Perspectives from the Global Entertainment & Media Outlook 2018–2022 Trending now: convergence, connections and trust

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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 [email protected] 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 Partner, PwC China The pace of change isn’t going to let [email protected] up anytime soon. New and emerging technologies such as artificial intelligence and augmented reality will continue to redefine the battleground. In an era Cover photograph: Jasper James / Getty Images Photograph pages 2–3: Jena Ardell / Getty Images

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

PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 1 4/27/18 4:59 PM PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 2 4/27/18 4:59 PM PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 3 4/27/18 4:59 PM 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 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 1 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 PM 2.0 – 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 4.4% 2.0 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% 54.3% We are now in the midst of a third wave 2018 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 PM Exhibit 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- The mobile becoming consumers’ starting from different 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 Platforms rather than publishers Need for Revenue streams that nourished behaviours and are the primary beneficiaries of Value shift new sources companies in the past will not be to platforms of revenue users’ growth in time and spending flowing with the same force consumer expectations growth 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 PM advertising, 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 8.7% 2.3% 300

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 PM Varieties 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, 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 2 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 PM investigative 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 PM Convergence 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 countries has fallen, and fresh markets data consumption 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 AM Supercompetitors 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 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 3 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 PM E&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 PM Big 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 AM matter 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 PM Reinventing 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 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 4 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 PM Exhibit 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 AM Developing 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 PM New 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 asset. Schibsted, the Norwegian media and insights company, has developed prediction 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 5 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 PM PwC’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 Drones Essential Virtual is coming, in the shape of the next 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 AM Exhibit 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 CAGR 180 $20,000 40.4% 160 m)

140 ) S$ $15,000 120 (U 100

nue $10,000 80 ve

60 VR units (m $5,000 40 VR re 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 PM Pokémon 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 PM Trust: 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? the data? paying off? Advertisers are raising Media and The sheer size, reach questions about the academic reports More E&M companies Direct measurement of and utility of today’s 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 6 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 AM sometimes accompanying videos with terms and conditions that allow for the Trust as a differentiator objectionable content – major companies sharing of data. Typically, trust would be seen as a have grown concerned about brand qualifier that supports a business’s or safety on some of the leading platforms. Monetisation trust: are your industry’s licence to operate. But a strong Global consumer goods giant Unilever investments paying off? Again, case can be made to view and treat trust threatened to pull its advertising from e-commerce and online advertising as a differentiator. Companies that have online platforms if they don’t take steps and marketing offer the potential for trust with everyone they do business with to remove content that, in the words of transparency and direct measurement. will enjoy a competitive edge over those CEO Keith Weed, creates “division in But questions about how audiences are that don’t – from private individuals to society and promote[s] anger and hate.” measured, or the length of time people massive corporate business partners. Whether it takes the form of policing actually viewed an online video counted comments, imposing standards on news as a view, or what percentage of viewers How do companies build trust? items or reinjecting human judgment into are skipping ads, or whether a publisher Obviously, it starts with the content programmatic advertising, publishers, is delivering the promised audience to an and the brand. A greater sense of agencies and marketers must take pains agency, or whether an agency is delivering transparency is vital if trust is going to to ensure that content is trustworthy. the promised audience to a client have not be built within the entire ecosystem. been answered to everybody’s satisfaction. Consumer products should take their Audience trust: is your audience cue from consumer-facing companies who you say it is? Today’s technology Ecosystem trust: is your company or that have taken pains to share more offers the tantalising prospect of ultra- industry good for society? This may information about their operations precise audience measurement: who seem like a philosophical question. But, and products with consumers, vendors is watching and for how long? But again, within the past year, we have seen and the public. Patagonia created The legitimate questions have been raised significant questions raised about the Footprint Chronicles, an interactive guide as to how much faith can be put in the use of television networks as vehicles for that helps customers dig into its supply measurement. A series of media and propaganda, about the pervasiveness of chain. Hershey is making nutrition data academic reports have highlighted hate speech on discussion boards and more prominent on packaging, and the presence of bots, or fake accounts, about the use of social media platforms Whole Foods offers transparency on the on social media platforms. Multiple by parties that sow division and ethnic use of genetically modified organisms. It investigations have shown that it is quite strife. To a degree, this is nothing new. is possible to build trust via the sharing easy for people to create personas – even In the 1960s, FCC Commissioner Newton of information without compromising entire organisations – on social media Minow railed against television as a vast competitive advantage. platforms that don’t exist in real life. wasteland. (Now television is regarded as the locus of much of the finest Data trust: are you taking appropriate programming.) In the 1980s, prominent and proper care of the data that Washington figures campaigned against consumers entrust to you? As more explicit lyrics in rap music. (Hip-hop E&M companies enter direct commercial has since become mainstream.) But the relationships with customers, whether sheer size, reach and utility of today’s selling products inside video games or media platforms are making them a signing up subscribers to OTT apps, they target once again. are assuming more responsibility for the protection of credit card numbers. In an age of large-scale hacks, it is natural for users to question whether it makes sense to transact so freely. At the same time, the ability of app developers to access the profiles of tens of millions of social media account holders has highlighted the dilemma of data protection – even in instances when users may have accepted

Trust: from table stakes to differentiator 23

PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 23 4/27/18 5:13 PM Regulation

The ability to comply with evolving regulations continues to be a vital task for E&M companies – and it can be a catalyst in building trust. The EU’s General Data Protection Regulation (GDPR), which went into effect in May 2018, requires sweeping changes in how businesses and public-sector organisations handle and use their customers’ personal information. As well as creating compliance challenges, the GDPR provides an opportunity for E&M companies to upgrade their systems, communicate superior protection for customers and demonstrate their trustworthiness.

Although significant, the GDPR is just most significant is ‘Do no harm,’ which one of the fundamental shifts under reflects the inherent tensions between way in the global regulatory landscape, safety and innovation. This trend could which has profound implications see tech – and especially social media – for E&M businesses in all segments companies face new regulations affecting and geographies. In many ways, the key areas of their business, including current regulatory trends are forcing disclosure requirements for sources of every company’s hand. But the good online advertising and obligations to news is that complying with the new police user-generated content. regulations can increase customer trust in E&M businesses. Another policy trend with particularly significant implications for E&M is ‘Digital discontent.’ Owing to rising Top policy trends for 2018 dissatisfaction and concern with some of At a macro level, PwC has identified the effects of digital technologies, there eight top policy trends for 2018 that in is a heightened focus on and conversation combination are reshaping the global about regulation. Indeed, just as E&M is regulatory environment (see Exhibit 12). experiencing convergence, the regulatory These trends reflect growing challenges domain is also experiencing a degree of to the established architectures of trade, convergence. Social media companies are taxation, security and communications. facing the possibility of being regulated Clearly, some of the eight trends we in a similar way to how utilities were highlight in the exhibit will have greater regulated a century ago, as operators of 7 impacts on E&M than others. One of the vital public services.

24 Global Entertainment & Media Outlook 2018 –2022

PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 24 4/27/18 5:13 PM Exhibit 12: Top trends affecting policy and regulation in 2018

America Judges will interpret – and Storm the First meets Everyone will be a China watcher. define – new architectures. court One Belt, One Road

Custom solutions will Deregulation The skills Companies that reinvent prevail in a reimagined – rhetoric or challenge their own talent will gain reality? global landscape. Top trends an edge. Self-regulatory affecting policy and organisations help regulation Digitisation of currency will The US will no longer in 2018 Virtual cash, build trust, because the set the world’s regulatory New outlier virtual create a clash among nation- pace, and corporations will weapons states, corporations, civilians member companies are respond as mini-sovereigns. and bad actors. collectively choosing to Humans will reassert themselves in Do no Digital Tech giants will seek to regain trust with the battle between safety and innovation harm discontent self-regulation and new solutions. behave in an ethical way. as regulation of new technology evolves.

Source: PwC, Top Policy Trends of 2018

There are also differences between brokerage. SROs are starting to approaches to regulation at a regional emerge in E&M, through initiatives level. In the US, questions are being such as the recent collaboration to posed about whether the regulatory create ‘trust indicators.’ environment may be becoming less favourable to supercompetitors and more SROs can be the most efficient way to favourable to incumbents. Meanwhile, in strike a balance between the potentially Europe, one of the by-products of concern negative impacts of rapid innovation about trust is a higher level of direct and the responses of regulators and regulation (notably the GDPR) and calls policymakers to mitigate those impacts. for yet more regulation. An SRO is not as constrained by national borders as traditional regulation tends to be. The overarching advantage of SROs Self-regulation is that they help build trust, because One way to build trust is to engage with the member companies are collectively other E&M companies and even other choosing to behave in an appropriate and industries to create a self-regulatory ethical way. It’s even possible to create a organisation (SRO), which sets agreed stamp of approval, by implementing an standards and monitors the signatories’ annual third-party certification process behaviour against them. An SRO is an to ensure that those that have committed approach to regulatory oversight wherein to complying with the principles are the members of an industry or industry actually doing so. subgroup band together to define a set of rules or principles with which all the Overall, what’s clear is that regulation is members of the group agree to comply. changing – but that the E&M industry will SROs are already commonplace in continue to change even faster in terms industries such as financial services; of offerings, go-to-market strategies, one example is the Financial Industry business models, technology and trust. Regulatory Authority (FINRA) for organisations involved in securities

Regulation 25

PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 25 4/27/18 5:13 PM Looking to the future: above and beyond

The future holds both a great deal of promise and significant challenges. The good news is that, overall, the amount of time and money spent on E&M industries is growing throughout the world. And that trend shows no sign of slowing. Our lives may appear to be saturated with media. But every day, new viewers are coming of age and attending their first movie, millions of people are plugging into the Internet for the first time, or getting their first smartphone, or gaining enough income to spend on a digital publication (see Exhibit 13).

Exhibit 13: Data consumption CAGR by content type, 2017–22 Consumers are expected to spend more time engaging in E&M sectors.

Communications 28.5%

Games 27.8%

Video 25.4%

Other digital % content 24.2

Music 23.9%

Social % networking 20.7

Web browsing 18.8%

Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook

The challenge is that the way in fact, it may not work in the next three which that time and money is spent years. For many businesses, the models, is shifting – in some instances, assets, practices and capabilities that dramatically. For many, the business support their current market positioning model that worked for the last 10 years likely will not be sufficient to carry 8 may not work in the next 10 years. In them into the future. 26 Global Entertainment & Media Outlook 2018 –2022

PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 26 4/27/18 5:13 PM Exhibit 14: Who’s on the hook? Consumers say businesses more than government

92% 82% 80% 72% 70% 60%

Agree Say Agree Believe Say Say the companies government government companies government responsibility must be should regulation are better is ineffective of protecting proactive regulate of new equipped in ensuring data rests about data companies’ technologies than fair use of with the protection use of data is crucial for government their data company consumer to protect collecting protection their data the data

Source: PwC US Protect.me Survey, 2017

The question is how companies should at partnering – a capability that has and will react to this reality. It is clear not traditionally been core for media that armed with this knowledge (and companies. Building relevant scale with the robust data of the Global E&M will require becoming a powerhouse Outlook), E&M companies will have of quality and engagement by having to go above and beyond. content creators who are as passionate about the subject matter as the target Above and beyond how they currently fans; engaging high-value, hard- envision themselves: every E&M to-reach audiences that can translate company now faces important choices into powerful and distinctive fan about its future basis for competition. communities; and maintaining How will it seek to win? This choice consistency and brand safety with is essentially between becoming a respect to content and advertising. supercompetitor and building relevance at scale; between embracing complete Above and beyond the way they convergence and embracing selective currently make money: E&M convergence. Whichever way this companies must develop an urgency decision goes, the effort will bring its in the creation of new revenue streams. own challenges. Businesses seeking They must distil more value from the convergence must either muster the streams they currently have, continually resources necessary for acquisitions prospect for new streams and adopt and investment, or improve their ability a strategic mind-set that permits

Looking to the future: above and beyond 27

PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 27 4/27/18 5:13 PM investment and experimentation to Above and beyond the way they build connect directly with users and monetise and retain trust: a recent research report those relationships in new ways. in PwC’s Consumer Intelligence Series – Protect.me – finds that 85% of consumers Above and beyond their current will not do business with a company if capabilities: E&M companies must they have concerns about its security To build trust, build a strong content creation and practices, and 92% believe they should be companies should curation capability, supported by a able to control the information available clear understanding of the economics about them on the Internet (see Exhibit do more than what’s behind it. But they must also develop a 14). Given the ingenuity of hackers and required by law. more refined understanding of customer the intensification of regulatory, social segments and needs – including and media attention on data security and customers’ willingness to accept trust issues, companies have to redouble advertising – by leveraging data and their efforts. To build trust, companies analytics. They must add team members should do more than what’s required by who can focus on developing compelling law. They should proactively manage user experiences and retention cybersecurity and privacy risks in a way strategies, as well as building loyalty and that goes beyond a compliance checklist understanding lifetime customer value. approach and enables customers both to see the data held about them and to control how it’s used.

In the E&M world, there is no guarantee of success, and no single path towards a viable future. Making long-term predictions is challenging, especially in this age of continual disruption. But our ongoing efforts to collect, analyse and understand data at a granular level, assess the impact of the trends affecting our world and lay out the strategic imperatives that all companies face allow us to approach the exciting vista with a sense of clarity and optimism.

28 Global Entertainment & Media Outlook 2018 –2022

PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 28 4/27/18 5:13 PM Methodology and definitions

Historical data collection Forecasting methods Definitions All forecasts have been built starting All forecasts are prepared as part of a Do you want access to consumer and with the collection of historical data collaborative, integrated process involving advertising spending data at the click of from a variety of sources. A baseline of both quantitative and qualitative analysis. a button? The Global Entertainment & accurate and comprehensive historical The forecasts are the result of a rigorous Media Outlook is a comprehensive source data is collected in the first instance from process of scoping, market mapping, of global analyses and five-year forecasts publicly available information, including data collection, statistical modelling of consumer and advertising spending from trade associations and government and validation. across 53 territories for 15 segments: agencies. When this data is used directly, these sources are cited accordingly. Note: All data, charts and graphs (unless Books In addition, interviews with relevant stated otherwise) in this publication Business-to-business associations, regulators and leading are taken from the Global Entertainment Cinema players have been conducted to gather & Media Outlook. Data consumption insights and estimates not available in the Internet access public domain. When this information is Internet advertising collected, it is used as part of calculations, Magazines and the sources are proprietary. Music, radio and podcasts Newspaper OTT video Out-of-home advertising Traditional TV and home video TV advertising Video games and e-sports Virtual reality

To access the full segment definitions for the Outlook, please visit www.pwc.com/outlook

Methodology and definitions 29

PwcOutlook18_043018_lj_18-BC-ej_lj-se_lj.indd 29 4/30/18 10:47 AM Use and permissions

Use of data in this publication Permission to cite About PwC Material in this publication is drawn from No part of this publication may be At PwC, our purpose is to build trust in data in the Global Entertainment & Media excerpted, reproduced, stored in a society and solve important problems. Outlook 2018–2022, a comprehensive retrieval system or distributed or We’re a network of firms in 158 countries source of consumer and advertising transmitted in any form or by any with more than 236,000 people who spend data available via subscription at means – including electronic, are committed to delivering quality in www.pwc.com/outlook. PwC continually mechanical, photocopying, recording assurance, advisory and tax services. seeks to update the online Outlook data; or scanning – without the prior Find out more and tell us what matters to therefore, please note that the data in written permission of PwC. you by visiting us at www.pwc.com. this publication may not be aligned with the data found online. The Global Requests should be submitted in writing Entertainment & Media Outlook 2018– to Angela Suh at [email protected] Supplier to the Outlook 2022 is the most up-to-date source of outlining the excerpts you wish to use, Ovum, a provider of business intelligence consumer and advertising spending data. along with a draft copy of the full report and strategic services to the global that the excerpts will appear in. Provision telecoms and media markets (which is This document is provided by PwC for of this information is necessary for every a trading division of Informa Telecoms general guidance only and does not citation request to enable PwC to assess and Media Ltd.), www.ovum.com constitute the provision of legal advice, the context in which the excerpts are accounting services, investment advice or being presented. professional consulting of any kind. The © 2018 PwC. All rights reserved. PwC information provided herein should not be Without limiting the foregoing, excerpts refers to the PwC network and/or one used as a substitute for consultation with from the publication may be used only or more of its member firms, each of professional tax, accounting, legal or other for background market illustration, which is also a separate legal entity. competent advisers. Before making any should not be the sole source of 2018– Please see www.pwc.com/structure decision or taking any action, you should 2022 information and must not form for further details. This content is for consult a professional adviser who has the majority of sourced information. general information purposes only, and been provided with all pertinent facts should not be used as a substitute for relevant to your particular situation. consultation with professional advisers.

The information is provided as is, with no Global Entertainment & Media assurance or guarantee of completeness, Outlook is a trademark owned by accuracy or timeliness of the information PricewaterhouseCoopers LLP. and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability and fitness for a particular purpose. Content from the articles in this publication must not be excerpted, used or presented in any portion that would render it misleading in any manner or that fails to provide sufficient context.

30 Global Entertainment & Media Outlook 2018 –2022

PwcOutlook18_043018_lj_18-BC-ej_lj-se_lj.indd 30 4/30/18 10:50 AM Contributors

CJ Bangah Kristina Bennin Megan Brownlow Wilson Chow James DePonte Karel Garside Daniel Gross Mark Maitland Vicky Myburgh Paolo Pigorini Emmanuelle Rivet Karim Sarkis Phil Stokes Sam Tomlinson Ennèl van Eeden Christopher Vollmer Cecilia Yau

Many other professionals from the PwC entertainment and media practice, across 53 territories, reviewed and added local expertise to this publication.

Contributors 31

PwcOutlook18_042718_lj_18-BC-ej_lj-se_lj_V2.indd 31 4/27/18 5:13 PM Global Entertainment & Media Outlook territory contacts

Global Czech Republic Ireland Ennèl van Eeden Tomas Basta Amy Ball [email protected] [email protected] [email protected]

Argentina Denmark Israel Ariel Vidan Leif Ulbaek Jensen Amir Gleit [email protected] [email protected] [email protected]

Australia Egypt Italy Megan Brownlow Bahjat El-Darwiche Maria Teresa Capobianco [email protected] [email protected] [email protected]

Austria Finland Japan Hannes Orthofer Tuomas Törmänen Yoshiki Seki [email protected] [email protected] [email protected]

Belgium France Kenya Kurt Cappoen Gad Azuelos Michael Mugasa [email protected] [email protected] [email protected]

Brazil Germany Korea Sérgio Zamora Werner Ballhaus Bumtak Lee [email protected] [email protected] [email protected]

Canada Greece Malaysia John Simcoe Panagiotis Zisis Irvin Menezes [email protected] [email protected] [email protected]

Chile Hungary Mexico Federico Morello Marta Szucs Luis Roberto Martinez [email protected] [email protected] [email protected]

China & Hong Kong India Middle East/North Africa Cecilia Yau Frank D’Souza Bahjat El-Darwiche [email protected] [email protected] [email protected]

Colombia Indonesia Netherlands Giovanny Molina Sharly Rungkat Ennèl van Eeden [email protected] [email protected] [email protected]

32 Global Entertainment & Media Outlook 2018 –2022

PwcOutlook18_FINAL_Archive_051018_lj.indd 32 5/10/18 11:51 AM New Zealand Saudi Arabia United Kingdom Keren Blakey Bahjat El-Darwiche Mark Maitland [email protected] [email protected] [email protected]

Nigeria Singapore United States Femi Osinubi Oliver Wilkinson Mark McCaffrey [email protected] [email protected] [email protected] Christopher Vollmer Norway South Africa [email protected] Eivind Nilsen Vicky Myburgh [email protected] [email protected] James DePonte [email protected] Pakistan Spain Shabbar Zaidi Patricia Manca Vietnam [email protected] [email protected] Ong Tiong Hooi [email protected] Peru Sweden Juan Carlos Mandujano Nicklas Kullberg [email protected] [email protected]

Philippines Switzerland Mary Jade Roxas Patrick Balkanyi [email protected] [email protected]

Poland Taiwan Paweł Wesolowski Gary Chih [email protected] [email protected]

Portugal Thailand Antonio Correia Tina Hammond [email protected] [email protected]

Romania Turkey Florin Deaconescu Murat Colakoglu [email protected] [email protected]

Russia UAE Yury Pukha Bahjat El-Darwiche [email protected] [email protected] 5 years from right now...

The Technology, Media and Telecommunications Industries: How will these industries change? Which countries are showing the most growth? Which media segments will emerge . . . or disappear? How will things like AI and AR improve user experience? These are the questions every industry decision-maker needs answers to. They are the kinds of questions PwC’s Global Entertainment & Media Outlook has been answering for 18 years. Our latest 5-year forecast is based on comprehensive, comparable data centered on shifts in advertising and consumer spending across 15 entertainment segments and 53 territories. Let us help you plan your business with the kind of clear insight and data that can help you identify opportunity across a complex and ever-changing media and entertainment landscape.

To learn more, visit: www.pwc.com/outlook

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