This article is part of our July series about the state of media and entertainment. Click here for more.
While the media and entertainment industry was one of the first sectors of business to navigate digital disruption, its transformation is far from over.
That’s the key finding of PwC’s annual “2018 Media & Entertainment Outlook,” which projects that industry revenues will reach $792.3 billion by 2022, up from 666.9 billion in 2017.
“The distinctions between print and digital, video games and sports, wireless and fixed Internet access, pay-TV and OTT, and social and traditional media are blurring,” said Mark McCaffrey, PwC’s U.S. technology, media, and telecommunications leader. “So to succeed in the future, companies must re-envision every aspect of what they do and how they do it. That means having, or having access to, the right technology and premium content, delivered in a cost-effective manner to an audience that is engaged with the brand.”
Below, we take a look at five industry trends highlighted in the PwC report, all of which are expected to continue shaping the M&E landscape.
Fastest-Growing Revenue Segments
During the five-year period from 2017 to 2022, virtual reality (VR), over-the-top (OTT) video, and internet advertising will be among the fastest-growing revenue generators for M&E companies in the U.S., PwC predicts.
The VR market is quickly transforming into an entertainment and productivity platform. In fact, outlets such as USA Today, Washington Post, and The New York Times are on board the VR journalism trend. The U.S. is currently the world’s leading VR market, with revenue of $1.5 billion in 2017, a 250%-plus increase year over year. By 2022, that total is expected to reach $7.2 billion.
OTT video revenue for media and entertainment (think: HBO Go, Hulu, Netflix) in the U.S. reached $20.1 billion in 2017, up 15.2% YoY. PwC predicts that growth rates will begin to slow as the market matures, but revenue in this area is expected to reach $30.6 billion in 2022.
Additionally, the U.S. continues to lead the global Internet advertising market, with total revenue of $88 billion in 2017. The report predicts that the market will continue to experience growth over the forecast period, expanding at a 7.7% CAGR between 2017 and 2022 to reach $127.4 billion.
Convergence Throughout The Industry
Convergence will be a big M&E theme during the next five years, according to PwC.
For example, streaming services, TV companies, and social networks are now competing over both conventional sports and e-sports rights, the report points out. Additionally, TV companies, telecoms, tech companies, OTT operators, and movie studios are competing to provide TV content. Radio stations, podcast companies, and streaming services are competing to provide radio and podcast content. Brands, too, are jumping on board, creating content to engage the same audiences that M&E companies are after.
“We’re seeing convergence of geographies, a convergence of access, and there continues to be a lot of M&A and transactions looking to consolidate content and grow content base,” McCaffrey said. “There’s a lot of focus on user experience and loyalty, with companies trying to create a more direct relationship with consumers of content.”
5G To Evolve What Content Is
The move to 5G wireless networks affects telecom operators, but it also changes what’s possible in terms of the experiences faster broadband will facilitate. Just think of T-Mobile’s recent acquisition of broadband video startup Layer3, which will enable it to launch an internet-delivered television service across the U.S., powered by 5G.
For its part, Sprint has already made access to Hulu available in some of its packages, which will certainly drive consumption once 5G comes to fruition. Plus, 5G is developing alongside continuing advances in artificial intelligence, the worldwide rollout of IoT devices, the evolution of virtual and augmented reality, and location-based services. From a content perspective, the opportunities to innovate in the next five years—and beyond—are seemingly endless.
A ton of merger and acquisition news has been making headlines in M&E. Take the approved $85.4 billion merger between AT&T and Time Warner. And let’s not overlook Disney’s intent to acquire most of the assets of 21st Century Fox.
The bigger picture? These deals will set a precedent for future M&E consolidation.
“We expect more and more content consolidation in the U.S. as traditional media companies fight for market share against newcomers, such as Netflix, Amazon Prime, and Google,” McCaffrey said. “And I think the impact of those deals, regardless of what the decision is, will potentially create a cascade of events within the industry.”
Data Consumption Will Continue To Grow
Over the next five years, PwC expects data traffic levels will grow by a 22.3% CAGR, reaching 397.8 trillion megabytes in 2022.
PwC attributes the growth in data consumption to consumers’ growing appetite for video content, which will account for 85.6% of total data consumption in 2022. 5G, as mentioned above, will contribute to this boost.
“The opportunity at the end is the growing access to people absorbing content,” McCaffrey told CMO.com.