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Perspectives from the Global
Entertainment & Media Outlook
2018–2022
Trending now: convergence,
connections and trust
www.pwc.com/outlook
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 1 4/27/18 4:59 PM
About this report
Welcome to this year’s special report on when faith in many industries is at an
the findings of our Global Entertainment historically low ebb and regulators are
& Media Outlook. Every year we take a targeting media businesses’ use of data,
deep dive into the data and analysis that the ability to build and sustain consumer
our team of researchers and industry trust is becoming a vital differentiator.
specialists have unearthed – with the
aim of providing fresh perspectives and The result? To succeed in the future
actionable insights. that’s taking shape, companies must
reenvision every aspect of what they do
Our comprehensive data and projections and how they do it. It’s about having, or
on the 15 defined segments across 53 having access to, the right technology
territories are just the start in creating and excellent content, which is delivered
these insights. As in previous years, in a cost-effective manner to an engaged
Ennèl van Eeden
our authors have blended the data with audience that trusts the brand. For
their own observations, experiences and those able to execute successfully, the
examples to turn raw information into opportunities are legion.
true intelligence.
Writing this report was an exciting
What’s trending now? It’s clear we’re in a and energising experience – and we
rapidly evolving media ecosystem that’s hope these qualities shine through. To
experiencing Convergence 3.0 – a new learn more about how our findings and
and different wave of convergence driven perspectives apply to your business,
by different capabilities and higher please contact your local PwC team (see
expectations, and manifesting itself page 32) or reach out to either of us. We
simultaneously in multiple dimensions. look forward to hearing from you.
In Convergence 3.0, the dynamics of
Wilson Chow
competition are evolving while a cohort Best regards,
of ever-expanding supercompetitors and
Ennèl van Eeden
more focussed players strive to build
Global Entertainment and Media Leader
relevance at the right scale. And business
Partner, PwC Netherlands
models are being reinvented so all players
ennel.van.eeden@pwc.com
can tap into new revenue streams, by, for
example, targeting fans and connecting
Wilson Chow
more effectively with customers to
Global Technology, Media and
develop a membership mind-set.
Telecommunications Leader
Photograph pages 2–3: Jena Ardell / Getty Images
Cover photograph: Jasper James / Getty Images
Partner, PwC China
The pace of change isn’t going to let
wilson.wy.chow@cn.pwc.com
up anytime soon. New and emerging
technologies such as artificial intelligence
and augmented reality will continue
to redefine the battleground. In an era
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 2 4/27/18 4:59 PM
Contents
04 Introduction: a new wave of convergence
08 Varieties of convergence
11 Supercompetitors and relevance at scale
15 Reinventing media business models
18 New technologies – new battlegrounds
22 Trust: from table stakes to differentiator
24 Regulation
26 Looking to the future: above and beyond
29 Methodology and definitions
30 Use and permissions
31 Contributors
32 Global Entertainment & Media
Outlook territory contacts
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Introduction: a new wave of convergence
Convergence is all the rage again across entertainment
and media (E&M), technology and telecommunications.
The thick borders that once separated these industries
– and sectors within them – are dissolving. Large access
providers and platform companies are integrating
vertically, while established giants are integrating
horizontally. Companies that once offered only technology
and distribution are moving into content. The distinctions
between print and digital, video games and sports,
wireless and fixed Internet access, pay-TV and over-the-
top (OTT), social and traditional media are blurring.
Although they all had different starting points, many
companies in this converged entertainment ecosystem
are now aiming at business models that revolve around
direct-to-consumer relationships. The transformation
1
unfolding before our eyes is enabling this vast global
industry to keep growing at a pace close to its historical
rate – even amid significant disruption (see Exhibit 1).
Of course, convergence has been cited combination could accelerate growth and
– and hyped – before. But this time it’s value-capture across converging media
different. To explain why, we’ll start with platforms. Broadcaster CBS merged with
a brief history of the convergence seen to Viacom, a pay-TV network company.
date in the industry. Telecommunications provider Telefónica
bought Endemol, a global television
The first wave of convergence (let’s production company and creator of
call it Convergence 1.0) occurred Big Brother. News Corporation added
between 1999 and 2003. Hailed as DirecTV, a US-based satellite operator
heralding a new paradigm in E&M, then owned by Hughes Electronics, to
this convergence had at its core a series its global portfolio of video-distribution
of deals involving traditional content assets. And in the biggest media deal
businesses and delivery-focussed or of all time, Internet portal AOL merged
distribution-focussed players whose with media conglomerate Time Warner.
4 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 4 4/27/18 4:59 PM2.0 – was less ambitious, deemphasising
Exhibit 1: Global E&M revenue (US$ tn)
enterprise-wide transformation in favour
Growth rates remain steady even as the industry is being transformed. of more measured vertical and horizontal
integration. Rather than viewing deals
2.5
2017–22
as an aspirational route to create entirely
CAGR
new businesses, companies aimed their
2.0 4.4%
efforts at owning more links of the value
chain and gaining scale. CBS purchased
1.5 CNET in 2008 to bolster its digital content
and advertising portfolio. In 2009, Disney
1.0
acquired Marvel Entertainment, which
had a complementary set of content
and character businesses. In 2011,
0.5
Comcast, primarily a cable operator,
acquired NBCUniversal, which owned
0.0 cable and broadcast networks, TV and
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 film production operations and theme
parks. Hearst in 2011 acquired 100
Global E&M revenue Global E&M revenue (projected data)
magazines from French media outfit
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook Lagardère, seeking to increase its global
reach. These transactions were, by and
large, successful, even if they didn’t
Exhibit 2: Global digital revenue as % of total revenue
dramatically reposition the combined
Digital revenues will continue to make up more and more of the industry’s income. companies in terms of new capabilities.
2022
2021
2020 56.9% Convergence 3.0
2019 55.8 %
2018 54.3% We are now in the midst of a third wave
52.7 %
2017 50.8% of convergence. It is driven by a set of
2016 48.4% imperatives and trends fundamentally
2015 45.6%
different from the prior two. In essence,
2014 42.6%
the revolutions that began to reshape
2013 39.7 %
the E&M industries in the 1990s and
36.8%
2000s have gathered critical mass
and are now in control. Technology
and communications companies have
become permanent players in the
Global digital revenue Global digital revenue (projected data)
E&M ecosystem. Furthermore, each
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook of the trends below, in its own right,
places pressure on players (and creates
At the time, it was believed that each cross-business collaboration, breakdowns opportunities) to diversify revenue
deal would produce transformative in strategic planning and deal execution streams, position themselves in more
benefits in terms of enhanced consumer and premature market timing. And in and different points in the value chain
reach, new distribution and technology each of these examples, the deals were and seek relevant scale. Taken together,
capabilities and increased organisational eventually unwound. they exert an irresistible force. The
scale and efficiency. However, highly digital economy is several orders of
optimistic projections for strategic and Driven by concerns about slowing magnitude greater in size and scope
operational synergies were generally not growth in core operations in a post- than it was a decade ago, and digital
met for a variety of reasons, including recession environment, the second spending is projected to gain market
mismatches in culture, insufficient wave of convergence – Convergence share rapidly (see Exhibit 2).
Introduction: a new wave of convergence 5
PwcOutlook18_FINAL_Archive_051018_lj.indd 5 5/10/18 12:02 PMExhibit 3: Five fundamental drivers of change
A handful of factors combine to create a new style of convergence.
Consumers and their devices
Ubiquitous are always connected and always on
connectivity
Convergence 3.0 is Data analytics and Mobile devices are
technology that can Personal- becoming consumers’
starting from different
The mobile
support better decision- isation consumer primary means of accessing
making are critical to success E&M content and services
core capabilities, Convergence
3.0
business models,
geographies, consumer
behaviours and Platforms rather than publishers
are the primary beneficiaries of Value shift
to platforms
Need for
new sources
of revenue
Revenue streams that nourished
companies in the past will not be
consumer expectations
users’ growth in time and spending growth flowing with the same force
compared with the
Source: PwC
prior waves.
Drivers of change • Need for new sources of revenue
We see five fundamental drivers of growth: many sectors of the E&M
change (see Exhibit 3): ecosystem are showing weak, stagnant
or even declining growth. Whether it is
• Ubiquitous connectivity: ongoing newspaper companies in the UK, movie
investments in technology and theatre operators in the US, publishers
broadband network infrastructure in Japan or magazine companies
have expanded coverage, capacity, around the world, players will find that
bandwidth and connectivity to the the streams that nourished them in
point where consumers and their previous years will not be flowing with
devices are always connected and the same force. Simultaneously,
always on. These developments telecommunications companies face
support an ever-expanding supply and stagnant core businesses and are
diversity of content, experiences and looking at E&M as a growth driver of
applications that can be delivered new products, services and
directly and digitally to users. experiences. Every company in the
E&M ecosystem is racing to develop
• The mobile consumer: as spending new revenue streams, especially in
grows, the connected mobile device is digital (see Exhibit 4).
rapidly becoming consumers’ primary
means of accessing E&M content and • Value shift to platforms: as
services across virtually all markets entertainment and media have
worldwide. That makes it imperative digitised, social media and technology
for content creators, distributors and platforms, and not publishers (content
platforms to develop the means to creators and packagers), have often
reach and monetise mobile consumers been the primary beneficiaries of
directly through mobile experiences users’ growth in time and spending.
rather than through traditional sales The platforms have shown greater
and distribution approaches. effectiveness in monetising across
6 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 6 4/27/18 4:59 PMadvertising, subscriptions and be more constructive, especially given
transactions. These platforms are the maturity and continued growth of
playing a more prominent role in digital markets. The result is that many
content creation. In parallel, many players, regardless of their heritage of
publishers, especially in video, are core competencies, will have to compete
investing in their own platforms and in several realms at once: content, access,
seeking to become more proficient in distribution, global footprint expansion,
technology, data and digital delivery. technology, user experience, customer
intimacy and monetisation.
• Personalisation: consumers no longer
want one-size-fits-all E&M experiences In fact, we’re already seeing some
determined by network programmers of the participants from prior waves
or publishing editors. Neither do take a more sophisticated approach
advertisers. As a result, data analytics towards convergence. In February 2018,
and technology that can support better Telefónica announced that its Movistar+
decision-making with respect to pay-TV unit would distribute 12 original
content, distribution, user experience Spanish-language series to 13 countries
and monetisation have become in Europe and Latin America through a
increasingly critical to success in the new channel, Movistar Series. In addition
E&M marketplace. to Telefónica’s own original programming
such as La Peste, a hit historical crime
These drivers mean that Convergence drama set in 16th-century Spain amid
3.0 is starting from different core the outbreak of the bubonic plague, the
capabilities, business models, channel will distribute movies, shows
geographies, consumer behaviours and documentaries created by third
and consumer expectations compared parties. And the 110m Movistar mobile
with the prior waves. The effects of this phone customers will have access to
third wave are likely to last longer and the content as well.
Exhibit 4: Global Internet advertising vs. broadcast TV
advertising revenue (US$ bn)
Sectors such as TV advertising will need to find new sources of revenue to
offset stagnant growth.
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Internet 350
advertising revenue 2017–22 2017–22
CAGR CAGR
300
8.7 % 2.3%
250
200
Broadcast TV
advertising revenue
150
100
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Projected data
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook
Introduction: a new wave of convergence 7
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 7 4/27/18 4:59 PMVarieties of convergence
As the Global E&M Outlook highlights, the biggest
technology and telecommunications firms are now
acquiring and integrating E&M assets at a faster pace
and a larger scale than ever before. According to
PwC’s TMT Deals Insights, the number of media and
telecom deals rose 29% in 2017, to 876. But we are
seeing participants of all sizes, and in all geographies,
engage in strategic efforts that in prior eras
would have been classified as vertical integration,
horizontal integration or diversification. The reason
is that media, technology and telecommunications
enterprises now view it as an imperative to own
the user experience. What’s more, technology and
telecom players are keenly aware that content has the
potential to be a high-engagement, high-frequency,
2
high-usage application that keeps users across all
demographics and devices engaged and enables the
provider to build relationships with them.
The specific business objectives being These activities translate into four
targeted vary from company to company: varieties of convergence: convergence
for Amazon, it’s e-commerce, cloud in media; convergence in access;
services and, increasingly, advertising; convergence in business models; and
for Apple, it’s devices; for a telecom convergence in geographies.
company, it’s premium connectivity and
related services (including subscriptions),
as well as advertising. In every case, Convergence in media
the underlying aim is to have a direct Convergence is taking place within the
end-user relationship that enables the media segment itself, as providers and
monetisation of engagement and loyalty distributors link up with one another
in a variety of ways. in unprecedented and unexpected
ways. Indeed, the distinctions among
varieties of media are collapsing: an
8 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 8 4/27/18 4:59 PMinvestigative series by a newspaper is Similar convergence is evident in other
now likely to include video, audio and highly competitive spaces. We’re seeing
text, all published in a digital format; TV networks, telecoms, tech companies,
additionally, distinctions are blurring OTT services and movie studios compete
between a video series made by a studio to provide a broad array of video content
(Lionsgate), a pay-TV network (TNT, to consumers. Radio stations, podcast
AMC or HBO), or a video streaming companies and music streaming services
company (Netflix, Amazon or Hulu). are battling it out to deliver on-demand
audio content to users (see Exhibit 5). And The distinctions among
Video streaming services, TV networks, Google, Clear Channel and advertising
telecoms and social media platforms technology players are competing to
varieties of media
are all competing simultaneously provide digital out-of-home services. are collapsing: an
over live sports rights. Recent examples
include BT’s purchase of media rights
investigative series by a
to English Premier League football, Convergence in access newspaper is now likely
Amazon’s streaming coverage of (wireless/fixed)
NFL Thursday Night Football games Convergence is also under way in
to include video, audio
in the US and Facebook airing 25 Major the telecommunications industry and text, all published in
League Baseball games exclusively on as it prepares for mass rollout of
its platform. Twitter has live-streamed high-bandwidth 5G services. Simply
a digital format.
the Melbourne Cup, Australia’s most put, as consumers expect constant
prestigious horse race, and Time connectivity, the old classifications of
Warner recently acquired video rights wired, wireless, cable and satellite will
to the UEFA Champions League to become meaningless. Multiple system
support the launch of B/R (Bleacher operators (MSOs, cable and satellite
Report) Live, its new sports-focussed TV companies) are launching wireless
video streaming service. plays. Telecoms are buying satellite and
Exhibit 5: Global digital music downloading revenue vs.
digital music streaming revenue (US$ bn)
Overall music revenue continues to rise, but demand is shifting from
downloading to on-demand streaming content.
$25
2017–22 2017–22
CAGR CAGR
$20 –23.7 % 18.0%
$15
$10
$5
$0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Digital music downloading revenue Digital music downloading revenue (projected data)
Digital music streaming revenue Digital music streaming revenue (projected data)
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook
Varieties of convergence 9
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 9 4/27/18 4:59 PMConvergence in geographies
Exhibit 6: Global fixed broadband vs. smartphone data consumption (MB bn)
Finally, we are seeing that companies
By 2020, smartphone data consumption will overtake fixed broadband, even as – especially the largest ones – are
both continue to grow rapidly. converging on global markets. It’s
not an imperative for success in every
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 instance, but the cost of scaling into new
Fixed broadband 700,000
data consumption countries has fallen, and fresh markets
2017–22 2017–22
CAGR CAGR 600,000 offer attractive growth opportunities.
18.8 % 33.3% 500,000 Chinese players such as online and
400,000
mobile payments provider AliPay and
Wanda are competing aggressively
300,000
Smartphone
in Europe. The National Basketball
data consumption
200,000 Association (NBA) is simultaneously
Smartphone data consumption 100,000 seeking to expand sales of its League Pass
overtakes fixed broadband
data consumption. 0 on a global basis, to play more games in
London and Mexico City and to build
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
audiences in China and India. (See “NBA
Projected data Commissioner Adam Silver Has a Game
Plan,” by Christopher Vollmer and Daniel
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook Gross, strategy+business, Apr. 30, 2018.)
Netflix (in 190 countries) and Amazon
MSO players. All are building or buying and mobile devices. And yet today, each are driving global expansion of their
fibre and spectrum. Wi-Fi hot spots are is simultaneously acting as a producer, video streaming businesses. Theatre
becoming ubiquitous in public spaces. distributor and retailer of content. operator AMC just opened its first cinema
Usage of mobile data is expected to in Saudi Arabia and plans to expand to
increase (see Exhibit 6). And as 5G gains We are also seeing convergence among 100 theatres there by 2030. In today’s
uptake and usage, fixed broadband will content, advertising and e-commerce, environment, the prospect of operating
face growing competition from wireless. as a single user expression or impression globally isn’t only for giants. Business
In turn, 5G is expected to act as a major can lead frictionlessly to a transaction Insider, the startup news site acquired
growth driver for entertainment and – whether it is a video game player by Axel Springer, has editions in the
media offerings. Improvements in speed, purchasing equipment for his avatar, an UK, Germany, South Africa, India, Italy,
quality and reliability will positively Amazon Prime shopper downloading Malaysia, Japan and several other countries
affect areas such as mobile gaming, and a movie recommended to her by an – including editions in local languages.
players will have the ability to deliver algorithm or an Instagram user scrolling
more live video as well as immersive through her feed for fashion tips and
virtual reality (VR) and augmented making an in-app purchase after viewing
reality (AR) experiences. a video from one of her favourite brands.
Among more focussed players, especially
Convergence in business models in the publishing industry, we see
One interesting development is that convergence in building a greater level of
highly successful companies that direct-to-consumer revenues involving
began life with very – even radically – subscriptions, live events, e-commerce,
different business and revenue models licencing and consumer products.
are converging on a similar macro
business model. Consider that Amazon We’ll take a closer look at business
is predominantly an Internet retailer, models and new revenue streams in
Disney is a content factory, Netflix began chapter 4, beginning on page 15.
life as a DVD-rental-by-mail business
and Apple rose to prominence in PCs
10 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_043018_lj_FC-17-se_lj-ej_lj.indd 10 4/30/18 10:25 AMSupercompetitors and relevance at scale
As convergence plays out, the question arises:
what will the entertainment and media
ecosystem look like in the future? The forces
driving convergence will likely lead to the
emergence of supercompetitors. This handful
of global players that converge towards similar
business models will unite content, commerce,
advertising, communications and deep financial
resources under a single corporate roof. Each
will be looking to secure exclusive control of
every aspect of its own customer relationships,
consumption and activity.
In the early 2000s, the analogy of the As platforms assume a greater role in
walled garden was commonly used the E&M ecosystem, some already large
to refer to online companies that companies that are not currently viewed
3
looked to fence off their offerings as platforms may choose to consolidate
from the rest of the Internet and offer further in response, creating another
exclusive experiences and content. group of supercompetitors. Large
The supercompetitors have refined and companies that choose to compete will
expanded this concept to the extent have to develop greater depth. That
that their walled gardens have effectively line of thinking undergirds the decision
become ‘walled savannahs,’ in which of Time Warner to sell itself to AT&T,
consumers can roam freely without Disney’s decision to purchase 21st
feeling unduly restricted in terms of Century Fox assets in December 2017
choice and scope. Today, this type of (and Comcast’s effort to disrupt it by
business is exemplified by companies launching a bid to buy Sky TV, which
such as Amazon and Tencent that is 39% owned by Fox) and the ongoing
combine content, commerce and merger talks between CBS and Viacom.
communications with massive
financial resources – attributes that
enable them to expand globally in a Relevant at scale
world that’s balanced between Eastern Given the domination of a group of global
and Western behemoths. supercompetitors that are involved in
most if not every segment of E&M, as
well as other sectors, what can smaller
Supercompetitors and relevance at scale 11
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 11 4/27/18 4:59 PME&M players do to stay in the game and with users and monetise those
compete effectively? Is there a way to connections in multiple ways.
play that’s not dependent on participating
in an arms race for global scale? Scripps Networks, the lifestyle TV
network portfolio that owns Food
In our view – based partly on the insights Network and HGTV, has sold itself to
in this year’s Global E&M Outlook – Discovery, owner of networks such as
the answer is a resounding yes. It’s not Discovery Channel and Animal Planet,
The rise of the that in a world of supercompetitors in a merger aimed at creating greater
with ever-rising scale, everyone else scale in nonfiction, nonscripted video
supercompetitors becomes niche. Or that players face a entertainment. Meredith acquired
has created a deep- binary choice of seeking mass or being Time Inc. not because it wanted the
satisfied with defensible niches. Rather, flagship Time and Fortune titles (in fact,
pocketed class of the imperative is to build a business that it is selling them). Rather, it wanted to
market participants has a relevant scale – that is, it has a reach bring Time Inc.’s women-targeted and
or intensity sufficient to matter lifestyle publications, such as InStyle and
that can buy content, to users, advertisers and partners. People, under the same umbrella as its
invest in startups and complementary brands, such as Better
After all, the rise of the supercompetitors Homes & Gardens. In both instances, the
serve as buyers for has created a deep-pocketed class of two merged companies’ lifestyle genres
maturing businesses. market participants that can buy content, attract passionate enthusiasts and bring
invest in startups and serve as buyers greater scale among mainly female
for maturing businesses. Amazon paid audiences. The mergers not only allow
US$900m for Twitch in 2014, for example. the aggregation of more first-party data
Netflix’s projected US$8bn spending about users, but also make the companies
on content in 2018 is finding its way to more attractive partners for advertising,
production companies, studios, agencies e-commerce and product licencing.
and content creators of all sizes.
Other examples: By focussing on cable
More broadly, convergence has changed systems in Europe, the Middle East and
the nature of competition. Those who the United States, Altice has emerged as a
succeed will do so by focussing on direct large and powerful player. The New York
user relationships, forging commercial Times and Washington Post are adding
bonds with fans, using data to provide paid digital subscribers with remarkable
an excellent user experience, creating speed. And Imax in April 2018 struck a
compelling advertising products and deal to open dozens of its high-concept
generally leveraging the loyalty and theatres in China.
engagement that quality content can
create. And these attributes are not the By building up relevant scale in a
exclusive domain of very large companies. single market, companies can develop
Far from it. In fact, in many ways, smaller multiple streams while offering an
companies may be better placed to alternative advertising and marketing
develop the fan-based user streams that outlet beyond the big platforms. In the
are so vital in a converged world. Netherlands, Talpa has combined under
a single roof commercial broadcast
In the media space, companies as diverse television, several commercial music
as Activision Blizzard, WWE and Barstool radio stations, its own music streaming
Sports are all thriving because they can business (Juke), several popular online
create top-quality content experiences, sites and the tech platform Diffrnt.
build authentic and direct relationships
12 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 12 4/27/18 4:59 PMBig fans of fans At times, relevant scale in these businesses
The key to this mentality, as can appear niche-y. But there are many
Christopher Vollmer pointed out highly defensible niches that offer room for
in a 2017 strategy+business article, growth. Peloton, which offers personalised
“How to Make Entertainment and exercise bikes and services, broadcasts
Media Businesses ‘Fan’-tastic,” is to indoor cycling classes live to connected
focus on fans, the core users who spend devices 24/7. Peloton has developed into
time, attention and money engaging a high-growth converged media device
with the content and with the company. business with relevant scale. It has 600,000
In an age of constant distraction and subscriptions with annual churn of just
endless choice, the value of devoted 0.3%, and 8,000 exercise classes streamed
users grows significantly. on demand. M. Shanken, a lifestyle media
brand primarily for male luxury consumers
In seeking to sell its general interested in wine, smoking and spirits,
entertainment assets to Disney, 21st has built up a network of destination sites,
Century Fox is creating a narrower ‘New including Wine Spectator, Cigar Aficionado
Fox’ that will focus on two fan-based and Whiskey Advocate.
businesses: live sports and news (Fox
News has one of the most passionate
user communities in the US). Relevant capabilities
What capabilities does it take to build
Other highly successful fan-focussed relevance at scale? Our research and
entertainment and media businesses are industry experience point to three vital
thriving in an era of supercompetitors. ones (see Exhibit 7):
WWE, the professional wrestling giant,
has 1.8m subscribers to its streaming • Be a powerhouse of quality and
video-on-demand service, WWE engagement: as creators of high-
Network. Spotify, the streaming music quality and distinctive content,
behemoth, has between 92m and 96m successful players are true specialists
paying subscribers. who are passionate about their subject
Exhibit 7: Capabilities to build relevance at scale
Create a sense of identity and
Be a community with customers by
powerhouse delivering high-quality experience
of quality and
engagement
Relevance
at scale
Target content and Deliver Address fans’ interests and
experiences at high-value Aim at high- content and preferences in your content
value and advertising
audiences that others find hard-to-reach consistent
and advertisements
challenging to attract, and turn audiences with the
them into loyal fans brand
Source: PwC
Supercompetitors and relevance at scale 13
PwcOutlook18_043018_lj_FC-17-se_lj-ej_lj.indd 13 4/30/18 10:35 AMmatter and care about delivering a • Deliver content and advertising
high-quality experience for their consistent with the brand and user
audiences and fans. These attributes expectations: advertisements and
create a sense of identity and community content focussed on a specific
between the brand and its customers experience, a narrowly defined theme
that is not easily matched. or a fan community are more likely to
be consistent, to be viewed, to be
• Aim at high-value and hard-to-reach brand safe and to be in the right
A brand’s video, article, audiences: most successful players context for the users. It also holds true
target their content and user that a brand’s video, article, music or
music or podcast is more experiences at high-value audiences podcast is more likely to be seen, read
likely to be seen, read that others find challenging to attract, or heard by the fans for whom it was
engage and aggregate. They also tend created. In other words, when it comes
or heard by the fans for to be highly efficient and effective at to getting people to consume the
whom it was created. reaching these audiences and turning content a company is offering,
them into active fan communities. addressing its fans’ interests and
Largely as a result, these focussed preferences brings benefits in terms of
players enjoy a very high concentration both subscriptions and advertising.
of defined user/fan groups. Many
members of their audiences self- To the casual observer, it will appear as
identify as loyal fans, and in turn though it’s the supercompetitors that
recommend the brand and content are taking over the world and absorbing
experience to others, which further all the incremental growth. But those
accelerates organic growth. who look more closely can clearly see
space beneath the ambit of the global
giants in which comparatively smaller
and more focussed companies can mine
a rich vein of revenues.
14 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 14 4/27/18 4:59 PMReinventing media business models
A deep dive into the data reveals something
of a disjunction. On the one hand, the overall
volume of E&M spending continues to rise at a
steady, reliable clip along with economic growth,
placing the industry in the same bucket as consumer
products and similar sectors. On the other hand,
underneath the seemingly placid top line, an immense
amount of churn is taking place, with different
subsectors and geographies on sharply different –
and occasionally volatile – trajectories. All this
contributes to players’ sense of an urgent need to
rethink and reengineer their business models. At
every point in the value chain, in every country,
companies are having to reconsider precisely how
and where they generate revenues and what role
4
they play in the E&M ecosystem.
Take advertising. Global spending on fire-sale price of US$50m in November
marketing is rising, especially the digital 2017. DNAinfo, which owned local
component. But there is a widespread news sites such as Gothamist, simply
concern over the viability of existing closed its doors.
models that centre on advertising.
• In TV advertising, so many commercial
• In digital advertising, the duopoly of pods have been stuffed into prime-
Google and Facebook continues to time shows that it’s had the effect of
gather the lion’s share of US digital driving viewers away from consuming
advertising, about 57%. One result of linear ad-supported video. TV
this dynamic is that digital publishers networks are reducing their ad loads
that were the darlings of the industry and innovating with ad formats: for
just a few years ago – BuzzFeed, Vice, example, in February 2018,
Mashable and many others – have NBCUniversal said it was planning to
struggled to meet ad sales targets that cut ad time during its prime-time
were formerly achievable. Mashable, shows by 10% and to reduce the
valued at US$250m in 2016, went for a number of ads in its pods by 20%.
Reinventing media business models 15
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 15 4/27/18 4:59 PMExhibit 8: Global streaming share of recorded music revenue
and OTT share of home video revenue (%)
The rise of streaming has shifted revenues away from advertising
and towards subscriptions.
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
100
OTT/home video
80
60
40
Streaming/rec music
20
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Projected data
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook
• Ad skipping and ad blocking are having advertising on television, radio,
an impact, as consumers act on their newspapers and digital publications in
Large segments of the preference to avoid advertising by using favour of content experiences designed
consumer marketing ad-blocking tools, skipping ads, for social media, e-commerce and their
consuming shows on DVR and fast- own branded assets. Amazon, with its
world are now choosing forwarding through the ads, or simply Prime shopping platform, has emerged
direct-to-consumer doing something else during ad breaks. as a locus for advertising. JPMorgan
In February 2018, Google said it would Chase estimated that Amazon’s ad
models and building build an ad blocker into its Chrome revenues were US$4.5bn in 2017.
brand-direct marketing browser to protect users from the most
intrusive and annoying online ads. • Growth in streaming video-on-
and media capabilities. demand (SVOD) and OTT subscription.
• Large segments of the consumer Whether Netflix or Amazon Prime,
marketing world are now choosing the NBC Sports Gold Cycling Pass
direct-to-consumer business models and or the NBA League Pass, HBO Now,
building brand-direct marketing, Hulu or CBS All Access, SVOD and
e-commerce and media capabilities, OTT subscriptions are one of the
creating a significant ripple effect on fastest-growing components of the
media and advertising. Digital-first video ecosystem. And they are
boutique brands that don’t rely on primarily ad-free. With each passing
physical retail or on mass advertising month, a greater proportion of
have been making headway, including premium video viewing is taking
Dollar Shave Club (razors), Casper place through subscription-supported
(mattresses), Warby Parker (eyewear), environments, especially among
Away Travel (travel), Birchbox affluent households (see Exhibit 8).
(beauty), Everlane (apparel) and the
Honest Company (household
products). They largely eschew
16 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_043018_lj_FC-17-se_lj-ej_lj.indd 16 4/30/18 10:37 AMDeveloping new streams Closing the loop between user 23, 2018). Tencent’s Riot Games has
of revenue engagement and commerce activity. introduced a franchise structure for
Given the prospect of such disruptions, Video game company Ubisoft, like its its North American League of Legends
it’s hardly surprising that building new peers Activision, EA and Take-Two, has Championship Series (NA LCS).
revenue streams is at the top of the agenda shifted its strategy from releasing annual Activision has created a professional
for every player in the E&M industry, blockbusters to reinventing franchises league around Overwatch. Electronic
especially those that are currently reliant such as Assassin’s Creed and Tom Arts is developing e-sports competitions
on advertising. In fact, companies are Clancy’s Rainbow Six Siege as live digital for both its Madden and FIFA franchises.
exploring an expanding array of strategies services. In-game microtransactions, or
to build new streams. (For a more what Ubisoft refers to as ‘recurring player Globalising aggressively by pushing
thorough description, see “The Revenue investments,’ such as a US$4.99 ‘unicorn into new geographic markets. Netflix
Stream Revolution in Entertainment mount’ for Assassin’s Creed players, is currently available in 190 countries.
and Media,” by Christopher Vollmer, grew 87% in fiscal year 2018, and now Having grown tenfold between 2012 and
strategy+business, May 7, 2018.) Some represent 27% of total company revenue. 2017, international subscribers (62.8m)
approaches are listed below. now exceed the company’s domestic
Extending the brand from media subscribers (54.8m). Netflix curates
Maximising distribution reach by properties into new revenue streams content, in any language, that would appeal
monetising existing core brands, products through physical experiences and products. to the nearly 2,000 ‘taste communities’
and intellectual property through new Tasty, BuzzFeed’s foodie brand, parlayed it identified during the course of its
channels and platforms, either owned its massive social media fan base across global rollout. Taste communities are
and operated or accessed via partners. Instagram (17m followers), Facebook (94m groups of subscribers around the world
In less than three years, HBO Now, likes) and YouTube (6m subscribers) who are fans of certain types of content,
the channel’s on-demand service, has into a multimedia franchise that now regardless of where they live.
attracted 5m subscribers. CBS All Access, also includes an eponymous best-selling
the television network’s subscription cookbook and a line of Tasty-branded
video service (offered with limited kitchen tools at Walmart. Business model innovation
commercials for US$5.99 per month or has much further to run
commercial-free for US$9.99 per month), Encouraging a membership mind-set As the drive to create new E&M business
debuted in the fall of 2014. Powered by that allows a company to sell premium models continues, it’s clear that the
exclusive original series such as Star Trek: media experiences and related benefits, pressure driving this wave of innovation –
Discovery and The Good Fight (a spin-off products and services. The New York Times not least the squeeze on ad revenues – won’t
of the popular CBS Network series The Company saw its digital subscriptions ease off anytime soon. So the reinvention
Good Wife), the video service has grown to soar from 910,000 in 2014 to 2.64m in has much further to run, and the industry-
2.5m subscribers, adding approximately 2017. The engaged subscriber fan base wide move to tap into and develop new
500,000 in the last year. has become an attractive monetisation streams may have only just begun. Ongoing
target for consumer offerings such as advances in technology will be one of the
Developing new ad products. Sky’s travel (New York Times Journeys), main forces that aid in that effort.
AdSmart platform serves addressable product recommendations (Wirecutter, a
households (those within a defined or site acquired in 2016) and events (Times
targeted audience) different ads during Talks, New York Times conferences
the same TV programming, targeting and subscriber events).
viewers’ demographics, location, shopping
habits and behavioural attributes. Sky Prospecting for new revenues in
has created more than 1,200 audience entirely new entertainment and media
segments – examples include ‘sports markets. Video games publishers
car fans’ and ‘luxury travellers’ – that and sports entertainment entities
advertisers can target. Sky charges a increasingly view e-sports as their next
significant premium for AdSmart ad big revenue growth engine (see “Video
units, up to eight times the rates for non- Gaming Levels Up into a Sport,” by
addressable TV inventory. Bob Woods, strategy+business, Apr.
Reinventing media business models 17
PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 17 4/27/18 4:59 PMNew technologies – new battlegrounds
Across all segments of E&M, technology is enabling
cheaper and more personalised content delivery.
That is having the effect of squeezing out less efficient
players, intensifying pressure on all links in the
value chain and opening the way to the creation of
new formats, such as e-sports. For all participants in
E&M, cost efficiency is an important element of future
viability. And the more traditional conglomerates,
many of which have legacy cost structures in place, find
themselves competing against challengers with different
cost structures. This only heightens the sense of urgency
with respect to investing in new technologies that can
help companies compete more effectively.
Data analytics
5
asset. Schibsted, the Norwegian media
company, has developed prediction
and insights models that determine how likely
As business models and capabilities it is that an ad-supported user can
change, it’s clear that data and be converted to a subscriber. After
analytics will play a pivotal role in analysing first-party signals such as
E&M. Today, many companies still lack the frequency of visits, it assigns each
the data and analytics capabilities they user a ‘propensity score’ that indicates
need to deliver content, advertising his or her likelihood to subscribe
and other experiences to the right (high, medium or low). Schibsted then
users at the right time and in the right tailors the user experience (by, for
context – although this is clearly a example, enticing high potentials with
high-priority investment area for many. greater content access before they hit
the paywall) to encourage conversion.
As companies in E&M pursue new The model identifies readers who are
revenue streams, first-party data has three to five times as likely as average
emerged as perhaps the most valuable users to subscribe.
One component of the technology impact is data and analytics to all media operations
the growing importance and centrality of (see box on data analytics and insights).
18 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 18 4/27/18 5:13 PMPwC’s essential eight • Mimicking techniques perfected including Amazon Web Services,
PwC analysed more than 150 emerging by the airline industry to maximise IBM and Google that can help E&M
technologies to pinpoint the essential ticket revenue from seat sales, game providers build more engaging services,
eight: a set of technologies that every publishers are using data to adjust prices delight customers more effectively and
organisation, both in E&M and beyond, dynamically for microtransaction drive additional revenues.
must consider in formulating its tech items based on user demand. They
strategy (see Exhibit 9). also analyse player context to determine • Factmata, a startup that uses AI to spot
where, when and how to best fake news, hate speech, abusive
Although each will play a significant merchandise and promote items to content and extreme clickbait, has
role in E&M, it’s clear that one (AI) will users in-game. raised funds from investors including
dominate, two others (AR and VR) are Internet entrepreneur Mark Cuban.
already beginning to play supporting • Like companies in most other
roles and a fourth (blockchain) is likely industries, media firms have started
to enter the conversation. experimenting with AI in areas such AR and VR take off
as voice control and chatbots. As The potential power of AI in E&M is
AI will have a pervasive impact on all types experimentation starts to turn into real further increased by the opportunity
of companies involved in E&M and will products, 2018 is seeing the emergence to combine it with other emerging
become the industry’s new battleground. of production-grade tools from firms technologies, especially virtual reality
The impacts will be many and highly
Exhibit 9: The essential eight technologies
diverse. Netflix’s recommendation
algorithm is one prominent example of Companies in every industry, not just E&M, must reckon with these innovations.
how AI builds consumer engagement and
satisfaction. But in the next few years,
more and more telecommunications Internet of Things
companies will launch voice-controlled
AI assistant interfaces for their pay-TV
and smart home products and services. Robots Augmented
This widespread adoption of AI will not reality
only enhance the customer experience
that companies provide, but will also
allow them to protect their relationships
with consumers. To date, Amazon’s
Alexa and Google Assistant have been
prevalent in the market for AI-enabled
virtual assistants. But fierce competition Essential
is coming, in the shape of the next Drones Virtual
eight reality
generation of AI-powered ‘smarter
phones,’ which will combine voice
interfaces with the use of algorithms to
anticipate and infer users’ intent.
AI will also continue to advance on
other fronts:
3D printing Blockchain
• NBCUniversal, which is reducing the
number of ads in its prime-time shows,
said it would use a new AI-driven Artificial intelligence
targeting tool to make its ads more
relevant for audiences. Source: PwC
New technologies – new battlegrounds 19
PwcOutlook18_043018_lj_18-BC-ej_lj-se_lj.indd 19 4/30/18 10:41 AMExhibit 10: VR growth in 10 key markets*
Sales of VR headsets are projected to rise and bring revenues along with them.
$25,000 200
2017–22 180
CAGR
$20,000 40.4% 160
VR revenue (US$ m)
140
VR units (m)
$15,000 120
100
$10,000 80
60
$5,000 40
20
$0 0
2016 2017 2018 2019 2020 2021 2022
VR revenue VR units
VR revenue (projected data) VR units (projected data)
* US, Japan, China, South Korea, UK, France, Germany, Russia, Italy, Spain
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook
and augmented reality. Revenues One media business that is leading
from VR apps, gaming and video, the way in promoting and applying
Blending AI and which were US$3.9bn in 2017, are VR is the UK’s Guardian Media Group.
VR/AR can have a expected to soar more than fivefold The website of the company’s flagship
by 2022 (see Exhibit 10). In the VR newspaper, the Guardian, offers readers
transformational impact space, the installed base of headsets a free downloadable VR app, together
on the ability to derive is projected to grow substantially, with a click-through opportunity to buy
helped by Facebook launching its a Google Cardboard headset. One day
actionable data on US$199 untethered Oculus Rift in the in October 2017, it bundled a Cardboard
consumers’ behaviour. second quarter of 2018 for gaming, headset free with every edition of the
education and enterprise use. The price newspaper. Using the headset and app,
point is significant: the Rift originally readers are offered VR experiences
sold for US$599, and required a such as investigating a murder scene or
computer costing several hundred exploring subterranean London.
dollars to power the related VR
experiences and games. The Void, a location-based VR startup
that has rolled out a Ghostbusters VR
Blending AI and VR/AR can have experience in four locations, has created
a transformational impact on the a Star Wars–branded experience, ‘Star
ability to derive actionable data on Wars: Secrets of the Empire,’ at Disney
consumers’ behaviour. For example, resorts. The experience integrates the
the VR analytics company Retinad Void’s hardware and software with
has developed heat-map technology the physical space.
that tracks where a person in a virtual
environment looks and for how long. VR will remain significant for E&M
In the future, apps could harness that companies, but mobile AR is poised to
data to create experiences geared play an even more transformative role for
to specific individuals. the industry. After the massive success of
20 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 20 4/27/18 5:13 PMPokémon Go, and both Apple and Google Blockchain plays a greater role
announcing their platforms for mobile AR The emerging technology of blockchain
(ARKit and ARCore, respectively), 2018 is likely to evolve as an enabler of digital
is poised to be a breakthrough year for transformation for E&M companies.
these types of applications. Blockchain has the potential to grow
into a key capability, helping companies
Games will continue to dominate in the keep track of content assets, avoid
mobile AR category. But several other contractual disputes and establish the
key app types will also grow, including certainty and accountability that will Blockchain could
navigation, home improvement and foster trust with business partners and
experiences designed by brands to customers. Looking more widely across
bring benefits in areas
increase consumer engagement. Also, the E&M ecosystem, commentators have as diverse as royalty
alongside E&M companies, we’ll see other highlighted that blockchain could bring
(often closely adjacent) industries adopt benefits in areas as diverse as royalty
tracking and collection,
both AR and VR to create immersive tracking and collection, crowdfunding digital advertising
customer experiences. These adopters of creative productions, digital
will include museums presenting advertising impact measurement
impact measurement
collections virtually and football clubs and piracy prevention. and piracy prevention.
offering remote action experiences – thus
competing for user attention that used to To respond effectively to this expansion
belong to E&M. in the competitive environment, media
companies should work out how to partner
NextVR and the NBA have partnered to with organisations that have expertise in
create a VR experience for subscribers to the relevant new technologies.
the NBA’s League Pass. Shooting the action
with eight specialised cameras, NextVR However, these are just initial steps
captures angles of the game and streams – and the next frontier has yet to be
them live to subscribers who are watching crossed: securing the data, using it to
through NextVR’s Samsung Galaxy Gear improve experiences and monetising
VR – so that they can effectively be just it more effectively, all while retaining
behind the hoop as LeBron James swoops and growing customers’ trust. That’s the
in for a thunderous dunk. In 2018, Intel looming challenge for the industry.
created a March Madness Live VR app
to allow fans of college basketball to
experience NCAA tournament games
in new ways while watching through
Samsung and Google devices.
New technologies – new battlegrounds 21
PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 21 4/27/18 5:13 PMTrust: from table stakes to differentiator
The level of trust in companies among both
consumers and business-to-business customers is
an increasingly prominent topic of debate, and E&M
companies are intensely affected by it. Trust will
also be a vital determinant of the sector’s ability to
attract and sustain revenues in the future, from both
subscriptions and advertising (see Exhibit 11).
Exhibit 11: Five vital dimensions of trust
Is your content Is your audience Are you taking Are your Is your company
trustworthy? who you say it is? proper care of investments good for society?
Advertisers are raising Media and
the data? paying off? The sheer size, reach
questions about the academic reports More E&M companies Direct measurement of and utility of today’s
6
quality, safety and have suggested that are assuming more audience engagement – media platforms
appropriateness of the many social media responsibility for whether an agency is are resurfacing this
content advertisers accounts are bots. protecting credit delivering the promised philosophical question.
advertise against. card numbers. audience to a client –
has not been answered
to satisfaction.
Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook
E&M isn’t alone in depending crucially to build trust with consumers,
on its ability to build trust for its long- customers, clients and society at large.
term well-being. The industry shares that Today, things are more complicated.
need with others including technology, Companies today must demonstrate
financial services, automotive and trust across multiple dimensions.
professional services. But the rising
importance of data – and the central Content trust: is your content safe?
place that the usage, storage, sharing, Broadly speaking, advertisers are
mining and safety of consumer data raising questions about the quality,
plays in the emerging landscape – is safety and appropriateness of the
pushing trust to an even more central content they advertise against. As
position. In the old environment, it was algorithms serve up millions of ads
comparatively easy for E&M companies without human intervention –
22 Global Entertainment & Media Outlook 2018 –2022
PwcOutlook18_043018_lj_18-BC-ej_lj-se_lj.indd 22 4/30/18 10:43 AMYou can also read
