PwC‘s latest five-year financial forecast for the entertainment industry is both optimistic — and a bit of a head-scratcher. The research and advisory firm estimates that total spending for entertainment and media in the U.S. will hit $723.7B in 2018, up 26.3% from last year. And U.S. filmed entertainment will hold its own, increasing an average of 4.7% a year to $39.2B in 2018. Box office will grow 3.1% a year to $12.5B and will exceed physical home video sales next year. Electronic home video (including subscription VOD services like Netflix) will grow 18.3% a year to $17B. That means streaming and downloads will surpass physical home video in 2016 — and in 2017 will account for 43% of domestic industry revenues, exceeding box office. Home video streaming will be the fastest-growing consumer sub-segment in entertainment, growing 24.8% a year to $10.1B in 2018.
This may come as a surprise to the many programming executives who insist that cable and satellite customers like pay TV’s pricing bundles that require them to pay for channels that they don’t watch. Research and consulting firm PwC heard a different message in June when it surveyed 1,008 people about their video consumption preferences. About 44% favor a la carte pricing, the company says in its new U.S. Video Content Consumption report, while 29% want a package that’s “more customized to my individual interest.” Another 8% said that they’d just like small collection of essential services, with 6% saying that they want to access individual shows instead of full channels. Just 14% said they’d prefer the “full package” that gives them the most options. Those who want something different say that it would provide “more control over the content that appears on their screens and allows their viewing time to be more enjoyable and well-spent,” according to PwC which followed its surveys by conducting focus groups. Some 65% of the people who want a change say that they’d be willing to access 10 or more channels, while 26% put the number between six and nine, with 9% between two and five. How much would they pay? About 16% would go to 99 cents a channel, 24% would go to $1.99, 22% would go to $2.99, and the remaining 37% would go higher. In other findings: …
Chris Lederer will build on his 20 years of experience advising media leaders on strategic issues as Principal at PwC where he will help lead the strategy practice in the Entertainment, Media and Communications sector. Most recently, Lederer partnered with former Time, Inc. CEO Jack Griffin at AlixPartners to lead its Media Practice. Previously, he co-founded Open Road Integrated Media with HarperCollins CEO Jane Friedman and Jim Kohlberg, founder of Kohlberg & Co. In addition to his client experience, Chris has recently been involved with several EMC trade groups including the National Book Foundation, the Mobile Marketing Association, and the Alliance for Audited Media. He has been published in Harvard Business Review and has published two books with Harvard Business School Press.
Hollywood will find little encouragement today in the data from the research firm’s latest annual “Global Entertainment and Media Outlook” report. PwC projects that U.S. consumers and advertisers will spend $31B on filmed entertainment in 2013, up just 1% from last year. That contrasts with 4.6% growth, to $376.4B, in the entire domestic media and entertainment economy. PwC’s soothsayers see the annual growth in filmed entertainment spending accelerating over the five-year period through 2017; it will average +3.4% a year to $36.4B. But with the broader business growing at an average of 4.8% a year, by 2017 filmed entertainment will account for just 5.8% of total U.S. media spending, down from 7.1% in 2009. PwC has even drearier news for pay TV, until recently one media’s hottest businesses: Outlays for “TV Subscriptions and License Fees” will average +2.2% a year to $83B in 2017. That’s a slower growth rate than for radio, expected to be +2.5% a year to $21.6B. TV ads will fare better, at +5.1% a year to $81.6B. But Internet ads are catching up fast, averaging +13.7% a year to $69.4B in 2017.
Cindy McKenzie has joined PricewaterhouseCoopers as managing director of its U.S. entertainment, media and communications practice. Based in Los Angeles, she will oversee PwC’s Southern California efforts in technology, data and business intelligence consulting, focusing on such areas as IT strategy, digital supply chain,content rights management, third-party compensation and content security. McKenzie was SVP Information Technology at Fox Entertainment Group and before that VP Information Systems at Sony Pictures. PwC’s annual “Global Entertainment and Media Outlook” report is must-read for industry pros.
This will be a good year for content creators to put themselves on the block, researchers at PwC project today in a report about likely M&A activity in 2013. Corporate and private equity firms will be looking to bulk up on entertainment, driven in part by tech companies’ need for content that provides “a level of security on prospective cash flows,” the analysis says. Entertainment, media and communications companies “are ahead of the pack in pursuing deals, partnerships and joint ventures to address the accelerated pace of change in consumer behavior,” says PwC U.S. entertainment and media deals partner Bart Spiegel. “Media companies are investing in robust content-management systems and dynamic analytics to not only operate efficiently but also to take advantage of new opportunities.” Some buyers will want entertainment to serve growing overseas markets led by the so-called BRIC countries (Brazil, Russia, India and China). PwC’s bullish forecast follows a robust year for dealmakers: There were 40 film/content transactions last year with a collective value of $9B — including Disney’s $4.1B acquisition of Lucasfilm — the report says. That’s up from 2011, when the industry had 39 deals valued at $1.1B. Forecasters also expect to see additional deals in cable (with buyers attracted to systems’ broadband services), broadcasting (another way to secure distribution) and publishing (Time Warner and Tribune are preparing to sell assets).
PwC says that television execs have a little time to relax before their lucrative business models implode. The consulting firm reached its conclusion after sponsoring a recent debate between the Marketing Association of the Columbia Business School and the Virginia Commonwealth University Brandcenter on the question: “Should advertisers, agencies and the media worry about cord-cutting?” PwC agrees with the Columbia team that with growing competition from Web video providers, and Internet-connected game consoles, “there’s no question that television viewership trends are dramatically changing.” But the firm sides with Virginia Commonwealth concluding that “the impact to the pay TV industry over at least the next five years will be minimal.” The reasons: “Traditional TV viewing is still popular, ubiquitous TV content-on-the-go-packages are becoming commonplace, TV advertising dollars continue to grow, and there are limitations such as content discovery issues with [Web-based] services that need improvement.” Tablets and smartphones, also known as second screens after TV, are becoming important. PwC says that’s no problem for conventional TV: Networks are “developing dynamic companion apps both at the network and show-specific levels to extend viewers’ experience.”