Key takeaways

  • As COVID-19 forced consumers indoors, consumption habits formed over years changed almost overnight.
  • For some entertainment and media segments, such as content/music streaming, podcasting, and esports, subscription growth and revenue has accelerated.
  • Out-of-home entertainment segments — and the advertisers reliant on them — has suffered and will take time to recover.

2020 has been a year like no other. The coronavirus pandemic halted the entertainment and media (E&M) industry’s long streak of revenue growth and ushered in what is expected to be the sharpest contraction in the history of PwC’s Entertainment and Media Outlook two-decade history.

The Global and Australian Entertainment & Media Outlook 2020-2024, along with the accompanying Perspectives report, examine the changes the industry is contending with, and highlight actions that companies can take going forward. Ultimately, they show that while consumer habits can take a lifetime to learn, they can be lost in just one lockdown. To succeed in uncertain times, E&M companies will need to understand these shifts and their ramifications on revenue, advertising and growth.

Shock absorption and consumer change

This year the global economy shrank for the first time since 2009. In response, the US$2.1 trillion entertainment and media industry is forecast to contract by 5.6 percent. Shifts in consumer behaviour not predicted to reach tipping points for years have pulled forward digital disruption with speed. As long-standing business models topple, existing trends have been amplified and new opportunities unearthed.

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Industry segments experienced the COVID-19 crisis in a variety of ways. Most dramatically, the impact of the pandemic’s ongoing effect has been felt where companies that were already well situated to capitalise on the move towards home-based entertainment received a major boost as consumers embraced these companies with new ardour.

For example, Free-to-air television consumption was buoyed in Australia as consumers sought COVID-19 news. Podcasting grew, with monthly downloads hitting 48.7 million in September compared to 13.2 million just a year before. Online fitness company Peloton Interactive reported a massive surge in sales of its fitness equipment and subscriptions — more than doubling subscribers to nearly 1.1 million.1 Music streaming’s Spotify accumulated 138 million subscribers globally, with monthly active users up to 299 million.2 The Australian consumer book market, supported by audio and ebook growth, which sat at AU$1.979 billion in 2019 is expected to be worth AU$2.063 billion in 2024, a compound annual growth rate (CAGR) of 0.84 percent.

Globally, video streaming services, or Subscription Video on Demand (SVoD) have been an overall benefactor of COVID-19 quarantine, experiencing sustained growth. The segment has equaled the revenue of its celluloid cousin after playing catch up to box office revenues for the last five years. It will likely double the size of box office revenue by 2024. In Australia, a plethora of global and local streaming services have become available, with the launch of Disney+ and Foxtel’s Binge streaming services. Disney, which projected itself to have between 60-90 million global paying subscribers by 2024, reached 60.5 million in August.3 And streaming service Stan surpassed 2.2 million subscriptions in the Australian market in June.4 The ubiquity and success of these services is rapidly changing consumer viewing, and the SVoD market is expected to grow by 16.15 percent CAGR to AU$2.295 billion in 2024.

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However, for other E&M segments, in particular those revolving around out-of-home entertainment such as cinemas and live events, the pandemic’s lockdowns have had far less positive consequences. Total cinema revenue in Australia (including box office and advertising) contracted sharply with the outbreak of COVID-19, and there has been a severe flow on effect for the Australian film industry — box office revenue, which totaled AU$1.229 billion in 2019 is set to fall to AU$990 million by 2024.

Advertising in decline

The ramifications of such changes are wider than altered consumption preferences and habits. While advertising spending has largely risen and fallen with consumption in the past, this year, global revenues are predicted to fall 5.6 percent, with advertising to decline a dramatic 13.4 percent. In Australia, revenue will similarly fall, by nearly 4.46 percent, with advertising declining 11.3 percent. Although it will recover, advertising is slated to grow more slowly than consumer spending over the 2020–2024 period.

 

Partly, this is due to a reduction of spend by companies under increasing economic pressure. But it is also true that the mass personalisation of content experiences, combined with the explosive growth in choice, has altered the balance between consumer spending and advertising — and it may never go back (15.7 million Australians claim to have at least one pay TV service in the household, and the number continues to rise).5

For segments such as radio and linear free-to-air (FTA) television, this will hit hard. Despite strong audiences for linear FTA, it has faced a 15.9 percent decrease in advertising revenue in 2020. Australia’s total radio, streaming and podcast market, which came in at AU$1.609 billion in 2019, is expected to contract by 10.6 percent in 2020.

It is expected that incumbent media companies will continue to diversify their offerings, pursuing more attractive ad-free models as new players enter the market. Subscription-based models will continue to appeal and companies will need to deliver immense choice at a price point that makes sense for both suppliers and customers without relying excessively on intrusive ads. E&M companies will increasingly be in the business of delivering experiences and content directly to consumers, not delivering audiences and eyeballs to advertisers.

For advertisers then, spend will need to be carefully considered and targeted at channels that can deliver reach. Critically, it will need to be backed up by robust data analytics that reassure ROI is attained. For content companies, scale will be the goal to attract finite ad dollars, but also, to satisfy the user preference for platforms that allow them to consume what they want — in volume.

Technology for the future

In accelerating consumers’ readiness to adopt digital media experiences, the pandemic has also pulled forward the future of technology. As new technologies enable novel business models and consumer behaviour, they’re presenting opportunities for rationalisation, efficiency and faster growth.

In the 5G era, on-the-go consumers using high-speed mobile data will be able to access greater quantities of content, games and services. The revenue opportunities this opens up will reach far beyond better communication, bolstering markets such as gaming, entertainment, music and OTT video. What’s more, 5G’s network capacity is likely to reduce data costs, removing the have-I-met-my-limit worry for consumers streaming over mobile networks.

And as 5G networks roll out globally, the technology’s low latency and ultra-fast data transmission will open up opportunities for mashup business models based on innovative and collaborative uses of data. Cloud and edge computing will deliver the processing power and accessibility needed to support services such as cloud gaming and ever more granular AI-powered mass personalisation.

As demand for data and bandwidth rises, the global migration towards 5G will enable more intelligent and adaptive networks. To create these, operators will implement AI within their networks to manage traffic, capacity and caching, and combine edge computing with concepts such as software defined networking and network functions virtualisation.

The way ahead

This year, driven by COVID-19’s effect on their circumstances, consumers gravitated to the media channels accessible and established in the home, while outside entertainment saw mass decline in consumption. In Australia, this will result in entertainment and media revenue falling by nearly 4.46 percent, or more than AU$2.681 billion in 2020.

Consumer revenue will help to offset the advertising revenue decline, but there is no denying that with the economic pressures affecting advertising investment, and opportunities for marketing shrinking with the growth in ad-free streaming, there will be challenges ahead in capturing consumer attention and monetising audiences.

The positive news is that for E&M segments, where revenue drops have been a result of a lack of accessibility, we expect there will eventually be a return to pre-COVID consumption as things open up. Through 2024, the global industry — as a whole — is expected to post a 2.8 percent CAGR. And for those sectors that were accelerated, the changes are likely to stay.


For more information on the current state of E&M segments and our predictions for their future potential, view the Australian Entertainment & Media Outlook or download PwC’s Perspectives report for insight into global E&M trends.

 

Justin Papps

Contributor

Justin Papps

Justin Papps is a partner and head of CMO Advisory for PwC Australia.

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Contributor

Genevieve Reynolds

Genevieve is a senior manager in PwC Australia’s CMO Advisory team.

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