV providers can be seen in the proliferation of ‘skinny bundles’, direct-to-consumer digital distribution models, and mobile apps that enable viewing of sports highlights and statistics.
Broadband provider challenges. US cable providers are capturing gains from a growing high-speed fixed broadband market. Over the next five years, the market will expand from 63.3 million households to 72.2 million households, representing a 3.7% five-year CAGR. In time, the shift to 5G wireless networks and IPv6 protocols will pose a significant threat to cable companies’ reliance on revenue from wired broadband. However, in the near term, overall broadband penetration has reached saturation at 85.8% of all US households in 2017. The main threat today is wireless substitution for slower speed fixed broadband services as telcos introduce unlimited wireless offerings of 4G services and as public Wi-Fi becomes ever more prevalent. ‘US spending on mobile internet access will rise at an 8.9% CAGR through 2021 while spending on fixed broadband internet access will grow at a 1.5% CAGR.
Still, innovation and competition in plan designs and access to speed may slow the pace at which consumers decide to move from wired to wireless.
Cinema: In terms of the global scene PwC noted that cinema serves as a prime example of how revenues are being diverted from existing channels into new ones. The major studios face steep declines in home entertainment revenue. Global revenue from the rental and sales of physical home video, which has already been falling sharply, will decline at an 8.8% CAGR through 2021.
In response to such changes, and in recognition that viewers are increasingly agnostic as to the size of the screen on which they view films, many major studios are considering new ways to shorten the traditional delay between the cinematic release of films and their availability for home viewing.
In 2016, Napster co-founder Sean Parker and celebrity backers including Steven Spielberg announced their investment in a start-up that would allow people willing to pay a premium to watch new movies at home on the same day they hit theatres. Although the project has since lost traction, the debate between studios and exhibitors about shortening release delays has continued.
Exhibitors also have an opportunity to redefine their value proposition and adapt to these changes. For example, movie theatre owners, faced with stagnant box office sales for first-run films, can expand their menu of content to include remote-viewing experiences for fans of opera, the symphony, sporting events, and pop festivals.
In emerging markets with a rising middle class, companies can use promotions and rebates to boost admissions, and can expand the use of in-cinema advertising, as is common in South Africa, to increase revenue over the long term.
Major digital tipping points
Major digital tipping points are occurring or in prospect across all segments globally.
· Internet advertising now generates more revenue than TV advertising globally. In 2016 an important tipping point was reached in the global advertising industry, with revenue from internet advertising exceeding that generated by TV advertising for the first time. That lead, thanks to the rapid growth of mobile ad revenues in particular, is set to increase significantly in the next five years.
· Internet video revenues will overtake physical home video in 2017. The internet video segment has expanded rapidly in recent years, and will overtake the physical home video market for the first time in 2017.
Internet video revenues are projected to grow at a CAGR of 11.6% to reach $36.7 billion (Rs 236,111 crore) in 2021, while the terminally declining market for DVDs and Blu-rays will have fallen to $13.9 billion (Rs 89,426 crore). Demand has shifted towards the more immediate and convenient VoD market, with content accessible via a wide range of connected devices allowing consumers to view when and where they desire.
· Global newspaper circulation revenue overtook global ad revenue in 2016. While newspaper circulation revenue has been on a downward trajectory since 2015, publishers have had the useful lever of cover price rises to partly offset the rapid fall in units. However, the year-on-year falls in newspaper ad revenue have been more pronounced, reflected in the overall de-growth in the newspaper segment.
· Virtual reality video revenue will exceed interactive application/gaming revenue in 2019. The consumer virtual reality (VR) content market will grow at a CAGR of 77% over the forecast period to be worth $15.1 billion (Rs 97,147 crore) by 2021. Of this, $8 billion (Rs 51,468 crore) will be spending on VR video (rising at a CAGR of 91.2%), surpassing interactive experiences and games in 2019. This is one segment to look out for in the future.
· Smartphone traffic will exceed fixed broadband data traffic in 2020. Although mobile usage is a key driver of growth in overall data traffic, fixed broadband will continue to account for the majority of data traffic in the 19 markets for which we have developed detailed forecasts. Many consumers still prefer to access data-heavy content—notably high-quality video—via fixed broadband rather than their mobile device. But the shift towards the smartphone will continue.
It is a cliché to note that something fundamental has changed in the global E&M industry. But the reality is that something significant has changed. E&M companies have been accustomed to competing and creating differentiation primarily based on two dimensions: content and distribution. Now they must focus more intensely on a third: user experience.
To thrive in a marketplace that is increasingly competitive, slower-growing, and dependent on personal recommendations, companies must develop strategies that engage, grow, and monetise their most valuable customers—i.e. their fans. To do so, they must combine excellent content with breadth and depth of distribution, and then bring it all together in an innovative user experience, in which the content is discoverable easily on an array of screens and at an attractive price. Simply capturing the natural growth in consumers and their uptake of services and content with existing approaches is no longer sufficient. Across the industry, the resulting quest to create the most compelling, engaging, and intuitive user experiences is now the primary objective for growth and investment strategies—and technology and data lie at their centre.
Pursuing these strategies will help companies thrive in an era of complexity and slowing topline growth from the traditional revenue streams that have nourished the E&M industry to date.
Historically, the debate in the global E&M industry has revolved around the relative importance of content versus distribution, and the strategic value of combining the two. This has played out in vertical integration, industry consolidation, and, to dust off a phrase from the recent past, digital convergence strategies. More always equalled better, and size itself became the defining competitive advantage.
Rapid changes in technology, user behaviour, and business models, however, have created a gap between how consumers want to experience and pay for E&M and how companies produce and distribute their offerings.
PwC noted that to bridge this gap, companies should pursue two related strategies: (1) focus their efforts on building businesses and brands anchored by active, higher value communities of fans, who are united by shared passions, values, and interests; and (2) capitalise on those emerging technologies that delight users in new ways, deliver superior user experiences, and enhance productivity.
A trio of macro challenges
One of the things that PwC’s global report noted is that as E&M companies face a host of challenges particular to their own industries, they are also confronting big-picture forces that affect all companies operating in today’s global context.
Economic and geopolitical risks: According to the 2016 CEO Pulse study from PwC’s Global Crisis Centre, economic and geopolitical uncertainties are among the top two threats for companies today (see Exhibit 8). The growth forecasts for the E&M industry have been lowered in part to reflect the broad-based economic and political uncertainty that has stemmed from the UK’s Brexit plans and from national elections in which populist and anti-globalisation themes have emerged—whether it is in the US, France, or the Netherlands. Despite its promise, Latin America, and particularly Brazil, remains hampered by issues of governance. China’s growth remains steady although not without significant challenges: economic imbalances continue to grow, leadership has slowed market reforms, and economic trade-offs are becoming more acute.
There’s always a base level of uncertainty inherent in the global economy. But the severity of issues such as slow growth, currency policy, civil unrest, and geopolitical tensions have intensified concerns.
Speed of technological change: Technological advancements are appearing rapidly and simultaneously across many industries. The E&M industry is facing a significant level of uncertainty concerning the speed of change in areas such as AI, 5G networks, IPv6 protocols, virtual reality (VR), and the internet of things (IoT). At the same time, uncertainty also surrounds the speed of monetisation and the viability of new business models enabled by these new technologies. The concerns created by the confluence of these disruptions may have a chilling effect on investments. Alternatively, they could be largely offset by an increased level of spending on related consumer categories such as e-commerce, or by faster internet speeds and more powerful devices that are fundamental to improving the user experience.
Regulatory risks: CEOs in all industries identified increased regulation as the second-most common threat. And within the E&M industry, regulatory challenges are evident in every major region. Beyond the changes to be expected with a new administration in the US, around the world we are seeing that issues of data privacy and security are capturing the attention of policymakers and regulators. Stronger regulations in these areas could make it more difficult to track data about personal preferences, thereby making it harder to improve the user experience.
Shifts in generational preferences: There’s another long-term challenge to top-line growth. The baby boomers in the US are aging out of their prime consumption years, and the generations that replace them may not exhibit the same propensity to spend on E&M. Over the past 10 years, PwC’s Consumer Intelligence Series has captured the changing consumer behaviour of millennials (those born between 1981 and 1998) and Generation Z (born 1998 until now) across a number of topics. And it’s clear that the impact of technology and digital media has changed the way younger generations experience and purchase content. They stream songs or watch videos on YouTube instead of buying albums; they consume free news on Facebook or Snapchat instead of spending hundreds of dollars for home delivery of newspapers.
Rather than subscribing to expensive pay TV bundles, they source their video through a combination of over-the-top services. According to a recent study, millennials account for 43% of the US cordless population—those who have never had cable, satellite, or fibre-optic cable service and those who have cut the cord. 30% of US millennials are now cordless, compared with just 16% of baby boomers, according to GfK MRI’s January 2017 ‘Survey of the American Consumer’.
Of course, millennials will probably eventually marry, have children, and purchase homes in greater numbers. But it seems unlikely they will adopt their elders’ habits when it comes to media consumption and spending. Barring a step change in ‘must have’ technology (e.g. autonomous vehicles), profitable growth in the E&M industry will increasingly come from capturing market share, rather than from market expansion.