sign in sign up
<<
Home , Doordarshan, Rostelecom, Star India

10th annual edition

Global and media outlook 2009–2013 10th annual edition

Global entertainment and media outlook: 2009–2013

Each year, PricewaterhouseCoopers’ global team of entertainment and media experts generates unbiased, in-depth forecasts for 12 industry segments. Incorporating data from 4 principal regions comprising 48 countries and areas around the world, Global entertainment and media outlook: 2009–2013 combines deep knowledge of local markets with a truly global perspective— a powerful tool for understanding critical business issues.

To learn more about the challenges and opportunities ahead for the entertainment and media industry, please visit pwc.com/e&m. Global entertainment and media outlook: 2009–2013

Prepared and edited by: Outlook editorial board: PricewaterhouseCoopers, which provides industry-focused assurance, tax, For the PricewaterhouseCoopers Entertainment & Media Practice: and advisory services to build public trust and enhance value for its clients and their stakeholders. More than 155,000 people in 153 countries across Deborah Bothun, Principal our network share their thinking, experience, and solutions to develop fresh Bill Cobourn, Partner perspectives and practical advice. James DePonte, Partner Marcel Fenez, Partner PricewaterhouseCoopers LLP Stefanie Kane, Partner 300 Madison Avenue Alexandra Maclean, Global E&M Marketing Manager New York, NY 10017 Pauline Orchard, Global E&M Marketing Leader +1-646-471-4000 James O’Shaughnessy, Partner www.pwc.com Phil Stokes, Partner Many other professionals from the PricewaterhouseCoopers Authored by: Entertainment & Media Practice reviewed and added local expertise to this publication. Wilkofsky Gruen Associates Inc., a provider of global research and analysis For Wilkofsky Gruen Associates Inc.: of the media, entertainment, and industries. www.wilkofskygruen.com David Wilkofsky, Partner Arthur Gruen, Partner Norman D. Eisenberg, Vice President

Use of Outlook data Permission to cite This document is provided by PricewaterhouseCoopers for general No part of this publication may be excerpted, reproduced, stored in a guidance only and does not constitute the provision of legal advice, retrieval system, or distributed or transmitted in any form or by any means— accounting services, investment advice, or professional consulting of any including electronic, mechanical, photocopying, recording, or scanning— kind. The information provided herein should not be used as a substitute without the prior written permission of PricewaterhouseCoopers. consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should Requests should be submitted in writing to Radhika Nanda at consult a professional adviser who has been provided with all pertinent [email protected] outlining the excerpts you wish to use facts relevant to your particular situation. along with a draft copy of the full report that the excerpts will appear in. Provision of this information is necessary for every citation request The information is provided as is, with no assurance or guarantee of to enable PricewaterhouseCoopers to assess the context in which the completeness, accuracy, or timeliness of the information and without excerpts are being presented. warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular Without limiting the foregoing, you may not use excerpts from the purpose. publication in financial prospectus documents, public offerings, private placement memoranda, filings with the US Securities and Exchange Commission, annual reports, or similar financial, investment, or regulatory documents.

Copyright © 2009 PricewaterhouseCoopers. All rights reserved. ISBN 978-1-931684-19-4 Global entertainment and media outlook: PricewaterhouseCoopers refers to the network of member firms 2009–2013, Executive summary of PricewaterhouseCoopers International Limited, each of which ISBN 978-1-931684-20-0 Global entertainment and media outlook: is a separate and independent legal entity. 2009–2013

2 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Contents

Executive summary PricewaterhouseCoopers Entertainment & Media Practice—Country contacts ...... 4 Introduction letter ...... 6

Viewpoint: the global entertainment and media outlook Introduction ...... 8 The E&M landscape in 2013: “no hiding place” from the migration to digital ...... 11

Summaries by segment and region Global industry summary ...... 28 Global market by segment 33 Global market by region ...... 56

Methodology 94

Forecasts and economic analyses of 12 industry segments access spending: wired and mobile ...... 101 Internet advertising: wired and mobile 149 Television subscriptions and license fees ...... 177 Television advertising ...... 241 Recorded music ...... 273 Filmed entertainment 305 Video games ...... 349 and out-of-home ...... 395 Consumer magazine publishing ...... 431 Newspaper publishing ...... 463 Consumer and educational book publishing 505 Business-to-business publishing ...... 543

Index of tables and charts† 607

To order further copies of this publication, please visit: pwc.com/outlook

†Key to symbols used in the tables and charts p = preliminary NA = not available — = no spending that year Totals in tables and charts may not total arithmetically due to rounding.

Executive summary 3 PricewaterhouseCoopers Entertainment & Media Practice— Country contacts

Global Marcel Fenez [email protected]

North America Bill Cobourn [email protected] Tracey Jennings [email protected]

EMEA Western Austria Johannes Mörtl [email protected] Belgium Eddy Dams [email protected] Denmark John Gabriel Sørensen [email protected] Finland Harri Valkonen [email protected] France François Antarieu [email protected] Germany Frank Mackenroth [email protected] Greece Dinos Michalatos [email protected] Ireland Susan Kilty [email protected] Italy Andrea Samaja [email protected] Netherlands John Middelweerd [email protected] Norway Bjørn Leiknes [email protected] Portugal José Vitorino [email protected] Spain Manuel Martín Espada [email protected] Sweden Nicklas Kullberg [email protected] Switzerland Patrick Balkanyi [email protected] Phil Stokes [email protected] Central and Eastern Europe Czech Republic Petr Sobotnik [email protected] Hungary Manfred Krawietz [email protected] Poland Pawel Ozarowski [email protected] Romania Dinu Bumbacea [email protected] Chris Monteleone [email protected] Turkey Coskun Sen [email protected] Middle East/Africa Israel Joseph Fellus [email protected] Saudi Arabia/Pan Arab† Ian Sanders [email protected] South Africa Vicky Myburgh [email protected]

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates.

4 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Asia Pacific Australia Steven Bosiljevac [email protected] China Marcel Fenez [email protected] Hong Kong Marcel Fenez [email protected] Timmy Kandhari [email protected] Indonesia Nita Ruslim [email protected] Japan Hideaki Zenba [email protected] Malaysia Uthaya Kumar [email protected] New Zealand Grant Dennis [email protected] Pakistan Sohail Hasan [email protected] Philippines Irene Vallestero [email protected] Singapore Boon Chok Tan [email protected] South Korea Kwang-Ho Kim [email protected] Taiwan Han Wu [email protected] Thailand Kajornkiet Aroonpirodkul [email protected] Vietnam David Fitzgerald [email protected]

Latin America Argentina Ariel Vidan [email protected] Brazil Estela Vieira [email protected] Chile Rafael Ruano [email protected] Colombia Diego Henao [email protected] Mexico Luis Roberto Martínez del Barrio [email protected] Venezuela Luis Rincon [email protected]

Executive summary 5 June 2009

To our clients and friends both in and beyond the entertainment and media industry:

Welcome to the 10th annual edition of PricewaterhouseCoopers’ Global entertainment and media outlook, covering the forecast period of 2009–2013. Our forecasts and analyses for this edition focus on 12 major entertainment and media (E&M) industry segments. To reflect the ever-changing nature of the industry, as well as ever-emerging digital revenue streams, we have increased the depth of data for each of the 48 countries and areas covered in the Outlook. Although the global economy was showing signs of weakness, the performance of many of the E&M sectors in the first nine months of 2008 was helped by spending associated with the Beijing Olympics and elections in a number of key markets. However, in the fourth quarter, the negative impact of the economic downturn on the E&M industry was becoming clear.

The prevailing unprecedented economic conditions will significantly impact prospects in the near term and may expose weaknesses in some sectors. Against such a backdrop, we believe there will be nowhere to hide from the implications of digital migration. The pace of change is likely to increase with the greater economic pressure, as consumers seek higher value from the content they consume and as advertisers seek more accountability. We see that the impact of digital migration will differ between segments and geographies during the forecast period, in reflection of varying economic conditions as well as the availability and affordability of broadband and mobile infrastructure. The emerging-market growth story remains as valid an opportunity as ever. While a range of short-term challenges have been posed by the economic downturn, the real challenge lies in how to take advantage of the digital reality. Monetizing the increasing demand for entertainment and media content, capitalizing on evolving consumption habits, and developing diverse new advertising revenue models are challenges that companies will need to address. We believe this is a time to differentiate through innovation of and capitalization on new forms of collaboration across the entertainment, media, and communications value chains. All of us at PricewaterhouseCoopers continue to stay on top of trends and developments that may impact your business now and in the future, and we look forward to further sharing our thoughts with you. We appreciate your feedback and ask that you continue to tell us what we can do to make the Outlook more useful to you. If you wish additional clarification on any matters included in theOutlook or you believe we can be of service to your business in any way, please either contact one of the PricewaterhouseCoopers E&M professionals listed on pages 4 and 5 or visit our Web site (www.pwc.com/e&m) for details of the contact in your territory. Finally, we thank you for your support and wish you an exciting and rewarding year ahead.

Sincerely,

Marcel Fenez Bill Cobourn Global Leader US Leader Entertainment & Media Practice Entertainment & Media Practice

6 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Viewpoint: the global entertainment and media outlook

Introduction The economic crisis The E&M landscape in 2013: “no hiding place” from the migration to digital Introduction

We are pleased to present the 10th annual edition of the also enable us to include, for the first time, full breakouts PricewaterhouseCoopers Global entertainment and media on a country-by-country basis for mobile television, video- outlook, containing five-year forecasts of annual revenues on-demand, video console games, PC video games, online and industry trends for the 2009–2013 period across 12 video games, wireless video games, video game advertising, major segments in 48 countries and regions. online rental subscriptions, and digital downloads. Every revenue stream is now included in country totals. We have As we prepare the Outlook, the full extent of (1) the impact also added digital directory advertising as a new revenue of the international financial crisis on the economy, (2) the line in the “Business-to-Business Publishing” chapter. We shortage of credit, and (3) cutbacks in consumer spending believe that this additional analysis will ensure greater has yet to be determined. Neither is it clear whether and consistency between countries. to what degree the various stimulus packages and bailout plans will halt, slow, or reverse the slide. We do know that Due to the importance of access to the Internet—be it wired the global economy is more interrelated than ever and that or wireless—as a driver of many of the developments in the developments in one country or region can quickly affect industry as a whole, we have continued to dedicate a others. Historical precedent—the benchmark from which chapter to that area. forecasts are developed—is now a less reliable guide Finally, we are now combining the United States and Canada because the economic climate in most countries is more into a region—North America—which provides better balance volatile than at any time in recent history. While it is clear with our treatment of other regions. We still provide full that changes in the economic environment in 2009 could breakouts for both the United States and Canada. significantly affect the projections, we believe that many of the underlying trends we identify in the Outlook and that are driving change in the industry will remain on course. Categories covered The information in this publication reflects the collective • Internet access: wired and mobile wisdom of our large team of professionals who work with • Internet advertising: wired and mobile entertainment and media (E&M) companies around the world. It is a unique resource for the industry, offering a • Television subscriptions and license fees five-year outlook for global consumer spending and • Television advertising advertising revenues, along with insights into the technology, government, political, consumer, and • Recorded music business trends driving these forecasts. • Filmed entertainment The purpose of this Executive Summary is to provide • Video games a brief overview of the data presented in the Outlook for 2009–2013 and to present a thought piece on ideas • Radio and out-of-home generated by the data in the full book. • Consumer magazine publishing

New additions to the Outlook • Newspaper publishing • Consumer and educational book publishing On the occasion of the 10th anniversary of this annual publication, we have taken the opportunity to refocus our • Business-to-business publishing analysis on 12 segments. As such, this year’s Outlook excludes coverage of previously included chapters called “Casino and Other Regulated Gaming,” “Theme Parks and Amusement Parks,” and “Sports.” In addition to making it a more friendly and more compact publication, the exclusions

8 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Regions/countries covered

North America EMEA Asia Pacific Latin America Canada Western Europe Central and Eastern Europe Australia Argentina United States Austria Czech Republic China Brazil Belgium Hungary Hong Kong Chile Denmark Poland India Colombia Finland Romania Indonesia Mexico France Russia Japan Venezuela Germany Turkey Malaysia Greece New Zealand Ireland Middle East/Africa Pakistan Italy Israel Philippines Netherlands Saudi Arabia/Pan Arab† Singapore Norway South Africa South Korea Portugal Taiwan Spain Thailand Sweden Vietnam Switzerland United Kingdom

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates.

Executive summary | Introduction 9 The economic crisis

Financial crises in each region during the latter part of Recessions reflect adjustments to previous imbalances in 2008 sharply curtailed access to credit and led to steep the economy. During the past few years, excess real estate declines in consumer confidence, which in turn led to a lending in a number of major countries boosted real estate drop in consumer spending. In North America and EMEA values beyond what could be supported by population (Europe, Middle East, Africa), financial institutions with and income growth. Financial institutions were burdened toxic assets on their books were forced to sharply reduce by loans that were no longer performing, pushing some to their lending, which slowed or reduced economic activity. the brink of insolvency or beyond and leading to severe With consumers spending less, export-driven economies cutbacks in lending. With access to credit now greatly in Asia and Latin America experienced declining sales reduced and with trillions of dollars of wealth eliminated, and slower economic growth. Advertisers experiencing consumers are responding by increasing their savings. a drop in sales responded by cutting their discretionary As consumers build up their savings, they will become advertising outlays. Meanwhile, businesses that rely on less reluctant to spend, which in turn will boost trade and credit lines had to cut back on production, which led to benefit export-driven economies. As real estate prices layoffs and contributed to an accelerating downward decline, real estate sales will begin to pick up and a viable spiral. The result was a very weak fourth quarter, which market for real estate transactions will reemerge. As is a key quarter for advertising and for certain end-user financial institutions rebuild their assets, they will become categories. able to resume lending. Meanwhile, governments are taking a more proactive stance than they have in the past The current recession differs from previous downturns in providing liquidity for the financial markets and direct in that credit is not available and consumer spending stimulus for the economy. All of these developments are is falling at a much steeper rate than in the past. We putting the global economy on a path to recovery. expect a 12.1 percent decrease in global advertising in 2009 followed by a further, 2.7 percent decline in 2010 Prior recessions generally lasted from 9 to 18 months. and a modest, 1.4 percent improvement in 2011. Global While it is difficult to precisely predict how long it will take advertising in 2011 will be 13.3 percent lower than in 2008. the current recession to run its course, we believe it will take longer than in the past—24 to 36 months—because In the current downturn, consumers represent a key the downturn is steeper. We expect the global economy to cause of the decline. Consumers are rebuilding their begin to recover in 2011 and to return to healthy growth savings while substantially reducing their spending, during 2012–13. Responses will vary from country to and those cutbacks are major causes of the decline in country and region to region, with some territories showing gross domestic product (GDP). Consumer spending few ill effects from the global recession and others in entertainment and media will fall by a projected 1.2 experiencing steep declines. percent in 2009 and will remain weak in 2010, with a modest, 0.6 percent advance. Growth in 2011 also will While the impact of the current economic crisis on be relatively low, at 3.2 percent. Consumer spending on advertising and consumer/end-user spending is entertainment and media in 2011 will be only 2.6 percent deservedly making headlines, the underlying effect on how higher than in 2008. media and entertainment will be consumed over the long term is equally significant. The following section outlines The global entertainment and media market as a whole will how we expect the entertainment and media landscape to post a 3.9 percent drop in 2009 and a bare, 0.4 percent look in 2013. advance in 2010, with a 3.8 percent increase projected for 2011. Spending in 2011 will be only 0.2 percent higher than in 2008.

10 PricewaterhouseCoopers | Global Entertainment and Media Outlook: 2009–2013 The E&M landscape in 2013: “no hiding place” from the migration to digital

Over the next five years, digital technologies will Change dimension 1: economic become increasingly pervasive across all segments of entertainment and media, as the digital migration seen Accelerating the migration to digital—for both to date continues to expand and accelerate. As a result, consumers and businesses throughout our forecast period to 2013 there will be “no hiding place” from the impact of new models and new Across the entertainment and media industry, the dynamics across the industry. current global economic slowdown will have the effect of accelerating the ongoing migration to digital by both The change will occur and manifest itself across three consumers and providers. With companies being forced parallel dimensions: to strive for greater efficiencies in activities ranging from • Economic: The current economic downturn will distribution to advertising, and with consumers seeking accelerate and intensify the migration to digital higher value from their buying decisions, the tough technologies among both providers and consumers economic conditions have reinforced the existing drivers of content. behind the digital revolution. Hindsight may indeed show that the strong advertising markets of the previous two • Consumer behavior: The accelerating digital years have cushioned the impact of a fundamental change transformation will in turn reinforce and proliferate new that started a number of years ago. consumption habits and so-called digital behaviors, as consumers seek (1) more control over where, when, Over the next five years, the digital acceleration will and how they consume content and (2) higher value combine with the uneven economic impact of the downturn from their entertainment and media choices. to drive divergences in revenue performance between different segments and geographies. The entertainment and • Advertising: As digital behaviors become more media landscape that emerges from the downturn will be widespread and embedded, a new generation of ad- one in which some segments have reshaped themselves funded revenue models will emerge, aiming to reflect successfully for the digital future. However, others will and capitalize on the evolving consumption habits by undoubtedly face significant structural challenges as they delivering advertising that is more targeted and relevant continue to find their place in the digital world. to the specific audience. The current slowdown is the first cyclical slump in By 2013, the combination of the aforementioned three consumer confidence and spending to take place in an change dimensions will have created an even more environment where consumers and businesses have fragmented E&M landscape, characterized by a wide the option to respond with new buying, spending, and divergence of revenue models. Traditional revenue models investment decisions based around opportunities for in segments such as TV and magazines will be replaced digital migration. Our research suggests that both groups by more-targeted and more-tailored models that will differ will seize those opportunities. widely within and across segments. On the consumer side, the acceleration of the migration In the rest of this Executive Summary, we examine these to digital will be partly a function of digital services’ three change dimensions in greater detail—drawing on the higher quality and flexibility, partly a result of those findings from our analysis for the PricewaterhouseCoopers services’ competitive price-value offer, partly a response Global entertainment and media outlook: 2009–2013— to expanding choice, and partly an outcome of the fact together with other insights from our varied experience that many recession-linked consumer behaviors—such as and ongoing research across the industry. staying home in the evening to save money—can actually be positive for certain E&M spending.

Executive summary | The E&M landscape in 2013 11 The shifting revenue balance The overall impact of the current downturn The companies that emerge as the winners in the new will be to speed up the move to digital environment will do so by embracing digital migration. Digital spending will be the industry’s main engine of rather than slow it down—partly by creating growth over the next five years, making further major an unarguable case in favor of digital inroads into all segments and claiming a rising share of migration across the industry. overall industry revenues. In some segments—such as TV subscriptions and license fees, filmed entertainment, and video games— digital spend will help drive continuing expansion in the In terms of providers, the successful players in the segment’s overall revenues. Even in segments where entertainment and media landscape of 2013 will share overall revenues are falling, such as business-to-business a number of characteristics, as described in a recent publishing, rising digital spend will help partially offset the PricewaterhouseCoopers publication, A brand new era: ongoing wider decline. “The winners from this downturn will have the confidence, agility and quality of decision-making to do what is However, even though digital will dominate the growth required to survive, whilst adapting to the new environment agenda, it is worth noting that the bulk of all E&M spending in which they operate. The downturn provides the burning globally will remain nondigital throughout the forecast platform for change. This means a change in managing period, driven by the four largest sectors by revenue—TV brands, characters, titles and talent across distribution subscriptions and license fees, TV advertising, newspaper platforms supported by new commercial models. Media publishing, and business-to-business publishing—which companies which emerge from the downturn with a lower continue to be dominated by nondigital revenues. But the cost base and a differentiated business model will redefine momentum will be with digital—and will remain there. And the competitive dynamics in those sectors subject to to a large extent, the continued existence of significant changing consumer behavior.” nondigital revenues presents the emerging digital revenue models with an untapped opportunity to seize. Meanwhile, the need to retain traditional spend while Digital versus nondigital Digital versus nondigital tapping into the growth offered by digital is a major strategic spend, 2008 spend, 2013 consideration, as providers create and refine their revenue models. To strike the right balance, providers need to expand Nondigital Digital Nondigital Digital their share of digital revenues while ensuring they do not 79% 21% 69% 31% undermine or cannibalize their legacy nondigital spend. For all E&M companies—and especially for global players

The global economic downturn does not change the underlying drivers for digital but may influence their pace and power— and therefore the timing of industry change. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

12 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 managing across various geographies—this task is made advertising, and TV subscriptions will outperform the all the more complex and difficult by the stark differences industry as whole during both the downturn and the between markets worldwide, affecting key factors such as recovery. For others, such as newspaper publishing, the economic growth rates, local cultures, lifestyles, consumer upturn will coincide with a return to growth, albeit from spending, and communications infrastructures. a lowered base for newspaper publishing. However, the underlying message is that while the downturn clearly The impact on entertainment and media spending impacts the pace of growth in each segment of the industry, it does not alter the underlying pattern of digital Given the combination of a global economic downturn revenues expanding at the expense of nondigital revenues. and accelerating migration to digital revenue models, what will be the impact on overall spending on entertainment During our five-year forecast period, these contrasting and media during the five-year forecast period? While growth rates and digital’s rising share of spend will drive the global entertainment and media market as a whole an ongoing rebalancing of the industry’s overall revenues will grow by 2.7 percent compounded annually for the between the segments. The accompanying pie charts entire forecast period, it will include a period of much compare the relative revenue shares between the various faster growth during 2011–13, when the aggregate rate of segments for 2008 and 2013, excluding Internet access expansion globally will leap to 5.9 percent compounded spending. annually. The accompanying chart compares the relative Segments such as business-to-business publishing, growth rates we are forecasting for the various industry newspaper publishing, and consumer magazine publishing segments during both the downturn of 2009–10 and the will have suffered ongoing reductions in market share, anticipated recovery in 2011–13. with revenues falling not just relative to the marketplace As this comparison shows, the growth rates of more but also in absolute terms, reflecting the inability of digital digitally driven segments such as Internet access, Internet revenue streams to offset declines in revenues from traditional, nondigital sources. However, substantial gains in market share will be achieved by such segments as Spending growth by segment Internet advertising, video games, TV subscriptions and license fees, and filmed entertainment—reflecting the 15 2009–10 successful capitalization of digital strategies. 12 2011–13 9 6 PricewaterhouseCoopers’ 12th annual global 3 CEO survey, conducted in late 2008 among

CAGR (%) 0 more than 1,100 CEOs worldwide, casts further –3 light on attitudes to the downturn. It found that a financial downturn is nothing new for technology, –6 communications, and entertainment and media –9 companies, with many of today’s senior executives otal

T being veterans of the dot-com crash in 2001. Yet the research revealed a general feeling among CEOs publishing publishing

Video games that the current crisis is different—largely because TV advertising Internet access book publishing Recorded music and license fees TV subscriptions this time not only their own industry sectors are Internet advertising ilmed entertainment Consumer magazine F

Business-to-business suffering; their financiers, suppliers and customers Newspaper publishing Radio and out-of-home are struggling too. Consumer and educational Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | The E&M landscape in 2013 13 Market share by segment, 2008 Market share by segment, 2013 (Note: Does not include Internet access spending.) (Note: Does not include Internet access spending.)

5% Internet advertising: wired and mobile 7% Internet advertising: wired and mobile 14% 12% 16% TV subscriptions and license rees TV subscriptions and license rees TV advertising 9% 18% TV advertising 10% Recorded music Recorded music Filmed entertainment Filmed entertainment Video games 6% Video games 6% 14% Consumer magazine publishing Consumer magazine publishing Newspaper publishing Newspaper publishing 14% 16% Radio and out-of-home 2% Radio and out-of-home 15% Consumer and educational book publishing Consumer and educational book publishing 7% 2% 6% Business-to-business publishing 7% 4% Business-to-business publishing 6% 8% Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Nominal GDP growth by region (%) 2009–13 Region 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR North America 6.6 6.3 6.0 4.9 3.3 –2.1 2.5 3.5 4.7 5.5 2.8 EMEA 6.6 6.3 7.0 7.4 6.3 –0.2 2.7 4.2 5.4 5.8 3.5 Asia Pacific 7.6 7.3 8.2 7.3 8.2 1.7 5.9 8.0 8.4 8.5 6.5 Latin America 15.6 21.6 17.0 17.2 11.1 4.9 6.7 7.6 8.2 8.5 7.1 Total 7.2 7.2 7.5 7.2 6.2 0.1 3.7 5.2 6.2 6.6 4.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

A global downturn with varying impacts at a local level Such divergences reflect the differing dynamics of the slowdown in different markets. In some countries—notably In addition to growing divergence between the developed economies with high levels of consumer debt, performance of different sectors, the next five years such as the US and the UK—access to credit became will see widening gaps between different geographic sharply curtailed, resulting in the housing and consumer entertainment and media markets worldwide. One reason sectors’ being hit by a squeeze or so-called credit crunch. is that, while the downturn will tend to accelerate digital In contrast, in other territories—such as China—that migration globally, its effects on GDP growth will be far are major exporters to those credit-crunched markets, from uniform. the slowdown was driven by a fall in exports rather than Even within regions there will be major disparities at the a credit squeeze. The export-crunched markets will country level. For example, in Japan in 2009 we project a generally recover more quickly, because their underlying 7.4 percent drop in nominal GDP, but across Asia Pacific, economies are likely to be more robust than those in which this will coincide with an 11.5 percent increase in GDP in the downturn has sprung from internal structural issues India, an 8 percent increase in the People’s Republic of around lending risk and the supply of credit. China (PRC), and gains of 6 percent or more in Indonesia, Pakistan, and the Philippines.

14 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 GDP and entertainment and media spending: years to 2011. However, it will then leapfrog GDP as the An indirect relationship recovery gathers pace and consumer spending picks up. The growth or decline in GDP at regional and local levels While the income-elastic pattern of overall entertainment will not translate directly into E&M spending patterns. In and media spending in relation to GDP may reflect previous combination with the impact of the global economic recessions, other findings in the Outlook suggest that that downturn at local and regional levels, markets differ in terms relationship with GDP is changing, especially in economies of both legacy and new entertainment and media offerings, characterized as emerging. regulation, culture, infrastructure, and consumer demand, In previous editions of the Outlook, we noted the tendency not to mention economic maturity and the socioeconomic for growth in spending on entertainment and media to measures of GDP per capita and per household. outpace GDP growth in emerging markets. However, the These embedded structural differences can make for accompanying chart shows a comparison between GDP dramatic differences to the performance of similar services growth and E&M revenue growth split out between the in different geographies. For example, mobile Internet access downturn phase (2009–10) and the recovery phase (2011–13) revenues in Asia Pacific will overtake wired access in 2010 for selected territories. The chart shows that in both India and will account for over 53 percent of overall Internet and China, entertainment and media revenue growth access spending in 2013. In contrast, mobile access compounded annually from 2011 to 2013 will lag behind spending in every other region will still represent only a compound GDP growth for that period. In contrast, fraction of overall Internet access revenue throughout the entertainment and media spending in most developed forecast period. markets in 2011–13 will rebound more quickly to outpace the corresponding compound GDP growth rate. The The link between GDP and E&M spending is also less entertainment and media markets in India and China are than straightforward at the global level. Historically, the beginning to mature while experiencing rising competitive entertainment and media market globally has tended to pressures. Consequently, these countries are entering a be income elastic, meaning that it grows faster than the period of slower revenue growth against GDP. Also, economy in times of economic expansion and slower than differences in GDP growth between 2009–10 and 2011–13 the economy when the economy is sluggish or contracting. In line with those trends, overall entertainment and media spending has lagged nominal GDP growth during the past two years—other than in emerging markets, where E&M growth has well exceeded GDP growth—and will grow at Long-term regional spending shift a slower rate than the overall economy during the three continues unabated Varying growth rates in different regions will see their respective shares of global entertainment and media Global E&M and nominal GDP growth (%) spending continue to change over the five years. Put simply, the story—as in previous years—will be one 10 of continuing growth in the share held by Latin America 8 (up from 4.0 percent of total revenues to 4.5 percent) 6 and, even more significant, Asia (up from 23.5 percent 4 to 25.6 percent). This represents a continuation of 2 the steady long-term rebalancing of global spending away from North America and EMEA and toward 0 newer and evolving markets. The fact that this trend Global nominal GDP –2 appears to be unaffected by the downturn underlines Global E&M spending –4 the degree to which the underlying drivers of the –6 entertainment and media market—especially digital 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 migration—are still holding sway. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | The E&M landscape in 2013 15 are relatively modest compared with growth in other Change dimension 2: consumer behavior countries. Consequently, India and China will suffer less during the next two years from a slower economy but will Consumers seeking more control also experience less of an incremental rebound during the subsequent years. This is a shift we will watch with interest As the economic environment fosters and accelerates and comment on in future editions. digital migration, key effects will be to reinforce the emerging digital behaviors that have been coming to the fore in recent years and to embed them even more deeply Spending/GDP growth comparison in consumers’ lifestyles and consumption habits. The core driver of the new behaviors is consumers’ India growing demand for greater control over the content China they want. From mobile Internet to online communities and from movies-on-demand to the uploading of self- Vietnam generated content, advances in digital technology are Indonesia increasingly enabling that control. Saudi Arabia/Pan Arab These changes go much further than simply how people South Africa consume digital content, reaching into social interaction and relationships. Instant messaging and communications Turkey services such as are now a part of everyday life. Russia And more than 200 million people worldwide are active users, with more than 100 million users logging Brazil on to it at least once every day. Hong Kong The impact of the behavioral changes driven by digital South Korea opportunities extends well beyond the use of Web sites. During the alarm over a potential flu pandemic in April Poland and May 2009, the spread of the symptoms was tracked Spain E&M spending growth in some countries by monitoring the frequency of search 2009–10 Australia terms used on Google. A blogger who recently reviewed GDP a television program after its scheduled airing found Canada 2009–10 himself heavily criticized for giving away the ending United States before the time-shifting members of the online community E&M spending growth had watched it on their personal video recorders. And United Kingdom 2011–13 tapping into the massive collective buying power of online GDP Netherlands 2011–13 communities is an increasingly central focus of consumer France marketing campaigns globally.

Germany These trends highlight a development that we noted in last year’s Outlook: the ongoing emergence of the so- Italy

Singapore Japan Consumers will continue to want more

–10 –5 0 5 10 15 20 say in when, how, and where they CAGR % consume content. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

16 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 called Generation—the global, connected youth cohort born from 1977 to 1997, who represent the Consumers taking control: key indicators first generation to “grow up digital.” For these young people, new media technologies are intuitively familiar • Time shifting—Growth in take-up and usage components of everyday life. One major impact of those of digital video recorders and video-on- in the Net Generation is that they are collectively driving demand, both of which up consumers the industry toward new business models that emphasize from the television schedule and allow them a more personal two-way relationship between companies to watch what they want when they want. and customers. Another is that they are influencing their • Broadband penetration—Growth in parents and grandparents to take a growing interest in broadband, which facilitates the ability of new and emerging platforms. In our view, the downturn will consumers to get what they want when they increase that influence still further, since it will make the want from wherever they want. Improvements older demographics more value conscious and therefore in broadband allow for easier downloading more willing to listen to their children and grandchildren. and streaming. New consumption habits feeding through to revenues • Mobility—Growth in mobile access, as consumers refuse to be tethered to a wired Each of these developments involves consumers’ connection and choose to access the Internet obtaining entertainment and media directly or indirectly from any location through mobile devices. This through digital and/or mobile platforms. Put simply, includes an emerging mobile TV market and consumers want to decide for themselves what they the rising popularity of high-end devices such consume, as well as how, when, and where they consume as the smart phone, the iPod, and the Kindle, it—including the ability to “side load”: consuming the which serve to combine mobility and access. same digital content on several different platforms. Several developments reflect this profound behavioral • Digital music—The purchase of songs not shift. And their overall impact will be to drive an ongoing sold on an individual basis in physical format rise in spending on digital/mobile platforms throughout through digital channels. There is also growth and beyond the five-year forecast period, thereby in side loading, which enables consumers enabling these platforms to gain an ever-higher share to buy music less expensively online than of total consumer end-user and access spending on through mobile carriers and to transfer that entertainment and media. music to mobile devices. To date, recorded music has led this transformation, and • Games—Growth in wireless video games we expect that within the forecast period a majority of that let consumers play wherever they want; music will be purchased through digital channels—the first growth in online games that allow consumers segment to cross this divide. Other segments are heading to compete with people all over the world. down the same path, at different speeds, and in different • Online access to traditionally print geographies. Our projections for global recorded music content—Use of the Internet to access revenues underline those regional variations. In each newspapers, magazines, and classified region, gains in digital music distribution will ultimately advertising; growth in electronic book sales. offset continued declines in physical formats, driving overall revenues back upward. Asia Pacific will be the first • Online communities and user-generated region to experience the turnaround, with overall spending content—Growth of social networking beginning to increase in 2011, followed by Latin America in and readiness to conceive, produce, and 2012 and North America in 2013. In EMEA, spending will share consumer-generated content across continue to fall until 2013, when it will stabilize. the Internet.

Executive summary | The E&M landscape in 2013 17 Growth of consumer spend on digital/mobile platforms disposable incomes made the price of genuine product more of a disincentive to buy. Other consumer/end-user/access spending Similarly, 3-D are selling at higher price points 800,000800000 Total spending on digital/mobile platforms than standard films because comparable product is not available elsewhere. In general, the moviegoing audience 600,000600000 has remained loyal to the movie theater experience despite the availability of movie content at lower cost elsewhere 400,000400000 by means of quality improvements such as advanced

US$ (millions) sound systems, digital projection, and other packaging 200,000200000 techniques aimed at improving the overall audience experience. 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Consumers also are paying premium fees for high-speed Digital/mobile spend comprises wired broadband, mobile broadband access, online and wireless video broadband, digital cable, video-on-demand, mobile games, video-on-demand, mobile TV, digital downloads of movies, online movie rental subscriptions, Internet access, and the new console video games. The Internet music, mobile music, and electronic books. Apple iTunes/iPhone combination is playing a central role Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates in driving home the benefits of mobility in content areas such as music, Web access, and video and is bringing the iTunes message of convenient, authorized, downloadable Looking across entertainment and media as a whole, content to millions of consumers worldwide. In each case, end-user spending through digital/mobile platforms the products or services gaining the greatest traction totaled $218 billion in 2008, representing 23.4 percent among consumers provide added quality or convenience of the overall consumer/end-user/access market. Those that is not available elsewhere. platforms will account for 78 percent of total consumer/ end-user/access growth during the next five years— expanding at a 12.2 percent compound annual rate to $387 billion, compared with compound annual growth of Consumers increasingly base their choice only 1.3 percent for the nondigital/mobile marketplace. of content experiences and consumption Seeking not just more control but also greater value patterns on a cost-benefit judgment— In combination with greater control over content, consumers including whether the same experience is are also demanding higher value from the entertainment available more cheaply elsewhere. and media services they use. They are increasingly making cost-benefit judgments over the ways they consume media, in some cases opting for low-cost or free alternatives (often in return for accepting advertising) and in other At the same time, low price can be a compelling part of the cases paying premium fees for high-quality content. value equation for many consumers—and in many cases there are free close substitutes available over digital platforms. The key issue in these decisions is the availability of This poses particular challenges for traditional physical substitutes of comparable quality. For example, when content providers such as newspapers and magazines. legitimate digital services took hold in the music industry, However, newspapers do have strengths they can bring to they did so only at substantially reduced prices compared bear to open up digital commercial opportunities, not least with physical product because of the availability of free their trusted brands and proven expertise in sorting alternatives. In the analog era, by contrast, copies of and sourcing the highest-quality data. analog recordings via such formats as tape cassettes were often of noticeably poorer quality than their licensed The challenge facing newspapers is to turn that counterparts, so they did not materially cut into legitimate combination of brand strength and news expertise into sales—except in emerging markets, where lower revenues, and many are launching new strategies to do so.

18 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 In April 2009, Pearson’s Financial Times Group launched China Confidential, a premium, subscription newsletter Newspapers’ strengths in the digital era: and Web site providing exclusive predictive analysis on trusted editorial and brand value China. And in May 2009, . chairman said he expected the group to start charging Consumers see breaking news and general interest users for access to its newspaper Web sites within a year. news as commodities, but there is always a market In the same week, newspapers including the New York for high-value online content in specific topics. Our Times and Washington Post announced they would test consumer research indicates that consumers are the new, larger-screen version of ’s e-book device, willing to pay for such content—both online and the Kindle, as a platform for subscriptions. in print format such as specialist newsletters— but newspapers need to develop strategies for Magazines are making similar moves while being careful monetizing their content and intellectual capital. to avoid cannibalizing their content by putting it online for free. The magazine publishers that have proved most Newspapers have been able to earn their successful in entering the digital space have leveraged readers’ trust and loyalty, giving newspapers the strong brands across multiple media platforms and opportunity to both lead and follow audiences as generated revenues from online advertising, search-engine the newspapers migrate online and into the use of marketing, and e-commerce. portable electronic media. Indeed, with the core principles of deep analysis and trusted editorial, the medium is secondary to the brand. Change dimension 3: advertising Source: Moving into multiple business models: outlook for newspaper publishing in the digital age, PricewaterhouseCoopers New ad-funded revenue models target consumers’ behavioral shifts As the emerging digital behaviors become more dominant among consumers, a new generation of ad- funded revenue models will emerge, seeking to reflect Magazines count the true cost of putting and capitalize on the evolving consumption habits. Advertising is currently in broad decline, with global ad content online spend projected to be still below its 2008 levels in 2013. In our multicountry research among magazine However, what will matter throughout the forecast period readers worldwide, respondents say digital content is not the overall size of an increasingly fragmented ad should cost less than half the price of printed market but the ability to use relevance and personalization magazines. Also, once they’re offered the same of advertising to boost share of wallet. magazine content digitally, they expect to pay a Over the next five years, as consumers receive an maximum of two-thirds of the current hard-copy increasing proportion of their entertainment and media cover price to get both hard and soft copies of the through digital/mobile platforms, advertisers will shift their same magazine. resources from traditional media to new media. This explains why many magazine publishers provide digital content that differs from that of their print publications, since they might otherwise come under considerable pressure to reduce the prices of Despite the current advertising downturn, their printed versions. many of the emerging generation of Source: The medium is the message: outlook for magazine publishing in the revenue models are ad funded. digital age, PricewaterhouseCoopers

Executive summary | The E&M landscape in 2013 19 Advertising going digital: key indicators • Video game ads—At a CAGR of 13.8 percent, an emerging video game advertising market will—albeit from a low base—outpace the rest of the advertising industry, which will decline at an annual compound rate of 0.6 percent during the forecast period • Traditional advertising segments migrating—The migration from print to digital editions of newspaper advertising, directory advertising, and magazine advertising—both consumer and trade • Mobile ads—The emergence and rapid growth of a mobile advertising market, which will expand at a CAGR of 19.7 percent through the forecast period, compared with 6.7 percent for wired Internet advertising • New out-of-home advertising offers—The growing appeal of out-of-home advertising, supported by new digital technologies in that segment that help advertisers multiply the impact of their ads and bypass the ad avoidance behavior of consumers • Rising digital market share—The growing proportion of Internet and mobile advertising in the overall global advertising mix, rising from around 12 percent in 2008 to 18 percent in 2013

In the mobile arena, opportunities across the advertising Advertising targeted to new consumer behaviors continuum will open up to grow the relationship between brands and consumers, ranging from click-through banner 80,000 ads and pre-roll ads on video clips through coupons and online subscriptions. This will move mobile advertising 60,000 beyond impressions—and onward to engagement, Video games 40,000 transaction, and relationship revenue opportunities. Mobile Digital newspapers There are several developments that reflect the online/ 20,000 Ungrouped chart Digital consumer magazines mobile migration in ad dollars, and these are summarized Digital trade magazines in the accompanying information panel. 10,000 Digital directories Wired Internet As the emergence of ad-funded revenue models increases 8,000 its pace, overall advertising spend will shift toward digital. The aggregate total of digital and mobile advertising US$ (millions) 6,000 accounted for 12 percent of total global advertising in 2008, up from 4 percent in 2004. During the five years to 4,000 2013, advertising that targets new consumer behaviors will grow by a cumulative 7.8 percent, and spending 2,000 on all other forms of advertising will fall by 2 percent 0 compounded annually. By 2013, advertising that targets 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 new consumer behaviors will account for close to one-fifth of the total global advertising pie. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

80,000

60,000 Video games 40,000 Mobile Digital newspapers 20,000 Digital consumer magazines Editable data chart Digital trade magazines 10,000 20 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Digital directories Wired Internet 8,000

US$ (millions) 6,000

4,000

2,000

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 New models tackling the challenges The migration toward ad revenues derived from new Online advertising set for relative growth behaviors will not be without its challenges. In the near “Online advertising is … expected to be hit by term, the weak advertising market will make it difficult the downturn, although given ongoing structural to finance content completely through advertising. The trends it is likely to continue to grow relative to broad decline in ad revenues currently under way reflects other advertising forms. The online search segment a number of factors, including the economic downturn; is likely to fare better than display and classified related shifts in the trade-off between price, volume, and advertising, producing a more measurable return on effectiveness; and a move toward more below-the-line investment for advertisers looking to trim advertising activity to get closer to customers. Even over the longer budgets. The largest players in the classified advertising run, when overall ad spend recovers, the economics of verticals market are likely to continue to grow in the advertising market may make the transition difficult. relative importance. Slower display advertising In newspapers and magazines, for example, the potential growth is likely to be countered by new formats and online advertising inventory is much larger than the technologies such as video/behavioral targeting.” potential print advertising inventory—so online ad rates tend to be lower than print rates. This means that shifting Source: Media sector M&A insights: analysis & opinions on European M&A activity 2009, PricewaterhouseCoopers from print to digital may initially result in a significant reduction in ad revenues. Content providers are developing new approaches to deal with this dilemma. For example, TV programmers are music services are entering the market and could begin putting their shows online with embedded ads that cannot to provide a measurable revenue stream within the next be skipped, and they’re programming traditional shows in five years. And subscription models are being introduced high definition. At the same time, advertising is also being that provide users access to virtually unlimited amounts of introduced in media that previously were financed entirely music for a flat fee—essentially converting music delivery by consumers. For example, when the previous generation from a product to a service. A recent entrant to the market, of console platforms was introduced earlier in the decade, Spotify, has a hybrid business model that offers a free, there was no video game advertising. But video games advertising-supported service to a vast music library, as generated $1.4 billion in advertising in 2008, a total that well as daily, monthly, and annual subscription options that will rise to a projected $2.6 billion in 2013. allow ad-free listening. Meanwhile, in the recorded music segment, companies A common factor in many of the successful models of are eliminating copyright protection software, making the future will be the ability to collaborate with partners. authorized digital distribution sufficiently user-friendly to Such collaboration takes two forms: (1) collaboration compete with pirated product. Ad-supported recorded on revenues to open up and exploit new areas and (2) ongoing cost sharing to operationalize the shared benefits. The key will be to find an equitable way of sharing both the risks and the rewards for mutual advantage while also Alongside new ad-funded models, keeping the cost/value equation positive for consumers. existing ad models are adapting to resist Going forward, we expect that the successful models will downward pressure on ad rates in the be those that provide enough product differentiation from digital environment. free or low-cost substitutes to generate revenue either from consumers or advertisers or—more likely—from both.

Executive summary | The E&M landscape in 2013 21 restrictions. For example, personalized online video In PricewaterhouseCoopers’ 12th annual global advertising, facilitated by the growth of Internet protocol CEO survey, 93% of respondents in the technology, (IP) platforms, is an as-yet largely untapped opportunity. communications, and entertainment and media It also requires clearer and more effective communication sectors report that technological innovation is of the value of display advertising, with an emphasis on important or critical, compared with just 83% of the demonstrating the value of advertising on brand and long- overall survey sample. Many of those respondents term sales performance. are also much more likely to collaborate with To underpin that accountability and transparency and external organizations so as to improve their access to help advertisers compare the effectiveness of their to intellectual property, talent, sources of capital, investment in digital advertising across segments, there and marketing channels. is a need for the development of a common advertising “currency” both for digital media and out-of-home advertising. At the same time, there is a common requirement to educate both agencies and advertisers in how to make the most of the digital opportunity. This To attract advertising, digital channels would serve to support the most-effective new ad models need to accept accountability for while also helping secure trust in different types of media. audience and results. However, as the ad industry moves toward previously undreamed-of levels of targeting and effectiveness, this combination of selling points brings with it two challenges for new ad-funded models. One is tactical: a need to pay heed to privacy regulation and customers’ concerns over The need for effectiveness—and accountability the confidentiality and integrity of their own personal data. More-accurate targeting and relevance of ads to the specific The other is a more strategic issue for the ad industry as consumer—thereby making advertising spend more effective— a whole. will be critical to the success of emerging ad-funded models. If the digital advertising offer of the future is increasingly To achieve this, the next generation of ad models will apply effective, that means it offers advertisers the ability to sophisticated customer data analytics to (1) target people reach their target audiences more accurately, with lower who are actually interested in receiving ads and (2) make levels of waste—and therefore lower cost. So advertisers the ads more relevant to the individual consumer. will be able to achieve the same or better reach and However, to win ad spend from traditional channels, the performance for a lower spend. The fact that overall ad new models will have to prove to advertisers that the spend will actually be lower in 2013 than in 2008 may digital alternative really is more effective. So providing mean not that companies are advertising less but simply transparency over audience metrics and even accepting that they can do it more cheaply because of greater accountability for ad results will become musts rather than ad effectiveness. The outcome may be a structural luxuries. Already, technological change—through new reduction in ad spend globally, with the saving reallocated optimization models, usage metrics, and search—has elsewhere. This is another long-term trend that we will increased the expectation for accountability across the watch with interest in future editions. whole media sector. Over the coming years, effective management and analysis of customer data—drawing on lessons from the retail and financial services markets—will turn into a core competency in entertainment and media. The rise of digital advertising may result In practice, this means acquiring the capability to use in a permanent decline in overall global technology to its full potential and exploit consumer data ad spend. to the fullest extent possible within regulatory and privacy

22 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Success factors in the E&M landscape of 2013 movie exhibitors are transforming their screens to digital and 3-D, thereby helping sustain box office spending in the The key to successful models: mobility, convenience, face of fierce competition from other choices. Investment and quality in the new video game consoles is driving the video game market—a segment whose revenues in 2008 outperformed Whatever the revenue model—ad funded, subscription, our forecast from last year. Indeed, it became the fastest- or a combination—the key to generating a sustainable growing segment in the global industry, with 18.2 percent revenue stream in 2013 will be to provide a content year-on-year growth, thanks to high-double-digit increases experience that cannot be readily duplicated elsewhere. across console, online, and wireless games, as well as in Obvious examples might be mobile micropayments via the small but fast-growing in-game advertising market. a device such as the iPhone, and catch-up television services delivered on demand via the TV set. Looking across the industry more generally, micropayments represent a further high-potential area At the same time, affordable access will remain key for of investment for driving future spending. The iTunes driving media consumption—a quality that boils down to the application store for the Apple iPhone has triggered combination of availability and price. A lack of affordable the emergence of a major market in “impulseware,” access explains why some markets, such as Latin America with millions of consumers buying and downloading and Africa, are slower to shift digital revenues. This factor applications that are easy and cheap enough to buy on a can also influence the level of demand for particular whim. Anecdotal evidence—including our consumer focus services; for example, shortcomings in fixed broadband groups and countless entries on blogs and chat sites— infrastructure in much of Asia Pacific are helping drive suggests that consumers would spend a lot more if they demand for mobile Internet access. More generally, could micropayments more readily, including from consumers worldwide have shown they are willing to spend within applications. Going forward, the model for a quick, to get greater convenience, mobility, and quality, and their convenient, and easy micropayment system may well readiness to spend more to gain those benefits will drive involve a stored-value approach, which is one of consumer spending once the economy improves. the solutions under consideration. The quality improvements demanded by consumers are requiring investment in the underlying wireless and broadband infrastructures. Wireless carriers are upgrading their networks to third-generation (3G) and higher speeds, Meeting consumers’ demand for higher with 100-megabits-per-second fourth generation on quality requires significant investment the horizon. Broadband carriers are deploying fiber to offer faster speeds. Cable operators are adding just to stay in the game. capacity and new services such as video-on-demand. Handset manufacturers are producing new devices that support Internet access, music, video games, and other entertainment applications. Touch-screen capabilities are Realizing the value of intellectual property by going enhancing the wireless experience. New electronic readers cross-platform are transforming the electronic book market, and—if trials In combination, ongoing investments in the broad array of of the large-screen Amazon Kindle are successful—the aforementioned areas will be crucial in driving spending newspaper market as well. on content. Such investments also underline the fact Meanwhile, prices of high-definition (HD) TV sets are that companies in all entertainment and media segments coming down, in turn driving demand for HD videos. And currently face an absolute need to investigate the specific

Executive summary | The E&M landscape in 2013 23 implementation and embedding of the other IP—Internet E&M companies need to invest now for protocol—and digital technologies, bringing cross­- the future environment despite limited platform capabilities. forward visibility around economic Currently, most of the entertainment and media companies derive the majority of their revenues from a limited number of conditions, consumer behavior, and channels. As the migration to online and digital accelerates, revenue models. effective cross-platform exploitation of brands, characters, titles, programs, or patents will become increasingly critical. In practice, it means investing in and managing assets across the portfolio in order to maximize overall profitability. risks and opportunities that digital migration opens up in This involves investment in digitization of the archive, rights their particular segment of the value chain. By making the negotiations, and search functionality to help consumers right responses, they will position themselves to ride the navigate their way through the mass of legacy content economic upturn and the accelerating migration to digital. more easily and thereby monetize it more effectively. It also In some cases, such as digital content distribution, that means driving new content hard for mass-market exploitation, response will require investment, particularly in technology. including developing better back-end collections In others, such as content production, the requirement management capabilities and exploiting rights more vigorously. may be more to forge a broader range of distribution and Industry players are increasingly seizing the opportunity platform relationships. to exploit their intellectual property across platforms and Whatever the right response may be, it must be made monetize it by building and maximizing the communities now, within an uncertain environment. In our view, the of interest around it. This is particularly prevalent in players who make the right calls will be characterized by the area of sports rights. Many broadcasters who rigorous focus on maximizing the monetization and profit initially bought the exclusive transmission rights to generation from intellectual property (IP) across all specific sports content are now building multiplatform channels. This in turn will depend on effective activities around it, including discussion groups, online competitions, and Web-based catch-up services. These activities simultaneously strengthen and capitalize on the communities of people interested in the particular sport. Format convergence and the need for cross- platform reach are driving M&A “Convergence remains an important driver of M&A Building and monetizing communities of activity in the entertainment and media space. The broad trend towards convergence of media interest around content is an increasingly formats and the need for E&M companies to provide widely used strategy for releasing value content and services across multiple platforms has from intellectual property. been a key driver of deal activity in the sector in recent times. E&M business models are evolving as companies continue to develop new capabilities and technological platforms to boost interactivity and deliver media more effectively to increasingly Overcoming the tactical challenges of digital targeted audience segments.” globalization: Rights, local regulation, and piracy Source: Insights: Entertainment & media: analysis and trends in US M&A We have already pointed out that the global downturn will activity 2009, PricewaterhouseCoopers increase the diversity in revenue performance between different geographies over the next five years. However,

24 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 that divergence will coincide with headlong technological convergence, as rising usage of digital technology across Robust regional industry in Europe countries and segments progressively increases the ability to transfer and consume content across borders. “Europe’s media sector proved its resilience in the wake of the technology media and telecoms This will create some operational challenges—for example, (TMT) bubble-burst of 2001/2 and, despite today’s making it harder to stagger content release dates in challenges, remains a dynamic and innovative different parts of the world or sustain differentiated pricing sector. With further scope for consolidation and strategies. Platform- or country-based content rights growth and with the digital/online revolution still in deals may also become more problematic; for example, full swing, it is unlikely to remain in the doldrums for imagine the impact of being able to port a movie onto a too long.” standard chip that could be inserted into a laptop, TV, Source: Media sector M&A insights: analysis & opinions on European M&A or mobile device. Also, while a world characterized by activity 2009, PricewaterhouseCoopers “digital everywhere” might make it appear easier to enter new markets directly and without a physical presence or local partner on the ground, the strength of local content production industries and differing consumer tastes means a local presence is still necessary; local content remains a new behaviors, and new ad models than on the shape of cornerstone of global expansion. the emerging landscape. Regulation is a country issue and therefore a local matter. It will put bumps along the route A further challenge of digital globalization is the nation- but not roadblocks, and companies will address those based and highly fragmented nature of media and privacy challenges at the tactical level rather than having to form regulation. Regulation has always presented challenges, their strategies around them. not least through ownership restrictions. Over the next few years, as ad-based models become more reliant on personal Piracy is a further growth inhibitor where regulators have data to facilitate targeting and relevance, privacy regulation roles and which will again represent a tactical rather will come increasingly to the fore—especially in such areas than a strategic challenge. The music and industries as personal confidentiality and opt-in/opt-out ad models. are experimenting with new approaches to stem online Further regulation-related factors in the wake of the current piracy, including dropping copy protection software downturn will be such issues as state support for broadband and requiring Internet service providers to act against rollouts and, less directly, the impact of state bailouts and persistent unauthorized downloaders. Legal remedies are economic revitalization packages. also advancing, including a Swedish court’s April 2009 landmark conviction of the individuals behind the file- However, our view is that regulation—rather like the sharing service The Pirate Bay. economic downturn itself—will have more of an impact on the timing and speed of the migration to digital content, Meanwhile, the television industry is making headway in providing licensed online product in a bid to replace unauthorized use, with Web sites such as in the United States proving successful in providing authorized Like the global slowdown, regulation and access to television programs over the Internet. Generally, piracy are tactical and region-specific as the industry becomes more creative in dealing with piracy and as government strategies start to have an impact, challenges that will not deflect the copyright holders will be able to regenerate revenues, industry from ongoing digital migration. either directly or indirectly, from their intellectual property.

Executive summary | The E&M landscape in 2013 25 In conclusion: entertainment and media is well As the reshaped landscape emerges, opportunities positioned to exploit the coming economic upturn for entertainment and media as a whole are growing. Despite—and partly because of—the immediate economic By 2013, the industry’s accelerating digitization—coupled challenges, the momentum behind digital migration is with the growing divergence between the revenue growing. Media currently experiencing declining revenues performance of different segments and markets—will are not doing so because of declining demand. In fact, create an E&M landscape characterized by a myriad of demand for entertainment and media appears to be business models and a far more tailored approach. increasing. What has changed in some cases is the ability Put simply, a model that works with one particular type of to monetize that demand. Recorded music is a good consumer, one particular form of content, or one particular example: the content is more ubiquitous than ever, but national marketplace may not work with others. The resulting revenues are falling. fragmented landscape of specifically designed revenue This is why there will be no place to hide from new models will be far from, for example, the globally generic models and dynamics across the industry. And the ad-funded model that once served commercial TV so well. winners will be those players who focus on driving and As entertainment and media companies migrate to new leading change that delivers real value for consumers. models, especially those based on an ability to serve up The models that will emerge during the next two years advertising more accurately to consumers, the challenge should ensure that the entertainment and media segment will lie in how to manage the transition cost effectively. is well positioned to exploit the economic upturn from 2011, albeit from a slightly lower base than in 2008. By 2011, segments will have consolidated, the least loyal customers will have already left, higher-quality product In the past, E&M was characterized by a will be valued by both consumers and advertisers, handful of generic models. In the future, and digital distribution will have become mainstream, revenue models will be diverse, more targeted, commanding fees more in line with its value. At the same time, a growing economy will stimulate spending. But for and developed on a bespoke basis for the each of the industry’s diverse segments to participate specific purpose and circumstances. fully in that growth, each will first need to embrace the digital future.

26 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Summaries by segment and region

Global industry summary Global market by segment Global market by region Global industry summary

The next three sections provide a brief overview of the Industry size and expected growth overall entertainment and media industry, of spending by segment, and of spending by region. The sections We project the entertainment and media industry in North summarize the data provided in the full Outlook but do America, EMEA, Asia Pacific, and Latin America will not approach the depth or granularity of the full Outlook. increase from $1.4 trillion in 2008 to $1.6 trillion in 2013, For example, in the “Filmed Entertainment” chapter, we growing at a compound annual rate of 2.7 percent. North provide annual country-by-country data for the 2004–13 America will be the slowest-growing region, with a 1.3 period for box office admissions, average box office percent compound annual increase. Spending during the prices, box office spending, home video sell-through next two years will fall by 8.2 percent and then increase by spending, home video rental spending, online rental 16.2 percent during the subsequent three years, rising to subscriptions, and digital downloads, where applicable. $532 billion from $499 billion in 2008. EMEA, the largest In the “Newspaper Publishing” chapter, we provide annual region, at $522 billion in 2008, will decrease by 3.7 percent country-by-country data for the same period for print in 2009, stabilize in 2010, and then rise by 18.4 percent advertising, advertising on newspaper Web sites, unit from 2010 to 2013 to $596 billion. Spending in Asia Pacific circulation of paid daily papers, circulation spending, and, will increase by 0.2 percent in 2009, the only region on a regional basis, unit circulation of free daily papers. where spending will grow, and will average 4.5 percent A similar range of country-by-country data for the various compounded annually through 2013, rising from $331 revenue streams and related components is provided in billion in 2008 to $413 billion in 2013. The market in Latin each chapter. America will fall by 1 percent in 2009, an 11.1-percentage- point turnaround from the 10.1 percent increase in 2008. In addition to the full range of data not available elsewhere, For the five-year forecast period, spending will expand at each chapter in the full Outlook provides an analysis of the a 5.1 percent compound annual rate to $73 billion in 2013 industry drivers for each region, including developments in from $57 billion in 2008. selected countries that illustrate the drivers and trends.

Global entertainment and media market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 443,977 462,345 485,824 504,346 498,748 463,221 457,753 471,158 501,737 532,002 % Change 6.5 4.1 5.1 3.8 –1.1 –7.1 –1.2 2.9 6.5 6.0 1.3 EMEA 421,227 444,387 473,419 508,003 522,403 502,934 503,230 521,152 554,791 595,791 % Change 6.1 5.5 6.5 7.3 2.8 –3.7 0.1 3.6 6.5 7.4 2.7 Asia Pacific 234,415 260,153 283,364 310,236 331,264 331,934 341,522 359,165 384,149 412,799 % Change 10.7 11.0 8.9 9.5 6.8 0.2 2.9 5.2 7.0 7.5 4.5 Latin America 35,105 39,791 44,869 51,356 56,535 55,979 56,990 60,313 65,732 72,581 % Change 11.4 13.3 12.8 14.5 10.1 –1.0 1.8 5.8 9.0 10.4 5.1 Total 1,134,724 1,206,676 1,287,476 1,373,941 1,408,950 1,354,068 1,359,495 1,411,788 1,506,409 1,613,173 % Change 7.3 6.3 6.7 6.7 2.5 –3.9 0.4 3.8 6.7 7.1 2.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

28 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Entertainment and media lagged nominal GDP growth Global E&M and nominal GDP growth (%) during the past two years and will grow at a slower rate than the overall economy during the next three years. In 10 general, the E&M market is income elastic, which means it 8 tends to grow faster than the economy when the economy 6 is expanding, and slower than the economy when the 4 economy is sluggish or contracting. That pattern reflects the fact that E&M spending largely reflects discretionary 2 spending, which rises more than proportionally to the 0 economy as a whole when incomes rise but falls more –2 Global nominal GDP than proportionally when discretionary income is squeezed. –4 Global E&M spending –6 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access Internet access is not an entertainment and media expect growth to moderate during the next two years to segment in itself, but it is a key driver of entertainment and 5.4 percent annual increases as the adverse economy media spending in most segments. Figures do not include slows take-up rates for broadband. Once economic the purchasing of E&M content such as music. Spending conditions have improved, we look for a return to double- on E&M content downloaded over the Internet or through digit annual gains during 2011–13. Increased broadband mobile phones is included in the respective entertainment penetration will boost wired access, and wireless network and media segments. upgrades and 3G rollouts will drive mobile access. Spending will rise from $215 billion in 2008 to $334 billion The Internet access market rose by 12.7 percent in 2008, in 2013, a 9.2 percent compound annual increase. continuing its trend of double-digit annual increases. We

Global Internet access market: wired and mobile (US$ millions) 2009–13 Segment 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 110,370 136,588 162,394 190,425 214,601 226,221 238,450 262,360 296,387 333,628 % Change 21.9 23.8 18.9 17.3 12.7 5.4 5.4 10.0 13.0 12.6 9.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media industry summary 29 Advertising A small video game advertising sector will increase at a 13.8 percent compound annual rate to $2.6 billion in 2013. We project global advertising to fall by 12.1 percent Out-of-home advertising will be the only other segment to in 2009. Except for a fledgling video game advertising be larger in 2013 than in 2008, growing at a 1.1 percent market, each segment, including Internet advertising, will compound annual rate to $30.5 billion. Digital billboards decline in 2009. We expect decreases to extend to 2010 are expanding the effective inventory by allowing the same for consumer magazines, trade magazines, and out-of-home display to be sold to multiple advertisers. advertising, while declines will continue through 2011 for newspapers, radio, and directories. During 2012–13, each Television will be flat, at $168 billion, which understates segment will expand as economic conditions improve. underlying growth because 2008 was boosted by advertising associated with the Beijing Summer Olympics, Internet advertising will return to double-digit increases while 2013 will not have Olympics-related advertising. during 2012–13 and will average 7.7 percent compounded Consumer magazines, newspapers, radio, directories, and annually for the five-year forecast period as a whole. The trade magazines will each be lower in 2013 than in 2008. Internet will constitute 19 percent of global advertising in 2013 compared with 12 percent in 2008 and only 4 Overall global advertising will decline at a 0.5 percent percent in 2004. compound annual rate from $479 billion in 2008 to $467 billion in 2013.

Global advertising (US$ millions) 2009–13 Segment 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet: wired and mobile 17,922 26,795 38,696 51,813 59,873 58,717 60,241 65,654 74,972 86,728 % Change 43.7 49.5 44.4 33.9 15.6 –1.9 2.6 9.0 14.2 15.7 7.7 Television 145,575 150,555 160,273 166,268 168,342 149,076 149,507 151,648 162,520 168,414 % Change 10.8 3.4 6.5 3.7 1.2 –11.4 0.3 1.4 7.2 3.6 0.0 Video games 30 177 669 1,044 1,373 1,588 1,874 2,172 2,418 2,622 % Change — 490.0 278.0 56.1 31.5 15.7 18.0 15.9 11.3 8.4 13.8 Consumer magazines 31,852 33,301 34,569 36,083 35,173 29,818 28,651 29,273 30,731 33,279 % Change 5.5 4.5 3.8 4.4 –2.5 –15.2 –3.9 2.2 5.0 8.3 –1.1 Newspapers 113,532 117,931 120,893 120,333 110,822 92,671 86,673 85,989 87,919 91,820 % Change 5.0 3.9 2.5 –0.5 –7.9 –16.4 –6.5 –0.8 2.2 4.4 –3.7 Radio 32,497 33,353 34,359 34,558 32,546 28,661 26,997 26,592 27,109 28,070 % Change 4.7 2.6 3.0 0.6 –5.8 –11.9 –5.8 –1.5 1.9 3.5 –2.9 Out-of-home 23,104 24,705 26,688 29,028 28,810 26,871 26,518 27,152 28,543 30,484 % Change 7.9 6.9 8.0 8.8 –0.8 –6.7 –1.3 2.4 5.1 6.8 1.1 Directories 30,458 31,672 33,432 34,642 34,694 29,191 26,588 26,187 26,910 28,611 % Change 2.6 4.0 5.6 3.6 0.2 –15.9 –8.9 –1.5 2.8 6.3 –3.8 Trade magazines 17,929 19,175 20,067 20,532 19,622 16,252 15,350 15,453 16,044 17,430 % Change 2.8 6.9 4.7 2.3 –4.4 –17.2 –5.6 0.7 3.8 8.6 –2.3 Total 411,358 433,922 462,678 484,516 479,317 421,087 409,873 415,776 440,265 467,321 % Change 8.1 5.5 6.6 4.7 –1.1 –12.1 –2.7 1.4 5.9 6.1 –0.5

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

30 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer/end-user spending and in the next generation of consoles. TV subscriptions and license fees will be the next fastest, with a projected Global consumer/end-user spending will decline by 6.3 percent increase compounded annually, fueled by 1.2 percent in 2009 as decreases in recorded music, growth in subscription households, the entrance of consumer magazines, newspapers, consumer and telephone companies into TV distribution, and an expanding educational books, and business-to-business publishing video-on-demand market once the economy improves. offset gains in TV subscriptions and license fees, filmed Filmed entertainment will grow at a 4 percent compound entertainment, and video games. Newspapers and annual rate, boosted by the proliferation of digital cinemas consumer and educational books will continue to decline and 3-D films and by an emerging HD video market. Radio through 2010. Consumer magazines and business-to- will rise at a 3.3 percent compound annual rate, the result business publishing will continue to fall through 2011, of an expanding satellite radio market in North America while recorded music, which has been declining since and growing public radio license fees. 2004, will continue that trend through 2012 before finally posting an increase in 2013. The remaining segments will each grow by less than 1 percent compounded annually or will decrease. Overall Video games will be the fastest-growing segment during spending will rise from $715 billion in 2008 to $812 billion the next five years, with a 7.2 percent compound annual in 2013, a 2.6 percent compound annual increase. increase, boosted by growth in online and wireless games

Global consumer/end-user spending (US$ millions) 2009–13 Segment 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR TV subscriptions and license fees 134,396 146,286 158,598 172,843 186,065 191,753 198,861 214,064 233,522 252,330 % Change 8.3 8.8 8.4 9.0 7.6 3.1 3.7 7.6 9.1 8.1 6.3 Recorded music 37,328 36,173 34,943 32,804 29,593 27,414 26,210 25,760 25,715 26,061 % Change 0.1 –3.1 –3.4 –6.1 –9.8 –7.4 –4.4 –1.7 –0.2 1.3 –2.5 Filmed entertainment 82,834 80,633 82,233 83,896 83,925 84,833 87,143 91,045 96,035 102,165 % Change 6.8 –2.7 2.0 2.0 0.0 1.1 2.7 4.5 5.5 6.4 4.0 Video games 27,777 29,638 33,835 42,416 50,017 53,501 56,509 59,432 64,608 70,891 % Change 13.4 6.7 14.2 25.4 17.9 7.0 5.6 5.2 8.7 9.7 7.2 Consumer magazines 43,965 45,232 45,303 45,649 45,143 42,978 42,019 41,928 42,573 43,544 % Change 3.3 2.9 0.2 0.8 –1.1 –4.8 –2.2 –0.2 1.5 2.3 –0.7 Newspapers 68,610 69,499 69,940 71,135 71,606 71,122 70,811 71,234 71,919 72,769 % Change 1.3 1.3 0.6 1.7 0.7 –0.7 –0.4 0.6 1.0 1.2 0.3 Radio 12,120 13,174 14,202 15,273 16,178 16,794 17,379 17,896 18,386 19,067 % Change 5.4 8.7 7.8 7.5 5.9 3.8 3.5 3.0 2.7 3.7 3.3 Consumer and educational books 103,113 108,235 109,539 115,514 115,266 112,289 111,634 112,823 115,189 118,493 % Change 1.5 5.0 1.2 5.5 –0.2 –2.6 –0.6 1.1 2.1 2.9 0.6 Business-to-business publishing 102,853 107,296 113,811 119,470 117,239 106,076 100,606 99,470 101,810 106,904 % Change 3.7 4.3 6.1 5.0 –1.9 –9.5 –5.2 –1.1 2.4 5.0 –1.8 Total 612,996 636,166 662,404 699,000 715,032 706,760 711,172 733,652 769,757 812,224 % Change 4.6 3.8 4.1 5.5 2.3 –1.2 0.6 3.2 4.9 5.5 2.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media industry summary 31

Global market by segment

This section provides a snapshot of trends and forecasts supplemental categories not shown here, data on a for the 12 industry segments covered in the Outlook. country-by-country basis as well as a discussion of the For each category and subcategory, as well as for key drivers can be found in the full Outlook.

Global entertainment and media market by segment (US$ millions) 2009–13 Segment 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 110,370 136,588 162,394 190,425 214,601 226,221 238,450 262,360 296,387 333,628 % Change 21.9 23.8 18.9 17.3 12.7 5.4 5.4 10.0 13.0 12.6 9.2 Internet advertising: wired and mobile 17,922 26,795 38,696 51,813 58,332 56,762 57,801 62,937 71,781 83,085 % Change 43.7 49.5 44.4 33.9 12.6 –2.7 1.8 8.9 14.1 15.7 7.3 TV subscriptions and license fees 134,396 146,286 158,598 172,843 186,065 191,753 198,861 214,064 233,522 252,330 % Change 8.3 8.8 8.4 9.0 7.6 3.1 3.7 7.6 9.1 8.1 6.3 TV advertising 145,575 150,555 160,273 166,268 168,342 149,076 149,507 151,648 162,520 168,414 % Change 10.8 3.4 6.5 3.7 1.2 –11.4 0.3 1.4 7.2 3.6 0.0 Recorded music 37,355 36,183 34,957 33,211 30,764 28,382 26,887 26,349 26,133 26,424 % Change 0.1 –3.1 –3.4 –5.0 –7.4 –7.7 –5.3 –2.0 –0.8 1.1 –3.0 Filmed entertainment 82,834 80,633 82,233 83,896 83,926 84,833 87,143 91,045 96,035 102,165 % Change 6.8 –2.7 2.0 2.0 0.0 1.1 2.7 4.5 5.5 6.4 4.0 Video games 27,807 29,815 34,504 43,460 51,390 55,089 58,383 61,604 67,026 73,513 % Change 13.5 7.2 15.7 26.0 18.2 7.2 6.0 5.5 8.8 9.7 7.4 Consumer magazine publishing 75,817 78,533 79,872 81,732 80,316 72,796 70,670 71,201 73,304 76,823 % Change 4.2 3.6 1.7 2.3 –1.7 –9.4 –2.9 0.8 3.0 4.8 –0.9 Newspaper publishing 182,142 187,430 190,833 191,468 182,428 163,793 157,484 157,223 159,838 164,589 % Change 3.6 2.9 1.8 0.3 –4.7 –10.2 –3.9 –0.2 1.7 3.0 –2.0 Radio/out-of-home 67,696 71,207 75,224 78,834 77,496 72,322 70,859 71,569 73,925 77,456 % Change 5.9 5.2 5.6 4.8 –1.7 –6.7 –2.0 1.0 3.3 4.8 0.0 Consumer and educational book publishing 103,407 108,557 109,730 115,656 115,356 112,960 112,235 113,386 115,649 118,916 % Change 1.5 5.0 1.1 5.4 –0.3 –2.1 –0.6 1.0 2.0 2.8 0.6 Business-to-business publishing 151,240 158,143 167,310 174,644 171,542 151,541 142,524 141,069 144,710 152,879 % Change 3.4 4.6 5.8 4.4 –1.8 –11.7 –6.0 –1.0 2.6 5.6 –2.3 Total 1,135,020 1,206,983 1,287,656 1,374,465 1,408,620 1,353,768 1,358,277 1,410,111 1,503,929 1,610,086 % Change 7.3 6.3 6.7 6.7 2.5 –3.9 0.3 3.8 6.7 7.1 2.7

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 33 Internet access and drive even further demand for high-speed Internet access, returning to a pattern of double-digit annual Global Internet access, which comprises both wired and growth. Wired broadband access will increase at a 9.3 mobile access, rose by 12.7 percent in 2008. Growth will percent compound annual rate to $206 billion in 2013. drop to mid single digits during the next two years because Broadband growth is coming at the expense of dial-up, of a slower migration rate from dial-up to broadband, a which will decline at an 11.9 percent compound annual slower take-up rate for high-speed broadband services in rate to only $16 billion in 2013. Nearly three-quarters of the near term, and increased competition that will lower total mobile access spending in 2008 was generated by average spending per subscriber. Over the longer run, Japan, South Korea, and the People’s Republic of China. penetration into rural areas and faster broadband speeds Mobile access will expand by 16.5 percent compounded will accelerate the migration to broadband. Wireless network annually to $111 billion in 2013. The overall access market upgrades, the further rollout of enhanced wireless, and will increase at a 9.2 percent compound annual rate to increased penetration of smart phones with touch-screen $334 billion in 2013. capabilities will stimulate demand for mobile applications

Global Internet access market: wired and mobile by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 26,619 29,990 34,282 40,962 44,049 45,597 47,319 52,503 60,497 68,294 % Change 8.2 12.7 14.3 19.5 7.5 3.5 3.8 11.0 15.2 12.9 9.2 EMEA 44,709 52,370 61,974 71,608 80,344 84,100 88,855 99,160 114,086 131,356 % Change 16.1 17.1 18.3 15.5 12.2 4.7 5.7 11.6 15.1 15.1 10.3 Asia Pacific 35,644 49,756 60,219 70,224 81,291 86,940 91,837 98,496 107,164 116,598 % Change 43.4 39.6 21.0 16.6 15.8 6.9 5.6 7.3 8.8 8.8 7.5 Latin America 3,398 4,472 5,919 7,631 8,917 9,584 10,439 12,201 14,640 17,380 % Change 30.5 31.6 32.4 28.9 16.9 7.5 8.9 16.9 20.0 18.7 14.3 Total 110,370 136,588 162,394 190,425 214,601 226,221 238,450 262,360 296,387 333,628 % Change 21.9 23.8 18.9 17.3 12.7 5.4 5.4 10.0 13.0 12.6 9.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

34 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Global Internet access market: wired and mobile by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Dial-up 42,920 39,111 34,169 32,089 30,542 28,363 25,656 22,831 19,534 16,245 % Change –11.3 –8.9 –12.6 –6.1 –4.8 –7.1 –9.5 –11.0 –14.4 –16.8 –11.9 Broadband 54,350 72,719 92,891 114,830 132,058 138,618 146,837 162,641 184,285 205,949 % Change 44.3 33.8 27.7 23.6 15.0 5.0 5.9 10.8 13.3 11.8 9.3 Total wired Internet access 97,270 111,830 127,060 146,919 162,600 166,981 172,493 185,472 203,819 222,194 % Change 13.0 15.0 13.6 15.6 10.7 2.7 3.3 7.5 9.9 9.0 6.4 Mobile access 13,100 24,758 35,334 43,506 52,001 59,240 65,957 76,888 92,568 111,434 % Change 190.1 89.0 42.7 23.1 19.5 13.9 11.3 16.6 20.4 20.4 16.5 Total 110,370 136,588 162,394 190,425 214,601 226,221 238,450 262,360 296,387 333,628 % Change 21.9 23.8 18.9 17.3 12.7 5.4 5.4 10.0 13.0 12.6 9.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 35 Internet advertising principal driver of wired Internet advertising. In the mobile market, wireless network upgrades, growth in mobile Global Internet advertising, including (1) advertising on access subscribers, increasing penetration of Internet- Web sites accessed by a computer and (2) mobile sites enabled smart phones, and the expansion of mobile intended for access by mobile phones, rose by 15.6 television will drive mobile advertising. percent in 2008, a slowdown from annual gains in excess of 30 percent during the prior four years. The economic We project global wired advertising to expand at a 6.7 downturn will cut into growth during the next two years. percent compound annual rate to $78 billion in 2013. Display and classified advertising will be hurt most by the Mobile advertising will rise from $3.8 billion in 2008 to $9.2 recession, while search and video advertising will hold up billion in 2013, a 19.7 percent compound annual increase. better. The anticipated economic recovery will lead to a Global Internet advertising as a whole will increase to $87 return to double-digit growth during 2012–13. In addition billion in 2013, growing at a 7.7 percent compound annual to the economy, broadband household growth will be the rate from $60 billion in 2008.

Global Internet advertising market: wired and mobile by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 10,069 13,264 18,149 23,115 26,284 25,459 25,844 27,697 31,196 35,918 % Change 33.8 31.7 36.8 27.4 13.7 –3.1 1.5 7.2 12.6 15.1 6.4 EMEA 4,760 7,585 12,524 17,799 20,427 19,533 19,929 21,829 24,637 28,106 % Change 59.9 59.3 65.1 42.1 14.8 –4.4 2.0 9.5 12.9 14.1 6.6 Asia Pacific 2,940 5,687 7,685 10,359 12,502 13,019 13,698 15,211 17,977 21,230 % Change 57.8 93.4 35.1 34.8 20.7 4.1 5.2 11.0 18.2 18.1 11.2 Latin America 153 259 338 540 660 706 770 917 1,162 1,474 % Change 45.7 69.3 30.5 59.8 22.2 7.0 9.1 19.1 26.7 26.9 17.4 Total 17,922 26,795 38,696 51,813 59,873 58,717 60,241 65,654 74,972 86,728 % Change 43.7 49.5 44.4 33.9 15.6 –1.9 2.6 9.0 14.2 15.7 7.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global Internet advertising market: wired and mobile by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet advertising 17,604 26,079 37,407 49,692 56,111 54,695 55,756 60,242 68,003 77,502 % Change 42.7 48.1 43.4 32.8 12.9 –2.5 1.9 8.0 12.9 14.0 6.7 Mobile advertising 318 716 1,289 2,121 3,762 4,022 4,485 5,412 6,969 9,226 % Change 140.9 125.2 80.0 64.5 77.4 6.9 11.5 20.7 28.8 32.4 19.7 Total 17,922 26,795 38,696 51,813 59,873 58,717 60,241 65,654 74,972 86,728 % Change 43.7 49.5 44.4 33.9 15.6 –1.9 2.6 9.0 14.2 15.7 7.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

36 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Television subscriptions and license fees percent annually during 2011–13, averaging 14.7 percent compounded annually during the entire five-year forecast The global television subscription and license fee market period—in the process, cannibalizing pay-per-view. increased by 7.6 percent in 2008 to $186 billion. The weak Mobile TV will be the fastest-growing component, with economy will keep increases at less than 4 percent during a 34.6 percent compound annual increase from a small the next two years, while the expected economic recovery base, although free mobile TV services will cut into the will lead to a return to high-single-digit annual gains during potential for subscription spending on mobile television. 2011–13. Subscribers upgrading from analog to digital will In EMEA, free digital services will boost subscription spending and video-on-demand once limit subscription spending. We expect the total market, the economy improves. Subscription spending will grow at including public TV license fees in EMEA and Asia Pacific, a 6.7 percent compound annual rate to $202 billion in 2013 to reach $252 billion in 2013, a 6.3 percent compound from $147 billion in 2008. Video-on-demand will decline annual increase from 2008. in 2009 and then will return to gains in excess of 20

Global TV subscription and license fee market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 57,725 62,048 66,717 71,120 74,775 76,187 78,118 84,512 91,840 97,278 % Change 9.4 7.5 7.5 6.6 5.1 1.9 2.5 8.2 8.7 5.9 5.4 EMEA 53,923 58,460 63,150 68,737 74,290 76,142 78,263 82,748 89,443 96,672 % Change 6.3 8.4 8.0 8.8 8.1 2.5 2.8 5.7 8.1 8.1 5.4 Asia Pacific 16,805 19,168 21,365 24,596 27,530 29,698 32,443 36,177 40,556 45,423 % Change 11.2 14.1 11.5 15.1 11.9 7.9 9.2 11.5 12.1 12.0 10.5 Latin America 5,943 6,610 7,366 8,390 9,470 9,726 10,037 10,627 11,683 12,957 % Change 7.9 11.2 11.4 13.9 12.9 2.7 3.2 5.9 9.9 10.9 6.5 Total 134,396 146,286 158,598 172,843 186,065 191,753 198,861 214,064 233,522 252,330 % Change 8.3 8.8 8.4 9.0 7.6 3.1 3.7 7.6 9.1 8.1 6.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 37 Global TV subscription and license fee market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Subscriptions 103,499 113,379 123,740 135,467 146,553 151,218 157,277 170,441 186,890 202,479 % Change 9.0 9.5 9.1 9.5 8.2 3.2 4.0 8.4 9.7 8.3 6.7 Pay-per-view 3,006 3,375 3,738 4,009 4,209 4,023 3,900 3,966 4,028 4,007 % Change 17.1 12.3 10.8 7.2 5.0 –4.4 –3.1 1.7 1.6 –0.5 –1.0 Video-on-demand 1,232 1,771 2,448 3,579 4,614 4,595 4,795 5,899 7,555 9,152 % Change 59.8 43.8 38.2 46.2 28.9 –0.4 4.4 23.0 28.1 21.1 14.7 Public TV license fees 26,659 27,761 28,397 29,181 29,740 30,848 31,600 32,017 32,339 32,501 % Change 3.0 4.1 2.3 2.8 1.9 3.7 2.4 1.3 1.0 0.5 1.8 Mobile TV — — 275 607 949 1,069 1,289 1,741 2,710 4,191 % Change — — — 120.7 56.3 12.6 20.6 35.1 55.7 54.6 34.6 Total 134,396 146,286 158,598 172,843 186,065 191,753 198,861 214,064 233,522 252,330 % Change 8.3 8.8 8.4 9.0 7.6 3.1 3.7 7.6 9.1 8.1 6.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising channels, and digital terrestrial television channels. Multichannel advertising will fall by 7.1 percent in 2009 The TV advertising market rose by 1.2 percent in 2008, the and then rebound, averaging 3.8 percent compounded slowest gain during the past five years despite the infusion annually to $52 billion in 2013. Terrestrial broadcast of advertising associated with the Beijing Olympics. The advertising will fall by 13 percent in 2009 and will economic decline during the latter part of the year was the continue to decline through 2011, averaging a 1.5 percent cause of the slowdown. The adverse economy will lead compound annual decrease through 2013. Spending will to an 11.4 percent decline in 2009 and will keep spending total $116 billion in 2013 from $125 billion in 2008. High- low during 2010–11, with an improvement in the economic definition television will boost advertising on free-to-air environment contributing to the recovery during 2012–13. channels once the underlying economic environment Multichannel advertising will be the fastest-growing improves. We project total television advertising to be flat sector in each region, buoyed by large increases in digital during the next five years, returning to its $168-billion level households and viewing-share gains for cable, satellite in 2013.

38 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Global television advertising market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 68,038 68,074 72,464 71,811 71,367 61,653 62,563 62,937 68,597 69,251 % Change 11.6 0.1 6.4 –0.9 –0.6 –13.6 1.5 0.6 9.0 1.0 –0.6 EMEA 39,924 42,272 45,087 48,755 48,876 43,403 42,715 43,324 46,384 48,850 % Change 10.5 5.9 6.7 8.1 0.2 –11.2 –1.6 1.4 7.1 5.3 0.0 Asia Pacific 31,326 32,568 33,792 34,972 35,856 32,637 32,941 33,775 35,330 37,205 % Change 8.1 4.0 3.8 3.5 2.5 –9.0 0.9 2.5 4.6 5.3 0.7 Latin America 6,287 7,641 8,930 10,730 12,243 11,383 11,288 11,612 12,209 13,108 % Change 20.2 21.5 16.9 20.2 14.1 –7.0 –0.8 2.9 5.1 7.4 1.4 Total 145,575 150,555 160,273 166,268 168,342 149,076 149,507 151,648 162,520 168,414 % Change 10.8 3.4 6.5 3.7 1.2 –11.4 0.3 1.4 7.2 3.6 0.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global television advertising market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Terrestrial 114,359 116,090 122,825 125,362 125,026 108,818 107,482 107,325 113,985 116,186 % Change 9.6 1.5 5.8 2.1 –0.3 –13.0 –1.2 –0.1 6.2 1.9 –1.5 Multichannel 31,216 34,465 37,448 40,906 43,316 40,258 42,025 44,323 48,535 52,228 % Change 15.8 10.4 8.7 9.2 5.9 –7.1 4.4 5.5 9.5 7.6 3.8 Total 145,575 150,555 160,273 166,268 168,342 149,076 149,507 151,648 162,520 168,414 % Change 10.8 3.4 6.5 3.7 1.2 –11.4 0.3 1.4 7.2 3.6 0.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 39 Recorded music service. In Asia Pacific and Latin America, mobile music faces less competition from Internet distribution, which will The global recorded music market fell by 9.8 percent continue to be hampered by high piracy rates. Wireless in 2008, its steepest decline during the past five years. network upgrades and advanced handsets will fuel mobile Spending on physical formats fell by 17.3 percent, music spending in those regions. offsetting a 22.4 percent rise in digital formats. Physical distribution will decline in each region because of We expect spending on music distributed to mobile competition from legitimate digital services and piracy. phones to rise at a 7.1 percent compound annual rate to We expect spending on physical formats to fall by 49 $6 billion in 2013 from $4.3 billion in 2008. Total spending percent during the next five years to $11.3 billion from on digital music will expand by 14.2 percent compounded $22 billion in 2008. The digital market is dominated by annually to $14.8 billion. By 2012, the global digital market Internet distribution in North America and EMEA and by will have overtaken the global physical market, with the mobile distribution in Asia Pacific and Latin America. The result that further declines in spending on physical formats availability of music without copyright protection software will have a less adverse impact on total spending. We and a growing broadband universe will boost Internet expect modest growth in total spending to begin in 2013. distribution. Internet distribution will more than double to In North America and Asia Pacific, digital will surpass $8.8 billion in 2013, growing at a 21.2 percent compound physical in 2011, while in EMEA and Latin America, annual rate from $3.4 billion in 2008. Bundled services, physical will remain the largest component through 2013. low-cost or free mobile music, and side loading from We project that global spending during the next five years lower-cost Internet services will cut into the paid mobile will fall at a 2.5 percent compound annual rate to $26.1 music market in North America and EMEA. Over time, the billion in 2013 from $29.6 billion in 2008. mobile music market will evolve into a subscription-based

Global recorded music market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 13,590 13,114 12,516 11,025 9,022 8,031 7,384 7,102 7,064 7,188 % Change 5.3 –3.5 –4.6 –11.9 –18.2 –11.0 –8.1 –3.8 –0.5 1.8 –4.4 EMEA 14,775 14,166 13,396 12,176 11,062 10,091 9,597 9,354 9,218 9,215 % Change –4.3 –4.1 –5.4 –9.1 –9.1 –8.8 –4.9 –2.5 –1.5 0.0 –3.6 Asia Pacific 7,783 7,722 7,890 8,626 8,552 8,386 8,360 8,441 8,553 8,720 % Change –1.9 –0.8 2.2 9.3 –0.9 –1.9 –0.3 1.0 1.3 2.0 0.4 Latin America 1,180 1,171 1,141 977 957 906 869 863 880 938 % Change 13.8 –0.8 –2.6 –14.4 –2.0 –5.3 –4.1 –0.7 2.0 6.6 –0.4 Total 37,328 36,173 34,943 32,804 29,593 27,414 26,210 25,760 25,715 26,061 % Change 0.1 –3.1 –3.4 –6.1 –9.8 –7.4 –4.4 –1.7 –0.2 1.3 –2.5

Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

40 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Global recorded music digital distribution market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 590 1,103 1,928 2,462 2,813 3,170 3,537 4,013 4,545 5,079 % Change 243.0 86.9 74.8 27.7 14.3 12.7 11.6 13.5 13.3 11.7 12.5 EMEA 154 418 780 1,187 1,654 1,894 2,297 2,834 3,377 3,927 % Change 214.3 171.4 86.6 52.2 39.3 14.5 21.3 23.4 19.2 16.3 18.9 Asia Pacific 356 807 1,230 2,469 2,969 3,387 3,869 4,383 4,866 5,339 % Change 114.5 126.7 52.4 100.7 20.3 14.1 14.2 13.3 11.0 9.7 12.5 Latin America 20 28 44 118 195 224 251 295 364 462 % Change 81.8 40.0 57.1 168.2 65.3 14.9 12.1 17.5 23.4 26.9 18.8 Total 1,120 2,356 3,982 6,236 7,631 8,675 9,954 11,525 13,152 14,807 % Change 181.4 110.4 69.0 56.6 22.4 13.7 14.7 15.8 14.1 12.6 14.2

Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Global recorded music physical distribution market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 13,000 12,011 10,588 8,563 6,209 4,861 3,847 3,089 2,519 2,109 % Change 2.1 –7.6 –11.8 –19.1 –27.5 –21.7 –20.9 –19.7 –18.5 –16.3 –19.4 EMEA 14,621 13,748 12,616 10,989 9,408 8,197 7,300 6,520 5,841 5,288 % Change –4.9 –6.0 –8.2 –12.9 –14.4 –12.9 –10.9 –10.7 –10.4 –9.5 –10.9 Asia Pacific 7,427 6,915 6,660 6,157 5,583 4,999 4,491 4,058 3,687 3,381 % Change –4.3 –6.9 –3.7 –7.6 –9.3 –10.5 –10.2 –9.6 –9.1 –8.3 –9.5 Latin America 1,160 1,143 1,097 859 762 682 618 568 516 476 % Change 13.1 –1.5 –4.0 –21.7 –11.3 –10.5 –9.4 –8.1 –9.2 –7.8 –9.0 Total 36,208 33,817 30,961 26,568 21,962 18,739 16,256 14,235 12,563 11,254 % Change –1.9 –6.6 –8.4 –14.2 –17.3 –14.7 –13.3 –12.4 –11.7 –10.4 –12.5

Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 41 Global recorded music market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Physical distribution 36,208 33,817 30,961 26,568 21,962 18,739 16,256 14,235 12,563 11,254 % Change –1.9 –6.6 –8.4 –14.2 –17.3 –14.7 –13.3 –12.4 –11.7 –10.4 –12.5 Internet 382 993 1,698 2,502 3,367 4,270 5,265 6,441 7,629 8,801 % Change 402.6 159.9 71.0 47.3 34.6 26.8 23.3 22.3 18.4 15.4 21.2 Mobile phones 738 1,363 2,284 3,734 4,264 4,405 4,689 5,084 5,523 6,006 % Change 129.2 84.7 67.6 63.5 14.2 3.3 6.4 8.4 8.6 8.7 7.1 Digital total 1,120 2,356 3,982 6,236 7,631 8,675 9,954 11,525 13,152 14,807 % Change 181.4 110.4 69.0 56.6 22.4 13.7 14.7 15.8 14.1 12.6 14.2 Total 37,328 36,173 34,943 32,804 29,593 27,414 26,210 25,760 25,715 26,061 % Change 0.1 –3.1 –3.4 –6.1 –9.8 –7.4 –4.4 –1.7 –0.2 1.3 –2.5

Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Filmed entertainment Over the longer run, competition from video-on-demand and online distribution will cut into in-store rentals. The Filmed entertainment was flat in 2008, at $84 billion, as convenience of online rental services will boost spending. a 3.8 percent increase in box office spending offset a 1.8 Faster broadband speeds and devices that allow TV percent drop in home video. Key factors affecting the viewing will propel a small digital download market. Piracy market in any given year are the quality of releases and will continue to hold down spending, particularly in Asia their appeal to consumers—developments we cannot Pacific and Latin America. Filmed entertainment will be the predict. The underlying box office market will be enhanced only segment where we expect (1) faster growth in 2009— by a growing share of 3-D releases that generate higher 1.1 percent—than in 2008, the result of improved box prices and higher ticket sales than standard 2-D films do. office spending from a larger array of 3-D releases, and (2) Modern theaters, digital cinemas, and more screens will a modest gain in rental spending as the recession leads also boost spending. The adverse economy will cut into consumers to low-cost rentals for entertainment. During physical sell-through in the near term. Over the longer run, the next five years, we expect the market to expand at a 4 growth in Blu-ray HD videos will offset a declining DVD percent compound annual rate to $102 billion in 2013. market and propel overall sell-through. Rentals will benefit from a weak economy in the near term because their lower prices will be more attractive.

42 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Global filmed entertainment market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 37,985 37,374 38,213 38,992 38,243 38,411 39,232 40,756 42,687 45,135 % Change 5.5 –1.6 2.2 2.0 –1.9 0.4 2.1 3.9 4.7 5.7 3.4 EMEA 27,152 25,465 25,384 25,374 25,533 25,719 26,261 27,269 28,744 30,668 % Change 8.9 –6.2 –0.3 0.0 0.6 0.7 2.1 3.8 5.4 6.7 3.7 Asia Pacific 15,507 15,604 16,216 16,944 17,663 18,164 19,022 20,266 21,687 23,264 % Change 5.7 0.6 3.9 4.5 4.2 2.8 4.7 6.5 7.0 7.3 5.7 Latin America 2,190 2,190 2,420 2,586 2,486 2,539 2,628 2,754 2,917 3,098 % Change 12.7 0.0 10.5 6.9 –3.9 2.1 3.5 4.8 5.9 6.2 4.5 Total 82,834 80,633 82,233 83,896 83,925 84,833 87,143 91,045 96,035 102,165 % Change 6.8 –2.7 2.0 2.0 0.0 1.1 2.7 4.5 5.5 6.4 4.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global filmed entertainment market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Box office 25,838 24,786 26,316 27,302 28,340 29,586 31,095 33,046 35,280 37,711 % Change 5.0 –4.1 6.2 3.7 3.8 4.4 5.1 6.3 6.8 6.9 5.9 Home video Physical sell-through 37,479 36,793 36,508 36,353 34,708 33,371 33,257 34,243 35,983 38,774 % Change 14.2 –1.8 –0.8 –0.4 –4.5 –3.9 –0.3 3.0 5.1 7.8 2.2 In-store rentals 18,674 17,824 17,848 17,898 17,691 17,747 17,775 17,757 17,690 17,562 % Change –5.5 –4.6 0.1 0.3 –1.2 0.3 0.2 –0.1 –0.4 –0.7 –0.1 Online rental subscriptions 843 1,228 1,531 2,210 2,900 3,741 4,481 5,285 6,053 6,702 % Change 139.5 45.7 24.7 44.4 31.2 29.0 19.8 17.9 14.5 10.7 18.2 Digital downloads — 2 30 133 286 388 535 714 1,029 1,416 % Change — — 1400.0 343.3 115.0 35.7 37.9 33.5 44.1 37.6 37.7 Home video total 56,996 55,847 55,917 56,594 55,585 55,247 56,048 57,999 60,755 64,454 % Change 7.6 –2.0 0.1 1.2 –1.8 –0.6 1.4 3.5 4.8 6.1 3.0 Total 82,834 80,633 82,233 83,896 83,925 84,833 87,143 91,045 96,035 102,165 % Change 6.8 –2.7 2.0 2.0 0.0 1.1 2.7 4.5 5.5 6.4 4.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 43 Video games Newer handsets that are capable of downloading games and that provide larger screens and Video games was the fastest-growing segment in 2008, better graphics will drive demand for wireless games, with an 18.2 percent increase. The current generation of as will the growth of 3G networks that will provide an consoles will drive the market for the next few years. We environment that enables wireless games to approach expect that by 2012, the next generation of consoles will the quality of console games. We expect wireless games begin to be introduced, which will spur renewed growth to grow at a 13.8 percent compound annual rate. PC in console games. Console games will average 5.5 games will continue to deteriorate as consumers turn their percent growth compounded annually. The online market attention to newer technologies, although the market will is being driven by the rising penetration of broadband be maintained by purchases of PC games that often are households as well as the current generation of consoles needed to play MMOGs. PC games will decrease at a 1.2 that feature online capabilities. The increasing popularity percent compound annual rate. Video game advertising of massive multiplayer online games (MMOGs)—with is emerging as an additional revenue stream. The growth their subscription fees, in-game advertising, and micro of the online game market will fuel growth in dynamic transactions—is also aiding the growth of the market. in-game advertising. Growth will average 13.8 percent Casual games represent a further important component compounded annually. We project the overall video game of the online market, helping expand the demographic market to expand from $51 billion in 2008 to $74 billion in base and stimulate spending. We expect online games to 2013, a 7.4 percent compound annual increase. increase at a 10.6 percent compound annual rate.

Global video game market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 8,941 9,036 10,301 13,315 16,243 17,232 17,798 18,281 19,632 21,558 % Change 10.9 1.1 14.0 29.3 22.0 6.1 3.3 2.7 7.4 9.8 5.8 EMEA 9,756 10,648 12,079 15,135 18,133 19,367 20,360 21,317 23,038 25,256 % Change 14.1 9.1 13.4 25.3 19.8 6.8 5.1 4.7 8.1 9.6 6.9 Asia Pacific 8,513 9,504 11,337 13,985 15,747 17,107 18,719 20,386 22,580 24,729 % Change 16.0 11.6 19.3 23.4 12.6 8.6 9.4 8.9 10.8 9.5 9.4 Latin America 597 627 787 1,025 1,267 1,383 1,506 1,620 1,776 1,970 % Change 11.4 5.0 25.5 30.2 23.6 9.2 8.9 7.6 9.6 10.9 9.2 Total 27,807 29,815 34,504 43,460 51,390 55,089 58,383 61,604 67,026 73,513 % Change 13.5 7.2 15.7 26.0 18.2 7.2 6.0 5.5 8.8 9.7 7.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

44 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Global video game market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Console games 18,877 18,329 19,829 25,465 30,394 31,569 32,380 33,106 35,751 39,712 % Change 9.9 –2.9 8.2 28.4 19.4 3.9 2.6 2.2 8.0 11.1 5.5 Online games 2,590 3,895 5,285 6,823 8,251 9,353 10,317 11,270 12,453 13,679 % Change 61.9 50.4 35.7 29.1 20.9 13.4 10.3 9.2 10.5 9.8 10.6 Wireless games 1,635 2,820 3,960 5,424 7,028 8,266 9,533 10,824 12,230 13,404 % Change 102.7 72.5 40.4 37.0 29.6 17.6 15.3 13.5 13.0 9.6 13.8 PC games 4,675 4,594 4,761 4,704 4,344 4,313 4,279 4,232 4,174 4,096 % Change –4.8 –1.7 3.6 –1.2 –7.7 –0.7 –0.8 –1.1 –1.4 –1.9 –1.2 Total end-user spending 27,777 29,638 33,835 42,416 50,017 53,501 56,509 59,432 64,608 70,891 % Change 13.4 6.7 14.2 25.4 17.9 7.0 5.6 5.2 8.7 9.7 7.2 Advertising 30 177 669 1,044 1,373 1,588 1,874 2,172 2,418 2,622 % Change — 490.0 278.0 56.1 31.5 15.7 18.0 15.9 11.3 8.4 13.8 Total 27,807 29,815 34,504 43,460 51,390 55,089 58,383 61,604 67,026 73,513 % Change 13.5 7.2 15.7 26.0 18.2 7.2 6.0 5.5 8.8 9.7 7.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing at $30.2 billion in 2013, will be 2.3 percent lower on a compound annual basis from 2008. Total advertising will Consumer magazine publishing declined by 1.7 percent decrease by 1.1 percent compounded annually during in 2008 as the impact of the economic downturn began to the next five years. Newsstand sales will be vulnerable to be felt. The adverse economy will lead to steep decreases the economic cycle in many countries during the next two in advertising in the near term. Print advertising will fall by years, and subscription sales will be at risk as well when 15.9 percent in 2009 and by a cumulative 19.9 percent they are due for renewal. Rising discretionary income through 2010. Migration of advertising and readers from during the latter part of the forecast period will lead to print to digital will dampen print advertising over the a rebound in circulation spending. Circulation spending long run while benefiting an emerging digital market. will decline through 2011 and will average a 0.7 percent Broadband household growth and an expanding mobile compound annual decrease through 2013. We project access market will also fuel digital advertising. We expect consumer magazine publishing to contract at a 0.9 percent digital advertising to rise at an 18.3 percent compound compound annual rate to $77 billion in 2013 from $80 annual rate to $3.1 billion in 2013, while print advertising, billion in 2008.

Executive summary | Global entertainment and media market by segment 45 Global consumer magazine publishing market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 23,716 24,609 24,475 25,404 24,510 21,193 20,417 20,634 21,270 22,551 % Change 5.1 3.8 –0.5 3.8 –3.5 –13.5 –3.7 1.1 3.1 6.0 –1.7 EMEA 34,431 35,306 36,139 36,731 36,228 33,493 32,689 32,840 33,688 34,984 % Change 3.2 2.5 2.4 1.6 –1.4 –7.5 –2.4 0.5 2.6 3.8 –0.7 Asia Pacific 15,110 15,813 16,268 16,335 16,214 14,917 14,429 14,547 15,004 15,705 % Change 4.3 4.7 2.9 0.4 –0.7 –8.0 –3.3 0.8 3.1 4.7 –0.6 Latin America 2,560 2,805 2,990 3,262 3,364 3,193 3,135 3,180 3,342 3,583 % Change 9.2 9.6 6.6 9.1 3.1 –5.1 –1.8 1.4 5.1 7.2 1.3 Total 75,817 78,533 79,872 81,732 80,316 72,796 70,670 71,201 73,304 76,823 % Change 4.2 3.6 1.7 2.3 –1.7 –9.4 –2.9 0.8 3.0 4.8 –0.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global consumer magazine publishing market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Print advertising 31,852 33,173 34,184 35,393 33,841 28,452 27,105 27,359 28,292 30,189 % Change 5.5 4.1 3.0 3.5 –4.4 –15.9 –4.7 0.9 3.4 6.7 –2.3 Digital advertising NA 128 385 690 1,332 1,366 1,546 1,914 2,439 3,090 % Change — — 200.8 79.2 93.0 2.6 13.2 23.8 27.4 26.7 18.3 Total advertising 31,852 33,301 34,569 36,083 35,173 29,818 28,651 29,273 30,731 33,279 % Change 5.5 4.5 3.8 4.4 –2.5 –15.2 –3.9 2.2 5.0 8.3 –1.1 Circulation 43,965 45,232 45,303 45,649 45,143 42,978 42,019 41,928 42,573 43,544 % Change 3.3 2.9 0.2 0.8 –1.1 –4.8 –2.2 –0.2 1.5 2.3 –0.7 Total 75,817 78,533 79,872 81,732 80,316 72,796 70,670 71,201 73,304 76,823 % Change 4.2 3.6 1.7 2.3 –1.7 –9.4 –2.9 0.8 3.0 4.8 –0.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

46 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Newspaper publishing advertising, albeit from a much lower base. Even so, print advertising in 2013 will be 20.4 percent lower in 2013 than Newspaper publishing fell by 4.7 percent in 2008, the in 2008. Rising Web site traffic will boost digital advertising result of an 8.7 percent drop in print advertising. We once economic conditions have improved. In digital expect a steeper, 17.3 percent decline in 2009, with a advertising during the next five years, we project a 6.8 cumulative 24.3 percent decrease through 2011. Print percent gain compounded annually. Overall newspaper advertising in 2011 will be 32 percent lower than in 2006. advertising will fall at a 3.7 percent compound annual rate. In addition to the impact of the economy, the continuing Circulation spending will be relatively flat because declines migration of advertising—particularly classified in paid circulation in North America and EMEA will be offset advertising—to the Internet will hurt print advertising over by increases in Latin America and Asia Pacific. The overall the long run. Nevertheless, improved economic conditions newspaper market will decline from $182 billion in 2008 to in 2012–13 will lead to a modest rebound in print $165 billion in 2013, a 2 percent compound annual decrease.

Global newspaper publishing market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 62,421 63,488 63,170 59,083 50,793 41,810 38,071 36,885 36,858 37,720 % Change 3.3 1.7 –0.5 –6.5 –14.0 –17.7 –8.9 –3.1 –0.1 2.3 –5.8 EMEA 68,724 70,967 72,701 74,997 73,102 66,634 64,798 64,892 65,903 67,487 % Change 3.5 3.3 2.4 3.2 –2.5 –8.8 –2.8 0.1 1.6 2.4 –1.6 Asia Pacific 46,378 47,953 49,473 51,262 51,717 48,718 48,009 48,687 50,039 51,876 % Change 4.0 3.4 3.2 3.6 0.9 –5.8 –1.5 1.4 2.8 3.7 0.1 Latin America 4,619 5,022 5,489 6,126 6,816 6,631 6,606 6,759 7,038 7,506 % Change 4.9 8.7 9.3 11.6 11.3 –2.7 –0.4 2.3 4.1 6.6 1.9 Total 182,142 187,430 190,833 191,468 182,428 163,793 157,484 157,223 159,838 164,589 % Change 3.6 2.9 1.8 0.3 –4.7 –10.2 –3.9 –0.2 1.7 3.0 –2.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 47 Global newspaper publishing market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Print advertising 111,991 114,926 116,642 114,853 104,830 86,716 80,529 79,353 80,559 83,487 % Change 4.7 2.6 1.5 –1.5 –8.7 –17.3 –7.1 –1.5 1.5 3.6 –4.5 Digital advertising 1,541 3,005 4,251 5,480 5,992 5,955 6,144 6,636 7,360 8,333 % Change 26.7 95.0 41.5 28.9 9.3 –0.6 3.2 8.0 10.9 13.2 6.8 Total advertising 113,532 117,931 120,893 120,333 110,822 92,671 86,673 85,989 87,919 91,820 % Change 5.0 3.9 2.5 –0.5 –7.9 –16.4 –6.5 –0.8 2.2 4.4 –3.7 Circulation 68,610 69,499 69,940 71,135 71,606 71,122 70,811 71,234 71,919 72,769 % Change 1.3 1.3 0.6 1.7 0.7 –0.7 –0.4 0.6 1.0 1.2 0.3 Total 182,142 187,430 190,833 191,468 182,428 163,793 157,484 157,223 159,838 164,589 % Change 3.6 2.9 1.8 0.3 –4.7 –10.2 –3.9 –0.2 1.7 3.0 –2.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio and out-of-home growing competition from the Internet, but satellite radio will boost spending in North America. Modest increases The radio and out-of-home market fell by 1.7 percent in in public radio license fees will help stabilize the radio 2008 as the economic downturn cut into advertising. Out- markets in EMEA and Asia Pacific. of-home declined by 0.8 percent, while radio fell by 2.2 percent. Weak economic conditions will lead to a steeper, We expect out-of-home advertising to expand at a 1.1 6.7 percent drop in 2009 and a further, 2 percent decrease percent compound annual rate during the next five years in 2010. With improved economic conditions in 2011, we to $30 billion in 2013 from $29 billion in 2008. We project expect a return to growth. Out-of-home will be fueled by that radio will decrease at a 0.7 percent compound annual digital billboards that expand the effective out-of-home rate from $49 billion in 2008 to $47 billion in 2013. The inventory because multiple ads can be shown on the same overall radio and out-of-home market will be flat, at $78 display. Improved out-of-home audience measurement billion, as near-term decreases are offset by expansion will attract advertisers, and the expansion of captive video during 2011–13. networks will also fuel growth. Radio advertising will face

48 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Global radio/out-of-home market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 27,240 28,534 29,982 30,947 29,631 27,014 26,239 26,404 27,390 28,812 % Change 4.3 4.8 5.1 3.2 –4.3 –8.8 –2.9 0.6 3.7 5.2 –0.6 EMEA 25,086 26,394 27,851 29,286 29,075 27,057 26,366 26,340 26,740 27,695 % Change 5.5 5.2 5.5 5.2 –0.7 –6.9 –2.6 –0.1 1.5 3.6 –1.0 Asia Pacific 14,433 14,912 15,866 16,861 16,935 16,502 16,589 17,150 18,044 19,067 % Change 9.2 3.3 6.4 6.3 0.4 –2.6 0.5 3.4 5.2 5.7 2.4 Latin America 962 1,392 1,550 1,765 1,893 1,753 1,700 1,746 1,864 2,047 % Change 13.4 44.7 11.4 13.9 7.3 –7.4 –3.0 2.7 6.8 9.8 1.6 Total 67,721 71,232 75,249 78,859 77,534 72,326 70,894 71,640 74,038 77,621 % Change 5.9 5.2 5.6 4.8 –1.7 –6.7 –2.0 1.1 3.3 4.8 0.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global radio market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 21,122 21,910 22,830 23,155 21,941 19,703 18,889 18,837 19,395 20,134 % Change 3.8 3.7 4.2 1.4 –5.2 –10.2 –4.1 –0.3 3.0 3.8 –1.7 EMEA 16,596 17,292 17,896 18,550 18,378 17,678 17,483 17,525 17,719 18,255 % Change 5.4 4.2 3.5 3.7 –0.9 –3.8 –1.1 0.2 1.1 3.0 –0.1 Asia Pacific 6,163 6,473 6,892 7,037 7,235 6,990 6,963 7,075 7,279 7,560 % Change 6.2 5.0 6.5 2.1 2.8 –3.4 –0.4 1.6 2.9 3.9 0.9 Latin America 736 852 943 1,089 1,170 1,084 1,041 1,051 1,102 1,188 % Change 12.5 15.8 10.7 15.5 7.4 –7.4 –4.0 1.0 4.9 7.8 0.3 Total 44,617 46,527 48,561 49,831 48,724 45,455 44,376 44,488 45,495 47,137 % Change 4.9 4.3 4.4 2.6 –2.2 –6.7 –2.4 0.3 2.3 3.6 –0.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 49 Global out-of-home advertising market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 6,118 6,624 7,152 7,792 7,690 7,311 7,350 7,567 7,995 8,678 % Change 6.0 8.3 8.0 8.9 –1.3 –4.9 0.5 3.0 5.7 8.5 2.4 EMEA 8,490 9,102 9,955 10,736 10,697 9,379 8,883 8,815 9,021 9,440 % Change 5.7 7.2 9.4 7.8 –0.4 –12.3 –5.3 –0.8 2.3 4.6 –2.5 Asia Pacific 8,270 8,439 8,974 9,824 9,700 9,512 9,626 10,075 10,765 11,507 % Change 11.5 2.0 6.3 9.5 –1.3 –1.9 1.2 4.7 6.8 6.9 3.5 Latin America 226 540 607 676 723 669 659 695 762 859 % Change 16.5 138.9 12.4 11.4 7.0 –7.5 –1.5 5.5 9.6 12.7 3.5 Total 23,104 24,705 26,688 29,028 28,810 26,871 26,518 27,152 28,543 30,484 % Change 7.9 6.9 8.0 8.8 –0.8 –6.7 –1.3 2.4 5.1 6.8 1.1

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global radio/out-of-home market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Radio advertising 32,497 33,353 34,359 34,558 32,546 28,661 26,997 26,592 27,109 28,070 % Change 4.7 2.6 3.0 0.6 –5.8 –11.9 –5.8 –1.5 1.9 3.5 –2.9 Public radio license fees 11,735 12,162 12,406 12,746 12,923 13,188 13,439 13,575 13,671 13,957 % Change 3.2 3.6 2.0 2.7 1.4 2.1 1.9 1.0 0.7 2.1 1.6 Satellite radio subscriptions 385 1,012 1,796 2,527 3,255 3,606 3,940 4,321 4,715 5,110 % Change 208.0 162.9 77.5 40.7 28.8 10.8 9.3 9.7 9.1 8.4 9.4 Total radio 44,617 46,527 48,561 49,831 48,724 45,455 44,376 44,488 45,495 47,137 % Change 4.9 4.3 4.4 2.6 –2.2 –6.7 –2.4 0.3 2.3 3.6 –0.7 Out-of-home 23,104 24,705 26,688 29,028 28,810 26,871 26,518 27,152 28,543 30,484 % Change 7.9 6.9 8.0 8.8 –0.8 –6.7 –1.3 2.4 5.1 6.8 1.1 Total 67,721 71,232 75,249 78,859 77,534 72,326 70,894 71,640 74,038 77,621 % Change 5.9 5.2 5.6 4.8 –1.7 –6.7 –2.0 1.1 3.3 4.8 0.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

50 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer and educational book publishing Among educational books, elementary and high school textbooks represent the most cyclically sensitive The consumer and educational book publishing market component, while college textbooks have a countercyclical fell by 0.2 percent in 2008, hurt by the economy and by element and will benefit from people returning to college the absence—in most countries—of a Harry Potter title, to improve their job prospects while employment which had boosted spending in 2007. The economic cycle opportunities are limited. We expect print educational will influence spending during the next five years, leading books to decrease during the next two years and then to near-term decreases and a subsequent rebound. expand during the subsequent three years, rising to $43 Electronic browsing technologies will raise awareness billion in 2013, a 0.4 percent compound annual gain. of titles and stimulate consumer book sales once the Electronic books are growing at the college level, and we economy improves. We expect print consumer books to project a 36.9 percent compound annual increase during be flat, at $72 billion. New, portable eReaders will boost the next five years to $1.7 billion in 2013, boosting overall electronic book sales in selected countries. We expect educational growth to 1 percent compounded annually. consumer electronic book sales to grow at a 26.8 percent We project total spending to increase at a 0.6 percent compound annual rate from a small base to $2.3 billion in compound annual rate to $118 billion in 2013 from $115 2013, raising overall consumer book growth to 0.3 percent billion in 2008. compounded annually.

Executive summary | Global entertainment and media market by segment 51 Global consumer and educational book publishing market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 30,031 32,211 31,648 33,778 32,592 31,847 31,773 32,194 32,850 33,760 % Change –0.3 7.3 –1.7 6.7 –3.5 –2.3 –0.2 1.3 2.0 2.8 0.7 EMEA 46,624 48,624 49,018 50,671 50,277 47,948 46,979 47,005 47,689 48,898 % Change 1.7 4.3 0.8 3.4 –0.8 –4.6 –2.0 0.1 1.5 2.5 –0.6 Asia Pacific 22,165 23,001 24,358 26,413 27,625 27,813 28,252 28,959 29,874 30,903 % Change 3.9 3.8 5.9 8.4 4.6 0.7 1.6 2.5 3.2 3.4 2.3 Latin America 4,293 4,399 4,515 4,652 4,772 4,681 4,630 4,665 4,776 4,932 % Change 1.5 2.5 2.6 3.0 2.6 –1.9 –1.1 0.8 2.4 3.3 0.7 Total 103,113 108,235 109,539 115,514 115,266 112,289 111,634 112,823 115,189 118,493 % Change 1.5 5.0 1.2 5.5 –0.2 –2.6 –0.6 1.1 2.1 2.9 0.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Global consumer and educational book publishing market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Print/audio consumer books 64,750 68,439 69,085 73,730 72,474 70,082 69,149 69,542 70,471 71,920 % Change 1.4 5.7 0.9 6.7 –1.7 –3.3 –1.3 0.6 1.3 2.1 –0.2 Print educational books 38,127 39,455 39,921 41,030 41,723 40,914 40,804 41,061 41,660 42,514 % Change 1.6 3.5 1.2 2.8 1.7 –1.9 –0.3 0.6 1.5 2.0 0.4 Total print/audio 102,877 107,894 109,006 114,760 114,197 110,996 109,953 110,603 112,131 114,434 % Change 1.4 4.9 1.0 5.3 –0.5 –2.8 –0.9 0.6 1.4 2.1 0.0 Electronic consumer books 81 157 303 464 706 864 1,123 1,473 1,882 2,315 % Change 72.3 93.8 93.0 53.1 52.2 22.4 30.0 31.2 27.8 23.0 26.8 Electronic educational books 155 184 230 290 363 429 558 747 1,176 1,744 % Change 52.0 18.7 25.0 26.1 25.2 18.2 30.1 33.9 57.4 48.3 36.9 Total electronic 236 341 533 754 1,069 1,293 1,681 2,220 3,058 4,059 % Change 58.4 44.5 56.3 41.5 41.8 21.0 30.0 32.1 37.7 32.7 30.6 Total consumer 64,831 68,596 69,388 74,194 73,180 70,946 70,272 71,015 72,353 74,235 % Change 1.4 5.8 1.2 6.9 –1.4 –3.1 –1.0 1.1 1.9 2.6 0.3 Total educational 38,282 39,639 40,151 41,320 42,086 41,343 41,362 41,808 42,836 44,258 % Change 1.7 3.5 1.3 2.9 1.9 –1.8 0.0 1.1 2.5 3.3 1.0 Total 103,113 108,235 109,539 115,514 115,266 112,289 111,634 112,823 115,189 118,493 % Change 1.5 5.0 1.2 5.5 –0.2 –2.6 –0.6 1.1 2.1 2.9 0.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

52 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business-to-business publishing 6.5 percent compounded annually to $23 billion in 2013. Growth in digital directory advertising, projected at 14.9 Business-to-business publishing includes business percent on a compound annual basis, will not make up the information, trade magazines, professional books, and difference, because online rates are much lower than print directory advertising. Spending fell by 1.8 percent in 2008 rates. Overall directory advertising will decrease at a 3.8 as a result of the economic downturn, because each percent compound annual rate. Trade magazines will be segment of the market is sensitive to the economy. A adversely affected by the declining economy and falling rebounding economy during the latter part of the forecast employment. Print advertising in trade magazines will be period will lead to rebounds in each category during affected by a shift of advertising to the Internet, some of 2012–13. In the near term, we expect spending to fall by which will be recaptured on trade magazine Web sites. The 11.7 percent in 2009 and by a cumulative 17.7 percent trade magazine market as a whole, including circulation through 2011. The business information market will be hurt spending, will decline at a 1.8 percent compound annual by the financial collapse, which will lead to steep near-term rate. Falling employment will also cut into spending on declines in demand for financial information. Reduced professional books in the near term, although growth in consumer spending will hurt marketing information, electronic books will offset declines in print. The overall and falling investment will lower spending on industry professional book market will rise at a 0.2 percent rate information. The overall business information market will compounded annually, the only component that will be fall at a 2.5 percent compound annual rate to $76 billion higher in 2013 than in 2008. We expect the total business- in 2013. Print directory advertising will be hurt in the near to-business publishing market to fall at a 2.3 percent term by the recession and over the longer run by the compound annual rate to $153 billion in 2013 from $172 migration of advertising from print to the Internet, falling by billion in 2008.

Global business-to-business publishing market by region (US$ millions) 2009–13 Region 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR North America 79,143 83,417 88,253 90,736 88,054 75,336 69,763 68,701 70,406 74,687 % Change 4.0 5.4 5.8 2.8 –3.0 –14.4 –7.4 –1.5 2.5 6.1 –3.2 EMEA 51,363 52,840 56,085 59,494 58,691 53,061 50,421 49,893 51,092 53,618 % Change 2.3 2.9 6.1 6.1 –1.3 –9.6 –5.0 –1.0 2.4 4.9 –1.8 Asia Pacific 17,811 18,683 19,548 20,703 21,036 19,517 18,835 18,965 19,574 20,722 % Change 2.9 4.9 4.6 5.9 1.6 –7.2 –3.5 0.7 3.2 5.9 –0.3 Latin America 2,923 3,203 3,424 3,711 3,774 3,605 3,525 3,551 3,692 3,918 % Change 7.2 9.6 6.9 8.4 1.7 –4.5 –2.2 0.7 4.0 6.1 0.8 Total 151,240 158,143 167,310 174,644 171,555 151,519 142,544 141,110 144,764 152,945 % Change 3.4 4.6 5.8 4.4 –1.8 –11.7 –5.9 –1.0 2.6 5.7 –2.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by segment 53 Global business-to-business publishing market by component (US$ millions) 2009–13 Component 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Business information 75,102 79,582 85,174 88,927 86,702 76,598 71,521 70,240 72,008 76,370 % Change 4.7 6.0 7.0 4.4 –2.5 –11.7 –6.6 –1.8 2.5 6.1 –2.5 Directory advertising Print 30,458 31,387 32,008 32,440 31,774 26,355 23,481 22,402 22,184 22,759 % Change 2.6 3.1 2.0 1.3 –2.1 –17.1 –10.9 –4.6 –1.0 2.6 –6.5 Digital NA 285 1,424 2,202 2,920 2,836 3,107 3,785 4,726 5,852 % Change — — 399.6 54.6 32.6 –2.9 9.6 21.8 24.9 23.8 14.9 Total directory advertising 30,458 31,672 33,432 34,642 34,694 29,191 26,588 26,187 26,910 28,611 % Change 2.6 4.0 5.6 3.6 0.2 –15.9 –8.9 –1.5 2.8 6.3 –3.8 Trade magazines Print advertising 17,929 18,851 19,159 19,119 17,928 14,651 13,621 13,444 13,668 14,568 % Change 2.8 5.1 1.6 –0.2 –6.2 –18.3 –7.0 –1.3 1.7 6.6 –4.1 Digital advertising NA 324 908 1,413 1,694 1,601 1,729 2,009 2,376 2,862 % Change — — 180.2 55.6 19.9 –5.5 8.0 16.2 18.3 20.5 11.1 Total advertising 17,929 19,175 20,067 20,532 19,622 16,252 15,350 15,453 16,044 17,430 % Change 2.8 6.9 4.7 2.3 –4.4 –17.2 –5.6 0.7 3.8 8.6 –2.3 Circulation spending 8,275 8,283 8,460 8,553 8,448 8,121 7,977 8,008 8,131 8,263 % Change 0.4 0.1 2.1 1.1 –1.2 –3.9 –1.8 0.4 1.5 1.6 –0.4 Total trade magazines 26,204 27,458 28,527 29,085 28,070 24,373 23,327 23,461 24,175 25,693 % Change 2.0 4.8 3.9 2.0 –3.5 –13.2 –4.3 0.6 3.0 6.3 –1.8 Professional books Print 19,025 18,889 19,512 21,165 21,061 20,276 19,906 19,814 19,938 20,158 % Change 0.6 –0.7 3.3 8.5 –0.5 –3.7 –1.8 –0.5 0.6 1.1 –0.9 Electronic 451 542 665 825 1,028 1,081 1,202 1,408 1,733 2,113 % Change 56.6 20.2 22.7 24.1 24.6 5.2 11.2 17.1 23.1 21.9 15.5 Total professional books 19,476 19,431 20,177 21,990 22,089 21,357 21,108 21,222 21,671 22,271 % Change 1.4 –0.2 3.8 9.0 0.5 –3.3 –1.2 0.5 2.1 2.8 0.2 Total advertising 48,387 50,847 53,499 55,174 54,316 45,443 41,938 41,640 42,954 46,041 % Change 2.7 5.1 5.2 3.1 –1.6 –16.3 –7.7 –0.7 3.2 7.2 –3.3 Total end user 102,853 107,296 113,811 119,470 117,239 106,076 100,606 99,470 101,810 106,904 % Change 3.7 4.3 6.1 5.0 –1.9 –9.5 –5.2 –1.1 2.4 5.0 –1.8 Total 151,240 158,143 167,310 174,644 171,555 151,519 142,544 141,110 144,764 152,945 % Change 3.4 4.6 5.8 4.4 –1.8 –11.7 –5.9 –1.0 2.6 5.7 –2.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

54 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013

Global market by region

In this section, we provide figures on total entertainment of these categories. For selected countries in each region, and media spending by segment, total advertising, total we provide a breakout by segment for 2013 and their consumer/end-user, and total Internet access spending associated compound annual growth rates from 2008. for each region. We also provide totals by country for each

Entertainment and media market by segment (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 26,619 29,990 34,282 40,962 44,049 45,597 47,319 52,503 60,497 68,294 % Change 8.2 12.7 14.3 19.5 7.5 3.5 3.8 11.0 15.2 12.9 9.2 Internet advertising: wired and mobile 10,069 13,264 18,149 23,115 26,284 25,459 25,844 27,697 31,196 35,918 % Change 33.8 31.7 36.8 27.4 13.7 –3.1 1.5 7.2 12.6 15.1 6.4 TV subscriptions and license fees 57,725 62,048 66,717 71,120 74,775 76,187 78,118 84,512 91,840 97,278 % Change 9.4 7.5 7.5 6.6 5.1 1.9 2.5 8.2 8.7 5.9 5.4 TV advertising 68,038 68,074 72,464 71,811 71,367 61,653 62,563 62,937 68,597 69,251 % Change 11.6 0.1 6.4 –0.9 –0.6 –13.6 1.5 0.6 9.0 1.0 –0.6 Recorded music 13,590 13,114 12,516 11,025 9,022 8,031 7,384 7,102 7,064 7,188 % Change 5.3 –3.5 –4.6 –11.9 –18.2 –11.0 –8.1 –3.8 –0.5 1.8 –4.4 Filmed entertainment 37,985 37,374 38,213 38,992 38,243 38,411 39,232 40,756 42,687 45,135 % Change 5.5 –1.6 2.2 2.0 –1.9 0.4 2.1 3.9 4.7 5.7 3.4 Video games 8,941 9,036 10,301 13,315 16,243 17,232 17,798 18,281 19,632 21,558 % Change 10.9 1.1 14.0 29.3 22.0 6.1 3.3 2.7 7.4 9.8 5.8 Consumer magazine publishing 23,716 24,609 24,475 25,404 24,510 21,193 20,417 20,634 21,270 22,551 % Change 5.1 3.8 –0.5 3.8 –3.5 –13.5 –3.7 1.1 3.1 6.0 –1.7 Newspaper publishing 62,421 63,488 63,170 59,083 50,793 41,810 38,071 36,885 36,858 37,720 % Change 3.3 1.7 –0.5 –6.5 –14.0 –17.7 –8.9 –3.1 –0.1 2.3 –5.8 Radio/out-of-home 27,240 28,534 29,982 30,947 29,631 27,014 26,239 26,404 27,390 28,812 % Change 4.3 4.8 5.1 3.2 –4.3 –8.8 –2.9 0.6 3.7 5.2 –0.6 Consumer and educational book publishing 30,031 32,211 31,648 33,778 32,592 31,847 31,773 32,194 32,850 33,760 % Change –0.3 7.3 –1.7 6.7 –3.5 –2.3 –0.2 1.3 2.0 2.8 0.7 Business-to-business publishing 79,143 83,417 88,253 90,736 88,054 75,336 69,763 68,701 70,406 74,687 % Change 4.0 5.4 5.8 2.8 –3.0 –14.4 –7.4 –1.5 2.5 6.1 –3.2 Total 443,977 462,345 485,824 504,346 498,748 463,221 457,753 471,158 501,737 532,002 % Change 6.5 4.1 5.1 3.8 –1.1 –7.1 –1.2 2.9 6.5 6.0 1.3

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

56 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

Spending fell by 1.1 percent in 2008, and we expect publishing, and radio/out-of-home will each be lower in a 7.1 percent drop in 2009 followed by a 1.2 percent 2013 than in 2008. Overall growth will average 1.3 percent decrease in 2010. We expect the market to rebound compounded annually to $532 billion in 2013 from $499 beginning in 2011 and to expand at rates of 6 percent billion in 2008. or more during 2012–13. We expect increases in excess Canada will be the faster-growing country, with a projected of 5 percent compounded annually for Internet access, 2.2 percent compound annual increase compared with 1.2 Internet advertising, video games, and TV subscriptions. percent compound annual growth for the United States. Recorded music, TV advertising, business-to-business publishing, newspaper publishing, consumer magazine

Entertainment and media market by country (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 416,775 433,971 455,436 472,070 465,814 431,914 426,708 439,270 467,772 495,292 1.2 Canada 27,202 28,374 30,388 32,276 32,934 31,307 31,045 31,888 33,965 36,710 2.2 Total 443,977 462,345 485,824 504,346 498,748 463,221 457,753 471,158 501,737 532,002 1.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

United States excess of 5 percent compounded annually for video games, TV subscriptions, and Internet advertising. Filmed E&M spending in the United States fell by 1.3 percent entertainment will increase at a 3.3 percent compound in 2008, and we expect a 7.3 percent decrease in 2009, annual rate, and out-of-home advertising will grow at a the second steepest of any country in the world, behind 2.5 percent rate compounded annually. The remaining Russia, and a further, 1.2 percent drop in 2010, for a segments will increase by less than 1 percent on a three-year cumulative decline of 9.6 percent. A rebound compound annual basis or will decline. Overall consumer/ during the latter part of the forecast period will generate end-user spending will grow by 1.9 percent compounded a 1.2 percent compound annual advance for the 2009– annually, while advertising will fall at a 1.7 percent 13 period as a whole. Internet access at 9.1 percent compound annual rate. compounded annually will be the fastest-growing segment during the next five years. We also expect increases in

Executive summary | Global entertainment and media market by region 57 Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 United States (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 62,705 9.1 62,705 9.1 Internet advertising: wired and mobile 33,814 6.3 33,814 6.3 TV subscriptions and license fees 91,843 5.5 91,843 5.5 TV advertising 66,100 –0.6 66,100 –0.6 Recorded music 6,596 –4.7 6,596 –4.7 Filmed entertainment 40,908 3.3 40,908 3.3 Video games 18,334 5.4 1,190 12.9 19,524 5.8 Consumer magazine publishing 8,448 –2.8 12,992 –0.9 21,440 –1.7 Newspaper publishing 9,039 –2.3 26,105 –7.0 35,144 0.0 Radio 4,351 8.0 13,805 0.0 18,156 0.0 Out-of-home 8,150 2.5 8,150 2.5 Consumer and educational book publishing 32,044 0.7 32,044 0.7 Business-to-business publishing Trade magazines 1,480 –1.5 9,638 –2.9 11,118 –2.7 Professional books 7,080 0.8 7,080 0.8 Business information 38,900 –3.4 38,900 –3.4 Directory advertising 11,440 –5.6 11,440 –5.6 Business-to-business publishing total 68,538 –3.3 Total 259,023 1.9 173,564 –1.7 495,292 1.2

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

58 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Canada anticipate above-average compound annual growth in filmed entertainment (4.2 percent) and TV subscriptions We project the Canadian E&M market to decline by 4.9 and license fees (3.8 percent). The remaining segments percent in 2009 and to average 2.2 percent compound will increase at rates averaging less than 2 percent on a annual growth through 2013. Internet access at 9.9 compound annual basis or will decline. Overall consumer/ percent compounded annually will be a major driver of end-user spending will average 2 percent growth that projected gain. Internet advertising will grow at an compounded annually, while advertising will decrease 8.6 percent compound annual rate, and video games will at a 0.5 percent compound annual rate. increase by 6.2 percent compounded annually. We also

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 Canada (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 5,589 9.9 5,589 9.9 Internet advertising: wired and mobile 2,104 8.6 2,104 8.6 TV subscriptions and license fees 5,435 3.8 5,435 3.8 TV advertising 3,151 0.3 3,151 0.3 Recorded music 592 –1.0 592 –1.0 Filmed entertainment 4,227 4.2 4,227 4.2 Video games 1,814 5.5 220 13.9 2,034 6.2 Consumer magazine publishing 457 –1.9 654 –0.6 1,111 –1.1 Newspaper publishing 742 –0.2 1,834 –5.0 2,576 0.0 Radio 759 21.5 1,219 –2.1 1,978 0.0 Out-of-home 528 1.5 528 1.5 Consumer and educational book publishing 1,716 0.8 1,716 0.8 Business-to-business publishing Trade magazines 68 –1.4 195 –2.7 263 –2.4 Professional books 380 0.8 380 0.8 Business information 4,432 –2.7 4,432 –2.7 Directory advertising 1,074 –3.3 1,074 –3.3 Business-to-business publishing total 6,149 –2.6 Total 20,622 2.0 10,499 –0.5 36,710 2.2

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 59 Internet access $44 billion in 2008 to $68 billion in 2013, a 9.2 percent compound annual increase. Internet access spending growth slowed to 7.5 percent in 2008. We expect a further moderation during the next Canada will increase at a 9.9 percent compound annual two years, with increases of less than 4 percent annually, rate during the next five years compared with 9.1 percent and a return to double-digit growth during 2011–13. For compound annual growth for the United States. the forecast period as a whole, spending will rise from

Internet access market: wired and mobile (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 26,619 29,990 34,282 40,962 44,049 45,597 47,319 52,503 60,497 68,294 % Change 8.2 12.7 14.3 19.5 7.5 3.5 3.8 11.0 15.2 12.9 9.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access market: wired and mobile by country (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 24,253 27,327 31,272 37,631 40,559 41,916 43,440 48,164 55,579 62,705 9.1 Canada 2,366 2,663 3,010 3,331 3,490 3,681 3,879 4,339 4,918 5,589 9.9 Total 26,619 29,990 34,282 40,962 44,049 45,597 47,319 52,503 60,497 68,294 9.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Advertising 1.6 percent lower on a compound annual basis compared with 2008. Internet advertising, out-of-home, and a small Advertising fell by 4.5 percent in 2008. We anticipate a video game market will be the only segments to be larger 14.7 percent drop in 2009 and an additional, 3.3 percent in 2013 than in 2008. Overall advertising will decrease from decrease in 2010. Although advertising will rebound during $200 billion in 2008 to $184 billion in 2013. the subsequent three years, spending in 2013 will remain

60 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Advertising by segment (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet: wired and mobile 10,069 13,264 18,149 23,115 26,284 25,459 25,844 27,697 31,196 35,918 % Change 33.8 31.7 36.8 27.4 13.7 –3.1 1.5 7.2 12.6 15.1 6.4 Television 68,038 68,074 72,464 71,811 71,367 61,653 62,563 62,937 68,597 69,251 % Change 11.6 0.1 6.4 –0.9 –0.6 –13.6 1.5 0.6 9.0 1.0 –0.6 Video games 30 116 350 585 765 886 1,042 1,184 1,303 1,410 % Change — 286.7 201.7 67.1 30.8 15.8 17.6 13.6 10.1 8.2 13.0 Consumer magazines 12,854 13,603 14,029 14,903 14,262 11,802 11,373 11,760 12,449 13,646 % Change 7.1 5.8 3.1 6.2 –4.3 –17.2 –3.6 3.4 5.9 9.6 –0.9 Newspapers 50,692 51,979 51,821 47,884 39,900 31,272 27,833 26,855 26,974 27,939 % Change 4.5 2.5 –0.3 –7.6 –16.7 –21.6 –11.0 –3.5 0.4 3.6 –6.9 Radio 20,737 20,898 21,034 20,628 18,686 16,097 14,949 14,516 14,680 15,024 % Change 2.6 0.8 0.7 –1.9 –9.4 –13.9 –7.1 –2.9 1.1 2.3 –4.3 Out-of-home 6,118 6,624 7,152 7,792 7,690 7,311 7,350 7,567 7,995 8,678 % Change 6.0 8.3 8.0 8.9 –1.3 –4.9 0.5 3.0 5.7 8.5 2.4 Directories 15,097 15,646 16,321 16,658 16,496 13,409 12,014 11,681 11,812 12,514 % Change 1.0 3.6 4.3 2.1 –1.0 –18.7 –10.4 –2.8 1.1 5.9 –5.4 Trade magazines 10,312 11,342 11,816 12,022 11,372 9,297 8,751 8,781 9,002 9,833 % Change 3.8 10.0 4.2 1.7 –5.4 –18.2 –5.9 0.3 2.5 9.2 –2.9 Total 192,406 198,732 208,790 209,456 200,007 170,637 164,951 165,530 175,458 184,063 % Change 7.7 3.3 5.1 0.3 –4.5 –14.7 –3.3 0.4 6.0 4.9 –1.6

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Advertising in the United States fell by 4.8 percent in 2008 compound annual rate. Canada held up better in 2008, and will decrease by a projected 17.7 percent cumulatively with a 0.1 percent increase. We expect an 11.9 percent during the next two years. For the forecast period as decline in 2009 and a 0.5 percent compound annual a whole, US advertising will decline at a 1.7 percent decrease through 2013.

Advertising by country (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 183,497 189,330 198,656 198,700 189,240 161,146 155,795 156,341 165,710 173,564 –1.7 Canada 8,909 9,402 10,134 10,756 10,767 9,491 9,156 9,189 9,748 10,499 –0.5 Total 192,406 198,732 208,790 209,456 200,007 170,637 164,951 165,530 175,458 184,063 –1.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 61 Consumer/end-user spending and TV subscriptions and license fees will expand by 5.4 percent compounded annually, and filmed entertainment Consumer/end-user growth slowed to 0.3 percent in 2008. will increase at a 3.4 percent compound annual rate. We expect a 3 percent decline in 2009 and a further, 0.6 Consumer and educational books will grow by less than 1 percent drop in 2010. Increases during the subsequent percent on a compound annual basis, and the remaining three years will boost spending to $280 billion in 2013, a segments will be lower in 2013 than in 2008. 1.9 percent compound annual increase from $255 billion in 2008. Radio will be the fastest-growing component, with The United States and Canada will grow at comparable a 9.4 percent compound annual advance, boosted by a rates during the next five years: 1.9 percent compounded small but expanding satellite radio market. Video games annually for the US and 2 percent for Canada.

62 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer/end-user spending by segment (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR TV subscriptions and license fees 57,725 62,048 66,717 71,120 74,775 76,187 78,118 84,512 91,840 97,278 % Change 9.4 7.5 7.5 6.6 5.1 1.9 2.5 8.2 8.7 5.9 5.4 Recorded music 13,590 13,114 12,516 11,025 9,022 8,031 7,384 7,102 7,064 7,188 % Change 5.3 –3.5 –4.6 –11.9 –18.2 –11.0 –8.1 –3.8 –0.5 1.8 –4.4 Filmed entertainment 37,985 37,374 38,213 38,992 38,243 38,411 39,232 40,756 42,687 45,135 % Change 5.5 –1.6 2.2 2.0 –1.9 0.4 2.1 3.9 4.7 5.7 3.4 Video games 8,911 8,920 9,951 12,730 15,478 16,346 16,756 17,097 18,329 20,148 % Change 10.5 0.1 11.6 27.9 21.6 5.6 2.5 2.0 7.2 9.9 5.4 Consumer magazines 10,862 11,006 10,446 10,501 10,248 9,391 9,044 8,874 8,821 8,905 % Change 2.7 1.3 –5.1 0.5 –2.4 –8.4 –3.7 –1.9 –0.6 1.0 –2.8 Newspapers 11,729 11,509 11,349 11,199 10,893 10,538 10,238 10,030 9,884 9,781 % Change –1.6 –1.9 –1.4 –1.3 –2.7 –3.3 –2.8 –2.0 –1.5 –1.0 –2.1 Radio 385 1,012 1,796 2,527 3,255 3,606 3,940 4,321 4,715 5,110 % Change 208.0 162.9 77.5 40.7 28.8 10.8 9.3 9.7 9.1 8.4 9.4 Consumer and educational books 30,031 32,211 31,648 33,778 32,592 31,847 31,773 32,194 32,850 33,760 % Change –0.3 7.3 –1.7 6.7 –3.5 –2.3 –0.2 1.3 2.0 2.8 0.7 Business-to-business publishing 53,734 56,429 60,116 62,056 60,186 52,630 48,998 48,239 49,592 52,340 % Change 5.0 5.0 6.5 3.2 –3.0 –12.6 –6.9 –1.5 2.8 5.5 –2.8 Total 224,952 233,623 242,752 253,928 254,692 246,987 245,483 253,125 265,782 279,645 % Change 5.3 3.9 3.9 4.6 0.3 –3.0 –0.6 3.1 5.0 5.2 1.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer/end-user spending (excluding Internet access) by country (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 209,025 217,314 225,508 235,739 236,015 228,852 227,473 234,765 246,483 259,023 1.9 Canada 15,927 16,309 17,244 18,189 18,677 18,135 18,010 18,360 19,299 20,622 2.0 Total 224,952 233,623 242,752 253,928 254,692 246,987 245,483 253,125 265,782 279,645 1.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 63 Note: The region name in text with no color is written at the top of this page for purposes of the Index of tables and charts.

Europe, Middle East, Africa (EMEA)

Entertainment and media spending rose by 2.8 percent in video games, and TV subscriptions and license fees 2008, the slowest increase during the past five years. We will each grow at rates averaging more than 5 percent expect a 3.7 percent decline in 2009, a flat market in 2010, on a compound annual basis. Filmed entertainment will and increases during the next three years to $596 billion increase by a projected 3.7 percent compounded annually, in 2013, a 2.7 percent compound annual increase from while the remaining segments will either be flat or down. $522 billion in 2008. Internet access, Internet advertising,

Entertainment and media market by segment (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 44,709 52,370 61,974 71,608 80,344 84,100 88,855 99,160 114,086 131,356 % Change 16.1 17.1 18.3 15.5 12.2 4.7 5.7 11.6 15.1 15.1 10.3 Internet advertising: wired and mobile 4,760 7,585 12,524 17,799 20,427 19,533 19,929 21,829 24,637 28,106 % Change 59.9 59.3 65.1 42.1 14.8 –4.4 2.0 9.5 12.9 14.1 6.6 TV subscriptions and license fees 53,923 58,460 63,150 68,737 74,290 76,142 78,263 82,748 89,443 96,672 % Change 6.3 8.4 8.0 8.8 8.1 2.5 2.8 5.7 8.1 8.1 5.4 TV advertising 39,924 42,272 45,087 48,755 48,876 43,403 42,715 43,324 46,384 48,850 % Change 10.5 5.9 6.7 8.1 0.2 –11.2 –1.6 1.4 7.1 5.3 0.0 Recorded music 14,775 14,166 13,396 12,176 11,062 10,091 9,597 9,354 9,218 9,215 % Change –4.3 –4.1 –5.4 –9.1 –9.1 –8.8 –4.9 –2.5 –1.5 0.0 –3.6 Filmed entertainment 27,152 25,465 25,384 25,374 25,533 25,719 26,261 27,269 28,744 30,668 % Change 8.9 –6.2 –0.3 0.0 0.6 0.7 2.1 3.8 5.4 6.7 3.7 Video games 9,756 10,648 12,079 15,135 18,133 19,367 20,360 21,317 23,038 25,256 % Change 14.1 9.1 13.4 25.3 19.8 6.8 5.1 4.7 8.1 9.6 6.9 Consumer magazine publishing 34,431 35,306 36,139 36,731 36,228 33,493 32,689 32,840 33,688 34,984 % Change 3.2 2.5 2.4 1.6 –1.4 –7.5 –2.4 0.5 2.6 3.8 –0.7 Newspaper publishing 68,724 70,967 72,701 74,997 73,102 66,634 64,798 64,892 65,903 67,487 % Change 3.5 3.3 2.4 3.2 –2.5 –8.8 –2.8 0.1 1.6 2.4 –1.6 Radio/out-of-home 25,086 26,394 27,851 29,286 29,075 27,057 26,366 26,340 26,740 27,695 % Change 5.5 5.2 5.5 5.2 –0.7 –6.9 –2.6 –0.1 1.5 3.6 –1.0 Consumer and educational book publishing 46,624 48,624 49,018 50,671 50,277 47,948 46,979 47,005 47,689 48,898 % Change 1.7 4.3 0.8 3.4 –0.8 –4.6 –2.0 0.1 1.5 2.5 –0.6 Business-to-business publishing 51,363 52,840 56,085 59,494 58,691 53,061 50,421 49,893 51,092 53,618 % Change 2.3 2.9 6.1 6.1 –1.3 –9.6 –5.0 –1.0 2.4 4.9 –1.8 Total 421,227 444,387 473,419 508,003 522,403 502,934 503,230 521,152 554,791 595,791 % Change 6.1 5.5 6.5 7.3 2.8 –3.7 0.1 3.6 6.5 7.4 2.7

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

64 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Germany has the largest E&M market in EMEA, at $96 percent compound annual increase. Central and Eastern billion in 2008, with the UK next, at $92 billion. France at Europe will expand at a 4.5 percent compound annual $67 billion was the only other country above $50 billion in rate, and Western Europe will average 1.9 percent growth 2008. Led by Saudi Arabia/Pan Arab, Middle East/Africa compounded annually. will be the fastest-growing area in EMEA, with an 11.7

Executive summary | Global entertainment and media market by region 65 Entertainment and media market by country (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 9,145 9,575 10,195 10,881 11,222 10,938 10,988 11,195 11,638 12,178 1.6 Belgium 9,493 10,040 10,840 11,532 11,950 11,582 11,550 11,875 12,453 13,155 1.9 Denmark 6,770 7,228 7,936 8,446 8,659 8,450 8,519 8,736 9,133 9,653 2.2 Finland 5,619 5,704 5,963 6,323 6,424 6,282 6,348 6,557 6,864 7,268 2.5 France 56,107 58,834 61,481 65,708 67,224 65,439 65,345 67,340 71,083 75,424 2.3 Germany 84,081 86,643 91,676 95,590 95,505 91,539 90,481 92,220 95,666 99,452 0.8 Greece 5,317 5,651 6,084 6,818 6,962 6,462 6,327 6,461 6,787 7,246 0.8 Ireland 3,871 4,112 4,527 4,967 5,158 4,984 4,969 5,165 5,485 5,900 2.7 Italy 41,573 43,616 45,812 48,624 49,400 47,215 47,295 49,062 52,099 56,039 2.6 Netherlands 16,378 16,987 18,178 19,378 19,960 19,390 19,417 19,995 21,075 22,272 2.2 Norway 7,925 8,549 9,168 9,859 10,340 10,055 10,036 10,334 10,732 11,261 1.7 Portugal 4,067 4,272 4,558 4,831 5,059 4,997 5,050 5,322 5,758 6,327 4.6 Spain 26,970 28,706 30,839 33,047 33,228 32,060 32,081 33,519 36,410 40,113 3.8 Sweden 10,191 10,701 11,421 12,267 12,434 12,135 12,294 12,592 13,099 13,756 2.0 Switzerland 9,422 9,905 10,463 11,053 11,230 10,878 10,893 11,163 11,691 12,307 1.8 United Kingdom 79,618 83,416 85,952 90,790 92,173 86,819 85,527 87,487 92,362 98,163 1.3 Western Europe total 376,547 393,939 415,093 440,114 446,928 429,225 427,120 439,023 462,335 490,514 1.9 Central and Eastern Europe Czech Republic 4,138 4,704 5,163 5,585 5,817 5,609 5,598 5,811 6,222 6,766 3.1 Hungary 3,448 3,815 4,150 4,377 4,551 4,286 4,255 4,387 4,718 5,099 2.3 Poland 6,703 7,225 8,131 9,193 10,078 9,877 10,062 10,466 11,325 12,464 4.3 Romania 1,290 1,512 1,952 2,365 2,645 2,636 2,655 2,849 3,180 3,596 6.3 Russia 12,231 14,151 16,743 20,185 23,533 21,047 20,847 22,076 24,876 28,266 3.7 Turkey 3,436 3,952 4,747 5,743 6,101 6,085 6,574 7,302 8,310 9,603 9.5 Central and Eastern Europe total 31,246 35,359 40,886 47,448 52,725 49,540 49,991 52,891 58,631 65,794 4.5 Middle East/Africa Israel 3,100 3,280 3,385 3,570 3,654 3,579 3,583 3,683 3,842 4,034 2.0 Saudi Arabia/Pan Arab† 6,529 7,453 8,934 11,200 12,847 14,113 15,608 18,118 21,601 25,982 15.1 South Africa 3,805 4,356 5,121 5,671 6,249 6,477 6,928 7,437 8,382 9,467 8.7 Middle East/Africa total 13,434 15,089 17,440 20,441 22,750 24,169 26,119 29,238 33,825 39,483 11.7 EMEA total 421,227 444,387 473,419 508,003 522,403 502,934 503,230 521,152 554,791 595,791 2.7

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

66 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 United Kingdom grow at a 1.7 percent compound annual rate during the next five years, and advertising as a whole will decline Growth slowed to 1.5 percent in the UK in 2008, and by 2.4 percent compounded annually. The projected 7.1 we expect a cumulative 7.2 percent decline during the percent compound annual gain in Internet access will next two years because the economy is falling at a rapid contribute to an increase in overall spending of 1.3 percent rate. Although we expect a rebound beginning in 2010, compounded annually to $98 billion in 2013. Video games Internet access, Internet advertising, TV subscriptions will be the fastest-growing segment, with a 7.5 percent and license fees, filmed entertainment, and video games compound annual increase. will be the only segments that will be larger in 2013 than in 2008. Consumer/end-user spending as a whole will

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 United Kingdom (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 14,398 7.1 14,398 7.1 Internet advertising: wired and mobile 8,426 5.4 8,426 5.4 TV subscriptions and license fees 18,928 3.8 18,928 3.8 TV advertising 5,326 –2.4 5,326 –2.4 Recorded music 1,974 –3.9 1,974 –3.9 Filmed entertainment 8,336 5.1 8,336 5.1 Video games 6,546 7.2 230 16.1 6,776 7.5 Consumer magazine publishing 3,618 –0.1 1,152 –4.3 4,770 –1.2 Newspaper publishing 5,188 –1.3 4,668 –7.9 9,856 –4.8 Radio 1,429 0.9 744 –5.0 2,173 –1.4 Out-of-home 1,295 –4.3 1,295 –4.3 Consumer and educational book publishing 6,231 –0.3 6,231 –0.3 Business-to-business publishing Trade magazines 1,616 –1.3 1,421.0 –4.4 3,037.0 –2.8 Professional books 894 –1.1 894 –1.1 Business information 5,693 –3.5 5,693 –3.5 Directory advertising 1,225.0 –5.6 1,225 –5.6 Business-to-business publishing total 10,849.0 –3.4 Total 60,453 1.7 23,312 –2.4 98,163 1.3

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 67 Germany end-user spending will grow by 0.9 percent compounded annually, and advertising will decline at a 1.8 percent In Germany, the weak economy led to a 0.1 percent drop compound annual rate. Video games will be the fastest- in entertainment and media spending in 2008. We expect growing segment, with a 5.8 percent compound annual spending to fall by an additional, 5.3 percent during the gain. We also expect growth in Internet advertising, TV next two years. A subsequent 9.9 percent advance from subscriptions and license fees, filmed entertainment, and 2010 to 2013 will leave spending only 0.8 percent higher radio. The remaining segments will be lower in 2013 than on a compound annual basis in 2013 than in 2008. That in 2008. gain will be attributed principally to a 4.7 percent compound annual increase in Internet access spending. Consumer/

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 Germany (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 17,480 4.7 17,480 4.7 Internet advertising: wired and mobile 4,772 3.9 4,772 3.9 TV subscriptions and license fees 14,180 2.8 14,180 2.8 TV advertising 5,707 –1.0 5,707 –1.0 Recorded music 2,076 –1.9 2,076 –1.9 Filmed entertainment 4,083 2.8 4,083 2.8 Video games 3,559 5.5 122 14.5 3,681 5.8 Consumer magazine publishing 3,695 –1.0 2,314 –1.9 6,009 –1.3 Newspaper publishing 6,555 0.0 5,789 –3.4 12,344 –1.2 Radio 4,098 1.2 754 –3.9 4,852 0.3 Out-of-home 973 –2.9 973 –2.9 Consumer and educational book publishing 9,220 –0.3 9,220 –0.3 Business-to-business publishing Trade magazines 1,478 1.7 1,334 –1.6 2,812 0.0 Professional books 4,098 –1.2 4,098 –1.2 Business information 6,878 –1.6 6,878 –1.6 Directory advertising 1,751 –2.6 1,751 –2.6 Business-to-business publishing total 15,539 –1.4 Total 59,920 0.9 22,052 –1.8 99,452 0.8

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

68 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 France fees at 6.0 percent, and Internet advertising at 5.3 percent on a compound annual basis. Filmed entertainment We expect a more modest, 2.8 percent decrease in E&M will expand at a 2.8 percent compound annual rate, spending in France during the next two years, the result of newspapers will be flat, and the remaining segments will stronger growth in Internet access and TV subscriptions decline. Overall consumer/end-user spending will grow at and license fees. Spending during the next five years a 1.9 percent compound annual rate, while advertising will will expand at a 2.3 percent compound annual rate, led decline by 1.4 percent compounded annually. by Internet access at 7.9 percent compounded annually, video games at 6.8 percent, TV subscriptions and license

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 France (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 15,329 7.9 15,329 7.9 Internet advertising: wired and mobile 2,203 5.3 2,203 5.3 TV subscriptions and license fees 13,354 6.0 13,354 6.0 TV advertising 4,024 –0.9 4,024 –0.9 Recorded music 1,058 –7.4 1,058 –7.4 Filmed entertainment 4,363 2.8 4,363 2.8 Video games 5,126 6.6 149 14.1 5,275 6.8 Consumer magazine publishing 5,305 –0.6 1,513 –2.8 6,818 –1.1 Newspaper publishing 3,159 1.1 1,730 –1.9 4,889 0.0 Radio 1,393 1.7 739 –3.2 2,132 –0.2 Out-of-home 1,266 –1.3 1,266 –1.3 Consumer and educational book publishing 8,158 –0.8 8,158 –0.8 Business-to-business publishing Trade magazines 878 –0.7 660 –1.9 1,538 –1.3 Professional books 1,229 –0.3 1,229 –0.3 Business information 3,410 –1.6 3,410 –1.6 Directory advertising 1,086 –4.0 1,086 –4.0 Business-to-business publishing total 7,263 –1.7 Total 47,433 1.9 12,662 –1.4 75,424 2.3

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 69 Russia license fees at 15.9 percent on a compound annual basis and 8.4 percent compound annual growth in filmed We expect a dramatic turnaround in Russia. After growing entertainment. On the other hand, we expect spending at double-digit annual rates during the past five years, to be lower in 2013 than in 2008 for recorded music, spending on E&M will fall by 10.6 percent in 2009, the consumer magazines, radio, out-of-home, consumer and steepest decline of any country in the world. We expect a educational book publishing, and business-to-business further drop in 2010 followed by a rebound in 2011 and a publishing. Consumer/end-user spending will increase at return to double-digit growth during 2012–13. During the a 1.8 percent compound annual rate, while advertising will next five years, growth will be led by a surging Internet decline by 0.1 percent compounded annually. Buoyed by market. Internet advertising will expand at a 20.6 percent Internet access, the overall market will expand at a 3.7 compound annual rate, and Internet access spending percent rate compounded annually. will grow by 19.6 percent compounded annually. We also expect healthy growth in TV subscriptions and

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 Russia (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 6,493 19.6 6,493 19.6 Internet advertising: wired and mobile 1,301 20.6 1,301 20.6 TV subscriptions and license fees 1,579 15.9 1,579 15.9 TV advertising 5,833 1.1 5,833 1.1 Recorded music 455 –5.6 455 –5.6 Filmed entertainment 2,076 8.4 2,076 8.4 Video games 1,045 4.6 14 14.9 1,059 4.7 Consumer magazine publishing 666 0.0 800 –4.0 1,466 –2.3 Newspaper publishing 1,938 2.0 501 –2.4 2,439 1.0 Radio 386 –7.3 386 –7.3 Out-of-home 1,328 –6.3 1,328 –6.3 Consumer and educational book publishing 1,903 –7.1 1,903 –7.1 Business-to-business publishing Trade magazines 38 –0.5 118 0.2 156 0.0 Professional books 345 1.6 345 1.6 Business information 978 0.3 978 0.3 Directory advertising 562 –5.1 562 –5.1 Business-to-business publishing total 2,041 –1.2 Total 11,023 1.8 10,750 –0.1 28,266 3.7

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

70 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet access growth during 2011–13. Overall spending will rise from $80 billion in 2008 to $131 billion in 2013, a 10.3 percent Internet access growth will drop to mid-single-digit gains compound annual increase. during the next two years following double-digit annual growth through 2008. We expect a return to double-digit

Internet access market: wired and mobile (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 44,709 52,370 61,974 71,608 80,344 84,100 88,855 99,160 114,086 131,356 % Change 16.1 17.1 18.3 15.5 12.2 4.7 5.7 11.6 15.1 15.1 10.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Germany has the largest Internet access market in EMEA, percent compound annual rate during the next five years. at $13.9 billion in 2008, followed by France at $10.5 Central and Eastern Europe will grow by 17.5 percent billion and the UK at $10.2 billion. Italy at $8.2 billion and compounded annually, and Middle East/Africa will increase Spain at $6 billion were the only other countries above at a 26.2 percent compound annual rate. $5 billion in 2008. Western Europe will expand at a 7

Executive summary | Global entertainment and media market by region 71 Internet access market: wired and mobile by country (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1,153 1,328 1,646 1,823 1,952 1,956 1,986 2,025 2,162 2,295 3.3 Belgium 1,242 1,395 1,577 1,783 1,947 1,975 2,043 2,134 2,270 2,439 4.6 Denmark 970 1,117 1,312 1,495 1,613 1,633 1,679 1,755 1,870 2,006 4.5 Finland 593 679 800 894 967 1,018 1,117 1,225 1,354 1,513 9.4 France 5,381 6,617 7,842 9,288 10,505 10,606 10,965 11,943 13,593 15,329 7.9 Germany 9,095 10,121 12,125 13,228 13,900 13,560 13,697 14,898 16,462 17,480 4.7 Greece 185 236 310 432 681 760 860 1,016 1,173 1,381 15.2 Ireland 186 183 244 307 412 478 511 588 661 759 13.0 Italy 5,520 6,194 6,791 7,529 8,176 8,632 8,928 9,721 10,634 11,571 7.2 Netherlands 1,962 2,250 2,426 2,722 2,854 2,879 2,939 3,044 3,229 3,477 4.0 Norway 984 1,115 1,235 1,350 1,489 1,487 1,489 1,567 1,651 1,760 3.4 Portugal 457 568 734 851 934 984 1,016 1,124 1,270 1,528 10.3 Spain 2,870 3,442 4,320 5,081 5,979 6,183 6,577 7,517 9,167 11,160 13.3 Sweden 1,614 1,707 1,876 2,152 2,160 2,168 2,188 2,261 2,404 2,603 3.8 Switzerland 1,019 1,352 1,551 1,696 1,743 1,755 1,775 1,880 2,017 2,206 4.8 United Kingdom 6,557 7,839 8,699 9,545 10,208 10,346 10,555 11,426 12,784 14,398 7.1 Western Europe total 39,788 46,143 53,488 60,176 65,520 66,420 68,325 74,124 82,701 91,905 7.0 Central and Eastern Europe Czech Republic 843 1,017 1,148 1,352 1,435 1,467 1,488 1,577 1,759 2,006 6.9 Hungary 299 391 550 732 795 846 906 1,017 1,195 1,394 11.9 Poland 682 740 911 1,147 1,393 1,570 1,782 2,046 2,478 3,099 17.3 Romania 107 207 433 585 607 730 787 942 1,168 1,472 19.4 Russia 536 738 1,037 1,626 2,656 2,818 3,012 3,747 4,961 6,493 19.6 Turkey 463 542 743 1,157 1,436 1,897 2,340 2,829 3,427 4,151 23.7 Central and Eastern Europe total 2,930 3,635 4,822 6,599 8,322 9,328 10,315 12,158 14,988 18,615 17.5 Middle East/Africa Israel 500 595 685 752 794 803 811 865 947 1,041 5.6 Saudi Arabia/Pan Arab† 872 1,254 1,932 2,905 4,201 5,718 7,266 9,475 12,302 15,955 30.6 South Africa 619 743 1,047 1,176 1,507 1,831 2,138 2,538 3,148 3,840 20.6 Middle East/Africa total 1,991 2,592 3,664 4,833 6,502 8,352 10,215 12,878 16,397 20,836 26.2 EMEA total 44,709 52,370 61,974 71,608 80,344 84,100 88,855 99,160 114,086 131,356 10.3

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

72 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Advertising to $150 billion in 2013 from $157 billion in 2008. A small video game segment will be the fastest-growing category, Advertising decreased by 0.4 percent in 2008 following at 14.9 percent on a compound annual basis. Internet gains of 8.4 percent during each of the prior two years. We advertising will expand at a 6.6 percent compound annual project a 12.5 percent decline in 2009 and a 3.6 percent rate, while the remaining segments will be flat or down. decrease in 2010. For the five-year period as a whole, advertising will fall at a 0.9 percent compound annual rate

Advertising by segment (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet advertising: wired and mobile 4,760 7,585 12,524 17,799 20,427 19,533 19,929 21,829 24,637 28,106 % Change 59.9 59.3 65.1 42.1 14.8 –4.4 2.0 9.5 12.9 14.1 6.6 Television 39,924 42,272 45,087 48,755 48,876 43,403 42,715 43,324 46,384 48,850 % Change 10.5 5.9 6.7 8.1 0.2 –11.2 –1.6 1.4 7.1 5.3 0.0 Video games NA 41 206 304 400 460 545 650 736 800 % Change — — 402.4 47.6 31.6 15.0 18.5 19.3 13.2 8.7 14.9 Consumer magazines 12,790 13,153 13,795 14,226 13,934 11,858 11,385 11,576 12,104 12,972 % Change 4.0 2.8 4.9 3.1 –2.1 –14.9 –4.0 1.7 4.6 7.2 –1.4 Newspapers 37,493 39,275 40,843 42,643 40,804 34,525 32,761 32,644 33,316 34,495 % Change 5.1 4.8 4.0 4.4 –4.3 –15.4 –5.1 –0.4 2.1 3.5 –3.3 Radio 7,026 7,419 7,831 8,182 7,871 6,941 6,528 6,469 6,604 6,888 % Change 9.4 5.6 5.6 4.5 –3.8 –11.8 –6.0 –0.9 2.1 4.3 –2.6 Out-of-home 8,490 9,102 9,955 10,736 10,697 9,379 8,883 8,815 9,021 9,440 % Change 5.7 7.2 9.4 7.8 –0.4 –12.3 –5.3 –0.8 2.3 4.6 –2.5 Directories 9,884 10,213 11,075 11,504 11,623 9,882 8,954 8,864 9,217 9,796 % Change 2.9 3.3 8.4 3.9 1.0 –15.0 –9.4 –1.0 4.0 6.3 –3.4 Trade magazines 5,920 6,009 6,358 6,563 6,338 5,335 5,072 5,134 5,434 5,850 % Change 1.3 1.5 5.8 3.2 –3.4 –15.8 –4.9 1.2 5.8 7.7 –1.6 Total 126,287 134,359 145,705 157,952 157,335 137,702 132,769 134,486 141,582 150,183 % Change 7.9 6.4 8.4 8.4 –0.4 –12.5 –3.6 1.3 5.3 6.1 –0.9

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

The UK has the largest advertising market in EMEA, at annual rate during the next five years. Central and Eastern $26 billion, with Germany next, at $24 billion in 2008. Italy Europe will average 0.5 percent on a compound annual was third, at $18 billion, followed by France at $14 billion basis, while Middle East/Africa will increase at a 3 percent and Russia and Spain at $11 billion each. Advertising compound annual rate. in Western Europe will fall at a 1.5 percent compound

Executive summary | Global entertainment and media market by region 73 Advertising by country (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1,826 1,919 2,102 2,306 2,385 2,139 2,080 2,110 2,224 2,352 –0.3 Belgium 3,185 3,432 3,848 4,141 4,245 3,892 3,749 3,815 4,000 4,227 –0.1 Denmark 1,341 1,469 1,863 2,023 2,075 1,870 1,800 1,823 1,923 2,040 –0.3 Finland 1,562 1,641 1,725 1,892 1,934 1,722 1,679 1,717 1,794 1,889 –0.5 France 12,604 12,969 13,537 13,971 13,565 11,968 11,524 11,664 12,100 12,662 –1.4 Germany 21,078 21,824 23,734 25,156 24,195 21,272 20,414 20,540 21,152 22,052 –1.8 Greece 3,021 3,259 3,553 4,057 3,914 3,367 3,137 3,069 3,145 3,274 –3.5 Ireland 1,206 1,354 1,530 1,686 1,684 1,452 1,384 1,411 1,481 1,575 –1.3 Italy 16,482 17,012 17,725 18,334 17,829 15,356 14,810 14,926 15,431 16,088 –2.0 Netherlands 4,799 4,989 5,661 6,067 6,133 5,547 5,384 5,454 5,713 6,068 –0.2 Norway 2,414 2,658 2,893 3,171 3,340 3,060 3,014 3,037 3,163 3,344 0.0 Portugal 1,519 1,565 1,561 1,611 1,615 1,465 1,415 1,433 1,497 1,573 –0.5 Spain 9,292 10,089 10,913 11,918 10,597 9,483 9,089 9,184 9,629 10,191 –0.8 Sweden 2,620 2,888 3,249 3,501 3,561 3,284 3,290 3,375 3,537 3,756 1.1 Switzerland 3,562 3,650 3,856 4,221 4,218 3,843 3,758 3,827 3,999 4,220 0.0 United Kingdom 23,652 24,580 25,172 26,742 26,359 21,844 20,588 20,776 21,965 23,312 –2.4 Western Europe total 110,163 115,298 122,922 130,797 127,649 111,564 107,115 108,161 112,753 118,623 –1.5 Central and Eastern Europe Czech Republic 1,506 1,698 1,933 2,036 2,123 1,900 1,853 1,907 2,027 2,181 0.5 Hungary 1,652 1,877 1,995 2,008 2,088 1,818 1,750 1,758 1,852 1,945 –1.4 Poland 2,083 2,311 2,634 3,054 3,344 3,092 3,106 3,160 3,428 3,692 2.0 Romania 372 419 541 676 869 755 725 760 842 917 1.1 Russia 4,569 5,761 7,333 9,244 10,801 8,950 8,542 8,744 9,741 10,750 –0.1 Turkey 1,402 1,719 2,118 2,557 2,494 2,053 2,081 2,212 2,465 2,832 2.6 Central and Eastern Europe total 11,584 13,785 16,554 19,575 21,719 18,568 18,057 18,541 20,355 22,317 0.5 Middle East/Africa Israel 892 939 939 1,003 1,011 945 937 952 983 1,019 0.2 Saudi Arabia/Pan Arab† 2,102 2,482 3,103 4,083 4,314 4,092 4,023 4,176 4,635 5,120 3.5 South Africa 1,546 1,855 2,187 2,494 2,642 2,533 2,637 2,656 2,856 3,104 3.3 Middle East/Africa total 4,540 5,276 6,229 7,580 7,967 7,570 7,597 7,784 8,474 9,243 3.0 EMEA total 126,287 134,359 145,705 157,952 157,335 137,702 132,769 134,486 141,582 150,183 –0.9

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

74 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer/end-user spending will be the fastest-growing category, with a projected 6.6 percent compound annual increase. TV subscriptions Consumer/end-user spending rose by 2.3 percent in will expand by 5.4 percent compounded annually, and 2008, down from a 4.8 percent increase in 2007. We filmed entertainment will grow at a 3.7 percent compound look for a 1.3 percent decline in 2009, a stable market annual rate. Radio and newspapers will average less than in 2010, and modest growth during 2011–13. Spending 2 percent growth on a compound annual basis, while the will rise from $285 billion in 2008 to $314 billion in 2013, remaining segments will be lower in 2013 than in 2008. a 2 percent compound annual increase. Video games

Consumer/end-user spending by segment (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR TV subscriptions and license fees 53,923 58,460 63,150 68,737 74,290 76,142 78,263 82,748 89,443 96,672 % Change 6.3 8.4 8.0 8.8 8.1 2.5 2.8 5.7 8.1 8.1 5.4 Recorded music 14,775 14,166 13,396 12,176 11,062 10,091 9,597 9,354 9,218 9,215 % Change –4.3 –4.1 –5.4 –9.1 –9.1 –8.8 –4.9 –2.5 –1.5 0.0 –3.6 Filmed entertainment 27,152 25,465 25,384 25,374 25,533 25,719 26,261 27,269 28,744 30,668 % Change 8.9 –6.2 –0.3 0.0 0.6 0.7 2.1 3.8 5.4 6.7 3.7 Video games 9,756 10,607 11,873 14,831 17,733 18,907 19,815 20,667 22,302 24,456 % Change 14.1 8.7 11.9 24.9 19.6 6.6 4.8 4.3 7.9 9.7 6.6 Consumer magazines 21,641 22,153 22,344 22,505 22,294 21,635 21,304 21,264 21,584 22,012 % Change 2.8 2.4 0.9 0.7 –0.9 –3.0 –1.5 –0.2 1.5 2.0 –0.3 Newspapers 31,231 31,692 31,858 32,354 32,298 32,109 32,037 32,248 32,587 32,992 % Change 1.5 1.5 0.5 1.6 –0.2 –0.6 –0.2 0.7 1.1 1.2 0.4 Radio 9,570 9,873 10,065 10,368 10,507 10,737 10,955 11,056 11,115 11,367 % Change 2.7 3.2 1.9 3.0 1.3 2.2 2.0 0.9 0.5 2.3 1.6 Consumer and educational books 46,624 48,624 49,018 50,671 50,277 47,948 46,979 47,005 47,689 48,898 % Change 1.7 4.3 0.8 3.4 –0.8 –4.6 –2.0 0.1 1.5 2.5 –0.6 Business-to-business publishing 35,559 36,618 38,652 41,427 40,730 37,844 36,395 35,895 36,441 37,972 % Change 2.3 3.0 5.6 7.2 –1.7 –7.1 –3.8 –1.4 1.5 4.2 –1.4 Total 250,231 257,658 265,740 278,443 284,724 281,132 281,606 287,506 299,123 314,252 % Change 3.6 3.0 3.1 4.8 2.3 –1.3 0.2 2.1 4.0 5.1 2.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Germany and the UK were the largest markets in 2008, at increases during the next five years for each area of EMEA. $57 billion and $56 billion, respectively. France was next, Middle East/Africa will average 2.6 percent compounded at $43 billion, nearly twice the total for Italy, which was annually compared with 1.9 percent for Central and the next largest, at $23 billion. We expect comparable Eastern Europe and 2 percent for Western Europe.

Executive summary | Global entertainment and media market by region 75 Consumer/end-user spending (excluding Internet access) by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 6,166 6,328 6,447 6,752 6,885 6,843 6,922 7,060 7,252 7,531 1.8 Belgium 5,066 5,213 5,415 5,608 5,758 5,715 5,758 5,926 6,183 6,489 2.4 Denmark 4,459 4,642 4,761 4,928 4,971 4,947 5,040 5,158 5,340 5,607 2.4 Finland 3,464 3,384 3,438 3,537 3,523 3,542 3,552 3,615 3,716 3,866 1.9 France 38,122 39,248 40,102 42,449 43,154 42,865 42,856 43,733 45,390 47,433 1.9 Germany 53,908 54,698 55,817 57,206 57,410 56,707 56,370 56,782 58,052 59,920 0.9 Greece 2,111 2,156 2,221 2,329 2,367 2,335 2,330 2,376 2,469 2,591 1.8 Ireland 2,479 2,575 2,753 2,974 3,062 3,054 3,074 3,166 3,343 3,566 3.1 Italy 19,571 20,410 21,296 22,761 23,395 23,227 23,557 24,415 26,034 28,380 3.9 Netherlands 9,617 9,748 10,091 10,589 10,973 10,964 11,094 11,497 12,133 12,727 3.0 Norway 4,527 4,776 5,040 5,338 5,511 5,508 5,533 5,730 5,918 6,157 2.2 Portugal 2,091 2,139 2,263 2,369 2,510 2,548 2,619 2,765 2,991 3,226 5.1 Spain 14,808 15,175 15,606 16,048 16,652 16,394 16,415 16,818 17,614 18,762 2.4 Sweden 5,957 6,106 6,296 6,614 6,713 6,683 6,816 6,956 7,158 7,397 2.0 Switzerland 4,841 4,903 5,056 5,136 5,269 5,280 5,360 5,456 5,675 5,881 2.2 United Kingdom 49,409 50,997 52,081 54,503 55,606 54,629 54,384 55,285 57,613 60,453 1.7 Western Europe total 226,596 232,498 238,683 249,141 253,759 251,241 251,680 256,738 266,881 279,986 2.0 Central and Eastern Europe Czech Republic 1,789 1,989 2,082 2,197 2,259 2,242 2,257 2,327 2,436 2,579 2.7 Hungary 1,497 1,547 1,605 1,637 1,668 1,622 1,599 1,612 1,671 1,760 1.1 Poland 3,938 4,174 4,586 4,992 5,341 5,215 5,174 5,260 5,419 5,673 1.2 Romania 811 886 978 1,104 1,169 1,151 1,143 1,147 1,170 1,207 0.6 Russia 7,126 7,652 8,373 9,315 10,076 9,279 9,293 9,585 10,174 11,023 1.8 Turkey 1,571 1,691 1,886 2,029 2,171 2,135 2,153 2,261 2,418 2,620 3.8 Central and Eastern Europe total 16,732 17,939 19,510 21,274 22,684 21,644 21,619 22,192 23,288 24,862 1.9 Middle East/Africa Israel 1,708 1,746 1,761 1,815 1,849 1,831 1,835 1,866 1,912 1,974 1.3 Saudi Arabia/Pan Arab‡ 3,555 3,717 3,899 4,212 4,332 4,303 4,319 4,467 4,664 4,907 2.5 South Africa 1,640 1,758 1,887 2,001 2,100 2,113 2,153 2,243 2,378 2,523 3.7 Middle East/Africa total 6,903 7,221 7,547 8,028 8,281 8,247 8,307 8,576 8,954 9,404 2.6 EMEA total 250,231 257,658 265,740 278,443 284,724 281,132 281,606 287,506 299,123 314,252 2.0

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

76 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Note: The region name in text with no color is written at the top of this page for purposes of the Index of tables and charts.

Asia Pacific

Entertainment and media spending in Asia Pacific rose by and TV subscriptions and license fees. We look for video 6.8 percent in 2008, down from a 9.5 percent advance in games to increase at a 9.4 percent compound annual 2007. Asia Pacific will be the only region where we expect rate and Internet access spending to grow by 7.5 percent spending to grow in 2009, with a projected 0.2 percent compounded annually. Filmed entertainment will expand increase. For the forecast period as a whole, spending will at a projected 5.7 percent rate compounded annually. The rise at a 4.5 percent compound annual rate to $413 billion remaining segments will post increases averaging less in 2013 from $331 billion in 2008. Double-digit compound than 3 percent on a compound annual basis or will decline. annual increases are projected for Internet advertising

Entertainment and media market by segment (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 35,644 49,756 60,219 70,224 81,291 86,940 91,837 98,496 107,164 116,598 % Change 43.4 39.6 21.0 16.6 15.8 6.9 5.6 7.3 8.8 8.8 7.5 Internet advertising: wired and mobile 2,940 5,687 7,685 10,359 12,502 13,019 13,698 15,211 17,977 21,230 % Change 57.8 93.4 35.1 34.8 20.7 4.1 5.2 11.0 18.2 18.1 11.2 TV subscriptions and license fees 16,805 19,168 21,365 24,596 27,530 29,698 32,443 36,177 40,556 45,423 % Change 11.2 14.1 11.5 15.1 11.9 7.9 9.2 11.5 12.1 12.0 10.5 TV advertising 31,326 32,568 33,792 34,972 35,856 32,637 32,941 33,775 35,330 37,205 % Change 8.1 4.0 3.8 3.5 2.5 –9.0 0.9 2.5 4.6 5.3 0.7 Recorded music 7,783 7,722 7,890 8,626 8,552 8,386 8,360 8,441 8,553 8,720 % Change –1.9 –0.8 2.2 9.3 –0.9 –1.9 –0.3 1.0 1.3 2.0 0.4 Filmed entertainment 15,507 15,604 16,216 16,944 17,663 18,164 19,022 20,266 21,687 23,264 % Change 5.7 0.6 3.9 4.5 4.2 2.8 4.7 6.5 7.0 7.3 5.7 Video games 8,513 9,504 11,337 13,985 15,747 17,107 18,719 20,386 22,580 24,729 % Change 16.0 11.6 19.3 23.4 12.6 8.6 9.4 8.9 10.8 9.5 9.4 Consumer magazine publishing 15,110 15,813 16,268 16,335 16,214 14,917 14,429 14,547 15,004 15,705 % Change 4.3 4.7 2.9 0.4 –0.7 –8.0 –3.3 0.8 3.1 4.7 –0.6 Newspaper publishing 46,378 47,953 49,473 51,262 51,717 48,718 48,009 48,687 50,039 51,876 % Change 4.0 3.4 3.2 3.6 0.9 –5.8 –1.5 1.4 2.8 3.7 0.1 Radio/out-of-home 14,433 14,912 15,866 16,861 16,935 16,502 16,589 17,150 18,044 19,067 % Change 9.2 3.3 6.4 6.3 0.4 –2.6 0.5 3.4 5.2 5.7 2.4 Consumer and educational book publishing 22,165 23,001 24,358 26,413 27,625 27,813 28,252 28,959 29,874 30,903 % Change 3.9 3.8 5.9 8.4 4.6 0.7 1.6 2.5 3.2 3.4 2.3 Business-to-business publishing 17,811 18,683 19,548 20,703 21,036 19,517 18,835 18,965 19,574 20,722 % Change 2.9 4.9 4.6 5.9 1.6 –7.2 –3.5 0.7 3.2 5.9 –0.3 Total 234,415 260,153 283,364 310,236 331,264 331,934 341,522 359,165 384,149 412,799 % Change 10.7 11.0 8.9 9.5 6.8 0.2 2.9 5.2 7.0 7.5 4.5

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 77 Japan at $149 billion is by far the dominant country, compound annual rate. The PRC is second, at $70 billion, accounting for 45 percent of total spending in Asia Pacific less than half the size of Japan. South Korea at $34 billion, in 2008 and the second-largest country in the world, Australia at $23 billion, and India at $15 billion were other behind the United States. Excluding Japan, E&M spending countries above $10 billion in 2008. in Asia Pacific will increase at a projected 7.1 percent

Entertainment and media market by country (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 18,153 19,208 27,126 22,026 23,291 23,111 23,496 24,374 25,673 27,318 3.2 China 34,348 41,486 47,965 58,695 69,800 74,744 80,613 88,298 98,309 110,081 9.5 Hong Kong 3,891 4,344 4,725 5,165 5,607 5,217 5,269 5,488 5,795 6,190 2.0 India 8,339 9,724 11,424 13,626 15,088 16,328 18,039 20,149 22,489 25,094 10.7 Indonesia 2,527 2,894 3,301 4,178 4,742 4,988 5,460 6,295 7,497 8,713 12.9 Japan 120,347 131,726 134,456 146,625 148,779 142,995 142,300 145,008 150,044 156,213 1.0 Malaysia 2,247 2,453 2,689 3,336 3,745 3,877 3,997 4,216 4,500 4,840 5.3 New Zealand 3,178 3,413 3,422 3,745 3,805 3,656 3,637 3,741 3,897 4,098 1.5 Pakistan 987 1,085 1,171 1,422 1,709 1,938 2,164 2,453 2,825 3,148 13.0 Philippines 1,725 1,917 2,101 2,431 2,861 2,923 3,115 3,457 3,971 4,517 9.6 Singapore 2,362 2,442 2,595 2,861 2,988 2,829 2,773 2,828 3,201 3,124 0.9 South Korea 23,958 26,626 29,132 32,019 34,376 34,585 35,645 37,139 39,202 41,454 3.8 Taiwan 7,437 7,569 7,660 7,901 7,875 8,060 8,094 8,288 8,573 8,929 2.5 Thailand 4,506 4,716 4,896 5,330 5,531 5,487 5,577 5,845 6,262 6,773 4.1 Vietnam 410 550 701 876 1,067 1,196 1,343 1,586 1,911 2,307 16.7 Total 234,415 260,153 283,364 310,236 331,264 331,934 341,522 359,165 384,149 412,799 4.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

78 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Japan spending will advance by 2.8 percent compounded annually. Japan will be one of the few countries with higher A weak economy will lead to decreases in E&M spending recorded music spending in 2013 than in 2008, principally during the next two years and sluggish growth through the result of a large mobile music market. Consumer and 2013, averaging only 1 percent compounded annually. educational book publishing will be the only other segment Internet advertising, video games, and TV subscriptions that will be larger in 2013 than in 2008. Consumer/end- and license fees will be relatively healthy, with compound user spending will grow at a 1.2 percent compound annual annual increases of 8.7 percent, 7.4 percent, and 5.3 rate, while advertising will decline by 2 percent on a percent, respectively. Filmed entertainment will grow at a compound annual basis. 3.6 percent compound annual rate, while Internet access

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 Japan (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 43,340 2.8 43,340 2.8 Internet advertising: wired and mobile 11,171 8.7 11,171 8.7 TV subscriptions and license fees 14,321 5.3 14,321 5.3 TV advertising 12,705 –3.7 12,705 –3.7 Recorded music 6,656 0.2 6,656 0.2 Filmed entertainment 10,432 3.6 10,432 3.6 Video games 8,964 7.3 200 15.1 9,164 7.4 Consumer magazine publishing 4,942 –2.5 2,067 –5.6 7,009 –3.5 Newspaper publishing 11,965 –0.5 5,500 –8.2 17,465 –3.4 Radio 2,394 1.4 1,217 –4.4 3,611 –4.4 Out-of-home 5,121 –0.4 5,121 –0.4 Consumer and educational book publishing 9,246 0.4 9,246 0.4 Business-to-business publishing Trade magazines 758 –2.7 770 –5.6 1,528 –4.2 Professional books 1,515 –1.1 1,515 –1.1 Business information 2,609 –5.1 2,609 –5.1 Directory advertising 1,498 –7.8 1,498 –7.8 Business-to-business publishing total 7,150 –4.8 Total 73,802 1.2 39,071 –2.0 156,213 1.0

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 79 China subscriptions and license fees, recorded music, filmed entertainment, and video games. Overall consumer/end- The PRC, by contrast, will continue to be among the user spending will increase at an 8.7 percent compound faster-growing countries in 2009, with a projected 7.1 annual rate, and advertising will expand by 7.5 percent percent increase, although that gain will be well below compounded annually. Overall spending, including Internet the double-digit annual growth during the past five years. access, will rise at a 9.5 percent compound annual rate Double-digit annual gains during the next five years are during the next five years. projected for Internet access, Internet advertising, TV

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 China (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 36,523 12.7 36,523 12.7 Internet advertising: wired and mobile 4,568 18.5 4,568 18.5 TV subscriptions and license fees 11,886 22.0 11,886 22.0 TV advertising 10,054 6.0 10,054 6.0 Recorded music 249 11.4 249 11.4 Filmed entertainment 1,631 13.4 1,631 13.4 Video games 3,257 8.5 42 14.9 3,299 12.6 Consumer magazine publishing 3,028 5.0 596 7.8 3,624 5.5 Newspaper publishing 6,893 3.9 6,970 4.5 13,863 4.2 Radio 1,350 4.6 1,350 4.6 Out-of-home 4,065 9.9 4,065 9.9 Consumer and educational book publishing 12,493 4.1 12,493 4.1 Business-to-business publishing Trade magazines 276 4.9 124 8.4 400 5.9 Professional books 1,874 3.0 1,874 3.0 Business information 3,016 6.3 3,016 6.3 Directory advertising 1,706 7.8 1,706 7.8 Business-to-business publishing total 6,996 5.6 Total 44,603 8.7 28,955 7.5 110,081 9.5

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

80 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 India newspaper publishing, consumer and educational book publishing, and business-to-business publishing. Overall We expect even faster growth in India, with an 8.2 percent consumer/end-user spending will increase at a 9.1 percent gain in 2009 and a 10.7 percent compound annual increase compound annual rate, and advertising will grow by 10.1 through 2013. Double-digit annual growth is projected for percent compounded annually. each segment except recorded music, consumer magazines,

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 India (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 2,601 23.1 2,601 23.1 Internet advertising: wired and mobile 349 29.5 349 29.5 TV subscriptions and license fees 5,681 10.8 5,681 10.8 TV advertising 3,196 10.2 3,196 10.2 Recorded music 242 7.2 242 7.2 Filmed entertainment 3,427 14.3 3,427 14.3 Video games 375 32.7 1 0.0 376 32.5 Consumer magazine publishing 152 5.7 506 7.3 658 7.0 Newspaper publishing 1,250 0.8 2,999 8.2 4,249 5.7 Radio 411 16.7 411 16.7 Out-of-home 616 12.5 616 12.5 Consumer and educational book publishing 2,592 5.9 2,592 5.9 Business-to-business publishing Trade magazines 8 5.9 60 8.4 68 8.1 Professional books 208 3.9 208 3.9 Business information 411 7.6 411 7.6 Directory advertising 46 8.9 46 8.9 Business-to-business publishing total 733 6.6 Total 14,346 9.1 8,147 10.1 25,094 10.7

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 81 Internet access Japan, the PRC, and South Korea are the dominant countries, with spending at $38 billion, $20 billion, and Internet access growth will drop to single digits beginning $13 billion, respectively, in 2008. Australia at $2 billion and in 2009 following years of double-digit increases. Growth Taiwan at $1.4 billion were the only other countries above through 2013 will average 7.5 percent compounded $1 billion. The top five countries in 2008 accounted for 91 annually to $117 billion from $81 billion in 2008. percent of total access spending in Asia Pacific.

Internet access market: wired and mobile (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 35,644 49,756 60,219 70,224 81,291 86,940 91,837 98,496 107,164 116,598 % Change 43.4 39.6 21.0 16.6 15.8 6.9 5.6 7.3 8.8 8.8 7.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access market: wired and mobile by country (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,384 1,558 1,721 1,870 2,018 2,131 2,254 2,449 2,648 2,905 7.6 China 5,005 7,771 9,564 14,133 20,087 22,334 24,468 27,344 31,317 36,523 12.7 Hong Kong 449 530 682 754 859 879 917 976 1,038 1,118 5.4 India 254 314 428 723 919 1,150 1,365 1,640 2,060 2,601 23.1 Indonesia 130 181 243 470 639 774 1,024 1,494 2,174 2,778 34.2 Japan 17,951 26,523 32,671 35,503 37,818 38,840 39,807 41,036 42,306 43,340 2.8 Malaysia 268 343 432 585 720 819 886 944 1,032 1,145 9.7 New Zealand 204 255 291 348 362 370 384 411 445 487 6.1 Pakistan 374 417 459 592 809 1,016 1,214 1,455 1,767 2,027 20.2 Philippines 166 204 290 480 822 950 1,109 1,388 1,775 2,253 22.3 Singapore 487 565 661 750 847 854 860 886 1,168 979 2.9 South Korea 7,404 9,284 10,530 11,461 12,528 13,179 13,663 14,204 14,691 15,143 3.9 Taiwan 1,013 1,112 1,317 1,361 1,415 1,980 2,061 2,159 2,240 2,343 10.6 Thailand 458 518 661 847 998 1,132 1,218 1,360 1,562 1,795 12.5 Vietnam 97 181 269 347 450 532 607 750 941 1,161 20.9 Total 35,644 49,756 60,219 70,224 81,291 86,940 91,837 98,496 107,164 116,598 7.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

82 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Advertising We project a 14.6 percent compound annual increase for a small video game market and 11.2 percent growth Advertising growth slowed to 2.8 percent in 2008 from compounded annually for Internet advertising. Out-of- increases in excess of 6 percent during each of the prior home will expand at a projected 3.5 percent compound four years. We expect a 7.8 percent decrease in 2009 and annual rate, with the remaining segments either growing a further, 0.4 percent drop in 2010. A subsequent rebound by less than 1 percent compounded annually or declining. will raise advertising to $110 billion in 2013, a 1.7 percent compound annual increase from $101 billion in 2008.

Advertising by segment (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet advertising: wired and mobile 2,940 5,687 7,685 10,359 12,502 13,019 13,698 15,211 17,977 21,230 % Change 57.8 93.4 35.1 34.8 20.7 4.1 5.2 11.0 18.2 18.1 11.2 Television 31,326 32,568 33,792 34,972 35,856 32,637 32,941 33,775 35,330 37,205 % Change 8.1 4.0 3.8 3.5 2.5 –9.0 0.9 2.5 4.6 5.3 0.7 Video games NA 18 100 138 185 215 255 300 336 365 % Change ––– ––– 455.6 38.0 34.1 16.2 18.6 17.6 12.0 8.6 14.6 Consumer magazines 5,333 5,529 5,630 5,709 5,647 4,911 4,668 4,693 4,866 5,218 % Change 4.5 3.7 1.8 1.4 –1.1 –13.0 –4.9 0.5 3.7 7.2 –1.6 Newspapers 22,866 23,888 25,114 26,301 26,342 23,327 22,598 22,930 23,898 25,323 % Change 5.6 4.5 5.1 4.7 0.2 –11.4 –3.1 1.5 4.2 6.0 –0.8 Radio 3,998 4,184 4,551 4,659 4,819 4,539 4,479 4,556 4,723 4,970 % Change 6.6 4.7 8.8 2.4 3.4 –5.8 –1.3 1.7 3.7 5.2 0.6 Out-of-home 8,270 8,439 8,974 9,824 9,700 9,512 9,626 10,075 10,765 11,507 % Change 11.5 2.0 6.3 9.5 –1.3 –1.9 1.2 4.7 6.8 6.9 3.5 Directories 4,887 5,120 5,252 5,594 5,684 5,063 4,812 4,838 5,049 5,403 % Change 5.6 4.8 2.6 6.5 1.6 –10.9 –5.0 0.5 4.4 7.0 –1.0 Trade magazines 1,488 1,589 1,640 1,669 1,627 1,359 1,271 1,278 1,328 1,436 % Change 1.1 6.8 3.2 1.8 –2.5 –16.5 –6.5 0.6 3.9 8.1 –2.5 Total 81,108 86,804 92,085 98,181 100,958 93,098 92,736 95,761 102,039 110,014 % Change 8.3 7.0 6.1 6.6 2.8 –7.8 –0.4 3.3 6.6 7.8 1.7

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 83 Japan at $43 billion in 2008 was the leading country, advertising in Asia Pacific. Excluding Japan, advertising with the PRC second, at $20 billion, and Australia third, growth for the remaining countries during the next five at $11 billion, together accounting for 74 percent of total years will average 4.2 percent on a compound annual basis.

Advertising by country (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 8,932 9,595 9,830 10,966 11,288 10,856 10,830 11,042 11,470 12,109 1.4 China 11,065 12,869 15,329 17,624 20,177 20,612 21,840 23,586 26,079 28,955 7.5 Hong Kong 1,827 2,045 2,258 2,401 2,587 2,162 2,115 2,186 2,322 2,495 –0.7 India 2,649 3,026 3,724 4,483 5,026 5,473 6,085 6,722 7,411 8,147 10.1 Indonesia 1,544 1,779 2,121 2,572 2,836 2,825 2,892 3,074 3,391 3,794 6.0 Japan 41,356 43,244 43,882 44,377 43,193 37,257 35,370 35,315 36,784 39,071 –2.0 Malaysia 628 659 710 815 912 870 853 876 931 1,002 1.9 New Zealand 1,395 1,502 1,493 1,573 1,566 1,407 1,357 1,371 1,416 1,477 –1.2 Pakistan 109 123 153 216 247 249 253 263 278 296 3.7 Philippines 793 891 959 1,010 1,048 972 969 983 1,040 1,000 –0.9 Singapore 803 783 818 843 839 696 636 635 649 679 –4.1 South Korea 5,609 5,833 6,341 6,801 6,874 5,861 5,755 5,838 6,186 6,611 –0.8 Taiwan 2,484 2,421 2,340 2,307 2,151 1,779 1,666 1,642 1,677 1,734 –4.2 Thailand 1,717 1,808 1,869 1,876 1,856 1,700 1,700 1,770 1,886 2,044 1.9 Vietnam 197 226 258 317 358 379 415 458 519 600 10.9 Total 81,108 86,804 92,085 98,181 100,958 93,098 92,736 95,761 102,039 110,014 1.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer/end-user spending percent compounded annually, and filmed entertainment by 5.7 percent on a compound annual basis. Growth Consumer/end-user spending rose by 5.1 percent in 2008, in the remaining segments will be 2.3 percent or less down from the gains during 2006–07 but comparable compounded annually, and spending on consumer to the increases during 2004–05. We expect a slower, magazines will be a bit lower in 2013 than in 2008. 1.9 percent advance in 2009 with steady improvement thereafter. For the forecast period as a whole, growth Japan at $68 billion in 2008 was more than twice that of will average 4.6 percent compounded annually from the PRC, which was second, at $30 billion. South Korea $149 billion in 2008 to $186 billion in 2013. We project totaled $15 billion, with Australia and India next at $10 TV subscriptions and license fees to expand at a 10.5 billion and $9 billion, respectively. percent compound annual rate, video games by 9.4

84 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer/end-user spending by segment (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR TV subscriptions and license fees 16,805 19,168 21,365 24,596 27,530 29,698 32,443 36,177 40,556 45,423 % Change 11.2 14.1 11.5 15.1 11.9 7.9 9.2 11.5 12.1 12.0 10.5 Recorded music 7,783 7,722 7,890 8,626 8,552 8,386 8,360 8,441 8,553 8,720 % Change –1.9 –0.8 2.2 9.3 –0.9 –1.9 –0.3 1.0 1.3 2.0 0.4 Filmed entertainment 15,507 15,604 16,216 16,944 17,663 18,164 19,022 20,266 21,687 23,264 % Change 5.7 0.6 3.9 4.5 4.2 2.8 4.7 6.5 7.0 7.3 5.7 Video games 8,513 9,486 11,237 13,847 15,562 16,892 18,464 20,086 22,244 24,364 % Change 16.0 11.4 18.5 23.2 12.4 8.5 9.3 8.8 10.7 9.5 9.4 Consumer magazines 9,777 10,284 10,638 10,626 10,567 10,006 9,761 9,854 10,138 10,487 % Change 4.2 5.2 3.4 –0.1 –0.6 –5.3 –2.4 1.0 2.9 3.4 –0.2 Newspapers 23,512 24,065 24,359 24,961 25,375 25,391 25,411 25,757 26,141 26,553 % Change 2.4 2.4 1.2 2.5 1.7 0.1 0.1 1.4 1.5 1.6 0.9 Radio 2,165 2,289 2,341 2,378 2,416 2,451 2,484 2,519 2,556 2,590 % Change 5.5 5.7 2.3 1.6 1.6 1.4 1.3 1.4 1.5 1.3 1.4 Consumer and educational books 22,165 23,001 24,358 26,413 27,625 27,813 28,252 28,959 29,874 30,903 % Change 3.9 3.8 5.9 8.4 4.6 0.7 1.6 2.5 3.2 3.4 2.3 Business-to-business publishing 11,436 11,974 12,656 13,440 13,725 13,095 12,752 12,849 13,197 13,883 % Change 2.1 4.7 5.7 6.2 2.1 –4.6 –2.6 0.8 2.7 5.2 0.2 Total 117,663 123,593 131,060 141,831 149,015 151,896 156,949 164,908 174,946 186,187 % Change 5.1 5.0 6.0 8.2 5.1 1.9 3.3 5.1 6.1 6.4 4.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 85 Consumer/end-user spending (excluding Internet access) by country (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 7,837 8,055 15,575 9,190 9,985 10,124 10,412 10,883 11,555 12,304 4.3 China 18,278 20,846 23,072 26,938 29,536 31,798 34,305 37,368 40,913 44,603 8.6 Hong Kong 1,615 1,769 1,785 2,010 2,161 2,176 2,237 2,326 2,435 2,577 3.6 India 5,436 6,384 7,272 8,420 9,143 9,705 10,589 11,787 13,018 14,346 9.4 Indonesia 853 934 937 1,136 1,267 1,389 1,544 1,727 1,932 2,141 11.1 Japan 61,040 61,959 57,903 66,745 67,768 66,898 67,123 68,657 70,954 73,802 1.7 Malaysia 1,351 1,451 1,547 1,936 2,113 2,188 2,258 2,396 2,537 2,693 5.0 New Zealand 1,579 1,656 1,638 1,824 1,877 1,879 1,896 1,959 2,036 2,134 2.6 Pakistan 504 545 559 614 653 673 697 735 780 825 4.8 Philippines 766 822 852 941 991 1,001 1,037 1,086 1,156 1,264 5.0 Singapore 1,072 1,094 1,116 1,268 1,302 1,279 1,277 1,307 1,384 1,466 2.4 South Korea 10,945 11,509 12,261 13,757 14,974 15,545 16,227 17,097 18,325 19,700 5.6 Taiwan 3,940 4,036 4,003 4,233 4,309 4,301 4,367 4,487 4,656 4,852 2.4 Thailand 2,331 2,390 2,366 2,607 2,677 2,655 2,659 2,715 2,814 2,934 1.9 Vietnam 116 143 174 212 259 285 321 378 451 546 16.1 Total 117,663 123,593 131,060 141,831 149,015 151,896 156,949 164,908 174,946 186,187 4.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

86 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Latin America

Latin America was the fast-growing region in 2008, with Internet access spending and a 9.2 percent compound a 10.1 percent increase. We expect the recession to lead annual gain in video games. TV subscriptions will expand to a significant turnaround and a 1 percent decline in at a 6.5 percent compound annual rate, and filmed 2009. We look for accelerating increases thereafter and entertainment will grow by 4.5 percent compounded a return to double-digit growth in 2013. Spending will annually. The remaining segments will average less than 2 rise from $57 billion in 2008 to $73 billion in 2013, a 5.1 percent annually, and recorded music will be lower in 2013 percent compound annual increase. We expect double- than in 2008. digit compound annual growth in Internet advertising and

Entertainment and media market by segment (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 3,398 4,472 5,919 7,631 8,917 9,584 10,439 12,201 14,640 17,380 % Change 30.5 31.6 32.4 28.9 16.9 7.5 8.9 16.9 20.0 18.7 14.3 Internet advertising: wired and mobile 153 259 338 540 660 706 770 917 1,162 1,474 % Change 45.7 69.3 30.5 59.8 22.2 7.0 9.1 19.1 26.7 26.9 17.4 TV subscriptions and license fees 5,943 6,610 7,366 8,390 9,470 9,726 10,037 10,627 11,683 12,957 % Change 7.9 11.2 11.4 13.9 12.9 2.7 3.2 5.9 9.9 10.9 6.5 TV advertising 6,287 7,641 8,930 10,730 12,243 11,383 11,288 11,612 12,209 13,108 % Change 20.2 21.5 16.9 20.2 14.1 –7.0 –0.8 2.9 5.1 7.4 1.4 Recorded music 1,180 1,171 1,141 977 957 906 869 863 880 938 % Change 13.8 –0.8 –2.6 –14.4 –2.0 –5.3 –4.1 –0.7 2.0 6.6 –0.4 Filmed entertainment 2,190 2,190 2,420 2,586 2,486 2,539 2,628 2,754 2,917 3,098 % Change 12.7 0.0 10.5 6.9 –3.9 2.1 3.5 4.8 5.9 6.2 4.5 Video games 597 627 787 1,025 1,267 1,383 1,506 1,620 1,776 1,970 % Change 11.4 5.0 25.5 30.2 23.6 9.2 8.9 7.6 9.6 10.9 9.2 Consumer magazine publishing 2,560 2,805 2,990 3,262 3,364 3,193 3,135 3,180 3,342 3,583 % Change 9.2 9.6 6.6 9.1 3.1 –5.1 –1.8 1.4 5.1 7.2 1.3 Newspaper publishing 4,619 5,022 5,489 6,126 6,816 6,631 6,606 6,759 7,038 7,506 % Change 4.9 8.7 9.3 11.6 11.3 –2.7 –0.4 2.3 4.1 6.6 1.9 Radio/out-of-home 962 1,392 1,550 1,765 1,893 1,753 1,700 1,746 1,864 2,047 % Change 13.4 44.7 11.4 13.9 7.3 –7.4 –3.0 2.7 6.8 9.8 1.6 Consumer and educational book publishing 4,293 4,399 4,515 4,652 4,772 4,681 4,630 4,665 4,776 4,932 % Change 1.5 2.5 2.6 3.0 2.6 –1.9 –1.1 0.8 2.4 3.3 0.7 Business-to-business publishing 2,923 3,203 3,424 3,711 3,774 3,605 3,525 3,551 3,692 3,918 % Change 7.2 9.6 6.9 8.4 1.7 –4.5 –2.2 0.7 4.0 6.1 0.8 Total 35,105 39,791 44,869 51,356 56,535 55,979 56,990 60,313 65,732 72,581 % Change 11.4 13.3 12.8 14.5 10.1 –1.0 1.8 5.8 9.0 10.4 5.1

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 87 Brazil and Mexico are the dominant countries, at together accounting for 71 percent of total spending $26 billion and $14 billion, respectively, in 2008, in Latin America.

Entertainment and media market by country (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 3,914 4,610 5,375 6,249 6,838 7,068 7,387 7,958 8,796 9,718 7.3 Brazil 15,870 18,254 20,619 23,648 26,248 25,914 26,175 27,602 29,930 32,895 4.6 Chile 2,143 2,267 2,457 2,729 2,821 2,772 2,817 2,985 3,250 3,568 4.8 Colombia 3,040 3,605 4,097 4,776 5,320 5,263 5,409 5,860 6,465 7,256 6.4 Mexico 9,280 10,105 11,222 12,754 14,077 13,713 13,902 14,515 15,744 17,392 4.3 Venezuela 858 950 1,099 1,200 1,231 1,249 1,300 1,393 1,547 1,752 7.3 Total 35,105 39,791 44,869 51,356 56,535 55,979 56,990 60,313 65,732 72,581 5.1

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

88 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Brazil period, led by double-digit compound annual increases in Internet access and Internet advertising and a 9.2 After Brazil’s growth at double-digit annual rates during percent rise in video games on a compound annual basis. each of the past five years, we expect spending to fall Consumer/end-user spending will expand at a 3.3 percent by 1.3 percent in 2009 and to remain weak through 2010 compound annual rate, and advertising will grow by 2.4 before rebounding with mid- to high-single-digit increases percent compounded annually. during the subsequent three years. Growth will average 4.6 percent compounded annually during the entire forecast

Entertainment and media spending Consumer/ end-user spending Advertising Total 2013 2009–13 2013 2009–13 2013 2009–13 Brazil (US$ millions) CAGR (US$ millions) CAGR (US$ millions) CAGR Internet access: wired and mobile 7,217 12.5 7,217 12.5 Internet advertising: wired and mobile 1,059 19.1 1,059 19.1 TV subscriptions and license fees 4,427 6.9 4,427 6.9 TV advertising 6,254 1.5 6,254 1.5 Recorded music 446 3.6 446 3.6 Filmed entertainment 1,114 4.1 1,114 4.1 Video games 496 9.2 11 12.9 507 9.2 Consumer magazine publishing 1,140 0.3 877 2.3 2,017 1.1 Newspaper publishing 2,663 2.9 1,601 1.4 4,264 2.3 Radio 367 1.4 367 1.4 Out-of-home 169 2.4 169 2.4 Consumer and educational book publishing 3,426 0.8 3,426 0.8 Business-to-business publishing Trade magazines 70 –1.1 123 2.3 193 1.0 Professional books 544 0.5 544 0.5 Business information 723 1.2 723 1.2 Directory advertising 348 –0.2 348 –0.2 Business-to-business publishing total 1,808 0.7 Total 15,049 3.3 10,629 2.4 32,895 4.6

Note: The total includes Internet access. Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 89 Internet access next two years and then return to double-digit gains during 2011–13. Internet access spending will rise from $9 billion in 2008 to $17 billion in 2013, a 14.3 percent compound annual Brazil is the leader, at $4 billion in 2008, with Mexico and increase. Growth will dip to high single digits during the Argentina each at less than $2 billion.

Internet access market: wired and mobile (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet access: wired and mobile 3,398 4,472 5,919 7,631 8,917 9,584 10,439 12,201 14,640 17,380 % Change 30.5 31.6 32.4 28.9 16.9 7.5 8.9 16.9 20.0 18.7 14.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access market: wired and mobile by country (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 791 985 1,198 1,476 1,632 1,838 2,025 2,305 2,686 3,050 13.3 Brazil 1,371 1,956 2,755 3,522 4,004 4,211 4,434 5,155 6,144 7,217 12.5 Chile 186 194 233 284 326 346 380 438 522 616 13.6 Colombia 263 296 413 696 970 1,124 1,324 1,679 2,058 2,523 21.1 Mexico 735 966 1,219 1,517 1,802 1,855 2,027 2,333 2,865 3,508 14.3 Venezuela 52 75 101 136 183 210 249 291 365 466 20.6 Total 3,398 4,472 5,919 7,631 8,917 9,584 10,439 12,201 14,640 17,380 14.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

90 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Advertising a tiny video game advertising market will increase by 15.4 percent on a compound annual basis. Out-of-home Advertising will fall by a projected 6.5 percent in 2009, will grow by 3.5 percent compounded annually, and the representing a 17.5-percentage-point turnaround from remaining segments will expand by less than 2 percent an 11 percent increase in 2008. We expect a further, compounded annually. 1.2 percent decrease in 2010 and a recovery thereafter. Growth for the five-year forecast period will average 1.9 Brazil was the leader in 2008, at $9 billion, with Mexico percent compounded annually to $23 billion in 2013 next, at $6 billion, together constituting 73 percent of the from $21 billion in 2008. Internet advertising will expand market in Latin America. at a projected 17.4 percent compound annual rate, and

Advertising by segment (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet advertising: wired and mobile 153 259 338 540 660 706 770 917 1,162 1,474 % Change 45.7 69.3 30.5 59.8 22.2 7.0 9.1 19.1 26.7 26.9 17.4 Television 6,287 7,641 8,930 10,730 12,243 11,383 11,288 11,612 12,209 13,108 % Change 20.2 21.5 16.9 20.2 14.1 –7.0 –0.8 2.9 5.1 7.4 1.4 Video games NA 2 13 17 23 27 32 38 43 47 % Change ––– ––– 550.0 30.8 35.3 17.4 18.5 18.8 13.2 9.3 15.4 Consumer magazines 875 1,016 1,115 1,245 1,330 1,247 1,225 1,244 1,312 1,443 % Change 12.0 16.1 9.7 11.7 6.8 –6.2 –1.8 1.6 5.5 10.0 1.6 Newspapers 2,481 2,789 3,115 3,505 3,776 3,547 3,481 3,560 3,731 4,063 % Change 7.6 12.4 11.7 12.5 7.7 –6.1 –1.9 2.3 4.8 8.9 1.5 Radio 736 852 943 1,089 1,170 1,084 1,041 1,051 1,102 1,188 % Change 12.5 15.8 10.7 15.5 7.4 –7.4 –4.0 1.0 4.9 7.8 0.3 Out-of-home 226 540 607 676 723 669 659 695 762 859 % Change 16.5 138.9 12.4 11.4 7.0 –7.5 –1.5 5.5 9.6 12.7 3.5 Directories 590 693 784 886 891 837 808 804 832 898 % Change 15.5 17.5 13.1 13.0 0.6 –6.1 –3.5 –0.5 3.5 7.9 0.2 Trade magazines 209 235 253 278 285 261 256 260 280 311 % Change 10.0 12.4 7.7 9.9 2.5 –8.4 –1.9 1.6 7.7 11.1 1.8 Total 11,557 14,027 16,098 18,927 21,017 19,650 19,417 19,999 21,186 23,061 % Change 15.9 21.4 14.8 17.6 11.0 –6.5 –1.2 3.0 5.9 8.9 1.9

Note: Each of newspaper, consumer magazine, trade magazine, and directory Web site and mobile advertising is included in its respective segment and also in the Internet advertising segment, but only once in the overall total. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 91 Advertising by country (US$ Millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 862 1,075 1,376 1,626 1,858 1,835 1,864 1,990 2,171 2,414 5.4 Brazil 4,335 5,742 6,687 8,185 9,456 8,915 8,847 9,143 9,703 10,629 2.4 Chile 853 943 1,021 1,129 1,071 979 952 980 1,041 1,127 1.0 Colombia 1,428 1,861 2,075 2,281 2,389 2,156 2,070 2,083 2,156 2,298 –0.8 Mexico 3,744 4,028 4,478 5,223 5,817 5,359 5,285 5,384 5,657 6,084 0.9 Venezuela 335 378 461 483 426 406 399 419 458 509 3.6 Total 11,557 14,027 16,098 18,927 21,017 19,650 19,417 19,999 21,186 23,061 1.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer/end-user spending be the fastest-growing categories, followed by filmed entertainment at 4.5 percent and newspapers at 2.5 Consumer/end-user spending rose by 7.3 percent in 2008, percent. The remaining segments will grow by 1 percent down from an 8.5 percent increase in 2007 but equal to or or less compounded annually, and recorded music will higher than the gains during 2004–06. We expect growth decline at a 0.4 percent compound annual rate. to slow to 0.5 percent and to remain sluggish through 2011. Spending will rise to $32 billion in 2013 from $27 Brazil at $13 billion and Mexico at $6 billion were the billion in 2008, a 3.9 percent compound annual increase. leading countries in 2008, accounting for 72 percent of Video games at 9.1 percent compounded annually and the total. TV subscriptions and license fees at 6.5 percent will

92 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer/end-user spending by segment (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR TV subscriptions and license fees 5,943 6,610 7,366 8,390 9,470 9,726 10,037 10,627 11,683 12,957 % Change 7.9 11.2 11.4 13.9 12.9 2.7 3.2 5.9 9.9 10.9 6.5 Recorded music 1,180 1,171 1,141 977 957 906 869 863 880 938 % Change 13.8 –0.8 –2.6 –14.4 –2.0 –5.3 –4.1 –0.7 2.0 6.6 –0.4 Filmed entertainment 2,190 2,190 2,420 2,586 2,486 2,539 2,628 2,754 2,917 3,098 % Change 12.7 0.0 10.5 6.9 –3.9 2.1 3.5 4.8 5.9 6.2 4.5 Video games 597 625 774 1,008 1,244 1,356 1,474 1,582 1,733 1,923 % Change 11.4 4.7 23.8 30.2 23.4 9.0 8.7 7.3 9.5 11.0 9.1 Consumer magazines 1,685 1,789 1,875 2,017 2,034 1,946 1,910 1,936 2,030 2,140 % Change 7.7 6.2 4.8 7.6 0.8 –4.3 –1.8 1.4 4.9 5.4 1.0 Newspapers 2,138 2,233 2,374 2,621 3,040 3,084 3,125 3,199 3,307 3,443 % Change 1.9 4.4 6.3 10.4 16.0 1.4 1.3 2.4 3.4 4.1 2.5 Consumer and educational books 4,293 4,399 4,515 4,652 4,772 4,681 4,630 4,665 4,776 4,932 % Change 1.5 2.5 2.6 3.0 2.6 –1.9 –1.1 0.8 2.4 3.3 0.7 Business-to-business publishing 2,124 2,275 2,387 2,547 2,598 2,507 2,461 2,487 2,580 2,709 % Change 4.9 7.1 4.9 6.7 2.0 –3.5 –1.8 1.1 3.7 5.0 0.8 Total 20,150 21,292 22,852 24,798 26,601 26,745 27,134 28,113 29,906 32,140 % Change 6.4 5.7 7.3 8.5 7.3 0.5 1.5 3.6 6.4 7.5 3.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer/end-user spending (excluding Internet access) by country (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 2,261 2,550 2,801 3,147 3,348 3,395 3,498 3,663 3,939 4,254 4.9 Brazil 10,164 10,556 11,177 11,941 12,788 12,788 12,894 13,304 14,083 15,049 3.3 Chile 1,104 1,130 1,203 1,316 1,424 1,447 1,485 1,567 1,687 1,825 5.1 Colombia 1,349 1,448 1,609 1,799 1,961 1,983 2,015 2,098 2,251 2,435 4.4 Mexico 4,801 5,111 5,525 6,014 6,458 6,499 6,590 6,798 7,222 7,800 3.8 Venezuela 471 497 537 581 622 633 652 683 724 777 4.6 Total 20,150 21,292 22,852 24,798 26,601 26,745 27,134 28,113 29,906 32,140 3.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Global entertainment and media market by region 93 Methodology

How we derive the data How we report the data in each chapter

Historical information Measures used to quantify segment spending Historical information is obtained principally from Segment spending consists of advertising and end-user confidential and proprietary sources. In instances where spending directly related to entertainment and media third-party sources are consulted and their information content. Each chapter introduction begins with a definition is used directly—from such sources as government of the spending streams that are included in that segment. agencies, trade associations, and related entities that seek We do not include spending on hardware or on services to have their data disseminated in the public domain— that may be needed to access content. the sources of such information are explicitly cited. In End-user spending is counted at the consumer or end- instances where the information is used indirectly, as part user level, not at the wholesale level, and includes retail of the calculus for the historical data, the sources are markups when applicable. proprietary. Advertising spending is measured net of agency Forecast information commissions in all territories except the United States and Russia, where gross advertising is measured to be Recent trends in industry performance are analyzed, and consistent with the way advertising is generally reported. the factors underlying those trends are identified. In addition to annual spending figures, we also present The factors considered are certain economic, data that are measured at a single point in time, such demographic, technological, institutional, behavioral, as TV subscriptions, Internet subscriptions, mobile competitive, and other drivers that may affect each of the subscriptions, and newspaper unit circulation. In these entertainment and media markets. instances, we show annual averages rather than year-end Models are then developed to quantify the impact of each totals because annual averages more accurately connect factor on industry spending. A forecast scenario for each the impact of these figures to annual spending. causative factor is then created, and the contribution of each factor on a prospective basis is identified. Inflation These proprietary mathematical models and analytic Across all chapters, figures are reported in nominal terms algorithms are used in the process to provide an initial reflecting actual spending transactions and therefore array of prospective values. Our professional expertise include the effects of inflation. and institutional knowledge are then applied to review and adjust those values if required. The entire process is then Exchange rates examined for internal consistency and transparency vis-à- All figures are presented in US dollars by using the average vis prevailing industry wisdom. 2008 exchange rate held constant for each historical year Forecasts for 2009–2013 are also based on an analysis of and forecast year. This means the figures reflect industry the dynamics of each segment in each region and on the trends and are not distorted by fluctuations in international factors that affect those dynamics. We provide compound exchange rates. annual growth rates (CAGRs) that cover the 2009–2013 The exchange rates used for the individual countries in each forecast period. In the calculation of CAGRs, 2008 is the region are outlined in the tables on the next page. beginning year, with five growth years during the forecast period: 2009, 2010, 2011, 2012, and 2013. The end year is Nominal GDP growth 2013. The formula is: Because all figures are shown as actual spending, with the CAGR = 100 * ((Value in 2013 ÷ Value in 2008) ^ (1 ÷ 5) – 1) effects of inflation included, nominal GDP growth has an important influence on entertainment and media spending. The tables on the following pages show historical and projected growth rates for nominal GDP for the individual countries in each region.

94 PricewaterhouseCoopers | Global Entertainment and Media Outlook: 2009–2013 Exchange rates per US$ (2008 average) Exchange rates per US$ (2008 average)

EMEA Currency Exchange rate North America Currency Exchange rate Western Europe United States Dollar 1.00000 Austria Euro 0.68334 Canada Dollar 1.06626 Belgium Euro 0.68334 Denmark Krone 5.09502 Finland Euro 0.68334 Exchange rates per US$ (2008 average) France Euro 0.68334 Asia Pacific Currency Exchange rate Germany Euro 0.68334 Australia Dollar 1.19631 Greece Euro 0.68334 China Yuan (renminbi) 6.96254 Ireland Euro 0.68334 Hong Kong Dollar 7.78748 Italy Euro 0.68334 India Rupee 43.79828 Netherlands Euro 0.68334 Indonesia Rupiah 9,680.94764 Norway Krone 5.63610 Japan Yen 103.50200 Portugal Euro 0.68334 Malaysia Ringgit 3.33873 Spain Euro 0.68334 New Zealand Dollar 1.42420 Sweden Krona 6.59030 Pakistan Rupee 70.77442 Switzerland Franc 1.08318 Philippines Peso 44.56425 United Kingdom Pound sterling 0.54451 Singapore Dollar 1.41549 Central and Eastern Europe South Korea Won 1,102.38867 Czech Republic Koruna 17.09639 Taiwan Dollar 31.55240 Hungary Forint 172.64983 Thailand Baht 33.26634 Poland Zloty 2.41106 Vietnam Dong 16,705.62795 Romania New lei 2.51890 Russia Ruble 24.85774 Exchange rates per US$ (2008 average) Turkey New lira 1.30557 Latin America Currency Exchange Rate Middle East/Africa Argentina Peso 3.17011 Israel New shekel 3.59039 Brazil Real 1.83880 Saudi Arabia/Pan Arab† US dollar 1.00000 Chile Peso 523.58206 South Africa Rand 8.27180 Colombia Peso 1,989.92282 †Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Mexico Peso 11.13780 Qatar, Syria, and the United Arab Emirates. Figures are estimated in US$. Venezuela Bolivar fuerte 2.15240

Executive summary | Methodology 95 Nominal GDP growth by country in EMEA (%) 2009–13 EMEA 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR Western Europe Austria 4.3 5.1 5.2 5.3 4.6 0.3 2.6 3.8 4.8 5.1 3.3 Belgium 5.4 4.2 5.0 4.4 5.1 0.2 2.5 3.5 4.5 5.3 3.2 Denmark 4.7 5.6 6.0 3.3 2.1 0.3 1.9 3.1 4.5 5.7 3.1 Finland 4.4 3.3 6.1 7.0 5.5 –0.6 1.4 3.8 5.6 7.0 3.4 France 4.1 4.0 4.7 3.3 4.0 –0.4 1.7 2.8 4.5 4.5 2.6 Germany 2.2 1.5 3.5 4.6 4.1 –1.7 1.8 2.5 4.2 4.7 2.3 Greece 8.1 7.2 7.8 7.0 6.8 1.9 2.6 5.7 6.8 6.3 4.7 Ireland 6.8 8.9 9.3 7.5 1.4 –3.4 1.4 4.2 5.6 7.0 2.9 Italy 4.2 2.7 3.6 3.7 2.8 –1.2 1.9 2.8 4.0 4.5 2.4 Netherlands 3.0 4.5 5.2 5.0 4.2 0.1 0.9 3.4 4.1 4.5 2.6 Norway 9.3 11.6 11.1 5.9 5.4 –0.4 3.5 5.0 5.2 5.1 3.6 Portugal 4.0 3.4 4.1 4.9 2.6 0.6 3.0 4.2 4.5 4.3 3.3 Spain 7.4 8.0 8.0 7.0 5.5 –0.3 2.0 4.5 5.6 5.9 3.5 Sweden 4.4 4.2 6.0 6.0 4.0 –0.3 2.4 4.1 4.4 4.8 3.1 Switzerland 3.1 2.7 4.9 3.5 4.2 –0.4 2.2 3.4 3.3 3.2 2.3 United Kingdom 5.9 4.2 5.7 6.2 4.2 –2.3 1.5 3.6 4.2 4.6 2.3 Western Europe total 4.4 4.0 5.1 4.9 4.1 –1.0 1.9 3.3 4.5 4.9 2.7 Central and Eastern Europe Czech Republic 9.2 6.0 7.8 10.4 9.7 0.5 2.6 6.1 6.7 6.3 4.4 Hungary 9.4 6.4 8.0 6.8 6.6 –1.1 2.1 3.4 4.5 5.6 2.9 Poland 9.7 6.3 7.8 9.7 8.8 1.8 3.2 4.2 6.0 6.6 4.3 Romania 26.9 30.9 23.4 28.0 15.4 2.8 5.4 7.7 8.1 7.5 6.3 Russia 37.1 29.2 29.3 30.4 19.0 2.9 6.0 7.5 8.3 9.0 6.7 Turkey 29.4 23.2 9.9 23.8 11.5 4.0 6.3 8.0 8.6 8.9 7.1 Central and Eastern Europe total 23.8 19.7 17.5 22.6 14.4 2.7 5.3 6.9 7.8 8.3 6.2 Middle East/Africa Israel 5.1 6.3 7.5 5.0 5.1 1.2 2.9 4.5 4.9 5.7 3.8 Saudi Arabia/Pan Arab† 18.2 24.7 14.7 10.0 18.8 2.9 6.5 8.7 9.6 9.5 7.4 South Africa 10.7 10.4 13.0 12.6 14.3 3.8 5.5 7.2 8.6 9.9 7.0 Middle East/Africa total 14.4 18.8 13.4 9.9 16.2 2.9 5.9 7.9 8.9 9.2 6.9 EMEA total 6.6 6.3 7.0 7.4 6.3 –0.2 2.7 4.2 5.4 5.8 3.5

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

96 PricewaterhouseCoopers | Global Entertainment and Media Outlook: 2009–2013 Nominal GDP growth by country in North America (%) 2009–13 North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR United States 6.6 6.3 6.1 4.8 3.3 –2.2 2.5 3.5 4.7 5.5 2.8 Canada 6.2 6.1 5.2 6.4 3.1 –0.7 2.7 4.0 4.5 5.8 3.3 Total 6.6 6.3 6.0 4.9 3.3 –2.1 2.5 3.5 4.7 5.5 2.8

Nominal GDP growth by country in Asia Pacific (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR Australia 7.4 7.4 7.4 8.1 6.6 1.1 2.6 4.5 5.7 5.4 3.8 China 17.5 17.7 17.2 11.5 15.0 8.0 11.5 12.5 12.0 12.1 11.2 Hong Kong 4.6 7.1 6.7 9.5 8.6 2.2 5.7 7.0 7.7 8.2 6.1 India 14.3 13.7 15.8 13.7 14.9 11.5 10.3 13.0 12.6 12.2 11.9 Indonesia 12.7 20.8 20.4 18.5 15.5 6.0 7.5 10.5 11.1 11.4 9.3 Japan 1.6 0.7 1.4 1.3 0.9 –7.4 –0.2 2.3 3.1 2.9 0.0 Malaysia 13.2 10.2 9.8 11.9 9.8 4.9 7.0 8.7 10.0 9.1 7.9 New Zealand 7.1 4.9 5.2 7.4 3.3 0.7 1.5 2.9 4.2 4.7 2.8 Pakistan 15.7 15.2 16.8 14.6 15.1 6.1 8.6 10.5 11.9 12.8 9.9 Philippines 12.9 11.7 10.8 10.3 11.0 6.3 8.8 10.8 9.8 8.9 8.9 Singapore 13.6 8.1 8.8 12.1 2.2 –2.4 –0.6 1.9 3.1 4.2 1.2 South Korea 7.6 4.0 4.6 6.3 7.2 1.1 4.7 6.8 7.2 7.1 5.4 Taiwan 4.4 3.3 4.6 5.7 6.9 2.5 4.8 5.7 6.5 6.1 5.1 Thailand 9.7 9.2 10.0 8.4 8.0 3.0 4.4 5.3 6.7 7.8 5.4 Vietnam 16.5 17.3 16.1 17.5 29.4 14.1 14.3 12.5 11.1 10.0 12.4 Total 7.6 7.3 8.2 7.3 8.2 1.7 5.9 8.0 8.4 8.5 6.5

Nominal GDP growth by country in Latin America (%) 2009–13 Latin America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR Argentina 18.1 19.7 17.0 22.4 14.4 6.7 8.7 10.1 10.7 11.1 9.4 Brazil 20.2 32.9 21.1 23.1 10.9 5.9 7.0 7.3 7.8 8.1 7.2 Chile 14.0 13.5 17.3 10.3 12.9 5.4 6.2 8.7 11.1 10.0 8.3 Colombia 23.6 25.3 10.4 26.8 3.5 1.7 2.2 4.3 6.2 7.3 4.3 Mexico 8.5 11.6 11.9 7.8 6.5 2.9 6.3 7.1 7.0 7.0 6.1 Venezuela 34.7 29.3 26.5 23.9 33.8 6.6 7.7 8.6 10.5 11.9 9.0 Total 15.6 21.6 17.0 17.2 11.1 4.9 6.7 7.6 8.2 8.5 7.1

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Executive summary | Methodology 97

Forecasts and economic analyses of 12 industry segments

Internet access: wired and mobile Internet advertising: wired and mobile Television subscriptions and license fees Television advertising Recorded music Filmed entertainment Video games Radio and out-of-home Consumer magazine publishing Newspaper publishing Consumer and educational book publishing Business-to-business publishing

Executive summary | Methodology 99 100 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet access spending: wired and mobile

102 Summary

103 North America

112 Europe, Middle East, Africa (EMEA)

129 Asia Pacific

142 Latin America Summary

Internet access spending: wired and mobile Market size and growth by component Internet wired and mobile access revenue consists of fees Global wired broadband access is the largest component, paid by consumers to Internet service providers and to at $132.1 billion in 2008, and is projected to grow at a wireless carriers for Internet access via mobile devices, 9.3 percent compound annual rate to $205.9 billion in whether provided as a stand-alone service or as part of a 2013. Dial-up will decline to $16.2 billion from $30.5 billion service bundle where the Internet component is estimated. in 2008, an 11.9 percent compound annual decrease. Figures do not include the purchase of content such as Total wired Internet access spending will increase at a music, or spending on entertainment content downloaded 6.4 percent compound annual rate from $162.6 billion to over the Internet or through mobile phones, which is $222.2 billion in 2013. Global mobile access spending included in the respective content chapters. Access fees totaled $52 billion in 2008, nearly three-quarters of which for phones provided by corporations for workers to access was generated by just three countries in Asia Pacific: the corporate network are not included. Internet access Japan, the People’s Republic of China, and South Korea. is a key driver of entertainment and media spending in We expect mobile access will increase to $111.4 billion in most segments. 2013, a 16.5 percent compound annual increase.

Market size and growth by region Principal drivers We project spending in North America, EMEA (Europe, The global economic downturn during 2009–10 will reduce Middle East, Africa), Asia Pacific, and Latin America will growth during the next two years to mid-single-digit increase from $214.6 billion in 2008 to $333.6 billion in increases following double-digit annual gains during the 2013, a 9.2 percent compound annual growth rate. Asia past five years. We look for growth to return to double Pacific and EMEA are the largest regions, at $81.3 billion digits during 2011–13 as economic conditions improve. and $80.3 billion, respectively, in 2008. Asia Pacific will The near-term slowdown will occur because of a slower be the slowest-growing region during the next five years, migration rate from dial-up to broadband, a slower take- principally because its mobile access market is far more up rate for high-speed services in the near term, and developed than that of any other region. Asia Pacific will increased competition that will lower average spending per expand at a projected 7.5 compound annual rate to $116.6 subscriber. Over the longer run, penetration into rural areas billion in 2013. We project EMEA to grow at a 10.3 percent and faster broadband speeds will accelerate the migration compound annual rate to $131.4 billion in 2013. Spending to broadband. Increased fiber deployments in the Internet in North America will total $68.3 billion in 2013 from $44 backbone and fiber-to-the-home (FTTH) deployments billion in 2008, averaging 9.2 percent growth compounded will increase broadband speeds, making it more suitable annually. Latin America will be the fastest-growing region, for high-volume video applications. Wireless network with a 14.3 percent compound annual increase to $17.4 upgrades; the further rollout of enhanced third-generation billion in 2013 from $8.9 billion in 2008. (3G) cellular wireless services—notably, high-speed packet access (HSPA); and increased penetration of smart phones with touch-screen capabilities will stimulate demand for mobile applications and drive even further demand for high-speed Internet access.

Data for the global Internet access spending market by region and for the global Internet access spending market by component can be found within the Executive Summary on pages 34 and 35.

102 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief Overview • Faster access speeds and continuing demand for • We project Internet wired and mobile access spending versatile, easy-to-use applications will drive the will grow by 9.2 percent compounded annually, broadband market over the long run. reaching $68.3 billion in 2013. • The economic downturn will slow growth in the near • Wired broadband access will increase to $53.2 billion, a term and help extend the viability of dial-up services. 7.1 percent compound annual advance. • Consumer demand for always-on connectivity and • Wired dial-up access spending will decline to $2 video will combine with smart phones and network billion from $5.1 billion in 2008, a 17 percent drop upgrades to spur mobile Internet access. compounded annually. • Overall wired Internet access spending will grow by 5.2 percent compounded annually from $42.8 billion to $55.2 billion in 2013. • Mobile access will total $13.1 billion in 2013 from $1.2 billion in 2008, a 60.9 percent compound annual increase from a small base.

Internet access market: wired and mobile by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet access Dial-up 9,475 8,587 7,398 6,285 5,148 4,654 4,174 3,505 2,854 2,025 Broadband 17,144 21,402 26,735 33,942 37,689 38,372 39,320 42,964 48,433 53,196 Total wired Internet access 26,619 29,989 34,133 40,227 42,837 43,026 43,494 46,469 51,287 55,221 Mobile access — 1 149 735 1,212 2,571 3,825 6,034 9,210 13,073 Total 26,619 29,990 34,282 40,962 44,049 45,597 47,319 52,503 60,497 68,294

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access market growth: wired and mobile by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet access Dial-up –10.2 –9.4 –13.8 –15.0 –18.1 –9.6 –10.3 –16.0 –18.6 –29.0 –17.0 Broadband 22.1 24.8 24.9 27.0 11.0 1.8 2.5 9.3 12.7 9.8 7.1 Total wired Internet access 8.2 12.7 13.8 17.9 6.5 0.4 1.1 6.8 10.4 7.7 5.2 Mobile access — — — 393.3 64.9 112.1 48.8 57.8 52.6 41.9 60.9 Total 8.2 12.7 14.3 19.5 7.5 3.5 3.8 11.0 15.2 12.9 9.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | North America 103 • In terms of overall spending growth, including mobile economy, and then will expand at double-digit annual access, Canada will be the country with the faster rates during 2011–13, as economic conditions improve growth during the next five years, with a projected and as mobile access gains momentum. 9.9 percent compound annual increase compared with • The United States will expand from $40.6 billion in 2008 9.1 percent for the United States. to $62.7 billion in 2013, while Canada will rise to $5.6 • Both countries will record single-digit increases during billion from $3.5 billion. the next two years, reflecting the impact of the weak

Internet access market: wired and mobile by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 24,253 27,327 31,272 37,631 40,559 41,916 43,440 48,164 55,579 62,705 9.1 Canada 2,366 2,663 3,010 3,331 3,490 3,681 3,879 4,339 4,918 5,589 9.9 Total 26,619 29,990 34,282 40,962 44,049 45,597 47,319 52,503 60,497 68,294 9.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Broadband AT&T began offering an 18 Mbps service to its U-verse television subscribers, which was well in excess of its • Broadband, or high-speed, Internet access is not only previous top speed of 10 Mbps. an appealing service for its own sake; it is also a critical element in triple-play packages, where it is provided • Cable operators in the United States responded with together with television and telephone services. their own high-speed options. in April 2008 launched in the Minneapolis–St. Paul market the • Telephone companies and cable operators have been first Data Over Cable Service Interface Specification in head-to-head competition in the broadband market (DOCSIS) 3.0 service in the United States. DOCSIS for years. Since 2005, telephone companies have been 3.0 provides much faster download speeds. Comcast distributing television services in their own triple-play expects to be able to provide download speeds of packages, in the process making the broadband market up to 100 Mbps within the next two years. Charter even more competitive. Communications, Cox Cable, and • The nature of the competition has evolved from being plan to introduce DOCSIS 3.0 in 2009. pricecentric—whereby cable and telephone companies • Comcast also launched Extreme 50, a new service that offer steep discounts to lure broadband subscribers offers download speeds of 50 Mbps in several areas in away from the competition—to speedcentric, with Oregon and Washington. It also offers a lower-speed providers now featuring high-speed options. service called Ultra that provides 22 Mbps downstream. • In the United States, Verizon is focusing on its higher- In areas where these wideband services are available, end Fiber Optic Service (FiOS), which uses FTTH Comcast doubled the speeds for standard packages technology and can provide download speeds of at no additional cost. In general, cable offers faster up to 50 megabits per second or more. At 50 Mbps, speeds than does DSL, which accounts for its faster a standard movie can be downloaded in about five take-up rate in 2008. minutes, a CD in 10 seconds, and a half-hour television • In Canada, is deploying fiber networks show in less than a minute. Verizon also extended the in and that will directly connect to availability of its 7.1 Mbps digital-subscriber-line (DSL) apartment buildings. It is also expanding its fiber-to- service to 6.6 million homes, twice its reach in June. the-node (FTTN) network to within a mile of the home

104 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 and will use DSL for the connection into the home. geographic areas, though its major population These rollouts in 2008 connected more than 2 million concentrations are in well-served city and suburban homes to a fiber network. Bell Canada also acquired areas. To a lesser extent, this is an issue in the United 40 gigabits per second of fiber-based technology from States as well. Nortel that will quadruple its transmission capacity. • The 2009/10 Canadian budget contains a $225-million • Videotron in Canada in early 2008 introduced its allocation over three years to develop and implement a Ultimate Speed service, which provides download strategy on extending broadband coverage to unserved speeds of up to 50 Mbps. Bell Canada also has a high- communities. This initiative will engage additional speed 16 Mbps option. Prices range from C$15.95 funding from other levels of government and the private (US$14.96) per month for a 256-kilobits-per-second sector to continue to expand Canada’s broadband connection to more than C$50 (US$46.89) per month network. for 50 Mbps. • Fixed wireless and satellite are technologies that could • The appeal of large bandwidth is the ability to access serve rural markets, but prices are high, availability is high-volume video applications, which are becoming currently limited, and penetration is quite low. popular among some users. Uploads and downloads • In the United States, the Department of Agriculture of video material from such sites as YouTube and announced in late 2008 that it is awarding $342 the sharing of videos between users are leading to a million in loans to companies that will help bring surge in video traffic. Although only about 5 percent of improved services to rural areas. The economic broadband subscribers are high-volume video users, stimulus packageannounced by Pres. Barack Obama they account for half of all the bandwidth consumed. includes broadband as part of a national infrastructure Video traffic now accounts for around 40 percent of all investment. If funds are allocated to that program, Internet traffic. As recently as 2005, there was virtually broadband availability in rural areas would increase. no video traffic on the Internet. • Over the long run, the appeal of faster speeds, even at • In the United States, Comcast in October 2008 higher prices, and increased penetration in rural areas imposed a 250-gigabits-per-month cap on Internet will drive the broadband market. Nevertheless, growth traffic per user, which is about 100 times the average will be limited by approaching saturation. In Canada, traffic per user. Those who exceed that cap will be two-thirds of households were already subscribed to suspended for one year. Time Warner introduced a broadband in 2008, and the United States was just tiered plan in some of its Texas markets. For a basic behind, at 63.5 percent. 768 kbps service, subscribers pay $29.95 per month for 5 Gb of traffic. There is also a $54.90-per-month • Even with increased infrastructure investment, we option that provides download speeds of up to 15 expect that broadband availability in rural areas will Mbps and 40 Gb of traffic. If users exceed their limit, remain less than in urban areas. This means that they are charged $1 for each incremental gigabyte. overall penetration will have difficulty reaching the 90 These pricing plans are similar to the wireless telephone percent level. pricing model in which larger buckets are offered at • We project that during the next five years, broadband higher rates, with surcharges applying if subscribers penetration in Canada will rise to 85.1 percent and in exceed their limit. the United States to 84.5 percent. • The major long-term impediment to expanded • The number of broadband households in the United household penetration is limited availability in rural States will increase from 74 million in 2008 to 103.5 areas with sparse populations. With cable and DSL, million in 2013, a 6.9 percent compound annual households need to be within 18,000 wire-feet of the increase. In Canada, growth will average 6.4 percent nearest node in order to receive broadband. Cable and compounded annually, from 9 million to 12.3 million. DSL providers have held back from extending their infrastructure to rural areas because the return on the • For North America as a whole, the broadband universe investment is low. This is an issue of significant concern will reach 115.8 million in 2013 from 83 million in 2008, in Canada, which has very large, sparsely populated growing at a 6.9 percent rate compounded annually.

Internet access spending: wired and mobile | North America 105 Broadband households (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 30.60 39.60 50.90 65.90 74.00 77.00 80.00 87.00 96.50 103.50 6.9 Canada 5.42 6.43 7.46 8.50 9.00 9.50 10.00 10.70 11.50 12.25 6.4 Total 36.02 46.03 58.36 74.40 83.00 86.50 90.00 97.70 108.00 115.75 6.9

Sources: Canadian Radio-television and Telecommunications Commission, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Broadband household penetration (%)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 27.4 34.9 44.6 57.2 63.5 65.4 67.3 72.4 79.6 84.5 Canada 43.0 50.2 57.4 64.4 67.2 69.9 72.5 76.4 81.0 85.1 Total 29.0 36.5 46.0 57.9 63.9 65.9 67.8 72.9 79.7 84.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• During 2009 and 2010, the weak economy will likely • For the five-year forecast period as a whole, broadband reduce the inclination of consumers to trade up to access spending will increase at a 7.1 percent faster speeds. We therefore expect price competition to compound annual rate to $53.2 billion in 2013 from be more prevalent in the near term. $37.7 billion in 2008. • For example, in the United States in late 2008, as the • The United States will be the faster-growing broadband economy declined, Verizon reduced its prices for its country as it makes greater inroads into rural areas, DSL, telephone, and DirecTV service bundle—in areas rising at 7.3 percent compounded annually from $34.5 not covered by FiOS, Verizon teams up with DirecTV to billion to $49.1 billion. offer television in a triple play. Verizon also introduced • Broadband access spending in Canada will expand a six-month free DSL offer to subscribers who also by 5.3 percent compounded annually to $4.1 billion in sign up for landline telephone service. AT&T offered 2013 from $3.2 billion in 2008. a two-year price guarantee to help it attract and retain subscribers. • We expect average spending per month per subscriber in both the United States and Canada to decline during the next two years and then increase during the subsequent three years as an improving economic environment facilitates increased spending for higher- speed options.

106 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Broadband access spending† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 15,184 19,079 24,004 30,881 34,499 35,112 36,000 39,411 44,583 49,059 7.3 Canada 1,960 2,323 2,731 3,061 3,190 3,260 3,320 3,553 3,850 4,137 5.3 Total 17,144 21,402 26,735 33,942 37,689 38,372 39,320 42,964 48,433 53,196 7.1

†At average 2008 exchange rates. Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Near-term weakness Broadband household growth in North America (%) • While we expect a strong long-term expansion in the 50 broadband universe, we look for take-up rates to slow quite significantly during the next two years in both 40 Canada and the United States as households are 30 reluctant to incur additional expenses when they are concerned about the economic uncertainty. Canada 20 • In the United States, broadband household growth United States slowed sharply in 2008 but still expanded by 12.3 10 percent over 2007. We expect growth to average only 0 4 percent annually during the next two years but then 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 expect a pickup during the subsequent two years, with a return to double-digit growth in 2012. By 2013, when Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates penetration passes 80 percent, growth will slow as the market approaches saturation. • A by-product of slower broadband growth is a slower decline in the dial-up universe. We expect decreases, • In Canada, which is ahead of the United States in which averaged double digits during the past three penetration, growth dropped to 5.9 percent in 2008 years in the United States, to drop to single-digit following years of double-digit annual growth as the declines during the next two years before plunging economy was weak throughout the year. We expect at faster rates during 2011–13 as broadband growth increases will average 5.4 percent compounded again accelerates. annually from 2008 to 2010. We then look for faster growth of 7 percent or more during 2011–12 and a • In Canada, the dial-up household base had been falling 6.5 percent increase in 2013. Ultimately, Canada’s at double-digit rates during 2004–07. The slowdown broadband penetration potential will be limited because in broadband growth in 2008 was accompanied by a of difficulties in reaching the large rural areas of the slowdown in the dial-up decline, which we expect will last country. through 2010 before the rate of decline again picks up.

Internet access spending: wired and mobile | North America 107 Dial-up household growth in North America (%) • The overall number of dial-up households in North America will fall to 10.6 million from 24.9 million in 2008, 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 0 a 15.7 percent decrease compounded annually.

–5 • Canada, whose dial-up penetration is much lower than that of the United States, at 6.7 percent in 2008 –10 compared with 20.6 percent for the US, will decrease at –15 a 7.8 percent compound annual rate as there is a core dial-up market in rural areas—as well as people who –20 use the Internet just for e-mail—that will remain. Canada –25 • Dial-up penetration will fall to 8.2 percent in the United United States States in 2013 and to 4.2 percent in Canada. Overall –30 dial-up penetration in North America will average 7.7 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates percent in 2013 from 19.2 percent in 2008.

Dial-up households (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 42.70 38.50 33.50 29.00 24.00 22.00 20.00 17.00 14.00 10.00 –16.1 Canada 2.03 1.57 1.24 0.95 0.90 0.87 0.84 0.77 0.70 0.60 –7.8 Total 44.73 40.07 34.74 29.95 24.90 22.87 20.84 17.77 14.70 10.60 –15.7

Sources: Canadian Radio-television and Telecommunications Commission, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Dial-up household penetration (%)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 38.3 34.0 29.4 25.2 20.6 18.7 16.8 14.2 11.5 8.2 Canada 16.1 12.3 9.5 7.2 6.7 6.4 6.1 5.5 4.9 4.2 Total 36.0 31.8 27.4 23.3 19.2 17.4 15.7 13.3 10.8 7.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Dial-up access spending will decline from $5.1 billion $5 billion in 2008, and Canada will fall from $180 in 2008 to $2 billion in 2013, a 17 percent compound million in 2008 to $105 million in 2013, a 10.2 percent annual decrease. The US will decrease at a 17.3 decrease compounded annually. percent compound annual rate to $1.9 billion from

108 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Dial-up access spending† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 9,069 8,247 7,136 6,090 4,968 4,488 4,020 3,366 2,730 1,920 –17.3 Canada 406 340 262 195 180 166 154 139 124 105 –10.2 Total 9,475 8,587 7,398 6,285 5,148 4,654 4,174 3,505 2,854 2,025 –17.0

†At average 2008 exchange rates. Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The overall Internet household universe will grow faster • Although Canada’s broadband penetration is higher in Canada than in the United States during the next five than that of the United States, overall Internet years. Canada will increase at a 5.4 percent compound penetration is higher in the US, at 84.1 percent in annual rate to 12.9 million in 2013, while the US will 2008 compared with 73.9 percent in Canada. grow by 3 percent compounded annually to 113.5 • The US will retain its advantage although the disparity million. For all of North America, growth will average 3.2 will narrow. By 2013, Internet household penetration percent on a compound annual basis from 107.9 million in the United States will reach 92.7 percent compared households in 2008 to 126.4 million in 2013. with 89.3 percent in Canada and 92.3 percent for the region as a whole.

Internet households (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 73.30 78.10 84.40 94.90 98.00 99.00 100.00 104.00 110.50 113.50 3.0 Canada 7.45 8.00 8.70 9.45 9.90 10.37 10.84 11.47 12.20 12.85 5.4 Total 80.75 86.10 93.10 104.35 107.90 109.37 110.84 115.47 122.70 126.35 3.2

Sources: Canadian Radio-television and Telecommunications Commission, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet household penetration (%)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 65.7 68.9 74.0 82.4 84.1 84.1 84.1 86.6 91.1 92.7 Canada 59.1 62.5 66.9 71.6 73.9 76.3 78.6 81.9 85.9 89.3 Total 65.0 68.2 73.3 81.2 83.1 83.3 83.5 86.1 90.6 92.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | North America 109 Mobile access the price of their phones when the new iPhone was introduced. Verizon Wireless in 2008 introduced the • The mobile access market was virtually nonexistent as LG Dare with an HTML browser and the Krave ZN4 recently as 2005 and totaled $1.1 billion in the United from Motorola. States and $120 million in Canada in 2008. • AT&T, which markets the iPhone, also introduced • A major catalyst for that expansion was the introduction the LG Vu, a touch-screen phone that comes with of smart phones with touch-screen capabilities that AT&T Mobile TV embedded. Sprint Nextel introduced make it much easier to access the Internet from a the Samsung Instinct in June 2008, and also in mobile phone. Screens are larger than traditional 2008 Research in Motion introduced the consumer- phones, and navigation is faster and more user-friendly. oriented BlackBerry Storm 9530, its first touch screen, • People are migrating to smart phones as hardware and exclusively through Verizon. software are becoming cheaper and the networks run • T-Mobile introduced the G1 in October 2008, the first faster. Carriers are heavily promoting the smart phones handset based on Google’s open-sourced Android as their users spend much more per month than do technology. The Android technology was introduced non-smart-phone users. by Google in November 2007 with the goal of bringing • We expect that nearly 30 percent of wireless telephone the openness of the Internet to handsets. The Android subscribers in North America will use their handsets system is expected to be incorporated into a number of to access the Internet in 2013 compared with only 3.4 new devices in 2009. Google is providing the Android percent in 2008. operating system for handset makers and carriers for free to encourage deployment. The G1 has an Internet Mobile access subscribers as a percent of wireless browser and has easy access to Google’s applications telephone subscribers in North America such as Gmail and YouTube. 40 • The fundamental driver of the greatly increased use of mobile access is faster wireless speeds. Most 29.8 carriers are already providing enhanced 3G options 30 such as HSPA. The auction of wireless spectrum in 21.8 the 700-megahertz band in mid-2008, the spectrum 20 to be vacated by television stations, will open up new 14.9 opportunities for wireless carriers to offer broadband. 9.9 10 6.9 • The Federal Communications Commission plans to 2.2 3.4 auction spectrum in the advanced wireless services 0.01 0.5 0 3 band in 2009 with the stipulation that the winning 2005 2006 2007 2008 2009 2010 2011 2012 2013 bidder of a national license set aside a portion of the Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates spectrum for a free broadband service. • The next step in the wireless evolution is the fourth generation (4G), often defined as speeds of 100 Mbps United States or higher. In June 2006, seven international wireless • A key development in the United States was Apple’s carriers—KPN Mobile, Orange, Sprint Nextel, T-Mobile June 2007 launch of the iPhone, the first touch-screen International, Vodafone, China Mobile, and NTT device with an iPod, a digital organizer, and wireless DoCoMo—formed Next Generation Mobile Networks Internet access. That was followed in July 2008 with the (NGMN) to create a 4G mobile standard. NGMN hopes iPhone 3G, which is two to three times faster than the to be able to begin commercial 4G launches in 2010. original model. As networks get upgraded and as smart phones gain • Other carriers introduced various touch-screen phones penetration, the proportion of wireless telephone to compete against the original iPhone and lowered subscribers who use their handsets to access the

110 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet will increase, and wireless access revenue will Enterprises Wireless Inc.—picked up spectrum across expand. Wireless access spending will total $11.7 billion the country. The enthusiasm of the auction has been in the United States in 2013 from $1.1 billion in 2008. somewhat muted by tough economic times, which have caused almost all of the new entrants to scale back and Canada defer the launch of their offerings. • The evolution to next-generation networks is • The new entrants will change the wireless landscape in accelerating in Canada, and broadband cellular Canada, particularly for Rogers, which at the moment networks are already operational in the major is the only carrier using the Global System for Mobile population centers. The advanced wireless services Communication (GSM) family of technologies, including (AWS) spectrum auction was completed in July 2008. high-speed packet access (HSPA). This position It was an unusual auction, with three of the six AWS brings Rogers advantages in such areas as roaming bands set aside for new entrants, thereby limiting and handset availability, including the Apple iPhone. the ability of Rogers, Telus, and Bell to dominate In addition, Telus and Bell announced that they are the auction. The auction was very competitive, with spending $900 million to jointly build out an HSPA- the final average price per MHz per person reached based network, making them more competitive being around three times that of the same spectrum with Rogers. auctioned in the United States. • As in the United States, upgraded wireless networks • While the big three did dominate in the three and the proliferation of smart phones will propel mobile unrestricted bands, the auction resulted in five new Internet access in Canada. We project spending will rise entrants of significance in the AWS bands. The to $1.3 billion in 2013 from $120 million in 2008. incumbent cable operators—Shaw, Videotron, and Bragg/—picked up spectrum covering territory • The overall market for mobile access spending in North consistent with their respective cable operations America will total $13.1 billion in 2013 from $1.2 billion to support a quad-play strategy. Two relative in 2008, a 60.9 percent compound annual increase. newcomers—Globalive and Data & Audio Visual

Mobile access market† (US$ millions) 2009–13 North America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 1 132 660 1,092 2,316 3,420 5,387 8,266 11,726 60.8 Canada ‡ 17 75 120 255 405 647 944 1,347 62.2 Total 1 149 735 1,212 2,571 3,825 6,034 9,210 13,073 60.9

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | North America 111 Europe, Middle East, Africa (EMEA)

The outlook in brief • Wired Internet access spending will increase from $69.3 billion in 2008 to $98.5 billion in 2013, a 7.3 percent • Fiber installations will provide faster broadband speeds compound annual increase. and boost penetration in the long run. • Wired broadband access spending will expand by 9.8 • Lower prices and moderating subscriber growth percent compounded annually to $94.6 billion from during the next two years will cut into broadband $59.3 billion in 2008. spending growth. • Wired dial-up access spending will decrease from $10 • Wireless upgrades, 3G rollouts, and smart phones will billion in 2008 to $3.9 billion in 2013, a 17.4 percent drive mobile access. decline compounded annually. • Mobile access will advance at a 24.5 percent Overview compound annual rate to $32.9 billion in 2013 from • Internet wired and mobile access spending in EMEA will $11 billion in 2008. grow by 10.3 percent compounded annually to $131.4 billion in 2013 from $80.3 billion in 2008.

Internet access market: wired and mobile by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet access Dial-up 21,473 18,095 15,155 12,317 10,025 9,119 7,972 6,936 5,304 3,863 Broadband 21,215 30,912 41,277 50,959 59,313 61,671 65,216 72,734 83,537 94,617 Total wired Internet access 42,688 49,007 56,432 63,276 69,338 70,790 73,188 79,670 88,841 98,480 Mobile access 2,021 3,363 5,542 8,332 11,006 13,310 15,667 19,490 25,245 32,876 Total 44,709 52,370 61,974 71,608 80,344 84,100 88,855 99,160 114,086 131,356

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access market growth: wired and mobile by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Internet Access Dial-up –14.1 –15.7 –16.2 –18.7 –18.6 –9.0 –12.6 –13.0 –23.5 –27.2 –17.4 Broadband 69.9 45.7 33.5 23.5 16.4 4.0 5.7 11.5 14.9 13.3 9.8 Total Internet access 13.9 14.8 15.2 12.1 9.6 2.1 3.4 8.9 11.5 10.8 7.3 Mobile access 96.4 66.4 64.8 50.3 32.1 20.9 17.7 24.4 29.5 30.2 24.5 Total 16.1 17.1 18.3 15.5 12.2 4.7 5.7 11.6 15.1 15.1 10.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

112 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet access market: wired and mobile by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1,153 1,328 1,646 1,823 1,952 1,956 1,986 2,025 2,162 2,295 3.3 Belgium 1,242 1,395 1,577 1,783 1,947 1,975 2,043 2,134 2,270 2,439 4.6 Denmark 970 1,117 1,312 1,495 1,613 1,633 1,679 1,755 1,870 2,006 4.5 Finland 593 679 800 894 967 1,018 1,117 1,225 1,354 1,513 9.4 France 5,381 6,617 7,842 9,288 10,505 10,606 10,965 11,943 13,593 15,329 7.9 Germany 9,095 10,121 12,125 13,228 13,900 13,560 13,697 14,898 16,462 17,480 4.7 Greece 185 236 310 432 681 760 860 1,016 1,173 1,381 15.2 Ireland 186 183 244 307 412 478 511 588 661 759 13.0 Italy 5,520 6,194 6,791 7,529 8,176 8,632 8,928 9,721 10,634 11,571 7.2 Netherlands 1,962 2,250 2,426 2,722 2,854 2,879 2,939 3,044 3,229 3,477 4.0 Norway 984 1,115 1,235 1,350 1,489 1,487 1,489 1,567 1,651 1,760 3.4 Portugal 457 568 734 851 934 984 1,016 1,124 1,270 1,528 10.3 Spain 2,870 3,442 4,320 5,081 5,979 6,183 6,577 7,517 9,167 11,160 13.3 Sweden 1,614 1,707 1,876 2,152 2,160 2,168 2,188 2,261 2,404 2,603 3.8 Switzerland 1,019 1,352 1,551 1,696 1,743 1,755 1,775 1,880 2,017 2,206 4.8 United Kingdom 6,557 7,839 8,699 9,545 10,208 10,346 10,555 11,426 12,784 14,398 7.1 Western Europe total 39,788 46,143 53,488 60,176 65,520 66,420 68,325 74,124 82,701 91,905 7.0 Central and Eastern Europe Czech Republic 843 1,017 1,148 1,352 1,435 1,467 1,488 1,577 1,759 2,006 6.9 Hungary 299 391 550 732 795 846 906 1,017 1,195 1,394 11.9 Poland 682 740 911 1,147 1,393 1,570 1,782 2,046 2,478 3,099 17.3 Romania 107 207 433 585 607 730 787 942 1,168 1,472 19.4 Russia 536 738 1,037 1,626 2,656 2,818 3,012 3,747 4,961 6,493 19.6 Turkey 463 542 743 1,157 1,436 1,897 2,340 2,829 3,427 4,151 23.7 Central and Eastern Europe total 2,930 3,635 4,822 6,599 8,322 9,328 10,315 12,158 14,988 18,615 17.5 Middle East/Africa Israel 500 595 685 752 794 803 811 865 947 1,041 5.6 Saudi Arabia/Pan Arab‡ 872 1,254 1,932 2,905 4,201 5,718 7,266 9,475 12,302 15,955 30.6 South Africa 619 743 1,047 1,176 1,507 1,831 2,138 2,538 3,148 3,840 20.6 Middle East/Africa total 1,991 2,592 3,664 4,833 6,502 8,352 10,215 12,878 16,397 20,836 26.2 EMEA total 44,709 52,370 61,974 71,608 80,344 84,100 88,855 99,160 114,086 131,356 10.3

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | EMEA 113 • Western Europe will be the slowest-growing area in up to 100 Mbps. Older buildings will have FTTN and a EMEA, in large part because its broadband market is copper connection to the home, allowing speeds of up the most mature, with 55 percent of all households to 40 Mbps. already subscribing compared with 25 percent in • In France, the broadband market is very competitive, Central and Eastern Europe and 12 percent in Middle with four major providers, each of which is installing East/Africa. Total access spending in Western Europe fiber networks to offer speeds of up to 100 Mbps. will increase at a 7 percent compound annual rate to $91.9 billion in 2013 from $65.5 billion in 2008. • In Finland, TeliaSonera is investing in an FTTH service to provide 100 Mbps download speeds, and in the • Central and Eastern Europe will increase at a 17.5 Czech Republic, Radiokomunikace upgraded its DSL percent compound annual rate from $8.3 billion to service to 20 Mbps. $18.6 billion, fueled principally by a more than doubling of its broadband household base. • Governments are also actively supporting broadband. In Finland, the government is funding a project that will • In Middle East/Africa, we expect the broadband extend the fiber network to within two kilometers of universe to nearly triple and overall spending to rise by virtually all households, enabling download speeds of 26.2 percent compounded annually to $20.8 billion in up to 100 Mbps. 2013 from $6.5 billion in 2008. • In Switzerland, legislation that went into effect in 2008 • Germany, France, and the United Kingdom were the makes broadband a Universal Service Obligation, which leading countries in 2008, at $13.9 billion, $10.5 billion, means that , as the universal service provider, and $10.2 billion, respectively. Italy was next, at $8.2 is required to make broadband available to the entire billion, followed by Spain at $6 billion and Saudi Arabia/ population, including people in rural areas that Pan Arab at $4.2 billion. These six countries accounted have been beyond the reach of DSL or cable modem for nearly two-thirds of total spending in EMEA in 2008. service. During the past five years, Swisscom invested around $1 billion in upgrading its DSL network and Broadband infrastructure upgrades has plans to spend another CHF8 billion ($7.4 billion) through 2016 on building a Swiss-wide FTTH network. • Broadband providers throughout EMEA are investing in Swisscom currently provides DSL speeds of up to 20 their infrastructure in order to provide faster speeds. In Mbps with ADSL and VDSL/VDSL2 technologies for 80 Germany, is deploying FTTN with an percent of the population. Furthermore, Swisscom aims advanced DSL connection into the home. The shorter to migrate to a fully digital infrastructure—so-called all- the distance over copper, the less the resistance and IP (Internet protocol)—by 2013. the faster the speeds. • Germany is spending €141 million ($206 million) in • In Ireland, UPC began rolling out a 20 Mbps service, public funds to extend broadband availability to rural and in Spain Telefónica launched in 2008 its FTTH areas. The plan offers incentives for private companies network, which offers broadband access at speeds of to provide broadband for rural areas and uses public up to 100 Mbps. In Switzerland, Swisscom introduced funds to subsidize broadband in areas where market a fiber/DSL service in most major cities in 2008, and conditions will not support it. The plan was approved Orange, ewz, and Sierre Energie, as well as the 11 by the European Commission in mid-2008. members of Open-aXs, an association of power utilities companies, are investing in FTTH. • Rural broadband will also be helped by satellite. Eutelsat and Astra have deals in several countries • British Telecom (BT) in the UK is investing £1.5 billion with local providers to offer broadband by satellite. In ($2.8 billion) in its fiber infrastructure and expects to Germany, for example, Eutelsat in conjunction with pass 10 million homes by 2012. Newer buildings will be TelDaFax will provide a satellite broadband service in provided with a direct fiber connection with speeds of areas where DSL service is poor or nonexistent.

114 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • In Italy, the digital divide is being reduced through the • In general, faster speeds facilitate high-volume launch of WiMAX in early 2009. The new technology applications such as video, which makes broadband will cover rural communities throughout Italy and will more appealing. We expect the introduction of high- be managed by two licensed operators. Moreover, speed options to propel broadband penetration over Vodafone has declared that it will also cover digitally the long run once economic conditions improve. divided areas with High-Speed-Downlink Packet • The broadband household base has been growing at Access (HSDPA) technology. double-digit annual rates during each of the past five • Fixed wireless is another potential solution. In Germany, years. In 2008 there were 131.7 million broadband O2 offers broadband through Genion Homezone, a households in EMEA, a 22 percent increase from 2007 fixed wireless service that uses its Universal Mobile and more than three times the 37.4 million total in 2004. Telecommunications System network for the last mile. • We project the number of broadband households in In the Netherlands, Worldmax launched a fixed wireless EMEA to increase to 223.8 million by 2013, an 11.2 service in Amsterdam. High-speed fixed wireless using percent compound annual increase from 2008. WiMAX technology was also launched in Jordan, Saudi Arabia, and South Africa in 2008. • In Western Europe the broadband household universe will expand from 100.5 million to 154.8 million, a 9 • In some areas, limitations in international connectivity percent compound annual increase. Central and Eastern effectively slow broadband speeds because it is difficult Europe will increase at a 15.8 percent compound to access international Web sites. To address that annual rate to 53.6 million from 25.7 million in 2008. bottleneck, undersea cables are being constructed Broadband will grow by 23.2 percent compounded in several countries. In Russia, an undersea cable annually in Middle East/Africa to 15.5 million from 5.4 that connects Sakhalin with Hokkaido, Japan, million in 2008. Excluding Israel, which has a 77 percent was completed in December 2007 and went into broadband household penetration and a projected service in 2008. The project, a joint venture between growth of only 4 percent compounded annually, Middle TransTeleCom and NTT in Japan, accommodates 640 East/Africa will increase at a 23.2 percent compound Gbps. Improved connectivity with Asia will speed up annual rate. broadband activity in Russia. • By 2013, 76.3 percent of households in Western Europe • Telephone companies in South Africa are collectively will be broadband households. Broadband penetration spending $400 million to deploy an undersea cable in Central and Eastern Europe will increase to 51.6 along the west coast of Africa that will link the region to percent, and Middle East/Africa will rise to 32.2 percent. London. The cable is expected to substantially reduce For the region as a whole, broadband penetration will service costs. Completion is anticipated by 2010, when average 63.1 percent in 2013 compared with 39.9 South Africa will host the FIFA World Cup. Telecom Egypt percent in 2008. in conjunction with Alcatel-Lucent is spending $125 million on an undersea cable linking Egypt with France.

Internet access spending: wired and mobile | EMEA 115 Wired broadband households (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 0.73 1.02 1.31 1.51 1.72 1.78 1.85 1.95 2.15 2.25 5.5 Belgium 1.43 1.82 2.18 2.54 2.80 2.90 3.05 3.20 3.35 3.50 4.6 Denmark 0.87 1.18 1.54 1.86 2.02 2.07 2.15 2.25 2.35 2.45 3.9 Finland 0.65 0.87 1.15 1.35 1.47 1.55 1.70 1.85 2.00 2.15 7.9 France 5.07 8.02 11.09 14.13 16.65 17.50 19.00 21.00 23.50 25.50 8.9 Germany 6.57 8.31 12.74 17.40 21.70 23.00 25.00 28.00 32.00 34.00 9.4 Greece 0.03 0.11 0.32 0.75 1.40 1.50 1.60 1.80 2.00 2.20 9.5 Ireland 0.10 0.24 0.46 0.65 0.90 1.05 1.12 1.25 1.35 1.50 10.8 Italy 3.49 5.77 7.73 9.75 11.50 12.50 14.00 16.00 18.50 21.00 12.8 Netherlands 2.90 3.95 4.60 5.40 5.65 5.75 5.90 6.10 6.35 6.65 3.3 Norway 0.54 0.83 1.12 1.34 1.55 1.60 1.65 1.75 1.80 1.85 3.6 Portugal 0.67 1.00 1.30 1.52 1.60 1.67 1.75 1.85 2.00 2.20 6.6 Spain 3.40 5.04 6.69 8.07 9.48 10.14 11.02 12.68 15.43 18.74 14.6 Sweden 1.25 1.66 2.20 2.81 2.88 2.92 2.98 3.10 3.30 3.60 4.6 Switzerland 1.06 1.49 1.86 2.29 2.50 2.60 2.70 2.85 3.00 3.20 5.1 United Kingdom 4.62 8.01 11.44 14.26 16.70 17.50 18.50 20.00 22.00 24.00 7.5 Western Europe total 33.38 49.32 67.73 85.63 100.52 106.03 113.97 125.63 141.08 154.79 9.0 Central and Eastern Europe Czech Republic 0.20 0.60 0.91 1.37 1.65 1.80 1.90 2.05 2.35 2.70 10.4 Hungary 0.34 0.53 0.93 1.35 1.45 1.51 1.60 1.75 2.00 2.25 9.2 Poland 1.26 2.74 3.65 4.73 5.29 5.85 6.68 7.79 9.74 12.53 18.8 Romania 0.11 0.43 1.02 1.69 1.98 2.15 2.30 2.60 3.15 3.90 14.5 Russia 0.51 1.13 2.24 5.00 10.00 11.00 11.50 14.00 17.50 21.00 16.0 Turkey 0.39 1.08 2.37 4.20 5.35 6.75 7.75 8.70 9.90 11.20 15.9 Central and Eastern Europe total 2.81 6.51 11.12 18.34 25.72 29.06 31.73 36.89 44.64 53.58 15.8 Middle East/Africa Israel 0.81 1.10 1.33 1.47 1.60 1.65 1.70 1.80 1.90 1.95 4.0 Saudi Arabia/Pan Arab† 0.31 0.67 1.27 2.15 3.14 4.08 5.15 6.74 8.69 11.00 28.5 South Africa 0.04 0.11 0.25 0.40 0.70 0.95 1.20 1.50 2.00 2.50 29.0 Middle East/Africa total 1.16 1.88 2.85 4.02 5.44 6.68 8.05 10.04 12.59 15.45 23.2 EMEA total 37.35 57.71 81.70 107.99 131.68 141.77 153.75 172.56 198.31 223.82 11.2

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

116 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired broadband household penetration (%)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Western Europe Austria 22.0 30.4 38.8 44.0 49.4 50.9 52.6 55.1 60.4 62.8 Belgium 29.9 37.3 43.8 50.0 54.1 54.9 56.7 58.4 60.0 61.6 Denmark 35.1 47.4 61.6 74.1 80.2 81.8 84.6 88.2 91.8 95.3 Finland 28.4 37.9 50.0 58.6 63.6 67.0 73.3 79.6 85.5 91.5 France 19.8 31.2 42.9 54.3 63.7 66.5 71.8 78.9 87.9 94.8 Germany 16.8 21.2 32.5 44.5 55.6 59.1 64.4 72.4 82.9 88.3 Greece 0.9 3.4 10.0 23.4 43.5 46.4 49.4 55.4 61.3 67.3 Ireland 6.8 16.2 30.7 42.8 58.4 67.3 70.9 78.1 83.3 91.5 Italy 15.6 25.4 33.6 41.8 48.7 52.3 57.9 65.3 74.6 83.7 Netherlands 40.8 54.9 63.0 74.0 76.4 77.1 78.5 80.5 83.1 86.4 Norway 27.3 41.3 54.9 65.0 73.8 75.5 77.1 81.0 82.6 84.1 Portugal 19.0 28.4 36.9 43.2 45.5 47.6 49.9 53.0 57.5 63.2 Spain 15.0 21.7 28.0 33.0 32.2 30.7 30.0 32.5 36.7 41.6 Sweden 27.8 36.5 47.8 60.4 61.3 61.5 62.1 63.9 67.3 72.7 Switzerland 32.9 45.8 56.5 69.0 74.4 76.5 78.5 82.1 85.5 90.4 United Kingdom 18.2 31.4 44.7 55.5 64.7 67.6 71.2 76.6 84.0 91.3 Western Europe total 19.3 28.3 38.5 48.2 54.8 56.5 59.3 64.4 70.9 76.3 Central and Eastern Europe Czech Republic 4.4 13.1 19.7 29.3 35.0 37.7 39.4 42.1 47.8 54.3 Hungary 8.5 13.1 22.8 32.8 35.0 36.2 38.1 41.4 46.9 52.4 Poland 9.3 20.1 26.7 34.6 38.6 42.5 48.5 56.4 70.4 90.3 Romania 1.5 5.9 13.9 23.0 27.0 29.3 31.3 35.3 42.7 52.9 Russia 1.0 2.1 4.2 9.5 18.9 20.7 21.6 26.3 32.8 39.3 Turkey 2.3 6.2 13.4 23.3 29.2 36.3 41.0 45.3 50.8 56.6 Central and Eastern Europe total 2.8 6.5 11.1 18.2 25.4 28.6 31.0 35.9 43.2 51.6 Middle East/Africa Israel 41.5 56.4 66.8 72.1 76.9 77.8 78.7 81.8 84.8 85.5 Saudi Arabia/Pan Arab† 1.0 2.0 3.8 6.4 9.2 11.9 14.8 19.1 24.4 30.6 South Africa 0.4 1.1 2.6 4.2 7.3 9.8 12.4 15.5 20.7 25.8 Middle East/Africa total 2.6 4.2 6.4 8.9 11.9 14.5 17.3 21.3 26.5 32.2 EMEA total 11.8 18.1 25.4 33.4 39.9 42.2 45.1 50.0 56.7 63.1

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | EMEA 117 • Growth in broadband has come largely at the expense • Western Europe will experience the sharpest decline of dial-up. With the exceptions of Russia and Saudi in dial-up as that area becomes almost exclusively Arabia/Pan Arab, the number of dial-up subscribers broadband. There is still a significant dial-up market in declined in each country in 2008. Germany, with 11 million subscribers in 2008, and in Italy, which has 7 million subscribers. In France and the • During the past four years, the dial-up subscriber base United Kingdom, dial-up is fading away. for EMEA as a whole has fallen at double-digit rates. We expect that the weak economy will lead to slower • In Central and Eastern Europe, Russia has the largest near-term growth in broadband and a slower decline in dial-up subscriber base, at 5.2 million. In Saudi Arabia/ dial-up. During the latter part of the forecast period, we Pan Arab and South Africa, dial-up continues to be the expect a faster increase in the broadband household principal means of accessing the Internet. universe and a faster decline in dial-up. • Western Europe had the largest dial-up market of the three areas in EMEA in 2008, at 24.5 million. In 2013 Dial-up household growth in EMEA (%) it will have an estimated 6.4 million, a 23.6 percent 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 compound annual decline. 0 • Central and Eastern Europe will experience a –5 4.7 percent compound annual decline in dial-up households, falling from 6.9 million in 2008 to 5.4 –10 million in 2013.

–15 • Dial-up in Middle East/Africa will fall at a 3.7 percent compound annual rate to 8 million from 9.6 million in –20 2008. In 2013, Middle East/Africa will have the largest dial-up market in EMEA. –25 • The overall number of dial-up households will decline Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates by 13.6 percent compounded annually to 19.8 million in 2013 from 41 million in 2008. • Dial-up household penetration will drop from 12.4 percent in 2008 to 5.6 percent in 2013.

118 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired dial-up households (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 0.81 0.66 0.76 0.71 0.60 0.57 0.55 0.50 0.35 0.30 –12.9 Belgium 0.54 0.34 0.24 0.17 0.14 0.12 0.10 0.08 0.06 0.03 –26.5 Denmark 0.82 0.57 0.32 0.14 0.10 0.07 0.05 0.04 0.03 0.01 –36.9 Finland 0.50 0.37 0.20 0.11 0.08 0.06 0.05 0.04 0.03 0.01 –34.0 France 6.21 4.56 3.14 2.02 1.25 1.00 0.75 0.50 0.25 0.15 –34.6 Germany 13.40 13.20 13.45 12.50 11.00 10.00 9.00 8.00 5.75 3.75 –19.4 Greece 0.58 0.65 0.55 0.31 0.15 0.10 0.07 0.05 0.04 0.03 –27.5 Ireland 0.91 0.63 0.52 0.46 0.23 0.21 0.19 0.16 0.12 0.05 –26.3 Italy 13.49 11.65 9.90 8.40 7.00 7.20 6.00 5.00 3.00 1.00 –32.2 Netherlands 2.18 1.65 1.15 0.80 0.65 0.60 0.55 0.45 0.35 0.25 –17.4 Norway 0.82 0.59 0.35 0.22 0.15 0.12 0.10 0.07 0.05 0.03 –27.5 Portugal 0.40 0.34 0.21 0.13 0.09 0.07 0.05 0.04 0.03 0.02 –26.0 Spain 1.85 1.20 0.84 0.54 0.34 0.14 0.07 0.03 0.01 0.01 –50.6 Sweden 2.02 1.63 1.24 0.95 0.90 0.88 0.85 0.80 0.70 0.55 –9.4 Switzerland 0.47 0.45 0.40 0.35 0.30 0.25 0.20 0.18 0.15 0.10 –19.7 United Kingdom 10.35 7.90 5.38 3.16 1.50 1.00 0.50 0.30 0.17 0.08 –44.4 Western Europe total 55.35 46.39 38.65 30.97 24.48 22.39 19.08 16.24 11.09 6.37 –23.6 Central and Eastern Europe Czech Republic 1.95 1.70 1.50 1.25 1.00 0.90 0.85 0.80 0.70 0.60 –9.7 Hungary 0.38 0.35 0.21 0.07 0.04 0.03 0.02 0.01 0.01 0.01 –24.2 Poland 0.68 0.55 0.48 0.40 0.37 0.32 0.27 0.22 0.13 0.03 –39.5 Romania 0.27 0.29 0.22 0.20 0.02 0.02 0.01 0.01 0.01 0.01 –12.9 Russia 4.50 4.75 5.00 5.10 5.15 5.10 5.00 4.90 4.80 4.70 –1.8 Turkey 1.65 1.38 0.92 0.64 0.30 0.25 0.20 0.15 0.10 0.07 –25.3 Central and Eastern Europe total 9.43 9.02 8.33 7.66 6.88 6.62 6.35 6.09 5.75 5.42 –4.7 Middle East/Africa Israel 0.57 0.48 0.46 0.40 0.32 0.29 0.26 0.23 0.20 0.17 –11.9 Saudi Arabia/Pan Arab† 3.09 3.72 4.16 4.62 4.92 5.00 4.96 4.74 4.58 4.40 –2.2 South Africa 3.31 3.81 4.39 4.50 4.40 4.20 4.00 3.80 3.60 3.40 –5.0 Middle East/Africa total 6.97 8.01 9.01 9.52 9.64 9.49 9.22 8.77 8.38 7.97 –3.7 EMEA total 71.75 63.42 55.99 48.15 41.00 38.50 34.65 31.10 25.22 19.76 –13.6

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | EMEA 119 Wired dial-up household penetration (%)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Western Europe Austria 24.4 19.7 22.5 20.7 17.2 16.3 15.6 14.1 9.8 8.4 Belgium 11.3 7.0 4.8 3.3 2.7 2.3 1.9 1.5 1.1 0.5 Denmark 33.1 22.9 12.8 5.6 4.0 2.8 2.0 1.6 1.2 0.4 Finland 21.8 16.1 8.7 4.8 3.5 2.6 2.2 1.7 1.3 0.4 France 24.3 17.7 12.1 7.8 4.8 3.8 2.8 1.9 0.9 0.6 Germany 34.3 33.7 34.3 32.0 28.2 25.7 23.2 20.7 14.9 9.7 Greece 18.2 20.4 17.2 9.7 4.7 3.1 2.2 1.5 1.2 0.9 Ireland 62.3 42.6 34.7 30.3 14.9 13.5 12.0 10.0 7.4 3.0 Italy 60.2 51.3 43.0 36.1 29.7 30.1 24.8 20.4 12.1 4.0 Netherlands 30.7 22.9 15.8 11.0 8.8 8.0 7.3 5.9 4.6 3.2 Norway 41.4 29.4 17.2 10.7 7.1 5.7 4.7 3.2 2.3 1.4 Portugal 11.4 9.7 6.0 3.7 2.6 2.0 1.4 1.1 0.9 0.6 Spain 8.2 5.2 3.5 2.2 1.2 0.4 0.2 0.1 0.0 0.0 Sweden 44.9 35.8 27.0 20.4 19.1 18.5 17.7 16.5 14.3 11.1 Switzerland 14.6 13.8 12.2 10.5 8.9 7.4 5.8 5.2 4.3 2.8 United Kingdom 40.7 31.0 21.0 12.3 5.8 3.9 1.9 1.1 0.6 0.3 Western Europe total 32.0 26.6 21.9 17.4 13.4 11.9 9.9 8.3 5.6 3.1 Central and Eastern Europe Czech Republic 43.1 37.2 32.5 26.8 21.2 18.9 17.6 16.4 14.2 12.1 Hungary 9.5 8.6 5.1 1.7 1.0 0.7 0.5 0.2 0.2 0.2 Poland 5.0 4.0 3.5 2.9 2.7 2.3 2.0 1.6 0.9 0.2 Romania 3.7 4.0 3.0 2.7 0.3 0.3 0.1 0.1 0.1 0.1 Russia 8.6 9.0 9.5 9.6 9.7 9.6 9.4 9.2 9.0 8.8 Turkey 9.6 7.9 5.2 3.6 1.6 1.3 1.1 0.8 0.5 0.4 Central and Eastern Europe total 9.5 9.0 8.3 7.6 6.8 6.5 6.2 5.9 5.6 5.2 Middle East/Africa Israel 29.2 24.6 23.1 19.6 15.4 13.7 12.0 10.5 8.9 7.5 Saudi Arabia/Pan Arab† 9.5 11.3 12.5 13.8 14.5 14.5 14.3 13.5 12.9 12.2 South Africa 34.5 39.6 45.6 46.7 45.6 43.5 41.4 39.3 37.2 35.1 Middle East/Africa total 15.9 18.1 20.1 21.0 21.1 20.6 19.8 18.6 17.6 16.6 EMEA total 22.7 19.9 17.4 14.9 12.4 11.5 10.2 9.0 7.2 5.6

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

120 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired Internet households (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1.54 1.68 2.07 2.22 2.32 2.35 2.40 2.45 2.50 2.55 1.9 Belgium 1.97 2.16 2.42 2.71 2.94 3.02 3.15 3.28 3.41 3.53 3.7 Denmark 1.69 1.75 1.86 2.00 2.12 2.14 2.20 2.29 2.38 2.46 3.0 Finland 1.15 1.24 1.35 1.46 1.55 1.61 1.75 1.89 2.03 2.16 6.9 France 11.28 12.58 14.23 16.15 17.90 18.50 19.75 21.50 23.75 25.65 7.5 Germany 19.97 21.51 26.19 29.90 32.70 33.00 34.00 36.00 37.75 37.75 2.9 Greece 0.61 0.76 0.87 1.06 1.55 1.60 1.67 1.85 2.04 2.23 7.5 Ireland 1.01 0.87 0.98 1.11 1.13 1.26 1.31 1.41 1.47 1.55 6.5 Italy 16.98 17.42 17.63 18.15 18.50 19.70 20.00 21.00 21.50 22.00 3.5 Netherlands 5.08 5.60 5.75 6.20 6.30 6.35 6.45 6.55 6.70 6.90 1.8 Norway 1.36 1.42 1.47 1.56 1.70 1.72 1.75 1.82 1.85 1.88 2.0 Portugal 1.07 1.34 1.51 1.65 1.69 1.74 1.80 1.89 2.03 2.22 5.6 Spain 5.25 6.24 7.53 8.61 9.82 10.28 11.09 12.71 15.44 18.75 13.8 Sweden 3.27 3.29 3.44 3.76 3.78 3.80 3.83 3.90 4.00 4.15 1.9 Switzerland 1.53 1.94 2.26 2.64 2.80 2.85 2.90 3.03 3.15 3.30 3.3 United Kingdom 14.97 15.91 16.82 17.42 18.20 18.50 19.00 20.30 22.17 24.08 5.8 Western Europe total 88.73 95.71 106.38 116.60 125.00 128.42 133.05 141.87 152.17 161.16 5.2 Central and Eastern Europe Czech Republic 2.15 2.30 2.41 2.62 2.65 2.70 2.75 2.85 3.05 3.30 4.5 Hungary 0.72 0.88 1.14 1.42 1.49 1.54 1.62 1.76 2.01 2.26 8.7 Poland 1.94 3.29 4.13 5.13 5.66 6.17 6.95 8.01 9.87 12.56 17.3 Romania 0.38 0.72 1.24 1.89 2.00 2.17 2.31 2.61 3.16 3.91 14.3 Russia 5.01 5.88 7.24 10.10 15.15 16.10 16.50 18.90 22.30 25.70 11.1 Turkey 2.04 2.46 3.29 4.84 5.65 7.00 7.95 8.85 10.00 11.27 14.8 Central and Eastern Europe total 12.24 15.53 19.45 26.00 32.60 35.68 38.08 42.98 50.39 59.00 12.6 Middle East/Africa Israel 1.38 1.58 1.79 1.87 1.92 1.94 1.96 2.03 2.10 2.12 2.0 Saudi Arabia/Pan Arab† 3.40 4.39 5.43 6.77 8.06 9.08 10.11 11.48 13.27 15.40 13.8 South Africa 3.35 3.92 4.64 4.90 5.10 5.15 5.20 5.30 5.60 5.90 3.0 Middle East/Africa total 8.13 9.89 11.86 13.54 15.08 16.17 17.27 18.81 20.97 23.42 9.2 EMEA total 109.10 121.13 137.69 156.14 172.68 180.27 188.40 203.66 223.53 243.58 7.1

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | EMEA 121 Wired Internet household penetration (%)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Western Europe Austria 46.4 50.1 61.2 64.7 66.7 67.1 68.2 69.2 70.2 71.2 Belgium 41.2 44.3 48.6 53.3 56.8 57.2 58.6 59.9 61.1 62.1 Denmark 68.1 70.3 74.4 79.7 84.1 84.6 86.6 89.8 93.0 95.7 Finland 50.2 54.0 58.7 63.3 67.1 69.5 75.4 81.3 86.8 91.9 France 44.1 48.9 55.0 62.1 68.5 70.3 74.7 80.8 88.8 95.4 Germany 51.1 54.9 66.8 76.5 83.8 84.8 87.6 93.0 97.8 98.1 Greece 19.2 23.8 27.2 33.0 48.1 49.5 51.5 56.9 62.6 68.2 Ireland 69.2 58.8 65.3 73.0 73.4 80.8 82.9 88.1 90.7 94.5 Italy 75.8 76.7 76.7 77.9 78.4 82.4 82.6 85.7 86.7 87.6 Netherlands 71.5 77.8 78.8 84.9 85.1 85.1 85.8 86.4 87.7 89.6 Norway 68.7 70.6 72.1 75.7 81.0 81.1 81.8 84.3 84.9 85.5 Portugal 30.4 38.1 42.9 46.9 48.0 49.6 51.3 54.2 58.3 63.8 Spain 23.2 26.9 31.6 35.2 33.3 31.1 30.1 32.6 36.8 41.7 Sweden 72.7 72.3 74.8 80.9 80.4 80.0 79.8 80.4 81.6 83.8 Switzerland 47.5 59.7 68.7 79.5 83.3 83.8 84.3 87.3 89.7 93.2 United Kingdom 58.9 62.4 65.7 67.8 70.5 71.4 73.1 77.8 84.6 91.6 Western Europe total 51.3 54.8 60.4 65.7 68.2 68.4 69.2 72.7 76.5 79.5 Central and Eastern Europe Czech Republic 47.6 50.3 52.2 56.1 56.1 56.6 57.1 58.5 62.0 66.4 Hungary 17.9 21.7 27.9 34.5 36.0 36.9 38.6 41.6 47.2 52.7 Poland 14.3 24.1 30.2 37.5 41.3 44.9 50.4 58.0 71.3 90.6 Romania 5.2 9.8 16.9 25.7 27.2 29.5 31.4 35.5 42.9 53.1 Russia 9.5 11.2 13.7 19.1 28.6 30.3 31.0 35.5 41.8 48.0 Turkey 11.9 14.1 18.6 26.9 30.9 37.6 42.1 46.1 51.3 56.9 Central and Eastern Europe total 12.3 15.6 19.4 25.8 32.2 35.1 37.2 41.8 48.8 56.8 Middle East/Africa Israel 70.8 81.0 89.9 91.7 92.3 91.5 90.7 92.3 93.8 93.0 Saudi Arabia/Pan Arab† 10.5 13.4 16.4 20.1 23.7 26.4 29.1 32.6 37.3 42.8 South Africa 34.9 40.8 48.2 50.9 52.9 53.4 53.8 54.8 57.9 60.9 Middle East/Africa total 18.5 22.3 26.5 29.9 33.0 35.0 37.0 40.0 44.1 48.8 EMEA total 34.5 38.0 42.9 48.3 52.3 53.7 55.2 59.0 63.9 68.7

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

122 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • There were a total of 172.7 million Internet households • In addition to competitive factors that are reducing in EMEA in 2008, for a penetration rate of 52.3 percent costs, we expect that subscribers will be resistant to of all households. In Western Europe 68.2 percent of all upgrade to higher-speed services during the next year households were online. Internet penetration was 32.2 or two so as to avoid incurring additional expenses in percent in Central and Eastern Europe and 33 percent the face of deteriorating economic conditions and rising in Middle East/Africa. unemployment. We also expect a slower take-up rate in broadband itself. • We project the number of Internet households to increase to 243.6 million by 2013, a 7.1 percent • Consequently, we project broadband access spending, compound annual gain. Western Europe will expand at which has been growing at double-digit annual rates a 5.2 percent compound annual rate to 161.2 million; during the past five years, to slow to mid-single-digit Central and Eastern Europe will grow by 12.6 percent increases during the next two years. compounded annually to 59 million households; and • We then project growth to return to double-digit levels Middle East/Africa will rise to 23.4 million Internet during 2011–13 as improved economic conditions lead households in 2013, up 9.2 percent on a compound to a faster broadband adoption rate and trade-ups annual basis. to higher-speed options raise average spending per • By 2013, 68.7 percent of all households in EMEA will subscriber. be online. Penetration will increase to 79.5 percent in Western Europe. In Central and Eastern Europe, Broadband access spending growth in EMEA (%) Internet penetration will rise to 56.8 percent, and in Middle East/Africa, 48.8 percent of households will be 100 online in 2013. 80 69.9 Internet access spending 60 45.7 • Efforts to promote competition are putting downward 40 33.5 pressure on pricing and in the near term are offsetting 23.5 16.4 the impact of growing penetration of higher-priced, 20 11.5 14.9 13.3 high-speed services. 4.0 5.7 0 • In the United Kingdom, BT Openreach was created to 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 promote local loop unbundling (LLU), which requires Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates BT to share its network and infrastructure with all competitors. BT Openreach is credited with lowering prices and increasing broadband penetration. • Broadband access spending in Western Europe will grow by 8 percent compounded annually to $73.5 • Sweden enacted the Bill of Functional Separation for billion in 2013. Central and Eastern Europe will expand Better Broadband Competition that took effect in July at a 13.1 percent compound annual rate to $11.5 billion 2008. The legislation, modeled on BT Openreach, gives in 2013 from $6.2 billion in 2008. Middle East/Africa will the regulatory body the power to require TeliaSonera, be the fastest-growing, with a 24.8 percent compound the incumbent carrier, to provide access to its copper annual increase to $9.6 billion from $3.2 billion. infrastructure to competitors. • France, Germany, and the UK had the largest broadband • In Switzerland, the Federal Communications access markets in 2008, at $9.1 billion, $8.8 billion, and Commission in late 2007 issued a ruling requiring $8.3 billion, respectively. France overtook Germany in Swisscom to offer access to its broadband 2007, and we expect Germany to regain the lead in infrastructure to competitors for a four-year period. In 2011, rising to $13.4 billion by 2013, with France at early 2008, Swisscom lowered the wholesale cost of its $13 billion and the UK at $11.6 billion. DSL service by 10 percent. There are at present more than 20 Internet service providers in the market.

Internet access spending: wired and mobile | EMEA 123 Wired broadband access spending† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 692 931 1,150 1,299 1,450 1,462 1,494 1,541 1,708 1,799 4.4 Belgium 1,004 1,215 1,379 1,561 1,696 1,706 1,768 1,841 1,930 2,028 3.6 Denmark 680 917 1,190 1,428 1,542 1,550 1,580 1,632 1,716 1,812 3.3 Finland 417 550 717 830 891 919 985 1,057 1,144 1,238 6.8 France 3,107 4,788 6,427 7,940 9,064 9,143 9,509 10,326 11,659 12,986 7.5 Germany 3,853 4,816 6,579 7,639 8,764 8,785 9,219 10,572 12,363 13,434 8.9 Greece 12 44 124 290 536 566 599 670 738 803 8.4 Ireland 34 79 149 208 284 323 334 373 402 448 9.5 Italy 1,557 2,492 3,285 4,109 4,806 5,158 5,704 6,462 7,374 8,261 11.4 Netherlands 1,294 1,706 1,955 2,276 2,381 2,399 2,456 2,549 2,677 2,832 3.5 Norway 506 769 1,025 1,213 1,386 1,397 1,405 1,490 1,571 1,674 3.8 Portugal 325 457 582 667 688 697 707 751 817 904 5.6 Spain 1,902 2,634 3,512 4,200 4,895 5,116 5,497 6,347 7,777 9,511 14.2 Sweden 800 1,052 1,378 1,740 1,757 1,765 1,791 1,863 2,013 2,229 4.9 Switzerland 858 1,188 1,370 1,497 1,537 1,556 1,585 1,681 1,795 1,950 4.9 United Kingdom 2,545 4,325 5,798 7,150 8,281 8,485 8,766 9,520 10,545 11,636 7.0 Western Europe total 19,586 27,963 36,620 44,047 49,958 51,027 53,399 58,675 66,229 73,545 8.0 Central and Eastern Europe Czech Republic 121 357 508 757 902 962 992 1,075 1,241 1,443 9.9 Hungary 189 289 476 683 726 739 765 841 968 1,101 8.7 Poland 483 638 790 965 1,134 1,156 1,230 1,359 1,595 1,964 11.6 Romania 37 133 292 389 451 478 500 568 693 868 14.0 Russia 101 221 411 905 1,786 1,938 1,999 2,399 3,041 3,660 15.4 Turkey 100 271 566 940 1,184 1,461 1,639 1,849 2,119 2,424 15.4 Central and Eastern Europe total 1,031 1,909 3,043 4,639 6,183 6,734 7,125 8,091 9,657 11,460 13.1 Middle East/Africa Israel 325 432 491 536 578 582 586 624 663 688 3.5 Saudi Arabia/Pan Arab‡ 223 473 841 1,409 2,035 2,585 3,189 4,193 5,443 6,970 27.9 South Africa 50 135 282 328 559 743 917 1,151 1,545 1,954 28.4 Middle East/Africa total 598 1,040 1,614 2,273 3,172 3,910 4,692 5,968 7,651 9,612 24.8 EMEA total 21,215 30,912 41,277 50,959 59,313 61,671 65,216 72,734 83,537 94,617 9.8

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

124 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired dial-up access spending† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 427 347 398 370 312 294 284 256 179 154 –13.2 Belgium 196 120 85 60 48 41 34 28 20 10 –26.9 Denmark 290 200 112 48 35 24 17 14 10 3 –38.8 Finland 176 129 70 38 28 20 18 13 10 3 –36.0 France 2,180 1,551 1,052 670 411 326 243 161 80 48 –34.9 Germany 4,942 4,845 4,643 4,061 3,477 3,073 2,687 2,318 1,616 1,021 –21.7 Greece 173 192 161 91 44 29 20 15 12 9 –27.2 Ireland 152 104 85 73 37 32 29 25 18 7 –28.3 Italy 3,435 2,874 2,403 2,022 1,671 1,706 1,409 1,165 695 231 –32.7 Netherlands 574 421 288 202 164 152 142 117 92 67 –16.4 Norway 475 339 200 125 85 67 56 39 27 16 –28.4 Portugal 132 111 69 42 29 22 16 13 10 6 –27.0 Spain 765 479 322 199 123 50 23 10 3 3 –52.4 Sweden 809 647 488 372 351 342 329 308 268 208 –9.9 Switzerland 140 133 116 102 87 72 57 51 42 29 –19.7 United Kingdom 3,421 2,533 1,671 966 452 298 149 88 50 24 –44.4 Western Europe total 18,287 15,025 12,163 9,441 7,354 6,548 5,513 4,621 3,132 1,839 –24.2 Central and Eastern Europe Czech Republic 684 603 530 438 347 310 290 270 233 198 –10.6 Hungary 110 102 60 20 11 8 5 3 3 3 –22.9 Poland 199 102 57 37 29 21 17 12 10 8 –22.7 Romania 70 74 56 51 5 5 2 2 2 2 –16.7 Russia 391 401 408 406 398 382 362 343 324 306 –5.1 Turkey 363 271 177 120 55 45 35 25 17 11 –27.5 Central and Eastern Europe total 1,817 1,553 1,288 1,072 845 771 711 655 589 528 –9.0 Middle East/Africa Israel 151 128 123 109 86 77 68 59 51 43 –12.9 Saudi Arabia/Pan Arab‡ 649 781 874 964 1,019 1,028 1,013 961 921 871 –3.1 South Africa 569 608 707 731 721 695 667 640 611 582 –4.2 Middle East/Africa total 1,369 1,517 1,704 1,804 1,826 1,800 1,748 1,660 1,583 1,496 –3.9 EMEA total 21,473 18,095 15,155 12,317 10,025 9,119 7,972 6,936 5,304 3,863 –17.4

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | EMEA 125 • During the next five years, dial-up spending in Western Magyar Telecom has a long-term loan from the Europe will decline at a 24.2 percent compound annual European Investment Bank for around $300 million to rate to $1.8 billion from $7.4 billion in 2008. Central and invest in mobile broadband. Eastern Europe will drop to $528 million, a 9 percent • In Italy, mobile broadband access expanded decrease compounded annually from $845 million in significantly during 2008 and is forecast to increase 2008. Dial-up spending in Middle East/Africa will fall further in 2009 and 2010. HSDPA is the standard by 3.9 percent compounded annually to $1.5 billion in technology, but TIM, the incumbent operator, recently 2013 from $1.8 billion in 2008. announced the launch of a new network that will bring • The dial-up market in all of EMEA will fall from $10 the capacity up to 28 Mbps. billion in 2008 to $3.9 billion in 2013, a 17.4 percent • In Switzerland, Swisscom has invested in upgrading its compound annual decrease. HSDPA mobile access network, now offering speeds of up to 14.4 Mbps in most major city centers and Mobile access tourism areas. The village of Davos was one of the first areas to be upgraded, due to the presence of the World • Wireless network upgrades are facilitating growth Economic Forum. in mobile Internet access because more wireless telephone subscribers can use their handsets to access • Swisscom introduced the iPhone in June 2008 and had the Internet. sold 170,000 iPhones by the end of 2008. Every fourth new mobile phone sold at Swisscom over this period was • Orange UK is upgrading its 3G infrastructure in an iPhone. Around 97 percent of iPhone users take on a Scotland and Northern Ireland to HSDPA to facilitate subscription, with an average revenue per unit of CHF83 mobile broadband with download speeds of up to 7.2 ($77), well above the average for Swisscom users. Mbps. In the Netherlands in 2008, Worldmax launched Europe’s first mobile WiMAX service. • In Russia, each of the main wireless operators launched 3G services in the past 18 months. Vimplekom, which • Carriers in Denmark spent around $1.6 billion to upgrade introduced 3G in St. Petersburg, has a deal with Apple to 3G through 2008. Telecompany 3 introduced a 21 to distribute the iPhone that will operate on its 3G Mbps service in late 2008, and in Finland, each of the network. Virgin introduced WiMAX in and three mobile operators now offers 3G. several other cites in 2008, and Mobile TeleSystems • In Germany, T-Mobile and Vodafone offer HSDPA with (MTS) announced it plans to invest around $400 million speeds of up to 1.8 Mbps. In some cities, speeds of during the next three years on 3G networks in St. up to 3.6 Mbps are available, and in large population Petersburg and other cities. centers, 7.2 Mbps is available. T-Mobile and Vodafone • Because mobile Internet access involves interactive each provide a mobile Internet plan allowing data communications, which are more complicated than the transfers of up to 5 Gbps per month. T-Mobile downloading of songs or ringtones, speed is important. introduced the iPhone in late 2007 and within the first We expect rollouts of high-speed services to spur two months had 70,000 subscribers. Those subscribers mobile access penetration. are heavy Internet users, downloading up to 30 times more data than the average wireless subscriber does. • In addition to network upgrades, the introduction of Aside from the iPhone, other smart phones are also smart phones such as the iPhone can spur the market. being offered and heavily promoted by operators, Smart phones with touch-screen capabilities make it helping grow the mobile access market. much easier to navigate the Internet. As the experience in Germany demonstrates, Internet-friendly handsets • HSDPA is also available in Austria, Italy, Portugal, can drive usage. Spain, Switzerland, Hungary, and Poland. In Hungary,

126 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Mobile access spending exceeded $1 billion in each Mobile access subscribers as a percent of wireless of France, Germany, Italy, the United Kingdom, and telephone subscribers in EMEA Saudi Arabia/Pan Arab in 2008, and we expect Spain 30 to reach that threshold in 2009, Russia in 2011, Turkey in 2012, and Poland in 2013. Mobile access is relatively 25 23.9 high in Saudi Arabia/Pan Arab because of the limited availability of wired broadband. 20 18.2 15 14.0 • Currently, only a fraction of wireless telephone 11.3 9.6 subscribers are mobile Internet subscribers. On 10 8.2 6.3 average, 8.2 percent of the wireless telephone 4.6 5 subscribers were mobile Internet subscribers in 1.9 3.0 2008. Slow speeds and limited penetration of smart 0 phones or handsets with full keyboard capabilities 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 limit penetration. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates • Cost is also an issue, and we expect a slower take-up rate during the next two years as consumers look to • Spending on mobile access will nearly triple during the conserve funds. In 2008, mobile access penetration next five years to $32.9 billion in 2013 from $11 billion increased by 1.9 percentage points. We expect a in 2008, a 24.5 percent compound annual gain. 1.4-percentage-point gain in 2009 to 9.6 percent followed by a 1.7-point increase in 2010. Thereafter, • Western Europe will increase to $16.5 billion in 2013 the combination of an improved underlying economy, from $8.2 billion in 2008, a 15 percent compound more-Internet-appropriate handsets, and faster network annual gain. Central and Eastern Europe will expand by speeds will propel penetration. From 2010 to 2013, 38.6 percent compounded annually from $1.3 billion in we expect mobile access penetration to jump by 12.6 2008 to $6.6 billion in 2013. Middle East/Africa will be percentage points to 23.9 percent in 2013. the fastest-growing area from a small base, rising to $9.7 billion in 2013 from $1.5 billion in 2008 for a 45.3 percent increase on a compound annual basis.

Internet access spending: wired and mobile | EMEA 127 Mobile access market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 34 50 98 154 190 200 208 228 275 342 12.5 Belgium 42 60 113 162 203 228 241 265 320 401 14.6 Denmark NA NA 10 19 36 59 82 109 144 191 39.6 Finland NA NA 13 26 48 79 114 155 200 272 41.5 France 94 278 363 678 1,030 1,137 1,213 1,456 1,854 2,295 17.4 Germany 300 460 903 1,528 1,659 1,702 1,791 2,008 2,483 3,025 12.8 Greece NA NA 25 51 101 165 241 331 423 569 41.3 Ireland NA NA 10 26 91 123 148 190 241 304 27.3 Italy 528 828 1,103 1,398 1,699 1,768 1,815 2,094 2,565 3,079 12.6 Netherlands 94 123 183 244 309 328 341 378 460 578 13.3 Norway 3 7 10 12 18 23 28 38 53 70 31.2 Portugal NA NA 83 142 217 265 293 360 443 618 23.3 Spain 203 329 486 682 961 1,017 1,057 1,160 1,387 1,646 11.4 Sweden 5 8 10 40 52 61 68 90 123 166 26.1 Switzerland 21 31 65 97 119 127 133 148 180 227 13.8 United Kingdom 591 981 1,230 1,429 1,475 1,563 1,640 1,818 2,189 2,738 13.2 Western Europe total 1,915 3,155 4,705 6,688 8,208 8,845 9,413 10,828 13,340 16,521 15.0 Central and Eastern Europe Czech Republic 38 57 110 157 186 195 206 232 285 365 14.4 Hungary NA NA 14 29 58 99 136 173 224 290 38.0 Poland NA NA 64 145 230 393 535 675 873 1,127 37.4 Romania NA NA 85 145 151 247 285 372 473 602 31.9 Russia 44 116 218 315 472 498 651 1,005 1,596 2,527 39.9 Turkey NA NA NA 97 197 391 666 955 1,291 1,716 54.2 Central and Eastern Europe total 82 173 491 888 1,294 1,823 2,479 3,412 4,742 6,627 38.6 Middle East/Africa Israel 24 35 71 107 130 144 157 182 233 310 19.0 Saudi Arabia/Pan Arab‡ NA NA 217 532 1,147 2,105 3,064 4,321 5,938 8,114 47.9 South Africa NA NA 58 117 227 393 554 747 992 1,304 41.9 Middle East/Africa total 24 35 346 756 1,504 2,642 3,775 5,250 7,163 9,728 45.3 EMEA total 2,021 3,363 5,542 8,332 11,006 13,310 15,667 19,490 25,245 32,876 24.5

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

128 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Asia Pacific

The outlook in brief • Wired Internet access spending will rise from $42 billion in 2008 to $54.3 billion in 2013, a 5.3 percent increase • Fiber deployments, increased penetration into rural compounded annually. areas, and improved international connectivity will drive broadband penetration. • Wired dial-up access spending will total $9.5 billion in 2013, a 6.8 percent compound annual decline. • Dial-up will serve the growing demand for Internet access in countries without an established broadband • Wired broadband access spending will grow at a 9.5 infrastructure. percent compound annual rate to $44.8 billion in 2013 from $28.5 billion in 2008. • Wireless upgrades will propel mobile Internet access. • Mobile access spending will increase from $39.3 billion in 2008 to $62.3 billion in 2013, a 9.7 percent Overview compound annual increase. Mobile access spending • Internet wired and mobile access will increase during will overtake wired access spending in 2011. the next five years to $116.6 billion in 2013 from $81.3 billion in 2008, averaging 7.5 percent compounded annually.

Internet access market: wired and mobile by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet access Dial-up 9,830 10,236 9,284 11,293 13,549 12,955 12,058 11,163 10,349 9,506 Broadband 14,735 18,126 21,418 24,784 28,477 31,299 34,230 37,418 40,923 44,815 Total wired Internet access 24,565 28,362 30,702 36,077 42,026 44,254 46,288 48,581 51,272 54,321 Mobile access 11,079 21,394 29,517 34,147 39,265 42,686 45,549 49,915 55,892 62,277 Total 35,644 49,756 60,219 70,224 81,291 86,940 91,837 98,496 107,164 116,598

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access market growth: wired and mobile by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet access Dial-up –9.2 4.1 –9.3 21.6 20.0 –4.4 –6.9 –7.4 –7.3 –8.1 –6.8 Broadband 39.9 23.0 18.2 15.7 14.9 9.9 9.4 9.3 9.4 9.5 9.5 Total wired Internet access 15.0 15.5 8.3 17.5 16.5 5.3 4.6 5.0 5.5 5.9 5.3 Mobile access 217.7 93.1 38.0 15.7 15.0 8.7 6.7 9.6 12.0 11.4 9.7 Total 43.4 39.6 21.0 16.6 15.8 6.9 5.6 7.3 8.8 8.8 7.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | Asia Pacific 129 • Japan has the largest market in Asia Pacific, at $37.8 States in 2008 to become the largest wired broadband billion in 2008, with 74 percent of that total coming market in the world, with 76 million households. While from mobile access. Japan is the only country in the growth will not match the explosive increases during world where the majority of Internet access spending the past five years, as the economy and Internet is generated from mobile phones. Because its mobile penetration growth slow, we do expect spending to access market is already mature, Japan will not benefit continue to average double-digit gains of 12.7 percent from a surge in that market that will characterize most on a compound annual basis. Spending will rise to a other countries. We project spending to increase at projected $36.5 billion in 2013. a 2.8 percent compound annual rate to $43.3 billion • South Korea was next largest, at $12.5 billion, in in 2013. 2008. South Korea has the third-largest mobile access • The People’s Republic of China (PRC) was the second- subscriber base in the world, at more than 36 million, largest country in Asia Pacific in 2008, at $20.1 billion. more than twice the number of broadband households. The PRC has the largest wired Internet household base High penetration in both broadband and mobile will in the world, at 161 million in 2008, and the second- limit growth during the next five years. We project South largest mobile access subscriber base, behind Japan, Korea to increase at a 3.9 percent rate compounded at around 45 million. The PRC passed the United annually to $15.1 billion in 2013.

Internet access market: wired and mobile by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,384 1,558 1,721 1,870 2,018 2,131 2,254 2,449 2,648 2,905 7.6 China 5,005 7,771 9,564 14,133 20,087 22,334 24,468 27,344 31,317 36,523 12.7 Hong Kong 449 530 682 754 859 879 917 976 1,038 1,118 5.4 India 254 314 428 723 919 1,150 1,365 1,640 2,060 2,601 23.1 Indonesia 130 181 243 470 639 774 1,024 1,494 2,174 2,778 34.2 Japan 17,951 26,523 32,671 35,503 37,818 38,840 39,807 41,036 42,306 43,340 2.8 Malaysia 268 343 432 585 720 819 886 944 1,032 1,145 9.7 New Zealand 204 255 291 348 362 370 384 411 445 487 6.1 Pakistan 374 417 459 592 809 1,016 1,214 1,455 1,767 2,027 20.2 Philippines 166 204 290 480 822 950 1,109 1,388 1,775 2,253 22.3 Singapore 487 565 661 750 847 854 860 886 1,168 979 2.9 South Korea 7,404 9,284 10,530 11,461 12,528 13,179 13,663 14,204 14,691 15,143 3.9 Taiwan 1,013 1,112 1,317 1,361 1,415 1,980 2,061 2,159 2,240 2,343 10.6 Thailand 458 518 661 847 998 1,132 1,218 1,360 1,562 1,795 12.5 Vietnam 97 181 269 347 450 532 607 750 941 1,161 20.9 Total 35,644 49,756 60,219 70,224 81,291 86,940 91,837 98,496 107,164 116,598 7.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

130 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Broadband • In Singapore, as part of its iN2015 master plan, which includes the Next Generation National Infocomm • Countries throughout the region are enhancing their Infrastructure, the government is supporting a national broadband capacity to provide faster speeds and fiber-to-the-home network that will provide speeds of up greater throughput. to 1 Gbps. The network is scheduled to initially become • The Japanese government is actively promoting available in 2010 to 60 percent of the country and to be broadband through its Next Generation Broadband available to 95 percent of the country by 2012. Strategy 2010 initiative. That strategy targeted fiber • In Malaysia, the project to build an FTTH network with to the home as a central tenet. The FTTH market rose Telekom Malaysia was delayed, but an agreement was from 2.9 million in 2005 to more than 13 million in 2008, finally signed in late 2008. The 10-year project will reach the largest of any country in the world, and in 2008 fiber every urban home. The government awarded WiMAX became the largest broadband access technology in licenses to provide fixed wireless broadband, and Japan. Carriers are introducing high-speed options— several companies began providing service in 2008. so-called next-generation networks—to further enhance the market. • In South Korea, wired Internet access is entirely through a broadband connection. The government’s long-term • In the PRC, the restructuring of the telecommunications broadband strategy focused on creating a backbone market will lead to more broadband competition. network funded by the government that could be used There are now three competitive companies in the by carriers. Carriers are able to provide broadband for market—China Mobile, China Telecom, and China rural areas because they do not have to build their Unicom—each of which can offer mobile and fixed-line own infrastructure. service in a package, and each of which will operate a wireless network by using a single wireless broadband • In India, a project is under way to extend broadband technology. China Mobile, the largest wireless carrier to rural areas by using broadband-over-power-line in the world, now has a fixed-line network, which will (BPL) technology. In Thailand, state-owned carrier enable it to introduce a broadband service in 2009. CAT Telecom is building a fiber-optic cable backbone It is unclear how long it will take for this increased that will reach all regions of the country and provide competition to result in lower broadband access fees. faster broadband speeds. In Vietnam, the Vietnam Post and Telecommunications Group invested in a national • In Australia, the government is expected to award broadband network in 2008, increasing capacity to a tender in 2009 for a national broadband network 200 Gbps. at an estimated cost of $5 billion. Telstra, Australia’s largest telecommunications company, had its tender • In Indonesia, fixed wireless services are being rolled submission rejected for alleged noncompliance. In out by carriers as a less expensive alternative for the 2008, Telstra activated its high-speed DSL network, last-mile connection to the home. Around half of the providing speeds of up to 20 Mbps. broadband subscribers in Indonesia are connected via fixed wireless. • In the Philippines, industry experts attribute growth in broadband Internet access to decreasing broadband • Fixed wireless using WiMAX technology also is being user rates and the declining prices of personal introduced or expanded in other countries. In Pakistan, computers. To respond to that increasing demand, two Motorola has a contract with Wateen Telecom for major broadband providers allocated a huge chunk of around 200,000 devices that will be used for wireless their 2009 capital expenditure budgets for investment DSL. In Taiwan, six companies were issued WiMAX in broadband expansion. Philippine Long Distance licenses in July 2007, and they are looking to jointly Telephone Company (PLDT) allocated $364 million, purchase WiMAX equipment to save on capital costs while Globe Telecom set aside $400 million to and accelerate the process of introducing service. $420 million. WiMAX licenses are expected to be issued in Thailand in 2009, and in Vietnam four companies were issued licenses to test WiMAX service for one year.

Internet access spending: wired and mobile | Asia Pacific 131 • To assist in extending broadband to rural areas, O3b • There is a wide disparity in broadband penetration in Networks entered the market in 2008 with a satellite Asia Pacific. Broadband is well developed in Australia, service. A series of medium-Earth-orbit satellites is Hong Kong, Japan, New Zealand, Singapore, South expected to be launched in late 2010. The satellites Korea, and Taiwan, each of which had penetration rates will provide broadband connectivity to areas across the in excess of 50 percent in 2008. Broadband penetration region not reached by DSL or cable modem service. in Malaysia was 24.6 percent, and in the PRC, 19.2 percent. The remaining countries have penetration rates • The ability to accommodate rising levels of Internet below 10 percent. traffic will be a critical factor in the facilitating of broadband expansion. The construction of undersea • Despite its relatively low penetration rate, the PRC fiber-optic cables that link Asia with the rest of the leads the region, with 76 million broadband subscribers. world will allow for faster broadband speeds. In October We expect that the restructuring will facilitate expansion 2008, the first phase of the Trans-Pacific Express was of the broadband infrastructure, and we project the completed that links China and Taiwan with the United broadband subscriber base will more than double to States, the first such direct link. The eight companies 155 million by 2013, a 15.3 percent compound annual participating in the project—China Telecom, China increase. The PRC will account for 66 percent of Netcom, China Unicom, Chunghwa Telecom (Taiwan), broadband household growth in Asia Pacific during Korea Telecom, NTT Communications Corp., AT&T, and the next five years. Verizon—are spending around $500 million. • In countries that have high broadband penetration • In Hong Kong, Hutchison in 2008 integrated its Hong rates, we project low- to mid-single-digit gains during Kong–Shenzhen Western Corridor fiber-optic cable the next five years, while we look for double-digit with the China Telecom network, increasing to four average growth in each country where broadband the number of fiber connections between Hong Kong penetration was less than 50 percent in 2008. and China. • We project the number of broadband households in • In other developments, KDDI of Japan and Asia Pacific as a whole will increase to 264.3 million of Russia deployed two undersea fiber-optic cables by 2013 from 144.7 million in 2008, a 12.8 percent connecting the two countries. The existing Rostelecom compound annual increase. Excluding the PRC, network in Russia will provide a link to fiber-optic cable broadband household growth will average 9.7 networks in Europe to meet growing demand for data percent compounded annually. access between Japan and Europe. • Broadband household penetration will increase from • An undersea cable linking Japan and the United States, 17.5 percent in 2008 to 29.6 percent in 2013. built jointly by SingTel, KDDI, Bharti Airtel, Pacnet, Global Transit, and Google at a cost of $300 million is scheduled to be completed in 2010. Meanwhile, the Asia American Gateway being built by Alcatel-Lucent and NEC—which will connect Hong Kong, Malaysia, the Philippines, Singapore, Thailand, and Vietnam with Hawaii and the West Coast of the United States—is expected to become operational in 2009.

132 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Broadband households (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1.20 2.30 3.35 4.00 4.75 5.30 5.80 6.30 6.70 7.10 8.4 China 24.00 36.00 44.90 58.70 76.00 92.00 110.00 125.00 140.00 155.00 15.3 Hong Kong 1.30 1.43 1.78 1.90 2.20 2.30 2.40 2.50 2.60 2.65 3.8 India 0.05 0.80 1.55 2.70 4.90 7.75 9.70 12.30 16.00 21.00 33.8 Indonesia 0.07 0.10 0.15 0.23 0.30 0.37 0.45 0.55 0.70 1.00 27.2 Japan 16.00 20.00 24.40 27.60 29.45 31.80 34.00 36.00 38.00 40.00 6.3 Malaysia 0.18 0.38 0.70 1.15 1.45 1.65 1.85 2.10 2.50 3.00 15.7 New Zealand 0.10 0.15 0.40 0.76 0.83 0.89 0.96 1.04 1.13 1.23 8.2 Pakistan 0.00 0.01 0.05 0.09 0.16 0.20 0.30 0.40 0.50 0.60 30.3 Philippines 0.05 0.10 0.20 0.65 1.20 1.40 1.60 2.00 2.50 3.00 20.1 Singapore 0.48 0.60 0.73 0.84 0.93 0.95 0.97 1.00 1.05 1.10 3.4 South Korea 12.50 13.15 13.60 14.10 15.10 15.70 16.20 16.50 16.80 17.10 2.5 Taiwan 3.20 3.60 4.40 4.60 4.75 4.90 5.05 5.20 5.35 5.50 3.0 Thailand 0.30 0.35 0.60 0.80 1.00 1.15 1.35 1.60 1.90 2.30 18.1 Vietnam 0.03 0.13 0.36 0.90 1.65 2.00 2.10 2.60 3.10 3.75 17.8 Total 59.46 79.10 97.17 119.02 144.67 168.36 192.73 215.09 238.83 264.33 12.8

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | Asia Pacific 133 Broadband household penetration (%)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Australia 15.6 29.6 42.7 50.6 59.5 65.8 71.4 77.0 81.3 85.5 China 6.5 9.6 11.8 15.1 19.2 22.8 26.8 30.0 33.0 36.0 Hong Kong 57.8 62.2 75.7 79.2 89.8 92.0 94.1 96.2 98.1 98.1 India 0.0 0.4 0.8 1.4 2.5 3.8 4.6 5.8 7.5 9.7 Indonesia 0.1 0.2 0.3 0.4 0.5 0.7 0.8 1.0 1.3 1.8 Japan 32.7 40.4 48.8 54.7 57.7 61.7 65.4 68.6 71.7 74.8 Malaysia 3.2 6.6 12.1 19.7 24.6 27.7 30.8 34.7 41.0 48.8 New Zealand 6.8 10.1 26.7 50.3 54.6 58.2 62.3 67.1 72.4 78.3 Pakistan 0.0 0.0 0.2 0.4 0.7 0.9 1.3 1.7 2.1 2.4 Philippines 0.3 0.6 1.2 3.9 7.1 8.3 9.5 11.8 14.7 17.6 Singapore 44.9 55.6 67.0 76.4 83.8 84.8 85.8 87.7 91.3 94.8 South Korea 74.4 77.8 80.0 82.5 87.8 90.8 93.1 94.3 95.5 96.6 Taiwan 44.8 49.0 58.3 59.4 59.7 60.1 60.5 60.8 61.1 61.5 Thailand 1.7 1.9 3.0 3.8 4.4 4.8 5.3 6.0 6.8 7.8 Vietnam 0.2 0.8 2.1 4.9 8.7 10.3 10.7 13.1 15.5 18.6 Total 7.8 10.1 12.2 14.7 17.5 20.0 22.5 24.7 27.1 29.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Wired broadband access spending will increase to • The PRC will account for 56 percent of that increase. $44.8 billion in 2013 from $28.5 billion in 2008, a 9.5 Excluding the PRC, spending growth will average 6.4 percent compound annual increase. percent compounded annually.

134 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired broadband access spending† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 446 842 1,210 1,424 1,668 1,807 1,949 2,123 2,269 2,422 7.7 China 2,991 4,436 5,475 7,082 9,071 10,782 12,702 14,488 16,347 18,299 15.1 Hong Kong 383 413 504 527 597 603 610 639 673 694 3.1 India 2 39 76 144 286 457 577 758 1,052 1,467 38.7 Indonesia 13 18 26 40 50 60 71 84 104 145 23.7 Japan 3,896 4,812 5,799 6,480 6,829 7,189 7,490 7,972 8,481 9,043 5.8 Malaysia 46 96 176 285 356 397 439 499 595 717 15.0 New Zealand 34 50 130 243 263 277 295 321 350 383 7.8 Pakistan 1 3 17 30 52 64 93 122 149 175 27.5 Philippines 13 26 50 163 298 343 388 485 613 747 20.2 Singapore 407 509 619 712 788 805 822 848 890 933 3.4 South Korea 5,443 5,726 5,936 6,170 6,624 6,870 7,089 7,238 7,406 7,576 2.7 Taiwan 913 1,013 1,222 1,268 1,283 1,286 1,306 1,355 1,404 1,464 2.7 Thailand 141 123 141 144 180 203 236 283 343 436 19.4 Vietnam 6 20 37 72 132 156 163 203 247 314 18.9 Total 14,735 18,126 21,418 24,784 28,477 31,299 34,230 37,418 40,923 44,815 9.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Dial-up not widely available. In those countries, dial-up is still expanding—in many cases at double-digit annual rates. • Asia Pacific also has the largest dial-up subscriber base in the world, at 132.4 million. During the past two • In addition to the PRC, India, Indonesia, Pakistan, the years, the number of dial-up subscribers jumped by 75 Philippines, Thailand, and Vietnam recorded increases percent, principally because of a large increase in the in their dial-up subscriber bases. PRC, whose dial-up market more than doubled to 85 • India will experience the largest increase in dial-up, with a million from 31 million in 2006. Rapid economic growth projected rise to 18 million subscribers by 2013 from 10.5 stimulated demand for the Internet, and many people million in 2008, a 7.5 million advance. India, which still who did not have access to broadband opted for dial- does not have a well-developed broadband infrastructure, up. With broadband availability increasing, we expect is experiencing an expanding Internet market, much of dial-up subscribers to migrate to broadband. Beginning which is being achieved through dial-up. in 2009, the dial-up universe in China will decline. • In most other countries, the broadband infrastructure • In general, countries with established broadband is already built out or is expanding at a rapid pace. In infrastructures are experiencing decreases in dial-up as those countries, many dial-up subscribers are shifting to most households shift to broadband. In South Korea, broadband. We project the dial-up household universe all Internet access is through broadband connection. to continue to decline in Australia, Hong Kong, Japan, In other countries, however, the telecommunications Malaysia, New Zealand, Singapore, and South Korea. infrastructure is still being built out and broadband is

Internet access spending: wired and mobile | Asia Pacific 135 • For the region as a whole, the number of dial-up dial-up subscribers will total an estimated 96.3 million households will begin falling in 2009 and will decline in 2013. Dial-up penetration will fall to 10.8 percent in at a 6.2 percent compound annual rate, which would 2013 from 16 percent in 2008. be the smallest decrease of any region. The number of

Wired dial-up households (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 3.06 2.31 1.62 1.35 1.00 0.90 0.80 0.70 0.60 0.50 –12.9 China 21.00 34.00 31.00 55.00 85.00 80.00 70.00 60.00 50.00 40.00 –14.0 Hong Kong 0.10 0.09 0.08 0.06 0.03 0.02 0.01 0.01 0.01 0.01 –19.7 India 5.40 5.90 6.95 10.30 10.50 11.00 12.50 14.00 16.00 18.00 11.4 Indonesia 1.05 1.50 2.05 2.65 3.20 3.50 3.80 4.20 4.70 5.20 10.2 Japan 26.50 23.40 19.90 18.00 16.00 14.50 13.50 12.50 11.50 10.50 –8.1 Malaysia 3.09 3.48 3.64 3.59 3.50 3.40 3.30 3.20 3.05 2.85 –4.0 New Zealand 0.75 0.84 0.84 0.53 0.50 0.46 0.43 0.39 0.34 0.28 –10.9 Pakistan 1.79 2.02 2.20 2.85 3.65 4.40 5.00 5.50 6.00 6.25 11.4 Philippines 1.03 1.21 1.65 2.20 2.40 2.70 3.00 3.30 3.60 3.90 10.2 Singapore 0.23 0.15 0.10 0.08 0.07 0.06 0.05 0.04 0.03 0.01 –32.2 South Korea 0.15 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 — Taiwan 0.30 0.25 0.20 0.17 0.15 0.13 0.11 0.10 0.09 0.08 –11.8 Thailand 1.85 2.02 2.09 2.22 2.25 2.28 2.30 2.30 2.28 2.25 0.0 Vietnam 1.20 2.15 3.12 3.74 4.10 4.50 5.00 5.50 6.00 6.50 9.7 Total 67.50 79.32 75.44 102.74 132.35 127.85 119.80 111.74 104.20 96.33 –6.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

136 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired dial-up household penetration (%)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Australia 39.7 29.7 20.7 17.1 12.5 11.2 9.9 8.6 7.3 6.0 China 5.7 9.1 8.1 14.1 21.5 19.9 17.1 14.4 11.8 9.3 Hong Kong 4.4 3.9 3.4 2.5 1.2 0.8 0.4 0.4 0.4 0.4 India 3.0 3.2 3.7 5.3 5.3 5.4 6.0 6.6 7.5 8.3 Indonesia 1.9 2.7 3.7 4.8 5.8 6.3 6.9 7.6 8.5 9.4 Japan 54.1 47.3 39.8 35.6 31.4 28.2 26.0 23.8 21.7 19.6 Malaysia 54.2 60.5 62.8 61.4 59.3 57.1 55.0 52.9 50.0 46.3 New Zealand 50.7 56.4 56.0 35.1 32.9 30.1 27.9 25.2 21.8 17.8 Pakistan 8.2 9.1 9.8 12.6 15.9 18.9 21.2 23.0 24.8 25.5 Philippines 6.2 7.3 9.9 13.1 14.3 16.0 17.8 19.5 21.2 22.9 Singapore 21.5 13.9 9.2 7.3 6.3 5.4 4.4 3.5 2.6 0.9 South Korea 0.9 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Taiwan 4.2 3.4 2.6 2.2 1.9 1.6 1.3 1.2 1.0 0.9 Thailand 10.8 10.9 10.6 10.5 10.0 9.5 9.1 8.6 8.1 7.6 Vietnam 8.0 13.4 18.1 20.4 21.6 23.2 25.5 27.8 30.0 32.2 Total 8.8 10.2 9.5 12.6 16.0 15.2 14.0 12.8 11.8 10.8

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Dial-up access spending rose at annual rates in excess • We expect dial-up spending to begin to decline in 2009, of 20 percent during the past two years, reflecting the mirroring the trend in dial-up households. Spending will jump in the dial-up universe in the PRC. Excluding the drop to $9.5 billion in 2013 from $13.5 billion in 2008, PRC, dial-up spending in 2008 was 4.4 percent lower down 6.8 percent on a compound annual basis. than in 2006.

Internet access spending: wired and mobile | Asia Pacific 137 Wired dial-up access spending† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 921 688 478 394 289 257 227 196 167 139 –13.6 China 1,864 2,989 2,698 4,740 7,252 6,756 5,851 4,964 4,093 3,240 –14.9 Hong Kong 28 25 21 16 8 5 2 2 2 2 –24.2 India 252 275 352 579 633 693 788 882 1,008 1,134 12.4 Indonesia 117 163 217 273 321 342 360 387 419 451 7.0 Japan 5,146 4,484 3,762 3,356 2,941 2,628 2,412 2,201 2,000 1,808 –9.3 Malaysia 222 247 256 250 241 232 222 213 200 185 –5.2 New Zealand 145 159 155 97 90 82 76 68 60 49 –11.4 Pakistan 373 414 442 562 706 834 929 1,001 1,089 1,129 9.8 Philippines 153 178 240 317 343 383 422 460 499 539 9.5 Singapore 78 51 34 27 24 20 17 13 10 4 –30.1 South Korea 49 0 0 0 0 0 0 0 0 0 — Taiwan 74 60 46 38 33 28 24 21 19 17 –12.4 Thailand 317 342 351 369 370 371 371 367 362 355 –0.8 Vietnam 91 161 232 275 298 324 357 388 421 454 8.8 Total 9,830 10,236 9,284 11,293 13,549 12,955 12,058 11,163 10,349 9,506 –6.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

138 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • There were a total of 277 million wired Internet • By 2013, the wired Internet universe will total an households in Asia Pacific in 2008, with the PRC and estimated 360.7 million, representing a 5.4 percent Japan accounting for 206.5 million, or 75 percent of compound annual increase from 2008. The PRC and the total. India will account for 69 percent of that growth. • From 2004 to 2008, the Internet household universe • Internet household penetration will increase from 33.5 expanded at a 21.5 percent compound annual rate. We percent in 2008 to 40.3 percent in 2013. expect growth to drop to mid single digits beginning in 2009. Many countries are approaching saturation, while others, although expanding rapidly, are relatively small.

Wired Internet households (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 4.26 4.61 4.97 5.35 5.75 6.20 6.60 7.00 7.30 7.60 5.7 China 45.00 70.00 75.90 113.70 161.00 172.00 180.00 185.00 190.00 195.00 3.9 Hong Kong 1.40 1.52 1.86 1.96 2.23 2.32 2.41 2.51 2.61 2.66 3.6 India 5.45 6.70 8.50 13.00 15.40 18.75 22.20 26.30 32.00 39.00 20.4 Indonesia 1.12 1.60 2.20 2.88 3.50 3.87 4.25 4.75 5.40 6.20 12.1 Japan 42.50 43.40 44.30 45.60 45.45 46.30 47.50 48.50 49.50 50.50 2.1 Malaysia 3.27 3.86 4.34 4.74 4.95 5.05 5.15 5.30 5.55 5.85 3.4 New Zealand 0.85 0.99 1.24 1.29 1.33 1.35 1.39 1.43 1.47 1.51 2.6 Pakistan 1.79 2.03 2.25 2.94 3.81 4.60 5.30 5.90 6.50 6.85 12.4 Philippines 1.08 1.31 1.85 2.85 3.60 4.10 4.60 5.30 6.10 6.90 13.9 Singapore 0.71 0.75 0.83 0.92 1.00 1.01 1.02 1.04 1.08 1.11 2.1 South Korea 12.65 13.15 13.60 14.10 15.10 15.70 16.20 16.50 16.80 17.10 2.5 Taiwan 3.50 3.85 4.60 4.77 4.90 5.03 5.16 5.30 5.44 5.58 2.6 Thailand 2.15 2.37 2.69 3.02 3.25 3.43 3.65 3.90 4.18 4.55 7.0 Vietnam 1.23 2.28 3.48 4.64 5.75 6.50 7.10 8.10 9.10 10.25 12.3 Total 126.96 158.42 172.61 221.76 277.02 296.21 312.53 326.83 343.03 360.66 5.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | Asia Pacific 139 Wired Internet household penetration (%)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Australia 55.3 59.3 63.4 67.6 72.1 77.0 81.3 85.6 88.6 91.6 China 12.3 18.7 19.9 29.2 40.7 42.7 43.9 44.4 44.8 45.2 Hong Kong 62.2 66.1 79.1 81.7 91.0 92.8 94.5 96.5 98.5 98.5 India 3.0 3.6 4.5 6.7 7.7 9.1 10.6 12.4 15.0 18.1 Indonesia 2.0 2.9 4.0 5.2 6.3 7.0 7.7 8.6 9.7 11.2 Japan 86.7 87.7 88.6 90.3 89.1 89.9 91.3 92.4 93.4 94.4 Malaysia 57.4 67.1 74.8 81.0 83.9 84.9 85.8 87.6 91.0 95.1 New Zealand 57.4 66.4 82.7 85.4 87.5 88.2 90.3 92.3 94.2 96.2 Pakistan 8.2 9.2 10.0 13.0 16.6 19.7 22.5 24.7 26.9 28.0 Philippines 6.5 7.9 11.1 17.0 21.4 24.3 27.2 31.3 35.9 40.5 Singapore 66.4 69.4 76.1 83.6 90.1 90.2 90.3 91.2 93.9 95.7 South Korea 75.3 77.8 80.0 82.5 87.8 90.8 93.1 94.3 95.5 96.6 Taiwan 49.0 52.4 60.9 61.5 61.6 61.7 61.8 62.0 62.2 62.3 Thailand 12.5 12.8 13.6 14.3 14.4 14.4 14.4 14.6 14.9 15.4 Vietnam 8.2 14.2 20.2 25.4 30.3 33.5 36.2 40.9 45.5 50.7 Total 16.6 20.3 21.7 27.3 33.5 35.1 36.4 37.6 38.9 40.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile access • The mobile access market in South Korea also is approaching saturation, and we expect a relatively • Asia Pacific has by far the largest mobile access market modest, 5.1 percent annual increase to $7.6 billion in the world, at $39.3 billion in 2008, constituting 76 in 2013. percent of the global total. • Restructuring in the PRC will make the wireless market • Within Asia Pacific, Japan accounts for 71 percent of more competitive, and the introduction of 3G services the total at $28 billion. South Korea at $5.9 billion and in 2009 will expand the reach of mobile access. Carriers the PRC at $3.8 billion also have significant mobile during the next two years are expected to spend access market. The top three countries represented 96 around $40 billion in the development of 3G networks. percent of the Asia Pacific total and 73 percent of the global total. • We expect the PRC to overtake South Korea in 2011 and rise to $15 billion by 2013, a 31.8 percent • In Japan, nearly 90 million people use their mobile compound annual increase. Although the mobile phones to access the Internet. In the summer of 2008, access subscriber base is large in absolute terms, SoftBank introduced the iPhone from Apple into the only about 7 percent of wireless telephone subscribers Japanese market. When launched in other countries, in the PRC were mobile access subscribers in 2008, the iPhone proved to be very popular, and we expect leaving substantial room for growth. a similar pattern in Japan. With around 80 percent of mobile telephone subscribers already using their mobile • In Indonesia, mobile access was only recently devices to access the Internet, growth will necessarily introduced and quickly exceeded the wired broadband be limited. We expect mobile access spending in Japan subscriber base. There are four high-speed wireless to increase at a 3 percent compound annual rate to networks now in operation in Indonesia. We expect $32.5 billion in 2013. mobile access spending to rise to $2.2 billion in 2013 from $268 million in 2008.

140 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • In Hong Kong, spectrum auctions for broadband build out of advanced wireless networks. By 2013, an wireless access are scheduled for 2009. Apple in late estimated 20.4 percent of the potential market will be 2008 allowed the iPhone 3G to be able to be used mobile access subscribers. by subscribers to any mobile carrier, which should • We project mobile access spending will increase to $62.3 significantly raise its penetration. Previously, the billion in 2013, a 9.7 percent compound annual increase. iPhone was available only through Hutchison. • There are also a number of developments in other Mobile access subscribers as a percent of wireless countries that are enhancing the wireless market. In telephone subscribers in Asia Pacific Australia, Optus is expanding its 3G network to reach 98 percent of the population by the end of 2009 at 25 an estimated cost of $800 million. In Thailand, CAT 20.4 20 Telecom is expanding its 3G network, and during the 17.2 past three years, wireless carriers in Thailand spent 14.7 15 12.8 13.2 $1.8 billion on their wireless networks. 11.3 11.3 12.3 9.6 • Despite high penetration rates in Japan and South 10 Korea, less than 13 percent of wireless telephone 5.9 5 subscribers in all of Asia Pacific were mobile access subscribers in 2008. 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 • We expect relatively modest penetration growth during the next two years, followed by accelerated growth Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates during 2011–13, reflecting the economic cycle and the

Mobile access market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 17 28 33 52 61 67 78 130 212 344 41.3 China 150 346 1,391 2,311 3,764 4,796 5,915 7,892 10,877 14,984 31.8 Hong Kong 38 92 157 211 254 271 305 335 363 422 10.7 India NA NA NA NA NA NA NA NA NA NA — Indonesia NA NA NA 157 268 372 593 1,023 1,651 2,182 52.1 Japan 8,909 17,227 23,110 25,667 28,048 29,023 29,905 30,863 31,825 32,489 3.0 Malaysia NA NA NA 50 123 190 225 232 237 243 14.6 New Zealand 25 46 6 8 9 11 13 22 35 55 43.6 Pakistan NA NA NA NA 51 118 192 332 529 723 69.9 Philippines NA NA NA NA 181 224 299 443 663 967 39.8 Singapore 2 5 8 11 35 29 21 25 268 42 3.7 South Korea 1,912 3,558 4,594 5,291 5,904 6,309 6,574 6,966 7,285 7,567 5.1 Taiwan 26 39 49 55 99 666 731 783 817 862 54.2 Thailand NA 53 169 334 448 558 611 710 857 1,004 17.5 Vietnam NA NA NA NA 20 52 87 159 273 393 81.4 Total 11,079 21,394 29,517 34,147 39,265 42,686 45,549 49,915 55,892 62,277 9.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | Asia Pacific 141 Latin America

The outlook in brief • Wired Internet access spending will increase at a compound annual rate of 11 percent, growing to • Infrastructure upgrades, penetration into rural areas, $14.2 billion in 2013 from $8.4 billion in 2008. and triple-play packages will drive broadband. • Wired dial-up access spending will decrease from $1.8 • The introduction of high-speed mobile wireless billion in 2008 to $851 million in 2013, a 14.1 percent networks will stimulate demand for mobile access. compound annual decline. • Wired broadband access spending will total $13.3 Overview billion in 2013, up 15.2 percent on a compound annual • We expect Internet wired and mobile access spending basis from $6.6 billion in 2008. in Latin America to grow at a 14.3 percent compound • Mobile access will expand from $518 million in 2008 annual rate, from $8.9 billion in 2008 to $17.4 billion to $3.2 billion in 2013, a 44 percent compound annual in 2013. increase from a small base.

Internet access market: wired and mobile by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet access Dial-up 2,142 2,193 2,332 2,194 1,820 1,635 1,452 1,227 1,027 851 Broadband 1,256 2,279 3,461 5,145 6,579 7,276 8,071 9,525 11,392 13,321 Total wired Internet access 3,398 4,472 5,793 7,339 8,399 8,911 9,523 10,752 12,419 14,172 Mobile access — — 126 292 518 673 916 1,449 2,221 3,208 Total 3,398 4,472 5,919 7,631 8,917 9,584 10,439 12,201 14,640 17,380

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access market growth: wired and mobile by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet access Dial-up 6.4 2.4 6.3 –5.9 –17.0 –10.2 –11.2 –15.5 –16.3 –17.1 –14.1 Broadband 112.5 81.4 51.9 48.7 27.9 10.6 10.9 18.0 19.6 16.9 15.2 Total wired Internet access 30.5 31.6 29.5 26.7 14.4 6.1 6.9 12.9 15.5 14.1 11.0 Mobile access — — — 131.7 77.4 29.9 36.1 58.2 53.3 44.4 44.0 Total 30.5 31.6 32.4 28.9 16.9 7.5 8.9 16.9 20.0 18.7 14.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

142 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Internet access spending rose at double-digit annual • Brazil was the largest market in the region, at $4 billion rates during the past five years, fueled by a rapidly in 2008. Mexico at $1.8 billion was next followed by growing broadband market. We expect a dip to single- Argentina at $1.6 billion. digit gains during the next two years as the economic • Each country will average double-digit compound environment weakens, and then a return to double-digit annual increases during the next five years. annual growth during 2011–13 as the economy recovers.

Internet access market: wired and mobile by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 791 985 1,198 1,476 1,632 1,838 2,025 2,305 2,686 3,050 13.3 Brazil 1,371 1,956 2,755 3,522 4,004 4,211 4,434 5,155 6,144 7,217 12.5 Chile 186 194 233 284 326 346 380 438 522 616 13.6 Colombia 263 296 413 696 970 1,124 1,324 1,679 2,058 2,523 21.1 Mexico 735 966 1,219 1,517 1,802 1,855 2,027 2,333 2,865 3,508 14.3 Venezuela 52 75 101 136 183 210 249 291 365 466 20.6 Total 3,398 4,472 5,919 7,631 8,917 9,584 10,439 12,201 14,640 17,380 14.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Infrastructure upgrades by cable operators is driving broadband in areas reached by cable modems. Fueled by new, triple-play • Each country is initiating programs to expand its options, we expect broadband in Mexico to rise to 11 broadband market. million subscribers in 2013, growing by 15.9 percent • In Brazil, the government is undertaking a program compounded annually from 5.25 million in 2008. to provide broadband for schools and municipal • In Argentina, Multicanal and CableVisión are investing councils. Satellite technology will be used to provide more than $300 million in a fiber infrastructure to access points. Telefônica is expanding its broadband offer triple-play packages. CABASE is also planning network, investing around $250 million in DSL and to deploy a fiber network to provide broadband in another $60 million in its fiber infrastructure. Embratel competition with Telefónica de Argentina and Telecom is providing wireless broadband access across Argentina outside of Buenos Aires. Telefónica de the country as well, mostly for schools and public Argentina spent around $100 million on its broadband Internet centers. Additionally, BPL Global is deploying infrastructure in 2008. We expect Argentina’s broadband over power line in conjunction with COPEL broadband market to nearly double to 5.1 million in Telecomunicações in Paraná. We project the broadband 2013 from 2.65 million in 2008, a 14 percent compound market in Brazil to more than double to 20 million annual increase. in 2013 from 8.7 million in 2008, an 18.1 percent compound annual increase. • In Colombia, cable is the principal broadband technology, although DSL is gaining ground. Telefónica Colombia • In Mexico, WiMAX is being used to extend broadband expanded its DSL network to each of the major cities. to areas not currently reached, because it is around Telmex acquired five cable companies in Colombia and 80 percent less expensive to deploy than wired is using that platform to create an infrastructure to launch technologies. The launch of triple-play services a triple-play service that should stimulate the broadband

Internet access spending: wired and mobile | Latin America 143 market. The broadband subscriber base in Colombia will to go into operation in 2010. We expect Venezuela to expand at a 21 percent compound annual rate from 1.35 increase to 2 million broadband subscribers in 2013, million in 2008 to 3.5 million in 2013. twice the total in 2008. • In Chile, the government is deploying broadband in less- • For the region as a whole, we project the broadband developed areas and has a program to offer broadband household base to grow at a 16.7 percent compound in schools and in public Internet places. We look for annual rate to 43.85 million in 2013 from 20.25 million broadband to rise to 2.25 million households from 1.3 in 2008. million, an 11.6 percent increase compounded annually. • Wired broadband household penetration will increase • In Venezuela, Movistar is extending its fiber network to to 36.7 percent by 2013. Chile, the broadband leader in provide extra bandwidth for broadband. Additionally, 2008, with a penetration rate of 31.7 percent, will rise Gran Caribe Telecommunications is planning an to 53.6 percent in 2013, the only country in the region undersea cable to link Venezuela with Cuba, which will where a majority of households will have a broadband significantly increase capacity. The cable is expected connection.

Broadband households (millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 0.40 0.74 1.25 2.09 2.65 3.10 3.50 4.00 4.60 5.10 14.0 Brazil 2.06 3.77 5.15 7.01 8.70 10.00 11.50 14.00 17.00 20.00 18.1 Chile 0.42 0.59 0.84 1.09 1.30 1.40 1.55 1.75 2.00 2.25 11.6 Colombia 0.10 0.22 0.47 0.92 1.35 1.60 1.90 2.40 2.90 3.50 21.0 Mexico 0.74 1.49 2.50 3.82 5.25 6.00 6.90 8.00 9.50 11.00 15.9 Venezuela 0.16 0.28 0.45 0.70 1.00 1.15 1.35 1.50 1.70 2.00 14.9 Total 3.88 7.09 10.66 15.63 20.25 23.25 26.70 31.65 37.70 43.85 16.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Broadband household penetration (%)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Argentina 4.1 7.6 12.6 20.9 26.2 30.4 34.0 38.5 43.8 48.1 Brazil 4.1 7.4 9.9 13.2 16.1 18.2 20.5 24.6 29.3 33.9 Chile 10.4 14.6 20.7 26.7 31.7 34.0 37.4 42.1 47.8 53.6 Colombia 1.1 2.4 5.2 10.0 14.5 17.0 20.0 25.0 29.9 35.7 Mexico 3.1 6.1 10.1 15.1 20.3 22.8 25.7 29.3 33.0 36.3 Venezuela 2.9 5.1 8.1 12.5 17.9 20.5 23.9 26.5 29.9 35.1 Total 3.8 6.8 10.1 14.6 18.6 21.0 23.8 27.7 32.3 36.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

144 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Through 2007, dial-up was the leading means of Internet households in Latin America (millions) accessing the Internet. Beginning in 2008, the surging broadband market began to cannibalize dial-up. Dial-up 50 fell 9.9 percent in 2008 and was overtaken by broadband. • We expect smaller annual decreases during the next 40 two years as the migration to broadband slows because 30 of the weak economy. We then look for accelerating Dial-Up declines in dial-up during 2011–13 as the pace of 20 migration to broadband picks up. By 2013, dial-up will Broadband account for only 17 percent of Internet households. 10 • The number of dial-up households will decrease at 0 an 11.5 percent compound annual rate to 8.7 million 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 in 2013 from 16.1 million in 2008. Dial-up household penetration for the region as a whole will drop to 7.3 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates percent in 2013 from 14.8 percent in 2008.

Dial-up households (millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1.49 1.50 1.32 0.82 0.40 0.30 0.20 0.10 0.05 0.03 –40.4 Brazil 8.10 9.49 13.11 15.00 14.25 13.75 13.00 11.50 10.00 8.50 –9.8 Chile 0.41 0.25 0.14 0.11 0.08 0.06 0.04 0.02 0.01 0.01 –34.0 Colombia 0.68 0.51 0.31 0.22 0.15 0.10 0.07 0.05 0.04 0.03 –27.5 Mexico 2.08 2.05 1.84 1.50 1.05 0.75 0.50 0.35 0.20 0.10 –37.5 Venezuela 0.23 0.27 0.25 0.19 0.14 0.12 0.08 0.05 0.04 0.03 –26.5 Total 12.99 14.07 16.97 17.84 16.07 15.08 13.89 12.07 10.34 8.70 –11.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Dial-up household penetration (%)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Argentina 15.4 15.3 13.3 8.2 4.0 2.9 1.9 1.0 0.5 0.3 Brazil 16.2 18.6 25.2 28.3 26.4 25.0 23.2 20.2 17.2 14.4 Chile 10.2 6.2 3.4 2.7 2.0 1.5 1.0 0.5 0.2 0.2 Colombia 7.6 5.7 3.4 2.4 1.6 1.1 0.7 0.5 0.4 0.3 Mexico 8.7 8.4 7.4 5.9 4.1 2.9 1.9 1.3 0.7 0.3 Venezuela 4.2 4.9 4.5 3.4 2.5 2.1 1.4 0.9 0.7 0.5 Total 12.7 13.6 16.1 16.6 14.8 13.6 12.4 10.6 8.8 7.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet access spending: wired and mobile | Latin America 145 • There were 36.3 million wired Internet households in of expansion and which will see Internet households Latin America in 2008, giving a penetration rate of increase at an annual rate of only 4.4 percent—each 33.4 percent. We project the total number of Internet country will record double-digit annual increases. households will increase to 52.6 million by 2013, a 7.7 Overall penetration across the region will rise to percent compound annual gain. Except for Brazil— 43.9 percent. which is focusing on wireless access for its next phase

Internet households (millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1.89 2.24 2.57 2.91 3.05 3.40 3.70 4.10 4.65 5.13 11.0 Brazil 10.16 13.26 18.26 22.01 22.95 23.75 24.50 25.50 27.00 28.50 4.4 Chile 0.83 0.84 0.98 1.20 1.38 1.46 1.59 1.77 2.01 2.26 10.4 Colombia 0.78 0.73 0.78 1.14 1.50 1.70 1.97 2.45 2.94 3.53 18.7 Mexico 2.82 3.54 4.34 5.32 6.30 6.75 7.40 8.35 9.70 11.10 12.0 Venezuela 0.39 0.55 0.70 0.89 1.14 1.27 1.43 1.55 1.74 2.03 12.2 Total 16.87 21.16 27.63 33.47 36.32 38.33 40.59 43.72 48.04 52.55 7.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet household penetration (%)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Argentina 19.5 22.9 26.0 29.1 30.2 33.3 35.9 39.4 44.3 48.4 Brazil 20.3 26.0 35.1 41.5 42.5 43.2 43.8 44.7 46.6 48.3 Chile 20.6 20.8 24.1 29.4 33.7 35.4 38.4 42.5 48.1 53.8 Colombia 8.8 8.1 8.6 12.4 16.1 18.1 20.7 25.5 30.3 36.0 Mexico 11.8 14.6 17.5 21.0 24.4 25.7 27.6 30.6 33.7 36.6 Venezuela 7.1 9.9 12.6 15.9 20.4 22.6 25.4 27.4 30.6 35.6 Total 16.5 20.4 26.2 31.2 33.4 34.6 36.1 38.3 41.1 43.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet access spending • Mexico will reach $2.8 billion in 2013 from $1.5 billion in 2008, a 13.2 percent compound annual gain. Argentina • Broadband access spending will increase from $6.6 will rise from $1.5 billion to $2.8 billion, growing at a billion in 2008 to $13.3 billion in 2013, growing at a 15.2 13.5 percent compound annual rate. Colombia will be percent compound annual rate. the only other country to exceed the $1-billion threshold • Brazil, the largest broadband access spending market in 2013, rising to $2.2 billion from $912 million in 2008. in 2008, at $2.2 billion, will grow to $4.7 billion in 2013, a 16.2 percent compound annual increase, fueled by 18 percent annual growth in its broadband household base.

146 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Broadband access spending† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 227 417 700 1,163 1,465 1,690 1,881 2,150 2,481 2,761 13.5 Brazil 578 1,033 1,378 1,830 2,214 2,415 2,627 3,198 3,938 4,699 16.2 Chile 111 149 207 262 305 321 346 389 449 511 10.9 Colombia 72 153 323 627 912 1,061 1,237 1,549 1,854 2,216 19.4 Mexico 242 482 781 1,152 1,527 1,616 1,784 2,026 2,426 2,844 13.2 Venezuela 26 45 72 111 156 173 196 213 244 290 13.2 Total 1,256 2,279 3,461 5,145 6,579 7,276 8,071 9,525 11,392 13,321 15.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Dial-up access spending began to decline in 2007 • For the forecast period as a whole, we expect dial-up and fell by 17 percent in 2008. We expect decreases spending to drop at a 14.1 percent compound annual averaging 10.7 percent compounded annually during rate from $1.8 billion in 2008 to $851 million in 2013. the next two years following by compound annual declines of 16.3 percent during 2011–13.

Dial-up access spending† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 564 568 495 304 147 109 72 36 18 11 –40.5 Brazil 793 923 1,266 1,439 1,358 1,301 1,230 1,088 946 804 –10.0 Chile 75 45 25 19 14 10 7 3 2 2 –32.2 Colombia 191 143 87 61 42 28 19 14 11 8 –28.2 Mexico 493 484 432 351 244 174 116 81 46 23 –37.6 Venezuela 26 30 27 20 15 13 8 5 4 3 –27.5 Total 2,142 2,193 2,332 2,194 1,820 1,635 1,452 1,227 1,027 851 –14.1

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile access • In Brazil, the government auctioned 3G licenses in late 2007, and 3G services began to be launched in 2008. • Latin America is beginning to develop a wireless NII Holdings is spending $100 million to expand its infrastructure capable of supporting mobile Internet wireless network and to upgrade to 3G. access. • In Colombia, Movistar and Colombia Móvil launched • Brazil is by far the largest market in Latin America, at $432 3G in 2008, and Telcel in Mexico expanded its 3G million. Mexico was a distant second at only $31 million. service area.

Internet access spending: wired and mobile | Latin America 147 • In Argentina, Telecom Argentina spent $270 million Mobile access subscribers as a percent of wireless in 2008 to upgrade its wireless network to 3G and to telephone subscribers in Latin America expand coverage. 12 • We expect these and other efforts to expand high- 10 speed wireless in Latin America. As high-speed 9.1 services become available, they will attract people who 8 want to access the Internet from their wireless phones. 6.3 6 • In 2008, only 1.5 percent of wireless telephone 4.1 4 subscribers were mobile access subscribers in Latin 2.6 2.0 America, nearly 80 percent of whom were in Brazil. 2 1.5 0.5 0.9 • We expect only modest penetration growth during 0 the next two years as the weak economy and limited 2006 2007 2008 2009 2010 2011 2012 2013 infrastructure restrain growth. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates • We then look for penetration to accelerate as wireless networks get upgraded and as economic conditions • Mobile access spending will increase from $518 million improve. By 2013, we expect that around 9 percent of in 2008 to $3.2 billion in 2013, up 44 percent on a wireless telephone subscribers will use their handsets compound annual basis. to access the Internet.

Mobile access market† (US$ millions) 2009–13 Latin America 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 3 9 20 39 72 119 187 278 69.3 Brazil 111 253 432 495 577 869 1,260 1,714 31.7 Chile 1 3 7 15 27 46 71 103 71.2 Colombia 3 8 16 35 68 116 193 299 79.6 Mexico 6 14 31 65 127 226 393 641 83.3 Venezuela 2 5 12 24 45 73 117 173 70.5 Total 126 292 518 673 916 1,449 2,221 3,208 44.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

148 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet advertising: wired and mobile

150 Summary

151 North America

159 Europe, Middle East, Africa (EMEA)

166 Asia Pacific

172 Latin America Summary

Internet advertising: wired and mobile Principal drivers Wired Internet advertising and mobile Internet advertising The economic downturn will cut into growth during the next consist of spending by online advertisers on display, two years, leading to decreases in 2009 in North America classified, paid search, video, and other online formats and and EMEA and slower growth in Asia Pacific and Latin of spending on advertising delivered to mobile phones via America. Classified and display advertising will be hurt text messages, display ads, video ads, local search, and most by the recession, while search and video advertising other formats designed for mobile handset screens. will hold up better. The anticipated economic recovery will lead to a return to double-digit growth during 2012–13. In addition to the economy, broadband household growth Market size and growth will be the principal driver of wired Internet advertising. We project spending in North America, EMEA (Europe, In the mobile market, wireless network upgrades, growth Middle East, Africa), Asia Pacific, and Latin America in number of mobile access subscribers, increasing will increase from $59.9 billion in 2008 to $86.7 billion penetration of Internet-enabled smart phones, and the in 2013, a 7.7 percent compound annual growth rate. expansion of mobile television will drive mobile advertising. Spending in North America will total $35.9 billion in 2013, up from $26.3 billion in 2008, averaging 6.4 percent growth compounded annually. EMEA will reach $28.1 billion in 2013, a 6.6 percent compound annual increase from $20.4 billion in 2008. Asia Pacific will average 11.2 percent compounded annually from $12.5 billion in 2008 to $21.2 billion in 2013. Latin America, the smallest region, at only $660 million in 2008, will expand at a 17.4 percent compound annual rate to $1.5 billion in 2013. Global wired Internet advertising will decline by 2.5 percent in 2009 and stabilize in 2010 with a 1.9 percent advance. Growth will then accelerate during the next three years to $77.5 billion in 2013 from $56.1 billion in 2008, a 6.7 percent compound annual increase. Mobile advertising will rise to $9.2 billion in 2013 from $3.8 billion in 2008, a 19.7 percent compound annual increase.

Data for the global Internet advertising: wired and mobile market by region and for the global Internet advertising: wired and mobile market by component can be found within the Executive Summary on page 36.

150 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief Overview • Steep declines in display and classified will offset • We project Internet and mobile advertising to grow at continued growth in search, leading to a decrease in a 6.4 percent compound annual rate to $35.9 billion in wired advertising in 2009. 2013 from $26.3 billion in 2008. • Growth in the mobile access subscriber base will drive • Wired Internet advertising will expand by a projected mobile advertising. 5.8 percent compounded annually to $32.9 billion. • Mobile advertising will double from $1.5 billion in 2008 to $3 billion in 2013, a 15.3 percent compound annual advance.

Internet advertising market: wired and mobile by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet advertising 9,967 13,069 17,723 22,370 24,808 23,833 24,086 25,737 28,871 32,905 Mobile advertising 102 195 426 745 1,476 1,626 1,758 1,960 2,325 3,013 Total 10,069 13,264 18,149 23,115 26,284 25,459 25,844 27,697 31,196 35,918

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising market growth: wired and mobile by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet advertising 33.1 31.1 35.6 26.2 10.9 –3.9 1.1 6.9 12.2 14.0 5.8 Mobile advertising 175.7 91.2 118.5 74.9 98.1 10.2 8.1 11.5 18.6 29.6 15.3 Total 33.8 31.7 36.8 27.4 13.7 –3.1 1.5 7.2 12.6 15.1 6.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• We expect Canada to be the faster-growing country • The US market for wired and mobile Internet advertising during the next five years, with an 8.6 percent will decline in 2009 and then will rebound, returning to compound annual increase to $2.1 billion from $1.4 double-digit annual growth during 2012–13. For the billion in 2008. Canada’s Internet advertising market five-year forecast period as a whole, we project that the is at an earlier stage of development, and as a result market for wired and mobile Internet advertising in the Canada has grown faster than the United States during United States will expand at a 6.3 percent compound the past five years. We expect that pattern to continue. annual rate to $33.8 billion in 2013 from $24.9 billion in 2008.

Internet advertising: wired and mobile | North America 151 Internet advertising market: wired and mobile by country† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 9,728 12,737 17,296 21,936 24,893 24,107 24,460 26,228 29,465 33,814 Canada 341 527 853 1,179 1,391 1,352 1,384 1,469 1,731 2,104 Total 10,069 13,264 18,149 23,115 26,284 25,459 25,844 27,697 31,196 35,918

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising market growth: wired and mobile by country (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 33.2 30.9 35.8 26.8 13.5 –3.2 1.5 7.2 12.3 14.8 6.3 Canada 53.6 54.5 61.9 38.2 18.0 –2.8 2.4 6.1 17.8 21.5 8.6 Total 33.8 31.7 36.8 27.4 13.7 –3.1 1.5 7.2 12.6 15.1 6.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet advertising • The Internet also has become an entertainment center where people play video games, download music • The wired Internet advertising market grew at double- and movies, and watch television. People spend time digit annual rates since the early part of the decade at entertainment sites, and such sites are attracting through 2008. Growth was fueled by a surging broad- advertising. Online television shows, which include band market, which expanded the audience for online embedded ads, are becoming popular and are advertising, and by an expanding economy. The providing an additional outlet for advertisers. Internet was one of the few media whose audience was growing, enabling it to gain share from other • The economic stimulus package in the United States media, particularly the print media. includes funds for investment in the broadband infrastructure, which will enable broadband to penetrate • Over the long run, continued broadband growth rural areas, further expanding the audience and will drive Internet advertising. In the US, we expect opening up additional opportunities for advertisers. a 40 percent increase in the number of broadband households during the next five years and a 36 percent • For these reasons, we believe the long-run outlook for increase in Canada. Consequently, the Internet audience online advertising is bright. will continue to expand and will continue to attract • In the near term, however, the Internet will be affected advertising. There has been a shift in ad spending from by the economy. Internet advertising weakened in traditional media to the Internet during the past five 2008although it remained much stronger than other years, and we expect that trend to continue. advertising media. In the United States, growth fell to • The Internet also is a shopping environment. Online 10.6 percent in 2008 from 25.6 percent in 2007. Canada commerce has been growing in conjunction with also continued to expand by double digits in 2008, but the broadband universe. Advertisers want to reach the increase was less than half the percentage gain consumers when they are buying, and the Internet in 2007. provides a means to do that.

152 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Ad rates for display advertising plunged in the United the anticipated recovery in display advertising in the States in the fourth quarter of 2008 and fell in Canada United States in 2011–13 will not be sufficient to offset as well. Display ads online are static and similar to the near-term declines, and display advertising of $4.4 display ads in print. The do not take advantage of the billion in 2013 will be 2 percent lower on a compound search capabilities of the Internet and were affected annual basis from $4.8 billion in 2008. similarly to the print market. Although display ads can • Display advertising constitutes a larger component of be sold on a performance basis and can target specific the market in Canada—33.2 percent—compared with audiences, those features were not enough to prevent 19.3 percent in the United States. We also look for a slowdown. display advertising to decline in Canada during the next • Display ad spending in the United States rose by 8 two years, although at a slower rate than in the US, percent in 2008, well below the 19.9 percent increase as display is holding up better in Canada. There has in 2007. We expect the fourth-quarter weakness to not been as pronounced an increase in online display continue in 2009 and project a full-year decline of 16.8 inventory in Canada as in the US, and online display percent followed by an additional 6.3 percent drop in ad rates have not fallen as sharply. Consequently, we 2010. With the economy expected to begin to recover expect a smaller decline in Canada during the next two in 2011 and to post solid gains in 2012–13, we expect years than in the US. Thereafter, display will rebound display advertising to stabilize and then post mid- to and will return to double-digit growth during 2012–13, high-single-digit spending gains, benefiting from the expanding at a 4.7 percent compound annual rate for overall expansion in advertising. Although projected to the forecast period as a whole to $581 million in 2013. expand, we look for video, classifieds, and search to • Overall display advertising to North America will fall at be the most attractive formats for advertisers seeking a 1.3 percent compound annual rate from $5.3 billion in an online presence, because these formats tap into 2008 to $4.9 billion in 2013. the fastest growth areas of the Internet. Consequently,

Wired Internet display advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 1,830 2,510 3,715 4,453 4,810 4,000 3,750 3,800 4,025 4,350 Canada 154 216 294 405 462 427 425 436 492 581 Total 1,984 2,726 4,009 4,858 5,272 4,427 4,175 4,236 4,517 4,931

†At average 2008 exchange rates. Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet display advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 20.0 37.2 48.0 19.9 8.0 –16.8 –6.3 1.3 5.9 8.1 –2.0 Canada 31.6 40.3 36.1 37.8 14.1 –7.6 –0.5 2.6 12.8 18.1 4.7 Total 20.8 37.4 47.1 21.2 8.5 –16.0 –5.7 1.5 6.6 9.2 –1.3

Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising: wired and mobile | North America 153 • Classified advertising is typically one of the most Online classified advertising in the United States will cyclically sensitive of the advertising categories. The total an estimated $3.9 billion in 2013 from $3.3 billion economic downturn is cutting into classified spending in 2008, a 3.5 percent increase compounded annually. in all media. Although classified advertising has been • Online classified advertising in Canada slowed to a 14 moving to the Internet, which has contributed to overall percent increase in 2008. We look for this category to Internet advertising growth, it too will be affected by the decline during the next two years and then to rebound economic downturn. strongly with double-digit growth during 2012–13. • Online classified advertising in the United States fell by Online classified advertising in Canada will total $441 3.3 percent in 2008, and we anticipate declines during million in 2013 from $326 million in 2008, a 6.2 percent the next two years. We then look for a return to double- increase compounded annually. digit gains during 2012–13 as the economy returns to a • Online classified advertising for the region as a whole steady growth path. Classified advertising is typically a will increase to $4.3 billion in 2013 from $3.6 billion in volatile category during periods of economic transition, 2008, a 3.8 percent gain compounded annually. and we expect large swings during the next five years.

Wired Internet classified advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 1,730 2,130 3,040 3,393 3,280 2,700 2,600 2,740 3,300 3,900 Canada 80 116 209 286 326 302 294 309 365 441 Total 1,810 2,246 3,249 3,679 3,606 3,002 2,894 3,049 3,665 4,341

†At average 2008 exchange rates. Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet classified advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 40.1 23.1 42.7 11.6 –3.3 –17.7 –3.7 5.4 20.4 18.2 3.5 Canada 142.4 45.0 80.2 36.8 14.0 –7.4 –2.6 5.1 18.1 20.8 6.2 Total 42.7 24.1 44.7 13.2 –2.0 –16.7 –3.6 5.4 20.2 18.4 3.8

Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

154 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Search advertising is the largest online category in both • Although we expect the recession to cut into spending the United States and Canada, constituting 45 percent on search advertising, we look for this category to of total wired Internet advertising in the United States in continue to expand. In both countries, we project a drop 2008 and 40 percent in Canada. to single-digit gains during the next two years followed by a return to double-digit growth during 2011–13 in the • Search enables advertisers to direct their messages United States and during 2012–13 in Canada. to the identified interests of users as reflected by the searches users initiate. No other media can provide • Spending on search advertising will increase at a 9.7 a comparable platform. Despite the impact of the percent compound annual rate in the United States to economy in 2008, search advertising rose by 20.2 $16.6 billion in 2013. Search advertising in Canada will percent in North America. grow by 10.2 percent compounded annually to $872 million. The overall market will total $17.5 billion in 2013, up 9.7 percent on a compound annual basis.

Wired Internet search advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 3,850 5,142 6,750 8,695 10,450 10,970 11,525 12,675 14,385 16,585 Canada 102 185 322 448 537 545 575 613 726 872 Total 3,952 5,327 7,072 9,143 10,987 11,515 12,100 13,288 15,111 17,457

†At average 2008 exchange rates. Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet search advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 51.4 33.6 31.3 28.8 20.2 5.0 5.1 10.0 13.5 15.3 9.7 Canada 45.7 81.4 74.1 39.1 19.9 1.5 5.5 6.6 18.4 20.1 10.2 Total 51.2 34.8 32.8 29.3 20.2 4.8 5.1 9.8 13.7 15.5 9.7

Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Online video advertising also is expanding. Rising As with search, we expect video advertising to hold up broadband penetration and increased broadband during the economic downturn and to accelerate when speeds are making video advertising a feasible option. the economy recovers. • Video streaming of TV shows that contain video ads • We project video advertising spend in North America are facilitating video advertising, as is the popularity of to grow at an 8.4 percent compound annual rate to video sites such as Hulu, Joost, Veoh, and YouTube, as $3.5 billion in 2013 from $2.4 billion in 2008. The US well as television network Web-video sites. will average 8.3 percent compounded annually, and Canada will advance at a 23 percent compound annual • Video advertising rose by 10.8 percent in the United rate from a very small base. States in 2008 and doubled from a tiny base in Canada.

Internet advertising: wired and mobile | North America 155 Wired Internet rich media/video advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 960 1,000 1,010 2,120 2,350 2,450 2,575 2,765 3,070 3,500 Canada NA NA NA 8 16 18 20 24 32 45 Total 960 1,000 1,010 2,128 2,366 2,468 2,595 2,789 3,102 3,545

†At average 2008 exchange rates. Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet rich media/video advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 46.6 4.2 1.0 109.9 10.8 4.3 5.1 7.4 11.0 14.0 8.3 Canada — — — — 100.0 12.5 11.1 20.0 33.3 40.6 23.0 Total 46.6 4.2 1.0 110.7 11.2 4.3 5.1 7.5 11.2 14.3 8.4

Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• We expect declines in display and classified to offset • Including e-mail, sponsorships, lead generation, and gains in search and video in 2009, with the result that other categories, wired online advertising for the overall overall wired Internet advertising will decrease. forecast period will advance at a 5.8 percent compound annual rate to $32.9 billion in 2013 from $24.8 billion in • We expect a 3.9 percent decline in 2009, with the 2008. The United States will increase at a 5.7 percent US falling by 4 percent and Canada by 3.5 percent. rate compounded annually to $30.9 billion, and Canada Spending will edge up in 2010 as gains in search and will grow by 7.7 percent on a compound annual basis video offset declines in display and classified. In both to $2 billion. countries we expect mid-single-digit increases in 2011 and double-digit growth in 2012–13.

Wired Internet advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 9,626 12,542 16,879 21,206 23,448 22,520 22,750 24,330 27,230 30,935 Canada 341 527 844 1,164 1,360 1,313 1,336 1,407 1,641 1,970 Total 9,967 13,069 17,723 22,370 24,808 23,833 24,086 25,737 28,871 32,905

†At average 2008 exchange rates. Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

156 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired Internet advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 32.5 30.3 34.6 25.6 10.6 –4.0 1.0 6.9 11.9 13.6 5.7 Canada 53.6 54.5 60.2 37.9 16.8 –3.5 1.8 5.3 16.6 20.0 7.7 Total 33.1 31.1 35.6 26.2 10.9 –3.9 1.1 6.9 12.2 14.0 5.8

Sources: Interactive Advertising Bureau, Interactive Advertising Bureau of Canada, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile advertising Mobile Internet subscribers in North America (millions) • Advertising delivered to mobile phones has grown 120 United States Canada rapidly in recent years, with spending virtually doubling 100 in 2008. Growth is being fueled by the mobile carriers’ adoption of nonintrusive, consumer-friendly advertising 80 formats; by an increase in the number of people 60 accessing the Internet through mobile phones; and by the increasing penetration of handsets that can 40 accommodate video advertising. 20 • There were 10 million mobile Internet subscribers in 0 North America in 2008, up from 6 million in 2007. We 2005 2006 2007 2008 2009 2010 2011 2012 2013 expect that figure to double to 20 million in 2009 and to increase to 30 million in 2010. The popularity of the Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates new generation of smart phones—most notably the iPhone—is contributing to mobile access growth. • Text message advertising is still the dominant format, with banner ads the next-most-popular platform. Some • Smart phones make it easier to navigate the Internet, providers offer wireless telephone subscribers the option and improvements in the wireless infrastructure are of accepting advertising in return for free text messaging. producing faster download speeds. Smart phones also provide a better platform for mobile ads because of • Currently, only about a third of mobile sites sell adver- their larger screens compared with standard handsets. tising to third parties. We expect that percentage to The market also will benefit from development of increase as mobile carriers and consumers become mobile advertising standards. more comfortable with mobile advertising formats and opt-in consumer policies and as traffic to those sites • We expect that when the economy begins to pick up, expands. We also expect that the video ad will become and as penetration of smart phones increases, the a more popular format as the number of people capable mobile access market will accelerate. We estimate there of accessing video ads increases. Click-through rates will be 99 million mobile access subscribers in North for mobile video ads are much higher than for mobile America in 2013, with 8 million of that total in Canada. display ads.

Internet advertising: wired and mobile | North America 157 • Mobile television will also help drive mobile advertising. • In Canada, the mobile advertising market is just getting Mobile television subscription revenues are unlikely started. We expect that consumers would welcome a to be large enough to offset incremental content trade-off of advertising for lower-cost plans. We look for production and distribution costs, so providers will be annual increases of less than 30 percent during the next looking to advertising to turn profits. This will lead to three years, representing a slower percentage increase a more concerted effort to sell mobile television ads. compared with 2007–08, followed by annual gains Although ads need to be shorter than on traditional of more than 45 percent in 2012 and 2013. By 2013, television, and ad pods are not likely to be tolerated, mobile advertising will total an estimated $134 million, a growth in the mobile television market will propel overall 34 percent compound annual increase from $31 million mobile advertising. in 2008. • The economy will have an impact on the mobile adver- • The overall mobile advertising market will expand at a tising market. We expect growth in the United States to 15.3 percent compound annual rate, from $1.5 billion in drop to single digits during the next two years and then 2008 to $3 billion in 2013. to revert to double-digit gains. Mobile advertising will rise from $1.4 billion in 2008 to $2.9 billion in 2013, a 14.8 percent compound annual increase.

Mobile Internet advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 102 195 417 730 1,445 1,587 1,710 1,898 2,235 2,879 Canada — — 9 15 31 39 48 62 90 134 Total 102 195 426 745 1,476 1,626 1,758 1,960 2,325 3,013

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile Internet advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 175.7 91.2 113.8 75.1 97.9 9.8 7.8 11.0 17.8 28.8 14.8 Canada — — — 66.7 106.7 25.8 23.1 29.2 45.2 48.9 34.0 Total 175.7 91.2 118.5 74.9 98.1 10.2 8.1 11.5 18.6 29.6 15.3

Sources: Interactive Advertising Bureau, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

158 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Europe, Middle East, Africa (EMEA)

The outlook in brief Overview • Slumping economies will lead to an overall decrease in • Internet and mobile advertising in EMEA will grow by wired Internet advertising in 2009 and weak growth in 6.6 percent compounded annually to $28.1 billion in 2010, with a return to double-digit gains expected for 2013 from $20.4 billion in 2008. 2012–13 when economic conditions improve. • Wired online advertising will advance at a 5.4 percent • Mobile access growth, mobile TV, and wireless network compound annual rate to $25.2 billion in 2013 from upgrades will propel mobile advertising. $19.4 billion in 2008. • Mobile advertising will expand from $1.1 billion in 2008 to $2.9 billion in 2013, a 22.3 percent compound annual increase.

Internet advertising market: wired and mobile by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet advertising 4,648 7,370 12,107 17,115 19,365 18,431 18,626 20,123 22,400 25,205 Mobile advertising 112 215 417 684 1,062 1,102 1,303 1,706 2,237 2,901 Total 4,760 7,585 12,524 17,799 20,427 19,533 19,929 21,829 24,637 28,106

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising market growth: wired and mobile by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet advertising 59.1 58.6 64.3 41.4 13.1 –4.8 1.1 8.0 11.3 12.5 5.4 Mobile advertising 103.6 92.0 94.0 64.0 55.3 3.8 18.2 30.9 31.1 29.7 22.3 Total 59.9 59.3 65.1 42.1 14.8 –4.4 2.0 9.5 12.9 14.1 6.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Western Europe will decline by 5.4 percent in 2009 and mobile Internet advertising in EMEA. Germany was hold steady in 2010 with a 1.4 percent advance. The second, at $3.9 billion, followed by France at $1.7 billion, market will then recover and expand at an 11.1 percent the Netherlands at $1.2 billion, and Italy at $1.1 billion. compound annual rate to $24.6 billion in 2013, which • While we do not expect decreases in 2009 in Central will be 5.6 percent higher on a compound annual basis and Eastern Europe and Middle East/Africa, we do than 2008’s $18.7 billion. anticipate slow growth. Central and Eastern Europe will • Central and Eastern Europe will be the fastest-growing expand at high-single-digit rates during the next two area in EMEA, with a 15.8 percent compound annual years, and Middle East/Africa will average mid-single- increase to $2.9 billion from $1.4 billion in 2008. digit gains. • Middle East/Africa will expand at a 13.5 percent rate • Central and Eastern Europe and Middle East/Africa compounded annually from $314 million in 2008 to will return to double-digit annual gains beginning in $591 million in 2013. 2011, while Western Europe will improve to double-digit growth in 2012. • The United Kingdom was the leading territory in 2008, at $6.5 billion, representing 32 percent of all wired and

Internet advertising: wired and mobile | EMEA 159 Internet advertising market: wired and mobile by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 52 67 149 214 247 235 243 261 289 327 5.8 Belgium 45 113 275 381 440 423 439 477 531 612 6.8 Denmark 97 129 324 462 518 494 495 548 615 700 6.2 Finland 60 105 137 183 234 225 230 247 275 310 5.8 France 518 813 1,105 1,519 1,699 1,629 1,605 1,731 1,932 2,203 5.3 Germany 825 1,357 2,653 3,806 3,937 3,685 3,617 3,889 4,266 4,772 3.9 Greece 15 18 24 46 54 53 53 58 66 76 7.1 Ireland 23 42 61 106 111 106 108 119 133 155 6.9 Italy 420 513 727 1,004 1,135 1,085 1,127 1,238 1,417 1,631 7.5 Netherlands 255 378 854 1,109 1,188 1,140 1,159 1,247 1,393 1,591 6.0 Norway 158 261 394 539 627 646 674 722 800 910 7.7 Portugal 9 10 15 27 36 40 41 45 54 66 12.9 Spain 141 244 471 735 825 806 822 904 1,014 1,143 6.7 Sweden 213 321 484 654 798 835 881 959 1,068 1,199 8.5 Switzerland 106 167 229 333 394 376 385 421 467 525 5.9 United Kingdom 1,549 2,584 3,840 5,374 6,490 5,937 6,083 6,626 7,475 8,426 5.4 Western Europe total 4,486 7,122 11,742 16,492 18,733 17,715 17,962 19,492 21,795 24,646 5.6 Central and Eastern Europe Czech Republic 23 30 72 123 150 155 163 184 212 241 9.9 Hungary 12 16 27 35 47 47 47 51 57 66 7.0 Poland 68 109 168 322 407 449 501 567 646 736 12.6 Romania 2 4 8 17 28 29 31 33 39 47 10.9 Russia 91 152 243 377 510 554 602 786 1,018 1,301 20.6 Turkey 27 61 111 187 238 252 271 304 375 478 15.0 Central and Eastern Europe total 223 372 629 1,061 1,380 1,486 1,615 1,925 2,347 2,869 15.8 Middle East/Africa Israel 26 48 63 81 91 93 95 105 120 134 8.0 Saudi Arabia/Pan Arab‡ 15 31 67 130 169 180 193 228 275 335 14.7 South Africa 10 12 23 35 54 59 64 79 100 122 17.7 Middle East/Africa total 51 91 153 246 314 332 352 412 495 591 13.5 EMEA total 4,760 7,585 12,524 17,799 20,427 19,533 19,929 21,829 24,637 28,106 6.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

160 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired Internet advertising • In contrast with search and classifieds, the Internet does not offer any particular technological advantage • Wired Internet advertising has been fueled by growth for display advertising compared with other media. With in the broadband market. Broadband users visit more the slowing economy, display spending growth slowed Web sites than dial-up users do, they’re able to access to 5.6 percent in 2008 from increases of more than 30 rich media ads, and they buy more products online, percent annually during the prior four years. making those households attractive to advertisers. • During a period of advertising cutbacks, we expect • The propensity of broadband users to search the that advertisers are more likely to stay with established Internet has fueled search advertising. Search enables brand-building media, such as television, than with advertisers to target users just when they are looking less proven media for establishing brand identity, for specific information relevant to the advertiser. Such such as the Internet. Accordingly, we project a 12.4 a capability is not readily available in other media. percent decline in display advertising in 2009 and a Search is the largest category in 2008, at $9.4 billion, further, 5.2 percent decrease in 2010. With overall nearly half of the total, and was the fastest growing advertising expected to be increasing during 2011–13 during the past five years. It also posted the largest as the economy rebounds, we expect online display gain in 2008, with an 18.8 percent increase. advertising will benefit as well. Spending will stabilize • Search held up better than other categories in 2008, in 2011 and then grow at low- to mid-single-digit and we expect it will continue to grow in 2009, although rates during the subsequent two years. The projected at a much slower, 2.3 percent rate. Advertisers who $4.8-billion total for 2013 will be 1.4 percent lower on a are cutting back on their media investments will likely compound annual basis than the $5.1 billion in 2008. maintain their search expenditures because such • Video advertising and other advertising is a small expenditures yield measurable results. We expect a category, at $271 million, only 1.4 percent of total wired stronger, 5.9 percent rise in 2010, with double-digit Internet advertising in 2008. With the growth in video gains thereafter as economic conditions improve. We streaming and high-speed broadband, we expect this project search to rise to $14.2 billion in 2013, growing category to expand. We expect the impact of upgraded at an 8.7 percent compound annual rate. broadband networks to offset the economy in 2009 • Classified advertising has migrated to the Internet from and project an 8.9 percent increase in video advertising the print media. Classifieds also benefit from the search and other advertising. As fiber networks are deployed capabilities of the Internet because online users can and as the economy improves, we expect growth quickly find what they’re looking for. Online classified to accelerate. By 2013, video and other advertising advertising quadrupled from 2004 to 2007 and rose by will total an estimated $655 million, a 19.3 percent 11.3 percent in 2008. compound annual increase from 2008. • Classified advertising is highly cyclical and will be • In 2009, declines in display and classified advertising hurt by the weakening economy. We expect cutbacks will offset increases in search and video/other, resulting in all media during the next two years. Although the in a 4.8 percent decrease in overall wired Internet Internet may be hurt less than other media because it advertising. In 2010, we look for gains in search and is gaining share, the decrease in overall spending will video/other to offset continued declines in display lead to a drop in online classifieds. We project an 11.7 and classifieds, leading to a modest, 1.1 percent gain. percent decline in 2009 and a further, 4.5 percent drop Thereafter, increases in each category will propel the in 2010. We then look for a sharp positive swing in overall market. We project growth to improve to 8 2011 as economic conditions improve. We project an percent in 2011 and to double-digit gains during 2012 8.1 percent rise, representing a 12.6-percentage-point and 2013. turnaround. Large swings in classified advertising are • Overall wired Internet advertising will expand at a 5.4 not unusual, because classified advertising responds to percent compound annual rate to $25.2 billion in 2013 changing economic conditions. We then expect double- from $19.4 billion in 2008. digit growth during 2012–13 and an overall 3.9 percent compound annual increase to $5.5 billion from $4.6 billion in 2008.

Internet advertising: wired and mobile | EMEA 161 Wired Internet advertising market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Search 1,978 3,184 5,509 7,890 9,372 9,584 10,152 11,168 12,544 14,216 Display 1,554 2,447 3,717 4,859 5,132 4,497 4,265 4,326 4,480 4,789 Classifieds 976 1,555 2,675 4,125 4,590 4,055 3,874 4,186 4,816 5,545 Video/other 140 184 206 241 271 295 335 443 560 655 Total 4,648 7,370 12,107 17,115 19,365 18,431 18,626 20,123 22,400 25,205

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet advertising market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Search 52.2 61.0 73.0 43.2 18.8 2.3 5.9 10.0 12.3 13.3 8.7 Display 41.3 57.5 51.9 30.7 5.6 –12.4 –5.2 1.4 3.6 6.9 –1.4 Classifieds 39.4 59.3 72.0 54.2 11.3 –11.7 –4.5 8.1 15.1 15.1 3.9 Video/other 35.9 31.4 12.0 17.0 12.4 8.9 13.6 32.2 26.4 17.0 19.3 Total 45.1 58.6 64.3 41.4 13.1 –4.8 1.1 8.0 11.3 12.5 5.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Wired Internet advertising in Western Europe grew at • Internet advertising is a developing market in Central double-digit rates through 2008, principally because and Eastern Europe and in Middle East/Africa. audiences are still expanding and it is gaining share Both areas are still experiencing large gains in their from other media. Nevertheless, its principal underlying broadband universes, as well as a rapidly growing driver, growth in broadband households, is slowing, audience for online advertising. We expect that the and the market is beginning to approach maturity. positive impact of a growing audience will offset the Western Europe is therefore more affected by economic negative impact of a weaker economy, and we look for conditions than the other areas in EMEA are. We expect both areas to grow during the next two years. We look spending to fall by 5.9 percent in 2009 and to rise by for a 7.4 percent annual increase in Central and Eastern only 0.4 percent in 2010. Growth will rebound thereafter Europe and a 5.2 percent annual gain in Middle East/ and will reach double-digit gains in 2012–13, but we Africa from 2008 to 2010. do not expect a return to the 30-percent-plus gains • Thereafter, we expect a return to double-digit growth that characterized 2004–07. Wired Internet advertising in both areas during 2011–13. For the overall forecast in Western Europe will increase at a 4.5 percent period, we expect Central and Eastern Europe will compound annual rate to $22.1 billion in 2013 from increase from $1.3 billion in 2008 to $2.6 billion in $17.8 billion in 2008. 2013, growing at a 14.5 percent compound annual rate. Middle East/Africa will total $529 million in 2013 from $297 million in 2008, a 12.2 percent compound annual increase.

162 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired Internet advertising market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 51 66 145 205 234 222 227 241 263 293 4.6 Belgium 44 110 266 366 417 400 410 439 483 549 5.7 Denmark 95 125 313 444 491 466 463 505 559 628 5.0 Finland 59 102 133 176 222 212 215 228 250 278 4.6 France 505 790 1,067 1,460 1,610 1,537 1,500 1,595 1,756 1,976 4.2 Germany 805 1,317 2,564 3,660 3,732 3,476 3,380 3,585 3,878 4,280 2.8 Greece 15 18 23 45 51 50 50 54 60 69 6.2 Ireland 23 41 60 102 105 100 101 110 121 139 5.8 Italy 410 498 702 966 1,076 1,024 1,054 1,141 1,288 1,463 6.3 Netherlands 249 366 825 1,067 1,127 1,076 1,083 1,149 1,266 1,427 4.8 Norway 154 253 381 518 594 609 630 665 727 816 6.6 Portugal 9 10 15 26 35 37 38 42 50 59 11.0 Spain 138 237 455 707 783 761 768 834 922 1,024 5.5 Sweden 208 312 468 629 756 788 823 884 971 1,075 7.3 Switzerland 103 162 222 320 374 355 360 388 425 471 4.7 United Kingdom 1,510 2,509 3,710 5,166 6,152 5,601 5,684 6,106 6,795 7,557 4.2 Western Europe total 4,378 6,916 11,349 15,857 17,759 16,714 16,786 17,966 19,814 22,104 4.5 Central and Eastern Europe Czech Republic 23 29 70 118 142 146 152 170 193 216 8.8 Hungary 12 16 26 34 45 44 44 47 52 59 5.6 Poland 66 106 162 310 386 425 470 525 590 660 11.3 Romania 2 4 8 17 27 28 29 31 35 41 8.7 Russia 89 149 237 362 483 523 563 724 925 1,167 19.3 Turkey 27 61 107 180 226 237 253 280 341 429 13.7 Central and Eastern Europe total 219 365 610 1,021 1,309 1,403 1,511 1,777 2,136 2,572 14.5 Middle East/Africa Israel 26 47 61 78 86 88 89 97 109 120 6.9 Saudi Arabia/Pan Arab‡ 15 30 65 125 160 170 180 210 250 300 13.4 South Africa 10 12 22 34 51 56 60 73 91 109 16.4 Middle East/Africa total 51 89 148 237 297 314 329 380 450 529 12.2 EMEA total 4,648 7,370 12,107 17,115 19,365 18,431 18,626 20,123 22,400 25,205 5.4

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Communications Agencies of Russia, Interactive Advertising Bureau Europe, Interactive Advertising UK, Peako Research, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising: wired and mobile | EMEA 163 Mobile advertising • Mobile TV rollouts will also drive mobile advertising. Providers are moving toward an advertiser-supported • Advertising sent to mobile phones jumped by more model for mobile TV and relying less on subscriptions. In than 55 percent in 2008 to $1.1 billion. Most of that the process, they are ramping up their ad sales efforts. total consisted of text message ads. Virtually everyone has a wireless phone capable of receiving text • Mobile ad networks are also being introduced. These are messages and text message advertising. media-buying companies that place ads on a number of Web sites on behalf of their clients. This means clients • We expect the next phase to be driven by growth need deal with only one entity instead of hundreds of in mobile broadband access subscriptions and by separate Web sites. Telefónica, for example, is creating display and video advertising. Subscriber growth will a system in conjunction with Amobee that will provide in turn be stimulated by faster wireless networks and a single contact for advertisers to buy ads that reach the introduction of smart phones that make it easier to subscribers on multiple platforms. The system is being navigate the Internet. We expect the number of mobile launched in Spain and the United Kingdom before other Internet subscribers in EMEA to more than triple during countries in Europe. the next five years to 278 million from 83 million in 2008. • The economy will also affect the mobile market, but • In addition to driving subscriptions, smart phones we expect that will manifest in slower growth, not a provide a better platform for mobile ads because their downturn. We project mobile advertising in Western screens are larger and they can accommodate video. Europe, which accounts for virtually all of the spending, to grow by 2.8 percent in 2009 compared with a 53.4 Mobile Internet subscribers in EMEA (millions) percent increase in 2008. We then look for a return to 350 double-digit growth and a five-year average of 21.1 percent compounded annually to $2.5 billion from $974 300 277.7 million in 2008. 250 207.2 • Central and Eastern Europe will average 33.1 percent 200 155.8 compound annual growth from $71 million in 2008 to 150 123.1 $297 million in 2013. 101.8 100 82.8 • Middle East/Africa has a small mobile advertising 60.2 39.4 market, at $17 million in 2008. We project that by 2013, 50 21.9 11.5 mobile advertising will total $62 million, a 29.5 percent 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 compound annual increase.

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates • Total mobile advertising in EMEA will reach an estimated $2.9 billion in 2013, a 22.3 percent compound annual increase.

164 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile Internet advertising market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1 1 4 9 13 13 16 20 26 34 21.2 Belgium 1 3 9 15 23 23 29 38 48 63 22.3 Denmark 2 4 11 18 27 28 32 43 56 72 21.7 Finland 1 3 4 7 12 13 15 19 25 32 21.7 France 13 23 38 59 89 92 105 136 176 227 20.6 Germany 20 40 89 146 205 209 237 304 388 492 19.1 Greece ‡ ‡ 1 1 3 3 3 4 6 7 18.5 Ireland ‡ 1 1 4 6 6 7 9 12 16 21.7 Italy 10 15 25 38 59 61 73 97 129 168 23.3 Netherlands 6 12 29 42 61 64 76 98 127 164 21.9 Norway 4 8 13 21 33 37 44 57 73 94 23.3 Portugal ‡ ‡ ‡ 1 1 3 3 3 4 7 47.6 Spain 3 7 16 28 42 45 54 70 92 119 23.2 Sweden 5 9 16 25 42 47 58 75 97 124 24.2 Switzerland 3 5 7 13 20 21 25 33 42 54 22.0 United Kingdom 39 75 130 208 338 336 399 520 680 869 20.8 Western Europe total 108 206 393 635 974 1,001 1,176 1,526 1,981 2,542 21.1 Central and Eastern Europe Czech Republic ‡ 1 2 5 8 9 11 14 19 25 25.6 Hungary ‡ ‡ 1 1 2 3 3 4 5 7 28.5 Poland 2 3 6 12 21 24 31 42 56 76 29.3 Romania ‡ ‡ 0 0 1 1 2 2 4 6 43.1 Russia 2 3 6 15 27 31 39 62 93 134 37.8 Turkey ‡ ‡ 4 7 12 15 18 24 34 49 32.5 Central and Eastern Europe total 4 7 19 40 71 83 104 148 211 297 33.1 Middle East/Africa Israel ‡ 1 2 3 5 5 6 8 11 14 22.9 Saudi Arabia/Pan Arab†† ‡ 1 2 5 9 10 13 18 25 35 31.2 South Africa ‡ ‡ 1 1 3 3 4 6 9 13 34.1 Middle East/Africa total ‡ 2 5 9 17 18 23 32 45 62 29.5 EMEA total 112 215 417 684 1,062 1,102 1,303 1,706 2,237 2,901 22.3

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising: wired and mobile | EMEA 165 Asia Pacific

The outlook in brief Overview • Weak economies will stall wired Internet advertising • The Internet and mobile advertising market will expand during the next two years, with an expected economic at an 11.2 percent compound annual rate to $21.2 recovery leading to a return to double-digit growth billion in 2013 from $12.5 billion in 2008. during 2011–13. • Wired Internet advertising will grow by 9.9 percent • Mobile access subscriber growth and mobile TV will compounded annually, rising from $11.3 billion in 2008 propel mobile advertising. to $18.1 billion in 2013. • Mobile advertising will total $3.1 billion in 2013, rising at a 21.2 percent compound annual rate from $1.2 billion in 2008.

Internet advertising market: wired and mobile by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet advertising 2,836 5,381 7,247 9,686 11,307 11,762 12,321 13,535 15,689 18,103 Mobile advertising 104 306 438 673 1,195 1,257 1,377 1,676 2,288 3,127 Total 2,940 5,687 7,685 10,359 12,502 13,019 13,698 15,211 17,977 21,230

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising market growth: wired and mobile by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet advertising 55.6 89.7 34.7 33.7 16.7 4.0 4.8 9.9 15.9 15.4 9.9 Mobile advertising 160.0 194.2 43.1 53.7 77.6 5.2 9.5 21.7 36.5 36.7 21.2 Total 57.8 93.4 35.1 34.8 20.7 4.1 5.2 11.0 18.2 18.1 11.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Japan is the largest market in Asia Pacific, at $7.3 than $100 million, the largest of which was Taiwan, at billion in 2008, nearly 60 percent of the total in Asia $167 million. New Zealand was next, at $136 million, Pacific. The People’s Republic of China (PRC) is next, followed by Malaysia at $101 million. at $2 billion, followed by Australia at $1.4 billion and • During the next five years, Japan will be the principal South Korea at $1.2 billion. driver, generating 44 percent of the cumulative growth, • There is a huge gap between the top four countries and with the PRC accounting for 30 percent of the the rest of the region. No other country reached $200 total increase. million in 2008, and only three countries were larger

166 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet advertising market: wired and mobile by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 325 520 840 1,133 1,435 1,688 1,919 2,153 2,370 2,618 12.8 China 274 490 798 1,390 1,955 2,249 2,503 2,959 3,735 4,568 18.5 Hong Kong 17 20 23 25 27 28 28 29 33 37 6.5 India 14 23 37 62 96 114 140 192 262 349 29.5 Indonesia 1 1 1 2 2 2 2 2 3 3 8.4 Japan 1,841 3,923 5,036 6,328 7,346 7,285 7,404 8,048 9,429 11,171 8.7 Malaysia 34 43 68 85 101 103 106 114 132 151 8.4 New Zealand 9 27 39 95 136 158 179 200 221 242 12.2 Pakistan ‡ ‡ ‡ 1 1 1 1 1 1 2 14.9 Philippines ‡ 1 1 2 2 3 3 3 3 4 14.9 Singapore NA NA NA 13 16 17 20 25 30 36 17.6 South Korea 361 526 718 1,062 1,210 1,199 1,216 1,296 1,549 1,814 8.4 Taiwan 60 108 118 154 167 164 168 179 199 223 6.0 Thailand 4 5 6 6 7 7 8 9 9 10 7.4 Vietnam ‡ ‡ ‡ 1 1 1 1 1 1 2 14.9 Total 2,940 5,687 7,685 10,359 12,502 13,019 13,698 15,211 17,977 21,230 11.2

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet advertising been sluggish, wired Internet advertising increased by 10 percent in 2008, due mainly to expansion in search • Wired Internet advertising has been growing at double- engine advertising and online video advertising through digit annual rates during the past five years. Growth has free video-on-demand sites. been fueled by the surge in broadband subscriptions, which has boosted the effective audience for online • During the 2005–07 period, online advertising growth ads. It is estimated that Asia Pacific is home to around outpaced broadband subscriber growth, reflecting the 40 percent of the world’s Internet users, having grown generally expanding economy in Asia Pacific and the by about 25 percent during the past year. The reach extensive usage of Internet cafés by users who did not of other media has not grown nearly as fast. The have access to either dial-up or broadband services. overall audience for the Internet is increasing, and the Typically, advertising tends to grow faster than the Internet’s advertising share has been increasing as well. underlying audience growth—in this case represented by broadband household growth—when the economy • Although down from gains in excess of 30 percent is expanding, but slower when the economy is strug- annually during 2006 and 2007, wired Internet gling or contracting. In 2008, advertising growth fell advertising continued to grow by double digits, 16.7 behind broadband subscriber growth as economic percent, in 2008 despite the economic slowdown. Even conditions weakened. in Japan, where the overall advertising market has

Internet advertising: wired and mobile | Asia Pacific 167 • We expect that wired Internet advertising will decline in • We expect the weak economy to continue to depress 2009 in Japan, South Korea, and Taiwan, reflecting the online advertising in 2010 and project a 4.8 percent weak economy. increase, still well below the 14.5 percent expected growth in broadband households. • Recent data released by the China Internet Network Information Center indicated that the number of users • Improved economic conditions in 2011 will lead to in the PRC had risen by 41 percent in the past year to a pickup in online advertising. The projected 9.9 298 million, or 22 percent of the entire population. Rural percent gain will be comparable to the 11.6 percent usage of the Internet is the fastest growing. Tencent rise in broadband. is now the most visited site in Asia Pacific, with 159 • By 2012–13, we expect the economic recovery to million users, and Baidu now claims 152 million users. be in full swing, which will propel online advertising. • While the economies in the PRC and India should We project annual gains in excess of 15 percent continue to expand, growth will be noticeably compared with around 11 percent growth in broadband slower than in 2008. Although we project double- households, marking a return to the pattern of 2005– digit gains in both countries in 2009, growth will 07, when advertising growth outpaced broadband be substantially below the projected increase in household growth. broadband subscriptions, reflecting the impact of • With broadband household growth moderating, we a slowing economy on online advertising. In the expect online advertising growth during the recovery PRC, we expect a 21 percent increase in broadband years to be slower than during 2004–07, when the households compared with a 15 percent increase in broadband market was growing much faster. online advertising. In 2008, by contrast, broadband households in the PRC increased by 29.5 percent, while • During the next five years as a whole, wired Internet online advertising rose by 40 percent. Similarly, in India, advertising will expand at a 9.9 percent compound online advertising growth will drop to a projected 19 annual rate compared with 12.8 percent growth percent in 2009, well below the anticipated 58 percent compounded annually for broadband households. increase in broadband households. Wired Internet advertising in 2013 will total an estimated $18.1 billion from $11.3 billion in 2008. • We expect overall wired Internet advertising to grow by only 4 percent in 2009 compared with a 16.4 percent increase in broadband households.

Wired Internet advertising and broadband household growth in Asia Pacific (%) 100

80

60 Broadband households 40 Wired Internet advertising 20

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

168 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wired Internet advertising market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 324 518 837 1,125 1,421 1,663 1,881 2,090 2,257 2,424 11.3 China 273 488 790 1,369 1,917 2,205 2,442 2,873 3,591 4,309 17.6 Hong Kong 17 19 22 24 26 26 26 27 30 33 4.9 India 14 23 37 62 96 114 137 185 247 320 27.2 Indonesia 1 1 1 2 2 2 2 2 3 3 8.4 Japan 1,753 3,649 4,663 5,800 6,377 6,280 6,328 6,763 7,729 8,937 7.0 Malaysia 33 42 66 82 96 97 99 105 120 135 7.1 New Zealand 9 27 39 95 136 158 179 200 221 242 12.2 Pakistan ‡ ‡ ‡ 1 1 1 1 1 1 2 14.9 Philippines ‡ 1 1 2 2 3 3 3 3 4 14.9 Singapore NA NA NA 12 15 16 19 23 27 32 16.4 South Korea 349 503 671 957 1,052 1,034 1,039 1,089 1,270 1,451 6.6 Taiwan 59 105 114 148 158 155 157 165 181 200 4.8 Thailand 4 5 6 6 7 7 7 8 8 9 5.2 Vietnam ‡ ‡ ‡ 1 1 1 1 1 1 2 14.9 Total 2,836 5,381 7,247 9,686 11,307 11,762 12,321 13,535 15,689 18,103 9.9

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: Commercial Economic Advisory Service of Australia, Dentsu, Interactive Advertising Bureau New Zealand, Korea Broadcasting Advertising Corporation, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile advertising • Spectrum auctions in India scheduled for 2009 will lead to upgraded wireless networks and an emerging mobile • Mobile advertising totaled $1.2 billion in 2008, more advertising market. Australia is also expanding its 3G than 80 percent of which was in Japan, with 70 percent infrastructure. Growth in 2009 will be less in Japan of the remainder in South Korea. In both countries, and South Korea, reflecting the economic downturn around 80 percent of wireless telephone subscribers in Japan and the already high penetration rate in use their handsets to access the Internet, making these South Korea. countries attractive markets for mobile advertisers. Mobile advertising totaled nearly $1 billion in Japan • In the Philippines, the mobile advertising market is and $158 million in South Korea. still in its early stages pending the implementation of guidelines from the industry regulator: the National • Just as broadband growth will drive wired online Telecommunications Commission. Mobile operator advertising, we expect mobile access growth to drive Smart ventured into mobile advertising campaigns mobile advertising. Expected restructuring in the in 2007 and launched its advertising-funded mobile PRC in 2009 will allow carriers to invest more in their service in May 2008. The company believes the mobile networks and introduce third-generation (3G) services. advertising growth curve will be only gradual, since 70 percent of its target audience still primarily watches television.

Internet advertising: wired and mobile | Asia Pacific 169 Mobile Internet subscribers in Asia Pacific (millions) Mobile TV subscribers in Asia Pacific (millions)

600 549.8 40 34.1 500 431.4 30 400 337.3 19.8 300 273.4 20 235.4 195.9 200 147.6 11.0 118.7 10 6.4 100 79.8 40.6 4.0 0.3 0.5 2.3 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2006 2007 2008 2009 2010 2011 2012 2013

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Overall, the number of people accessing the Internet • The mobile TV market is shifting from reliance on through their mobile phones in Asia Pacific rose to subscribers to an advertiser-supported model. Free nearly 200 million in 2008. Around half of them were mobile television in South Korea and Japan has been in the PRC. We expect that figure to more than double successful, and we expect advertising to play an during the next five years to 549.8 million by 2013. important role in mobile television in other countries as well. • Mobile TV rollouts will also fuel mobile advertising. Mobile TV has been available in South Korea and Japan • Currently, mobile advertising is dominated by text for several years and was introduced in Australia in messaging ads. Growth in mobile Internet access and 2008. A mobile TV launch also is anticipated in the mobile television will create a platform for display and PRC in 2009. video ads. Display and video ads are more effective and command higher prices. As these formats expand, • We expect the mobile TV subscriber base in Asia overall spending will increase. Pacific to grow to 34.1 million by 2013 from only 2.3 million in 2008. • The mobile advertising market will not be immune from the effects of the economy. We expect growth in 2009 to drop to 5.2 percent from 78 percent in 2008. We then anticipate a relatively modest, 9.5 percent advance in 2010 from a small base. • Thereafter, improved economic conditions combined with accelerating growth in mobile access and mobile television will drive mobile advertising. We look for annual increases to exceed 30 percent by 2012–13. • For the forecast period as a whole, we project mobile advertising to expand at a 21.2 percent compound annual rate, rising to $3.1 billion by 2013. • Japan will continue to dominate the market with a projected $2.2 billion in 2013, 71 percent of the total.

170 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile Internet advertising market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1 2 3 8 14 25 38 63 113 194 69.2 China 1 2 8 21 38 44 61 86 144 259 46.8 Hong Kong 0 1 1 1 1 2 2 2 3 4 32.0 India ‡ ‡ ‡ ‡ ‡ ‡ 3 7 15 29 — Indonesia ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 0 0 — Japan 88 274 373 528 969 1,005 1,076 1,285 1,700 2,234 18.2 Malaysia 1 1 2 3 5 6 7 9 12 16 26.2 New Zealand NA NA NA NA NA NA NA NA NA NA — Pakistan ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Philippines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Singapore ‡ 0 0 1 1 1 1 2 3 4 32.0 South Korea 12 23 47 105 158 165 177 207 279 363 18.1 Taiwan 1 3 4 6 9 9 11 14 18 23 20.6 Thailand ‡ ‡ ‡ ‡ ‡ ‡ 1 1 1 1 — Vietnam ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Total 104 306 438 673 1,195 1,257 1,377 1,676 2,288 3,127 21.2

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising: wired and mobile | Asia Pacific 171 Latin America

The outlook in brief Overview • Broadband growth and infrastructure upgrades will • We expect wired and mobile Internet advertising in expand the platform for wired Internet advertising. Latin America to grow at a 17.4 percent compound annual rate from its currently small base, rising to $1.5 • An emerging mobile Internet access market and the billion in 2013 from $660 million in 2008. launch of a mobile TV market will expand a developing mobile advertising market. • Wired Internet advertising will increase to $1.3 billion in 2013 from $631 million in 2008, a 15.4 percent compound annual increase. • Mobile advertising will total an estimated $185 million in 2013, up 44.9 percent on a compound annual basis from $29 million in 2008.

Internet advertising market: wired and mobile by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Wired Internet advertising 153 259 330 521 631 669 723 847 1,043 1,289 Mobile advertising — — 8 19 29 37 47 70 119 185 Total 153 259 338 540 660 706 770 917 1,162 1,474

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising market growth: wired and mobile by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Wired Internet advertising 45.7 69.3 27.4 57.9 21.1 6.0 8.1 17.2 23.1 23.6 15.4 Mobile advertising — — — 137.5 52.6 27.6 27.0 48.9 70.0 55.5 44.9 Total 45.7 69.3 30.5 59.8 22.2 7.0 9.1 19.1 26.7 26.9 17.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Brazil is the largest market in the region, at $441 million second, at $104 million. No other country reached in 2008, two-thirds of the total. Mexico was a distant $50 million.

172 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet advertising market: wired and mobile by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 6 8 23 33 45 48 50 56 69 83 13.0 Brazil 136 185 217 364 441 473 521 634 818 1,059 19.1 Chile 2 4 5 7 9 9 11 12 13 16 12.2 Colombia NA 35 41 46 49 51 52 55 64 74 8.6 Mexico 9 27 50 83 104 111 121 143 177 216 15.7 Venezuela ‡ ‡ 2 7 12 14 15 17 21 26 16.7 Total 153 259 338 540 660 706 770 917 1,162 1,474 17.4

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wired Internet advertising • These investments will make broadband available to more households, which we expect will lead to a • Wired Internet advertising is relatively undeveloped in significant expansion in the broadband household base. Latin America. Advertising per broadband household averaged only $31 in 2008, less than half the $78 • The number of broadband households rose by 30 average for Asia Pacific and well below averages in percent in 2008 to 20 million. We expect that total to EMEA and North America. more than double during the next five years to nearly 44 million in 2013. • Wired Internet advertising in Latin America has been held back by the relatively small broadband household base. Advertisers have not devoted significant Annual Internet advertising per broadband household, resources to the Internet because of its limited reach. 2008 (US$) The Internet has not gained share in Latin America to 400 the degree it has in other regions. 292 • Brazil was the only country with a meaningful 300 431.4 broadband household base of nearly 9 million in 2008. Chile was the only country with broadband penetration 200 above 30 percent, but its market in absolute terms is 140 small, at only 1.3 million broadband households. 100 78 • To address that shortfall, each country in the region 31 is investing in its broadband infrastructure. Fiber is 0 being deployed in Argentina, Brazil, and Venezuela; Latin America Asia Pacific EMEA North America fixed wireless is being used in Mexico and Brazil; and Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Colombia, Chile, and Brazil are expanding their digital- subscriber-line networks.

Internet advertising: wired and mobile | Latin America 173 Broadband households in Latin America (millions) • Wired Internet advertising in Mexico will nearly double from $99 million in 2008 to $189 million in 2013, a 13.8 50 43.9 percent compound annual increase. 40 37.7 • While we also expect double-digit broadband 31.7 household growth in the remaining countries, a small 30 26.7 household base will limit the advertising potential. We 23.3 20.3 project wired Internet advertising growth in the rest 20 15.6 of the region to average 9.5 percent on a compound 10.7 annual basis. 10 7.1 3.9 • The adverse economic climate will cut into growth 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 during the next two years. We look for gains to average 7 percent compounded annually in 2009–10 compared Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates with 21 percent in 2008. Thereafter, as economic conditions improve, growth will accelerate at a 21.3 • There will be an estimated 20 million broadband house- percent compound annual rate from 2010 to 2013. holds in Brazil in 2013 and 11 million in Mexico, totals • For the forecast period as a whole, wired Internet ad- that are large enough to attract advertisers. We expect vertising will increase by 15.4 percent on a compound Brazil’s wired Internet advertising market to more annual basis. Spending will rise to $1.3 billion from than double to an estimated $925 million in 2013 from $631 million in 2008. $421 million in 2008. Brazil will be the fastest-growing market, with a 17.1 percent compound annual increase.

Wired Internet advertising market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 6 8 22 32 43 45 47 52 62 73 11.2 Brazil 136 185 212 351 421 449 489 585 734 925 17.1 Chile 2 4 5 7 9 9 10 11 12 14 9.2 Colombia NA 35 40 44 47 48 49 51 57 65 6.7 Mexico 9 27 49 80 99 105 114 132 159 189 13.8 Venezuela ‡ ‡ 2 7 12 13 14 16 19 23 13.9 Total 153 259 330 521 631 669 723 847 1,043 1,289 15.4

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile advertising • Growth in 3G availability will expand a tiny mobile Internet access market. There were 5 million mobile • Latin America is also upgrading its wireless infrastruc- access subscribers in 2008. We expect that total to ture. Carriers in virtually every country launched 3G nearly double by 2010 and then to quadruple from 2010 services during the past two years, and coverage is to 2013, rising to 41 million during the next five years. expected to expand during the next few years. That increase will substantially expand the potential audience for mobile advertising.

174 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile access subscribers in Latin America (millions) Mobile TV subscribers in Latin America (millions) 50 5 41.1 40 4

30 26.9 3 2.68

20 16.7 2 10.0 1.11 10 7.1 1 5.2 2.8 0.24 1.1 0.01 0.02 0.10 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2008 2009 2010 2011 2012 2013

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Wireless network upgrades also will facilitate the • Mobile ad networks are being introduced in Mexico and introduction of mobile television. Currently, only Brazil Colombia by Telefónica. In conjunction with Amobee, has mobile television. We expect mobile TV launches Telefónica is providing a single contact for advertisers in Mexico and Chile in 2009 and in Argentina in 2010. to buy ads that reach subscribers on multiple platforms. Although small at present, increases in the mobile • In 2008, mobile advertising totaled $29 million, $20 TV subscriber base during 2012 and 2013 will attract million of which was generated in Brazil. mobile advertisers. • We project that by 2013, mobile advertising will total an estimated $185 million, a 44.9 percent compound annual increase from 2008.

Mobile Internet advertising market by country† (US$ millions) 2009–13 Latin America 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1 1 2 3 3 4 7 10 38.0 Brazil 5 13 20 24 32 49 84 134 46.3 Chile ‡ ‡ ‡ ‡ 1 1 1 2 — Colombia 1 2 2 3 3 4 7 9 35.1 Mexico 1 3 5 6 7 11 18 27 40.1 Venezuela ‡ ‡ ‡ 1 1 1 2 3 — Total 8 19 29 37 47 70 119 185 44.9

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Internet advertising: wired and mobile | Latin America 175 176 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Television subscriptions and license fees

178 Summary

179 North America

191 Europe, Middle East, Africa (EMEA)

215 Asia Pacific

232 Latin America Summary

TV subscriptions and license fees Market size and growth by component The television distribution market consists of revenues Subscription spending—the principal component of generated by distributors of television programming the market, at $146.6 billion in 2008, 79 percent of the to viewers. It includes spending by consumers on total—will increase at a 6.7 percent compound annual rate subscriptions to basic and premium channels accessed to $202.5 billion in 2013. Pay-per-view will total $4 billion from cable operators, satellite providers, telephone in 2013, down from $4.2 billion in 2008. Video-on-demand companies, and other multichannel distributors; video-on- will rise from $4.6 billion in 2008 to $9.2 billion in 2013, a demand (VOD); and television distributed to mobile phones 14.7 percent compound annual increase. Public TV license on a subscription basis. In North America, EMEA (Europe, fees will grow by 1.8 percent annually to $32.5 billion from Middle East, Africa), and Asia Pacific it also includes pay- $29.7 billion. Mobile TV subscription spending will be the per-view. In EMEA and Asia Pacific, public TV license fees fastest-growing category, from a small base, reaching $4.2 are also included. billion in 2013.

Market size and growth by region Principal drivers We project the global television subscription and license In each region, the weak economy will lead to slower fee market will increase from $186.1 billion in 2008 to growth in 2009 and 2010, while the expected economic $252.3 billion in 2013, a compound annual growth rate recovery will drive spending during 2011–13. Subscribers of 6.3 percent. Asia Pacific will be the fastest-growing upgrading from analog to digital multichannel video will region, with a 10.5 percent compound annual increase, boost video-on-demand. VOD growth will largely come at Latin America will grow by 6.5 percent compounded the expense of pay-per-view. Free mobile TV services will annually, and North America and EMEA are each expected cut into the potential for subscription spending on mobile to expand at a 5.4 percent compound annual rate. North television. Internet protocol television (IPTV)—which America and EMEA are virtually equal in size, at more than contributes to subscription spending, VOD, and pay-per- $74 billion in 2008. North America will rise to $97.3 billion view—will be the fastest-growing subscription technology in 2013, and EMEA to $96.7 billion. Asia Pacific will total in each region. In EMEA, free digital terrestrial television an estimated $45.4 billion in 2013, and Latin America will (DTT) services will limit subscription spending. reach $13 billion.

Data for the global television subscriptions and license fee market by region and for the global television subscriptions and license fee market by component can be found within the Executive Summary on pages 37 and 38.

178 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief Overview • Growth in telephone company penetration will • Overall spending in North America will rise to $97.3 reinvigorate the subscription market once economic billion in 2013, growing at a 5.4 percent compound conditions improve. annual rate. • The migration to digital will boost video-on-demand at • Subscription spending will total $88.8 billion in 2013, the expense of pay-per-view. also a 5.4 percent compound annual increase. • The development of a mobile TV standard in the United • Pay-per-view will decline by 1.2 percent compounded States using the vacated ultrahigh-frequency (UHF) annually, falling to $2.9 billion in 2013. spectrum will drive the mobile television market during • Video-on-demand will pass pay-per-view in 2010 and 2011–13. reach $4.7 billion in 2013, a 10.8 percent compound annual increase. • Mobile TV will decline in the near term and then will rebound with double-digit annual gains, rising to $852 million in 2013 for a 9.5 percent compound annual increase. However, mobile TV revenues in North America will not exceed their 2008 level until 2012.

TV subscription and license fee market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Subscriptions 54,398 58,160 62,039 65,370 68,368 69,768 71,660 77,470 84,040 88,839 Pay-per-view 2,293 2,549 2,757 2,952 3,048 2,989 2,913 2,948 2,957 2,873 Video-on-demand 1,034 1,339 1,741 2,348 2,819 2,926 3,055 3,563 4,193 4,714 Mobile TV — — 180 450 540 504 490 531 650 852 Total 57,725 62,048 66,717 71,120 74,775 76,187 78,118 84,512 91,840 97,278

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

TV subscription and license fee market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Subscriptions 8.5 6.9 6.7 5.4 4.6 2.0 2.7 8.1 8.5 5.7 5.4 Pay-per-view 16.5 11.2 8.2 7.1 3.3 –1.9 –2.5 1.2 0.3 –2.8 –1.2 Video-on-demand 53.4 29.5 30.0 34.9 20.1 3.8 4.4 16.6 17.7 12.4 10.8 Mobile TV — — — 150.0 20.0 –6.7 –2.8 8.4 22.4 31.1 9.5 Total 9.4 7.5 7.5 6.6 5.1 1.9 2.5 8.2 8.7 5.9 5.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | North America 179 • Growth in both the United States and Canada will slow • Canada will benefit from growth in digital households to low-single-digit gains during 2009–10 as the weak and the introduction of mobile television during economy cuts into growth. 2011–12 but will remain the slower-growing country, • The United States will grow faster than Canada in the averaging 3.8 percent compounded annually to $5.4 near term as the analog switch-off in 2009 provides a billion in 2013 from $4.5 billion in 2008. boost to the subscription television market. • The United States will expand at a 5.5 percent compound annual rate, rising from $70.3 billion in 2008 to $91.8 billion in 2013.

TV subscription and license fee market by country† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 54,449 58,641 62,809 66,887 70,264 71,667 73,584 79,823 86,835 91,843 Canada 3,276 3,407 3,908 4,233 4,511 4,520 4,534 4,689 5,005 5,435 Total 57,725 62,048 66,717 71,120 74,775 76,187 78,118 84,512 91,840 97,278

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

TV subscription and license fee market growth by country (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 9.9 7.7 7.1 6.5 5.0 2.0 2.7 8.5 8.8 5.8 5.5 Canada 1.4 4.0 14.7 8.3 6.6 0.2 0.3 3.4 6.7 8.6 3.8 Total 9.4 7.5 7.5 6.6 5.1 1.9 2.5 8.2 8.7 5.9 5.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

TV subscriptions while maintaining basic subscriptions. We therefore expect slower subscription growth and declining • TV subscriptions consist of fees paid by households spending per household on premium subscriptions, and are distinct from carriage fees paid by providers which will translate into slower growth in subscription to carry programming. The economy has a varied spending during 2009 and 2010. impact on the television subscription market. On one hand, people tend to stay home more during economic • On the upside of the economic cycle, spending on downturns, and television viewing generally rises. discretionary services tends to rise. We expect that Television subscriptions also tend to have a degree of development to lead to accelerated growth during the “stickiness.” For these reasons, we do not expect a latter part of the forecast period. downturn in subscriptions. • Gains in telephone company/IPTV TV subscriptions • At the same time, fewer people are likely to take on new in North America will be the principal driver of overall subscriptions and incur new expenses, which is why TV subscription growth during the next five years, we expect slower growth in the near term. There also adding a total of 15.8 million subscribers. In contrast, is a tendency to save on discretionary outlays such as cable, satellite, and other providers will add fewer than premium services, pay-per-view, and video-on-demand 1 million subscribers.

180 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Cumulative change in TV subscription households in • The United States is ahead of Canada with respect to North America from 2008 (millions) IPTV rollouts, and we expect that the United States will generate a larger increase in the subscription market 20 than Canada will. Subscription growth in the US will be boosted by faster growth in IPTV households and an overall pickup in reaction to the analog shutdown. 15 By 2011, subscription household penetration in the United States will overtake Canada and will rise to 10 95.5 percent by 2013. The number of subscription Cable/satellite/other households in the United States will increase at a 3 5 percent compound annual rate to 114.1 million in 2013. Telephone company/IPTV • In Canada, subscription household penetration will rise 0 to 92.2 percent in 2013, with subscription household 2008 2009 2010 2011 2012 2013 growth averaging 1.4 percent compounded annually Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates to 11.9 million in 2013. Most of that increase will occur from 2011 to 2013, reflecting the impact of an expanding economy and IPTV rollouts. • The subscription TV household universe as a whole totaled 98.4 million in the United States in 2008 • The total subscription TV household market in North for a penetration rate of 86.8 percent. In Canada, America will increase from 109.5 million in 2008 to 126 penetration was 89.5 percent, with 11.1 million million in 2013, growing by 2.8 percent compounded subscription households. annually. Penetration will increase from 87.1 percent to 95.2 percent.

Subscription TV households (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 92.3 94.8 96.1 97.4 98.4 99.9 101.9 107.2 112.2 114.1 3.0 Canada 9.7 10.7 10.9 11.0 11.1 11.2 11.3 11.4 11.6 11.9 1.4 Total 102.0 105.5 107.0 108.4 109.5 111.1 113.2 118.6 123.8 126.0 2.8

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Subscription TV penetration of TV households (%)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 84.8 86.3 86.9 87.0 86.8 87.2 87.9 91.5 94.8 95.5 Canada 80.8 88.4 89.3 89.4 89.5 89.6 89.7 89.8 90.6 92.2 Total 84.4 86.5 87.1 87.3 87.1 87.4 88.1 91.4 94.4 95.2

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | North America 181 IPTV markets are available. We expect that as their footprints expand and as availability grows, they will continue • Incumbent telephone companies in the United States to gain subscribers, although their take-up will be and Canada have been losing telephone subscribers circumscribed because their reach will remain only a during this decade, with many of those losses going fraction that of cable and satellite. to cable companies that began offering telephone service. Cable’s advantage was its ability to package • In Canada, limited availability in the near term will television in a triple-play service that includes restrain growth in the number of IPTV subscribers. broadband and telephone. There are several regional IPTV offerings, but difficulty in obtaining financing is restraining rollouts. By 2011, • In recent years, regulatory restrictions that effectively the economy will strengthen, financing will become prevented telephone companies from participating in available, and investment in IPTV will increase. the television market became relaxed. In the United Moreover, the scheduled analog shutdown should States, Verizon and AT&T each initiated aggressive spur demand for subscription services, including IPTV. programs to offer television. Verizon’s FiOS (Fiber Optic Bell Canada plans to launch an IPTV service by 2011, Service) is expected to be available to 18 million homes which should boost penetration. We expect that the by 2010. AT&T’s U-verse network is expected to be Bell rollout and expansion by Telus will make IPTV available to around 30 million homes by 2012. In 2008, available to more households, and there will be more there were 2.2 million IPTV subscribers. IPTV subscribers, which will accelerate IPTV growth • In Canada, telephone companies entered the television during 2011–13. Although IPTV will remain the smallest distribution market in 2005. The established broadband component of the market, we expect it will be the infrastructure and high broadband subscribership rate fastest growing. in Canada provide telephone companies with a platform • We project the number of telephone company TV for IPTV. They had attracted 200,000 subscribers by subscribers will rise to 17 million in the United States 2007, but a pause in the rollout of IPTV led to a flat and to 1.2 million in Canada for a total of 18.2 million in market in 2008. North America by 2013. Penetration in North America • Telephone companies have been making inroads in will increase from 1.9 percent in 2008 to 13.7 percent the cable and satellite markets in areas where those in 2013.

Telephone company/IPTV households (millions) 2009–13 North America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States — 0.3 0.9 2.2 3.0 5.0 10.0 15.0 17.0 50.5 Canada 0.1 0.1 0.2 0.2 0.2 0.3 0.5 0.8 1.2 43.1 Total 0.1 0.4 1.1 2.4 3.2 5.3 10.5 15.8 18.2 50.0

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Telephone company/IPTV TV penetration of TV households (%)

North America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States — 0.3 0.8 1.9 2.6 4.3 8.5 12.7 14.2 Canada 0.8 0.8 1.6 1.6 1.6 2.4 3.9 6.3 9.3 Total 0.1 0.3 0.9 1.9 2.5 4.1 8.1 12.1 13.7

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

182 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Cable • Beginning in September 2011, cable and satellite providers in Canada will be permitted to provide more- • In 2009, the analog shutdown in the United States— flexible packages, including rival news and sports originally scheduled for February but postponed until networks. Households will be able to select which June—will provide a boost to the cable and satellite channels they want as long as half of the package markets, as well as to telco video services. In Canada, consists of Canadian channels. The greater flexibility the analog shutdown is scheduled for 2011 and will should make subscription services in general more provide a similar boost. Households that get their appealing and will help cable retain its subscriber base programming over the air on one or more sets will despite growing competition from IPTV. be disenfranchised unless they get a digital TV set or a converter box or they upgrade to a subscription • There was a 200,000 increase in cable households in service. We expect a portion of those households will Canada in 2008, and we expect another 200,000 gain upgrade to cable, although the recession will limit in 2009. Thereafter, the cable market will stabilize as the take-up. IPTV begins to attract some subscribers from cable. We expect there will be 8.6 million cable households in • Following the projected boost in 2009, the cable Canada in 2013 from 8.3 million in 2008, a 0.7 percent universe will remain flat in 2010 and then grow at increase compounded annually. modest rates, helped by an expanding economy and a growing base of TV households. By 2013, there will • The overall cable universe in North America will rise be an estimated 65.3 million cable households in the from 72.6 million in 2008 to 73.9 million in 2013, United States, up 0.3 percent compounded annually growing at a 0.4 percent compound annual rate. Cable from 64.3 million in 2008. household growth will not keep pace with TV household growth, and penetration will decrease from 57.8 percent • In Canada, a stall in the pace of telephone company in 2008 to 55.8 percent in 2013. rollouts means that there is relatively little incremental competition from telephone companies at the present time. Meanwhile, a surge in digital cable subscribership is propelling the cable market.

Cable households (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 67.5 67.4 66.8 65.5 64.3 65.0 65.0 65.1 65.2 65.3 0.3 Canada 7.4 8.0 8.1 8.1 8.3 8.5 8.6 8.6 8.6 8.6 0.7 Total 74.9 75.4 74.9 73.6 72.6 73.5 73.6 73.7 73.8 73.9 0.4

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Cable penetration of TV households (%)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 62.0 61.4 60.4 58.5 56.8 56.7 56.1 55.6 55.1 54.6 Canada 61.7 66.1 66.4 65.9 66.9 68.0 68.3 67.7 67.2 66.7 Total 62.0 61.9 61.0 59.3 57.8 57.8 57.3 56.8 56.3 55.8

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | North America 183 Satellite • In Canada, the satellite market expanded by 17 percent from 2004 to 2006. In 2007, growth in the • Satellite providers in the United States generally offer satellite market flattened as IPTV began to compete more channels, including more high-definition (HD) for, and attract, subscribers in areas where it was channels, than do cable operators, and their rates are available. In 2008, satellite began to decline as cable generally lower. In the United States, the number of picked up. We expect continued decreases during the satellite households rose by 7.1 million to 31.9 million next five years, reflecting losses to IPTV and digital from 2004 to 2008. cable. By 2013, there will be an estimated 2.1 million • We expect that total to stabilize in the United States satellite households in Canada, down 4.2 percent on a during the next two years, as the deteriorating compound annual basis from 2.6 million in 2008. economic environment limits expansion. We then • The overall satellite universe in North America will look for an increase in 2011, as economic conditions decrease from 34.5 million in 2008 to 33.9 million in improve, followed by a decline thereafter as telephone 2013, a 0.4 percent compound annual decline. Satellite company expansion cuts into the satellite market. By penetration of TV households will fall from 27.4 percent 2013, the US satellite universe will dip to 31.8 million, to 25.6 percent. down 0.1 percent compounded annually from 2008.

Satellite households† (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 24.8 27.4 29.0 31.0 31.9 31.9 31.9 32.1 32.0 31.8 –0.1 Canada 2.3 2.6 2.7 2.7 2.6 2.5 2.4 2.3 2.2 2.1 –4.2 Total 27.1 30.0 31.7 33.7 34.5 34.4 34.3 34.4 34.2 33.9 –0.4

†Includes C band, Satellite Master Antenna Television, and wireless cable. Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Satellite penetration of TV households (%)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 22.8 25.0 26.2 27.7 28.2 27.8 27.5 27.4 27.0 26.6 Canada 19.2 21.5 22.1 22.0 21.0 20.0 19.0 18.1 17.2 16.3 Total 22.4 24.6 25.8 27.1 27.4 27.1 26.7 26.5 26.1 25.6

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Subscription spending • US basic subscription spending will be driven largely by telephone company/IPTV growth, which will account for • In the United States, spending on television nearly half of the total growth even though it constituted subscriptions will increase from $64.1 billion in 2008 only 2 percent of the 2008 subscriber base. Telephone to a projected $83.8 billion in 2013, representing a 5.5 company/IPTV basic subscription spending will grow at percent compound annual increase. Gains will be less a 55.8 percent compound annual rate during the next than 3 percent annually during 2009–10 and then will five years compared with low-single-digit growth for average 7.5 percent compounded annually from 2010 cable and direct broadcast satellite (DBS). to 2013.

184 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Basic subscription spending (US$ millions) 2009–13 United States 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Cable 31,023 32,069 33,387 33,798 34,336 35,100 35,490 36,716 38,338 39,964 3.1 DBS 9,335 11,275 12,768 14,544 15,876 16,357 16,790 17,664 18,374 19,020 3.7 Telephone company/IPTV — — 128 400 1,011 1,413 2,415 5,040 7,875 9,282 55.8 Other† 668 566 457 333 198 100 51 53 55 58 –21.8 Total 41,026 43,910 46,740 49,075 51,421 52,970 54,746 59,473 64,642 68,324 5.8

†Includes C band, Satellite Master Antenna Television, and wireless cable. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• In Canada, overall subscription spending growth will basis, with spending rising from $4.3 billion in 2008 to drop to only 0.2 percent annually during the next $5.1 billion in 2013. two years and then will improve to an average of 5.6 • Subscription spending for North America as a whole percent compounded annually during the subsequent will expand at a 5.4 percent compound annual rate to three years. Over the forecast period as a whole, $88.8 billion in 2013 from $68.4 billion in 2008. growth will average 3.4 percent on a compound annual

TV subscription market by country† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 51,205 54,857 58,280 61,323 64,089 65,482 67,367 73,043 79,340 83,783 Canada 3,193 3,303 3,759 4,047 4,279 4,286 4,293 4,427 4,700 5,056 Total 54,398 58,160 62,039 65,370 68,368 69,768 71,660 77,470 84,040 88,839

†At average 2008 exchange rates. Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

TV subscription market growth by country (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 9.0 7.1 6.2 5.2 4.5 2.2 2.9 8.4 8.6 5.6 5.5 Canada 1.2 3.4 13.8 7.7 5.7 0.2 0.2 3.1 6.2 7.6 3.4 Total 8.5 6.9 6.7 5.4 4.6 2.0 2.7 8.1 8.5 5.7 5.4

Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | North America 185 Migration to digital • The satellite market is all digital, and the emerging telephone company/IPTV subscriber base is digital • Within the cable universe, there has been a marked as well. Digital services allow for more channels than migration of subscribers from analog to digital. (This is analog services do, which creates opportunities for distinct from the discontinuation of over-the-air analog incremental revenue streams from pay-per-view and broadcasting.) In the United States, around two-thirds video-on-demand. Pay-per-view is also available on of cable subscribers take a digital tier, and in Canada, analog systems, while VOD is available only on nearly half are digital subscribers. digital systems.

Digital and analog cable TV households (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States Analog only 43.3 40.1 35.8 28.5 21.3 17.0 13.0 10.1 7.2 7.3 –19.3 Digital 24.2 27.3 31.0 37.0 43.0 48.0 52.0 55.0 58.0 58.0 6.2 Canada Analog only 5.3 5.2 5.1 4.8 4.5 4.4 4.2 3.8 3.2 2.2 –13.3 Digital 2.1 2.8 3.0 3.3 3.8 4.1 4.4 4.8 5.4 6.4 11.0 Total Analog only 48.6 45.3 40.9 33.3 25.8 21.4 17.2 13.9 10.4 9.5 –18.1 Digital 26.3 30.1 34.0 40.3 46.8 52.1 56.4 59.8 63.4 64.4 6.6

Sources: Canadian Cable Telecommunications Association, Federal Communications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video-on-demand that has yet to appear on cable or broadcast television. In some cases, movies are shown on VOD at or even • The VOD market has evolved into two principal before their DVD release. This component of the market components. There is a “free”’ component, reflected is not available on satellite. in the subscription fee for digital cable that allows viewers to access movies and TV shows that already • As the digital cable and telephone company/IPTV have been aired. Premium cable networks make this subscriber base expands, the high-end VOD service will service available to digital subscribers, and cable be available to more households, which should expand operators and satellite providers also offer a selection the market. of already-aired content on a VOD basis. In effect, • We expect the potential VOD market for high-end paid these VOD offerings are equivalent to a hosted digital services in North America to increase from 49.2 million video recorder (DVR) service. households in 2008 to 82.6 million in 2013, a cumulative • In Canada, cable companies and broadcasters are 68 percent increase. Canada will grow by 90 percent negotiating licenses for VOD rights for their television to 7.6 million households, while the United States will shows. Broadcasters want to keep the advertising in the increase by 66 percent to 75 million households. Cable program and generate an additional revenue stream. companies in Canada are pushing to replace their DVR services with VOD, allowing them control over which • The principal revenue-producing VOD market consists ads can be skipped. Most DVR services are provided of viewers who can access on a paid basis a movie by cable companies in Canada.

186 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 VOD household universe in North America (millions) because spending is on an ad hoc basis and no commitment is involved. During the next two years, we 80 expect VOD spending per household to decline, with a rebound anticipated during 2011–13. 60 • The drop in per-household spending will be offset by an expanding household base. Growth will drop to low 40 single digits during the next two years. We then look for Canada a return to double-digit annual growth as the expanding 20 United States economy and a rising VOD household universe combine to propel spending. 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 • The VOD market in the United States will increase to $4.5 billion in 2013 from $2.7 billion in 2008, a 10.7 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates percent increase compounded annually. In Canada, growth will average 14.9 percent on a compound • VOD spending during the past five years has grown annual basis to $214 million, twice the level of 2008. at double-digit annual rates, reflecting the rising VOD The overall North American market will rise from household universe and rising or stable spending per $2.8 billion to $4.7 billion, for a 10.8 percent gain VOD household. compounded annually. • VOD and pay-per-view are even more subject to the economic cycle than premium subscriptions are,

Video-on-demand/subscription video-on-demand market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 1,016 1,310 1,690 2,274 2,712 2,816 2,941 3,432 4,030 4,500 Canada 18 29 51 74 107 110 114 131 163 214 Total 1,034 1,339 1,741 2,348 2,819 2,926 3,055 3,563 4,193 4,714

†At average 2008 exchange rates. Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video-on-demand/subscription video-on-demand market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 54.4 28.9 29.0 34.6 19.3 3.8 4.4 16.7 17.4 11.7 10.7 Canada 12.5 61.1 75.9 45.1 44.6 2.8 3.6 14.9 24.4 31.3 14.9 Total 53.4 29.5 30.0 34.9 20.1 3.8 4.4 16.6 17.7 12.4 10.8

Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | North America 187 Pay-per-view to IPTV, and as the analog cable market continues to contract. For the forecast period as a whole, pay-per- • In addition to its on-demand nature, VOD is more view spending in the United States will fall at a 1.2 appealing than pay-per-view because it gives viewers percent compound annual rate to $2.75 billion in 2013 control with respect to pause, fast-forward, and rewind from $2.92 billion in 2008. features. Cable operators and telephone companies are promoting VOD and putting much less emphasis on • Canada is a bit behind the US with respect to its pay- pay-per-view. Cable operators in Canada are pushing per-view market. Pay-per-view spending has grown at VOD so they can supply content and insert advertising double-digit rates through 2008, while in the US the they can sell. market has been advancing at single-digit rates for the past three years. We expect the economy to cut into • New movies are featured on VOD and are less pay-per-view in Canada during the next three years frequently available on pay-per-view. Pay-per-view on and project modest annual declines of 0.8 percent. cable is becoming largely an adult movie service. The pay-per-view market will then stabilize during 2012 • Satellite providers are still featuring mainstream recent and 2013, and improved economic conditions will releases on pay-per-view. Similarly, analog cable provide an upward lift, while the migration away from subscribers still have a traditional, if limited, pay-per- satellite and analog cable will put downward pressure view menu. on spending. Canada’s pay-per-view market will remain essentially flat during the next five years, edging down • In the United States, spending on pay-per-view during to $123 million in 2013 from $125 million in 2008. the next two years will decrease, reflecting the impact of the economy. We look for the market to stabilize • Pay-per-view in North America will fall at a 1.2 percent during 2011–12 as economic conditions improve, and compound annual rate to $2.9 billion from $3 billion then to decline at an accelerated rate in 2013 as the in 2008. satellite market takes a downward turn, losing share

Pay-per-view market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 2,228 2,474 2,659 2,840 2,923 2,865 2,790 2,826 2,835 2,750 Canada 65 75 98 112 125 124 123 122 122 123 Total 2,293 2,549 2,757 2,952 3,048 2,989 2,913 2,948 2,957 2,873

†At average 2008 exchange rates. Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Pay-per-view market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 16.6 11.0 7.5 6.8 2.9 –2.0 –2.6 1.3 0.3 –3.0 –1.2 Canada 10.2 15.4 30.7 14.3 11.6 –0.8 –0.8 –0.8 0.0 0.8 –0.3 Total 16.5 11.2 8.2 7.1 3.3 –1.9 –2.5 1.2 0.3 –2.8 –1.2

Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

188 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile TV • Wireless carriers are expected to work with manufactur- ers to provide handsets for DTV—in addition to hand- • Mobile TV began in the United States in 2006. In sets accommodating MediaFLO or MobiTV—because Canada, Rogers and Bell offer video clips, but the DTV will not overload wireless networks. take-up is currently limited. • Currently, mobile television consists principally of a • MobiTV in the United States has a service used by a limited number of cable channels and a few specialized number of wireless providers, including Sprint Nextel mobile services from broadcasters. DTV would essentially and Alltel. Verizon Wireless introduced a live mobile TV be a simulcast of a television station’s programming, service in 2007 using the MediaFLO technology from which is not now available. Qualcomm. AT&T entered the market in 2008 also using MediaFLO. Mobile TV through MediaFLO was available • While mobile DTV has the potential to significantly in more than 50 markets in 2008. expand the mobile television market, it may cut into subscription spending. Mobile subscribers currently • The analog shutoff will open up spectrum for mobile pay around $15 per month for the service. Mobile television. MediaFLO acquired spectrum on channels DTV is likely to be offered for free on an advertiser- 55 and 56 in some markets and will be able to supported basis. Competition from free services will broadcast on those channels without interfering cut into the paid market. with television channels that will have vacated that spectrum. Power levels can be raised without concern • The business model for mobile television is evolving. about interference, and the reach of the signal will be We expect that it will ultimately resemble the house- enhanced. In Los Angeles, for example, MediaFLO hold-based television market in which free and paid is expected to be able to reach 94 percent of the services exist side by side, with premium content and population when full power can be used, compared a larger array of channels offered on a paid basis. with reaching 52 percent of the population in 2008. • In 2008, spending on mobile television subscriptions in • Meanwhile, television stations are looking to create a the United States totaled an estimated $540 million. We new mobile digital television (DTV) standard using the expect that total to decline during the next two years, UHF spectrum assigned to them in preparation for in part because of consumer cutbacks in response to the analog shutoff. The Open Mobile Video Coalition the declining economy and in part due to the shift from (OMVC), a consortium of station groups, is driving the paid to free services. standards effort and conducting field tests. • We look for the market to rebound during 2011–13 • In late 2008, the Advanced Television Systems because of an improved economy and the development Committee approved the mobile DTV specification as of a recognizable hybrid market in which people be- a Candidate Standard, which means that broadcasters come accustomed to using their wireless devices for can use that standard to provide live mobile broadcasts television on a free basis and are willing to pay for on their existing spectrum. Gannett, a member of access to premium content or for services that provide the OMVC, announced it plans to launch mobile DTV more channels. service in Atlanta and Denver. • We expect US mobile subscription spending to fall to • An advantage of DTV is that it operates like a television $486 million in 2010 and then to rise to $810 million in signal, where the same broadcast can be received 2013, 8.4 percent higher on a compound annual basis by an unlimited number of viewers, rather than as a than in 2008. wireless signal, whereby transmissions to each user consume bandwidth.

Television subscriptions and license fees | North America 189 • In Canada, the evolution to next-generation networks • We expect mobile TV in Canada to begin to gain is accelerating. An auction for advanced wireless momentum in 2010 with a slow take-up rate. As in the spectrum was completed in July 2008, raising around United States, we expect subscription services to be $4 billion. Telus and BCE are jointly spending more competing with free services. We project subscription than $900 million to upgrade their wireless networks spending to increase from $4 million in 2010 to $42 using the new spectrum. The creation of a new wireless million in 2013. infrastructure is expected to pave the way for the • The overall mobile television subscription market in introduction of mobile television. North America will total a projected $852 million in 2013, representing a 9.5 percent compound annual increase from 2008.

Mobile TV subscription market† (US$ millions) 2009–13 North America 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 180 450 540 504 486 522 630 810 8.4 Canada — — ‡ ‡ 4 9 20 42 — Total 180 450 540 504 490 531 650 852 9.5

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile TV subscription market growth (%) 2009–13 North America 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 150.0 20.0 –6.7 –3.6 7.4 20.7 28.6 8.4 Canada — — — — 125.0 122.2 110.0 — Total 150.0 20.0 –6.7 –2.8 8.4 22.4 31.1 9.5

Sources: Cable Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

190 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Europe, Middle East, Africa (EMEA)

The outlook in brief Overview • Competition from free services will slow growth in • The TV subscription and license fee market in EMEA multichannel subscriptions in the near term. will expand at a 5.4 percent compound annual rate to $96.7 billion in 2013 from $74.3 billion in 2008. • Digital household growth will spur video-on-demand spending and support a pay-per-view market over the • Subscriptions will grow at a 6.2 percent compound latter part of the forecast period, offsetting declines annual rate to $64.4 billion in 2013. in 2009. • Video-on-demand in Western Europe will more than • Growth in advertiser-supported services will limit the double from 2010 to 2013 and will average a 22.1 potential for mobile television subscriptions. percent compound annual increase to $3.4 billion in 2013 from $1.2 billion in 2008. • Rate increases will contribute to modest growth in public TV license fees. • Pay-per-view in Western Europe will total an estimated $1 billion in 2013, down 0.7 percent on a compound annual basis. • Public TV license fees will expand at a 1.9 percent compound annual rate to $26.5 billion in 2013 from $24.1 billion in 2008. • Mobile television subscription spending will total an estimated $1.4 billion in 2013.

TV subscription and license fee market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Subscriptions 31,563 35,042 38,848 43,249 47,725 48,740 50,108 53,583 58,750 64,397 Pay-per-view 652 750 894 953 1,040 916 870 899 947 1,005 Video-on-demand 100 249 433 830 1,245 1,156 1,196 1,673 2,517 3,375 Public TV license fees 21,608 22,419 22,933 23,631 24,102 25,130 25,801 26,138 26,378 26,458 Mobile TV — — 42 74 178 200 288 455 851 1,437 Total 53,923 58,460 63,150 68,737 74,290 76,142 78,263 82,748 89,443 96,672

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | EMEA 191 TV subscription and license fee market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Subscriptions 8.6 11.0 10.9 11.3 10.3 2.1 2.8 6.9 9.6 9.6 6.2 Pay-per-view 19.6 15.0 19.2 6.6 9.1 –11.9 –5.0 3.3 5.3 6.1 –0.7 Video-on-demand 177.8 149.0 73.9 91.7 50.0 –7.1 3.5 39.9 50.4 34.1 22.1 Public TV license fees 2.4 3.8 2.3 3.0 2.0 4.3 2.7 1.3 0.9 0.3 1.9 Mobile TV — — — 76.2 140.5 12.4 44.0 58.0 87.0 68.9 51.8 Total 6.3 8.4 8.0 8.8 8.1 2.5 2.8 5.7 8.1 8.1 5.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Western Europe will grow at a 5.3 percent rate • Middle East/Africa will average 5.6 percent com- compounded annually, with spending reaching $86.6 pounded annually to $3.4 billion in 2013. billion in 2013. • The United Kingdom is the largest market in the region, • Central and Eastern Europe will grow at a projected 7 at $15.7 billion in 2008, followed by Germany at $12.3 percent rate on a compound annual basis to $6.7 billion billion and France at $10 billion, in each case buoyed in 2013. by large public TV license fees. Together, the top three countries account for 51 percent of total spending in EMEA and 60 percent of public TV license fees.

192 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 TV subscription and license fee market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1,540 1,651 1,735 1,905 2,014 2,045 2,129 2,231 2,363 2,534 4.7 Belgium 1,543 1,683 1,796 1,926 2,067 2,104 2,164 2,306 2,493 2,683 5.4 Denmark 1,489 1,553 1,639 1,731 1,820 1,857 1,959 2,035 2,146 2,305 4.8 Finland 559 593 609 632 608 661 683 718 769 832 6.5 France 6,644 7,263 7,923 9,253 10,002 10,604 10,926 11,702 12,587 13,354 6.0 Germany 10,797 11,343 11,775 12,008 12,338 12,585 12,741 13,078 13,647 14,180 2.8 Greece 450 471 498 546 569 579 599 641 697 758 5.9 Ireland 556 597 634 671 721 747 769 820 892 982 6.4 Italy 4,207 4,620 5,211 5,852 6,599 6,769 7,164 7,893 9,107 10,851 10.5 Netherlands 2,729 2,987 3,217 3,498 3,774 3,857 4,007 4,360 4,806 5,142 6.4 Norway 1,080 1,241 1,363 1,557 1,697 1,772 1,836 2,002 2,118 2,236 5.7 Portugal 817 906 1,010 1,107 1,243 1,309 1,383 1,500 1,685 1,874 8.6 Spain 2,593 2,830 3,032 3,241 3,916 3,849 3,911 4,141 4,544 5,124 5.5 Sweden 1,744 1,852 1,930 2,116 2,216 2,264 2,346 2,440 2,548 2,664 3.8 Switzerland 1,283 1,339 1,435 1,524 1,645 1,720 1,805 1,878 2,029 2,154 5.5 United Kingdom 11,410 12,337 13,484 14,569 15,726 15,844 15,985 16,621 17,873 18,928 3.8 Western Europe total 49,441 53,266 57,291 62,136 66,955 68,566 70,407 74,366 80,304 86,601 5.3 Central and Eastern Europe Czech Republic 367 496 547 605 672 699 735 800 883 974 7.7 Hungary 204 230 258 285 322 334 347 372 412 456 7.2 Poland 1,036 1,181 1,368 1,596 1,829 1,837 1,853 1,922 2,009 2,128 3.1 Romania 404 465 525 604 639 643 648 655 666 685 1.4 Russia 280 429 537 650 754 816 882 1,012 1,237 1,579 15.9 Turkey 302 344 397 469 558 590 627 695 787 882 9.6 Central and Eastern Europe total 2,593 3,145 3,632 4,209 4,774 4,919 5,092 5,456 5,994 6,704 7.0 Middle East/Africa Israel 180 190 201 213 225 233 241 255 271 288 5.1 Saudi Arabia/Pan Arab ‡ 1,018 1,089 1,181 1,255 1,331 1,377 1,432 1,515 1,613 1,711 5.2 South Africa 691 770 845 924 1,005 1,047 1,091 1,156 1,261 1,368 6.4 Middle East/Africa total 1,889 2,049 2,227 2,392 2,561 2,657 2,764 2,926 3,145 3,367 5.6 EMEA total 53,923 58,460 63,150 68,737 74,290 76,142 78,263 82,748 89,443 96,672 5.4

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | EMEA 193 Subscription spending Subscription TV household growth in EMEA (%) • The proliferation of free digital terrestrial television 10 in EMEA and the availability of free satellite services in several countries have cut into subscription TV 8 household growth during the past three years. After 6 growing by more than 7 percent annually during 2004–05, growth slowed to an average of 4.9 percent 4 compounded annually during the past three years. • The deteriorating economic environment will further 2 cut into subscription household growth during the 0 next two years. A decline in discretionary income and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 the desire of households to increase their savings will dampen demand to add another monthly expense. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates We expect that reluctance to have two effects. There will be (1) a slower take-up rate for new subscriptions • The overall number of subscription households will and (2) cutbacks in premium services, pay-per-view, increase at a 2.9 percent compound annual rate in and video-on-demand. At the same time, people tend Western Europe, by 4 percent compounded annually to stay home more during economic downturns, and in Middle East/Africa, and at a 5.3 percent compound television viewing generally rises. Consequently, we annual rate in Central and Eastern Europe. do not anticipate any widespread cancellation of basic • By 2013 there will be an estimated 98.7 million subscription services. subscription households in Western Europe from 85.4 • We project slower subscription household growth million in 2008. Subscription TV household penetration during the next two years and slower growth in will climb to 57.7 percent from 51.7 percent in 2008. spending per household. With respect to subscription • Central and Eastern Europe will expand from 33.8 households, we expect annual increases to drop to less million in 2008 to 43.7 million in 2013. Penetration will than 2 percent annually. When economic conditions increase to 43.6 percent from 34.7 percent. improve, which we expect during 2011–13, spending on discretionary services tends to rise. We expect that • Middle East/Africa has the highest subscription TV development to lead to faster subscription household penetration of the three areas of EMEA, at 72.6 percent growth, with increases climbing to 4.2 percent in 2011 in 2008. Penetration is high in Israel and Saudi Arabia/ and to more than 5 percent during 2012–13. We also Pan Arab, and there are fewer free services available. expect faster growth in spending per household as Subscription households will rise from 30.8 million in more households trade up to digital services and spend 2008 to 37.4 million in 2013. Penetration will increase to more on premium services. 83.3 percent in 2013. • Helping offset the impact of the economic cycle is • For EMEA as a whole, the number of subscription the appeal of triple-play services and the desire for TV households will increase from 150 million in 2008 increased content. Cable companies have invested to 179.7 million in 2013, a 3.7 percent compound billions in recent years in upgrading their plants to annual gain. By 2013, 56.9 percent of TV households enable them to offer telephone service, enhanced will subscribe to a multichannel service, up from 49.2 broadband, and digital television in a combined percent in 2008. package that offers implicit discounts for each component when purchased together.

194 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Subscription TV households (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 2.76 2.85 2.91 2.97 3.06 3.11 3.16 3.25 3.34 3.39 2.1 Belgium 4.57 4.68 4.85 4.95 5.15 5.20 5.24 5.35 5.46 5.53 1.4 Denmark 1.83 1.88 1.92 1.96 2.03 2.07 2.12 2.19 2.26 2.31 2.6 Finland 1.09 1.15 1.19 1.22 1.26 1.28 1.31 1.36 1.41 1.48 3.3 France 7.68 8.64 9.60 11.70 12.55 12.77 13.10 14.00 14.85 15.50 4.3 Germany 20.08 19.64 19.40 18.88 18.68 18.19 18.15 18.42 18.81 19.40 0.8 Greece 0.22 0.24 0.27 0.32 0.34 0.35 0.37 0.41 0.46 0.52 8.9 Ireland 0.95 0.99 1.03 1.06 1.10 1.13 1.16 1.21 1.29 1.38 4.6 Italy 3.35 3.90 4.60 5.20 6.00 6.20 6.45 7.20 8.40 10.20 11.2 Netherlands 7.25 7.51 7.62 7.78 7.85 7.78 7.76 7.84 7.91 7.83 –0.1 Norway 1.44 1.59 1.66 1.81 1.89 1.93 1.96 2.04 2.06 2.08 1.9 Portugal 1.66 1.73 1.77 1.81 1.86 1.89 1.93 1.99 2.06 2.16 3.0 Spain 2.77 3.37 3.75 3.98 4.20 4.23 4.26 4.36 4.54 4.82 2.8 Sweden 3.15 3.27 3.34 3.49 3.63 3.68 3.75 3.87 3.97 4.08 2.4 Switzerland 2.70 2.76 2.82 2.88 2.95 3.11 3.18 3.26 3.33 3.40 2.9 United Kingdom 10.71 11.15 11.89 12.43 12.88 12.95 13.03 13.30 14.10 14.60 2.5 Western Europe total 72.21 75.35 78.62 82.44 85.43 85.87 86.93 90.05 94.25 98.68 2.9 Central and Eastern Europe Czech Republic 1.20 1.30 1.41 1.56 1.75 1.82 1.92 2.10 2.30 2.50 7.4 Hungary 2.55 2.65 2.75 2.83 2.99 3.05 3.12 3.24 3.39 3.55 3.5 Poland 4.65 5.50 6.50 7.82 9.28 9.66 9.89 10.20 10.60 11.05 3.6 Romania 3.11 3.79 4.40 5.25 5.58 5.60 5.62 5.67 5.75 5.90 1.1 Russia 6.10 8.71 9.76 10.77 11.48 11.95 12.45 13.50 15.10 17.05 8.2 Turkey 2.05 2.20 2.40 2.55 2.70 2.79 2.90 3.09 3.36 3.62 6.0 Central and Eastern Europe total 19.66 24.15 27.22 30.78 33.78 34.87 35.90 37.80 40.50 43.67 5.3 Middle East/Africa Israel 1.30 1.33 1.37 1.42 1.47 1.51 1.55 1.62 1.70 1.78 3.9 Saudi Arabia/Pan Arab† 21.20 22.40 24.00 25.20 26.40 27.00 27.76 29.02 30.54 32.04 3.9 South Africa 2.10 2.30 2.50 2.70 2.90 2.96 3.02 3.14 3.37 3.57 4.2 Middle East/Africa total 24.60 26.03 27.87 29.32 30.77 31.47 32.33 33.78 35.61 37.39 4.0 EMEA total 116.47 125.53 133.71 142.54 149.98 152.21 155.16 161.63 170.36 179.74 3.7

Note: Does not include free-to-air DTT and satellite households. †Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | EMEA 195 Subscription TV penetration of TV households (%)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Western Europe Austria 84.9 86.9 87.4 87.4 88.7 89.6 90.5 92.6 94.6 95.5 Belgium 99.3 99.4 100.4 100.2 102.0 100.8 99.4 99.4 99.5 98.8 Denmark 75.0 76.7 78.0 79.4 81.9 83.1 84.8 87.3 89.7 91.3 Finland 54.5 57.2 59.5 61.0 64.6 66.0 67.9 70.8 73.8 77.9 France 31.7 35.3 38.9 46.9 49.8 50.2 51.0 53.9 56.7 58.6 Germany 55.5 52.7 52.2 51.0 50.6 49.4 49.5 50.3 51.5 53.3 Greece 7.0 7.6 8.6 10.1 10.7 11.0 11.6 12.8 14.3 16.1 Ireland 66.4 68.3 70.1 71.1 72.8 73.9 74.8 77.1 81.1 85.7 Italy 15.1 17.3 20.2 22.5 25.6 26.2 26.9 29.6 34.1 41.0 Netherlands 103.6 106.1 106.6 107.6 107.6 105.8 104.6 104.8 104.9 103.0 Norway 74.2 80.7 83.0 89.6 91.7 93.2 94.2 97.6 98.1 98.6 Portugal 47.4 49.4 50.7 51.9 53.3 54.3 55.5 57.2 59.4 62.2 Spain 18.5 22.0 24.0 25.0 25.9 25.6 25.4 25.5 26.1 27.2 Sweden 72.4 74.3 75.1 77.6 79.8 80.0 80.6 82.3 83.6 85.0 Switzerland 90.0 90.5 91.0 91.4 92.2 95.7 96.4 97.3 98.5 99.7 United Kingdom 42.8 44.4 47.2 49.1 50.7 50.8 50.9 51.8 54.7 56.4 Western Europe total 45.3 46.6 48.3 50.2 51.7 51.6 51.8 53.3 55.4 57.7 Central and Eastern Europe Czech Republic 31.6 33.8 36.2 39.5 43.8 44.9 46.8 50.6 54.8 58.8 Hungary 66.9 69.0 71.1 72.6 76.1 77.0 78.2 80.6 83.7 87.0 Poland 34.8 41.0 48.3 57.9 68.5 71.1 72.6 74.7 77.4 80.4 Romania 46.4 56.4 65.5 78.0 82.8 83.0 83.1 83.8 84.8 86.9 Russia 11.8 16.8 18.7 20.6 22.0 22.8 23.7 25.7 28.7 32.3 Turkey 13.1 13.8 14.7 15.3 16.0 16.2 16.6 17.4 18.6 19.7 Central and Eastern Europe total 20.6 25.2 28.2 31.8 34.7 35.6 36.5 38.2 40.7 43.6 Middle East/Africa Israel 77.4 76.4 76.5 76.8 77.0 77.0 77.1 78.6 80.6 82.4 Saudi Arabia/Pan Arab † 66.3 69.1 73.2 75.9 78.6 79.4 80.7 83.4 86.8 90.0 South Africa 31.6 34.3 37.0 39.7 42.3 42.9 43.5 44.9 47.8 50.3 Middle East/Africa total 61.0 63.7 67.4 70.1 72.6 73.4 74.6 77.0 80.3 83.3 EMEA total 39.5 42.1 44.5 47.1 49.2 49.5 50.1 51.9 54.3 56.9

Note: Does not include free-to-air DTT and satellite households. †Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

196 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 IPTV households • In Switzerland, Swisscom attracted around 100,000 IPTV subscribers with its IPTV offering Bluewin TV • Telephone companies have responded to the threat of in 2008. Swisscom adopted a triple-screen strategy inroads in their telephone market from cable by using (mobile, PC, and TV), and it plans to invest 8 billion their broadband Internet infrastructure to deliver IPTV in Swiss francs ($7 billion) to roll out fiber networks their own triple-play bundles. in the form of FTTH. We expect the IPTV market in • In Europe, most broadband Internet subscribers are Switzerland to triple during the next five years to with telephone companies. If the telcos can add TV, the 300,000 customers in 2013. package would be more attractive. IPTV offers more • IPTV is not yet significant in Central and Eastern VOD options than most cable providers and has an Europe, although there is activity in each country. advantage over satellite in that it offers recent movies Although expansion plans in Russia currently are on on VOD. Satellite providers are offering VOD through hold because of the economy, we look for Russia to their DVR services, enabling subscribers to access eventually become a major IPTV market in EMEA, with previously aired movies and TV shows, but not films 1.2 million subscribers in 2013. that have yet to be shown on television. • We expect IPTV launches in Middle East/Africa during • France has the largest IPTV market in EMEA, with 3.1 the next two years, but the IPTV market in that area will million subscribers in 2008. All of the major operators remain small. and two resellers offer triple play in France, making it the most competitive IPTV market. Fiber to the home • The overall IPTV subscriber base rose by 51 percent (FTTH), however, will be a major competitive factor for in 2008 to 7.4 million. We expect much smaller gains France’s main triple-play providers—Free, Orange, of less than 15 percent annually during the next two and —as FTTH rollouts could cut into years as difficulties in obtaining financing slow the pace IPTV growth. of system rollouts. The pace of new construction will accelerate in 2011 as credit becomes more available, • In Italy, there is no , which creates and subscriber growth will improve to an annual opportunities for IPTV because there is less average of nearly 30 percent. By 2013, there will be an competition. Italy had an average of 1.3 million IPTV estimated 20.2 million IPTV households in EMEA, a 22.1 subscribers in 2008, the second-largest market. percent compound annual increase. • Spain ranked third, with 760,000 subscribers, led by • IPTV will generate 79 percent of the entire growth in Telefónica’s Imagenio triple-play service. subscription households in Western Europe during the • We expect the UK to become a major IPTV market next five years and 43 percent of growth for EMEA as in the coming years as new services were recently a whole. launched in that country. BT Vision launched a • IPTV will account for 18 percent of all television subscription video-on-demand service in 2008, the first subscription households in Western Europe in 2013 company in Europe to do so. It has a content deal with and 11 percent of all subscription households in EMEA. Universal Pictures, which should make its service more Overall penetration of IPTV households will increase to attractive. We look for the UK to reach 1.7 million IPTV 10.2 percent in Western Europe and to 6.4 percent in subscribers in 2013, becoming the third-largest market. all of EMEA. • In Germany, Deutsche Telekom is planning to spend billions of dollars to enhance its IPTV service. We expect Germany to be one of the faster-growing IPTV markets, with a projected 1.6 million subscribers in 2013 from only 200,000 in 2008.

Television subscriptions and license fees | EMEA 197 IPTV households (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria — 0.01 0.02 0.03 0.08 0.12 0.17 0.26 0.35 0.40 38.0 Belgium — 0.02 0.09 0.22 0.38 0.42 0.45 0.53 0.60 0.65 11.3 Denmark — 0.01 0.02 0.03 0.06 0.08 0.11 0.18 0.25 0.30 38.0 Finland — — — — — — 0.01 0.02 0.04 0.07 — France 0.13 0.54 0.90 2.50 3.10 3.25 3.50 4.10 4.60 5.00 10.0 Germany — 0.01 0.02 0.05 0.20 0.23 0.30 0.60 1.00 1.60 51.6 Greece — — — 0.01 0.03 0.04 0.06 0.11 0.16 0.21 47.6 Ireland — — — — 0.01 0.02 0.03 0.05 0.08 0.12 64.4 Italy 0.17 0.30 0.60 0.80 1.30 1.40 1.55 2.00 2.80 4.00 25.2 Netherlands — 0.04 0.06 0.14 0.25 0.30 0.40 0.55 0.70 0.70 22.9 Norway 0.02 0.04 0.05 0.08 0.13 0.15 0.17 0.25 0.30 0.35 21.9 Portugal — — 0.01 0.02 0.04 0.06 0.08 0.12 0.17 0.25 44.3 Spain 0.01 0.21 0.41 0.56 0.76 0.80 0.83 0.89 1.00 1.15 8.6 Sweden — 0.02 0.04 0.14 0.26 0.30 0.35 0.44 0.51 0.58 17.4 Switzerland — — 0.02 0.07 0.10 0.13 0.16 0.20 0.25 0.30 24.6 United Kingdom 0.01 0.03 0.04 0.08 0.23 0.30 0.38 0.60 1.30 1.70 49.2 Western Europe total 0.34 1.23 2.28 4.73 6.93 7.60 8.55 10.90 14.11 17.38 20.2 Central and Eastern Europe Czech Republic — — 0.01 0.06 0.15 0.18 0.22 0.30 0.40 0.50 27.2 Hungary — — — 0.01 0.04 0.05 0.06 0.09 0.14 0.20 38.0 Poland — — 0.01 0.02 0.08 0.11 0.14 0.20 0.30 0.45 41.3 Romania — † † † † † † † † † — Russia — 0.01 0.06 0.12 0.23 0.25 0.30 0.55 0.85 1.20 39.2 Turkey — — — — 0.01 0.02 0.05 0.09 0.16 0.22 85.6 Central and Eastern Europe total 0.00 0.01 0.08 0.21 0.51 0.61 0.77 1.23 1.85 2.57 38.2 Middle East/Africa Israel — — — — — 0.01 0.02 0.04 0.07 0.10 — Saudi Arabia/Pan Arab‡ — — — — — — 0.01 0.02 0.04 0.04 — South Africa — — — — — 0.01 0.02 0.04 0.07 0.07 — Middle East/Africa total 0.00 0.00 0.00 0.00 0.00 0.02 0.05 0.10 0.18 0.21 — EMEA total 0.34 1.24 2.36 4.94 7.44 8.23 9.37 12.23 16.14 20.16 22.1

†Less than 5,000. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

198 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 IPTV penetration of TV households (%)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Western Europe Austria — 0.3 0.6 0.9 2.3 3.5 4.9 7.4 9.9 11.3 Belgium — 0.4 1.9 4.5 7.5 8.1 8.5 9.9 10.9 11.6 Denmark — 0.4 0.8 1.2 2.4 3.2 4.4 7.2 9.9 11.9 Finland — — — — — — 0.5 1.0 2.1 3.7 France 0.5 2.2 3.6 10.0 12.3 12.8 13.6 15.8 17.6 18.9 Germany — 0.0 0.1 0.1 0.5 0.6 0.8 1.6 2.7 4.4 Greece — — — 0.3 0.9 1.3 1.9 3.4 5.0 6.5 Ireland — — — — 0.7 1.3 1.9 3.2 5.0 7.5 Italy 0.8 1.3 2.6 3.5 5.6 5.9 6.5 8.2 11.4 16.1 Netherlands — 0.6 0.8 1.9 3.4 4.1 5.4 7.4 9.3 9.2 Norway 1.0 2.0 2.5 4.0 6.3 7.2 8.2 12.0 14.3 16.6 Portugal — — 0.3 0.6 1.1 1.7 2.3 3.4 4.9 7.2 Spain 0.1 1.4 2.6 3.5 4.7 4.8 4.9 5.2 5.7 6.5 Sweden — 0.5 0.9 3.1 5.7 6.5 7.5 9.4 10.7 12.1 Switzerland — — — 2.2 3.1 4.0 4.8 6.0 7.4 8.8 United Kingdom 0.0 0.1 0.2 0.3 0.9 1.2 1.5 2.3 5.0 6.6 Western Europe total 0.2 0.8 1.4 2.9 4.2 4.6 5.1 6.5 8.3 10.2 Central and Eastern Europe Czech Republic — — 0.3 1.5 3.8 4.4 5.4 7.2 9.5 11.8 Hungary — — — 0.3 1.0 1.3 1.5 2.2 3.5 4.9 Poland — — 0.1 0.1 0.6 0.8 1.0 1.5 2.2 3.3 Romania — — — — — — — — — — Russia — 0.0 0.1 0.2 0.4 0.5 0.6 1.0 1.6 2.3 Turkey — — — — — 0.1 0.3 0.5 0.9 1.2 Central and Eastern Europe total 0.0 0.0 0.1 0.2 0.5 0.6 0.8 1.2 1.9 2.6 Middle East/Africa Israel — — — — — 0.5 1.0 1.9 3.3 4.6 Saudi Arabia/Pan Arab † — — — — — — 0.0 0.1 0.1 0.1 South Africa — — — — — 0.1 0.3 0.6 1.0 1.0 Middle East/Africa total 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.2 0.4 0.5 EMEA total 0.1 0.4 0.8 1.6 2.4 2.7 3.0 3.9 5.1 6.4

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | EMEA 199 Cable households • With economic conditions expected to improve during the latter part of the forecast period, we expect the • The cable market is facing increased competition underlying strengths of cable—its ability to package from IPTV and from free DTT services as well as from television in a triple-play bundle and its ability to a growing subscription satellite market that typically feature video-on-demand—to lead to a rebound in offers more channels than cable does. In the UK and subscribership. Germany, the cable universe has declined in recent years, and in Israel it fell during the 2004–07 period • Cable households in all of Western Europe will decrease before stabilizing in 2008, helped by the introduction at a 0.1 percent compound annual rate to 51.6 million in of triple play. The Netherlands cable market also fell in 2013 from 51.9 million in 2008. Cable penetration of TV 2008, losing subscribers to an expanding IPTV platform. households will drop from 31.4 percent in 2008 to 30.2 percent in 2013. • Overall cable household growth averaged 4.5 percent compounded annually from 2004 to 2006, but only • In Central and Eastern Europe, there are few free 1.4 percent compounded annually during the past two services available, and IPTV is not nearly as well years. With household budgets tightening in 2009, established as it is in Western Europe. Consequently, we expect slower growth in most countries; steeper cable faces much less competition, and we expect declines in the United Kingdom, Germany, and the increases in the cable household base, with growth Netherlands; and a drop in Spain. In the UK, we project projected at 3.2 percent compounded annually to 25.3 a 5.5 percent decrease as a number of subscribers million households in 2013. Cable penetration will switch to , a free DTT service. increase to 25.2 percent in 2013 from 22.1 percent in 2008. • The overall cable universe in EMEA will edge down by 0.3 percent in 2009 to 74.1 million households. • Overall cable household growth in EMEA will average We look for 2010 to be a weak year as well, with a 0.9 percent compounded annually to 77.8 million in 0.5 percent increase. 2013. Cable household penetration will edge up to 28.4 percent in 2013 from 28.1 percent in 2008.

200 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Cable/subscription DTT households (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1.15 1.22 1.28 1.34 1.38 1.40 1.41 1.42 1.43 1.44 0.9 Belgium 4.30 4.39 4.48 4.50 4.51 4.52 4.53 4.56 4.59 4.61 0.4 Denmark 1.54 1.55 1.56 1.57 1.58 1.58 1.58 1.57 1.56 1.55 –0.4 Finland 0.95 1.00 1.02 1.04 1.06 1.07 1.08 1.10 1.12 1.14 1.5 France 3.50 4.00 4.55 5.00 5.20 5.25 5.30 5.50 5.75 5.90 2.6 Germany 19.30 18.80 18.50 17.90 17.50 17.00 16.90 16.85 16.80 16.70 –0.9 Greece 0.01 0.01 0.01 0.03 0.04 0.04 0.04 0.05 0.06 0.07 11.8 Ireland 0.54 0.56 0.58 0.59 0.60 0.61 0.62 0.63 0.65 0.67 2.2 Italy 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 — Netherlands 6.65 6.81 6.90 6.94 6.90 6.83 6.76 6.72 6.67 6.62 –0.8 Norway 0.83 0.93 0.96 1.03 1.04 1.05 1.06 1.08 1.07 1.06 0.4 Portugal 1.50 1.55 1.56 1.58 1.60 1.60 1.61 1.62 1.63 1.64 0.5 Spain 1.11 1.20 1.30 1.35 1.37 1.36 1.35 1.37 1.41 1.45 1.1 Sweden 2.40 2.45 2.49 2.52 2.53 2.53 2.54 2.55 2.56 2.58 0.4 Switzerland 2.70 2.76 2.82 2.88 2.95 2.98 3.02 3.06 3.08 3.10 1.0 United Kingdom 3.58 3.72 3.80 3.75 3.65 3.45 3.35 3.30 3.20 3.10 –3.2 Western Europe total 50.06 50.95 51.81 52.02 51.91 51.27 51.15 51.38 51.58 51.63 –0.1 Central and Eastern Europe Czech Republic 0.75 0.80 0.85 0.90 0.95 0.97 1.00 1.05 1.10 1.15 3.9 Hungary 2.15 2.15 2.21 2.28 2.40 2.45 2.50 2.55 2.60 2.65 2.0 Poland 3.55 4.00 4.50 4.60 4.70 4.80 4.90 5.05 5.20 5.35 2.6 Romania 3.11 3.64 3.79 3.55 3.60 3.60 3.60 3.62 3.65 3.70 0.5 Russia 4.85 6.80 7.40 8.10 8.50 8.75 9.00 9.35 10.00 10.80 4.9 Turkey 1.20 1.25 1.30 1.35 1.40 1.42 1.45 1.50 1.55 1.60 2.7 Central and Eastern Europe total 15.61 18.64 20.05 20.78 21.55 21.99 22.45 23.12 24.10 25.25 3.2 Middle East/Africa Israel 0.88 0.85 0.84 0.83 0.83 0.84 0.85 0.86 0.87 0.88 1.2 Saudi Arabia/Pan Arab† NA NA NA NA NA NA NA NA NA NA — South Africa NA NA NA NA NA NA NA NA NA NA — Middle East/Africa total 0.88 0.85 0.84 0.83 0.83 0.84 0.85 0.86 0.87 0.88 1.2 EMEA total 66.55 70.44 72.70 73.63 74.29 74.10 74.45 75.36 76.55 77.76 0.9

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Finnpanel, Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates, YLE

Television subscriptions and license fees | EMEA 201 Cable/subscription DTT penetration of TV households (%)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Western Europe Austria 35.4 37.2 38.4 39.4 40.0 40.3 40.4 40.5 40.5 40.6 Belgium 93.5 93.2 92.8 91.1 89.3 87.6 86.0 84.8 83.6 82.3 Denmark 63.1 63.3 63.4 63.6 63.7 63.5 63.2 62.5 61.9 61.3 Finland 47.5 49.8 51.0 52.0 54.4 55.2 56.0 57.3 58.6 60.0 France 14.5 16.4 18.4 20.0 20.6 20.6 20.6 21.2 21.9 22.3 Germany 53.3 50.4 49.7 48.4 47.4 46.2 46.0 46.0 46.0 45.9 Greece 0.3 0.3 0.3 0.9 1.3 1.3 1.3 1.6 1.9 2.2 Ireland 37.8 38.6 39.5 39.6 39.7 39.9 40.0 40.1 40.9 41.6 Italy 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Netherlands 95.0 96.2 96.5 96.0 94.6 92.9 91.1 89.8 88.5 87.1 Norway 42.8 47.2 48.0 51.0 50.5 50.7 51.0 51.7 51.0 50.2 Portugal 42.9 44.3 44.7 45.3 45.8 46.0 46.3 46.6 47.0 47.3 Spain 7.4 7.8 8.3 8.5 8.5 8.2 8.0 8.0 8.1 8.2 Sweden 55.2 55.7 56.0 56.0 55.6 55.0 54.6 54.3 53.9 53.8 Switzerland 90.0 90.5 91.0 91.4 92.2 91.7 91.5 91.3 91.1 90.9 United Kingdom 14.3 14.8 15.1 14.8 14.4 13.5 13.1 12.8 12.4 12.0 Western Europe total 31.4 31.5 31.8 31.7 31.4 30.8 30.5 30.4 30.3 30.2 Central and Eastern Europe Czech Republic 19.7 20.8 21.8 22.8 23.8 24.0 24.4 25.3 26.2 27.1 Hungary 56.4 56.0 57.1 58.5 61.1 61.9 62.7 63.4 64.2 65.0 Poland 26.5 29.8 33.4 34.1 34.7 35.3 36.0 37.0 38.0 38.9 Romania 46.4 54.2 56.4 52.7 53.4 53.3 53.3 53.5 53.8 54.5 Russia 9.3 13.1 14.2 15.5 16.3 16.7 17.1 17.8 19.0 20.5 Turkey 7.6 7.8 8.0 8.1 8.3 8.3 8.3 8.4 8.6 8.7 Central and Eastern Europe total 16.4 19.5 20.8 21.4 22.1 22.5 22.8 23.4 24.2 25.2 Middle East/Africa Israel 52.4 48.9 46.9 44.9 43.5 42.9 42.3 41.7 41.2 40.7 Saudi Arabia/Pan Arab† — — — — — — — — — — South Africa — — — — — — — — — — Middle East/Africa total 2.2 2.1 2.0 2.0 2.0 2.0 2.0 2.0 2.0 2.0 EMEA total 26.0 27.2 27.8 28.0 28.1 27.8 27.8 27.9 28.2 28.4

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

202 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Subscription satellite households • France has the third-largest subscription satellite market. Satellite will remain the last solution for • Although the subscription satellite market faces the customers to receive digital TV in remote areas same competitive forces as cable does, it has held up before the end of free-to-air TV by the end of 2011. better because satellite providers typically offer more This should lead to continued growth in satellite channels and a wider array of premium services than subscriptions, which we project will increase at a 1.6 cable does, albeit VOD is not available on satellite. percent compound annual rate to 4.6 million in 2013. Premium services refers to pay networks such as Premiere in Germany or HBO in the US. • Spain has the fourth-largest subscription satellite market in Western Europe, at 2.1 million in 2008. • The UK is the leading satellite market in EMEA, with 9 That market has been flat in recent years because million subscribers in 2008. Satellite provider BSkyB the expanding IPTV market is attracting all the new introduced three additional HD channels in 2008, subscribers. We expect an additional flat year followed although it dropped its plans to introduce a subscription by modest gains as the economy improves. We project DTT service. Following a ruling by regulatory body 1.4 percent compound annual growth to 2.2 million Ofcom, BSkyB will now be required to make first- in 2013. run films and coverage available to competitors at rates regulated by Ofcom, which • In Western Europe as a whole, we anticipate a 2.3 could cut into the ability to attract new subscribers. percent compound annual increase to 29.9 million When Freeview is included, the market in the UK is subscribers in 2013. Satellite penetration in Western approaching saturation. Satellite subscriber growth will Europe will increase to 17.5 percent in 2013 from 16.2 slow from a 6 percent compound annual increase from percent in 2008. 2004 to 2008 to a 1.7 percent compound annual rate, • As with cable, we expect faster increases in satellite resulting in 9.8 million subscribers in 2013. in Central and Eastern Europe, which we project at • Italy has the next-largest satellite market, at 4.7 million 6.2 percent compounded annually. Satellite reaches in 2008. Satellite faces less competition in Italy than areas not covered by cable, and its extensive channel in other countries because there is no cable. The capacity will drive demand. Penetration will increase government announced in late 2008 that the lower from 12 percent in 2008 to 15.8 percent in 2013. value-added tax (VAT) of 10 percent enjoyed by • The number of subscription satellite households in subscription services will no longer apply, and the EMEA will increase from 39.1 million in 2008 to 46.5 VAT will rise to 20 percent, which we expect will lead million in 2013. Penetration will average 17 percent in to slower subscription growth. The market is also 2013 from 14.8 percent in 2008. becoming more competitive, with Mediaset’s launching a satellite service to compete with Italia’s. We look for growth to slow in the near term and then to pick up during 2011–13 as the near-term impact of the weak economy and higher VAT run their course and a more competitive market fuels growth.

Television subscriptions and license fees | EMEA 203 Subscription satellite households (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1.61 1.62 1.61 1.60 1.60 1.59 1.58 1.57 1.56 1.55 –0.6 Belgium 0.27 0.27 0.28 0.23 0.26 0.26 0.26 0.26 0.27 0.27 0.8 Denmark 0.29 0.32 0.34 0.36 0.39 0.41 0.43 0.44 0.45 0.46 3.4 Finland 0.14 0.15 0.17 0.18 0.20 0.21 0.22 0.24 0.25 0.27 6.2 France 4.05 4.10 4.15 4.20 4.25 4.27 4.30 4.40 4.50 4.60 1.6 Germany 0.78 0.83 0.88 0.93 0.98 0.96 0.95 0.97 1.01 1.10 2.3 Greece 0.21 0.23 0.26 0.29 0.30 0.31 0.33 0.36 0.40 0.45 8.4 Ireland 0.41 0.43 0.45 0.47 0.49 0.50 0.51 0.53 0.56 0.59 3.8 Italy 3.18 3.60 4.00 4.40 4.70 4.80 4.90 5.20 5.60 6.20 5.7 Netherlands 0.60 0.70 0.72 0.70 0.70 0.65 0.60 0.57 0.54 0.51 –6.1 Norway 0.59 0.62 0.65 0.70 0.72 0.73 0.73 0.71 0.69 0.67 –1.4 Portugal 0.16 0.18 0.20 0.21 0.22 0.23 0.24 0.25 0.26 0.27 4.2 Spain 1.65 1.96 2.04 2.07 2.07 2.07 2.08 2.10 2.13 2.22 1.4 Sweden 0.75 0.80 0.81 0.83 0.84 0.85 0.86 0.88 0.90 0.92 1.8 Switzerland 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 — United Kingdom 7.12 7.40 8.05 8.60 9.00 9.20 9.30 9.40 9.60 9.80 1.7 Western Europe total 21.81 23.21 24.61 25.77 26.72 27.04 27.29 27.88 28.72 29.88 2.3 Central and Eastern Europe Czech Republic 0.45 0.50 0.55 0.60 0.65 0.67 0.70 0.75 0.80 0.85 5.5 Hungary 0.40 0.50 0.54 0.55 0.55 0.55 0.56 0.60 0.65 0.70 4.9 Poland 1.10 1.50 2.00 3.20 4.50 4.75 4.85 4.95 5.10 5.25 3.1 Romania — 0.15 0.61 1.70 1.98 2.00 2.02 2.05 2.10 2.20 2.1 Russia 1.25 1.90 2.30 2.55 2.75 2.95 3.15 3.60 4.25 5.05 12.9 Turkey 0.85 0.95 1.10 1.20 1.30 1.35 1.40 1.50 1.65 1.80 6.7 Central and Eastern Europe total 4.05 5.50 7.10 9.80 11.73 12.27 12.68 13.45 14.55 15.85 6.2 Middle East/Africa Israel 0.42 0.48 0.53 0.59 0.64 0.66 0.68 0.72 0.76 0.80 4.6 Saudi Arabia/Pan Arab† NA NA NA NA NA NA NA NA NA NA — South Africa NA NA NA NA NA NA NA NA NA NA — Middle East/Africa total 0.42 0.48 0.53 0.59 0.64 0.66 0.68 0.72 0.76 0.80 4.6 EMEA total 26.28 29.19 32.24 36.16 39.09 39.97 40.65 42.05 44.03 46.53 3.5

Note: Does not include free-to-air satellite households. †Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

204 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Subscription satellite penetration of TV households (%)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Western Europe Austria 49.5 49.4 48.3 47.1 46.4 45.8 45.3 44.7 44.2 43.7 Belgium 5.9 5.7 5.8 4.7 5.1 5.0 4.9 4.8 4.9 4.8 Denmark 11.9 13.1 13.8 14.6 15.7 16.5 17.2 17.5 17.9 18.2 Finland 7.0 7.5 8.5 9.0 10.3 10.8 11.4 12.5 13.1 14.2 France 16.7 16.8 16.8 16.8 16.9 16.8 16.7 17.0 17.2 17.4 Germany 2.2 2.2 2.4 2.5 2.7 2.6 2.6 2.7 2.8 3.0 Greece 6.7 7.3 8.3 9.2 9.5 9.7 10.3 11.3 12.5 14.0 Ireland 28.7 29.7 30.6 31.5 32.5 32.7 32.9 33.8 35.2 36.6 Italy 14.3 16.0 17.5 19.0 20.1 20.3 20.4 21.4 22.8 24.9 Netherlands 8.6 9.9 10.1 9.7 9.6 8.8 8.1 7.6 7.2 6.7 Norway 30.4 31.5 32.5 34.7 35.0 35.3 35.1 34.0 32.9 31.8 Portugal 4.6 5.1 5.7 6.0 6.3 6.6 6.9 7.2 7.5 7.8 Spain 11.0 12.8 13.1 13.0 12.8 12.5 12.4 12.3 12.2 12.5 Sweden 17.2 18.2 18.2 18.4 18.5 18.5 18.5 18.7 18.9 19.2 Switzerland 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 United Kingdom 28.5 29.5 31.9 34.0 35.4 36.1 36.3 36.6 37.2 37.8 Western Europe total 13.7 14.4 15.1 15.7 16.2 16.2 16.3 16.5 16.9 17.5 Central and Eastern Europe Czech Republic 11.8 13.0 14.1 15.2 16.3 16.5 17.1 18.1 19.0 20.0 Hungary 10.5 13.0 14.0 14.1 14.0 13.9 14.0 14.9 16.0 17.2 Poland 8.2 11.2 14.9 23.7 33.2 35.0 35.6 36.2 37.2 38.2 Romania 0.0 2.2 9.1 25.3 29.4 29.6 29.9 30.3 31.0 32.4 Russia 2.4 3.7 4.4 4.9 5.3 5.6 6.0 6.8 8.1 9.6 Turkey 5.4 5.9 6.7 7.2 7.7 7.8 8.0 8.4 9.1 9.8 Central and Eastern Europe total 4.3 5.7 7.4 10.1 12.0 12.5 12.9 13.6 14.6 15.8 Middle East/Africa Israel 25.0 27.6 29.6 31.9 33.5 33.7 33.8 35.0 36.0 37.0 Saudi Arabia/Pan Arab† — — — — — — — — — — South Africa — — — — — — — — — — Middle East/Africa total 1.0 1.2 1.3 1.4 1.5 1.5 1.6 1.6 1.7 1.8 EMEA total 10.3 11.3 12.3 13.8 14.8 15.0 15.2 15.6 16.2 17.0

Note: Does not include free-to-air satellite households. †Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | EMEA 205 Subscription spending • Subscription spending in EMEA will grow at rates in excess of 9 percent annually during 2012 and 2013 and • We expect the recession to cut into spending on the will average 6.2 percent compounded annually for the discretionary components of the market—particularly, forecast period as a whole. Subscription spending will premium services and digital tiers, as well as video- rise from $47.7 billion in 2008 to $64.4 billion in 2013. on-demand and pay-per-view. There will be less of an impact on basic services, although providers will likely • Subscription spending in Western Europe will grow at restrain rate increases. a 6.1 percent compound annual rate to $55.3 billion in 2013. • We expect subscription spending, which has grown at double-digit and high-single-digit rates during the past • We expect subscription spending in Central and five years, to slow markedly, with gains dropping to less Eastern Europe to increase from $4.2 billion to $6 than 3 percent annually during the next two years. billion, a 7.3 percent compound annual advance. • Thereafter, as economic conditions improve, there will • Middle East/Africa will be the slowest-growing area be less restraint on discretionary services, and we look in EMEA, at 5.8 percent compounded annually, with for a jump in spending per household. In addition to a spending reaching $3.1 billion in 2013. stronger economy, subscribers will be attracted to more channels in total and more HD channels. • Spending per subscription household on TV subscriptions (not including video-on-demand, pay- per-view, or broadband or telephone service) rose at rates in excess of 4 percent annually during 2006–08. We expect that growth to drop to less than 1 percent annually during the next two years. We then look for a rebound, with increases of around 4 percent annually during 2012 and 2013.

Subscription spending growth per household in EMEA (%) 6

5

4

3

2

1

0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

206 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 TV subscription market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 771 850 920 991 1,074 1,098 1,127 1,199 1,291 1,370 5.0 Belgium 882 945 1,021 1,087 1,175 1,196 1,215 1,292 1,376 1,456 4.4 Denmark 685 740 796 859 937 965 999 1,057 1,144 1,224 5.5 Finland 211 233 250 268 288 294 304 328 356 389 6.2 France 3,803 4,324 4,872 6,041 6,612 6,784 7,017 7,621 8,214 8,710 5.7 Germany 4,655 4,902 5,170 5,374 5,685 5,590 5,658 5,984 6,508 7,155 4.7 Greece 189 208 234 280 299 309 328 366 413 468 9.4 Ireland 350 382 416 446 483 500 520 553 612 679 7.0 Italy 1,891 2,249 2,735 3,173 3,761 3,919 4,134 4,741 5,716 7,165 13.8 Netherlands 2,005 2,262 2,495 2,732 2,950 3,006 3,099 3,338 3,612 3,815 5.3 Norway 665 802 912 1,079 1,207 1,274 1,335 1,477 1,579 1,683 6.9 Portugal 773 850 918 985 1,079 1,112 1,152 1,223 1,339 1,479 6.5 Spain 2,403 2,618 2,763 2,898 3,438 3,465 3,517 3,675 3,915 4,257 4.4 Sweden 860 923 973 1,049 1,124 1,153 1,188 1,254 1,323 1,404 4.5 Switzerland 688 734 781 830 883 939 968 1,011 1,070 1,130 5.1 United Kingdom 6,935 7,581 8,490 9,313 10,134 10,273 10,424 10,845 11,963 12,870 4.9 Western Europe total 27,766 30,603 33,746 37,405 41,129 41,877 42,985 45,964 50,431 55,254 6.1 Central and Eastern Europe Czech Republic 227 269 317 372 436 460 492 553 630 711 10.3 Hungary 204 230 258 285 322 334 347 372 412 456 7.2 Poland 810 972 1,165 1,397 1,656 1,707 1,723 1,790 1,873 1,980 3.6 Romania 281 346 405 487 521 524 528 534 544 562 1.5 Russia 280 429 537 650 754 808 865 978 1,166 1,440 13.8 Turkey 302 344 397 469 558 590 627 695 787 882 9.6 Central and Eastern Europe total 2,104 2,590 3,079 3,660 4,247 4,423 4,582 4,922 5,412 6,031 7.3 Middle East/Africa Israel 102 109 117 126 135 140 145 157 170 184 6.4 Saudi Arabia/Pan Arab‡ 1,018 1,089 1,181 1,255 1,331 1,377 1,432 1,515 1,613 1,711 5.2 South Africa 573 651 725 803 883 923 964 1,025 1,124 1,217 6.6 Middle East/Africa total 1,693 1,849 2,023 2,184 2,349 2,440 2,541 2,697 2,907 3,112 5.8 EMEA total 31,563 35,042 38,848 43,249 47,725 48,740 50,108 53,583 58,750 64,397 6.2

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | EMEA 207 Video-on-demand and pay-per-view • With the economy rapidly weakening, we look for a significant turnaround in per-household spending • In the process of upgrading to provide triple-play during the next two years and project a cumulative 27 services, cable operators are creating a digital platform percent decline. Annual spending per VOD household suitable for video-on-demand. Cable operators are will drop by more than $20. promoting their VOD capabilities as an advantage over satellite and to compete with IPTV, which is actively • The anticipated rebound in the economy will then lead promoting its own VOD services. to a more-than-proportional increase in discretionary items such as VOD. By 2013, we look for VOD • There were 16 million households in Western Europe spending per household to surpass its level in 2008 and capable of accessing video-on-demand in 2008, climb to more than $82. compared with fewer than 3 million in 2004. Although VOD household growth will slow during the next two years, we look for a pickup beginning in 2011 and an Annual VOD spending per household in Western Europe (US$) increase to 41 million households by 2013, more than 90 twice the level in 2008. 75 VOD households in Western Europe (millions) 50 60

40 45 30 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates 10

0 • Overall VOD spending, which has grown explosively 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 in recent years from a small base, will decline by 7.1 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates percent in 2009 and grow by only 3.5 percent in 2010. The market will then surge at rates in excess of 30 percent annually during 2011–13. • In Norway, RiksTV, which provides digital signals over the air, will introduce VOD in 2009 as a competitor to • We look for France to remain the largest VOD market cable companies. in Western Europe, rising to an estimated $746 million in 2013. • Growth in the underlying VOD household base will provide a strong boost to VOD spending during the • We expect each country except the UK to average next five years. VOD is also affected by per-household double-digit compound annual increases during the usage, which in turn is affected by the economy as well next five years. The UK, by contrast, will grow by as by available content. We believe VOD is a highly only 5.4 percent on a compound annual basis. The discretionary component of the market: there is not a UK market is largely satellite based, and the cable long history of usage; VOD programming is not yet part component is declining, which will largely offset gains of the routine for the average viewer; and there is not in IPTV and keep the VOD potential relatively limited. commitment to VOD as there is for a premium service. • Overall VOD spending will increase from $1.2 billion in • From 2004 to 2008, there was a sharp increase in buy 2008 to a projected $3.4 billion in 2013, a 22.1 percent rates per household, reflecting a generally expanding compound annual increase. economy and the rollout of new services. France, which has the largest VOD market in Western Europe, has seven providers offering VOD.

208 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Video-on-demand and subscription VOD† (US$ millions) 2009–13 Western Europe 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Austria ‡ 6 7 18 31 34 34 57 85 114 29.8 Belgium ‡ 13 32 67 102 100 108 154 234 303 24.3 Denmark ‡ 6 12 13 20 26 30 42 60 69 28.1 Finland ‡ ‡ ‡ ‡ 16 13 18 28 51 67 33.2 France 6 44 92 241 331 300 299 416 604 746 17.6 Germany ‡ ‡ ‡ 9 22 16 23 51 101 170 50.5 Greece ‡ ‡ ‡ 1 3 3 3 7 13 19 44.7 Ireland ‡ ‡ ‡ ‡ 9 15 13 23 31 45 38.0 Italy 7 18 40 59 105 92 91 132 225 351 27.3 Netherlands 3 9 23 53 92 100 135 208 322 413 35.0 Norway 1 2 7 14 17 22 22 32 41 50 24.1 Portugal ‡ ‡ 13 16 28 31 34 47 78 110 31.5 Spain ‡ ‡ ‡ 40 108 73 72 92 162 300 22.7 Sweden ‡ 6 12 28 40 46 58 74 96 112 22.9 Switzerland ‡ ‡ ‡ 30 49 54 59 71 105 152 25.4 United Kingdom 83 145 195 241 272 231 197 239 309 354 5.4 Total 100 249 433 830 1,245 1,156 1,196 1,673 2,517 3,375 22.1

†At average 2008 exchange rates. ‡Negligible. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Cable operators and IPTV providers are emphasizing tighten. We expect sharp declines in Spain and France VOD at the expense of pay-per-view. Satellite providers, and project an overall 11.9 percent decrease, with a on the other hand, continue to promote their pay-per- further 5 percent decline in 2010. view services. In Italy, for example, where satellite is the • We do not expect as dramatic a rebound in pay-per- dominant platform, pay-per-view soared in 2008. view as we do in video-on-demand, because pay-per- • The satellite universe also is large in Spain, France, and view will not be promoted as vigorously. We do look for the UK. In France, the pay-per-view market declined a return to mid-single-digit growth by 2012. during the past two years as subscribers shifted to • We project the pay-per-view market in Western Europe VOD, while Spain and the UK have seen their pay-per- to drop to $1 billion in 2013 from $1.04 billion in 2008, a view markets expand. 0.7 percent compound annual decline. • Pay-per-view, like VOD, is a discretionary purchase that is subject to cutbacks when economic conditions

Television subscriptions and license fees | EMEA 209 Pay-per-view spending† (US$ millions) 2009–13 Western Europe 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Austria 4 5 6 6 6 6 6 6 6 6 0.0 Belgium 1 1 1 1 1 1 1 1 1 1 0.0 Denmark 3 3 4 4 5 4 4 5 5 5 0.0 Finland ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — France 169 202 239 223 184 131 96 82 65 57 –20.9 Germany 22 24 27 28 28 26 25 26 26 27 –0.7 Greece 1 1 1 2 2 2 2 2 3 3 8.4 Ireland ‡ 1 1 1 2 2 2 2 2 2 0.0 Italy 44 57 74 89 132 127 127 137 154 179 6.3 Netherlands 58 69 79 88 94 91 89 88 88 86 –1.8 Norway 4 5 6 7 7 8 8 8 8 8 2.7 Portugal 2 3 3 4 4 4 4 4 4 4 0.0 Spain 190 212 269 303 366 307 300 329 366 402 1.9 Sweden 20 22 23 24 25 26 26 26 27 28 2.3 Switzerland 1 2 3 3 4 4 3 3 3 3 –5.6 United Kingdom 133 143 158 170 180 177 177 180 189 194 1.5 Total 652 750 894 953 1,040 916 870 899 947 1,005 –0.7

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

210 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile TV • KPN in the Netherlands and Swisscom in Switzerland launched mobile services in 2008 on a subscription • Mobile television in a number of countries is at a basis. Swisscom in 2008 launched Bluewin TV Mobile, crossroads. In some countries, services have failed; a mobile TV subscription service available per day or on in others, new rollouts are taking place; and the a monthly basis. The offering consists of 30 channels of business model is shifting from subscriber based which 20 can be received in HD quality. Subscribers can to advertiser supported. pay a premium for special news and sports packages. • In Germany, Vodafone, T-Mobile, and O2 teamed up • There also is activity in Central and Eastern Europe and to apply for a DVB-H (Digital Video Broadcasting– Middle East/Africa. Mobile TV licenses are expected to Handheld) license but were turned down in favor of be awarded in Poland and South Africa in 2009, and a Mobile 3.0. By late 2008, it appeared that Mobile 3.0 rollout is expected in Russia in 2009 as well. would be returning its license because it failed to meet its license requirements. Meanwhile, a DVB-T (Digital • During the next two years, take-up rates for mobile Video Broadcasting–Terrestrial) service was launched in television are likely to be very low because of the Germany on a free basis. economic environment. Providers will likewise not be aggressive in rolling out services because of difficulties • In the UK, BT Movio closed its mobile TV service in early in obtaining financing and an expected low initial return 2008 as mobile TV has yet to gain traction in that country. on investment. • Italy has the largest mobile TV market in Europe, at • Over the longer run, rollout and take-up rates will $107 million in 2008, a figure that would have been improve as the economy expands. It remains to be much higher had 3 Italia, one of the leading providers, seen how the business model will evolve and whether not launched a free service that is cutting into the mobile TV gets offered on a subscription basis or an subscription market. advertiser-supported basis or a combination of the two. • In Norway, Norges Mobil-TV, a newly formed company • We expect that the bulk of the growth will be on an owned by large media stakeholders, will start advertiser-supported basis but that a subscription test transmissions in March 2009, using the DMB component will expand as well. Premium content and (Digital Multimedia Broadcasting) standard. The test sports will likely be offered on a subscription basis, while transmissions will be available to 1.4 million people. conventional programming may migrate to a free basis. • At the same time, a number of subscription services • We project that the mobile TV subscription market will are entering the market. In Austria, mobile TV was increase from $178 million in 2008 to $1.4 billion in 2013. launched on a free basis in conjunction with the UEFA Championships in mid-2008. In 2009, it will switch to a subscription service at €6 ($8.65) per month. • In France, 13 mobile TV licenses were awarded in 2008 in addition to 3 licenses that had been previously granted. In late 2008, Orange introduced five channels that will be accessible to mobile phones for €6 ($8.65) per month.

Television subscriptions and license fees | EMEA 211 Mobile TV market† (US$ millions) 2009–13 EMEA 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria — — — 1 3 6 12 25 — Belgium — — — 1 3 4 10 23 — Denmark — — — — 1 2 4 9 — Finland — — — — 1 3 6 15 — France — — 61 66 101 138 225 329 40.1 Germany 7 4 3 3 3 4 18 45 71.9 Greece NA NA NA NA NA NA NA NA — Ireland — — — — 1 3 6 12 — Italy 35 70 107 107 108 145 240 351 26.8 Netherlands — — 1 1 4 9 23 45 114.1 Norway — — — — 1 1 3 6 — Portugal — — — 1 3 6 15 31 — Spain — — 4 4 22 45 101 165 110.4 Sweden — — — 1 2 3 7 14 — Switzerland — — 2 5 7 14 26 36 78.3 United Kingdom — — — 2 6 26 59 136 — Western Europe total 42 74 178 192 266 409 755 1,242 47.5 Central and Eastern Europe Czech Republic — — — — 1 2 5 12 — Hungary NA NA NA NA NA NA NA NA — Poland — — — — 2 5 10 22 — Romania ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Russia — — — 8 17 34 71 139 — Turkey NA NA NA NA NA NA NA NA — Central and Eastern Europe total 0 0 0 8 20 41 86 173 — Middle East/Africa Israel NA NA NA NA NA NA NA NA — Saudi Arabia/Pan Arab†† NA NA NA NA NA NA NA NA — South Africa — — — — 2 5 10 22 — Middle East/Africa total 0 0 0 0 2 5 10 22 — EMEA total 42 74 178 200 288 455 851 1,437 51.8

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

212 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Public TV license fees contribution to public television. The government subsequently reversed course and increased its • Public TV license fees are levied on TV households to contribution during the past two years, with larger support public television channels. Revenues totaled gains expected going forward. We project a 4.2 percent $24.1 billion in 2008, with most of that total, $23.4 compound annual expansion through 2013 to $783 million. billion, generated in Western Europe. • Portugal introduced public TV license fees in 2004 and • Germany and the United Kingdom are the leaders is ramping up the contribution. We expect fees to rise in support for public broadcasters. Public television at a 13.6 percent compound annual rate, the largest broadcasters in Germany received $6.6 billion, and the percent increase in EMEA. United Kingdom accounted for $5.1 billion, together comprising nearly half of the total for EMEA in 2008. • Poland, by contrast, is reducing its public TV fees. Fees have fallen since 2004 and are projected to continue to • France and Italy also actively supported public decline through 2012 and to stabilize in 2013. television at $2.8 billion and $2.5 billion, respectively, in 2008. In France, license fees will increase by a • We project license fees in Western Europe to increase combined €4 ($5.85) per household during the next two at a 1.9 percent compound annual rate to $25.7 billion years to help compensate for the discontinuation of in 2013. advertising on most of the public television channels. • In Central and Eastern Europe, the decrease in Poland • In Germany, a declining household base driven by a will offset modest growth in the Czech Republic, falling population will lead to a drop in public TV license leading to an overall compound annual decrease of fees during 2012 and 2013. Public TV license fees in 1 percent to $500 million from $527 million in 2008. 2013 will total $6.8 billion, a 0.5 percent compound Russia, Turkey, and Hungary have no public license fees. annual increase. • In Middle East/Africa, South Africa and Israel have • We expect license fee growth in the UK to average public TV license fees; Saudi Arabia/Pan Arab does not. 0.9 percent compounded annually to $5.4 billion TV household growth and modest license fee increase in 2013, driven by TV household growth and a rate will generate 1.9 percent growth compounded annually increase in 2011. to $233 million in 2013 from $212 million in 2008. • In the Netherlands, although formal license fees were • For EMEA as a whole, public TV license fees will discontinued in 2000, the government continues to increase to $26.5 billion in 2013, up 1.9 percent on a support public television from general tax revenues. compound annual basis. From 2004 to 2006, the government reduced its

Television subscriptions and license fees | EMEA 213 Public TV license fees† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 765 790 802 890 903 906 959 963 969 1,019 2.4 Belgium 660 724 742 771 789 806 837 855 872 900 2.7 Denmark 801 804 827 855 858 862 925 929 933 998 3.1 Finland 348 360 359 364 304 354 360 359 356 361 3.5 France 2,666 2,693 2,720 2,748 2,814 3,323 3,413 3,445 3,479 3,512 4.5 Germany 6,120 6,417 6,571 6,593 6,600 6,950 7,032 7,013 6,994 6,783 0.5 Greece 260 262 263 263 265 265 266 266 268 268 0.2 Ireland 206 214 217 224 227 230 233 239 241 244 1.5 Italy 2,265 2,296 2,327 2,461 2,494 2,524 2,704 2,738 2,772 2,805 2.4 Netherlands‡ 663 647 620 625 637 659 680 717 761 783 4.2 Norway 410 432 438 457 466 468 470 484 487 489 1.0 Portugal 42 53 76 102 132 161 190 220 249 250 13.6 Spain 0 0 0 0 0 0 0 0 0 0 — Sweden 864 901 922 1,015 1,027 1,038 1,072 1,083 1,095 1,106 1.5 Switzerland 594 603 651 661 707 718 768 779 825 833 3.3 United Kingdom 4,259 4,468 4,641 4,845 5,140 5,161 5,181 5,331 5,353 5,374 0.9 Western Europe total 20,923 21,664 22,176 22,874 23,363 24,425 25,090 25,421 25,654 25,725 1.9 Central and Eastern Europe Czech Republic 140 227 230 233 236 239 242 245 248 251 1.2 Hungary 0 0 0 0 0 0 0 0 0 0 — Poland 226 209 203 199 173 130 128 127 126 126 –6.1 Romania 123 119 120 117 118 119 120 121 122 123 0.8 Russia 0 0 0 0 0 0 0 0 0 0 — Turkey 0 0 0 0 0 0 0 0 0 0 — Central and Eastern Europe total 489 555 553 549 527 488 490 493 496 500 –1.0 Middle East/Africa Israel 78 81 84 87 90 93 96 98 101 104 2.9 Saudi Arabia/Pan Arab†† 0 0 0 0 0 0 0 0 0 0 — South Africa 118 119 120 121 122 124 125 126 127 129 1.1 Middle East/Africa total 196 200 204 208 212 217 221 224 228 233 1.9 EMEA total 21,608 22,419 22,933 23,631 24,102 25,130 25,801 26,138 26,378 26,458 1.9

†At average 2008 exchange rates. ‡Fees were discontinued after 1999. Figures reflect government contributions from general tax revenues. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

214 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Asia Pacific

The outlook in brief digits during the next two years and then improve to double-digit annual gains during 2011–13. • Following a near-term slowdown, a pickup in subscription household growth will drive subscription spending. • Subscription spending will increase at an 11.7 percent compound annual rate to $36.5 billion in 2013 from $21 • Increases in digital cable and IPTV will propel video-on- billion in 2008. demand and cut into pay-per-view growth. • Video-on-demand will grow from $530 million in 2008 to • New services will continue to drive mobile television $1 billion in 2013, a 14.1 percent increase compounded subscription spending despite the expansion of an annually. advertiser-supported mobile TV market. • A small pay-per-view market will increase at a 1.3 • Public TV license fees will be enhanced by TV percent compound annual rate to $129 million in 2013. household growth and modest rate hikes. • Public TV license fees will rise at a 1.4 percent annual rate to $6 billion. Overview • Mobile television subscription spending will total $1.7 • We project overall spending to rise to $45.4 billion billion by 2013. in 2013 from $27.5 billion in 2008, a 10.5 percent compound annual increase. Growth will drop to single

TV subscription and license fee market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Subscriptions 11,598 13,571 15,496 18,472 21,011 23,007 25,503 28,803 32,520 36,501 Video-on-demand 95 179 265 387 530 491 518 634 810 1,023 Pay-per-view 61 76 87 104 121 118 117 119 124 129 Public TV license fees 5,051 5,342 5,464 5,550 5,638 5,718 5,799 5,879 5,961 6,043 Mobile TV — — 53 83 230 364 506 742 1,141 1,727 Total 16,805 19,168 21,365 24,596 27,530 29,698 32,443 36,177 40,556 45,423

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

TV subscription and license fee market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Subscriptions 13.5 17.0 14.2 19.2 13.7 9.5 10.8 12.9 12.9 12.2 11.7 Video-on-demand 55.7 88.4 48.0 46.0 37.0 –7.4 5.5 22.4 27.8 26.3 14.1 Pay-per-view 17.3 24.6 14.5 19.5 16.3 –2.5 –0.8 1.7 4.2 4.0 1.3 Public TV license fees 5.5 5.8 2.3 1.6 1.6 1.4 1.4 1.4 1.4 1.4 1.4 Mobile TV — — — 56.6 177.1 58.3 39.0 46.6 53.8 51.4 49.7 Total 11.2 14.1 11.5 15.1 11.9 7.9 9.2 11.5 12.1 12.0 10.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | Asia Pacific 215 • The economic decline will lead to somewhat slower $3.4 billion, respectively. South Korea is fourth, at $2.3 growth in subscription households during the next two billion, followed by Australia and Taiwan, the only other years and slower growth in spending per household. countries in excess of $1 billion. When incomes are being squeezed, households cut • Large increases in the satellite market will propel the back on discretionary purchases. We expect spending PRC and India during the next five years, while an per household on premium services, video-on- expanding mobile TV market will boost spending in demand, and pay-per-view to experience declines. South Korea. Each of these countries will average We also anticipate that providers will impose smaller double-digit compound annual growth. rate increases on basic services. Most countries are expected to grow more slowly during the next two • We look for Australia to increase by 9.5 percent years compared with 2008. compounded annually, boosted by emerging video-on- demand and mobile TV markets. We anticipate mid- • Japan is the largest market in Asia Pacific, at $11.1 single-digit gains in the other major countries. billion, 40 percent of the total. The People’s Republic of China (PRC) and India are next, at $4.4 billion and

TV subscription and license fee market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 957 1,122 1,338 1,654 2,040 2,157 2,326 2,584 2,892 3,205 9.5 China 1,679 2,154 2,750 3,555 4,401 5,440 6,687 8,315 10,093 11,886 22.0 Hong Kong 219 329 391 459 568 595 637 689 743 809 7.3 India 1,716 2,208 2,666 3,121 3,398 3,771 4,207 4,662 5,140 5,681 10.8 Indonesia 40 64 86 130 200 279 393 527 666 804 32.1 Japan 8,390 9,059 9,408 10,433 11,076 11,281 11,622 12,257 13,167 14,321 5.3 Malaysia 368 414 496 587 654 684 713 762 808 861 5.7 New Zealand 266 321 372 410 447 463 479 517 556 603 6.2 Pakistan 229 256 271 288 307 316 326 349 375 404 5.6 Philippines 163 197 229 258 278 284 301 327 371 449 10.1 Singapore 185 202 231 259 277 280 283 299 336 378 6.4 South Korea 1,274 1,462 1,678 1,941 2,308 2,514 2,742 3,033 3,400 3,835 10.7 Taiwan 1,091 1,132 1,173 1,198 1,224 1,265 1,324 1,394 1,463 1,531 4.6 Thailand 210 213 221 224 243 245 252 267 292 323 5.9 Vietnam 18 35 55 79 109 124 151 195 254 333 25.0 Total 16,805 19,168 21,365 24,596 27,530 29,698 32,443 36,177 40,556 45,423 10.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

216 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Subscription households and spending subscription TV households in the PRC to rise to 220 million by 2013 from 162.6 million in 2008, while India • Subscription spending will be fueled principally by will total 115.2 million subscriptions households from an expanding subscription household base, which 80.01 million in 2008. In 2013, the PRC and India will in turn will be driven largely by gains in the IPTV and constitute 83 percent of subscription TV households satellite components. in Asia Pacific. • During the next two years, subscription household growth • The problem of piracy continues to impact the growth will average 5.8 percent compounded annually, down of subscription TV in a number of markets in the region. from the 7.3 percent increase in 2008. Growth will improve Piracy losses were estimated by the Cable and Satellite to an average of 6.8 percent compounded annually during Broadcasting Association of Asia in October 2008 to be 2011–13 as economic conditions improve. $1.8 billion annually, a total that excludes the PRC. The • For the forecast period as a whole, we project the nature of piracy varies by market. Illegal distributors in overall subscription TV household universe in Asia Thailand (1.3 million households), Indonesia (1.4 million Pacific—including cable, satellite, and IPTV—to households), and Pakistan (7.2 million households) increase to 403.6 million households by 2013, a 6.4 serve more households than the legal distributors do. percent compound annual gain. Subscription TV In India, the estimated cost of piracy increased by 15 penetration will rise from 42.5 percent in 2008 to 52.5 percent to $1.1 billion in 2008 due to both an increase in percent in 2013. Growth in subscription TV households illegal connections and higher average revenue per unit. will be the principal driver of subscription spending. • In markets where the migration to digital cable and the • The PRC and India together will account for 86 percent rollout of IPTV are ongoing, piracy levels are decreasing. of the projected increase. We expect the number of

Subscription TV households (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1.62 1.73 1.89 2.14 2.46 2.51 2.59 2.80 3.06 3.30 6.1 China 110.01 125.06 138.18 153.00 162.60 172.00 181.75 193.00 206.00 220.00 6.2 Hong Kong 0.79 1.26 1.50 1.76 2.02 2.09 2.16 2.25 2.34 2.44 3.9 India 50.10 62.00 70.00 73.50 80.01 86.02 93.05 100.10 107.20 115.20 7.6 Indonesia 0.17 0.27 0.40 0.72 1.24 1.69 2.36 3.09 3.73 4.18 27.5 Japan 8.80 9.80 10.20 12.00 13.00 13.19 13.51 14.25 15.40 16.85 5.3 Malaysia 1.45 1.60 1.95 2.20 2.31 2.35 2.40 2.54 2.70 2.87 4.4 New Zealand 0.55 0.64 0.71 0.75 0.79 0.81 0.83 0.88 0.93 0.99 4.6 Pakistan 3.30 3.50 3.65 3.81 4.00 4.06 4.16 4.38 4.64 4.95 4.4 Philippines 1.10 1.25 1.45 1.60 1.69 1.73 1.80 1.95 2.18 2.54 8.5 Singapore 0.39 0.40 0.45 0.49 0.52 0.53 0.54 0.57 0.64 0.72 6.7 South Korea 14.50 15.00 15.30 15.55 16.10 16.03 16.20 16.65 17.00 17.40 1.6 Taiwan 5.54 5.79 6.13 6.40 6.88 7.07 7.28 7.51 7.72 7.93 2.9 Thailand 0.45 0.46 0.53 0.60 0.70 0.75 0.82 0.89 0.98 1.08 9.1 Vietnam 0.30 0.55 0.85 1.20 1.50 1.64 1.79 2.11 2.57 3.19 16.3 Total 199.07 229.31 253.19 275.72 295.82 312.47 331.24 352.97 377.09 403.64 6.4

Note: Does not include free-to-air DTT and satellite households. Sources: Cable and Satellite Broadcasting Association of Asia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | Asia Pacific 217 Subscription TV penetration of TV households (%)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Australia 21.7 23.0 24.9 27.9 31.7 32.2 32.9 35.3 38.3 41.0 China 30.9 34.3 37.0 40.3 41.9 43.5 45.2 47.2 49.5 52.0 Hong Kong 35.6 55.5 64.4 73.6 82.8 83.9 85.0 86.9 88.6 90.7 India 49.1 56.9 62.5 63.9 67.8 71.1 75.0 78.8 82.5 86.6 Indonesia 0.6 0.9 1.3 2.3 3.9 5.1 6.9 8.9 10.4 11.4 Japan 18.6 20.5 21.1 24.6 26.4 26.5 27.0 28.2 30.3 32.8 Malaysia 26.1 28.6 34.5 38.6 40.2 40.5 41.0 43.1 45.4 47.8 New Zealand 37.7 43.5 48.0 50.3 52.7 53.6 54.6 57.5 60.4 63.9 Pakistan 29.2 29.7 29.7 29.8 30.1 29.6 29.5 30.2 31.1 32.4 Philippines 8.1 9.2 10.6 11.6 12.2 12.4 12.8 13.7 15.2 17.6 Singapore 36.8 37.4 41.7 45.0 47.3 47.7 48.2 50.4 56.1 62.6 South Korea 87.3 89.8 91.1 92.0 94.7 93.7 94.2 96.2 97.7 99.4 Taiwan 79.7 82.1 85.7 87.1 91.1 91.2 91.6 92.1 92.5 92.7 Thailand 3.0 2.9 3.1 3.3 3.7 3.7 3.9 4.0 4.2 4.5 Vietnam 2.1 3.6 5.2 6.8 7.9 8.2 8.4 9.4 10.8 12.8 Total 31.6 35.3 38.0 40.5 42.5 44.0 45.7 47.7 50.0 52.5

Note: Does not include free-to-air DTT and satellite households. Sources: Cable and Satellite Broadcasting Association of Asia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

218 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 IPTV percent compound annual increase during the next five years, the only territory where we expect single-digit • Augmenting growth in TV households will be a rapidly compound annual growth. IPTV penetration in Hong expanding IPTV market. IPTV is now available in each Kong will increase to 55.8 percent by 2013, by far the country except Indonesia, the Philippines, and Vietnam. highest in Asia Pacific. Growth in the Internet broadband market has expanded the platform for IPTV. • Japan, which has the second-largest IPTV market, at 1.35 million subscribers in 2008, is enhancing its • Telephone companies are introducing IPTV to create at- offerings. GyaO NEXT began offering FOX on Demand, tractive service bundles that combine landline telephone and NHK began offering NHK On Demand on their service with broadband Internet access and television. respective IPTV services in late 2008. We expect IPTV Bundled services have proved to be popular, and car- in Japan to rise to 4 million households by 2013. riers are hoping they will stem the erosion in landline subscriptions. Infrastructure upgrades in many countries • In Singapore, MioTV from SingTel has become a focus on Internet protocol–based next-generation successful IPTV service, accounting for nearly 10 networks that will allow for high-speed broadband, percent of all subscription households. It now allows television, and other high-volume applications. programming to be forwarded to SingTel’s wireless subscribers. In a deal with ABC, FOX, and Warner • In the PRC, the telecommunications market was Bros., MioTV also will be carrying a number of popular restructured in 2008. Under the new structure, there are US shows within a day after their US broadcasts. These now three national operators that offer both wireless features should make the service more appealing. and fixed-line services, replacing the previous structure of six state-owned operators. The restructuring has • In India in 2008, the government declared the licensing made the market more efficient and has made it easier rules for the rollout of IPTV services in India. Under for carriers to offer IPTV packages, thereby opening these guidelines, Telecom service providers can provide the way to easier availability—which will be the key triple-play services, and Internet service providers driver of market growth. China Netcom, for example, that meet a net-worth requirement will be permitted added a number of cities to its IPTV network in 2008. to provide IPTV service under their existing licenses The IPTV subscriber base more than doubled in 2008 without needing further registration. Similarly, registered to 2.6 million, and we expect it will expand to 10 million cable TV operators, too, can provide IPTV services households by 2013. In early 2009, Microsoft and without any further permission. These norms, along Guangzhou Digital Media Group teamed up to launch with other clarifications recently brought out, will support Zhujiang Digital on the Microsoft Mediaroom IPTV the long-awaited rollout of IPTV services in India. platform. The service will enable subscribers to access • Although double-digit gains are expected in each any previously aired program on an on-demand basis. country except Hong Kong throughout the forecast • In South Korea, the Korean Communications period, increases will be slower during the next two Commission awarded three IPTV licenses in 2008 years as the take-up rate moderates and as rollouts to Hanaro Telecom (now part of SK Broadband), KT, become less aggressive. IPTV penetration, which and LG Dacom. KT announced it plans to invest more increased by four-tenths of a point in 2008, will expand than $1 billion in its IPTV service during the next four by only three-tenths of a point cumulatively during years and is working on creating programming for its the next two years. We then expect growth rates to IPTV platform. increase as economic conditions improve, and we project IPTV penetration to rise by 1.4 percentage • In Hong Kong, IPTV is the dominant platform, points from 2010 to 2013. accounting for more than half of all subscription households and more than 40 percent of all television • The IPTV market as a whole will increase to a projected households. Now TV, the IPTV service from PCCW, 19.8 million households by 2013, a 27.1 percent announced it is launching a new Cantonese-language compound annual increase. IPTV penetration will channel. Because of its already high penetration rate, increase from 0.9 percent in 2008 to 2.6 percent in 2013. IPTV growth will be more limited in Hong Kong than in the rest of the region. We project for Hong Kong a 7.6

Television subscriptions and license fees | Asia Pacific 219 IPTV households (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia — 0.03 0.06 0.10 0.15 0.18 0.21 0.27 0.35 0.40 21.7 China 0.01 0.06 0.18 1.00 2.60 3.00 3.75 5.00 7.00 10.00 30.9 Hong Kong 0.08 0.50 0.68 0.85 1.04 1.10 1.15 1.25 1.37 1.50 7.6 India — — — 0.005 0.01 0.02 0.05 0.10 0.20 0.20 82.1 Indonesia — — — — — — 0.01 0.02 0.03 0.04 — Japan 0.10 0.20 0.35 0.80 1.35 1.50 1.75 2.25 3.00 4.00 24.3 Malaysia — — — — 0.01 0.02 0.03 0.04 0.05 0.07 47.6 New Zealand — — — — 0.01 0.02 0.03 0.04 0.05 0.06 43.1 Pakistan — — — 0.01 0.02 0.03 0.05 0.08 0.12 0.15 49.6 Philippines — — — — — — 0.01 0.02 0.03 0.04 — Singapore — 0.01 0.01 0.03 0.05 0.07 0.08 0.10 0.15 0.20 32.0 South Korea — — — — 0.10 0.20 0.50 1.00 1.45 1.95 81.1 Taiwan 0.01 0.06 0.20 0.35 0.60 0.75 0.80 0.85 0.90 1.00 10.8 Thailand — — — 0.01 0.04 0.06 0.08 0.10 0.13 0.17 33.6 Vietnam — — — — — — — 0.01 0.02 0.04 — Total 0.20 0.86 1.48 3.155 5.98 6.95 8.50 11.13 14.85 19.82 27.1

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

220 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 IPTV penetration of TV households (%)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Australia — 0.4 0.8 1.3 1.9 2.3 2.7 3.4 4.4 5.0 China 0.0 0.0 0.0 0.3 0.7 0.8 0.9 1.2 1.7 2.4 Hong Kong 3.6 22.0 29.2 35.6 42.6 44.2 45.3 48.3 51.9 55.8 India — — — 0.0 0.0 0.0 0.0 0.1 0.2 0.2 Indonesia — — — — — 0.0 — 0.1 0.1 0.1 Japan 0.2 0.4 0.7 1.6 2.7 3.0 3.5 4.5 5.9 7.8 Malaysia — — — — 0.2 0.3 0.5 0.7 0.8 1.2 New Zealand — — — — 0.7 1.3 2.0 2.6 3.2 3.9 Pakistan — — — 0.1 0.2 0.2 0.4 0.6 0.8 1.0 Philippines — — — — — 0.1 0.1 0.1 0.2 0.3 Singapore — 0.9 0.9 2.8 4.5 6.3 7.1 8.8 13.2 17.4 South Korea — — — — 0.6 1.2 2.9 5.8 8.3 11.1 Taiwan 0.1 0.9 2.8 4.8 7.9 9.7 10.1 10.4 10.8 11.7 Thailand — — — 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Vietnam — — — — — — — 0.0 0.1 0.2 Total 0.0 0.1 0.2 0.5 0.9 1.0 1.2 1.5 2.0 2.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Cable ($0.11) per pay channel. Basic packages must include at least 30 free-to-air channels, and premium channels • Cable is the largest component of the subscription must be offered on an à la carte basis. Though CAS has household market in Asia Pacific, with a total of not yet been extended to the rest of the Indian cities 264.2 million subscribers in 2008, accounting for as recommended by the Telecom Regulatory Authority 89 percent of all subscription households. The PRC of India, there is significant activity on deployment of and India have the largest markets, at 160 million and voluntary digital cable systems. In 2008, News Corp.– 70 million, respectively. owned entity India formed a 50-50 joint venture • In the PRC, cable household growth slowed to 5.3 with DEN Digital Entertainment Networks to distribute percent in 2008 following three years of double-digit television channels on all fixed networks, including annual gains. We expect that the legalization of satellite in cable, DTH (direct to home), IPTV, HITS (Headend in the 2009 will further limit the cable market. We project cable Sky), and MMDS (multichannel multipoint distribution household growth to average 2.9 percent compounded service). We expect the cable universe in India to annually during the next five years to 185 million. increase to 80 million in 2013. • In India, the conditional access system (CAS) was • South Korea has the third-largest cable market, at introduced in 2007 in select areas of , , 14.4 million subscribers, up 3 percent from 2007. With and . CAS allows subscribers to pay only for a surging IPTV market anticipated during the next five the channels they choose to receive and puts a cap on years, we expect cable to decline, falling to 14.2 million prices for basic packages at Rs77 ($1.76) and at Rs5 households in 2013.

Television subscriptions and license fees | Asia Pacific 221 • In Japan, the fourth-largest cable market, at 7.2 million, are more flexible for Indonesia’s geographic condition, competition from satellite and an expanding IPTV cable TV is expected to have difficulty in competing market will cut into cable growth. As in other countries, with satellite TV. increases will be modest in the near term and stronger • For Asia Pacific as a whole, cable households will during 2012–13, when the economy is expected to be increase by 1.9 percent in 2009 and by 2.3 percent in healthier. The cable universe is expected to total 7.7 2010, with increases projected at more than 3 percent million in 2013, a 1.4 percent compound annual increase. annually during 2012 and 2013. Overall growth will • Indonesia only has two cable television operators: First average 2.7 percent compounded annually to 302.2 Media (formerly Kabelvision) and TELKOMVision. With million in 2013. Cable penetration will rise from 38 high expansion of new satellite TV operators, which percent to 39.3 percent.

Cable households (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 0.79 0.76 0.71 0.75 0.80 0.80 0.81 0.83 0.86 0.90 2.4 China 110.00 125.00 138.00 152.00 160.00 164.00 168.00 173.00 179.00 185.00 2.9 Hong Kong 0.68 0.72 0.76 0.83 0.89 0.90 0.91 0.90 0.86 0.83 –1.4 India 50.00 61.00 68.00 70.00 70.00 71.00 73.00 75.00 77.00 80.00 2.7 Indonesia 0.09 0.15 0.20 0.22 0.24 0.24 0.25 0.27 0.30 0.34 7.2 Japan 5.42 6.17 6.25 7.05 7.15 7.16 7.18 7.25 7.45 7.65 1.4 Malaysia 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 — New Zealand 0.06 0.05 0.06 0.07 0.08 0.08 0.08 0.09 0.09 0.09 2.4 Pakistan 1.05 1.15 1.25 1.30 1.38 1.40 1.43 1.50 1.57 1.65 3.6 Philippines 1.04 1.15 1.30 1.40 1.45 1.48 1.52 1.60 1.75 2.00 6.6 Singapore 0.39 0.39 0.44 0.46 0.47 0.46 0.46 0.47 0.49 0.52 2.0 South Korea 13.16 13.56 13.78 14.00 14.40 14.30 14.25 14.25 14.20 14.15 –0.3 Taiwan 5.52 5.71 5.91 6.02 6.25 6.28 6.40 6.55 6.70 6.80 1.7 Thailand 0.14 0.13 0.13 0.13 0.13 0.13 0.14 0.14 0.14 0.14 1.5 Vietnam 0.20 0.30 0.50 0.75 1.00 1.10 1.20 1.40 1.70 2.10 16.0 Total 188.54 216.24 237.29 254.98 264.24 269.33 275.63 283.25 292.11 302.17 2.7

Sources: Cable and Satellite Broadcasting Association of Asia, Ministry of Internal Affairs and Communications (Japan), PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

222 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Cable penetration of TV households (%)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Australia 10.6 10.1 9.4 9.8 10.3 10.3 10.3 10.5 10.8 11.2 China 30.9 34.2 37.0 40.0 41.2 41.5 41.8 42.3 43.0 43.7 Hong Kong 30.6 31.7 32.6 34.7 36.5 36.1 35.8 34.7 32.6 30.9 India 49.0 56.0 60.7 60.9 59.3 58.7 58.9 59.1 59.2 60.2 Indonesia 0.3 0.5 0.7 0.7 0.7 0.7 0.7 0.8 0.8 0.9 Japan 11.4 12.9 12.9 14.4 14.5 14.4 14.3 14.4 14.6 14.9 Malaysia 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 New Zealand 4.1 3.4 4.1 4.7 5.3 5.3 5.3 5.9 5.8 5.8 Pakistan 9.3 9.7 10.2 10.2 10.4 10.2 10.1 10.3 10.5 10.8 Philippines 7.7 8.5 9.5 10.1 10.4 10.6 10.8 11.3 12.2 13.9 Singapore 36.8 36.4 40.7 42.2 42.7 41.4 41.1 41.6 43.0 45.2 South Korea 79.3 81.2 82.0 82.8 84.7 83.6 82.8 82.4 81.6 80.9 Taiwan 79.4 81.0 82.7 81.9 82.8 81.0 80.5 80.4 80.2 79.5 Thailand 0.9 0.8 0.8 0.7 0.7 0.6 0.7 0.6 0.6 0.6 Vietnam 1.4 2.0 3.0 4.2 5.3 5.5 5.6 6.2 7.2 8.4 Total 30.0 33.3 35.7 37.5 38.0 37.9 38.0 38.3 38.8 39.3

Sources: Cable and Satellite Broadcasting Association of Asia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Satellite • In India in 2008, two additional DTH services were launched by India’s largest two telecoms operators: Big • The satellite market rose by 45.5 percent in 2008 to TV by Reliance and Digital TV by Bharti Airtel. These 25.6 million households, boosted by a large increase launches took the total number of private DTH players in India. in India to five. State broadcaster also • We expect satellite service to be legalized in the PRC operates a free-to-air DTH service. Since regulation in in 2009 and to grow to 25 million households by 2013. India—unlike in the rest of the world—prohibits DTH We look for the satellite market in India to more than players from broadcasting exclusive content, DTH triple to 35 million households from 10 million in 2008. players face competition from around 20,000 cable Satellite can reach rural areas much less expensively operators in India. Hence, 2008 witnessed price wars, than cable or IPTV, and we expect that take-up rates in subsidizing of set-top boxes, and major marketing areas not served by other technologies will drive growth campaigns from both new and existing DTH players. in the PRC and India during the next five years.

Television subscriptions and license fees | Asia Pacific 223 • In other countries, the large capacity of satellite the satellite market, and we project a 4.1 percent compared with cable will enable providers to offer compound annual decline during the next five years. more channels and an attractive HD service. In Japan, • We project the overall satellite household universe for example, SKY PerfecTV added 15 HD channels in to increase to 81.7 million households by 2013 from late 2008. 25.6 million in 2008, a 26.1 percent compound annual • In South Korea, on the other hand, we expect that the increase. Penetration will rise to 10.6 percent from 3.7 expanding appeal of IPTV and the availability of on- percent in 2008. demand services on cable systems will cannibalize

Satellite households (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 0.83 0.94 1.12 1.29 1.51 1.53 1.57 1.70 1.85 2.00 5.8 China 0.00 0.00 0.00 0.00 0.00 5.00 10.00 15.00 20.00 25.00 — Hong Kong 0.03 0.04 0.06 0.08 0.09 0.09 0.10 0.10 0.11 0.11 4.1 India 0.10 1.00 2.00 3.50 10.00 15.00 20.00 25.00 30.00 35.00 28.5 Indonesia 0.08 0.12 0.20 0.50 1.00 1.45 2.10 2.80 3.40 3.80 30.6 Japan 3.28 3.43 3.60 4.15 4.50 4.53 4.58 4.75 4.95 5.20 2.9 Malaysia 1.45 1.60 1.95 2.20 2.30 2.33 2.37 2.50 2.65 2.80 4.0 New Zealand 0.49 0.59 0.65 0.68 0.70 0.71 0.72 0.75 0.79 0.84 3.7 Pakistan 2.25 2.35 2.40 2.50 2.60 2.63 2.68 2.80 2.95 3.15 3.9 Philippines 0.06 0.10 0.15 0.20 0.24 0.25 0.27 0.33 0.40 0.50 15.8 Singapore 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 — South Korea 1.34 1.44 1.52 1.55 1.60 1.53 1.45 1.40 1.35 1.30 –4.1 Taiwan 0.01 0.02 0.02 0.03 0.03 0.04 0.08 0.11 0.12 0.13 34.1 Thailand 0.31 0.33 0.40 0.46 0.53 0.56 0.60 0.65 0.71 0.77 7.8 Vietnam 0.10 0.25 0.35 0.45 0.50 0.54 0.59 0.70 0.85 1.05 16.0 Total 10.33 12.21 14.42 17.59 25.60 36.19 47.11 58.59 70.13 81.65 26.1

Note: Does not include free-to-air satellite households. Sources: Cable and Satellite Broadcasting Association of Asia, Japan Satellite Broadcasting Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

224 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Satellite penetration of TV households (%)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Australia 11.1 12.5 14.8 16.8 19.4 19.6 19.9 21.4 23.2 24.8 China 0.0 0.0 0.0 0.0 0.0 1.3 2.5 3.7 4.8 5.9 Hong Kong 1.4 1.8 2.6 3.3 3.7 3.6 3.9 3.9 4.2 4.1 India 0.1 0.9 1.8 3.0 8.5 12.4 16.1 19.7 23.1 26.3 Indonesia 0.3 0.4 0.7 1.6 3.1 4.4 6.2 8.0 9.5 10.4 Japan 6.9 7.2 7.4 8.5 9.1 9.1 9.1 9.4 9.7 10.1 Malaysia 26.1 28.6 34.5 38.6 40.0 40.2 40.5 42.4 44.5 46.7 New Zealand 33.6 40.1 43.9 45.6 46.7 47.0 47.4 49.0 51.3 54.2 Pakistan 19.9 19.9 19.5 19.5 19.5 19.2 19.0 19.3 19.8 20.6 Philippines 0.4 0.7 1.1 1.4 1.7 1.8 1.9 2.3 2.8 3.5 Singapore 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 South Korea 8.1 8.6 9.0 9.2 9.4 8.9 8.4 8.1 7.8 7.4 Taiwan 0.1 0.3 0.3 0.4 0.4 0.5 1.0 1.3 1.4 1.5 Thailand 2.1 2.0 2.3 2.5 2.8 2.8 2.8 2.9 3.1 3.2 Vietnam 0.7 1.6 2.1 2.5 2.6 2.7 2.8 3.1 3.6 4.2 Total 1.6 1.9 2.2 2.6 3.7 5.1 6.5 7.9 9.3 10.6

Note: Does not include free-to-air satellite households. Sources: Cable and Satellite Broadcasting Association of Asia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Subscription spending improved, 10.8 percent increase in 2010. We then look for spending to increase at rates in excess of 12 • During the next two years, we expect that consumers percent annually during the subsequent three years as will be resistant to incurring additional expenses for the the discretionary components of the market expand as more discretionary portions of TV subscription such as the economy improves. premium content and digital tiers. We therefore look for spending growth per household to moderate, which will • Overall subscription spending will expand at an 11.7 reduce overall spending growth. percent compound annual rate to $36.5 billion in 2013 from $21 billion in 2008. • We expect a drop to a 9.5 percent rise in 2009 from the 13.7 percent increase in 2008, as well as a somewhat

Television subscriptions and license fees | Asia Pacific 225 TV subscription market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 935 1,093 1,302 1,607 1,964 2,084 2,235 2,473 2,743 3,015 9.0 China 1,679 2,154 2,750 3,555 4,401 5,436 6,676 8,284 10,000 11,669 21.5 Hong Kong 208 295 342 393 482 510 546 589 625 667 6.7 India 1,716 2,208 2,666 3,121 3,398 3,771 4,207 4,662 5,140 5,681 10.8 Indonesia 40 64 86 130 199 277 387 507 609 675 27.7 Japan 3,703 4,068 4,243 5,124 5,629 5,770 6,018 6,458 7,129 7,969 7.2 Malaysia 368 414 496 587 654 684 713 762 808 861 5.7 New Zealand 249 299 344 378 408 424 437 471 502 542 5.8 Pakistan 195 209 222 237 254 261 270 291 315 343 6.2 Philippines 163 197 229 258 278 284 298 324 367 436 9.4 Singapore 124 138 165 189 202 208 211 223 253 288 7.4 South Korea 899 1,052 1,202 1,392 1,588 1,692 1,835 2,000 2,165 2,372 8.4 Taiwan 1,091 1,132 1,173 1,198 1,210 1,251 1,295 1,350 1,402 1,452 3.7 Thailand 210 213 221 224 243 242 249 257 274 292 3.7 Vietnam 18 35 55 79 101 113 126 152 188 239 18.8 Total 11,598 13,571 15,496 18,472 21,011 23,007 25,503 28,803 32,520 36,501 11.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video-on-demand during 2011–13 as economic conditions improve and as the IPTV market grows faster. By 2013, there will be • Growth in IPTV and a small but expanding digital cable 19 million VOD households. market will drive spending on VOD over the long run. Telephone companies are promoting VOD to attract subscribers to IPTV, and cable operators are upgrading VOD households in Asia Pacific (millions) their infrastructures to offer VOD. 20 • Video-on-demand is being actively promoted in several countries. In South Korea, for example, The Dark 15 Knight was launched on VOD two weeks before its DVD release. In Australia, telephone companies are 10 expanding their IPTV reach and their VOD offers. • There were nearly 10 million potential VOD households 5 in Asia Pacific in 2008 compared with around 2 million in 2004. We expect relatively little growth in 2009, 0 reflecting the slowing economy, and look for a modest 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 increase in 2010 as well. Faster gains are anticipated Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

226 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • In addition to slower VOD household growth, we expect • The result will be a projected 7.4 percent decline in VOD spending per household to decrease during overall VOD spending in 2009, which would be an the next two years as consumers forgo discretionary abrupt interruption from annual gains that exceeded 30 expenses. We then look for a rebound in per-household percent during the past four years. spending during 2011–13. • We expect a relatively tepid, 5.5 percent advance in 2010 and then a return to double-digit growth, with Annual spending per VOD household in Asia Pacific (US$) increases of more than 20 percent annually during 60 2011–13. • South Korea and Japan are the region leaders, at $225 million and $199 million, respectively, in 2008, 50 accounting for 80 percent of the total. Except for Hong Kong, whose subscription growth will be satellite based, we look for double-digit compound annual 40 increases in each country for which we have data. • Overall VOD spending will increase from $530 million in 2008 to $1 billion in 2013, growing at a 14.1 percent 30 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 compound annual rate. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video-on-demand and subscription VOD† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 3 7 11 17 24 21 22 28 38 47 14.4 China NA NA NA NA NA NA NA NA NA NA — Hong Kong 6 26 39 53 70 69 70 77 88 103 8.0 India NA NA NA NA NA NA NA NA NA NA — Indonesia NA NA NA NA NA NA NA NA NA NA — Japan 32 58 85 141 199 187 196 243 321 424 16.3 Malaysia NA NA NA NA NA NA NA NA NA NA — New Zealand 0 0 1 1 2 2 2 3 4 5 20.1 Pakistan NA NA NA NA NA NA NA NA NA NA — Philippines NA NA NA NA NA NA NA NA NA NA — Singapore 1 3 4 7 10 8 8 11 16 21 16.0 South Korea 53 85 125 168 225 204 220 272 343 423 13.5 Taiwan NA NA NA NA NA NA NA NA NA NA — Thailand NA NA NA NA NA NA NA NA NA NA — Vietnam NA NA NA NA NA NA NA NA NA NA — Total 95 179 265 387 530 491 518 634 810 1,023 14.1

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | Asia Pacific 227 • There is a relatively small pay-per-view market in Asia IPTV and digital cable—where VOD is the favored Pacific that is being promoted by satellite providers and alternative—will cut into pay-per-view growth. analog cable. Most of the pay-per-view activity is in • As in the VOD market, we expect decreased spending Australia, New Zealand, Japan, and Hong Kong, which per household in the near term followed by a rebound together accounted for 89 percent of total spending when the economy again expands at healthy rates. in 2008. • Overall pay-per-view spending will increase from $121 • While satellite expansion will continue to drive the million in 2008 to $129 million in 2013, 1.3 percent market, the increased share of subscribers going to compounded annually.

Pay-per-view spending† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 19 22 25 30 37 36 37 35 36 36 –0.5 China NA NA NA NA NA NA NA NA NA NA — Hong Kong 5 8 10 13 16 16 16 16 16 17 1.2 India NA NA NA NA NA NA NA NA NA NA — Indonesia NA NA NA NA NA NA NA NA NA NA — Japan 12 14 15 19 21 20 20 21 22 24 2.7 Malaysia NA NA NA NA NA NA NA NA NA NA — New Zealand 17 22 27 31 34 34 34 35 37 38 2.2 Pakistan NA NA NA NA NA NA NA NA NA NA — Philippines NA NA NA NA NA NA NA NA NA NA — Singapore 2 3 3 4 5 4 3 4 5 6 3.7 South Korea 6 7 7 7 8 8 7 8 8 8 0.0 Taiwan NA NA NA NA NA NA NA NA NA NA — Thailand NA NA NA NA NA NA NA NA NA NA — Vietnam NA NA NA NA NA NA NA NA NA NA — Total 61 76 87 104 121 118 117 119 124 129 1.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

228 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile TV • The success of free services in Japan and South Korea will likely lead to the introduction of free services in • Mobile television has been available in South Korea and other countries, which will cut into the potential for Japan for three years and was introduced in Australia, subscription services. Indonesia, New Zealand, Taiwan, and Vietnam in 2008. Commercial launches are expected in the PRC and • It also appears that there is a niche for subscription Thailand in 2009 and in Hong Kong and the Philippines services that provide more content than free services do. in 2010. We expect that mobile television will advance on a paral- lel track, with both free and paid services expanding. • In Hong Kong, three mobile TV licenses are expected to be auctioned in 2009. Licensees will be required to • The paid portion of the market will likely be the smaller launch services in 2010. segment, but we expect it will total $1.7 billion in 2013 from only $230 million in 2008. • SpeedCast in conjunction with Alcatel Lucent announced the launching of a satellite-based hosted • Despite South Korea and Japan’s having successful service using DVB-H technology. Instead of wireless free services, we expect those two countries to have carriers creating their own infrastructure, they can the largest subscription mobile TV services, with access the hosted service that will be delivered by spending totaling an estimated $699 million in South satellite to local towers for retransmission, saving Korea in 2013 and $318 million in Japan. We also infrastructure and operating costs for local carriers. The expect that the PRC, Indonesia, and Australia will have service will provide more than 20 channels and should mobile TV subscription markets in excess of $100 make it easier for carriers to provide mobile TV. million by 2013. • These developments will propel the subscription • In the Philippines, the commercial launch of mobile TV mobile TV market. At the same time, there have been has been delayed as the National Telecommunications setbacks. In Japan, Toshiba announced it is closing Commission has yet to release guidelines for the Mobile Broadcasting Corporation, its satellite mobile TV operation of mobile TV services in the market. service. One Segment, a free digital terrestrial mobile This means providers of mobile TV, such as Smart TV service, has become the dominant platform, limiting Communications, are currently limited to providing the scope of the subscription market. While mobile TV the service for free for their subscribers. To access is becoming ubiquitous in Japan, only a small portion of the service, their subscribers need only have the the market is on a paid basis. appropriate type of technology-ready mobile phone. • In South Korea, the free T-DMB mobile TV service, with more than 10 million users, dwarfs the paid service from TU Media, which has around 1.4 million subscribers. Nevertheless, with 22 channels compared with 6 for the free service, the paid service is slowly gaining ground. • In Australia, significant third-generation (3G) upgrades by Telstra and Optus will expand the reach of mobile TV. Optus plans to extend its 3G network to virtually the entire country by the end of 2009.

Television subscriptions and license fees | Asia Pacific 229 Mobile TV market† (US$ millions) 2009–13 Asia Pacific 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia — — 15 16 32 48 75 107 48.1 China — — — 4 11 31 93 217 — Hong Kong — — — — 5 7 14 22 — India — — — — — — — — — Indonesia — — 1 2 6 20 57 129 164.3 Japan 29 31 26 27 34 105 187 318 65.0 Malaysia NA NA NA NA NA NA NA NA — New Zealand — — 3 3 6 8 13 18 43.1 Pakistan NA NA NA NA NA NA NA NA — Philippines — — — — 3 3 4 13 — Singapore NA NA NA NA NA NA NA NA — South Korea 24 52 163 284 352 423 553 699 33.8 Taiwan — — 14 14 29 44 61 79 41.4 Thailand — — — 3 3 10 18 31 — Vietnam — — 8 11 25 43 66 94 63.7 Total 53 83 230 364 506 742 1,141 1,727 49.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Public TV license fees TV households in countries with public TV license fees (millions) • Only Japan, South Korea, Singapore, and Pakistan levy license fees on TV households to support their public 90 85.25 broadcasters. Indonesia has a license fee program 83.43 84.34 in place but does not require households to pay it. 81.61 82.52 79.64 80.70 Consequently, collection is sporadic and the actual fees 80 78.53 76.31 77.42 collected are not significant. • Japan is the dominant market, at $5.2 billion in 2008, 70 92 percent of the total. • TV household growth is the principal driver of license fee growth. There were 80.7 million TV households in 60 the countries with public TV license fees in 2008. That 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 total will rise to a projected 85.3 million by 2013, a 1.1 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates percent compound annual increase.

230 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Modest rate increases averaging 0.3 percent • We project public TV license fees to increase from compounded annually will also contribute to growth. $5.6 billion in 2008 to $6 billion in 2013, a 1.4 percent compound annual advance.

Public TV license fees† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia — — — — — — — — — — — China — — — — — — — — — — — Hong Kong — — — — — — — — — — — India — — — — — — — — — — — Indonesia — — — — — — — — — — — Japan 4,643 4,919 5,036 5,118 5,201 5,277 5,354 5,430 5,508 5,586 1.4 Malaysia — — — — — — — — — — — New Zealand — — — — — — — — — — — Pakistan 34 47 49 51 53 55 56 58 60 61 2.9 Philippines — — — — — — — — — — — Singapore 58 58 59 59 60 60 61 61 62 63 1.0 South Korea 316 318 320 322 324 326 328 330 331 333 0.5 Taiwan — — — — — — — — — — — Thailand — — — — — — — — — — — Vietnam — — — — — — — — — — — Total 5,051 5,342 5,464 5,550 5,638 5,718 5,799 5,879 5,961 6,043 1.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | Asia Pacific 231 Latin America

The outlook in brief Overview • The economic slowdown will cut into near-term • We project the market to expand from $9.5 billion in penetration growth and subscription spending. 2008 to $13 billion in 2013, a 6.5 percent compound annual increase. • Growth in digital cable and the introduction of IPTV will fuel a small VOD market. • Subscription spending will increase to $12.7 billion in 2013, a 6.2 percent compound annual gain. • Infrastructure upgrades will lead to mobile TV launches. • VOD will double to $40 million in 2013, a 14.9 percent increase compounded annually. • Mobile television will accelerate to $175 million by 2013.

TV subscription and license fee market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Subscriptions 5,940 6,606 7,357 8,376 9,449 9,703 10,006 10,585 11,580 12,742 Video-on-demand 3 4 9 14 20 22 26 29 35 40 Mobile TV — — — — 1 1 5 13 68 175 Total 5,943 6,610 7,366 8,390 9,470 9,726 10,037 10,627 11,683 12,957

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

TV subscription and license fee market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Subscriptions 7.9 11.2 11.4 13.9 12.8 2.7 3.1 5.8 9.4 10.0 6.2 Video-on-demand — 33.3 125.0 55.6 42.9 10.0 18.2 11.5 20.7 14.3 14.9 Mobile TV — — — — — 0.0 400.0 160.0 423.1 157.4 180.9 Total 7.9 11.2 11.4 13.9 12.9 2.7 3.2 5.9 9.9 10.9 6.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Brazil and Mexico were the leading countries in Latin • Chile will be the fastest-growing country during the next America in 2008, at $3.2 billion and $2.4 billion, five years, with a projected 8 percent compound annual respectively, followed by Argentina at $1.7 billion. increase, fueled by an expanding IPTV market. The remaining countries will expand at mid-single-digit rates ranging from 5.1 percent in Venezuela to 6.9 percent in Brazil.

232 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 TV subscription and license fee market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1,073 1,257 1,418 1,595 1,742 1,784 1,856 1,971 2,141 2,337 6.1 Brazil 1,994 2,215 2,430 2,741 3,170 3,267 3,368 3,571 3,969 4,427 6.9 Chile 470 492 544 622 702 727 761 828 922 1,030 8.0 Colombia 677 747 855 999 1,135 1,165 1,202 1,271 1,398 1,548 6.4 Mexico 1,481 1,637 1,843 2,130 2,396 2,450 2,508 2,625 2,868 3,198 5.9 Venezuela 248 262 276 303 325 333 342 361 385 417 5.1 Total 5,943 6,610 7,366 8,390 9,470 9,726 10,037 10,627 11,683 12,957 6.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Subscription households and • Subscription TV penetration will rise to 26.2 percent in subscription spending 2013 from 22.6 percent in 2008. • The number of subscription households in Latin • Argentina has the largest number of subscribers in America has increased at rates averaging around 10 2008, at 6.75 million, and will remain the leader in 2013, percent annually during the past four years. Rising at 8.5 million. Mexico will have 7.8 million subscribers in incomes allowed more people to be able to afford a 2013, and Brazil, 7.65 million. subscription service. • Subscription household penetration in Argentina will • We expect economic declines to cut into disposable reach 82.1 percent by 2013. In Chile, the majority of income growth, which in turn will lead to noticeably television households will have a TV subscription in slower growth in subscription households in 2009 and 2013, with penetration projected at 52 percent. No 2010 compared with recent years. At the same time, other country will reach a penetration rate of 50 percent new triple-play packages that offer implicit discounts during the next five years. for television are helping expand the market. • The overall subscription television market will increase from 23.7 million households in 2008 to 30.1 million in 2013, a 4.8 percent compound annual increase.

Television subscriptions and license fees | Latin America 233 Subscription TV households (millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 4.50 5.20 5.75 6.30 6.75 6.87 7.10 7.45 7.94 8.46 4.6 Brazil 4.05 4.45 4.80 5.30 6.00 6.15 6.30 6.60 7.10 7.65 5.0 Chile 1.06 1.10 1.20 1.35 1.49 1.53 1.59 1.71 1.87 2.04 6.5 Colombia 1.00 1.10 1.25 1.45 1.63 1.67 1.72 1.81 1.97 2.15 5.7 Mexico 4.10 4.50 5.00 5.64 6.23 6.36 6.50 6.76 7.24 7.81 4.6 Venezuela 1.35 1.40 1.45 1.55 1.62 1.65 1.68 1.75 1.83 1.94 3.7 Total 16.06 17.75 19.45 21.59 23.72 24.23 24.89 26.08 27.95 30.05 4.8

Note: Does not include free-to-air DTT and satellite households. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Subscription TV penetration of TV households (%)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Argentina 47.9 54.7 59.9 64.9 68.9 69.4 71.0 73.8 77.8 82.1 Brazil 8.5 9.2 9.7 10.4 11.5 11.6 11.6 11.9 12.5 13.2 Chile 28.5 29.3 31.8 35.5 39.0 39.8 41.2 44.1 47.9 52.0 Colombia 11.5 12.5 14.0 16.1 17.9 18.2 18.5 19.3 20.7 22.4 Mexico 17.8 19.1 20.8 23.0 24.9 24.9 25.0 25.5 26.8 28.4 Venezuela 25.4 26.2 27.1 28.8 30.0 30.4 30.9 32.1 33.4 35.3 Total 16.4 17.8 19.2 20.9 22.6 22.6 22.8 23.5 24.8 26.2

Note: Does not include free-to-air DTT and satellite households. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Cable • We expect cable household growth to slow to less than 3 percent annually during the next two years. We • Triple-play offerings are driving the cable market. In expect a stronger, 4.6 percent increase in 2011 as the Argentina, for example, Multicanal and are economy begins to rebound, and increases of 6 percent investing more than $300 million in a fiber infrastructure or more during the subsequent two years, when the to offer triple-play packages. economy resumes a growth profile. • In Colombia, Telmex acquired five cable companies • The number of cable households in Latin America will and is using that platform to create an infrastructure to increase to 21.8 million in 2013 from 17.7 million in launch a triple-play service. In Mexico, cable operators 2008, a 4.3 percent compound annual increase. Cable were permitted to provide triple-play services beginning penetration of TV households will rise from 16.8 percent in 2007, which is helping expand cable. in 2008 to 19 percent in 2013. • During the past two years, cable household growth in Latin America accelerated to increases in excess of 9 percent annually.

234 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Cable households (millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 4.10 4.50 4.90 5.30 5.70 5.80 6.00 6.30 6.70 7.10 4.5 Brazil 2.95 3.05 3.20 3.50 4.00 4.10 4.20 4.40 4.65 4.95 4.4 Chile 0.94 0.97 1.03 1.10 1.18 1.20 1.23 1.30 1.40 1.50 4.9 Colombia 0.90 0.92 0.95 1.00 1.08 1.10 1.12 1.16 1.22 1.30 3.8 Mexico 2.90 3.20 3.60 4.10 4.50 4.60 4.70 4.90 5.20 5.55 4.3 Venezuela 1.03 1.07 1.11 1.15 1.20 1.22 1.24 1.28 1.33 1.40 3.1 Total 12.82 13.71 14.79 16.15 17.66 18.02 18.49 19.34 20.50 21.80 4.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Cable penetration of TV households (%)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Argentina 43.6 47.4 51.0 54.6 58.2 58.6 60.0 62.4 65.7 68.9 Brazil 6.2 6.3 6.4 6.9 7.7 7.7 7.7 7.9 8.2 8.5 Chile 25.2 25.9 27.3 29.0 30.9 31.3 31.9 33.5 35.9 38.3 Colombia 10.3 10.5 10.7 11.1 11.9 12.0 12.0 12.3 12.8 13.5 Mexico 12.6 13.6 15.0 16.7 18.0 18.0 18.1 18.5 19.3 20.2 Venezuela 19.4 20.0 20.7 21.4 22.2 22.5 22.8 23.4 24.3 25.5 Total 13.1 13.8 14.6 15.7 16.8 16.8 17.0 17.4 18.2 19.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

IPTV • In Mexico, Telmex has been looking to modify its license to allow it to offer IPTV, but so far is not • While cable companies have been entering the permitted to do so. Given the recent ruling allowing telephone market, there remain impediments to cable companies to provide telephone service, we telephone companies’ offering television. In Argentina, expect that Telmex will ultimately be permitted to Telecom Argentina is testing an IPTV service and is provide IPTV, and we expect a launch in 2010. petitioning the government to let it offer IPTV on a commercial basis. We expect IPTV to become available • In Venezuela, state-owned telephone company Cantv in 2010. is upgrading its infrastructure, and we expect an IPTV launch there in 2011. • In Brazil, Brazil Telecom launched a VOD service using IPTV, but IPTV is still not permitted as a platform for • Currently, Chile is the only country with an active IPTV television programs. Unless the law changes, we do not service. We expect Chile will remain the largest IPTV expect IPTV to be introduced in Brazil. market in Latin America, with 130,000 subscribers in 2013. The overall market will total 290,000 subscribers.

Television subscriptions and license fees | Latin America 235 IPTV households (millions) 2009–13 Latin America 2008p 2009 2010 2011 2012 2013 CAGR Argentina — — 0.01 0.02 0.04 0.06 — Brazil — — — — — — — Chile 0.01 0.02 0.04 0.07 0.10 0.13 67.0 Colombia — — — — — — — Mexico — — 0.01 0.02 0.04 0.06 — Venezuela — — — 0.01 0.02 0.04 — Total 0.01 0.02 0.06 0.12 0.20 0.29 96.1

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Satellite • We expect growth to drop to less than 2.5 percent annually in 2009 and 2010. We also look for a larger • There is an active satellite market in Latin America that rebound in satellite than in cable during the latter part reaches areas not accessible by cable. The satellite of the forecast period as rising incomes make satellite household base has grown much faster than the cable dishes affordable to more people. We project increases household base, with double-digit annual gains during of 9.5 percent or more in 2012 and 2013. each of the past five years. • We project the overall satellite market to increase from • We expect an even sharper slowdown in satellite 6.1 million in 2008 to 8 million in 2013, growing at a 5.6 household growth than in cable household growth percent compound annual rate. Satellite penetration will during the next two years relative to 2008 because the rise to 6.9 percent in 2013 from 5.8 percent in 2008. cost of a satellite dish will be a significant impediment when disposable income is squeezed.

Subscription satellite households (millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 0.40 0.70 0.85 1.00 1.05 1.07 1.09 1.13 1.20 1.30 4.4 Brazil 1.10 1.40 1.60 1.80 2.00 2.05 2.10 2.20 2.45 2.70 6.2 Chile 0.12 0.13 0.17 0.25 0.30 0.31 0.32 0.34 0.37 0.41 6.4 Colombia 0.10 0.18 0.30 0.45 0.55 0.57 0.60 0.65 0.75 0.85 9.1 Mexico 1.20 1.30 1.40 1.54 1.73 1.76 1.79 1.84 2.00 2.20 4.9 Venezuela 0.32 0.33 0.34 0.40 0.42 0.43 0.44 0.46 0.48 0.50 3.5 Total 3.24 4.04 4.66 5.44 6.05 6.19 6.34 6.62 7.25 7.96 5.6

Note: Does not include free-to-air satellite households. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

236 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Subscription satellite penetration of TV households (%)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Argentina 4.3 7.4 8.9 10.3 10.7 10.8 10.9 11.2 11.8 12.6 Brazil 2.3 2.9 3.2 3.5 3.8 3.9 3.9 4.0 4.3 4.7 Chile 3.2 3.5 4.5 6.6 7.8 8.1 8.3 8.8 9.5 10.5 Colombia 1.1 2.0 3.4 5.0 6.0 6.2 6.5 6.9 7.9 8.9 Mexico 5.2 5.5 5.8 6.3 6.9 6.9 6.9 6.9 7.4 8.0 Venezuela 6.0 6.2 6.3 7.4 7.8 7.9 8.1 8.4 8.8 9.1 Total 3.3 4.1 4.6 5.3 5.8 5.8 5.8 6.0 6.4 6.9

Note: Does not include free-to-air satellite households. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Subscription spending • In 2008, TV subscription spending in Latin America rose by 12.8 percent. We expect increases averaging • Just as subscription household growth will slow during 2.9 percent during the next two years followed by the next two years, we also expect slower growth in accelerating growth to 2013, when we project a 10 subscription spending per household, reflecting the percent advance. tightening economy and a slower take-up rate for premium services. • For the forecast period as a whole, TV subscription spending will increase at a 6.2 percent compound • Spending per household should grow faster during annual rate from $9.4 billion in 2008 to $12.7 billion the latter part of the forecast period, when economic in 2013. conditions improve.

TV subscription market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1,072 1,255 1,415 1,590 1,735 1,777 1,848 1,962 2,129 2,322 6.0 Brazil 1,993 2,214 2,428 2,738 3,165 3,261 3,358 3,553 3,900 4,285 6.2 Chile 470 492 543 621 700 725 759 826 918 1,021 7.8 Colombia 677 747 854 998 1,134 1,164 1,200 1,269 1,396 1,545 6.4 Mexico 1,480 1,636 1,841 2,127 2,391 2,444 2,501 2,616 2,854 3,155 5.7 Venezuela 248 262 276 302 324 332 340 359 383 414 5.0 Total 5,940 6,606 7,357 8,376 9,449 9,703 10,006 10,585 11,580 12,742 6.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | Latin America 237 Video-on-demand VOD households in Latin America (millions) • Cable upgrades that allow for triple-play packages also 5 create a platform for video-on-demand. 4 3.74 • The emergence of IPTV will also enhance the VOD 3.33 2.96 base because one of the features of IPTV is its ability to 3 2.67 provide VOD. 2.23 2 1.82 • The effective household base for VOD is still small in 1.29 Latin America, at only 1.8 million in 2008, a figure we 0.89 1 0.55 project will more than double to 3.7 million by 2013. 0.26 0 • As with the subscription market, we expect spending 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 per VOD household to decline in 2009, which will dampen overall spending growth. We expect a Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates $2-million increase in VOD spending in 2009, down from the $6-million advance in 2008. • A rise in per-household spending will propel the VOD market during subsequent years. We project total VOD spending to increase to $40 million in 2013 from $20 million in 2008, a 14.9 percent compound annual rate.

Video-on-demand and subscription VOD† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1 2 3 5 7 7 8 9 11 12 11.4 Brazil 1 1 2 3 4 5 5 7 9 10 20.1 Chile ‡ ‡ 1 1 2 2 2 2 3 3 8.4 Colombia ‡ ‡ 1 1 1 1 2 2 2 3 24.6 Mexico 1 1 2 3 5 6 7 7 8 9 12.5 Venezuela ‡ ‡ ‡ 1 1 1 2 2 2 3 24.6 Total 3 4 9 14 20 22 26 29 35 40 14.9

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

238 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile TV • In Argentina, each of the wireless carriers upgraded its networks to 3G, and we look for mobile TV to be • Mobile TV is currently available only in Brazil. Brazil launched in 2010. adopted the Japanese ISDB-T (Integrated Services Digital Broadcasting–Terrestrial) standard for its digital • In the near term, we expect little demand for mobile TV terrestrial television service and is using that platform to as well as slow rollouts as providers face difficulty in deliver mobile television. obtaining financing. • In Chile, the three mobile operators are seeking • We expect the mobile TV market to remain tiny during ultrahigh frequencies for mobile TV, and we expect a the next three years, at a projected $13 million in 2011. launch in 2009. • We then look for spending to ramp up as rollouts • In Mexico, Iusacell upgraded its wireless network in accelerate and incomes rise. By 2013 we expect the preparation for mobile TV, which we expect in 2009. mobile TV market to total $175 million.

Mobile TV market† (US$ Millions) 2009–13 Latin America 2008p 2009 2010 2011 2012 2013 CAGR Argentina — — ‡ ‡ 1 3 — Brazil 1 1 5 11 60 132 165.5 Chile — ‡ ‡ ‡ 1 6 — Colombia NA NA NA NA NA NA — Mexico — ‡ ‡ 2 6 34 — Venezuela NA NA NA NA NA NA — Total 1 1 5 13 68 175 180.9

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television subscriptions and license fees | Latin America 239 240 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Television advertising

242 Summary

243 North America

253 Europe, Middle East, Africa (EMEA)

262 Asia Pacific

269 Latin America Summary

Television advertising Market size and growth by component The television advertising market consists of advertiser Global terrestrial advertising is the dominant component spending on both terrestrial television and multichannel of total television advertising, at $125 billion in 2008, television. It is distinct from mobile TV advertising and 74 percent of the total. Terrestrial advertising will fall by advertising on TV Web sites, both of which are covered 13 percent in 2009 and will continue to decline through in the “Internet Advertising: Wired and Mobile” chapter. 2011. Spending in 2013 will be a projected $116.2 billion, Net television advertising figures—consisting of spending a 1.5 percent compound annual decrease from 2008. minus agency commissions and discounts—are tracked Multichannel advertising will be less affected by the in EMEA (Europe, Middle East, Africa), Asia Pacific, Latin economy, although we still expect a 7.1 percent decrease America, and Canada. Advertising in the US and Russia in 2009. We look for a rebound in 2010 and an increase is reported with agency commissions included, as to $52.2 billion by 2013, up 3.8 percent compounded is customary. annually from $43.3 billion in 2008. Multichannel advertising refers to advertising on networks that are accessed by viewers via cable (analog or digital), Principal drivers satellite, digital terrestrial television (DTT), or other means Near-term economic declines will be the dominant factor but that are not otherwise available without these services. affecting the market in each region, with an improvement Terrestrial advertising consists of advertising that is in the economic environment contributing to the recovery generated by free-to-air broadcast networks and that can during 2012–13. Multichannel advertising will be the be received through an ordinary television receiver, even if fastest-growing sector in each region, buoyed by large viewers can also receive such networks through a cable, increases in digital households and viewing-share gains satellite, or DTT service. for cable, satellite channels, and DTT channels. High- definition television (HDTV) will also boost advertising Market size and growth by region on free-to-air channels once the underlying economic environment improves. The global television advertising market will decline by 11.4 percent in 2009 and will total an estimated $168.4 billion in 2013, nearly returning to the $168.3-billion level of 2008. The market will remain weak during 2010 and 2011 before improving during 2012–13. Latin America will be the fastest-growing market, with a compound annual increase of 1.4 percent. Asia Pacific is next, with a projected 0.7 percent compound annual gain. We expect EMEA to be flat and North America to decline by 0.6 percent compounded annually. North America will remain the largest market in 2013, at $69.3 billion, followed by EMEA at $48.9 billion and Asia Pacific at $37.2 billion. Latin America will total $13.1 billion.

Data for the global television advertising market by region and for the global television advertising market by component can be found within the Executive Summary on page 39.

242 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief Overview • The economic downturn will lead to a sharp drop in • Television advertising will fall by a projected 13.6 television advertising in 2009. percent in 2009 and will total an estimated $69.3 billion in 2013, representing a 0.6 percent compound annual • The incidence of commercial skipping will plateau as decrease from $71.4 billion in 2008. the digital video recorder (DVR) market matures, leading to improved broadcast network growth once the • Multichannel advertising will rise by an estimated 2.1 economy recovers. percent compounded annually from $28.2 billion in 2008 to $31.3 billion in 2013. • Viewing-share gains and the introduction of addressable advertising will contribute to cable network • Terrestrial advertising will fall by 15.9 percent in 2009 advertising growth during 2011–12. and in 2013 will be 2.6 percent lower than in 2008 on a compound annual basis, falling to $37.9 billion from $43.1 billion.

Television advertising market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Terrestrial advertising 45,847 43,700 46,612 44,603 43,149 36,285 36,391 35,877 39,026 37,910 Multichannel advertising 22,191 24,374 25,852 27,208 28,218 25,368 26,172 27,060 29,571 31,341 Total 68,038 68,074 72,464 71,811 71,367 61,653 62,563 62,937 68,597 69,251

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Terrestrial advertising 10.2 –4.7 6.7 –4.3 –3.3 –15.9 0.3 –1.4 8.8 –2.9 –2.6 Multichannel advertising 14.5 9.8 6.1 5.2 3.7 –10.1 3.2 3.4 9.3 6.0 2.1 Total 11.6 0.1 6.4 –0.9 –0.6 –13.6 1.5 0.6 9.0 1.0 –0.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The United States will experience the steeper near-term • For the forecast period as a whole, Canada will increase decline, falling by 13.7 percent in 2009 compared with a at a 0.3 percent compound annual rate to $3.2 billion in projected 11.2 percent decrease in Canada. In addition 2013 from $3.1 billion in 2008. to the impact of the economy, television in the United • Television advertising in the United States will decrease States will lose the political and Olympic advertising that from $68.3 billion in 2008 to $66.1 billion in 2013, a 0.6 contributed to the market in 2008. By contrast, Canada percent decrease compounded annually. had relatively less political and Olympic advertising than the US did in 2008 and therefore had less to lose. • During the 2010–13 period, we expect both the United States and Canada to rebound with a projected 3.4 percent advance compounded annually in Canada and 2.9 percent in the United States.

Television advertising | North America 243 Television advertising market by country† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 65,264 65,254 69,428 68,723 68,268 58,900 59,750 60,100 65,600 66,100 Canada 2,774 2,820 3,036 3,088 3,099 2,753 2,813 2,837 2,997 3,151 Total 68,038 68,074 72,464 71,811 71,367 61,653 62,563 62,937 68,597 69,251

†At average 2008 exchange rates. Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Television advertising market growth by country (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 11.9 0.0 6.4 –1.0 –0.7 –13.7 1.4 0.6 9.2 0.8 –0.6 Canada 4.8 1.7 7.7 1.7 0.4 –11.2 2.2 0.9 5.6 5.1 0.3 Total 11.6 0.1 6.4 –0.9 –0.6 –13.6 1.5 0.6 9.0 1.0 –0.6

Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Economic downturn • Cable networks and specialty channels were less affected by the strike, because they rely more on live • The difficult economic environment began to cut into programming, reruns, and reality shows as a matter the broadcast network advertising market in both the of course. The strike therefore accelerated the shift in United States and Canada in 2008. US broadcast viewing from broadcast networks to cable networks. network advertising posted a modest, 1.0 percent Cable news channels also benefited from the enormous advance, and Canadian broadcast advertising fell by interest in the presidential campaign that lasted from 1.2 percent. The US market was bolstered by more than the fall of 2007 through November 2008. Cable news $1 billion in advertising for the Beijing Olympics. The channels experienced a spike in ratings and double- Beijing Olympics also boosted television advertising in digit advertising growth. That viewership gain as well as Canada. However, the Olympic advertising of 2008 will the ad spending increase came at the expense of the leave the North American market in 2009, exacerbating broadcast networks. The growth in cable news channel the decline, but will return in 2010. viewing also led to an increase in political advertising • In addition to the slumping economy, broadcast going to cable networks as compared with the past. networks were hurt by the writers’ strike in early 2008 Furthermore, cable networks are getting more involved that interrupted the of programs, leading to in original production. increased airings of reruns and reality shows. Ratings • Consequently, cable network advertising held up were down significantly. The impact was not limited to relatively well in 2008. US cable network advertising the United States. Canadian broadcasters were faced rose by 4 percent in 2008 compared with 1 percent with a shortage of original US shows. growth in broadcast network advertising. In Canada, specialty channels recorded a 4.4 percent increase, while broadcast networks experienced a 1.2 percent decline.

244 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 2008 networks advertising growth in North America (%) • While the economic downturn will affect all segments of the market, we expect that the broadcast networks 6 Broadcast networks Cable networks and local advertising will be hardest-hit compared with 4.4 4.0 cable networks and specialty channels. We expect a 4 15.9 percent decrease in the United States in 2009 and a 13.2 percent decline in Canada. 2 1.0

0

–1.2 –2 United States Canada

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Broadcast network and local television advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 48,840 46,958 50,108 48,109 46,828 39,400 39,550 39,100 42,600 41,600 Canada 2,110 2,099 2,208 2,199 2,171 1,885 1,941 1,927 2,026 2,110 Total 50,950 49,057 52,316 50,308 48,999 41,285 41,491 41,027 44,626 43,710

†At average 2008 exchange rates. Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Broadcast network and local television advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 10.1 –3.9 6.7 –4.0 –2.7 –15.9 0.4 –1.1 9.0 –2.3 –2.3 Canada 1.6 –0.5 5.2 –0.4 –1.3 –13.2 3.0 –0.7 5.1 4.1 –0.6 Total 9.7 –3.7 6.6 –3.8 –2.6 –15.7 0.5 –1.1 8.8 –2.1 –2.3

Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

US market • The scheduled analog broadcasting shutdown date of February 17, 2009, became delayed until June 12, • The scheduled shutdown of analog broadcasting in 2009, because many households were not prepared the United States could also have an adverse impact for the switchover. The switchover will likely lead to on television station viewing and advertising. Millions an uptick in multichannel subscriptions, resulting in of households still receive television through over-the- television stations’ and broadcast networks’ facing air signals. Moreover, even in households where the more competition from cable networks. Consequently, primary television set is connected to a multichannel the competitive position of broadcast television will distribution system, secondary sets often are not. deteriorate in 2009, further eroding their advertising.

Television advertising | North America 245 • In the United States, local advertising on television providers for the Local Programming Improvement stations fell 9 percent in 2008, the steepest decrease Fund from 5 percent to 6 percent. Increased funding of all television advertising segments. We expect an should help certain local stations in Canada improve additional 16.1 percent decrease in 2009. The national their news programming and other operations, which spot market fell by 3 percent in 2008, cushioned by the should have a positive effect on viewing and advertising surge in political advertising, most of which will leave over the longer run. the market in 2009. We expect a 19.7 percent decline • The analog switch-off scheduled in Canada in 2011 will in national spot in 2009. We expect that drop in 2009 likely have a modest adverse impact on the remaining to be steeper than in 2007 or 2005 because of the over-the-air market as the take-up rate of paid distribu- declining economy. tion increases and viewing of specialty channels rises. • Overall US television station advertising fell by 6.5 • The Canadian government is changing the policy that percent in 2008, and a further 17.6 percent decrease is prohibits cable and satellite providers from selling expected in 2009. advertising on US cable programs carried in Canada. • Multichannel systems in the United States garnered US cable programs typically allocate two minutes per a larger share of political advertising than in the past, hour for local advertising (called local avails). Currently, helping them post a 2.5 percent advance in 2008. The cable operators are required to use 30 seconds of absence of that advertising in 2009 combined with that time to promote Canadian programming. The cutbacks by traditional advertisers will lead to a 14.5 remainder can be used to promote only a cable or percent decline in 2009. That decrease will be less satellite system’s own products. In the future, cable than that projected for television stations, because of operators will be permitted to sell that time to Canadian multichannel’s increased viewing share as the digital advertisers, which should provide an incremental switchover boosts subscribership. revenue stream. We expect increases averaging 4.7 percent annually during 2012 and 2013, reflecting the • Total TV station and multichannel systems advertising impact of this added revenue. in the United States fell 4.8 percent in 2008, and we project a further 17 percent decline in 2009. • The local market in Canada will also be helped by new over-the-air stations targeting niche audiences. In 2008, for example, Rogers Communications launched Canadian market OMNI Calgary and OMNI Edmonton, which serve the • The local television market in Canada is relatively expanding immigrant population in each of those cities. small, constituting only 12.7 percent of total television • These positive developments will help the local market advertising in 2008 compared with 42.2 percent in the in Canada to outperform the United States. We project United States. Local television advertising in Canada 1 percent compound annual decline in local television fell 1.5 percent in 2008, a smaller decrease compared advertising in Canada during 2009–13 compared with a with that in the United States. We expect a somewhat projected 2.6 percent decline compounded annually in smaller, 14.2 percent decline in 2009 because the US. Canada is not affected by the large swings in political advertising seen in the United States. • Local television advertising as a whole in North America fell by 4.8 percent in 2008, and we project a 17 percent • In 2008, the Canadian Radio-television and decrease in 2009. By 2013, local television advertising Telecommunications Commission (CRTC) raised the will total $25.6 billion compared with $29.2 billion in fee paid by broadcasters, cable operators, and satellite 2008, also a 2.6 percent compound annual decrease.

246 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Television station and multichannel systems advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States Television stations National spot 11,370 10,040 11,626 10,138 9,834 7,900 8,300 8,000 9,000 8,200 Local 14,507 14,260 14,887 14,411 13,114 11,000 10,500 10,400 11,000 11,200 Total television station advertising 25,877 24,300 26,513 24,549 22,948 18,900 18,800 18,400 20,000 19,400 Multichannel systems 5,103 5,358 5,705 5,705 5,850 5,000 5,100 5,150 5,600 5,800 Total United States 30,980 29,658 32,218 30,254 28,798 23,900 23,900 23,550 25,600 25,200 Canada 377 371 387 400 394 338 347 342 361 375 Total 31,357 30,029 32,605 30,654 29,192 24,238 24,247 23,892 25,961 25,575

†At average 2008 exchange rates. Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Television station and multichannel systems advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States Television stations National spot 14.3 –11.7 15.8 –12.8 –3.0 –19.7 5.1 –3.6 12.5 –8.9 –3.6 Local 7.3 –1.7 4.4 –3.2 –9.0 –16.1 –4.5 –1.0 5.8 1.8 –3.1 Total television station advertising 10.3 –6.1 9.1 –7.4 –6.5 –17.6 –0.5 –2.1 8.7 –3.0 –3.3 Multichannel systems 5.0 5.0 6.5 0.0 2.5 –14.5 2.0 1.0 8.7 3.6 –0.2 Total United States 9.4 –4.3 8.6 –6.1 –4.8 –17.0 0.0 –1.5 8.7 –1.6 –2.6 Canada –0.5 –1.6 4.3 3.4 –1.5 –14.2 2.7 –1.4 5.6 3.9 –1.0 Total 9.2 –4.2 8.6 –6.0 –4.8 –17.0 0.0 –1.5 8.7 –1.5 –2.6

Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Television advertising | North America 247 Impact of DVR growth • Effective DVR penetration in the United States could be even higher depending on how cable operators react • The television advertising market also was affected by to an August 2008 ruling by the US Court of Appeals a large increase in digital video recorder penetration. in New York that allows Cablevision and, by extension, In the United States, DVR penetration rose in 2008 to other cable operators to store recorded programs in a nearly 27 percent from around 20 percent in 2007. In central location rather than providing each household Canada, penetration rose to nearly 18 percent from 10 with DVR capability. In principle, subscribers without percent in 2007. For North America as a whole, there a DVR set-top box could record programs simply were an average of 32.7 million DVR households in by using their remote control devices. Use of DVR 2008, a gain of 41 percent in a weak economy. From functions on an ad hoc basis could expand the effective 2006 to 2008, the DVR household count nearly tripled. DVR universe. In Canada, this area is not regulated, so • The take-up rate of the DVR is mirroring that of the VCR DTT operators will seek to match the cable operators in the 1980s and the DVD in the current decade. Using by introducing hybrid models with the download signal that experience as a guide and taking into account a from the satellite link, and an Internet connection to the weak economy during the next two years, we expect receiver box for uploads. This echoes the approach DVR penetration to increase to 60 percent in the United taken by Sky TV in Europe. We expect that the impact States and to 52 percent in Canada by 2013. The of DVRs on television advertising will be somewhat overall number of DVR households in North America will larger than the trend in DVR household growth. rise to an estimated 78.7 million, for a penetration rate of 59.4 percent.

DVR households†

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States DVR households (millions) 5.5 9.0 11.0 22.0 30.5 36.5 44.0 55.0 65.0 72.0 DVR household penetration (%) 5.1 8.2 9.9 19.7 26.9 31.8 38.0 47.0 54.9 60.3 Canada DVR households (millions) 0.2 0.5 0.7 1.2 2.2 2.7 3.6 4.6 5.7 6.7 DVR household penetration (%) 1.7 4.1 5.7 9.8 17.7 21.6 28.6 36.2 44.5 51.9 Total DVR households (millions) 5.7 9.5 11.7 23.2 32.7 39.2 47.6 59.6 70.7 78.7 DVR household penetration (%) 4.7 7.8 9.5 18.7 26.0 30.8 37.0 45.9 53.9 59.4

†Annual averages. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The impact of DVRs on television viewing and television • Networks and advertisers in the United States shifted advertising is not yet clear. Overall television viewing is from measuring the viewing of programs on a live basis up in the United States despite increased competition to live viewing plus the viewing of commercials on a from the Internet and video games, suggesting that program within three days of its original airing, known while the DVR is not contributing to an overall decline in as C3 ratings. Initial comparisons with prior years’ live viewing, it is likely contributing to an overall decline in ratings were adverse because of much higher DVR advertising exposure. penetration and the fact that commercial skipping was

248 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 occurring even without the DVR but was not measured. • The networks are developing new ways to sell Viewers leave the room, switch channels by using advertising. C7 ratings—viewing of commercials within their remote control devices, or skip commercials by seven days of the original broadcast—are generally using their VCR or DVD recorders. Advertisers typically holding up well compared with live ratings in the past. assumed a certain level of commercial skipping in While advertisers as a group have not agreed to buy the past. One advantage of the new system is that it on that measure, for some advertisers whose message actually measures commercial viewing as opposed to is not time sensitive there may be opportunities to sell program viewing. on that basis. Advertising shown on the lower portion of the screen during the program itself is increasingly • The issue of commercial skipping is not new; it was being used as a way to avoid the impact of the DVR. a major concern in the early days of the VCR. Early Product placements and show sponsorships are adopters recorded a lot of shows and did a lot of alternatives to advertising revenues that have been commercial skipping during playback. Over time, the around for a while. incidence of recording decreased as the novelty effect wore off, and viewers recorded only those shows they • The market in general is changing, and initial had the most interest in seeing. As the incidence of broadcasts no longer adequately capture viewing. recording decreased, so did commercial skipping, Cable networks are increasingly airing original scripted and the issue faded. Also, commercial skipping, as shows that are repeated often during the initial week measured by C3 ratings, is not growing as fast as (encore runs). These networks are reporting cumulative the number of DVR households, which suggests that viewing levels and are attempting to sell advertising on skipping per household is not growing or is decreasing. that basis. Broadcast networks also have repeat airings on television both on their own networks and on their • Nearly two-thirds of DVR households in North America owned cable networks. Programs also are available have had their DVRs for less than two years. As with the for streaming over the Internet and are becoming VCR, early DVR adopters do a lot of recording, giving available through video-on-demand, which is, in effect, them a lot of opportunities for commercial skipping. equivalent to a DVR service. Moreover, the rapid expansion in the DVR household base means that a growing share of the television • We believe that over time, new audience metrics, universe is watching shows during playback. As the including those that measure audience engagement, DVR market matures, we would expect that among DVR will become appropriate for certain advertisers and will households, the incidence of recording and watching allow networks to more efficiently sell advertising in the shows during playback would reach a plateau. changing environment. In parallel, creative agencies and media buyers are creating proprietary databases • Most of DVR recording is for high-rated broadcast aimed at estimating the impacts of multiformat network shows. These programs benefit from increased campaigns, even though the measurements in each exposure compared with live-only viewing but also format are not directly comparable. This may affect experience more commercial skipping. In the near on the relative importance of television, which was term, with the DVR universe expanding rapidly and traditionally the starting point for most major campaign dominated by early adopters, the net impact is likely plans over the forecast period. negative. Over time, as DVR household growth slows and as the incidence of commercial skipping stabilizes, • The broadcast networks, as well as the cable commercial viewing will also stabilize. networks, will benefit from a growing high-definition (HD) universe. HD set sales were up by more than 20 • DVR playback occurs during late night hours, after percent during the first half of 2008, although growth the local late evening news, and, increasingly, during fell during the latter part of the year, when the economy the 10 p.m. hour. Ratings for prime-time shows during declined. Nevertheless, around 25 percent of television that period have fallen more than ratings for shows households watch programs in HD. aired during other time periods. That factor likely was considered in NBC’s decision to abandon expensive, scripted shows during that time slot in favor of Jay Leno.

Television advertising | North America 249 • Viewing levels in HD households are higher than in non- • Over time, viewers’ longer DVR ownership tenure will HD households. As HD penetration expands, television mean that the incidence of commercial skipping will will be better able to hold on to its audiences in the face flatten rather than increase as it is doing now. This will of growing competition from other media, since HD result in a more stable ratings pattern, benefiting the makes TV more appealing to viewers. broadcast networks once the economy recovers. Also, the Vancouver 2010 Winter Olympics will generate • Television is also developing 3-D capability. Liquid higher ratings in North America due to time zone and crystal display sets that are 3-D capable are expected cultural connections. In the United States, we look to be introduced in 2009. The 2009 Bowl Championship for a 9.3 percent increase in 2012—the next Summer Series championship game was shown in 3-D-equipped Olympics year—and a 3.5 percent decline in 2013: in movie theaters to promote the technology, and 3-D has the next post–Summer Olympics year. For the forecast become a successful draw in theaters. It should have period as a whole, broadcast network advertising in the a similar impact on television. Ultimately, improved United States will fall at a 1.9 percent compound annual audience retention from HD and 3-D will translate into rate to $16.4 billion from $18 billion in 2008. improved advertising growth.

Broadcast network advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 17,860 17,300 17,890 17,855 18,030 15,500 15,650 15,550 17,000 16,400 Canada 1,733 1,728 1,821 1,799 1,777 1,547 1,594 1,585 1,665 1,735 Total 19,593 19,028 19,711 19,654 19,807 17,047 17,244 17,135 18,665 18,135

†At average 2008 exchange rates. Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Broadcast network advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 11.3 –3.1 3.4 –0.2 1.0 –14.0 1.0 –0.6 9.3 –3.5 –1.9 Canada 0.6 –0.3 5.4 –1.2 –1.2 –12.9 3.0 –0.6 5.0 4.2 –0.5 Total 10.2 –2.9 3.6 –0.3 0.8 –13.9 1.2 –0.6 8.9 –2.8 –1.7

Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

• In Canada, time shifting of viewing goes beyond DVRs. • The out-of-market audience for stations in the eastern Cable and satellite providers often carry local stations time zone in Canada is not credited to those stations, on their systems and retransmit them nationally to and they cannot monetize that viewing by charging subscribers. Distant-signal retransmission makes it advertisers higher rates. Meanwhile, stations in the possible for subscribers in one television market to west may lose viewers because people may have watch local stations originating in another market. already seen the same program earlier, and this decline in viewing affects advertising.

250 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Broadcasters in Canada applied to the CRTC for networks are reducing the number of scripted shows cable and satellite companies to pay broadcasters to they air. Scripted shows are the ratings leaders on carry their stations. The CRTC rejected that request cable, and as more such programs get added, cable for stations carried by local cable operators but did viewing shares should continue to rise. approve carriage fees for out-of-market distant-signal • Cable networks are not immune to the economy, and retransmissions. Broadcasters will be permitted to we expect that they too will experience an advertising negotiate carriage fees only for out-of-province stations decline in 2009, projected at 9 percent in the United beginning in September 2011. States and 6.5 percent in Canada. The sharper • It is the stated intent of television distributors in decrease in the United States will result in part from Canada to migrate households from DVRs to video- the fact that cable received a portion of the Olympic on-demand systems where the operator sells the ad and political advertising in 2008 that will be leaving the rather than the broadcaster, and ads will not be able to market in 2009. be skipped. Once the video-on-demand systems have • A new feature of the television advertising market is been established, distributors will stop offering DVR addressable advertising. Early addressable advertising service. They also intend to encrypt signals to prevent implementations allow advertisers to send several third-party DVRs from functioning. Such a development messages at once in a single spot, with different would reduce the value of traditional broadcasters by versions going to different households. This type of limiting the reach of the ads they sell. addressability can be especially attractive to national • The broadcast networks will receive a boost in 2010 advertisers because it enables them to tailor messages as the Vancouver Olympics provides an overall lift to more narrowly, which should make them more ap- the advertising market in Canada. After the Canadian pealing to distinct groups of viewers (e.g., feature market falls by 12.9 percent in 2009, we project a 3 four-wheel drive in cold climates and convertibles in percent rebound in 2010. A portion of those funds will warmer climates). With advertising migrating to the leave the market in 2011. We look for gains of 5 percent Internet, television providers are looking for ways to in 2012 and 4.2 percent in 2013. make their messages more effective. Early tests of addressable advertising found that households that • Broadcast network advertising in Canada will decline received them had higher viewing levels for those ads from $1.78 billion in 2008 to $1.74 billion in 2013, a 0.5 than households that received a common national ad. percent decrease compounded annually. • In 2008, Comcast, Time Warner Cable, Cox Cable, • Broadcast network advertising for North America as a Charter Communications, Cablevision Systems, and whole will total $18.1 billion in 2013, down 1.7 percent Bright House formed Canoe Ventures to create a on a compound annual basis from $19.8 billion in 2008. national addressable-advertising platform. The platform will combine geographic advertising zones used by the Cable networks cable industry with demographic databases that will allow advertisers to stratify markets by demographic • Share gains by cable networks helped them grow faster characteristics. The platform will allow up to four in 2008 than the broadcast networks despite the fact versions of an ad to be transmitted simultaneously in a that the bulk of Olympic advertising in the United States single spot. Canoe Ventures is expected to launch its went to the broadcast networks. The expected rise in first addressable-ad platform in 2009. Note: As far as multichannel penetration related to the analog switch- we know, this is not available on broadcast television. off should provide a further boost to cable network audience shares in 2009 in the United States and in • The and Invidi have also teamed up to 2011 in Canada. offer an addressable advertising platform based on geographic and demographic information. Addressable • The economics of cable networks have improved to advertising should enhance the appeal of cable the point that cable networks are increasing their roster networks to advertisers. of original scripted programs just as the broadcast

Television advertising | North America 251 • Cable networks in the United States will no longer sports channels to compete with TSN and Sportsnet. benefit from significant penetration gains that translated Equally, some broadcasters are having difficulty getting into double-digit advertising growth through 2005. From broad-based carriage for new specialty channels, 2005 to 2008, cable network advertising rose at a 5.4 such as TSN2, where these compete with distributor- percent compound annual rate. owned channels. • Once the economy stabilizes, we expect modest • The major Canadian networks such as CTV and improvement in cable network advertising, with a Global are beginning the license renewal process for projected 5.9 percent compound annual advance from conventional TV in early 2009. The expectation is that, 2009 to 2013. From 2008, growth will average 2.7 because of the significant capital investment required, percent compounded annually to $24.5 billion in 2013. when networks make their submissions, many will ask for flexibility in the requirement to transition to digital. • In Canada, the CRTC in 2008 ruled that cable and satellite operators will have flexibility in the packages • New channels should provide a boost to cable they can offer to subscribers and that genre protection advertising in Canada during 2011–13, once the will be removed for certain types of programming, economy picks up. We project cable network (specialty which will result in competing news and sports channel) advertising in Canada to total $1 billion in 2013 channels. Rogers Communications announced in late from $928 million in 2008, a 2.3 percent compound 2008 that it will launch its own news channel, CITY annual increase. News Toronto, which will compete with CP24. We • Overall cable network advertising in North America will expect other news channels to be launched to compete expand at a 2.7 percent compound annual rate from with CBC Newsworld and CTV Newsnet, and other $22.4 billion in 2008 to $25.5 billion in 2013.

Cable network advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 16,424 18,296 19,320 20,614 21,440 19,500 20,200 21,000 23,000 24,500 Canada 664 720 827 889 928 868 872 910 971 1,041 Total 17,088 19,016 20,147 21,503 22,368 20,368 21,072 21,910 23,971 25,541

†At average 2008 exchange rates. Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Cable network advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 17.7 11.4 5.6 6.7 4.0 –9.0 3.6 4.0 9.5 6.5 2.7 Canada 16.7 8.4 14.9 7.5 4.4 –6.5 0.5 4.4 6.7 7.2 2.3 Total 17.7 11.3 5.9 6.7 4.0 –8.9 3.5 4.0 9.4 6.5 2.7

Sources: Canadian Radio-television and Telecommunications Commission, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

252 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Europe, Middle East, Africa (EMEA)

The outlook in brief Overview • Declining economies will lead to reduced advertising in • The television advertising market will decline by a 2009 and 2010. cumulative 12.6 percent during the next two years and then expand at mid-single-digit rates during the latter • Digital terrestrial television platforms and new digital part of the forecast period to $48.9 billion in 2013, multiplexes will stimulate multichannel advertising. returning to its level in 2008. • High-definition television will attract viewers and • Terrestrial advertising will fall by a combined 14.5 contribute to a rebound in terrestrial advertising. percent during 2009–10, stabilize in 2011, and then rebound in 2012–13. Spending of $39.9 billion in 2013 will be 0.9 percent lower on a compound annual basis from $41.6 billion in 2008. • Multichannel advertising will grow by 4.4 percent compounded annually, from $7.2 billion to $9 billion.

Television advertising market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Terrestrial advertising 35,277 37,148 39,332 42,053 41,637 36,510 35,600 35,716 38,078 39,876 Multichannel advertising 4,647 5,124 5,755 6,702 7,239 6,893 7,115 7,608 8,306 8,974 Total 39,924 42,272 45,087 48,755 48,876 43,403 42,715 43,324 46,384 48,850

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Terrestrial advertising 9.9 5.3 5.9 6.9 –1.0 –12.3 –2.5 0.3 6.6 4.7 –0.9 Multichannel advertising 14.5 10.3 12.3 16.5 8.0 –4.8 3.2 6.9 9.2 8.0 4.4 Total 10.5 5.9 6.7 8.1 0.2 –11.2 –1.6 1.4 7.1 5.3 0.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising | EMEA 253 • Middle East/Africa will be the fastest-growing area in • Italy at $7 billion and the United Kingdom and Germany EMEA, with a 5.2 percent compound annual increase at $6 billion each are the three largest markets in the to $3.6 billion in 2013 from $2.8 billion in 2008. Growth region. Each of those countries recorded declines will be driven by double-digit increases in Saudi Arabia/ in 2008 that we expect will accelerate in 2009 and Pan Arab during 2012–13. South Africa will experience continue through 2010. a jump in 2010 when it hosts the FIFA World Cup. • Russia at $5.5 billion, France at $4.2 billion, and Spain • Central and Eastern Europe, which expanded at at $4 billion are the next-largest markets. Russia has double-digit rates during the past five years, will been expanding at double-digit annual rates during the experience a reversal during the next two years and past five years. That pattern is abruptly changing as the a cumulative 14.9 percent decline. The region was country experiences an economic reversal. We expect affected later than other areas by the global recession, decreases during the next two years, with a return but it will not escape the recession’s impact, especially to double-digit and high single-digit growth during given Russia’s economic problems, financial problems 2012–13. in other countries, and the region’s closer integration • France declined by 3.8 percent in 2008, and restrictions into the world economy than it had a decade ago. on public television advertising combined with a We look for the market in Central and Eastern Europe weakening economy will lead to a 12.9 percent drop in to stabilize in 2011 and to return to double-digit and 2009 and a 0.4 percent decrease in 2010. Thereafter, high-single-digit growth during 2012–13. Growth for the market will expand at low- to mid-single-digit rates. the entire forecast period will average 1.2 percent compounded annually from $11.1 billion in 2008 to • Spain’s television advertising market had been growing $11.7 billion in 2013. at healthy rates through 2007 but plunged in 2008 as the economy fell into a deep recession. We anticipate • Television advertising in Western Europe fell by 3.6 a 9.2 percent drop in 2009 followed by a 2 percent percent in 2008, and we expect a steeper, 11.1 percent decrease in 2010 before economic conditions improve drop in 2009 followed by an additional 2 percent and there is a return to mid-single-digit growth. decline in 2010. As economic conditions improve, we project a return to mid-single-digit growth during 2012–13. Overall spending will decline by 0.9 percent compounded annually to $33.5 billion in 2013 from $35 billion in 2008.

254 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Television advertising market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 432 442 476 520 541 498 490 490 527 549 0.3 Belgium 871 849 922 995 1,032 951 937 944 1,010 1,061 0.6 Denmark 290 309 339 345 342 314 309 310 332 343 0.1 Finland 332 338 354 382 388 359 351 359 380 395 0.4 France 3,988 4,024 4,207 4,368 4,200 3,659 3,644 3,695 3,878 4,024 –0.9 Germany 5,649 5,751 6,020 6,082 6,000 5,385 5,341 5,378 5,561 5,707 –1.0 Greece 966 980 1,002 1,207 1,112 951 878 878 907 937 –3.4 Ireland 249 285 322 366 347 300 293 300 322 337 –0.6 Italy 6,732 6,915 7,112 7,171 7,024 6,293 6,219 6,256 6,476 6,695 –1.0 Netherlands 1,068 1,098 1,163 1,244 1,280 1,171 1,156 1,178 1,259 1,324 0.7 Norway 477 520 536 561 615 594 596 612 648 674 1.8 Portugal 732 761 754 783 790 732 717 724 761 790 0.0 Spain 3,566 3,939 4,223 4,594 4,013 3,644 3,571 3,600 3,849 4,083 0.3 Sweden 564 626 687 710 683 607 603 611 641 668 –0.4 Switzerland 526 543 568 588 614 554 545 549 577 600 –0.5 United Kingdom 6,391 6,516 6,207 6,391 6,024 5,096 4,821 4,867 5,142 5,326 –2.4 Western Europe total 32,833 33,896 34,892 36,307 35,005 31,108 30,471 30,751 32,270 33,513 –0.9 Central and Eastern Europe Czech Republic 689 813 901 930 983 877 866 901 971 1,041 1.2 Hungary 1,077 1,249 1,303 1,285 1,332 1,158 1,129 1,141 1,216 1,274 –0.9 Poland 1,006 1,058 1,224 1,431 1,597 1,410 1,400 1,406 1,555 1,659 0.8 Romania 181 226 320 412 539 466 457 496 566 615 2.7 Russia 1,971 2,651 3,456 4,526 5,535 4,827 4,626 4,707 5,350 5,833 1.1 Turkey 627 754 957 1,168 1,095 919 957 1,034 1,157 1,321 3.8 Central and Eastern Europe total 5,551 6,751 8,161 9,752 11,081 9,657 9,435 9,685 10,815 11,743 1.2 Middle East/Africa Israel 209 198 195 227 235 223 223 226 233 237 0.2 Saudi Arabia/Pan Arab‡ 875 915 1,235 1,780 1,830 1,750 1,800 1,900 2,220 2,450 6.0 South Africa 456 512 604 689 725 665 786 762 846 907 4.6 Middle East/Africa total 1,540 1,625 2,034 2,696 2,790 2,638 2,809 2,888 3,299 3,594 5.2 EMEA total 39,924 42,272 45,087 48,755 48,876 43,403 42,715 43,324 46,384 48,850 0.0

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Communications Agencies of Russia, Initiative Romania, Institutet för Reklam- och Mediestatistik, Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising | EMEA 255 Near-term decline • We expect falling oil revenues in Russia and the onset of a recession to lead to a 12.8 percent decline in 2009, • Housing declines, scarce credit, weak automobile representing a 35.1-percentage-point reversal from markets, falling manufacturing, and rising unemploy- 2008, the largest in EMEA. ment characterized most economies in Western Europe in 2008. Those developments led to the 3.6 percent • Western Europe will remain weak in 2009, with a decrease in television advertising, far larger than the projected 11.1 percent decline. The economy is falling 0.7 percent decline in the United States. rapidly in the United Kingdom, which we expect will lead to a 15.4 percent decrease in television advertising. • Television advertising in Spain fell by 12.6 percent in 2008, the steepest decline of any country in the world. • France will decline at a projected 12.9 percent in The Spanish television advertising market had been 2009. In addition to the impact of the economy, a mirroring the housing bubble, with ad rates escalating new reform effective in 2009 will prohibit the sale of dramatically before falling sharply. Greece was down advertising after 8 p.m. on France Télévisions 2, 3, 4, 7.9 percent, the UK fell 5.7 percent, and decreases and 5 in 2009, which will cut an additional €220 million were also registered in Denmark, France, Germany, ($320 million) from the total, some of which may be and Sweden. reallocated to other channels. Commercial networks will be required to pay a 3 percent tax on advertising • In Central and Eastern Europe, the 13.6 percent revenues to help fund public television, and the increase in 2008 continued the trend of double-digit European Commission approved a onetime bailout of growth. Economic growth assisted by surging oil France Télévisions. The net effect will be to help public revenues fueled television advertising in Russia during TV maintain its spending on programming. the past five years, including a 22.3 percent rise in 2008. Romania and Poland also continued to grow at • Spain will continue to decline, with a projected 9.2 double-digit rates, helped by high inflation in Romania percent drop, although that would represent a relative and consumer spending growth in Poland. The Czech improvement compared with the 12.6 percent decrease Republic and Hungary grew faster in 2008 than in 2007, in 2008. while Turkey experienced the largest turnaround, falling • We expect Middle East/Africa to fall by 5.4 percent rate by 6.3 percent in 2008 after growing by 22 percent in in 2009, with decreases in each territory. 2007, reflecting the rapidly deteriorating economy. • We expect the current economic malaise to continue • Surging oil revenues also stimulated economic growth in 2010 and look for further declines—albeit at more and television advertising growth in Saudi Arabia/ modest rates—in Western Europe and Central and Pan Arab during the past five years, including the first Eastern Europe. We expect Central and Eastern Europe half of 2008. During the latter part of 2008, the global to fall by 2.3 percent in 2010 compared with the 2 recession led to a dramatic reversal in oil revenues, and percent decrease projected for Western Europe, the television advertising growth slowed to 2.8 percent. only time during the entire 2004–13 period that Western • Each area of EMEA will do worse in 2009 than in Europe will not be the slowest-growing area in EMEA. 2008, with Central and Eastern Europe recording the • We look for a jump in South Africa in 2010 related to its largest percentage-point swing: from a 13.6 percent hosting of the FIFA World Cup and look for Middle East/ increase in 2008 to a 12.9 percent decline in 2009. In Africa as a whole to rise by 6.5 percent. Turkey, a declining economy, exacerbated by a sharp depreciation of Turkish currency, will hurt the television • For EMEA as a whole, television advertising will fall by market. We expect television advertising in Turkey to 11.2 percent in 2009 and by an additional 1.6 percent fall by 16.1 percent, which will be the largest decline in 2010. in EMEA.

256 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • We expect economic conditions to stabilize sometime in • In Denmark, five DTT multiplexes will begin broad- 2010 and television advertising to begin to experience a casting in 2009, including three carrying new pay TV recovery in 2011, with a 1.4 percent increase. channels from Boxer; France issued DTT licenses in four regions in late 2008; and three national DTT • By 2012–13, we look for a return to economic expansion contracts were awarded in Ireland. as the current cycle fully runs its course. As economic conditions improve, we expect a return to historical • DTT is already a major presence in the UK, Spain, growth rates during expansions. We project double- France, and Germany. There are more than 9 million digit gains in both Middle East/Africa and Central and DTT homes in the UK, more than 7 million in Spain, Eastern Europe in 2012, and mid-single-digit increases in around 5 million in France, and 4 million in Germany. Western Europe, in line with historical patterns. Viewing on DTT is growing in these countries, fueling multichannel advertising. • Overall growth in EMEA will improve to 7.1 percent in 2012 followed by a 5.3 percent increase in 2013. • Analog switch-off has begun in the UK, with a number of regions scheduled to experience digital switch-over TV advertising growth by area in EMEA (%) in 2009 and the whole country due to be switched over by 2012. 40 Western Europe • In Italy, RAI and Mediaset are launching DTT platforms 30 CEE to help them fend off competition from . 20 MEA The Expresso Group announced plans to introduce 12 themed DTT channels. The government is now 10 phasing in analog switch-off from 2009 to 2012. Italy 0 now has more than 6 million households that get their programming through DTT. –10 • In Spain, Antena 3, Telecinco, Cuatro, and Veo TV have –20 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 been allocated one DTT multiplex each. La Sexta and Net TV use part of the multiplex capacity of the other Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates TV operators. An important issue that has not yet been defined by the current legislation and that will signifi- cantly affect the development of the DTT sector, is the Digital terrestrial television possibility of carrying premium services that command a separate fee, which could be an important incentive • While macroeconomic conditions will dominate the for TV operators to invest in DTT. The government has market in the near term, the opening up of new digital allocated €8.7 million ($12.7 million) to assist in the terrestrial television multiplexes will create opportunities analog switch-off process. for multichannel advertising growth once economic conditions improve. With many countries either about • In France, the government has allocated €230 million to or having already discontinued analog broadcasting, ($337 million) for the digital switchover, of which €183 there has been stepped-up activity in DTT. million ($268 million) will be used to help low-income households, the households of elderly persons, and

Television advertising | EMEA 257 households headed by disabled people make the • In Middle East/Africa, South Africa’s first DTT trial transition. Two regions are scheduled to go digital in began in 2008 and is expected to continue through 2009, with 12 more in 2010 and the final 12 in 2011. much of 2009. A DTT service is expected to follow. • In Switzerland, Digital Video Broadcasting–Terrestrial • The expansion of DTT will lead to growing audience (DVB-T) replaced analog transmission completely as shares for multichannel programs, which in turn will from December 2007. All of SRG SSR idée suisse’s boost multichannel advertising once the economy programmes are transmitted in DVB-T. recovers. • In Portugal, Portugal Telecom is expected to launch • Multichannel advertising growth slowed to 8 percent a DTT multiplex in 2009, and other companies are in 2008 following four years of double-digit gains. applying for DTT licenses that are expected to be We expect a 4.8 percent decrease in 2009 and a 3.2 awarded in 2010. percent gain in 2010. Then, during 2011–13, growth will return to high-single-digit increases, averaging 8 • There is substantial DTT activity in Central and Eastern percent compounded annually from 2010 to 2013. Europe. Russia is planning to license five or more DTT channels within the next few years, Romania is planning • For the forecast period as a whole, multichannel to issue DTT licenses in 2009 or 2010, and Antenna advertising will increase at a 4.4 percent compound Hungária in Hungary launched to DTT multiplexes in annual rate to $9 billion in 2013. In Western Europe, late 2008. the multichannel market will expand at a 3.8 percent compound annual rate to $7.5 billion, while in Central • Poland will be issuing three DTT multiplexes, but and Eastern Europe, spending will rise by 7.3 percent there were expected to have been six had the Office compounded annually to $1.5 billion. of Electronic Communications been able to reach an agreement with the National Broadcasting Council on the makeup of those multiplexes.

258 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Multichannel advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 82 94 103 120 136 135 142 152 168 182 6.0 Belgium 761 744 808 875 908 841 829 840 899 950 0.9 Denmark 98 108 126 134 140 135 139 146 159 171 4.1 Finland 120 124 134 149 155 147 148 154 165 174 2.3 France 192 205 253 306 337 349 365 407 446 483 7.5 Germany 419 459 487 517 540 512 534 565 612 657 4.0 Greece 6 7 7 10 12 10 10 12 13 15 4.6 Ireland 8 13 29 37 35 32 33 35 37 41 3.2 Italy 236 346 448 611 702 755 870 1,001 1,069 1,172 10.8 Netherlands 208 217 229 249 256 246 243 259 277 304 3.5 Norway 171 191 204 219 246 243 250 263 282 296 3.8 Portugal 44 50 53 54 67 66 69 76 81 90 6.1 Spain 85 81 44 46 49 51 59 69 78 88 12.4 Sweden 260 295 330 348 342 310 313 324 343 361 1.1 Switzerland 168 185 204 218 234 216 218 225 243 258 2.0 United Kingdom 1,458 1,585 1,768 2,038 2,048 1,860 1,857 1,947 2,108 2,237 1.8 Western Europe total 4,316 4,704 5,227 5,931 6,207 5,908 6,079 6,475 6,980 7,479 3.8 Central and Eastern Europe Czech Republic 2 2 3 4 5 5 6 7 9 10 14.9 Hungary 182 215 228 270 306 289 293 308 340 369 3.8 Poland 86 96 117 210 312 310 336 365 435 498 9.8 Romania 42 75 128 204 291 261 265 293 340 375 5.2 Russia 19 32 52 82 116 115 125 141 176 210 12.6 Turkey NA NA NA NA NA NA NA NA NA NA — Central and Eastern Europe total 331 420 528 770 1,030 980 1,025 1,114 1,300 1,462 7.3 Middle East/Africa Israel — — — 1 2 5 11 19 26 33 75.2 Saudi Arabia/Pan Arab‡ NA NA NA NA NA NA NA NA NA NA NA South Africa NA NA NA NA NA NA NA NA NA NA NA Middle East/Africa total 0 0 0 1 2 5 11 19 26 33 75.2 EMEA total 4,647 5,124 5,755 6,702 7,239 6,893 7,115 7,608 8,306 8,974 4.4

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising | EMEA 259 High-definition television Currently, most programming is distributed throughout the region over a unified satellite feed, allowing • A by-product of the expansion in digital platforms is programs to reach a large potential audience. The the creation of capacity for high-definition-television disadvantage is that there is a wide disparity in local channels. HDTV is gaining momentum in some tastes and in local ad rates. Advertisers often pay to countries while facing setbacks in others. reach several major countries and, in effect, get the rest • In the UK, ITV, Channel 4, and the BBC will be launching of the region for free. With split beams, programming HD services on Freeview, having been granted approval can target different areas and appeal to different tastes. from Ofcom. Viewers will need a special set-top box to Advertisers will pay for the audiences they reach and view HD programs on Freeview. There have also been want, and there will be fewer viewers provided on a free 3-D initiatives in the UK: BSkyB tested a 3-D service basis. The goal is to generate more advertising revenue. that uses its existing HD platform and does not require a • Although progress has been relatively slow and not separate set-top box. BSkyB also is introducing several uniform, HD is advancing in EMEA. We expect that HDTV new premium HD channels. will make television more appealing and will help television • In France, TF 1, France 2, M6, and Arte were among retain viewers despite increased competition from other the terrestrial channels that launched HD channels in media. HD also provides advertisers with a more attractive 2008. Around 1 million HD-ready sets were sold in 2008 platform. While HD will help television as a whole, it will despite the declining economy. The digital switchover provide more of a boost to terrestrial channels. in France from 2009 to 2011 will allow for 11 new DTT • During the next two years, terrestrial channels will multiplexes dedicated to HD broadcasting. experience the brunt of the impact of the declining • In Italy, RAI introduced the first Super High Definition economy. Terrestrial advertising fell by 1 percent in 2008, channel on DTT, and in Portugal, one of the five with a 5.2 percent decline in Western Europe. In 2009 services offered by Portugal Telecom on its new DTT we project a 12.5 percent decrease in Western Europe, a platform will be HD. 13.7 percent decline in Central and Eastern Europe, and a 12.3 percent decrease for EMEA as a whole. • In Germany, the recession is taking its toll on HDTV. ProSiebenSat.1 dropped the two channels it was • We expect a further, 2.5 percent decrease in 2010 and a simulcasting in HD, and there are no major free HD relatively flat market in 2011. channels expected to be launched before 2010. • By 2012–13, a return to economic growth and the • In Switzerland, national broadcaster SRG SSR idée expansion of HD will boost terrestrial advertising. We suisse offers HDTV through its HD Suisse offering. HD project growth to average 5.7 percent annually during Suisse, launched in December 2007, is a joint channel that period for all of EMEA, with larger increases in between Schweizer Fernsehen, Télévision Suisse Central and Eastern Europe and Middle East/Africa. Romande, Televisione svizzera di lingua italiana, and • For the entire five-year forecast period, terrestrial Televisiun Rumantscha. It transmitted the entire UEFA advertising in Western Europe will decrease to $26 Euro 2008 football (soccer) tournament in HD. As from billion in 2013 from $28.8 billion in 2008, a 2 percent 2012, all of SRG SSR idée suisse’s television channels compound annual decline. will be broadcast in HDTV quality through satellite and cable, in parallel with the traditional, standard- • Terrestrial advertising in Central and Eastern Europe will definition quality. rise to $10.3 billion in 2013 from $10.1 billion in 2008, a 0.5 percent compound annual increase. • In Poland, News Corp. discontinued its strategic part- nership with TV Puls, and TV Puls, in turn, canceled • In Middle East/Africa, growth will average 5 percent plans to launch an HD channel. compounded annually from $2.8 billion to $3.6 billion. • In Turkey, direct-to-home provider Digital Platform • For EMEA as a whole, terrestrial advertising will fall at a () launched HD channels in January 2008, 0.9 percent compound annual rate from $41.6 billion in followed by its competitor D-Smart in August 2008. 2008 to $39.9 billion in 2013. • In Saudi Arabia/Pan Arab, there is a move to introduce multiple satellite feeds that focus on local markets.

260 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Terrestrial advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 350 348 373 400 405 363 348 338 359 367 –2.0 Belgium 110 105 114 120 124 110 108 104 111 111 –2.2 Denmark 192 201 213 211 202 179 170 164 173 172 –3.2 Finland 212 214 220 233 233 212 203 205 215 221 –1.1 France 3,796 3,819 3,954 4,062 3,863 3,310 3,279 3,288 3,432 3,541 –1.7 Germany 5,230 5,292 5,533 5,565 5,460 4,873 4,807 4,813 4,949 5,050 –1.5 Greece 960 973 995 1,197 1,100 941 868 866 894 922 –3.5 Ireland 241 272 293 329 312 268 260 265 285 296 –1.0 Italy 6,496 6,569 6,664 6,560 6,322 5,538 5,349 5,255 5,407 5,523 –2.7 Netherlands 860 881 934 995 1,024 925 913 919 982 1,020 –0.1 Norway 306 329 332 342 369 351 346 349 366 378 0.5 Portugal 688 711 701 729 723 666 648 648 680 700 –0.6 Spain 3,481 3,858 4,179 4,548 3,964 3,593 3,512 3,531 3,771 3,995 0.2 Sweden 304 331 357 362 341 297 290 287 298 307 –2.1 Switzerland 358 358 364 370 380 338 327 324 334 342 –2.1 United Kingdom 4,933 4,931 4,439 4,353 3,976 3,236 2,964 2,920 3,034 3,089 –4.9 Western Europe total 28,517 29,192 29,665 30,376 28,798 25,200 24,392 24,276 25,290 26,034 –2.0 Central and Eastern Europe Czech Republic 687 811 898 926 978 872 860 894 962 1,031 1.1 Hungary 895 1,034 1,075 1,015 1,026 869 836 833 876 905 –2.5 Poland 920 962 1,107 1,221 1,285 1,100 1,064 1,041 1,120 1,161 –2.0 Romania 139 151 192 208 248 205 192 203 226 240 –0.7 Russia 1,952 2,619 3,404 4,444 5,419 4,712 4,501 4,566 5,174 5,623 0.7 Turkey 627 754 957 1,168 1,095 919 957 1,034 1,157 1,321 3.8 Central and Eastern Europe total 5,220 6,331 7,633 8,982 10,051 8,677 8,410 8,571 9,515 10,281 0.5 Middle East/Africa Israel 209 198 195 226 233 218 212 207 207 204 –2.6 Saudi Arabia/Pan Arab‡ 875 915 1,235 1,780 1,830 1,750 1,800 1,900 2,220 2,450 6.0 South Africa 456 512 604 689 725 665 786 762 846 907 4.6 Middle East/Africa total 1,540 1,625 2,034 2,695 2,788 2,633 2,798 2,869 3,273 3,561 5.0 EMEA total 35,277 37,148 39,332 42,053 41,637 36,510 35,600 35,716 38,078 39,876 –0.9

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising | EMEA 261 Asia Pacific

The outlook in brief Overview • Economic downturns in a number of countries will lead • The television advertising market will decline by 9.0 to a weak TV advertising market in 2009–11. percent in 2009 and grow at a modest, 0.9 percent in 2010 before expanding to $37.2 billion in 2013, a 0.7 • Multichannel penetration growth will drive multichannel percent compound annual increase from $35.9 billion advertising. in 2008. • High-definition television will fuel a rebound in terrestrial • Multichannel advertising will rise from $6.8 billion in advertising during 2012–13. 2008 to $10.2 billion in 2013, an 8.5 percent compound annual increase. • Terrestrial advertising will decline during the next two years and rebound to $27 billion in 2013, down 1.4 percent on a compound annual basis from $29.1 billion in 2008.

Television advertising market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Terrestrial advertising 27,368 28,128 28,609 28,848 29,095 25,793 25,428 25,533 26,220 27,048 Multichannel advertising 3,958 4,440 5,183 6,124 6,761 6,844 7,513 8,242 9,110 10,157 Total 31,326 32,568 33,792 34,972 35,856 32,637 32,941 33,775 35,330 37,205

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Terrestrial advertising 6.0 2.8 1.7 0.8 0.9 –11.3 –1.4 0.4 2.7 3.2 –1.4 Multichannel advertising 24.8 12.2 16.7 18.2 10.4 1.2 9.8 9.7 10.5 11.5 8.5 Total 8.1 4.0 3.8 3.5 2.5 –9.0 0.9 2.5 4.6 5.3 0.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Japan has the largest television advertising market in • The People’s Republic of China (PRC) has the second- the region, at $15.4 billion in 2008, representing 43 largest television market, at $7.5 billion. The Beijing percent of total spending. Japan’s television market has Olympics contributed to a 17.8 percent rise in 2008. declined during the past four years, and we expect three During the latter part of the 2008, economic growth additional years of decline, as the economy is again slowed markedly as exports fell and as the stimulative weakening. Although we expect a turnaround during impact of Olympics was no longer present. CCTV was 2012–13, advertising in 2013 will remain lower than in able to secure a 15.3 percent increase in its auction of 2008 by 3.7 percent on a compound annual basis. prime-time advertising for 2009—one-third of which

262 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 was from new advertisers—but the loss of around $400 represent broadcasters. Currently, Korean Broadcasting million in Olympic advertising and slower growth or Advertising Corp., a state-run entity, receives orders declines in other dayparts and channels will lead to a from advertisers and allocates them to broadcasters. drop in TV advertising growth in 2009 to 3.5 percent. The hope is that increased competition will expand the Thereafter, television advertising will expand at mid- to advertising market. We expect television advertising high-single-digit rates, reflecting a slower but more to fall by 24.1 percent in 2009 and by an additional 2.3 sustainable rate of economic growth. The market during percent in 2010 and then stabilize, with low-single- the next five years will expand at a 6 percent compound digit gains. Spending at $2.1 billion in 2013 will be 4.5 annual rate. percent lower compounded annually from 2008. • Australia at $3.1 billion ranked third in 2008. Television • India at $2 billion was the only other territory above advertising in Australia declined in 2008 as the econ- $1 billion in 2008. Due to the global slowdown, the omy began to falter. We look for a decline during the economy is also slowing in India, although it is still next two years as the economy remains weak, followed expanding in real terms. Television advertising rose by by low-single-digit gains during the subsequent three 10.3 percent in 2008, buoyed by the success of three years. Television advertising in Australia will decrease at new, high-profile general entertainment channels and a projected 0.5 percent compound annual rate. the phenomenal success of Cricket IPL 20-20 matches. The global slowdown impacted advertising in the • South Korea is the fourth-largest television advertising fourth quarter of 2008, the most important quarter due country in the region, at $2.6 billion. The onset of a to events such as Indian festivals. Financial services, recession led to a 2.2 percent decrease in television consumer goods, and telecommunications are major advertising in 2008, the third decline during the past advertisers and are expected to continue to show five years. The Korean Communications Commission growth. We expect growth to average 10.2 percent on is planning to make the selling of advertising more a compound annual basis during the next five years. competitive by introducing private companies to

Television advertising | Asia Pacific 263 Television advertising market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 2,729 2,822 2,859 3,135 3,093 2,842 2,800 2,821 2,905 3,009 –0.5 China 4,187 5,103 5,803 6,362 7,497 7,756 8,258 8,761 9,336 10,054 6.0 Hong Kong 616 693 751 758 899 700 710 745 800 850 –1.1 India 1,096 1,244 1,511 1,781 1,964 2,146 2,397 2,626 2,854 3,196 10.2 Indonesia 502 578 673 754 816 875 971 1,100 1,302 1,518 13.2 Japan 16,328 16,319 16,135 15,990 15,362 13,043 12,560 12,319 12,464 12,705 –3.7 Malaysia 154 159 180 216 264 261 261 270 292 314 3.5 New Zealand 451 468 449 456 474 421 407 425 439 456 –0.8 Pakistan 37 42 56 92 110 113 117 123 130 138 4.6 Philippines 399 456 505 541 577 527 530 550 599 536 –1.5 Singapore 251 233 244 219 226 184 173 173 177 184 –4.0 South Korea 2,481 2,449 2,649 2,690 2,631 1,996 1,950 1,973 2,023 2,086 –4.5 Taiwan 1,261 1,112 1,016 968 919 761 745 742 748 757 –3.8 Thailand 712 752 804 806 791 761 785 836 902 977 4.3 Vietnam 122 138 157 204 233 251 277 311 359 425 12.8 Total 31,326 32,568 33,792 34,972 35,856 32,637 32,941 33,775 35,330 37,205 0.7

†At average 2008 exchange rates. Sources: Commercial Economic Advisory Service of Australia, Korea Broadcasting Advertising Corp., New Zealand Television Broadcasters’ Council, PricewaterhouseCoopers LLP, State Administration for Industry & Commerce, Wilkofsky Gruen Associates

Economic growth region in television advertising, we expect the disparity in average growth rates between Japan and the rest of • Excluding Japan, television advertising in Asia Pacific Asia Pacific to narrow substantially. has grown at double-digit and high-single-digit rates during the past five years, buoyed by rapidly growing economies in India, Indonesia, Pakistan, the PRC, Television advertising growth in Asia Pacific (%) and Vietnam. During the past four years, television 15 advertising in Japan declined. The disparity in growth 10 rates between Japan and the rest of the region during the past five years averaged 9 percentage points. 5 0 • With the global recession affecting virtually the entire region, five countries— Australia, Japan, South Korea, –5 Taiwan, and Thailand—recorded decreases in television –10 Japan advertising in 2008. Moreover, plunging global oil –15 Rest of the region prices are reducing inflation rates, which in turn lowers –20 nominal GDP growth and advertising growth. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

• We project television advertising in Japan to fall by 15.1 Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates percent in 2009 and the region as a whole to decline by 8.3 percent. While Japan will continue to lag the

264 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • We project an 18.6 percent decrease in television Multichannel advertising growth in Asia Pacific (%) advertising in Singapore in 2009 followed by a 6 30 percent drop in 2010. In addition to poor economic conditions, declining TV viewing—reflecting high 25 broadband penetration and heavy use of online and 20 mobile devicesis hurting the television advertising market in Singapore. Taiwan recorded the largest 15 drop in 2008, 5.1 percent, and we expect a steeper, 17.2 percent decline in 2009. We project decreases in 10 excess of 20 percent in Hong Kong and South Korea in 5 2009. We also expect declines in Australia, Malaysia, 0 New Zealand, the Philippines, and Thailand. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

• India and the PRC, each of which rose at double-digit Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates rates in 2008, will average only 4.7 percent growth in 2009. In the PRC, the prospect of slower advertising growth is affecting the funding of television projects. • A number of countries are expanding their multichannel Investors in The Mysterious Buddha pulled $3 million platforms. In Australia, Freeview, the DTT platform, was from the project, causing China Film & Television launched ahead of schedule—in November 2008— Production to delay shooting. although additional network multichannels will not launch until May 2009. The analog switch-off is slated • As economic conditions begin to improve, we to begin in 2010. expect faster growth or smaller declines in television advertising. Nevertheless, with the economies of • In Australia, multichannel advertising revenues are India, the PRC, and other countries maturing, we do earned by the subscription television industry. To not expect a return to the scorching advances that date there have been no advertising revenues from characterized the past few years. multichannel DTT services, and it is expected that commercial multichannel DTT services over the forecast • A relatively healthy economy and strong advertising period will be negligible. market will boost Indonesia at a 13.2 percent compound annual rate during the next five years, • The PRC is testing DTT, with a possible launch in the fastest in the region. next few years. Hong Kong launched DTT in late 2007. • In India, terrestrial broadcaster Doordarshan also has Multichannel penetration a free-to-air satellite platform that carries 100 or more channels. Star is making a renewed effort to enter the • Multichannel penetration is growing rapidly in Asia South India market with a multichannel service. Star Pacific, which is expanding the reach of channels on launched two regional entertainment channels and those systems, which in turn increases their advertising also announced plans for a home-shopping channel. potential. Multichannel advertising has grown at Zee Group launched several regional channels. And double-digit annual rates during each of the past five announced plans to launch regional years. While this segment of the market is not immune business news channels. to the impact of slower economic growth, rising audience shares will cushion that impact. We expect • In Malaysia, Radio Television Malaysia plans to growth to slow to 1.2 percent in 2009 and then to introduce digital television on a regional basis within average just over 10 percent annually. the next three years. The digital platform would have 20 channels, and each region would have its own network.

Television advertising | Asia Pacific 265 • Japan has a large DTT universe of more than 23 waiting for months for rights to air those shows. Faster million households, which is attracting the interest access should boost viewership and advertising. of advertisers. Despite an overall weak television • We project multichannel advertising to rise to $10.2 advertising market, multichannel advertising in Japan billion in 2013 from $6.8 billion in 2008, an 8.5 percent rose at double-digit rates during the past two years. compound annual increase. Multichannel’s share of • In Singapore, MioTV, the Internet protocol television total television advertising will increase from 19 percent service launched by SingTel in 2007, has a deal with in 2008 to 27 percent by 2013. Fox, Warner Bros., and Disney-ABC International • In 2008, Japan at $2.2 billion, India at $1.7 billion, Television to get access to US programs within 24 and the PRC at $1.1 billion are the only territories with hours after they air in the United States, instead of multichannel advertising in excess of $1 billion.

Multichannel advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 103 133 177 230 269 278 294 310 335 361 6.1 China 544 715 871 1,018 1,124 1,280 1,445 1,621 1,821 2,061 12.9 Hong Kong 29 38 49 61 83 77 85 97 108 119 7.5 India 975 1,095 1,331 1,581 1,739 1,897 2,122 2,327 2,531 2,838 10.3 Indonesia 1 2 3 4 5 6 7 8 11 12 19.1 Japan 1,394 1,469 1,614 1,919 2,151 2,087 2,261 2,464 2,742 3,049 7.2 Malaysia 11 13 16 20 27 32 34 38 44 50 13.1 New Zealand 7 9 9 14 19 21 24 30 35 41 16.6 Pakistan 14 25 36 60 77 81 85 92 98 105 6.4 Philippines 32 39 46 52 58 55 64 69 78 75 5.3 Singapore 36 35 39 38 41 36 35 36 39 43 1.0 South Korea 409 502 636 753 790 639 663 730 809 897 2.6 Taiwan 391 344 325 329 322 274 276 282 292 303 –1.2 Thailand 0 0 0 0 0 16 40 50 63 78 — Vietnam 12 21 31 45 56 65 78 88 104 125 17.4 Total 3,958 4,440 5,183 6,124 6,761 6,844 7,513 8,242 9,110 10,157 8.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Terrestrial advertising • We expect terrestrial advertising to fall by 11.3 per- cent in 2009, a decrease exacerbated by the loss of • Terrestrial advertising, which has been growing at advertising associated with the Beijing Olympics in low-single-digit rates during the past four years, will 2008. We look for a more moderate decline of 1.4 experience the brunt of the overall decline in television percent for 2010. advertising because terrestrial channels are losing audience and advertising share.

266 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Terrestrial advertising growth in Asia Pacific (%) • Excluding Japan, terrestrial advertising has grown at mid- to high-single-digit rates in recent years, with a 7.5 8 percent jump in 2008, helped by the Beijing Olympics. 4 In the PRC, terrestrial advertising in 2008 rose by 19.3 percent. The loss of those funds combined with the 0 weakening economic environment will lead to a 6.6 –4 percent decrease in terrestrial advertising in the rest of Asia Pacific in 2009, with a 17.1 percent drop projected –8 for Japan. –12 • Although we expect economic conditions to remain –16 weak in 2010, terrestrial advertising will benefit from 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 advertising associated with the FIFA World Cup. The Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates Delhi Commonwealth Games and the Shanghai Expo will also have a positive impact on terrestrial advertising in 2010. • An improved economic environment and the expansion of high-definition television should move terrestrial • Improved economic conditions and the 2012 Olympics advertising back into positive territory in 2011–13, with in London will provide a further lift to terrestrial the 3.2 percent increase projected for 2013 expected to advertising following the 2009 downturn. be the largest increase since 2004. • In Australia, Nine is spending A$30 million (US$25 Terrestrial advertising growth in Japan million) to convert to digital and launched an HD service and the rest of Asia Pacific (%) in early 2008. Seven and Ten had previously launched 15 HD channels in 2007. and Sky Network also 10 launched HD in both Australia and New Zealand. 5 Freeview HD was launched in New Zealand in April 2008 and reaches three-quarters of TV households, although 0 usage is only moderate, at 162,000 households. –5 • In Hong Kong, the new DTT platform will include HD –10 Japan Rest of the region programs. Many will be simulcast, but new services –15 also will be offered in HD. Taiwan also introduced –20 terrestrial HD in 2008. New HD channels on satellite are 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 expected in India as well. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates • In the Philippines, the National Telecommunications Commission (NTC) requires DTT conversion by 2015 but is still reviewing the migration plan. ABS-CBN • Near-term declines will offset gains in subsequent started testing the DTT platform in 2008. The plan years, and terrestrial advertising for all of Asia Pacific will be implemented upon NTC’s issuance of formal will decrease from $29.1 billion in 2008 to $27 billion in guidelines and the completion of the transition, which is 2013, a 1.4 percent compound annual decline. expected within three years. • Japan dominates the terrestrial advertising market, at $13.2 billion, 45 percent of the total. The PRC is next, at $6.4 billion followed by Australia at $2.8 billion and South Korea at $1.8 billion. Most of India’s television advertising is multichannel. India’s terrestrial market was only $225 million in 2008.

Television advertising | Asia Pacific 267 Terrestrial advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 2,626 2,689 2,682 2,905 2,824 2,564 2,506 2,511 2,570 2,648 –1.3 China 3,643 4,388 4,932 5,344 6,373 6,476 6,813 7,140 7,515 7,993 4.6 Hong Kong 587 655 702 697 816 623 625 648 692 731 –2.2 India 121 149 180 200 225 249 275 299 323 358 9.7 Indonesia 501 576 670 750 811 869 964 1,092 1,291 1,506 13.2 Japan 14,934 14,850 14,521 14,071 13,211 10,956 10,299 9,855 9,722 9,656 –6.1 Malaysia 143 146 164 196 237 229 227 232 248 264 2.2 New Zealand 444 459 440 442 455 400 383 395 404 415 –1.8 Pakistan 23 17 20 32 33 32 32 31 32 33 0.0 Philippines 367 417 459 489 519 472 466 481 521 461 –2.3 Singapore 215 198 205 181 185 148 138 137 138 141 –5.3 South Korea 2,072 1,947 2,013 1,937 1,841 1,357 1,287 1,243 1,214 1,189 –8.4 Taiwan 870 768 691 639 597 487 469 460 456 454 –5.3 Thailand 712 752 804 806 791 745 745 786 839 899 2.6 Vietnam 110 117 126 159 177 186 199 223 255 300 11.1 Total 27,368 28,128 28,609 28,848 29,095 25,793 25,428 25,533 26,220 27,048 –1.4

†At average 2008 exchange rates. Sources: Commercial Economic Advisory Service of Australia, Korea Broadcasting Advertising Corp., PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

268 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Latin America

The outlook in brief Overview • The economic slowdown will lead to a decline in televi- • Television advertising will decrease during the next two sion advertising in 2009 and 2010. years by a cumulative 7.8 percent and then expand to $13.1 billion in 2013, a 1.4 percent compound annual • Expanding multichannel audiences will boost multi- increase from $12.2 billion in 2008. channel advertising. • Terrestrial advertising, which accounted for 91 percent • New channels and increased funding will enhance of the market in 2008, will fall by 9.7 percent through terrestrial advertising once economic conditions improve. 2010 and then recover to $11.4 billion in 2013, a 0.4 percent compound annual increase from 2008. • Multichannel advertising will rise to $1.8 billion in 2013 from $1.1 billion in 2008, growing at a 9.8 percent rate compounded annually.

Television advertising market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Terrestrial advertising 5,867 7,114 8,272 9,858 11,145 10,230 10,063 10,199 10,661 11,352 Multichannel advertising 420 527 658 872 1,098 1,153 1,225 1,413 1,548 1,756 Total 6,287 7,641 8,930 10,730 12,243 11,383 11,288 11,612 12,209 13,108

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Terrestrial advertising 20.0 21.3 16.3 19.2 13.1 –8.2 –1.6 1.4 4.5 6.5 0.4 Multichannel advertising 23.5 25.5 24.9 32.5 25.9 5.0 6.2 15.3 9.6 13.4 9.8 Total 20.2 21.5 16.9 20.2 14.1 –7.0 –0.8 2.9 5.1 7.4 1.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Brazil is the largest market in Latin America, at $5.8 • Decreases are expected in 2009 in each of the other billion in 2008, followed by Mexico at $3.9 billion. territories, with Brazil, Chile, Colombia, and Mexico Together the two countries constituted 80 percent of continuing to fall in 2010. By 2011, each country will the market. again be growing. Argentina, which also has a high inflation rate, will be the fastest-growing market during • Venezuela experienced a 23 percent decline in 2008, the next five years, with a 4.2 percent compound in large part the result of a ban on alcohol and tobacco annual increase. advertising. We expect an additional 3.9 percent drop in 2009. High inflation will boost spending during the next five years by 4.1 percent compounded annually.

Television advertising | Latin America 269 Television advertising market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 344 464 593 702 820 789 804 852 915 1,009 4.2 Brazil 2,306 3,263 3,916 4,935 5,819 5,438 5,384 5,547 5,819 6,254 1.5 Chile 346 374 407 456 434 392 382 401 439 477 1.9 Colombia 736 779 879 950 1,005 905 879 892 917 955 –1.0 Mexico 2,334 2,514 2,828 3,385 3,933 3,636 3,614 3,681 3,861 4,130 1.0 Venezuela 221 247 307 302 232 223 225 239 258 283 4.1 Total 6,287 7,641 8,930 10,730 12,243 11,383 11,288 11,612 12,209 13,108 1.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Economic slowdown Television advertising in Latin America (US$ billions) • Latin America’s television advertising market did well 16 in 2008 despite the onset of a global recession. Latin America was the fastest-growing region in 2008, with 12 a 14.1 percent gain, even with the large decrease in Venezuela and a 5 percent decrease in Chile, two 8 small markets. That gain was well in excess of the 2.2 percent gain in Asia Pacific, the second-fastest-growing region. Advertising associated with the Olympics 4 helped bolster growth in 2008. 0 • By the end of 2008, the recession in the United States 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 had begun having an adverse impact on the economies in Latin America as declining exports cut into domestic Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates production. Additionally, falling oil revenues are hurting the economies in Venezuela and Mexico. • A slowdown in economic growth and the loss of Multichannel advertising Olympic advertising will lead to declines in television • Growing cable and satellite subscribership is advertising in 2009 in each country. We expect the extending the reach of nonterrestrial programming, overall market to fall by 7 percent, a 21.1-percentage- and an emerging digital terrestrial television universe is point turnaround from the 14.1 percent increase in 2008. augmenting the multichannel market in Latin America. • We expect a further, 0.8 percent decrease in 2010. • Triple-play packages are now available in a number of • By 2011, a stabilized global economy will generate a countries, including Chile, Colombia, and Mexico. Such 2.9 percent increase in television advertising. packages make multichannel television more attractive to viewers because of the implicit discounts and the • By 2012–13, global economic expansion and a rebound convenience of working with a single provider. in the US economy will fuel economic growth in Latin America. Global economic growth will also lead to a rebound in oil revenues, helping Venezuela and Mexico. We look for increases of 5.1 percent in 2012 and 7.4 percent in 2013.

270 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Triple play remains limited in some countries. In ultrahigh-frequency antenna to receive the service. Argentina, cable operators have not been offering Through 2008 there were only about 200,000 telephone services to households even though they DTT households. are allowed to do so, and Telecom Argentina is still not • In Chile, there have been delays in selecting a DTT permitted to offer a triple-play service. In Mexico, while standard, and the platform is not yet available. cable has introduced triple-play packages, Telmex, the incumbent telephone company, has not yet been • In Mexico, TV Azteca launched a 24-hour telenovela granted permission to offer television. satellite channel, creating a new venue for advertising. Televisa Networks and BBC Worldwide introduced two • DTT has the potential to provide an additional outlet channels from BBC: BBC Entertainment and CBeebies, for multichannel advertising. Colombia expects to a channel for preschoolers. launch a DTT platform in 2009 with the assistance of Impulsa TDT of Spain in conjunction with the • Multichannel advertising has been growing rapidly Colombian government. from a small base. In 2008, it rose by 26 percent. The slowing economy will lead to a drop to mid-single- • Brazil introduced DTT in late 2007 using the Japanese digit gains during the next two years. For the forecast Integrated Services Digital Broadcasting standard. period as a whole, we project multichannel advertising So far, progress has been spotty. The set-top box to advance at a 9.8 percent compound annual rate. The is relatively expensive, at 199 reals ($108), which is market will total $1.8 billion in 2013 from $1.1 billion limiting adoptions. Many households also need an in 2008.

Multichannel advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 43 67 98 112 139 142 153 167 183 207 8.3 Brazil 71 114 157 247 349 380 404 499 553 657 13.5 Chile 28 31 37 43 43 42 41 46 52 59 6.5 Colombia 147 171 197 223 256 231 237 245 257 272 1.2 Mexico 113 124 141 217 287 331 362 423 464 516 12.4 Venezuela 18 20 28 30 24 27 28 33 39 45 13.4 Total 420 527 658 872 1,098 1,153 1,225 1,413 1,548 1,756 9.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Television advertising | Latin America 271 Terrestrial advertising • In Mexico, Telemundo abandoned its effort to launch a network in Mexico and instead made a deal with Tele- • As in other regions, terrestrial advertising will feel visa to show programs from Telemundo on Channel 9. most of the impact of the economic cycle. We expect terrestrial advertising to fall by 8.2 percent in 2009 and • In Colombia, a new channel is expected to be by a further, 1.6 percent in 2010. launched in 2009, which could provide an additional terrestrial outlet. • Investment in television production and television programming should help the terrestrial market over • We expect growth during 2011–13 to offset the near- the longer run, translating into advertising growth once term declines, and we project terrestrial advertising economic conditions stabilize. to rise to $11.4 billion in 2013 from $11.1 billion, a 0.4 percent compound annual increase. • In Brazil, TV Record, the second-largest network, is investing 200 million reals ($109 million) in its production facility, with the aim of increasing its production of dramas.

Terrestrial advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 301 397 495 590 681 647 651 685 732 802 3.3 Brazil 2,235 3,149 3,759 4,688 5,470 5,058 4,980 5,048 5,266 5,597 0.5 Chile 318 343 370 413 391 350 341 355 387 418 1.3 Colombia 589 608 682 727 749 674 642 647 660 683 –1.8 Mexico 2,221 2,390 2,687 3,168 3,646 3,305 3,252 3,258 3,397 3,614 –0.2 Venezuela 203 227 279 272 208 196 197 206 219 238 2.7 Total 5,867 7,114 8,272 9,858 11,145 10,230 10,063 10,199 10,661 11,352 0.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

272 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Recorded music

274 Summary

276 North America

281 Europe, Middle East, Africa (EMEA)

291 Asia Pacific

299 Latin America Summary

Recorded music North America will decline by 4.4 percent compounded annually during the next five years to $7.2 billion in 2013 The recorded music market consists of consumer spend- from $9 billion in 2008. EMEA is the largest region, at ing on physical formats—albums, single sound recordings, $11.1 billion in 2008, and will remain the largest despite a and music videos—as well as digital distribution. Digital 3.6 percent decrease compounded annually to $9.2 billion distribution consists of music distributed to mobile phones in 2013. Asia Pacific will overtake North America in 2009 to and of music downloaded from the Internet through become the second-largest region, rising to $8.7 billion in licensed services. Mobile phone music includes ringtones, 2013, a 0.4 percent compound annual increase from $8.6 ring backs, and ring tunes, also known as master ring billion in 2008. Latin America will decline at a 0.4 percent tones; mastertones and true tones; and music videos and compound annual rate to $938 million in 2013 from $957 full tracks that can be played on mobile phones. Mobile million in 2008. music also includes a share of fees paid for bundled services that include music as part of the service bundle. The recorded music market does not include fees paid Market size and growth by component by satellite radio providers. Also not included are music Digital distribution will increase from $7.6 billion in 2008 publishing, live performance, and merchandising revenues, to $14.8 billion in 2013, a 14.2 percent compound annual which are likely to become more significant in the future. advance. Internet distribution will be the faster-growing Spending is measured at retail, which can be substantially component of the digital market, rising at a 21.2 percent higher than the wholesale or trade value revenues that are compound annual rate to $8.8 billion in 2013 from $3.4 often reported. billion in 2008. Mobile phone distribution will increase by 7.1 percent compounded annually from $4.3 billion in Market size and growth by region 2008 to $6 billion in 2013. In North America and EMEA, the mobile phone market will be lower in 2013 than in Global spending on recorded music will decrease from 2008. Physical distribution will decline at a 12.5 percent $29.6 billion in 2008 to $26.1 billion in 2013, a 2.5 percent compound annual rate to $11.3 billion in 2013 from $22 compound annual decline. Asia Pacific will be the only billion in 2008. Globally, physical distribution will fall region where spending will be higher in 2013 than in behind digital distribution in 2012. 2008. In each region, gains in digital will ultimately offset or neutralize continued declines in spending on physical music. Asia Pacific will be the first region to experience Principal drivers a turnaround, with spending beginning to increase in Physical distribution will decline in each region because 2011. Latin America will begin to advance in 2012. In of competition from legitimate digital services and piracy. North America, spending will begin to edge up in 2013, The digital market is dominated by Internet distribution and in EMEA (Europe, Middle East, Africa), spending will in North America and EMEA and by mobile distribution in stabilize in 2013. High piracy rates in Latin America and Asia Pacific and Latin America. The availability of music Asia Pacific hold down the physical market, allowing the without copyright protection software and a growing expanding digital market to be a more important driver of broadband universe will boost Internet distribution. The total spending. Digital distribution will overtake physical adoption of graduated-response systems, which involve distribution in North America and Asia Pacific in 2011. Internet service providers’ (ISPs’) issuing warnings to file Physical distribution will remain the dominant component sharers that escalate in severity, with the ultimate threat in EMEA through 2013. In Latin America, the digital market of disconnecting a person’s Internet access, will cut will nearly match physical distribution by 2013. into digital piracy in North America and EMEA. Bundled

274 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 services and low-cost or free mobile music will cut into service where the bulk of the revenues will be generated the paid mobile music market in North America and by concerts, merchandising, and advertising. The music EMEA. Lower-cost Internet distribution and side loading itself will be used to draw customers to live performances, will cannibalize mobile music in those regions in the near in some cases by giving away music for free. Advertiser- term. Over time, the mobile music market will evolve supported music services that give listeners access into a subscription-based service. In Asia Pacific and to a virtually unlimited array of songs will become Latin America, mobile music faces less competition from more prominent. Despite declines in revenue, overall Internet distribution, which will continue to be hampered consumption of music is actually increasing. New business by high piracy rates. Wireless network upgrades and models that monetize that increase will sustain the industry advanced handsets will fuel mobile music spending over the long run. in those regions. The music industry is evolving into a

Data for the global recorded music market by region and for the global recorded music market by component can be found within the Executive Summary on pages 40-42.

Recorded music | Summary 275 North America

The outlook in brief • Physical distribution will drop from $6.2 billion in 2008 to $2.1 billion in 2013, a 19.4 percent compound • The availability of digital music without copy protection annual decrease. software will boost Internet distribution. • Digital distribution will increase at a 12.5 percent • Bundled services, side loading, and free streaming will compound annual rate to $5.1 billion from $2.8 billion cut into the mobile phone music market. in 2008. Digital distribution will overtake physical • The migration to digital distribution will result in steep distribution in 2011. declines in physical distribution. • Licensed music downloaded over the Internet will expand from $1.9 billion in 2008 to $4.4 billion in 2013, Overview a 17.5 percent compound annual increase. • The recorded music market will contract at a 4.4 • Digital music distributed to mobile phones will total percent compound annual rate to $7.2 billion in 2013 $720 million in 2013 from $868 million in 2008, a 3.7 from $9 billion in 2008. percent decline compounded annually.

Recorded music market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Physical distribution 13,000 12,011 10,588 8,563 6,209 4,861 3,847 3,089 2,519 2,109 Digital distribution Internet 313 668 1,128 1,534 1,945 2,390 2,823 3,325 3,848 4,359 Mobile phones 277 435 800 928 868 780 714 688 697 720 Digital total 590 1,103 1,928 2,462 2,813 3,170 3,537 4,013 4,545 5,079 Total 13,590 13,114 12,516 11,025 9,022 8,031 7,384 7,102 7,064 7,188

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Recorded music market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Physical distribution 2.1 –7.6 –11.8 –19.1 –27.5 –21.7 –20.9 –19.7 –18.5 –16.3 –19.4 Digital distribution Internet 340.8 113.4 68.9 36.0 26.8 22.9 18.1 17.8 15.7 13.3 17.5 Mobile phones 174.3 57.0 83.9 16.0 –6.5 –10.1 –8.5 –3.6 1.3 3.3 –3.7 Digital total 243.0 86.9 74.8 27.7 14.3 12.7 11.6 13.5 13.3 11.7 12.5 Total 5.3 –3.5 –4.6 –11.9 –18.2 –11.0 –8.1 –3.8 –0.5 1.8 –4.4

Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

276 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • The US market will decline by a cumulative 22.5 percent • Canada’s market will turn positive a year earlier than through 2012 and at a 4.7 percent compound annual the US market, helped by a rapidly expanding Internet rate through 2013. Those declines will shrink the US component. Nevertheless, spending at $592 million in market to $6.6 billion in 2013 from $8.4 billion in 2008. 2013 will be 1 percent lower on a compound annual basis from $624 million in 2008.

Recorded music market by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 12,728 12,270 11,728 10,326 8,398 7,457 6,838 6,560 6,505 6,596 –4.7 Canada 862 844 788 699 624 574 546 542 559 592 –1.0 Total 13,590 13,114 12,516 11,025 9,022 8,031 7,384 7,102 7,064 7,188 –4.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Internet distribution • Unauthorized file sharing remains a major impediment for both physical and licensed digital sales. The music • The recession did not appear to affect the licensed industry has been taking legal action against infringers Internet music market in 2008. Spending rose by 25 and is now exploring a graduated-response approach, percent in the United States to $1.8 billion and by which surveys show may be effective. In December 61.3 percent in Canada to $121 million. The Canadian 2008, the Recording Industry Association of America market is about two years behind the US market with announced an arrangement with the attorney general respect to its development and is still experiencing of New York State to require Internet service providers explosive growth from a small base. to issue warnings against subscribers who share • While single tracks remain the dominant category, unauthorized files. The warnings escalate if behavior digital albums and subscription services that offer does not change, and subscribers may ultimately lose streaming gained traction in both countries in 2008. Internet access for continued abuse. • Atlantic Records in 2008 became the first major label • The industry also has deals with MySpace and YouTube to generate a majority of its revenues through digital to license music to those sites in return for a share of distribution. We expect that digital revenues will account the advertising. for a majority of all recorded music revenues in Canada • A number of new streaming sites entered the market in in 2010 and in the United States in 2011. 2008, including MySpace Music, Spotify, We7, and Datz • Interest in music does not appear to be abating. In Music Lounge. Last.fm and Pandora entered the market the United States, total unit sales, including physical in 2007. These sites sell advertising in exchange for units and digital tracks and albums, increased by 4.4 providing music for listeners either at low subscription percent in 2008. Single-track downloads rose by 28 fees or on a free basis. Given the weak advertising percent, album downloads increased by 34 percent, market, it remains to be seen whether ad revenues will and music video downloads grew by 47 percent. The be meaningful enough to sustain these efforts. ability to monetize that interest, however, is becoming • In Canada, Lala was relaunched in 2008. Users can increasingly challenging. Despite the large growth in stream songs they already own at no charge and can Internet revenues, overall spending fell by 18.2 percent buy a virtual copy for 10 cents that can be streamed in 2008. Digital music does not command the prices over the Internet but cannot be downloaded. Actual of physical music, which makes it difficult to maintain files can be purchased and downloaded for 89 cents. revenue as physical sales fall.

Recorded music | North America 277 • An impediment to online distribution was digital rights Broadband households in North America (millions) management (DRM) software embedded in digital 140 music files that limits the ability of buyers to play 115.8 purchased music on mobile devices from different 120 108.0 manufacturers and limits the number of copies a buyer 97.7 100 86.5 90.0 can make. 83.0 80 74.4 58.4 • In a deal between Apple and the major music compa- 60 46.0 nies reached in early 2009, the music companies agreed 36.0 to eliminate DRM, and Apple agreed to a variable pricing 40 policy for iTunes tracks that the labels wanted. Labels 20 will now set prices at three price points—69 cents, 99 0 cents, and $1.29. Amazon also has variable pricing and 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 sells music on a DRM-free basis. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates • Most songs will be available at the lower price point, which should further stimulate the market, while new • We project the licensed Internet distribution market releases will be sold at the premium price, which in the United States to more than double during the could boost revenue. At the same time, the increased next five years to $4 billion in 2013, a 16.8 percent flexibility of DRM-free music should make downloading compound annual increase from 2008. more appealing. • Internet distribution in Canada will more than triple from • Internet distribution will also be helped by a growing $121 million in 2008 to $389 million in 2013, growing by broadband household universe because it is much 26.3 percent on a compound annual basis. faster to download music through a broadband connection. During the next five years, there will be • Overall Internet distribution in North America will more than 30 million additional broadband households total $4.4 billion in 2013, growing at a 17.5 percent in North America, which will significantly expand the compound annual rate from $1.9 billion in 2008. potential market for Internet distribution of music.

Licensed Internet recorded music market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 303 653 1,085 1,459 1,824 2,214 2,595 3,047 3,515 3,970 16.8 Canada 10 15 43 75 121 176 228 278 333 389 26.3 Total 313 668 1,128 1,534 1,945 2,390 2,823 3,325 3,848 4,359 17.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Music on mobile phones small. In the United States, mobile music unit sales fell by 6.5 percent in 2008, and falling prices led to a 7.4 • The mobile music market is in transition. The ringtone percent decrease in spending. market is falling precipitously, ring backs are surging, and spending on full tracks is declining due to the • Full tracks, which had become the dominant ability to side load tracks. Ringtones are suffering component of the mobile music market, are being from the natural slowdown in the wireless market as adversely affected by high price points. Full tracks can penetration approaches saturation and by the fact that be purchased at half the price over the Internet and current ringtone users do not need new ringtones. Ring either played on portable devices or side loaded to backs are growing in popularity, but the market remains mobile phones.

278 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • New services such as Amazon MP3 in the United competition across platforms and from new services States offer low-priced music on a DRM-free basis that will limit the amount that can be charged for songs can be played on any MP3 or mobile phone. It appears and albums. that consumers are not resistant to carrying both iPods • We expect mobile music will be offered principally as a and mobile phones, which makes purchasing music on subscription service not unlike mobile Internet access. mobile phones less appealing. Such services as Verizon Vcast have been turned over • Handset manufacturers are using music as part of a to Rhapsody and include unlimited music for $14.99 bundled service in order to reduce churn. In 2008, per month. As part of a service contract, subscribers Nokia launched Comes with Music, and Sony will have access to music. When subscriptions grow in introduced PlayNow Plus. Comes with Music handsets importance, spending on mobile music will increase. allow subscribers to download unlimited music from the • In the near term, we expect spending on mobile music Universal music catalog to their phones or computers. to decline. In the US, we project a cumulative decrease PlayNow Plus handsets come preloaded with 1,000 of 21.2 percent through 2011 and in Canada will look songs. The cost of the music is included as part of for decreases of 13.5 percent during the next two years. the contract, and at the end of the contract, a certain number of songs can be kept. • As the market evolves into a reasonably priced subscription-based service, we look for spending to • Advertiser-supported streaming services such as Last. trend upward from a lower base. We project spending fm and Pandora also are available on mobile phones. in the US to increase by 4.7 percent from 2011 to 2013. • These services make music available to mobile phones In Canada, we expect spending to stabilize in 2011–12 either at no direct cost or at a substantial reduction and grow by 4.4 percent in 2013. compared with previous costs for downloading music. • For the forecast period as a whole, mobile music in • Spending on mobile music fell by 7.4 percent in the 2013 will total $673 million in the United States, down United States to $816 million. In Canada, growth 3.8 percent on a compound annual basis from $816 slowed to 10.6 percent in 2008 from 80.8 percent million in 2008. in 2007. • In Canada, mobile music will decline at a 2 percent • The combination of economic pressures and the compound annual rate from $52 million in 2008 to $47 availability of cheap or free music will lead to a decline million in 2013. in music revenues in Canada in 2009 and a steeper • Overall spending on mobile music in North America will decrease in the US. decline at a 3.7 percent compound annual rate to $720 • Business models in the mobile music market are in million in 2013 from $868 million in 2008. flux. We do not expect that advertising will be sufficient to support mobile music by itself. At the same time,

Mobile phone recorded music market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 271 422 774 881 816 732 669 643 652 673 –3.8 Canada 6 13 26 47 52 48 45 45 45 47 –2.0 Total 277 435 800 928 868 780 714 688 697 720 –3.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Recorded music | North America 279 Total digital music • In Canada, digital music will increase from $173 million in 2008 to $436 million in 2013, growing by 20.3 percent • Notwithstanding the projected decrease in mobile music, compounded annually. we expect the overall digital music market to average double-digit annual growth during the next five years. • For North America as a whole, the digital music market will rise at a 12.5 percent compound annual rate from • In the United States, spending of $4.6 billion in 2013 will $2.8 billion in 2008 to $5.1 billion in 2013. represent a 12 percent compound annual increase from $2.6 billion in 2008.

Digital recorded music market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 574 1,075 1,859 2,340 2,640 2,946 3,264 3,690 4,167 4,643 12.0 Canada 16 28 69 122 173 224 273 323 378 436 20.3 Total 590 1,103 1,928 2,462 2,813 3,170 3,537 4,013 4,545 5,079 12.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

Physical distribution • One of the remaining advantages of physical music—its ability to play on any device—is being eroded by the • Spending on physical music fell by 27.5 percent in 2008 elimination of DRM software for Internet downloads and and at double-digit rates during the past three years. mobile music. From 2004 to 2008, physical music fell by 52.6 percent in the United States and by 46.7 percent in Canada. • For these reasons we do not expect physical music to rebound, although we expect declines to moderate • The physical music market is being hurt on virtually somewhat. We project that spending on physical all fronts. Digital music is substantially less expensive, music in the United States will fall at a 19.4 percent individual songs are virtually unavailable in physical compound annual rate to $2 billion in 2013 from $5.8 formats, piracy remains an ongoing problem, and retail billion in 2008. In Canada, physical distribution will drop outlets for physical music are becoming scarce. Major from $451 million in 2008 to $156 million in 2013, a 19.1 chains such as Tower Records and Sam Goody have percent decrease compounded annually. already closed, and Virgin Megastore announced it plans to leave the United States in 2009. • The overall North American market will total only $2.1 billion in 2013 from $6.2 billion in 2008 and $13 billion • Even big-box retailers such as Wal-Mart are allocating in 2004. During the next five years, decreases will less space to recorded music and carrying fewer titles. In average 19.4 percent on a compound annual basis. short, physical music is becoming more difficult to buy.

Physical recorded music market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 12,154 11,195 9,869 7,986 5,758 4,511 3,574 2,870 2,338 1,953 –19.4 Canada 846 816 719 577 451 350 273 219 181 156 –19.1 Total 13,000 12,011 10,588 8,563 6,209 4,861 3,847 3,089 2,519 2,109 –19.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Recording Industry Association of America, Wilkofsky Gruen Associates

280 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Europe, Middle East, Africa (EMEA)

The outlook in brief • Physical distribution will decline at a 10.9 percent compound annual rate, falling to $5.3 billion in 2013 • The elimination of copy protection software, the from $9.4 billion in 2008. introduction of graduated-response measures against piracy, and broadband growth will fuel digital • Digital distribution will grow at an 18.9 percent download spending. compound annual rate from $1.7 billion in 2008 to $3.9 billion in 2013, constituting 43 percent of total sales in • Bundled service and growth in side loading will cut into 2013 compared with 15 percent in 2008. mobile music spending in the near term. • Internet distribution will rise to $3.2 billion in 2013 • The migration to licensed digital distribution will lead to from $887 million in 2008, a 29.5 percent compound further declines in physical distribution. annual increase. • Distribution to mobile phones will decline by 19.4 Overview percent during the next two years and then expand • The recorded music market will contract at a 3.6 by 12.9 percent during the subsequent three years to percent compound annual rate to $9.2 billion in 2013 $698 million in 2013, a 1.9 percent compound annual from $11.1 billion in 2008. decrease from $767 million in 2008.

Recorded music market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Physical distribution 14,621 13,748 12,616 10,989 9,408 8,197 7,300 6,520 5,841 5,288 Digital distribution Internet 40 153 312 585 887 1,239 1,679 2,209 2,719 3,229 Mobile phones 114 265 468 602 767 655 618 625 658 698 Digital total 154 418 780 1,187 1,654 1,894 2,297 2,834 3,377 3,927 Total 14,775 14,166 13,396 12,176 11,062 10,091 9,597 9,354 9,218 9,215

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Physical distribution –4.9 –6.0 –8.2 –12.9 –14.4 –12.9 –10.9 –10.7 –10.4 –9.5 –10.9 Digital distribution Internet 700.0 282.5 103.9 87.5 51.6 39.7 35.5 31.6 23.1 18.8 29.5 Mobile phones 159.1 132.5 76.6 28.6 27.4 –14.6 –5.6 1.1 5.3 6.1 –1.9 Digital total 214.3 171.4 86.6 52.2 39.3 14.5 21.3 23.4 19.2 16.3 18.9 Total –4.3 –4.1 –5.4 –9.1 –9.1 –8.8 –4.9 –2.5 –1.5 0.0 –3.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | EMEA 281 • The United Kingdom has the largest market in the beginning in 2010. We project a 7.4 percent compound region, at $2.4 billion in 2008, followed by Germany annual decrease during the next five years, the at $2.3 billion and France at $1.6 billion. Those three largest decline of any country in EMEA, with spending countries constituted 56 percent of total recorded dropping to $1.1 billion in 2013. music spending in EMEA. • We project recorded music spending in all of Western • Steep price cuts for physical music in the UK helped Europe to decrease at a 3.6 percent compound annual limit unit sales declines but led to a 29 percent drop rate to $8 billion in 2013 from $9.6 billion in 2008. in spending on physical music in 2008. Gains in the • Hurt by a weak economy in the near term and a licensed Internet distribution market will help offset limited digital market, Central and Eastern Europe are continued declines in physical spending. The overall projected to fall at a 4.7 percent compound annual rate market will fall to $2 billion in 2013, a 3.9 percent to $853 million in 2013 from $1.1 billion in 2008. compound annual decrease. • In Middle East/Africa, we look for a relatively modest, • Germany’s physical market has declined at slower rates 0.8 percent compound annual decrease, the result of than in most other countries in Western Europe during slower declines in physical spending in South Africa the past five years. Although we expect continued compared with most other countries in EMEA. South erosion in physical spending, a growing digital market Africa is the only country where we expect spending will lead to a turnaround in 2012, when we expect to be higher in 2013 than in 2008. Overall spending in Germany to pass the UK to become the largest market Middle East/Africa will total an estimated $343 million in in EMEA. Nevertheless, spending of $2.1 billion in 2013 2013 from $357 million in 2008. will remain 1.9 percent lower on a compound annual basis from 2008. • Because of relatively slow growth in digital spending in Central and Eastern Europe and Middle East/Africa, • In contrast with Germany, the physical market in France EMEA will be the only region where we project digital has plunged at precipitous rates, falling by 41 percent spending to remain substantially lower than physical from 2004 to 2008. Growth in Internet distribution will spending during the next five years. limit decreases in total spending to single-digit levels

282 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Recorded music market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 345 333 317 301 284 264 250 242 236 240 –3.3 Belgium 391 386 415 410 392 361 345 334 327 322 –3.9 Denmark 221 213 215 208 200 186 175 171 172 178 –2.3 Finland 158 155 128 124 112 101 95 93 97 100 –2.2 France 2,361 2,217 2,013 1,794 1,553 1,373 1,280 1,192 1,107 1,058 –7.4 Germany 2,565 2,558 2,496 2,418 2,282 2,144 2,060 2,042 2,058 2,076 –1.9 Greece 173 167 163 157 144 125 115 112 108 110 –5.2 Ireland 173 174 175 157 141 121 114 113 120 116 –3.8 Italy 793 788 730 592 471 387 342 320 322 339 –6.4 Netherlands 602 502 471 441 413 379 356 338 323 312 –5.5 Norway 329 289 261 251 237 219 207 198 191 186 –4.7 Portugal 151 133 112 101 92 84 81 83 86 93 0.2 Spain 916 897 818 439 393 357 349 366 411 483 4.2 Sweden 300 268 248 228 219 198 186 184 190 199 –1.9 Switzerland 312 326 308 293 283 273 262 253 240 233 –3.8 United Kingdom 3,594 3,479 3,179 2,925 2,406 2,250 2,185 2,103 2,029 1,974 –3.9 Western Europe total 13,384 12,885 12,049 10,839 9,622 8,822 8,402 8,144 8,017 8,019 –3.6 Central and Eastern Europe Czech Republic 66 61 57 54 50 44 41 41 40 40 –4.4 Hungary 69 64 58 56 54 49 44 44 42 43 –4.5 Poland 139 139 157 157 181 167 156 155 153 154 –3.2 Romania 18 21 24 24 25 23 20 21 21 21 –3.4 Russia 581 481 529 519 607 504 472 473 466 455 –5.6 Turkey 185 157 165 168 166 149 138 137 136 140 –3.3 Central and Eastern Europe total 1,058 923 990 978 1,083 936 871 871 858 853 –4.7 Middle East/Africa Israel 56 59 56 53 51 46 44 45 46 46 –2.0 Saudi Arabia/Pan Arab‡ 92 93 88 87 82 75 70 70 68 66 –4.2 South Africa 185 206 213 219 224 212 210 224 229 231 0.6 Middle East/Africa total 333 358 357 359 357 333 324 339 343 343 –0.8 EMEA total 14,775 14,166 13,396 12,176 11,062 10,091 9,597 9,354 9,218 9,215 –3.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | EMEA 283 Internet distribution • The market will also benefit from an expanding broad- band household universe. The number of broadband • Licensed Internet distribution had previously been sold households in EMEA will increase by 92 million during with digital rights management (DRM) software that the next five years—a 70 percent increase that will limited the ability of users to transfer songs to mobile significantly expand the potential market for music devices and restricted the ability of users to burn CDs downloading, as it is much faster and easier to down- or otherwise copy music. The result was that buyers load from a broadband connection. of licensed product had less flexibility in using that product than did people who obtained music through file-sharing services. That trend is now changing, and Broadband households in EMEA (millions) licensed distribution is being sold largely without 240 224 DRM software. 210 198 180 173 • Tesco, Dada, HMV MP3, Play.com, and 7Digital are 154 142 among the online retailers that sell DRM-free music. 150 132 Retailers report that sales jumped when DRM was 120 108 eliminated, particularly for digital albums, which 90 82 represent an expanding component of the market. 58 60 Spending on licensed Internet music rose 51.6 percent 37 in 2008. 30 0 • Countries are investigating new strategies to combat 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 piracy. In France, legislation has been introduced to Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates create a graduated-response system. Internet service providers will issue warnings to customers who are heavy abusers of copyright. Those who ignore two • The UK has the largest Internet distribution market in warnings will face sanctions of up to a year of lost EMEA, at $450 million in 2008, with Germany next, at Internet access. Research suggests that warnings from $116 million, followed by France at $88 million, together ISPs are effective. accounting for 74 percent of spending in EMEA. • In the UK, a memorandum of understanding was • Competition among a large number of online retailers reached in 2008 between major ISPs and the recording and surging album sales are boosting spending in the industry under which ISPs sent out thousands of UK, which rose by 50.5 percent in 2008. Digital albums warning letters to customers about illegal downloads also are fueling growth in Germany, with spending rising and promoted legitimate services. In early 2009, a tax by 31.8 percent in 2008. France posted a comparable, on broadband access was proposed, with the proceeds 31.3 percent increase, buoyed by subscription used to generate data on copyright abusers. streaming services that augmented the market. • In Belgium, a court ordered Scarlet (formerly Tiscali) • We expect that DRM-free product, more effective anti- to make it impossible for customers to use file-sharing piracy efforts, and the expanding broadband universe services for illegal purposes, with the onus on the ISP will propel licensed Internet distribution. We project to use filtering technology to distinguish unauthorized spending to rise from $887 million in 2008 to $3.2 billion files. In Finland, a court ordered TeliaSonera to suspend in 2013, a 29.5 percent compound annual increase. Internet access by customers who upload large numbers of illegal files. • The industry is optimistic that these new approaches that center on ISPs will be more effective than previous efforts. In 2008, the International Federation of the Phonographic Industry removed 3 million infringing Internet links, up from 500,000 in 2007.

284 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Licensed Internet recorded music market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria ‡ 1 4 9 13 22 32 44 59 76 42.4 Belgium ‡ 3 4 10 18 26 40 59 80 102 41.5 Denmark 1 2 4 6 12 19 27 39 55 75 44.3 Finland ‡ 1 3 4 7 12 18 25 34 44 44.4 France 4 18 51 67 88 117 176 234 293 351 31.9 Germany 16 45 61 88 116 165 230 322 410 498 33.8 Greece ‡ ‡ 1 3 4 7 12 18 25 34 53.4 Ireland ‡ ‡ 1 3 6 10 18 29 44 47 50.9 Italy ‡ 7 15 13 19 28 44 66 102 146 50.4 Netherlands 1 6 15 18 20 25 32 44 57 73 29.6 Norway ‡ 1 5 9 15 22 29 36 43 51 27.7 Portugal ‡ ‡ 1 3 6 10 16 23 32 42 47.6 Spain ‡ 1 3 7 16 35 61 107 177 266 75.4 Sweden 1 1 2 5 11 15 24 41 61 83 49.8 Switzerland 2 4 8 18 32 51 69 83 92 102 26.1 United Kingdom 15 62 129 299 450 588 716 808 872 918 15.3 Western Europe total 40 152 307 562 833 1,152 1,544 1,978 2,436 2,908 28.4 Central and Eastern Europe Czech Republic ‡ ‡ ‡ 1 2 3 5 8 10 11 40.6 Hungary ‡ ‡ ‡ 1 2 3 5 9 10 12 43.1 Poland ‡ ‡ ‡ 3 7 12 18 30 37 42 43.1 Romania ‡ ‡ ‡ ‡ 1 2 2 4 5 6 43.1 Russia ‡ ‡ 2 8 20 31 48 80 97 107 39.9 Turkey ‡ ‡ 1 3 7 11 16 27 33 38 40.3 Central and Eastern Europe total ‡ ‡ 3 16 39 62 94 158 192 216 40.8 Middle East/Africa Israel ‡ ‡ ‡ 1 2 3 5 9 11 13 45.4 Saudi Arabia/Pan Arab†† ‡ ‡ ‡ 2 3 5 8 14 16 18 43.1 South Africa ‡ 1 2 4 10 17 28 50 64 74 49.2 Middle East/Africa total ‡ 1 2 7 15 25 41 73 91 105 47.6 EMEA total 40 153 312 585 887 1,239 1,679 2,209 2,719 3,229 29.5

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: BV Phono, NVPI, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | EMEA 285 Mobile phone distribution phone—is growing as more songs become available on a DRM-free basis. Internet downloads are much less • Although mobile phone distribution continued to expensive than purchases of songs through a wireless grow at the healthy rate of 27.4 percent in 2008, we carrier. Now that side loading is no longer facing DRM, expect spending to decline during the next two years we expect the practice to expand, which will shift principally because of the introduction of bundled spending from mobile services to Internet downloads. services that enable customers to access music in a package. • Over time, we expect mobile music to evolve into a subscription service that is part of an overall mobile • Wireless carriers are changing their approach and are data package that includes mobile Internet access now using music less as a generator of incremental and, possibly, mobile television. Bundled services are revenues than as a means to reduce churn. In Denmark, succeeding in the telephone/broadband/television for example, TDC introduced PLAY in 2008—a music markets, and we expect they will come to dominate the service that bundles music with mobile broadband— mobile market as well. In that environment, a portion of and experienced a significant reduction in churn. the subscription fee for the overall bundle will cover the • In France, , Orange, and SFR introduced cost of the music, and users will have extensive access bundled services; BSkyB announced plans for bundled to stream music through their mobile devices. services in the UK and Ireland; and TeliaSonera is • During the next two years, we expect a drop in launching bundled services in several countries in 2009. spending on music purchases through mobile • Comes with Music from Nokia, introduced in the UK in networks. By 2011, we expect that subscription 2008, is a handset that comes with access to songs. services that include music will become large enough The cost of the songs is included in the price of the to offset declines in traditional spending. Nevertheless, handset, but users do not directly pay for the music. spending in 2013 will remain lower than in 2008. Spotify, We7, and Last.fm are ad-supported free • For the forecast period as a whole, mobile music services available in the UK, and MySpace Music and spending will decrease from $767 million in 2008 PlayNow Plus are expected to enter the market in 2009. to $698 million in 2013, a 1.9 percent compound Spotify is free with a 30-second ad shown every 20 annual decline. minutes. There is also an option to pay ₤9.99 ($18.35) per month without ads. • Western Europe will total $462 million in 2013, a 0.9 percent decrease on a compound annual basis from • In Italy, mobile spending fell by 36 percent in 2008 $483 million in 2008. Central and Eastern Europe, and by 43 percent since 2006. High price points where near-term economic conditions are very weak have discouraged spending, particularly as there is and there are fewer new services entering the market, a proliferation of lower-cost options available online. will decrease from $256 million to $207 million, a 4.2 Comes with Music is expected to be available in 2009, percent decline on a compound annual basis. Middle which will further cut into mobile music spending. East/Africa will edge up at a 0.7 percent compound • In addition to those new services, side loading—the annual rate to $29 million in 2013 from $28 million transferring of songs from a computer to a mobile in 2008.

286 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile phone recorded music market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 3 9 20 29 37 34 32 31 31 32 –2.9 Belgium ‡ 3 7 12 15 13 12 12 13 15 0.0 Denmark ‡ 2 4 5 6 5 5 5 5 5 –3.6 Finland ‡ ‡ 1 3 3 1 1 1 3 3 0.0 France 20 64 79 78 88 85 80 80 82 85 –0.7 Germany NA NA 53 47 44 40 37 37 38 41 –1.4 Greece ‡ ‡ ‡ ‡ 1 1 1 3 3 4 32.0 Ireland ‡ ‡ 1 3 3 1 1 1 3 3 0.0 Italy 19 32 51 45 29 22 20 20 22 25 –2.9 Netherlands ‡ 1 7 12 13 10 9 9 10 12 –1.6 Norway 2 3 4 5 6 6 5 6 6 6 0.0 Portugal ‡ ‡ 1 3 3 1 1 3 3 4 5.9 Spain 9 16 31 32 26 23 23 23 25 28 1.5 Sweden ‡ 1 2 3 5 4 3 3 4 4 –4.4 Switzerland 14 19 28 35 39 37 36 36 37 39 0.0 United Kingdom 35 53 66 119 165 147 138 138 147 156 –1.1 Western Europe total 102 203 355 431 483 430 404 408 432 462 –0.9 Central and Eastern Europe Czech Republic ‡ 2 4 6 7 6 6 6 6 7 0.0 Hungary ‡ 2 4 6 8 8 7 7 7 8 0.0 Poland ‡ 5 11 18 27 26 25 25 26 28 0.7 Romania ‡ 1 2 3 4 4 3 4 4 4 0.0 Russia 12 40 67 97 185 131 126 127 132 135 –6.1 Turkey ‡ 5 11 19 25 23 22 22 23 25 0.0 Central and Eastern Europe total 12 55 99 149 256 198 189 191 198 207 –4.2 Middle East/Africa Israel ‡ 2 4 6 8 7 7 7 8 8 0.0 Saudi Arabia/Pan Arab†† ‡ 3 6 10 12 12 11 11 12 12 0.0 South Africa ‡ 2 4 6 8 8 7 8 8 9 2.4 Middle East/Africa total ‡ 7 14 22 28 27 25 26 28 29 0.7 EMEA total 114 265 468 602 767 655 618 625 658 698 –1.9

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | EMEA 287 Total digital spending • Even if efforts to reduce unauthorized file sharing succeed, we do not expect it will help the physical • Total digital recorded music spending in EMEA will market, because spending will most likely shift to increase from $1.7 billion to $3.9 billion, an 18.9 percent licensed digital services. compound annual increase. • The physical market has largely abandoned singles • Western Europe will rise from $1.3 billion to $3.4 billion, because they are not economical. Relatively few 20.7 percent compounded annually. songs are now released as singles, and retailers are • Digital spending in Central and Eastern Europe will rise discontinuing them. In 2008, Woolworths in the UK to $423 million in 2013 from $295 million in 2008, a 7.5 stopped selling singles. The digital market, by contrast, percent compound annual increase. generates most of its volume by selling single songs that are not available at any price in the physical market. • Middle East/Africa will have the fastest-growing digital market in percentage terms, with a projected 25.5 • Physical distribution also is much more expensive percent increase compounded annually, from $43 than digital distribution, and DRM-free music will make million to $134 million. digital distribution even more appealing. • For these reasons, we do not expect a rebound in Physical distribution physical music. We expect spending to fall at a 10.9 percent compound annual rate to $5.3 billion in • Physical distribution fell 14.4 percent in 2008, its 2013 from $9.4 billion in 2008. Compared with 2004, steepest decline during the past five years. spending in 2013 will be 64 percent lower. • The physical market has been hurt by physical piracy, particularly in Central and Eastern Europe, where counterfeit CDs reduced spending for licensed product. In Western Europe, the shift to digital—both legitimate and unauthorized—has led to large reductions in physical sales.

288 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Digital recorded music market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 3 10 24 38 50 56 64 75 90 108 16.7 Belgium ‡ 6 11 22 33 39 52 71 93 117 28.8 Denmark 1 4 8 11 18 24 32 44 60 80 34.8 Finland ‡ 1 4 7 10 13 19 26 37 47 36.3 France 24 82 130 145 176 202 256 314 375 436 19.9 Germany 16 45 114 135 160 205 267 359 448 539 27.5 Greece ‡ ‡ 1 3 5 8 13 21 28 38 50.0 Ireland ‡ ‡ 2 6 9 11 19 30 47 50 40.9 Italy 19 39 66 58 48 50 64 86 124 171 28.9 Netherlands 1 7 22 30 33 35 41 53 67 85 20.8 Norway 2 4 9 14 21 28 34 42 49 57 22.1 Portugal ‡ ‡ 2 6 9 11 17 26 35 46 38.6 Spain 9 17 34 39 42 58 84 130 202 294 47.6 Sweden 1 2 4 8 16 19 27 44 65 87 40.3 Switzerland 16 23 36 53 71 88 105 119 129 141 14.7 United Kingdom 50 115 195 418 615 735 854 946 1,019 1,074 11.8 Western Europe total 142 355 662 993 1,316 1,582 1,948 2,386 2,868 3,370 20.7 Central and Eastern Europe Czech Republic ‡ 2 4 7 9 9 11 14 16 18 14.9 Hungary ‡ 2 4 7 10 11 12 16 17 20 14.9 Poland ‡ 5 11 21 34 38 43 55 63 70 15.5 Romania ‡ 1 2 3 5 6 5 8 9 10 14.9 Russia 12 40 69 105 205 162 174 207 229 242 3.4 Turkey ‡ 5 12 22 32 34 38 49 56 63 14.5 Central and Eastern Europe total 12 55 102 165 295 260 283 349 390 423 7.5 Middle East/Africa Israel ‡ 2 4 7 10 10 12 16 19 21 16.0 Saudi Arabia/Pan Arab†† ‡ 3 6 12 15 17 19 25 28 30 14.9 South Africa ‡ 3 6 10 18 25 35 58 72 83 35.8 Middle East/Africa total ‡ 8 16 29 43 52 66 99 119 134 25.5 EMEA total 154 418 780 1,187 1,654 1,894 2,297 2,834 3,377 3,927 18.9

†At average 2008 exchange rates. ‡ Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | EMEA 289 Physical recorded music market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 342 323 293 263 234 208 186 167 146 132 –10.8 Belgium 391 380 404 388 359 322 293 263 234 205 –10.6 Denmark 220 209 207 197 182 162 143 127 112 98 –11.6 Finland 158 154 124 117 102 88 76 67 60 53 –12.3 France 2,337 2,135 1,883 1,649 1,377 1,171 1,024 878 732 622 –14.7 Germany 2,549 2,513 2,382 2,283 2,122 1,939 1,793 1,683 1,610 1,537 –6.2 Greece 173 167 162 154 139 117 102 91 80 72 –12.3 Ireland 173 174 173 151 132 110 95 83 73 66 –12.9 Italy 774 749 664 534 423 337 278 234 198 168 –16.9 Netherlands 601 495 449 411 380 344 315 285 256 227 –9.8 Norway 327 285 252 237 216 191 173 156 142 129 –9.8 Portugal 151 133 110 95 83 73 64 57 51 47 –10.8 Spain 907 880 784 400 351 299 265 236 209 189 –11.6 Sweden 299 266 244 220 203 179 159 140 125 112 –11.2 Switzerland 296 303 272 240 212 185 157 134 111 92 –15.4 United Kingdom 3,544 3,364 2,984 2,507 1,791 1,515 1,331 1,157 1,010 900 –12.9 Western Europe total 13,242 12,530 11,387 9,846 8,306 7,240 6,454 5,758 5,149 4,649 –11.0 Central and Eastern Europe Czech Republic 66 59 53 47 41 35 30 27 24 22 –11.7 Hungary 69 62 54 49 44 38 32 28 25 23 –12.2 Poland 139 134 146 136 147 129 113 100 90 84 –10.6 Romania 18 20 22 21 20 17 15 13 12 11 –11.3 Russia 569 441 460 414 402 342 298 266 237 213 –11.9 Turkey 185 152 153 146 134 115 100 88 80 77 –10.5 Central and Eastern Europe total 1,046 868 888 813 788 676 588 522 468 430 –11.4 Middle East/Africa Israel 56 57 52 46 41 36 32 29 27 25 –9.4 Saudi Arabia/Pan Arab‡ 92 90 82 75 67 58 51 45 40 36 –11.7 South Africa 185 203 207 209 206 187 175 166 157 148 –6.4 Middle East/Africa total 333 350 341 330 314 281 258 240 224 209 –7.8 EMEA total 14,621 13,748 12,616 10,989 9,408 8,197 7,300 6,520 5,841 5,288 –10.9

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

290 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Asia Pacific

The outlook in brief • Physical distribution will decline at a 9.5 percent compound annual rate to $3.4 billion in 2013 from $5.6 • Advanced wireless networks and handsets that billion in 2008. facilitate music will fuel mobile phone distribution. • Digital distribution will rise to $5.3 billion in 2013, up • Broadband expansion will propel Internet distribution. 12.5 percent on a compound annual basis from $3 • Piracy and increased competition from licensed billion in 2008. Digital spending will overtake physical services will lead to accelerated declines in spending in 2011 and by 2013 will account for 61 physical distribution. percent of total recorded music spending. • Mobile phone distribution accounted for 83 percent Overview of digital spending at $2.5 billion in 2008. Spending will increase to $4.3 billion in 2013, an 11.5 percent • Recorded music spending will remain essentially flat advance on a compound annual basis from 2008. during the next five years, edging up at a 0.4 percent compound annual rate to $8.7 billion in 2013 from $8.6 • Internet distribution will grow to $1.1 billion by 2013 billion in 2008. from $493 million in 2008, a 16.7 percent compound annual increase.

Recorded music market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Physical distribution 7,427 6,915 6,660 6,157 5,583 4,999 4,491 4,058 3,687 3,381 Digital distribution Internet 29 171 256 368 493 585 694 817 946 1,065 Mobile phones 327 636 974 2,101 2,476 2,802 3,175 3,566 3,920 4,274 Digital total 356 807 1,230 2,469 2,969 3,387 3,869 4,383 4,866 5,339 Total 7,783 7,722 7,890 8,626 8,552 8,386 8,360 8,441 8,553 8,720

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music market growth by component† (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Physical distribution –4.3 –6.9 –3.7 –7.6 –9.3 –10.5 –10.2 –9.6 –9.1 –8.3 –9.5 Digital distribution Internet — 489.7 49.7 43.8 34.0 18.7 18.6 17.7 15.8 12.6 16.7 Mobile phones 97.0 94.5 53.1 115.7 17.8 13.2 13.3 12.3 9.9 9.0 11.5 Digital total 114.5 126.7 52.4 100.7 20.3 14.1 14.2 13.3 11.0 9.7 12.5 Total –1.9 –0.8 2.2 9.3 –0.9 –1.9 –0.3 1.0 1.3 2.0 0.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | Asia Pacific 291 • Japan is the dominant territory, at $6.6 billion in 2008, • India is the only country in Asia Pacific where legitimate 77 percent of total recorded music spending in Asia physical spending has been increasing in recent years. Pacific. Spending dipped by 0.8 percent in 2008 as an Although the market flattened in 2008 and we do not 8.6 percent decrease in physical spending was nearly expect much growth going forward, physical spending offset by an 18.6 percent increase in digital. Japan has will not pull the market down. At the same time, the largest mobile music market in the world, at $2.1 the digital market is relatively undeveloped in India. billion in 2008, which represents 51 percent of global Although growth in percentage terms will be significant, spending on mobile music. In the near term, a declining at 34.8 percent compounded annually, the actual physical market will offset an expanding digital market contribution of digital to spending will be modest. We as it did in 2008. By 2011, digital growth will offset project total spending in India, the fourth-largest market physical declines. Spending in 2013 will increase to in 2008, to grow at a 7.2 percent compound annual rate $6.7 billion, a 0.2 percent compound annual gain. to $242 million in 2013. • Australia is the second-largest country, at $662 million • The People’s Republic of China (PRC) has a legitimate in 2008. The physical market accounts for 86 percent of market of only $145 million in 2008, which represents recorded music spending—second highest in the region a tiny fraction of all activity. More than 99 percent of behind India. Declines in physical spending will offset the files downloaded in the PRC are illegal. There also growth in digital through 2012. Spending in 2013 will is widespread physical piracy, as the PRC is a major total an estimated $562 million, down 3.2 percent on a source of production of pirated discs. Mobile music compound annual basis from 2008. accounts for half of legitimate spending, and digital as a whole represents 61 percent of spending. With the • South Korea, the third-largest market, at $409 million, physical market relatively small, declines in that sector, has a high piracy rate and a small legitimate physical which we project at 14.5 percent compounded annually, market that accounts for only 13 percent of spending, will not have a major impact on total spending. Digital lowest in the region. South Korea has the largest spending in the PRC during the next five years will Internet distribution market in Asia Pacific in both expand at a 20.4 percent compound annual rate, and absolute and share terms. Its $218 million in legitimate the total market will grow by 11.4 percent compounded Internet downloads constituted 53 percent of total annually, the largest percentage gain in the region. spending in 2008. With the legitimate physical market Nevertheless, legitimate spending will remain a small playing virtually no role, we project an expanding digital component of total activity. market to generate an overall 4.4 percent compound annual increase during the next five years.

292 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Recorded music market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 823 744 797 713 662 616 582 565 560 562 –3.2 China 188 147 156 142 145 150 161 185 216 249 11.4 Hong Kong 84 86 81 81 80 76 76 75 74 74 –1.5 India 153 160 164 169 171 173 182 199 222 242 7.2 Indonesia 83 81 86 84 83 80 79 79 80 81 –0.5 Japan 5,667 5,722 5,841 6,650 6,595 6,497 6,492 6,531 6,570 6,656 0.2 Malaysia 37 34 32 33 35 38 41 45 48 52 8.2 New Zealand 111 112 99 89 82 74 69 67 63 58 –6.7 Pakistan 21 22 21 20 19 19 18 19 19 18 –1.1 Philippines 32 33 30 29 28 28 28 29 28 27 –0.7 Singapore 56 50 46 44 46 43 41 41 40 39 –3.2 South Korea 178 255 309 358 409 412 421 443 474 507 4.4 Taiwan 173 135 101 93 80 68 63 59 56 54 –7.6 Thailand 177 141 127 121 117 112 107 104 103 101 –2.9 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 7,783 7,722 7,890 8,626 8,552 8,386 8,360 8,441 8,553 8,720 0.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile phone distribution • South Korea is a distant second in mobile phone music spending, at $136 million in 2008. A national High- • The mobile phone market in Asia Pacific is dominated Speed Downlink Packet Access network—introduced in by Japan, which accounted for 86 percent of total 2007—facilitates music downloads and contributed to a mobile music spending in 2008. 27.1 percent increase in 2008. We look for a slowdown • Mobile singles and a growing mobile subscription during the next two years—as the recession cuts market are fueling growth in Japan, which rose by into growth—followed by a subsequent pickup when 17.4 percent in 2008 despite the weak economy. The the economy improves. We project the mobile music strength of the mobile music market in Japan reflects market to grow to $186 million in 2013, a 6.5 percent the fact that mobile phones are the predominant compound annual increase. means of accessing the Internet in Japanese society, • The PRC has the third-largest mobile phone distribution with people routinely using their mobile phones to market in Asia Pacific, at $72 million in 2008. access the Internet, watch television, and download Restructuring of the telecommunications market will books. Music is another widely used mobile Internet make the wireless market more competitive, and the application. Wireless network upgrades by NTT introduction of third-generation (3G) services in 2009 DoCoMo and the introduction of the iPhone, which should boost the mobile market. We project a 21 facilitates music downloads, should sustain growth. We percent compound annual increase to $187 million in project mobile music in Japan to increase to $3.7 billion 2013, propelling the PRC just ahead of South Korea. by 2013, an 11.6 percent compound annual increase.

Recorded music | Asia Pacific 293 • The remainder of the region is small and in its early • In contrast with North America and EMEA, Internet phases of development. Virtually all countries are distribution of music is not a strong competitor of upgrading their networks to offer faster speeds and mobile music in Asia Pacific, reflecting the lower more services. As the new networks are rolled out, proportion of households with Internet access in the wireless carriers will offer advanced applications, region. Consequently, we are not seeing a transition to including the option to download music, which will lower-cost Internet downloads. stimulate spending throughout the region. • We project mobile phone music spending in Asia Pacific • Wireless network upgrades are being accompanied to increase at an 11.5 percent compound annual rate to by the launch of new handsets, some of which are $4.3 billion in 2013 from $2.5 billion in 2008. specifically designed to be used for listening to music. They have the capacity to store thousands of songs and can play them in high-quality stereo.

Mobile phone recorded music market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 8 10 22 28 23 19 18 18 20 23 0.0 China 5 20 45 55 72 86 104 129 158 187 21.0 Hong Kong 3 6 8 13 17 20 22 23 24 25 8.0 India ‡ 7 8 10 11 12 16 25 37 48 34.3 Indonesia 4 13 24 27 29 30 31 33 35 38 5.6 Japan 261 493 739 1,803 2,117 2,415 2,754 3,092 3,382 3,671 11.6 Malaysia ‡ 1 3 5 6 7 8 9 10 10 10.8 New Zealand 2 4 6 5 4 4 4 5 6 6 8.4 Pakistan 1 2 2 3 4 5 5 6 6 6 8.4 Philippines 1 2 3 5 6 7 8 9 9 9 8.4 Singapore 2 4 5 7 10 11 12 13 13 13 5.4 South Korea 28 57 87 107 136 141 145 154 168 186 6.5 Taiwan 5 7 9 14 16 16 17 18 18 18 2.4 Thailand 7 10 13 19 25 29 31 32 34 34 6.3 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 327 636 974 2,101 2,476 2,802 3,175 3,566 3,920 4,274 11.5

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

294 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Internet distribution • In the Philippines, music downloading kiosks are being set up by record companies. Sony BMG runs Music to • The licensed Internet distribution market is not nearly Go, while Star Records is considering developing its as well developed as the mobile market. Spending own dedicated kiosks. totaled only $493 million in 2008, less than 20 percent the size of the mobile music market. • Over the longer run, broadband growth will expand the potential for music downloading in Asia Pacific because • Illegal downloading is dramatically cutting into spending it is faster and easier to download music through a on licensed Internet music. Unauthorized files are broadband connection. estimated to represent 95 percent of all downloads— and more than 99 percent in the PRC. • There were 145 million broadband subscribers in Asia Pacific in 2008. During the next five years, an additional • New Zealand in April 2008 introduced a graduated- 119 million will substantially expand the market, enlarging response system to combat online piracy. Under the the potential universe for Internet music distribution by proposed system, Internet service providers will be 82 percent. required to identify subscribers who are persistent downloaders of unauthorized files and to issue warning • We project spending on music distributed over the letters. If warnings are not heeded, responses escalate Internet to grow to $1.1 billion by 2013, a 16.7 percent and can include termination of Internet privileges. compound annual increase. Although the percentage Despite enactment in April 2008, the process stalled. growth will be significant, Internet distribution will It did not come into force as expected in March remain a relatively small component of the market, 2009 because of objection from telecommunications accounting for 12 percent of total spending in 2013. companies and ISPs about its workability. The New Zealand government is still reexamining the legislation, Broadband subscribers in Asia Pacific (millions) and its outcome is uncertain. 300 264 • In Japan, a consortium of trade associations in the 250 239 music and film industry and ISPs are considering 215 adopting a graduated-response system as well. 200 193 168 • The market also is being hampered by some users’ 150 145 119 discomfort in using credit cards to purchase products 97 over the Internet. 100 79 59 • Despite those impediments, the market is posting large 50 percentage gains. Spending in 2008 rose by 34 percent. 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 • The entrance of Apple’s iTunes Music Store in several territories is stimulating the market. Spending in Japan Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates more than doubled in 2007 and rose by 43 percent in 2008. In Australia, the market rose by 82 percent in 2008. • In the PRC, by contrast, spending has been flat during the past two years. Several major Web sites were forced to curtail their music markets because of copyright infringement, and others are exploring advertiser-supported models because they are finding it difficult to induce customers to pay for music.

Recorded music | Asia Pacific 295 Licensed Internet recorded music market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia ‡ 10 24 39 71 100 134 167 201 234 26.9 China ‡ 8 16 15 16 17 18 22 29 36 17.6 Hong Kong ‡ 1 2 4 6 7 10 13 15 18 24.6 India ‡ 5 5 6 7 8 11 16 25 32 35.5 Indonesia ‡ 1 2 3 5 7 9 11 14 15 24.6 Japan 4 29 42 91 130 169 211 251 290 328 20.3 Malaysia ‡ 1 2 4 8 12 16 21 25 30 30.3 New Zealand ‡ 1 2 4 6 7 9 13 15 17 23.2 Pakistan ‡ ‡ 1 1 1 2 2 3 4 4 32.0 Philippines ‡ ‡ 1 1 2 3 4 5 6 6 24.6 Singapore ‡ 1 1 2 4 4 5 7 8 9 17.6 South Korea 12 95 137 181 218 227 240 259 281 299 6.5 Taiwan 13 17 18 11 11 11 11 11 12 13 3.4 Thailand ‡ 2 3 6 8 11 14 18 21 24 24.6 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 29 171 256 368 493 585 694 817 946 1,065 16.7

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

296 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total digital spending • Japan, which has the largest digital market, at $2.2 billion in 2008, will increase to $4 billion in 2013, a 12.2 • Total digital recorded music spending in Asia Pacific will percent compound annual gain. reach $5.3 billion in 2013 from $3 billion in 2008, a 12.5 percent compound annual increase. • South Korea will rise from $354 million to $485 million, a 6.5 percent gain compounded annually.

Digital recorded music market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 8 20 46 67 94 119 152 185 221 257 22.3 China 5 28 61 70 88 103 122 151 187 223 20.4 Hong Kong 3 7 10 17 23 27 32 36 39 43 13.3 India 0 12 13 16 18 20 27 41 62 80 34.8 Indonesia 4 14 26 30 34 37 40 44 49 53 9.3 Japan 265 522 781 1,894 2,247 2,584 2,965 3,343 3,672 3,999 12.2 Malaysia 0 2 5 9 14 19 24 30 35 40 23.4 New Zealand 2 5 8 9 10 11 13 18 21 23 18.1 Pakistan 1 2 3 4 5 7 7 9 10 10 14.9 Philippines 1 2 4 6 8 10 12 14 15 15 13.4 Singapore 2 5 6 9 14 15 17 20 21 22 9.5 South Korea 40 152 224 288 354 368 385 413 449 485 6.5 Taiwan 18 24 27 25 27 27 28 29 30 31 2.8 Thailand 7 12 16 25 33 40 45 50 55 58 11.9 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 356 807 1,230 2,469 2,969 3,387 3,869 4,383 4,866 5,339 12.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | Asia Pacific 297 Physical distribution • In the remaining territories, piracy and licensed digital music contributed to declines in physical distribution • The physical distribution market fell by 9.3 percent in during the past five years. Piracy is particularly acute 2008, its largest decline during the past five years. Each in Indonesia, Malaysia, the PRC, South Korea, and country except India recorded decreases, and India Thailand, reducing spending in those territories well was flat. below actual levels of consumption. • Japan and Australia have the largest physical • Continued piracy and growth in legitimate licensed distribution markets, at $4.3 billion and $568 million, digital services will further cut into physical distribution respectively. In contrast with the PRC and South Korea, during the next five years. We project physical spending physical piracy is less of a major problem in Japan to fall at a 9.5 percent compound annual rate— and Australia, which accounts for their large physical comparable to the decline in 2008. Spending will drop markets. Nevertheless, both territories are declining. from $5.6 billion in 2008 to $3.4 billion in 2013. In Australia, following a rebound in 2006, spending fell by 24 percent during the past two years. In Japan, physical sales have been declining for years, and the decrease in 2008 was 8.6 percent.

Physical recorded music market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 815 724 751 646 568 497 430 380 339 305 –11.7 China 183 119 95 72 57 47 39 34 29 26 –14.5 Hong Kong 81 79 71 64 57 49 44 39 35 31 –11.5 India 153 148 151 153 153 153 155 158 160 162 1.1 Indonesia 79 67 60 54 49 43 39 35 31 28 –10.6 Japan 5,402 5,200 5,060 4,756 4,348 3,913 3,527 3,188 2,898 2,657 –9.4 Malaysia 37 32 27 24 21 19 17 15 13 12 –10.6 New Zealand 109 107 91 80 72 63 56 49 42 35 –13.4 Pakistan 20 20 18 16 14 12 11 10 9 8 –10.6 Philippines 31 31 26 23 20 18 16 15 13 12 –9.7 Singapore 54 45 40 35 32 28 24 21 19 17 –11.9 South Korea 138 103 85 70 55 44 36 30 25 22 –16.7 Taiwan 155 111 74 68 53 41 35 30 26 23 –15.4 Thailand 170 129 111 96 84 72 62 54 48 43 –12.5 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 7,427 6,915 6,660 6,157 5,583 4,999 4,491 4,058 3,687 3,381 –9.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

298 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Latin America

The outlook in brief • Physical distribution will decline from $762 million in 2008 to $476 million in 2013, a 9 percent decrease • New music sites and 3G launches will drive spending compounded annually. on mobile phone distribution. • Digital distribution will reach $462 million in 2013, • An expanding broadband universe will expand the growing at an 18.8 percent compound annual rate from market for legitimate Internet distribution. $195 million in 2008. • Piracy and growth in legitimate digital formats will lead • Mobile phone music spending will total $314 million to declines in physical distribution. in 2013 from $153 million in 2008, a 15.5 percent compound annual increase. Overview • Licensed Internet distribution will generate $148 million • The recorded music market will decline during the by 2013, rising at a 28.6 percent compound annual rate next three years by 9.8 percent and then expand by from $42 million in 2008. 8.7 percent to $938 million, down 0.4 percent on a compound annual basis from $957 million in 2008.

Recorded music market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Physical distribution 1,160 1,143 1,097 859 762 682 618 568 516 476 Digital distribution Internet — 1 2 15 42 56 69 90 116 148 Mobile phones 20 27 42 103 153 168 182 205 248 314 Digital total 20 28 44 118 195 224 251 295 364 462 Total 1,180 1,171 1,141 977 957 906 869 863 880 938

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music market growth by component† (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Physical distribution 13.1 –1.5 –4.0 –21.7 –11.3 –10.5 –9.4 –8.1 –9.2 –7.8 –9.0 Digital distribution Internet — — 100.0 650.0 180.0 33.3 23.2 30.4 28.9 27.6 28.6 Mobile phones 81.8 35.0 55.6 145.2 48.5 9.8 8.3 12.6 21.0 26.6 15.5 Digital total 81.8 40.0 57.1 168.2 65.3 14.9 12.1 17.5 23.4 26.9 18.8 Total 13.8 –0.8 –2.6 –14.4 –2.0 –5.3 –4.1 –0.7 2.0 6.6 –0.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | Latin America 299 • Brazil and Mexico were the largest markets, at $373 • Argentina has the third-largest market, at $105 million million and $335 million, respectively, in 2008. Brazil in 2008, down 9.5 percent from 2007. Argentina does rose 1.9 percent fueled by a surging digital market that not have a significant digital market; digital spending more than doubled in 2008, offsetting a 14.5 percent constituted less than 4 percent of the total. Physical decline in physical distribution. spending had been increasing through 2007 before falling by 10.6 percent in 2008. • In Mexico, the digital gain was a more muted, 34.6 percent, not enough to offset a 12.5 percent decrease in physical spending—and leading to an overall 5.6 percent decline.

Recorded music market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 78 100 108 116 105 103 101 100 99 99 –1.2 Brazil 605 529 479 366 373 365 356 367 393 446 3.6 Chile 45 42 38 38 38 36 34 33 32 32 –3.4 Colombia 66 71 73 80 82 79 75 75 75 76 –1.5 Mexico 372 413 423 355 335 300 281 264 256 260 –4.9 Venezuela 14 16 20 22 24 23 22 24 25 25 0.8 Total 1,180 1,171 1,141 977 957 906 869 863 880 938 –0.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Mobile phone distribution • Music handsets, too, are driving the market. Manufacturers have introduced phones specifically • The mobile phone distribution market rose by 48.5 designed to play music. Music phones now represent percent in 2008 to $153 million, more than triple the around 20 percent of all handset sales. $42 million total in 2006. • Brazil and Mexico have the largest markets, at $68 • New mobile music stores are expanding the market. In million and $63 million, respectively, in 2008. Colombia 2008, America Mobile launched Ideas Telcel in a number was a distant third, at $11 million, and the remaining of countries, Telefónica introduced Emoción Movistar in countries are each at $5 million or less. Colombia and expects to expand to other countries in 2009, and PlayPhone started a site in Brazil. • Upgrades to 3G and increased availability of music through new stores will continue to drive spending. • The launch of 3G services is making music downloads In the near term, the recession will keep increases at easier and more convenient. In Brazil, 3G licenses were less than 10 percent. When the economy recovers, we auctioned in 2007, and 3G services were introduced expect growth to return to double digits, with gains in in 2008. excess of 20 percent annually projected for 2012–13. • In Colombia, Movistar and Colombia Movil launched • We project spending on mobile phone music to 3G in 2008, Telcel in Mexico expanded its 3G service increase to $314 million in 2013, a 15.5 percent area, and in Argentina, Telecom Argentina upgraded its compound annual gain. wireless network to 3G and to expand coverage.

300 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Mobile phone recorded music market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1 1 2 3 4 5 5 6 7 8 14.9 Brazil 9 12 16 37 68 76 84 95 122 163 19.1 Chile 1 1 1 4 5 6 6 7 8 10 14.9 Colombia 2 3 4 9 11 12 13 15 17 20 12.7 Mexico 7 10 18 49 63 67 72 79 90 108 11.4 Venezuela ‡ ‡ 1 1 2 2 2 3 4 5 20.1 Total 20 27 42 103 153 168 182 205 248 314 15.5

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Licensed Internet distribution • As broadband continues to grow, we expect that the potential market will become large enough to attract • The Internet distribution market in Latin America is not more licensed music services, which in turn will drive well developed. High piracy rates, a small broadband legitimate spending. household base, and few licensed services have limited the market. In 2008, total spending on licensed music • We project the licensed Internet music market will was only $42 million, a total that was nearly triple the increase to $148 million in 2013, a 28.6 percent level in 2007. As recently as 2006, there was virtually no compound annual increase. Brazil will account for legitimate Internet spending on music. 82 percent of that gain and will remain the dominant market, at $120 million, 81 percent of the total in 2013. • During the past two years, the broadband universe nearly doubled, which expanded the potential market. • Mexico, at $22 million, will be the only other country Growth in broadband began to attract licensed online with a significant market. Spending in each of the music stores, including iMusica, Terra Internet, and remaining countries will be $3 million or less. UOL in Brazil. • High piracy rates will continue to impede licensed • We expect the broadband market to more than double spending. during the next five years to 44 million households in 2013 from 20 million in 2008.

Broadband households in Latin America (millions) 50 44 40 38 32 30 27 23 20 20 16 11 10 7 4 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | Latin America 301 Licensed Internet recorded music market† (US$ millions) 2009–13 Latin America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina ‡ ‡ ‡ ‡ ‡ 1 1 1 1 — Brazil ‡ 1 11 33 44 54 71 92 120 29.5 Chile ‡ ‡ ‡ 1 1 1 1 1 1 0.0 Colombia ‡ ‡ 1 1 2 2 2 3 3 24.6 Mexico 1 1 3 7 9 11 14 18 22 25.7 Venezuela ‡ ‡ ‡ ‡ ‡ ‡ 1 1 1 — Total 1 2 15 42 56 69 90 116 148 28.6

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total digital spending increase from $70 million to $130 million, a 13.2 percent increase compounded annually. We do not expect • Total spending on digital music will total $462 million any other country to reach $25 million in digital music in 2013 from $195 million in 2008, an 18.8 percent spending during the next five years. compound annual increase. • Digital spending will nearly reach physical spending by • Brazil will have the largest digital market, at $283 2013, accounting for 49 percent of the market. million, an increase of 22.9 percent on a compound annual basis from $101 million in 2008. Mexico will

Digital recorded music market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1 1 2 3 4 5 6 7 8 9 17.6 Brazil 9 12 17 48 101 120 138 166 214 283 22.9 Chile 1 1 1 4 6 7 7 8 9 11 12.9 Colombia 2 3 4 10 12 14 15 17 20 23 13.9 Mexico 7 11 19 52 70 76 83 93 108 130 13.2 Venezuela ‡ ‡ 1 1 2 2 2 4 5 6 24.6 Total 20 28 44 118 195 224 251 295 364 462 18.8

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

302 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Physical distribution • High piracy rates have depressed the physical distribu- tion market for years, and beginning in 2007, a digital • Physical distribution spending plunged by 30.5 percent market in Brazil and Mexico is creating legitimate during the past two years, principally because of steep competition for physical distribution. declines in Brazil and Mexico. • We expect Brazil and Mexico to experience the steepest • In Brazil, physical spending has been falling since 2004, declines in physical spending because they will be the and decreases accelerated during the past two years, only countries with a significant digital alternative. We with a cumulative 41.1 percent decrease. project a 9.7 percent compound annual decrease in • In Mexico, the physical market had been increasing Brazil and a 13.3 percent compound annual decline through 2006 before turning around and falling by 34.4 in Mexico. percent from 2006 to 2008. • High inflation will limit decreases in nominal terms in • Chile, like Brazil, has been falling steadily since 2004. Argentina and Venezuela. • In Argentina, Colombia, and Venezuela, by contrast, • For Latin America as a whole, we project spending on spending was higher in 2008 than in 2004. Venezuela physical music to fall at a 9 percent compound annual continued to advance in 2008, Colombia was flat, and rate to $476 million in 2013 from $762 million in 2008. Argentina began to decline.

Physical recorded music market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 77 99 106 113 101 98 95 93 91 90 –2.3 Brazil 596 517 462 318 272 245 218 201 179 163 –9.7 Chile 44 41 37 34 32 29 27 25 23 21 –8.1 Colombia 64 68 69 70 70 65 60 58 55 53 –5.4 Mexico 365 402 404 303 265 224 198 171 148 130 –13.3 Venezuela 14 16 19 21 22 21 20 20 20 19 –2.9 Total 1,160 1,143 1,097 859 762 682 618 568 516 476 –9.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Recorded music | Latin America 303 304 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Filmed entertainment

306 Summary

307 North America

316 Europe, Middle East, Africa (EMEA)

331 Asia Pacific

342 Latin America Summary

Filmed entertainment spending will total $38.8 billion in 2013 from $34.7 billion in 2008, a 2.2 percent increase compounded annually. In- The filmed entertainment market consists of consumer store rental spending will be relatively flat at $17.6 billion spending at the box office for theatrical motion pictures, in 2013 compared with $17.7 billion in 2008, edging down plus spending on rentals of videos at video stores and at only a 0.1 percent compound annual rate. Online rental other retail outlets (the in-store rental market) and the subscriptions will expand at an 18.2 percent compound purchase of home video products in retail outlets and annual rate to $6.7 billion from $2.9 billion in 2008. Digital through online stores (the sell-through market). It also downloads will rise to $1.4 billion in 2013 from only $286 includes online film rental subscription services, such million in 2008, a 37.7 percent compound annual increase as those in which physical DVDs are delivered via from a small base. overnight mail, and streaming services whereby films are downloaded via a broadband Internet connection. The figures do not include either music videos (which are Principal drivers counted in the “Recorded Music” chapter) or video-on- Box office spending will be enhanced by a growing share demand, pay-per-view, or movie distribution by cable, of 3-D releases that generate higher prices and higher satellite, or telephone companies (which are covered in the ticket sales than standard, 2-D films do. Modern theaters “Television Subscriptions and License Fees” chapter). and more screens in a number of countries in EMEA, Asia Pacific, and Latin America will also boost spending. The Market size and growth by region adverse economy will cut into physical sell-through in the near term. Over the longer run, growth in Blu-ray high- We project filmed entertainment spending in North America, definition (HD) videos will offset a declining DVD market EMEA (Europe, Middle East, Africa), Asia Pacific, and Latin and propel overall sell-through. Rentals will benefit from America will rise at a 4 percent compound annual rate, a weak economy in the near term as their lower prices reaching $102.2 billion in 2013 from $83.9 billion in 2008. will be more attractive. Over the longer run, competition Asia Pacific will be the fastest-growing region, increasing by from video-on-demand and online distribution will cut 5.7 percent compounded annually to $23.3 billion in 2013 into in-store rentals. The convenience of online rental compared with $17.7 billion in 2008. North America will services will boost spending. Faster broadband speeds grow by 3.4 percent compounded annually to $45.1 billion and devices that allow TV viewing will propel a small in 2013 from $38.2 billion in 2008. Spending in EMEA will digital download market. Piracy will continue to hold down increase from $25.5 billion in 2008 to $30.7 billion in 2013, spending, particularly in Asia Pacific and Latin America. growing at a 3.7 percent compound annual rate. Filmed Piracy is getting worse in the Philippines and Thailand entertainment in Latin America will total $3.1 billion in 2013, and continues to significantly cut into legitimate spending up from $2.5 billion in 2008, representing a 4.5 percent gain in the People’s Republic of China, South Korea, and compounded annually. Indonesia. Piracy also is a problem in Western Europe, with Spain and France experiencing declines as a result Market size and growth by component of growing piracy. A key factor affecting the market in any given year is the quality of releases and their appeal to Global box office spending will increase from $28.3 billion consumers, a development we cannot predict. in 2008 to $37.7 billion in 2013, a 5.9 percent compound annual increase. Box office will outpace overall home Filmed entertainment will be the rare segment where we video spending, which will expand at a projected 3 percent expect somewhat faster growth in 2009 than in 2008. That compound annual rate to $64.5 billion from $55.6 billion is due to improved box office spending from a larger array in 2008. Physical sell-through spending will decline during of 3-D releases and a modest gain in rental spending as the next two years and then rebound, with mid- to high- the recession leads consumers to low-cost rentals for single-digit growth projected for 2012–13. Sell-through entertainment.

Data for the global filmed entertainment market by region and for the global filmed entertainment market by component can be found within the Executive Summary on page 43.

306 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief • Physical sell-through will decline during the next two years and then rebound to $18 billion in 2013 from $16.7 • Films in 3-D will drive the box office market. billion in 2008, a 1.6 percent compound annual increase. • High-definition DVDs will boost home video market • In-store rental spending will edge down at a 0.4 percent when economic conditions improve. compound annual rate from $8.5 billion in 2008 to $8.3 • Downloads to TV sets and enhanced subscription rental billion in 2013. services will fuel online video distribution. • Online rental subscription services will nearly double to $4.5 billion in 2013 from $2.3 billion in 2008, a 14.5 Overview percent gain compounded annually. • Digital downloads will nearly triple from $253 million • The overall filmed entertainment market will expand at a in 2008 to $753 million in 2013, expanding at a 24.4 compound annual rate of 3.4 percent from $38.2 billion percent compound annual rate. in 2008 to $45.1 billion in 2013. • The overall home video market will advance at a 2.6 • Box office growth will average 5.2 percent compounded percent compound annual rate, reaching $31.5 billion in annually from $10.6 billion in 2008 to $13.6 billion in 2013. 2013 from $27.7 billion in 2008.

Filmed entertainment market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Box office 10,062 9,614 9,917 10,415 10,568 11,040 11,513 12,102 12,787 13,597 Home video Physical sell-through 18,334 18,386 18,738 18,202 16,682 15,735 15,512 15,963 16,726 18,016 In-store rentals 8,917 8,407 8,332 8,441 8,471 8,505 8,500 8,455 8,396 8,297 Online rental subscriptions 672 967 1,202 1,821 2,269 2,804 3,281 3,731 4,155 4,472 Digital downloads — — 24 113 253 327 426 505 623 753 Total home video 27,923 27,760 28,296 28,577 27,675 27,371 27,719 28,654 29,900 31,538 Total 37,985 37,374 38,213 38,992 38,243 38,411 39,232 40,756 42,687 45,135

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | North America 307 Filmed entertainment market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Box office –0.1 –4.5 3.2 5.0 1.5 4.5 4.3 5.1 5.7 6.3 5.2 Home video Physical sell-through 16.1 0.3 1.9 –2.9 –8.4 –5.7 –1.4 2.9 4.8 7.7 1.6 In-store rentals –9.2 –5.7 –0.9 1.3 0.4 0.4 –0.1 –0.5 –0.7 –1.2 –0.4 Online rental subscriptions 115.4 43.9 24.3 51.5 24.6 23.6 17.0 13.7 11.4 7.6 14.5 Digital downloads — — — 370.8 123.9 29.2 30.3 18.5 23.4 20.9 24.4 Total home video 7.7 –0.6 1.9 1.0 –3.2 –1.1 1.3 3.4 4.3 5.5 2.6 Total 5.5 –1.6 2.2 2.0 –1.9 0.4 2.1 3.9 4.7 5.7 3.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The United States will expand at a 3.3 percent $3.4 billion to $4.2 billion, a 4.2 percent increase compound annual rate to $40.9 billion in 2013 from compounded annually. $34.8 billion in 2008, while Canada will rise from

Filmed entertainment market by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 34,647 34,076 34,862 35,517 34,806 34,940 35,654 37,016 38,710 40,908 3.3 Canada 3,338 3,298 3,351 3,475 3,437 3,471 3,578 3,740 3,977 4,227 4.2 Total 37,985 37,374 38,213 38,992 38,243 38,411 39,232 40,756 42,687 45,135 3.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Box office • Historically, the economic cycle has had little or no systematic impact on box office, which suggests that • The box office market held up reasonably well in a rising economy does not necessarily help the market 2008 despite the economic downturn, rising by 1.7 and a falling economy does not necessarily hurt it. percent in the United States and falling by only 1.1 Rather, the appeal of the roster of films plays a large percent in Canada. This relatively strong performance role in determining the overall level of spending—more demonstrates that the roster of titles and ticket prices so than in any other segment. have more influence than the economy does on box office growth. • While the economy may not play a significant role, several other trends have emerged. The transition to • That said, it is difficult to assess the impact of the digital projection and the conversion of digital cinemas economy on box office spending, because the box into 3-D-capable venues are providing a measurable office market is one of the few areas in entertainment boost to spending. and media where virtually all content is new each year.

308 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • As the share of 3-D screens increases, average prices • To address the shortfall, in October 2008 five studios— will rise as more screens will command premium rates. Disney, Fox, , Paramount, and Universal— In fact, higher prices accounted for the steady box office entered into a $1-billion deal with Digital Cinema performance in 2008. In the US, the 4.4 percent price Implementation Partners—a joint venture of AMC, increase from 2007 to 2008 offset a 2.6 percent drop in Cinemark, and Regal—to convert 15,000 screens in the admissions. In Canada, the 4.2 percent price increase US to digital. That deal, however, was subsequently nearly offset the 5.1 percent decrease in admissions. derailed because financing could not be obtained. Consequently, the expected conversion to digital will • Virtually all films with a 3-D version generate be delayed, and the hoped-for boost from the increase proportionally more revenue from 3-D screens than in 3-D releases will be delayed as well. from 2-D screens. Journey to the Center of the Earth, for example, generated 57 percent of its opening • Once converted, digital screens still need to be weekend box office gross on 3-D screens, even though upgraded to 3-D. As films are increasingly distributed only 30 percent of the screens were 3-D. Similar ratios digitally, box office revenues may rise, since physical have characterized most 3-D releases to date. In prints are no longer needed and the same title can be addition to selling more tickets, exhibitors are charging shown on more screens. premium prices for 3-D, which accounts for their • In Canada, Cineplex Entertainment and National disproportionate revenue. CineMedia are converting most of their theaters to • The roster of 3-D releases is scheduled to increase digital. It is expected that virtually the entire exhibition substantially during the next two years. In 2009, 17 industry will be converted to digital within the next films will be released with 3-D versions compared with few years. 7 in 2008, and in 2010, 30 films in 3-D are scheduled. • Over time, the increasing share of 3-D screens • To take advantage of 3-D, studios are converting prior will boost average prices, a pattern we expect will films to 3-D—at a cost of around $12 million per film. materialize during 2012–13. In the near term, we Toy Story, Toy Story 2, and all six of the Star Wars films look for more-moderate price growth because of the will be reissued in 3-D. Shrek 4, the next installment in recession. In the United States, where most of the 3-D that successful franchise, will also be released in 3-D conversion will occur, we project average ticket prices in 2010. to increase at a 4.6 percent compound annual rate to $9.00 in 2013 from $7.18 in 2008. In Canada, prices • The potential for 3-D is currently limited by a shortage were high in the early part of the decade, actually fell of screens. There are around 5,000 digital screens in from 2004 to 2005, and remained lower in 2008 than the United States and about 100 in Canada, but not all in 2004. We project a 3.1 percent compound annual have been upgraded to 3-D. Monsters vs Aliens was increase from $6.94 to $8.07. released in 2009 on 1,550 3-D screens in the US and Canada out of its total theater count of 4,104.

Filmed entertainment | North America 309 Average admission price† (US$) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 6.21 6.42 6.55 6.88 7.18 7.50 7.80 8.15 8.55 9.00 4.6 Canada 7.08 6.50 6.57 6.66 6.94 7.13 7.32 7.50 7.78 8.07 3.1 Total 6.27 6.43 6.55 6.86 7.16 7.47 7.76 8.10 8.49 8.93 4.5

†At average 2008 exchange rates. Sources: Motion Picture Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

• Although the release roster will ultimately be the local films that will be commercially viable. In general, principal driver of admissions in any year, we expect the better the local films, the better the overall box that the increase in the number of 3-D films will have office performance even though local films constitute a positive impact on admissions. At the same time, a small minority of the content. the economic environment is having an impact on film • On balance we expect modest admissions growth dur- financing and causing studios to cut back on their ing the next two years and somewhat faster increases production schedule, but the impact on admissions is during 2011–13 as the pace of digital conversions picks unclear. Cutbacks could have a modest adverse effect up. For the entire five-year forecast period, we project on admissions, although there is no direct correlation. admissions to rise by 0.6 percent compounded annu- That said, fewer films being released can also be a ally in the United States and at a 1 percent compound benefit, as there is less fragmentation of the market. annual rate in Canada. As a result, total admissions in • In Canada, Telefilm Canada introduced a new North America will increase to 1.52 billion in 2013 from development program that funds previously successful 1.48 billion in 2008. producers to develop films. The focus is on producing

Admissions (millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 1,484.0 1,376.0 1,395.0 1,400.0 1,364.0 1,365.0 1,370.0 1,380.0 1,390.0 1,405.0 0.6 Canada 119.6 120.3 118.5 118.0 112.0 112.5 113.0 114.0 116.0 118.0 1.0 Total 1,603.6 1,496.3 1,513.5 1,518.0 1,476.0 1,477.5 1,483.0 1,494.0 1,506.0 1,523.0 0.6

Sources: Motion Picture Association of America, PricewaterhouseCoopers LLP, Statistics Canada Wilkofsky Gruen Associates

• Box office spending will expand at a projected 5.2 of a role. Spending will rise from $777 million in 2008 to percent compound annual rate in the United States $952 million in 2013. to $12.6 billion in 2013 from $9.8 billion in 2008. • The overall North American market will increase from • In Canada, growth will be a more modest, 4.1 percent $10.6 billion in 2008 to $13.6 billion in 2013, a 5.2 compounded annually, as 3-D will play somewhat less percent increase compounded annually.

310 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Box office market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 9,215 8,832 9,138 9,629 9,791 10,238 10,686 11,247 11,885 12,645 5.2 Canada 847 782 779 786 777 802 827 855 902 952 4.1 Total 10,062 9,614 9,917 10,415 10,568 11,040 11,513 12,102 12,787 13,597 5.2

†At average 2008 exchange rates. Sources: Motion Picture Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Physical home video software sales totaled $750 million, four times the 2007 level. Adjusting for the different economic climates and Sell-through for the sluggishness of the overall sell-through market • In contrast with the box office market, the physical that currently affects both hardware and software, we believe the expansion path of the DVD can act as a sell-through marketwhich includes online sales guide to project the impact of Blu-ray. of physical DVDswas affected by the declining economy, as DVD purchases tend to be impulse buys. • The experience of 3-D films in theaters demonstrates Sell-through sales fell by 8.9 percent in the United that people are willing to pay extra for enhanced States and by 3.8 percent in Canada, for an overall product. A few dollars extra in the theater, of course, decline of 8.4 percent for North America in 2008. is different from an outlay of several hundred dollars • DVDs also faced competition from a surging video for HD hardware. During the next two years, the weak games market, which operates on its own cycle and economy will depress hardware purchases, and the benefited in 2008 from increased penetration of the high price points for Blu-ray discs will limit growth. We latest generation of consoles and of new games expect declining DVD sales to continue to outpace released for those consoles. rising Blu-ray sales, and overall sell-through spending will decline over 2009–10. • The hope was that with Blu-ray having become the single high-definition standard, a surge in Blu-ray • Beginning in 2011, as economic conditions improve, sales would offset declining DVD sales. The installed the Blu-ray universe will grow faster, which will boost base of Blu-ray players did not expand as fast as Blu-ray disc sales. Hardware prices have already begun was expected, in large part because the hardware is to come down—players are now available for less than expensive and the economy is weak. $300—which will help expand penetration. We expect overall sell-through spending to turn around in 2011 • Nevertheless, as Blu-ray hardware penetration grows and post a low-single-digit gain, with accelerating and as the high-definition TV (HDTV) household increases projected for 2012 and 2013. universe increases, there is a significant potential for Blu-ray to affect the sell-through market in the same • The tightening of release windows also will benefit way that DVDs revitalized a sagging VHS market a sell-through. Films are now entering the video market decade ago. within a few months of their box office release, thereby enabling them to capitalize on the initial box office • DVDs were introduced in 1997 and became a presence marketing effort. Once the economy improves, we in the US in 1998. In 1999—a year of strong economic expect that shorter release windows will have a positive growth and a period when sell-through was booming— impact on sell-through spending. the DVD household universe reached 2.9 million and DVD sell-through generated $1.4 billion, 3.5 times • Films are also reaching the video-on-demand market its level in 1998. Moving to the present, there were faster than in the past—in some cases, concurrent with, 2.9 million stand-alone Blu-ray players in 2008, not or even prior to, their home video release. Video-on- counting the 8.3 million PlayStation 3 players. Blu-ray demand will become a more competitive factor during the next five years.

Filmed entertainment | North America 311 • We project the US market to decline by a cumulative • We anticipate a similar pattern in Canada. Sell-through 7.4 percent during the next two years and then rebound spending will fall by 3.9 percent through 2010 and then with a 16 percent increase during the subsequent three expand by 17.8 percent during 2011–13, for an overall years. By 2013, sell-through spending will total an compound annual increase of 2.5 percent to $2 billion estimated $16 billion, up 1.4 percent on a compound from $1.8 billion in 2008. annual basis from $14.9 billion in 2008. Despite that • Sell-through spending in North America as a whole will increase, projected spending in 2013 will still be lower average 1.6 percent compound annual growth from than during 2004–07. $16.7 billion in 2008 to $18 billion in 2013.

Physical sell-through market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 16,646 16,670 16,975 16,350 14,900 14,000 13,800 14,200 14,850 16,000 1.4 Canada 1,688 1,716 1,763 1,852 1,782 1,735 1,712 1,763 1,876 2,016 2.5 Total 18,334 18,386 18,738 18,202 16,682 15,735 15,512 15,963 16,726 18,016 1.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

In-store rental demand is growing rapidly and cutting into the rental • The in-store rental market may be benefiting from potential. There is also an emerging online rental the weak economy. When disposable income is tight, subscription market that is proving to be convenient rentals represent an economical alternative. and popular. As that market expands, it will squeeze in-store rentals. • Consumers have cut back on their video purchases while maintaining lower-cost rental spending. Rental • On balance, we expect the rental market to be rela- spending from 2007 to 2008 edged up 0.3 percent in tively steady, benefiting from its lower price point and the United States and 0.6 percent in Canada. the greater convenience resulting from the increased number of kiosks. We project US rentals to rise by 0.4 • The rental market also is being fueled by the rollout percent in 2009 and then to decline at modest rates, of low-cost rental kiosks in supermarkets and other falling to $7.5 billion in 2013 from $7.7 billion in 2008, locations. Blockbuster in the United States is installing a 0.4 percent decrease compounded annually. 10,000 kiosks. Blu-ray will also weave its way into the rental market, which will make rentals more appealing. • In Canada, rental spending will increase during the next two years and then trend down, falling at a 0.6 percent • The in-store rental market faces substantial compound annual rate from $821 million in 2008 to competition, which is inhibiting growth. Video-on- $797 million in 2013.

In-store rental market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 8,120 7,615 7,535 7,625 7,650 7,680 7,670 7,630 7,580 7,500 –0.4 Canada 797 792 797 816 821 825 830 825 816 797 –0.6 Total 8,917 8,407 8,332 8,441 8,471 8,505 8,500 8,455 8,396 8,297 –0.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

312 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Online distribution HD films that can be viewed using Xbox 360 or Blu- ray. Blockbuster launched Blockbuster on Demand • Videos can also be obtained directly over the Internet that uses a similarly priced device from 2Wire that is through digital downloads and through online rental capable of downloading HD films. subscriptions. • While advances will propel the market, we expect the Digital download market potential will remain limited during the next five years. • The digital download market has been hampered In the near term, the economy will be an impediment to by long download times—it can take two hours or fast broadband and incremental hardware expenses. more to download a movie on a standard broadband Over the longer run, while penetration will increase connection—and the fact that people prefer watching with an improved economy, a minority of Internet movies on a television rather than a computer screen. subscribers will be able to download at speeds of 50 Mbps. • Both hurdles are being addressed. The Internet access market is transitioning to faster speeds that • These handicaps will keep spending relatively low can accommodate movie downloads. Services are through 2013, although we anticipate significant growth being introduced with speeds of up to 50 megabits from a small base. In the United States, consumers per second, which allows movie downloads in just spent an estimated $252 million downloading movies a few minutes. While such speeds are currently not in 2008. We expect that total to rise to $713 million in widely available, as systems get upgraded with fiber, 2013, a 23.1 percent increase compounded annually. more people will have high-speed broadband as an Canada option. As penetration increases, movie downloads will become more feasible. • In Canada, the digital download market is just getting started. Through the Apple TV platform and United States Bell Canada, iTunes launched a movie download • The Apple TV was introduced in 2007, and in 2008 service in 2008, and Canada has a high broadband several new providers introduced devices that allow penetration, which will provide a large potential market movies downloaded to a computer to be viewed on a for streaming. We expect that digital downloads will TV set. in conjunction with offer a $100 generate $40 million in 2013. set-top box that streams movies to a TV. Blockbuster North America followed with a direct-to-TV player. • The overall digital download market in North America • HD films are also becoming available. Apple TV offers will total $753 million in 2013, up 24.4 percent on a both conventional and HD selections, and Netflix offers compound annual basis from $253 million in 2008.

Digital download market† (US$ millions) 2009–13 North America 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 24 113 252 325 420 495 600 713 23.1 Canada — — 1 2 6 10 23 40 109.1 Total 24 113 253 327 426 505 623 753 24.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | North America 313 Online subscription rentals • Blockbuster added video game rentals to its service, • Online subscription rental services deliver DVDs directly which is helping expand its subscriber base. Addition- to the home via overnight mail. They allow users to ally, Blockbuster lets users return videos to the store keep DVDs as long as they want, and they provide free and pick up new videos without having to go through return mail. Subscribers order videos online, and when the mail. one is returned, the next is sent. In addition to saving • Online rental subscriptions in the United States rose on the time and cost of going to the video store, these by 22.9 percent in 2008 to $2.2 billion. That total will services eliminate late fees and provide guarantees of rise to an estimated $4.1 billion in 2013, a 12.8 percent title availability. The rental option still has appeal for increase compounded annually. people who do not necessarily want to view movies multiple times. • In Canada, the market more than doubled to $56 million in 2008. We project it will rise to $422 million in 2013, • In the United States, Netflix, the developer of this a 49.8 percent compound annual increase from a market, is the leader. Blockbuster is the other principal small base. provider. In Canada, Zip.ca is the market leader. The online subscription rentals market is benefiting from the • Overall spending will rise to $4.5 billion from $2.3 billion increased interest in rentals during a period of economic in 2008, a 14.5 percent compound annual increase. decline. Both providers also offer streaming at no additional charge, which is helping attract subscribers.

Online rental subscriptions market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 666 959 1,190 1,800 2,213 2,697 3,078 3,444 3,795 4,050 12.8 Canada 6 8 12 21 56 107 203 287 360 422 49.8 Total 672 967 1,202 1,821 2,269 2,804 3,281 3,731 4,155 4,472 14.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total home video • The US home video market will grow at a 2.5 percent compound annual rate from $25 billion in 2008 to $28.3 • Overall home video spending in North America— billion in 2013. In Canada, home video spending will including physical sell-through, in-store rentals, digital reach $3.3 billion in 2013 from $2.7 billion in 2008, a downloads, and online rental subscriptions—totaled 4.2 percent increase compounded annually. $27.7 billion in 2008, down 3.2 percent from 2007. Spending will decline by 1.1 percent in 2009 and then expand at low- to mid-single-digit rates, rising to $31.5 billion in 2013, a 2.6 percent increase compounded annually.

314 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Home video market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 25,432 25,244 25,724 25,888 25,015 24,702 24,968 25,769 26,825 28,263 2.5 Canada 2,491 2,516 2,572 2,689 2,660 2,669 2,751 2,885 3,075 3,275 4.2 Total 27,923 27,760 28,296 28,577 27,675 27,371 27,719 28,654 29,900 31,538 2.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• From 2004 to 2008, the share of filmed entertainment Shares of filmed entertainment revenue in revenues in North America generated by physical North America (%) home video fell from nearly 70 percent to 61.3 percent,

with video-on-demand and online subscription rental North America 2004 2008 2013 increasing their combined share to 12.4 percent from Box office 25.8 25.7 27.3 only 4.3 percent in 2004. Physical home video 69.8 61.3 52.8 • We expect a larger drop in the physical home video share during the next five years to 52.8 percent. Online subscription rentals 1.7 5.5 9.0 The combined share for video-on-demand, online Digital downloads — 0.6 1.5 subscription rentals, and digital downloads will double Video-on-demand 2.6 6.9 9.5 to 20 percent, and the box office share will increase to 27.3 percent in 2013 from 25.7 percent in 2008 as a Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates result of 3-D’s growing penetration.

Filmed entertainment | North America 315 Europe, Middle East, Africa (EMEA)

The outlook in brief • Home video physical sell-through will decline in 2009 and then advance to $14.9 billion in 2013, up 2.9 • Digital cinemas, 3-D rollouts, and support of local film percent on a compound annual basis from $12.9 billion industries will expand the box office market. in 2008. • Blu-ray videos will spur the home video market when • Home video in-store rentals will fall by 4.3 percent economic conditions improve. compounded annually to $2.1 billion in 2013 from $2.6 • Broadband expansion and faster speeds will boost billion in 2008. online streaming and online subscription rentals. • Online subscription rentals will grow at an 11.8 percent compound annual rate to $791 million from $453 million Overview in 2008. • Filmed entertainment spending in EMEA will total • Digital downloading will generate $484 million in 2013 $30.7 billion in 2013, averaging 3.7 percent growth from $30 million in 2008. compounded annually. • Overall home video spending will total $18.2 billion in • Box office spending will rise by 5.4 percent compound- 2013 from $15.9 billion in 2008, a 2.7 percent increase ed annually to $12.5 billion in 2013 from $9.6 billion compounded annually. in 2008.

Filmed entertainment market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Box office 9,113 8,414 9,011 9,172 9,594 10,047 10,480 11,033 11,724 12,468 Home video Physical sell-through 14,249 13,371 12,996 13,175 12,884 12,572 12,631 13,024 13,750 14,864 In-store rentals 3,624 3,431 3,079 2,691 2,572 2,501 2,425 2,332 2,208 2,061 Online rental subscriptions 166 247 293 319 453 545 632 704 757 791 Digital downloads — 2 5 17 30 54 93 176 305 484 Total home video 18,039 17,051 16,373 16,202 15,939 15,672 15,781 16,236 17,020 18,200 Total 27,152 25,465 25,384 25,374 25,533 25,719 26,261 27,269 28,744 30,668

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

316 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Filmed entertainment market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Box office 8.2 –7.7 7.1 1.8 4.6 4.7 4.3 5.3 6.3 6.3 5.4 Home video Physical sell-through 11.8 –6.2 –2.8 1.4 –2.2 –2.4 0.5 3.1 5.6 8.1 2.9 In-store rentals –3.0 –5.3 –10.3 –12.6 –4.4 –2.8 –3.0 –3.8 –5.3 –6.7 –4.3 Online rental subscriptions 315.0 48.8 18.6 8.9 42.0 20.3 16.0 11.4 7.5 4.5 11.8 Digital downloads — — 150.0 240.0 76.5 80.0 72.2 89.2 73.3 58.7 74.4 Total home video 9.2 –5.5 –4.0 –1.0 –1.6 –1.7 0.7 2.9 4.8 6.9 2.7 Total 8.9 –6.2 –0.3 0.0 0.6 0.7 2.1 3.8 5.4 6.7 3.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Western Europe, at $22.9 billion, accounted for 90 • Local films also contributed to box office growth in percent of filmed entertainment spending in EMEA in Germany, while home video recorded only a modest 2008. Growth in Western Europe during the next five decline. years will average 3.4 percent compounded annually to • In Italy, by contrast, local films did poorly in 2008 $27.1 billion in 2013. following a strong 2007, and overall box office plunged • Central and Eastern Europe (CEE) will be the fastest- 10.3 percent. growing area, averaging 6.9 percent growth compound- • In Spain, piracy continues to hurt all components of ed annually. Spending will rise from $2.2 billion in 2008 the market, leading to sharp declines in box office and to $3 billion in 2013. home video. Overall spending fell 13.1 percent, the • Middle East/Africa will expand at a 3.8 percent largest decrease in EMEA in 2008. compound annual rate to $514 million. • The Netherlands will be the only other country in • The United Kingdom is the largest market in the region, Western Europe to reach $1 billion during the next five at $6.5 billion in 2008. France is next, at $3.8 billion, years, helped by a boost in box office and sell-through followed by Germany at $3.5 billion, Italy at $1.9 during 2012–13. billion, Spain at $1.6 billion, and Russia at $1.4 billion. • Russia continued to surge in 2008, with a 27.5 percent These six territories constitute 74 percent of filmed gain, the largest increase in EMEA. Box office jumped entertainment spending in EMEA. by 46 percent buoyed by the opening of modern • A second consecutive rainy summer in the UK brought screens, by higher prices, and by double-digit growth people to the movies. Mamma Mia! became the in admissions. highest-grossing film in UK history, surpassing Titanic. • A strong performance by local films propelled box A Christmas surge in Blu-ray discs led to an overall office in Turkey and the overall market by 22.1 percent growth in sell-through in the UK, the only territory in in 2008. No other territory recorded a double-digit gain. Western Europe to record an increase. • In France, a strong roster of local films boosted box office by 7 percent, which was not sufficient to offset a steep decline in home video.

Filmed entertainment | EMEA 317 Filmed entertainment market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 340 306 321 308 314 314 317 327 338 356 2.5 Belgium 695 637 655 641 646 643 647 664 687 727 2.4 Denmark 535 549 585 563 554 554 559 582 613 649 3.2 Finland 332 175 203 206 204 200 197 206 214 229 2.3 France 4,817 4,418 4,333 3,914 3,806 3,720 3,760 3,859 4,059 4,363 2.8 Germany 3,905 3,613 3,565 3,501 3,548 3,596 3,659 3,764 3,912 4,083 2.8 Greece 188 184 189 202 211 217 223 234 249 263 4.5 Ireland 468 465 549 575 575 573 581 602 621 652 2.5 Italy 2,215 2,091 2,010 2,050 1,922 1,929 1,963 2,022 2,115 2,246 3.2 Netherlands 947 847 883 908 922 902 906 915 962 1,009 1.8 Norway 562 589 642 631 647 639 641 664 701 750 3.0 Portugal 293 251 270 251 252 250 252 261 271 286 2.6 Spain 2,092 2,000 1,921 1,844 1,602 1,590 1,609 1,633 1,696 1,775 2.1 Sweden 670 665 749 822 833 832 839 859 897 947 2.6 Switzerland 489 433 460 403 397 392 390 405 422 448 2.4 United Kingdom 6,846 6,453 6,055 6,312 6,504 6,640 6,873 7,237 7,713 8,336 5.1 Western Europe total 25,394 23,676 23,390 23,131 22,937 22,991 23,416 24,234 25,470 27,119 3.4 Central and Eastern Europe Czech Republic 135 119 129 136 130 130 130 135 140 149 2.8 Hungary 146 130 124 112 111 111 113 116 119 124 2.2 Poland 284 233 298 316 325 324 328 338 350 368 2.5 Romania 10 10 12 13 14 15 17 18 20 23 10.4 Russia 647 771 847 1,090 1,390 1,495 1,571 1,704 1,881 2,076 8.4 Turkey 123 126 173 163 199 214 233 253 273 295 8.2 Central and Eastern Europe total 1,345 1,389 1,583 1,830 2,169 2,289 2,392 2,564 2,783 3,035 6.9 Middle East/Africa Israel 148 146 145 146 150 151 155 160 165 171 2.7 Saudi Arabia/Pan Arab‡ 154 157 163 166 170 174 178 184 191 200 3.3 South Africa 111 97 103 101 107 114 120 127 135 143 6.0 Middle East/Africa total 413 400 411 413 427 439 453 471 491 514 3.8 EMEA total 27,152 25,465 25,384 25,374 25,533 25,719 26,261 27,269 28,744 30,668 3.7

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

318 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Box office coproductions with a foreign partner—all of them efforts that are believed to be boosting the industry. • Although Hollywood films account for a majority of ticket sales in most countries, the performance of local • Momentum is also building for conversion of screens films often determines whether box office spending to digital and the implementation of 3-D in anticipation rises or falls. Hollywood films did well internationally in of an increase in 3-D releases. In the UK, Cineworld is 2008. Nevertheless, in countries where local films did converting more than 70 screens to digital, and Odeon not do well, such as Italy and Spain, overall box office and UCI converted 30 screens to 3-D. spending fell. On the other hand, strong local films • Arts Alliance Media raised funds from private investors helped buoy box office in France, Germany, and Turkey. and from Econocom Financial Services to finance • The economy did not appear to have much of an digital conversions throughout Europe. Arts Alliance impact on box office spending. In most territories, box Media also teamed up with Arqiva Satellite & Media to office in 2008 either rebounded from a down year in distribute digital films via satellite. 2007 or grew faster. With respect to film production, • Digital cinemas have a number of advantages. Because the economy may be having an effect. In Russia, digital prints are substantially less expensive than a number of projects in production at Mosfilm, the standard duplication, more prints can be made for less country’s largest studio facility, got postponed or money, which will allow new releases to be available in canceled because of the international financial crisis more theaters than is currently economically feasible. and difficulties in obtaining financing. This means that films will be accessible to more people • Governments view the film industry as an important closer to the films’ initial release, which should have a contributor to the economy and take steps to support positive impact on their box office performance. The that industry. While support of local films does not Netherlands in early 2009 had the first virtual print guarantee they will appeal to consumers, incremental distribution through Arts Alliance Media. funding can improve the chances they will succeed. • Digital prints also provide a better-quality picture and • One of the most successful efforts is Germany’s new do not deteriorate after repeated screenings. These Film Fund, established in 2007. The fund is attracting characteristics should improve the theatrical experience international players, and more resources are being and boost admissions. put into German-language films. Fox is expanding • The key driver, however, is the revenue potential of 3-D. its German operations, Universal began a German- Films in 3-D command higher prices, sell more tickets, language operation, and Fremantle Media announced and generate substantially more money per screen than it plans to relaunch UFA Cinema and make eight standard films do. German films annually beginning in 2010. • The issue has not been pressing in the past because • In the UK, the Film Council Development Fund is only a few films were available in 3-D. That is about investing more than ₤2 million ($3.7 million) in local to change as Hollywood ramps up its 3-D production. production companies to develop feature films. Ireland During the next two years, 47 films are scheduled to be recently announced increased tax incentives for film released in 3-D from Hollywood, and there is beginning production, which will enhance Ireland’s attractiveness to be interest among local producers as well. There is as a location for film production. The Swiss government now concern that the limited number of 3-D screens is increasing its subsidy for script development, the will cause films to not realize their revenue potential. Swedish Film Institute provides support for local Consequently, interest in digital and 3-D conversions projects, Russia has announced more than $150 is increasing, although the ability to finance such million in annual support for local films, and Poland conversions has become more difficult as credit is provides grants to support domestic productions and less available.

Filmed entertainment | EMEA 319 • In Central and Eastern Europe, modernization of the- Admission prices aters is proving to be a significant driver. Russia has built a number of modern theaters that allow for higher • Admission prices in 2008 averaged $9.25 in Western prices. During the past two years, admissions in Russia Europe in 2008 compared with $6.38 in Central and rose by 38 percent, and box office spending increased Eastern Europe and $3.10 in Middle East/Africa. by 84 percent. Although we do not expect that pace to • The average price in Russia soared by 26 percent in continue, we still look for admissions to rise by nearly 2008, reflecting the impact of modern theaters and a 30 percent during the next five years. much larger percent of admissions in those high-priced • In Norway, municipal film promotion agency venues. From 2004 to 2008, the average price in Russia FILM&KINO is scheduled to start its national digital rose by a cumulative 65 percent. We do not expect rollout in 2009 at an estimated total cost of KR400 increases on that order and project a more modest, million ($58 million), which will be shared with 4 percent compound annual increase during the next distributors and producers. five years. • We expect that digital and 3-D cinemas in Western • In general, we expect smaller price increases during Europe, modern theaters in CEE, and increased funding the next two years as exhibitors moderate hikes in a for local films will enhance admissions. We project difficult economic environment. During the latter part admissions to increase at a 2.7 percent compound of the forecast period, when the share of 3-D screens annual rate to 1.3 billion in 2013. becomes meaningful and those screens attract a larger share of admissions, we expect faster price growth. • Led by Russia and Turkey, CEE will be the fastest- growing area in EMEA, with a projected 4.4 percent • The average price in EMEA rose 3.6 percent in 2008, compound annual increase in admissions to 269 million the largest increase during the past five years. Most of from 217 million in 2008. that rise was fueled by Russia. Excluding Russia, the average price increased by only 2.5 percent. • Admissions in Western Europe will increase from 862 million to 958 million, a 2.1 percent rise compounded • We project increases averaging 2.4 percent annually. compounded annually during 2009–11 and gains averaging 3.1 percent during 2012–13. For the entire • Admissions in Middle East/Africa will rise at a 2.6 five-year forecast period, prices will advance at a 2.7 percent compound annual rate to 88 million from percent compound annual rate, rising from $8.30 in 78 million in 2008. 2008 to $9.48 in 2013. • These forecasts reflect our analysis of underlying trends. They do not take into account the performance of the slate of prospective releases, which can significantly enhance or offset admissions in any given year.

320 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Admissions (millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 19.4 15.7 17.3 15.7 16.2 16.3 16.6 17.0 17.3 17.6 1.7 Belgium 24.1 22.1 23.8 22.3 22.5 22.6 22.7 23.0 23.5 24.0 1.3 Denmark 12.7 11.8 12.8 12.1 12.3 12.5 12.7 13.0 13.3 13.6 2.0 Finland 6.9 6.1 6.7 6.5 6.7 6.8 6.9 7.1 7.3 7.5 2.3 France 195.3 175.7 189.0 178.0 188.8 195.0 200.0 205.0 210.0 215.0 2.6 Germany 156.7 127.3 136.7 125.4 129.4 133.0 136.0 140.0 144.0 148.0 2.7 Greece 14.0 13.2 13.4 14.0 14.5 14.8 15.1 15.5 16.0 16.5 2.6 Ireland 17.3 16.4 17.9 18.4 18.8 19.3 19.7 20.3 20.9 21.5 2.7 Italy 116.3 105.6 107.0 120.2 107.0 110.0 113.0 116.0 120.0 125.0 3.2 Netherlands 23.0 20.6 23.4 23.1 24.2 24.4 24.6 24.9 25.2 25.5 1.1 Norway 11.9 11.3 11.9 10.7 11.7 11.7 11.8 11.9 12.2 12.5 1.3 Portugal 19.8 18.6 19.4 19.0 19.2 19.4 19.7 20.1 20.5 21.0 1.8 Spain 143.9 127.7 121.7 116.9 96.1 96.0 96.1 96.3 96.6 96.9 0.2 Sweden 16.6 14.6 15.3 15.2 15.4 15.5 15.8 16.1 16.4 16.7 1.6 Switzerland 17.2 15.1 16.5 14.3 15.0 15.3 15.6 16.0 16.5 17.0 2.5 United Kingdom 171.3 164.7 156.6 162.4 164.2 166.0 168.0 171.0 175.0 180.0 1.9 Western Europe total 966.4 866.5 889.4 874.2 862.0 878.6 894.3 913.2 934.7 958.3 2.1 Central and Eastern Europe Czech Republic 12.0 9.5 11.5 12.8 11.6 11.8 12.0 12.3 12.7 13.2 2.6 Hungary 13.7 12.1 11.7 10.1 10.0 10.0 10.1 10.2 10.3 10.4 0.8 Poland 33.3 23.5 32.0 32.6 33.7 34.0 34.5 35.5 36.5 38.0 2.4 Romania 4.0 2.8 2.8 2.9 2.8 2.8 2.8 2.8 2.9 3.0 1.4 Russia 76.5 83.1 89.5 106.6 123.9 126.0 130.0 140.0 150.0 160.0 5.2 Turkey 29.7 27.3 34.8 31.1 34.5 36.0 38.0 40.0 42.0 44.0 5.0 Central and Eastern Europe total 169.2 158.3 182.3 196.1 216.5 220.6 227.4 240.8 254.4 268.6 4.4 Middle East/Africa Israel 9.5 8.8 8.8 8.9 9.0 9.1 9.2 9.4 9.6 9.9 1.9 Saudi Arabia/Pan Arab† 36.9 37.1 39.2 40.0 40.5 41.0 42.0 43.0 44.0 45.0 2.1 South Africa 28.3 29.2 29.8 26.5 28.0 29.0 30.0 31.0 32.0 33.0 3.3 Middle East/Africa total 74.7 75.1 77.8 75.4 77.5 79.1 81.2 83.4 85.6 87.9 2.6 EMEA total 1,210.3 1,099.9 1,149.5 1,145.7 1,156.0 1,178.3 1,202.9 1,237.4 1,274.7 1,314.8 2.6

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Centre National de la Cinématographie, Danish Film Institute, FILM&KINO, Finnish Chamber of Films, German Federal Film Board, Ministry of Culture of the Czech Republic, National Film Office of Hungary, Nederlandse Federatie voor de Cinematografie, PricewaterhouseCoopers LLP, Spanish Ministry of Culture, Swiss Federal Statistical Office, UK Film Council, Wilkofsky Gruen Associates

Filmed entertainment | EMEA 321 Average admission price† (US$) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 8.85 9.15 9.37 9.59 9.80 9.95 10.10 10.32 10.54 10.83 2.0 Belgium 8.27 8.27 8.34 8.49 8.71 8.93 9.15 9.44 9.73 10.10 3.0 Denmark 11.97 12.32 12.86 13.15 13.35 13.54 13.74 14.13 14.62 15.11 2.5 Finland 10.98 10.83 11.05 11.37 11.41 11.56 11.71 11.85 12.07 12.29 1.5 France 8.53 8.59 8.68 8.74 8.82 8.93 9.03 9.15 9.37 9.59 1.7 Germany 8.34 8.56 8.71 8.84 8.99 9.15 9.29 9.44 9.66 9.88 1.9 Greece 8.05 8.27 8.63 9.22 9.66 9.95 10.24 10.61 10.98 11.34 3.3 Ireland 8.27 8.41 8.78 9.29 9.73 10.02 10.32 10.68 11.05 11.41 3.2 Italy 8.31 8.34 8.39 8.44 8.50 8.56 8.63 8.71 8.85 9.00 1.1 Netherlands 9.80 9.59 9.76 10.14 10.39 10.68 11.00 10.98 11.71 12.07 3.0 Norway 11.66 12.31 12.85 13.31 13.75 14.28 14.82 15.35 15.97 16.59 3.8 Portugal 5.41 5.56 5.71 5.85 6.00 6.15 6.29 6.44 6.66 6.88 2.8 Spain 7.04 7.27 7.65 8.06 8.39 8.71 9.07 9.44 9.88 10.39 4.4 Sweden 11.64 11.68 11.84 11.91 11.99 12.06 12.18 12.40 12.71 13.05 1.7 Switzerland 13.39 13.62 13.85 14.03 14.22 14.40 14.40 14.77 15.00 15.23 1.4 United Kingdom 8.26 8.59 8.94 9.29 9.64 10.01 10.38 10.84 11.29 11.75 4.0 Western Europe total 8.40 8.57 8.81 9.00 9.25 9.45 9.66 9.89 10.20 10.51 2.6 Central and Eastern Europe Czech Republic 5.39 5.44 5.56 5.73 5.91 6.08 6.26 6.43 6.61 6.79 2.8 Hungary 4.05 4.23 4.40 4.58 4.75 4.92 5.10 5.27 5.44 5.62 3.4 Poland 6.21 6.15 6.37 6.57 6.68 6.75 6.81 6.88 6.95 7.01 1.0 Romania 2.47 3.43 4.05 4.66 5.16 5.56 5.95 6.35 6.95 7.54 7.9 Russia 4.04 4.75 5.03 5.31 6.68 7.24 7.44 7.64 8.05 8.45 4.8 Turkey 4.14 4.60 4.98 5.25 5.78 5.94 6.13 6.32 6.51 6.70 3.0 Central and Eastern Europe total 4.55 4.91 5.24 5.48 6.38 6.76 6.94 7.13 7.44 7.76 4.0 Middle East/Africa Israel 9.75 10.03 10.31 10.58 10.86 11.14 11.42 11.70 11.98 12.25 2.4 Saudi Arabia/Pan Arab‡ 1.50 1.55 1.60 1.65 1.70 1.75 1.80 1.85 1.90 1.95 2.8 South Africa 2.80 2.24 2.36 2.48 2.60 2.72 2.84 2.96 3.08 3.20 4.2 Middle East/Africa total 3.04 2.81 2.88 3.00 3.10 3.19 3.28 3.38 3.48 3.58 2.9 EMEA total 7.53 7.65 7.84 8.01 8.30 8.53 8.71 8.92 9.20 9.48 2.7

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

322 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Box office market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 171 143 162 151 160 162 168 176 183 190 3.5 Belgium 199 183 199 189 196 202 208 217 228 243 4.4 Denmark 152 145 164 159 164 169 174 184 195 205 4.6 Finland 76 66 75 75 76 79 80 85 88 92 3.9 France 1,667 1,509 1,639 1,556 1,665 1,741 1,806 1,875 1,967 2,060 4.3 Germany 1,307 1,090 1,191 1,109 1,163 1,216 1,264 1,321 1,390 1,462 4.7 Greece 113 110 116 129 140 148 155 164 176 187 6.0 Ireland 143 138 157 171 183 193 203 217 231 246 6.1 Italy 967 881 897 1,014 910 942 976 1,010 1,062 1,125 4.3 Netherlands 225 198 228 234 252 260 271 274 296 307 4.0 Norway 139 139 153 142 161 167 175 183 195 207 5.2 Portugal 107 104 111 111 116 119 124 129 136 145 4.6 Spain 1,013 929 931 942 806 836 872 909 954 1,007 4.6 Sweden 193 171 181 181 185 187 192 200 208 218 3.3 Switzerland 230 206 229 200 213 221 224 236 247 259 4.0 United Kingdom 1,414 1,414 1,399 1,508 1,583 1,662 1,743 1,853 1,976 2,116 6.0 Western Europe total 8,116 7,426 7,832 7,871 7,973 8,304 8,635 9,033 9,532 10,069 4.8 Central and Eastern Europe Czech Republic 65 52 64 73 69 72 75 79 84 90 5.5 Hungary 56 51 52 46 47 49 51 54 56 58 4.3 Poland 207 144 204 214 225 229 235 244 254 266 3.4 Romania 10 10 12 13 14 15 17 18 20 23 10.4 Russia 309 394 450 566 827 912 968 1,070 1,207 1,352 10.3 Turkey 123 126 173 163 199 214 233 253 273 295 8.2 Central and Eastern Europe total 770 777 955 1,075 1,381 1,491 1,579 1,718 1,894 2,084 8.6 Middle East/Africa Israel 93 88 91 94 98 101 105 110 115 121 4.3 Saudi Arabia/Pan Arab‡ 55 58 63 66 69 72 76 80 84 88 5.0 South Africa 79 65 70 66 73 79 85 92 99 106 7.7 Middle East/Africa total 227 211 224 226 240 252 266 282 298 315 5.6 EMEA total 9,113 8,414 9,011 9,172 9,594 10,047 10,480 11,033 11,724 12,468 5.4

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Centre National de la Cinématographie, Danish Film Institute, FILM&KINO, Finnish Chamber of Films, German Federal Film Board, Ministry of Culture of the Czech Republic, National Film Office of Hungary, Nederlandse Federatie voor de Cinematografie, PricewaterhouseCoopers LLP, Spanish Ministry of Culture, UK Film Council, Wilkofsky Gruen Associates

Filmed entertainment | EMEA 323 Box office spending • The success of Blu-ray in the UK suggests that HD has the potential to revitalize the industry in the same way • Box office spending will expand at a projected 5.4 that DVDs boosted sell-through when it was introduced. percent compound annual rate to $12.5 billion in 2013 from $9.6 billion in 2008. • Currently, the installed base for Blu-ray is too small to offset the declining DVD market. The economic • Growth in Western Europe will average 4.8 percent downturn discouraged Blu-ray hardware purchases in compounded annually, with spending increasing from 2008, although having a single HD standard will help $8 billion in 2008 to $10.1 billion in 2013. the market over the long run. • Central and Eastern Europe will rise from $1.4 billion in • In addition to Blu-ray players, the market also needs 2008 to $2.1 billion in 2013, an 8.6 percent compound an installed base of HDTV sets. Analog switch-offs annual increase. Russia will account for 75 percent of in a number of countries are leading households to that gain. buy digital TV sets, which generally are HD ready. The • Middle East/Africa will total $315 million in 2013 installed base of HD households is growing. In the UK, from $240 million in 2008, a 5.6 percent increase for example, more than 12 million HD-ready TVs have compounded annually. been sold. • Although Blu-ray is penetrating the market through Physical home video video game consoles, it is not yet clear that gamers are using their consoles to play movies. Sales of Sell-through stand-alone players are still small, and the weak economy will likely limit growth during the next two • The physical sell-through market has been weak for a years. Accordingly, we expect the sell-through market number of years, and the adverse economy contributed to remain weak, falling by 2.4 percent in 2009 and to a decline in 2008. Spending fell 2.2 percent in 2008. remaining relatively flat in 2010. • During the past few years, there have been no signifi- • We expect economic conditions to improve by 2011 cant drivers of growth. The installed home video house- and anticipate a relatively strong economy during hold base is stable; many households have already 2012–13. With disposable incomes rising, and with Blu- accumulated a video library of films they would like to ray hardware prices falling, we expect hardware sales own and are now buying only current hits; and online to pick up and the installed base to expand. As it does, piracy is cutting into legitimate sales. software sales will increase. Beginning in 2011, gains • In Western Europe, piracy is particularly severe in in Blu-ray will begin to offset declines in DVD, and by Spain. More than 350 million movie files were illegally 2012–13, we look for mid- to high-single-digit growth. downloaded in 2008, hurting both physical sales and • We expect the UK to lead growth in Western Europe, legitimate digital download services. Sales plunged with a projected 5 percent compound annual increase, 19.3 percent in 2008, the steepest decline in EMEA. as it appears to be adopting Blu-ray faster than other • Piracy is also cutting into the market in France. Each day, countries. Piracy will continue to restrain growth in an estimated half a million films are downloaded illegally. France and will lead to reduced spending in Spain. Spending on legitimate product fell by 9.5 percent in Germany will decline in 2009 and will record accelerating 2008 and by a cumulative 32 percent since 2004. increases thereafter as Blu-ray gains penetration. • In France, Spain, and other countries, high piracy rates • We project physical sell-through in Western Europe have led to sharp price declines in legitimate product. to increase at a 2.8 percent compound annual rate to Most of the decrease in spending has been due to price $13.8 billion in 2013 from $12 billion in 2008. CEE will cuts rather than unit sales declines. expand by 4.2 percent compounded annually to $921 million from $751 million in 2008. Middle East/Africa • The UK was the only territory in Western Europe to will grow by 3.7 percent compounded annually to $109 record an increase in physical sell-through spending million in 2013. in 2008. DVD unit sales were steady, and a late surge in Blu-ray high-definition discs led to a 3.1 percent • Physical sell-through for all of EMEA will increase from increase in overall spending. Forty percent of Blu-ray $12.9 billion in 2008 to $14.9 billion in 2013, a 2.9 sales in the UK occurred in December 2008, and annual percent compound annual increase. sales were nearly five times higher in 2008 than in 2007.

324 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Physical sell-through market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 146 143 139 139 135 132 129 130 136 146 1.6 Belgium 391 359 356 348 337 322 315 319 329 351 0.8 Denmark 275 292 309 294 275 265 260 270 285 309 2.4 Finland 206 92 110 114 110 102 100 104 111 121 1.9 France 2,868 2,612 2,429 2,166 1,961 1,793 1,756 1,771 1,866 2,049 0.9 Germany 2,107 2,000 1,913 1,948 1,939 1,932 1,946 1,990 2,063 2,159 2.2 Greece 35 37 38 40 37 34 34 35 38 42 2.6 Ireland 190 205 278 293 278 263 260 266 278 300 1.5 Italy 761 717 673 688 659 629 622 637 673 732 2.1 Netherlands 515 481 489 511 505 483 476 490 520 563 2.2 Norway 294 327 362 397 390 373 364 377 399 435 2.2 Portugal 143 102 114 105 101 95 92 94 98 105 0.8 Spain 622 578 563 571 461 424 410 402 417 439 –1.0 Sweden 303 310 372 382 372 357 349 353 372 402 1.6 Switzerland 240 208 211 185 166 152 148 150 157 171 0.6 United Kingdom 4,551 4,255 3,969 4,187 4,316 4,362 4,499 4,729 5,050 5,510 5.0 Western Europe total 13,647 12,718 12,325 12,368 12,042 11,718 11,760 12,117 12,792 13,834 2.8 Central and Eastern Europe Czech Republic 58 57 56 55 53 50 48 49 50 54 0.4 Hungary 64 61 55 57 56 54 54 54 56 60 1.4 Poland 54 67 73 81 79 75 73 74 77 83 1.0 Romania NA NA NA NA NA NA NA NA NA NA NA Russia 338 377 397 524 563 583 603 634 674 724 5.2 Turkey NA NA NA NA NA NA NA NA NA NA NA Central and Eastern Europe total 514 562 581 717 751 762 778 811 857 921 4.2 Middle East/Africa Israel 29 31 28 26 26 25 25 25 25 26 0.0 Saudi Arabia/Pan Arab‡ 48 49 50 51 52 53 54 57 61 67 5.2 South Africa 11 11 12 13 13 14 14 14 15 16 4.2 Middle East/Africa total 88 91 90 90 91 92 93 96 101 109 3.7 EMEA total 14,249 13,371 12,996 13,175 12,884 12,572 12,631 13,024 13,750 14,864 2.9

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: British Video Association, Danish Film Institute, GfK Group, NVPI, PricewaterhouseCoopers LLP, Statistics Finland, Videobransjens Felleskontor, Wilkofsky Gruen Associates

Filmed entertainment | EMEA 325 In-store rentals • The in-store rental market will also face growing • The in-store rental market in EMEA has been declining competition from online subscription and digital since 2002 and continued to fall in 2008. The 4.4 download services as well as from a growing video- percent drop in 2008 was the smallest since 2004. on-demand market. During 2006–07, rental spending fell at double-digit • In-store rental spending in Western Europe will decline annual rates. at a 4.5 percent compound annual rate to $1.9 billion • We believe there is a countercyclical element to the in 2013 from $2.4 billion in 2008. Central and Eastern rental market. Although rental spending fell faster than Europe will decrease from $37 million in 2008 to $30 sell-through in 2008, the rental trend showed a relative million in 2013, a 4.1 percent compound annual decline. improvement, suggesting that some consumers opted Middle East/Africa will drop from $96 million to $90 for lower-priced rentals for entertainment. million, a 1.3 percent compound annual rate. • During the next two years, we look for declines of 3 • For EMEA as a whole, in-store rental spending will percent or less as the economy remains weak. We then decrease at a 4.3 percent compound annual rate to expect accelerated declines during 2011–13, when $2.1 billion in 2013 from $2.6 billion in 2008. economic conditions improve and spending shifts in favor of sell-through.

326 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 In-store rental market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 22 19 18 16 16 16 15 15 13 12 –5.6 Belgium 101 89 91 92 94 95 95 94 91 88 –1.3 Denmark 104 105 102 97 96 96 96 95 94 92 –0.8 Finland 48 16 16 15 15 15 13 12 10 9 –9.7 France 271 278 241 168 146 139 132 124 117 110 –5.5 Germany 448 468 416 401 395 388 380 373 366 351 –2.3 Greece 38 35 32 29 28 28 26 26 25 23 –3.9 Ireland 130 114 104 98 95 94 91 88 80 73 –5.1 Italy 468 461 400 307 293 285 278 271 256 241 –3.8 Netherlands 199 157 151 143 136 124 117 102 88 73 –11.7 Norway 124 115 115 80 78 77 75 73 71 67 –3.0 Portugal 41 42 41 31 29 29 28 28 26 25 –2.9 Spain 439 461 388 293 278 263 249 234 220 205 –5.9 Sweden 167 172 178 228 229 229 228 224 220 212 –1.5 Switzerland 18 18 18 16 15 15 14 13 12 11 –6.0 United Kingdom 847 733 624 542 496 477 459 432 395 349 –6.8 Western Europe total 3,465 3,283 2,935 2,556 2,439 2,370 2,296 2,204 2,084 1,941 –4.5 Central and Eastern Europe Czech Republic 12 10 9 8 8 8 7 7 6 5 –9.0 Hungary 26 18 17 9 8 8 8 8 7 6 –5.6 Poland 23 22 21 21 21 20 20 20 19 19 –2.0 Romania NA NA NA NA NA NA NA NA NA NA NA Russia — — — — — — — — — — — Turkey NA NA NA NA NA NA NA NA NA NA NA Central and Eastern Europe total 61 50 47 38 37 36 35 35 32 30 –4.1 Middle East/Africa Israel 26 27 26 26 26 25 25 25 25 24 –1.6 Saudi Arabia/Pan Arab‡ 51 50 50 49 49 49 48 47 46 45 –1.7 South Africa 21 21 21 22 21 21 21 21 21 21 0.0 Middle East/Africa total 98 98 97 97 96 95 94 93 92 90 –1.3 EMEA total 3,624 3,431 3,079 2,691 2,572 2,501 2,425 2,332 2,208 2,061 –4.3

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: British Video Association, Danish Film Institute, GfK Group, NVPI, PricewaterhouseCoopers LLP, Videobransjens Felleskontor, Wilkofsky Gruen Associates

Filmed entertainment | EMEA 327 Online distribution • The market was dominated in 2008 by the UK, Germany, and France, which together generated • Movies can also be accessed through digital download $23 million in legitimate spending—more than three- services that allow users to download films to their quarters of the overall total for Europe. computers. Devices that can transfer films to the TV are also helping the market. • We do not expect digital downloads to become a major revenue stream, because piracy remains a problem. • Apple added movie downloads to its iTunes service, Nevertheless, we look for the market to generate which contributed to online download growth through- momentum during the latter part of the forecast period out Europe in 2008. when more households have fast broadband services. • Jaman opened a site in 2008 in the UK with a catalog of • We expect the UK to continue to dominate, with a 1,000 titles and plans to launch sites in other countries projected $204 million in 2013 followed by France at as well. BSkyB in the UK and Canal Plus in France are $95 million. Germany’s markethaving initially been other leading providers. driven by rentalremains predominantly rental instead • The digital download market will benefit from growing of purchase-to-own, and average prices are much broadband penetration, which will expand the potential lower than in other countries, accounting for a relatively market for streaming. At the same time, piracy will cut low spending total despite significant activity. Overall into legitimate sales. spending will rise from only $30 million in 2008 to $484 million in 2013.

Digital download market† (US$ millions) 2009–13 Western Europe 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Austria ‡ ‡ ‡ ‡ ‡ 1 1 1 3 — Belgium ‡ ‡ ‡ ‡ ‡ ‡ 1 3 5 — Denmark ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 1 — Finland ‡ ‡ ‡ ‡ ‡ ‡ 1 1 3 — France ‡ ‡ 2 5 12 26 45 62 95 80.2 Germany 2 4 5 8 10 12 17 23 37 35.8 Greece NA NA NA NA NA NA NA NA NA — Ireland NA NA NA NA NA NA NA NA NA — Italy ‡ ‡ 1 1 2 4 9 22 39 108.1 Netherlands ‡ ‡ 1 2 4 7 13 23 33 75.2 Norway ‡ ‡ 2 2 3 4 6 8 11 40.6 Portugal ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Spain ‡ ‡ ‡ 1 1 3 6 17 32 100.0 Sweden ‡ ‡ 1 1 2 2 4 9 19 80.2 Switzerland ‡ ‡ ‡ ‡ ‡ ‡ 1 1 2 — United Kingdom ‡ 1 5 10 20 34 72 134 204 82.8 Total 2 5 17 30 54 93 176 305 484 74.4

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

328 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Online rentals • The UK, Italy, and Spain were the largest online rental • Along with streaming movies, online subscription markets in 2008, together constituting $214 million, or rentals—whereby subscribers order films online for nearly half of the Western European total. delivery via mail—are also becoming an important • We expect online rental spending to rise from $453 component of the rental market. Services typically million in 2008 to $791 million in 2013, an 11.8 percent offer a range of prices for different levels of monthly compound annual increase. rental activity. • Online subscription services provide a convenient Total home video alternative to going to the video rental outlet. They also • The overall home video market will expand at a 2.7 will be able to offer high-definition DVDs, which may be percent compound annual rate, rising to $18.2 billion difficult for the streaming market for households that do in 2013 from $15.9 billion in 2008. not have ultrafast broadband. • Western Europe will total $17.1 billion in 2013, up 2.6 • Several companies entered the market during the percent on a compound annual basis from $15 billion in past two years. In Germany, for example, Amango, 2008. CEE will grow at a 3.8 percent rate compounded Glorimedia, LOVEFiLM International, and Videobuster annually to $951 million, and Middle East/Africa will rise now offer online rental services. to $199 million, a 1.3 percent compound annual gain.

Online subscription rental market† (US$ millions) 2009–13 Western Europe 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Austria 1 1 2 2 3 4 4 5 5 5 10.8 Belgium 4 6 9 12 19 24 29 33 36 40 16.1 Denmark 4 7 10 13 19 24 29 33 38 42 17.2 Finland 2 1 2 2 3 4 4 4 4 4 5.9 France 11 19 24 22 29 35 40 44 47 49 11.1 Germany 43 53 41 38 43 50 57 63 70 74 11.5 Greece 2 2 3 4 6 7 8 9 10 11 12.9 Ireland 5 8 10 13 19 23 27 31 32 33 11.7 Italy 19 32 40 40 59 71 83 95 102 109 13.1 Netherlands 8 11 15 19 27 31 35 36 35 33 4.1 Norway 5 8 12 10 16 19 23 25 28 30 13.4 Portugal 2 3 4 4 6 7 8 10 11 11 12.9 Spain 18 32 39 38 56 66 75 82 88 92 10.4 Sweden 7 12 18 30 46 57 68 78 88 96 15.9 Switzerland 1 1 2 2 3 4 4 5 5 5 10.8 United Kingdom 34 51 62 70 99 119 138 151 158 157 9.7 Total 166 247 293 319 453 545 632 704 757 791 11.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | EMEA 329 Home video market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 169 163 159 157 154 152 149 151 155 166 1.5 Belgium 496 454 456 452 450 441 439 447 459 484 1.5 Denmark 383 404 421 404 390 385 385 398 418 444 2.6 Finland 256 109 128 131 128 121 117 121 126 137 1.4 France 3,150 2,909 2,694 2,358 2,141 1,979 1,954 1,984 2,092 2,303 1.5 Germany 2,598 2,523 2,374 2,392 2,385 2,380 2,395 2,443 2,522 2,621 1.9 Greece 75 74 73 73 71 69 68 70 73 76 1.4 Ireland 325 327 392 404 392 380 378 385 390 406 0.7 Italy 1,248 1,210 1,113 1,036 1,012 987 987 1,012 1,053 1,121 2.1 Netherlands 722 649 655 674 670 642 635 641 666 702 0.9 Norway 423 450 489 489 486 472 466 481 506 543 2.2 Portugal 186 147 159 140 136 131 128 132 135 141 0.7 Spain 1,079 1,071 990 902 796 754 737 724 742 768 –0.7 Sweden 477 494 568 641 648 645 647 659 689 729 2.4 Switzerland 259 227 231 203 184 171 166 169 175 189 0.5 United Kingdom 5,432 5,039 4,656 4,804 4,921 4,978 5,130 5,384 5,737 6,220 4.8 Western Europe total 17,278 16,250 15,558 15,260 14,964 14,687 14,781 15,201 15,938 17,050 2.6 Central and Eastern Europe Czech Republic 70 67 65 63 61 58 55 56 56 59 –0.7 Hungary 90 79 72 66 64 62 62 62 63 66 0.6 Poland 77 89 94 102 100 95 93 94 96 102 0.4 Romania NA NA NA NA NA NA NA NA NA NA NA Russia 338 377 397 524 563 583 603 634 674 724 5.2 Turkey NA NA NA NA NA NA NA NA NA NA NA Central and Eastern Europe total 575 612 628 755 788 798 813 846 889 951 3.8 Middle East/Africa Israel 55 58 54 52 52 50 50 50 50 50 –0.8 Saudi Arabia/Pan Arab‡ 99 99 100 100 101 102 102 104 107 112 2.1 South Africa 32 32 33 35 34 35 35 35 36 37 1.7 Middle East/Africa total 186 189 187 187 187 187 187 189 193 199 1.3 EMEA total 18,039 17,051 16,373 16,202 15,939 15,672 15,781 16,236 17,020 18,200 2.7

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: British Video Association, Danish Film Institute, FILM&KINO, GfK Group, NVPI, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

330 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Asia Pacific

The outlook in brief • Box office will rise from $6.8 billion to $9.9 billion, a 7.8 percent increase compounded annually. • New multiplexes and conversions to digital and 3-D will fuel box office spending. • Home video physical sell-through will grow at a 2.5 percent compound annual rate to $5 billion from $4.4 • High-definition videos will boost home video spending billion in 2008. during the latter part of the forecast period when economic conditions improve. • Home video in-store rentals will rise at a 1.5 percent compound annual rate to $6.7 billion from $6.2 billion. • New services will propel online rentals and a fledgling digital download market. • Online rental subscriptions will grow at a 51.9 percent compound annual rate to $1.4 billion in 2013. Overview • Digital downloads will generate $179 million in 2013. • Filmed entertainment spending will expand at a 5.7 • The overall home video market will increase from percent compound annual rate to $23.3 billion in 2013 $10.8 billion to $13.3 billion, a 4.2 percent gain from $17.7 billion in 2008. compounded annually.

Filmed entertainment market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Box office 5,535 5,657 6,199 6,455 6,841 7,101 7,643 8,379 9,153 9,943 Home video Sell-through 4,392 4,521 4,192 4,339 4,448 4,361 4,398 4,504 4,705 5,032 In-store rental 5,575 5,412 5,788 6,077 6,193 6,303 6,397 6,500 6,587 6,671 Online rental subscriptions 5 14 36 70 178 392 568 850 1,141 1,439 Digital downloads — — 1 3 3 7 16 33 101 179 Total home video 9,972 9,947 10,017 10,489 10,822 11,063 11,379 11,887 12,534 13,321 Total 15,507 15,604 16,216 16,944 17,663 18,164 19,022 20,266 21,687 23,264

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Box office 7.0 2.2 9.6 4.1 6.0 3.8 7.6 9.6 9.2 8.6 7.8 Home video Sell-through 14.8 2.9 –7.3 3.5 2.5 –2.0 0.8 2.4 4.5 7.0 2.5 In-store rental –1.6 –2.9 6.9 5.0 1.9 1.8 1.5 1.6 1.3 1.3 1.5 Online rental subscriptions — 180.0 157.1 94.4 154.3 120.2 44.9 49.6 34.2 26.1 51.9 Digital downloads — — 200.0 0.0 133.3 128.6 106.3 206.1 77.2 126.5 Total home video 5.0 –0.3 0.7 4.7 3.2 2.2 2.9 4.5 5.4 6.3 4.2 Total 5.7 0.6 3.9 4.5 4.2 2.8 4.7 6.5 7.0 7.3 5.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | Asia Pacific 331 • Japan is the dominant market in the region, at $8.7 • South Korea experienced its second consecutive weak billion in 2008, nearly half of total spending in Asia performance at the box office as local films continued Pacific. Australia is next largest, at $2.4 billion, followed to lose share. Local films accounted for 43 percent of by India at $1.8 billion and South Korea at $1.3 billion. admissions in 2008 compared with 65 percent in 2006. Piracy continues to cannibalize what is left of the home • Japan generated its third consecutive increase in 2008 video market, and it is hampering a legitimate digital with a 1.1 percent advance. Its large physical rental download business. market continued to expand in 2008, offsetting a drop in sell-through and a modest decline in box office. • The People’s Republic of China (PRC) was the fastest- growing territory in 2008, with a 24 percent increase. • Australia recorded its second consecutive double-digit New cinemas and the growing appeal of local films advance, rising by 12.9 percent in 2008. Home video contributed to the second consecutive 27 percent continued to grow rapidly, buoyed by the popularity increase in box office spending. The home video of TV DVDs, which are boosting both sell-through market in the PRC is plagued by piracy, and legitimate and rental. The market also was enhanced by rapidly spending is only a small fraction of the overall level growing online subscription rentals. of consumption. • India rose by 10 percent in 2008, its third double-digit • As a result of piracy over the years, of recent political advance during the past four years. Rising admission turmoil in Thailand, and of the global economic reces- prices boosted box office spending, offsetting a sion, the number of Thai films produced decreased disappointing roster of local films that led to flat from 55 titles in 2007 to 35 titles in 2008. admissions and a 21 percent decrease in home video.

Filmed entertainment market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,958 1,892 1,898 2,131 2,405 2,486 2,603 2,743 2,923 3,111 5.3 China 349 430 563 702 868 1,008 1,161 1,307 1,463 1,631 13.4 Hong Kong 308 313 319 342 354 359 370 387 411 445 4.7 India 1,102 1,282 1,491 1,599 1,759 1,804 2,091 2,521 2,941 3,427 14.3 Indonesia 98 105 113 120 124 129 134 141 148 155 4.6 Japan 8,702 8,493 8,510 8,641 8,738 8,909 9,099 9,480 9,936 10,432 3.6 Malaysia 86 101 107 126 136 143 150 163 176 191 7.0 New Zealand 243 235 249 272 281 290 300 312 326 344 4.1 Pakistan 116 118 121 123 127 130 135 140 145 148 3.1 Philippines 129 138 148 156 164 156 163 170 178 186 2.5 Singapore 170 167 179 197 200 202 206 214 229 243 4.0 South Korea 1,171 1,223 1,380 1,353 1,332 1,370 1,417 1,470 1,554 1,643 4.3 Taiwan 768 783 801 819 817 812 820 836 863 900 2.0 Thailand 307 324 336 361 354 360 366 373 383 395 2.2 Vietnam NA NA 1 2 4 6 7 9 11 13 26.6 Total 15,507 15,604 16,216 16,944 17,663 18,164 19,022 20,266 21,687 23,264 5.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

332 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Box office • New multiplexes also contributed to admissions growth in Hong Kong and Taiwan. In Hong Kong, admissions Admissions rose by 7.3 percent in 2008. Four major multiplexes • New multiplexes are driving admissions in a number opened in 2007, and several others entered the market of countries, and the installation of digital projection in 2008. Interest in 3-D conversions also is growing, equipment will provide a boost during the next five years. spurred by the expected increase in the number of 3-D releases from Hollywood. Taiwan posted a 2.2 percent • Digital cinemas have a number of advantages, including increase in admissions, helped by the addition of digital better picture and sound than standard prints have. screens and a revitalized interest in local films. Taiwan Digital prints are much less expensive than standard had around 20 digital screens in operation in 2008, prints, making it economical for films to be distributed doubling the total from the previous year. As with many to a larger number of theaters. Digital also provides a other markets, recent installations are being driven by platform for 3-D, which is emerging as the principal individual 3-D titles. With the onset of the economic driver of box office spending. Prices and admissions downturn, however, Taiwanese exhibitors are slowing are higher for 3-D films, giving them a significant their digital investment while hoping for signs of a revenue advantage over standard films. To capture the studio-supported financing plan. revenue potential of 3-D, exhibitors are now devoting more resources to digital and 3-D conversions. • In India, new multiplex construction and digital conversions are continuing. BIG Cinemas announced • GDC Technology, a Hong Kong–based company, plans to convert 500 screens to digital during the next announced it plans to install 6,000 digital projection two years, with 300 expected by year-end 2009. By systems throughout Asia, financed in part by Hollywood 2013, more than half of all screens in India will have studios. digital projection. The impact of digital screens will be • In the PRC, the pace of new cinema construction felt in rapidly rising admission prices. Admissions will continued in 2008, with the screen count rising by 16 increase to a projected 3.4 billion in 2013, a 0.6 percent percent. Local productions and coproductions also compound annual increase. proved to be popular, generating 61 percent of total ad- • In Australia, conversion to digital and 3-D is picking missions. Eight films reached the 100-million-renminbi up. Three-dimensional blockbuster films such as ($14.4-million) threshold in 2008 compared with only Journey to the Center of the Earth generated a great three films in 2007. The pace of the construction of deal of consumer excitement and higher-than-average new screens is expected to continue, with the Wanda revenues in 2008. Within the next 5 to 10 years, virtually Group announcing plans to build 100 cinemas in 2009. all screens will have been converted to digital. A new In addition, the PRC is a leader in digital screens, with government incentive plan, known as the producer around 700, second highest in the world behind the offset, offers a 40 percent rebate for approved United States. That figure includes around 150 3-D productions. It is expected to attract more international screens. The government is actively promoting 3-D, and local film investment. which enabled Disney to bypass the 20-film Hollywood quota and release Bolt in 3-D in September. The gov- • In Japan, although admissions slipped by 2.2 percent ernment also is pushing for digital cinemas in smaller in 2008, local films did well, contributing 7 of the top 10 towns and in rural areas. Admissions in the PRC rose releases. High-end cinemas are also attracting interest. 23 percent in 2008, the fifth consecutive increase in Shinjuku Piccadilly opened a luxury cinema in Tokyo excess of 20 percent. We expect admissions to expand in 2008 with luxury rooms, large seats, concert-style at an 11.3 percent compound annual rate to 725 million speakers, and high prices. Tokyu Recreation has a deal in 2013 from 424 million in 2008. with Imax to build four big-screen theaters. There were around 100 digital screens in 2008, a figure that will increase as conversions pick up. We expect admissions

Filmed entertainment | Asia Pacific 333 to return to a positive path in Japan, with a projected studio facility called Mediapolis that could be used by 2.3 percent compound annual increase during the next local independent producers and foreign companies. five years. • Digital conversion also is occurring in South Korea. By • Singapore also benefited from new screens in 2008 2013, more than half of all screens are expected to and generated a 2.8 percent increase in admissions. be digital. Singapore is pushing digital and 3-D. The Singapore • We project admissions in Asia Pacific to rise at a 2.1 Film Commission established a S$10-million (US$7- percent compound annual rate to 4.8 billion in 2013 million) 3-D development fund to boost 3-D filmmaking from 4.4 billion in 2008. India and the PRC will account activities in Singapore and build an industry of 3-D for 84 percent of that growth. practitioners. The government has also announced plans to develop a 19-hectare plot of land into a new

Admissions (millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 91.0 82.0 82.0 83.0 88.0 89.0 90.0 91.0 92.0 93.0 1.1 China 175.0 220.0 280.0 345.0 424.0 490.0 560.0 620.0 675.0 725.0 11.3 Hong Kong 18.0 16.8 16.6 17.7 19.0 20.0 21.0 22.0 23.0 24.0 4.8 India 3,100.0 3,200.0 3,200.0 3,250.0 3,250.0 3,250.0 3,275.0 3,300.0 3,300.0 3,350.0 0.6 Indonesia 42.0 43.3 46.2 47.4 48.0 49.0 50.0 51.0 52.0 53.0 2.0 Japan 170.1 160.5 164.3 160.0 156.5 158.0 160.0 165.0 170.0 175.0 2.3 Malaysia 23.0 26.0 28.0 30.4 32.0 33.0 34.0 36.0 38.0 40.0 4.6 New Zealand 17.0 15.0 16.0 16.0 16.2 16.5 16.8 17.2 17.6 18.0 2.1 Pakistan 34.0 32.0 30.0 29.0 28.5 28.0 28.2 28.6 29.0 29.4 0.6 Philippines 62.5 61.0 62.9 65.0 65.5 67.5 68.0 68.5 69.0 69.5 1.2 Singapore 16.0 14.8 15.6 18.0 18.5 19.0 19.5 20.0 20.5 21.0 2.6 South Korea 130.0 140.3 163.9 157.6 149.2 150.0 152.0 155.0 160.0 165.0 2.0 Taiwan 22.0 22.1 22.6 23.0 23.5 24.0 25.0 26.0 27.0 28.0 3.6 Thailand 31.0 32.5 32.7 36.0 33.0 33.3 33.4 33.6 33.8 34.0 0.6 Vietnam NA NA 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 21.7 Total 3,932 4,066 4,162 4,280 4,355 4,431 4,538 4,640 4,714 4,833 2.1

Sources: Korean Film Commission, Motion Picture Distributors Association of Australia, Motion Picture Distributors Association of New Zealand, Motion Picture Producers Association of Japan, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

334 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Admission prices admissions mix. We expect double-digit price growth in • Low prices in high-admission countries such as India India as the industry converts to digital. and the PRC hold down the overall average for Asia • In the Philippines, Congress has approved House Bill Pacific to only $1.57. In Japan, by contrast, the average 5624, reducing the amusement tax on cinema tickets was $12.03, and it was above $8 in Australia and from 30 percent to 10 percent to reduce admission Taiwan and above $6 in Hong Kong, New Zealand, prices. This tax break is aimed at reviving the local film Singapore, and South Korea. industry, which has been hampered by high taxes. • For most countries, we look for prices to grow faster • The overall average price will rise by 5.6 percent during 2011–13 than during 2009–10, reflecting growing compounded annually to $2.06 in 2013. penetration of high-priced digital and 3-D screens in the

Average admission price† (US$) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 8.33 8.34 8.58 8.77 8.99 9.19 9.40 9.61 9.86 10.16 2.5 China 1.26 1.31 1.34 1.39 1.43 1.47 1.52 1.56 1.61 1.67 3.2 Hong Kong 6.55 6.89 7.02 7.28 7.37 7.45 7.58 7.74 7.93 8.15 2.0 India 0.33 0.37 0.42 0.44 0.50 0.50 0.57 0.68 0.80 0.90 12.5 Indonesia 1.80 1.86 1.92 2.01 2.07 2.11 2.17 2.24 2.30 2.38 2.8 Japan 11.98 11.93 11.91 11.98 12.03 12.08 12.13 12.17 12.27 12.37 0.6 Malaysia 2.25 2.52 2.52 2.85 3.00 3.14 3.29 3.44 3.59 3.74 4.5 New Zealand 6.28 6.32 6.49 6.67 6.85 7.02 7.20 7.37 7.55 7.72 2.4 Pakistan 0.51 0.52 0.54 0.55 0.57 0.58 0.59 0.61 0.62 0.64 2.3 Philippines 1.34 1.49 1.58 1.65 1.74 1.57 1.66 1.75 1.84 1.93 2.1 Singapore 5.65 5.72 5.93 6.00 6.22 6.36 6.53 6.71 6.92 7.21 3.0 South Korea 5.13 5.26 5.61 5.81 6.08 6.35 6.62 6.89 7.26 7.62 4.6 Taiwan 8.08 8.24 8.40 8.56 8.72 8.87 9.03 9.19 9.38 9.60 1.9 Thailand 3.49 3.61 3.73 3.85 3.97 4.09 4.21 4.36 4.51 4.66 3.3 Vietnam NA NA 1.08 1.20 1.32 1.38 1.44 1.50 1.56 1.62 4.2 Total 1.41 1.39 1.49 1.51 1.57 1.60 1.68 1.81 1.94 2.06 5.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Box office spending market. Together, India and the PRC will generate 64 • Japan has the largest box office market in Asia Pacific, percent of total box office spending growth in Asia at $1.9 billion in 2008, with India next at $1.6 billion. Pacific during the next five years. Excluding India and the PRC, box office spending in Asia Pacific will grow at • We expect the PRC and India to be the fastest a projected 4.4 percent compound annual rate. growing of the major countries, with compound annual increases of 14.8 percent and 13.2 percent, • For Asia Pacific as a whole, box office spending will respectively, during the next five years. We expect increase from $6.8 billion in 2008 to $9.9 billion in 2013, India to overtake Japan in 2011 to become the leading a 7.8 percent compound annual growth rate.

Filmed entertainment | Asia Pacific 335 Box office market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 758 684 703 728 791 818 847 875 908 945 3.6 China 221 287 376 478 605 721 849 966 1,086 1,208 14.8 Hong Kong 118 116 116 129 140 149 159 170 182 196 7.0 India 1,023 1,184 1,344 1,430 1,625 1,632 1,869 2,260 2,637 3,014 13.2 Indonesia 75 81 89 95 99 103 108 114 120 126 4.9 Japan 2,038 1,915 1,957 1,917 1,882 1,908 1,940 2,009 2,086 2,164 2.8 Malaysia 52 65 70 87 96 104 112 124 137 150 9.3 New Zealand 107 95 104 107 111 116 121 127 133 139 4.6 Pakistan 17 17 16 16 16 16 17 17 18 19 3.5 Philippines 83 91 99 107 114 106 113 120 127 134 3.3 Singapore 90 85 93 108 115 121 127 134 142 151 5.6 South Korea 667 738 919 915 907 952 1,007 1,069 1,161 1,257 6.7 Taiwan 178 182 190 197 205 213 226 239 253 269 5.6 Thailand 108 117 122 139 131 136 141 146 152 158 3.8 Vietnam NA NA 1 2 4 6 7 9 11 13 26.6 Total 5,535 5,657 6,199 6,455 6,841 7,101 7,643 8,379 9,153 9,943 7.8

†At average 2008 exchange rates. Sources: Korean Film Commission; Motion Picture Distributors Association of Australia; Motion Picture Distributors Association of New Zealand; Motion Picture Producers Association of Japan; State Administration of Radio, Film, and Television; PricewaterhouseCoopers LLP; Wilkofsky Gruen Associates

Physical home video leaving as well but then returned at year-end 2008 in a licensing arrangement with United Entertainment Korea. • The home video market in Asia Pacific does not represent overall usage because so much of the activity • Japan and Australia dominate the legitimate sell- is pirated in many countries. In the PRC, where piracy is through market, together accounting for 75 percent considered to be most severe, an estimated 93 percent of total spending in 2008. Japan’s market fell by 4.9 of total sales are pirated sales. Pirated content is also percent in 2008, hurt by the falling economy, which in estimated to account for more than 90 percent of home the fourth quarter posted its largest decline in years. video consumption in Indonesia. We expect further decreases during the next two years. We then look for a rebound during the latter part of • Illegal recording of films in theaters is reportedly the forecast period as Blu-ray sales pick up. Japan increasing in Thailand and the Philippines, and Blu-ray has a large installed base of Blu-ray game consoles, films are being illegally recorded on blank DVDs instead which households are beginning to use to play Blu-ray of Blu-ray discs. movies. The market also needs an installed base of • In South Korea, piracy has undermined the sell-through HDTVs, whose sales will be hurt in the near term by the market, which fell by 49 percent from 2004 to 2008. slumping economy. Although growth in this segment of Warner Home Video Korea closed its operations at the the market will not be sufficient to offset declining DVD end of 2008. Disney, Fox, Paramount, and Universal sales during the next few years, we expect they will had previously left the market. Sony announced it was begin to do so in 2013.

336 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • The Australian sell-through market, by contrast, is percent of the market. Sell-through spending will jump booming, growing by 14.9 percent in 2008 following from $43 million in 2008 to $377 million in 2013. a 22.2 percent increase in 2007. TV DVDs have been • The Philippines has launched a new antipiracy fueling growth, although that component of the campaign entitled Don’t Wait Until It’s Too Late! market appears to be flattening. In 2009, films are which is intended to reduce losses suffered by the expected to be released simultaneously on DVD and Philippine film industry. This program penalizes first- video-on-demand, which could cut marginally into time offenders of the antipiracy law with imprisonment DVD sales. The falling economy will also dampen of one to three years and a fine of P50,000 to P100,000 spending. We expect growth to drop to low single digits ($1,122 to $2,244). during the next two years and then improve to mid- single-digit increases as Blu-ray disc sales become • We project overall sell-through spending in Asia Pacific more meaningful and provide a boost to the market. to decline by 2 percent in 2009 and stabilize in 2010 Significant Blu-ray manufacturing capacity will launch with an 0.8 percent advance. During the subsequent in Australia in 2009. We expect sell-through spending in three years, spending will increase by an estimated 14.4 Australia to advance at a 4.6 percent compound annual percent, benefiting from improved economic conditions rate from $1.3 billion in 2008 to $1.6 billion in 2013. and the emergence of Blu-ray. Spending will rise from $4.4 billion in 2008 to $5 billion in 2013, a 2.5 percent • In India, the home video market is converting to sell- increase compounded annually. through from rental, which constituted 100 percent of sales in 2004. By 2013, sell-through will represent 92

Physical sell-through market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 886 903 890 1,088 1,250 1,266 1,312 1,379 1,471 1,563 4.6 China 74 86 124 158 194 215 237 262 294 330 11.2 Hong Kong 167 173 180 189 190 186 187 193 205 225 3.4 India 0 1 1 15 43 87 157 202 253 377 54.4 Indonesia 2 2 2 2 2 2 2 2 3 3 8.4 Japan 2,631 2,705 2,328 2,184 2,077 1,932 1,836 1,787 1,768 1,778 –3.1 Malaysia 23 25 27 29 30 29 28 29 30 32 1.3 New Zealand 91 95 94 112 116 117 119 124 130 140 3.8 Pakistan 41 42 44 45 47 49 52 55 58 58 4.3 Philippines 15 15 16 17 17 17 17 17 18 19 2.2 Singapore 64 67 71 75 71 67 66 66 71 76 1.4 South Korea 69 59 48 39 35 32 29 29 30 32 –1.8 Taiwan 301 317 333 349 339 326 320 323 336 358 1.1 Thailand 28 31 34 37 37 36 36 36 38 41 2.1 Vietnam NA NA NA NA NA NA NA NA NA NA NA Total 4,392 4,521 4,192 4,339 4,448 4,361 4,398 4,504 4,705 5,032 2.5

†At average 2008 exchange rates. Sources: GfK Australia, Japan Video Software Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | Asia Pacific 337 In-store rentals price. Nevertheless, rental spending in South Korea has • Asia Pacific is the only region where rental spending been declining because of piracy, and we expect it will exceeds sell-through. The reason is that Japan’s in- continue to decline. store rental market is more than twice that of its sell- • In India, the migration to sell-through is leading to sharp through market, and Japan dominates total home video declines in rental spending. Rental spending plunged spending in Asia Pacific. At $4.6 billion in 2008, Japan by 41 percent in 2008, and we project an 18.4 percent constituted 75 percent of total rental spending in Asia compound annual decrease through 2013. Pacific in 2008. • Australia was the only other country to register a • In contrast with Japan’s sell-through market, the double-digit increase in 2008, with a 12.6 percent country’s rental market has been expanding during advance. TV DVDs have become popular rental items the past three years, including a 3.2 percent advance and are driving rental spending. We expect growth in in 2008. In a weak economy, lower-cost rentals hold Australia to drop to mid single digits during the next up better than higher-priced sell-through. We expect three years—as this component of the market cools— continued growth during the next five years, averaging and then to slow to low-single-digit gains in 2012–13 2 percent compounded annually to $5.1 billion. as online subscriptions and video-on-demand cut into • Although much smaller, the rental market in South in-store rentals. Korea also is much larger than its sell-through market. • The rental market for all of Asia Pacific will expand at Piracy has hurt sell-through more than rental because a 1.5 percent compound annual rate to $6.7 billion in low-cost rentals are less subject to competition from 2013 from $6.2 billion in 2008. pirated versions that often sell at or above the rental

In-store rental market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 313 300 292 293 330 347 364 380 385 389 3.3 China 54 57 63 66 69 72 75 78 80 83 3.8 Hong Kong 23 24 23 24 24 24 24 24 24 24 0.0 India 79 97 146 154 91 84 64 57 48 33 –18.4 Indonesia 21 22 22 23 23 24 24 25 25 26 2.5 Japan 4,029 3,865 4,203 4,493 4,638 4,734 4,831 4,927 5,024 5,121 2.0 Malaysia 11 11 10 10 10 10 10 10 9 9 –2.1 New Zealand 45 44 49 49 49 50 50 49 48 48 –0.4 Pakistan 58 59 61 62 64 65 66 68 69 71 2.1 Philippines 31 32 33 32 33 33 33 33 33 33 0.0 Singapore 16 15 15 14 13 13 12 12 13 13 0.0 South Korea 435 426 413 399 390 386 381 372 363 354 –1.9 Taiwan 289 284 278 273 273 273 274 274 274 273 0.0 Thailand 171 176 180 185 186 188 189 191 192 194 0.8 Vietnam NA NA NA NA NA NA NA NA NA NA NA Total 5,575 5,412 5,788 6,077 6,193 6,303 6,397 6,500 6,587 6,671 1.5

†At average 2008 exchange rates. Sources: Japan Video Software Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

338 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Online distribution • In Singapore, several services entered the market in 2008. VideoEzy Singapore dropped its mail delivery Online rental subscriptions service in some areas because it was too slow and • Video rentals can also be acquired online. Online began delivering by motorcycle. subscription rental services have been launched in • We expect that the convenience of these services and Australia, New Zealand, Japan, India, and Singapore. their reach will propel the market. We project spending Subscribers order films online, and the films are then to increase from $178 million in 2008 to $1.4 billion in distributed by mail. These services expand the market 2013, a 51.9 percent compound annual increase. Japan by reaching people who may not have access to video and Australia dominated the market in 2008 with 97 rental outlets. percent of total spending and will continue to do so • In Australia, BigPond Movies (Telstra) and Quickflix are through 2013. the leading services. Although currently small, they are growing rapidly.

Online subscription rental market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1 5 13 21 33 52 73 95 115 136 32.7 China NA NA NA NA NA NA NA NA NA NA — Hong Kong NA NA NA NA NA NA NA NA NA NA — India NA NA NA NA ‡ 1 1 2 3 3 — Indonesia NA NA NA NA NA NA NA NA NA NA — Japan 4 8 21 45 139 331 483 739 1,005 1,280 55.9 Malaysia NA NA NA NA NA NA NA NA NA NA — New Zealand ‡ 1 2 4 5 7 10 12 15 17 27.7 Pakistan NA NA NA NA NA NA NA NA NA NA — Philippines NA NA NA NA NA NA NA NA NA NA — Singapore NA NA ‡ ‡ 1 1 1 2 3 3 24.6 South Korea NA NA NA NA NA NA NA NA NA NA — Taiwan NA NA NA NA NA NA NA NA NA NA — Thailand NA NA NA NA NA NA NA NA NA NA — Vietnam NA NA NA NA NA NA NA NA NA NA — Total 5 14 36 70 178 392 568 850 1,141 1,439 51.9

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | Asia Pacific 339 Digital downloads do not expect a meaningful market in India during the • Digital download services also are being introduced next five years. where films can be downloaded to own or to rent. Digital • In Japan, Blu-ray video game consoles allow movies to downloads are available in Australia, Japan, the PRC, be downloaded and viewed on TV sets. Downloads to and South Korea and are expected in India in 2009. Blu-ray are driving the digital download market, which • In Australia, Blockbuster and VideoEzy are expected we expect will expand to $89 million by 2013. to introduce download services in 2009. Films will be • South Korea has a high broadband penetration and fast downloadable to mobile phones and then transferred download speeds—two key ingredients for a download to TV sets for viewing. Apple began offering movie market. However, that market is not developing because downloads through its iTunes store. Films are available high piracy rates are crowding out legitimate services. for rental or purchase and can be viewed on iPods, iPhones, PCs, or TV sets. They cannot be burned to • We project the digital download market to grow from DVDs. The market in Australia is currently negligible, only $3 million in 2008 to $179 million in 2013. but we expect it will expand to $78 million by 2013. Total home video • In the PRC, Warner is offering films online on a rental • The total home video market—including physical sell- basis for less than $1. Films will be available soon after through, in-store rentals, online rental subscriptions, their theatrical release, in part to stem DVD piracy. and digital downloads—will expand at a projected 4.2 • In India, digital downloads will be available in 2009, but percent compound annual rate. Spending will rise from the low broadband penetration will limit spending. We $10.8 billion in 2008 to $13.3 billion in 2013.

Digital download market† (US$ millions) 2009–13 Asia Pacific 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia ‡ 1 1 3 7 14 44 78 139.0 China 0 ‡ ‡ ‡ ‡ 1 3 10 — Hong Kong NA NA NA NA NA NA NA NA — India NA NA NA ‡ ‡ ‡ ‡ ‡ — Indonesia NA NA NA NA NA NA NA NA — Japan 1 2 2 4 9 18 53 89 113.6 Malaysia NA NA NA NA NA NA NA NA — New Zealand NA NA NA NA NA NA NA NA — Pakistan NA NA NA NA NA NA NA NA — Philippines NA NA NA NA NA NA NA NA — Singapore NA NA NA NA NA NA NA NA — South Korea ‡ ‡ ‡ ‡ ‡ ‡ 1 2 — Taiwan NA NA NA NA NA NA NA NA — Thailand NA NA NA NA NA NA NA NA — Vietnam NA NA NA NA NA NA NA NA — Total 1 3 3 7 16 33 101 179 126.5

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

340 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Home video market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,200 1,208 1,195 1,403 1,614 1,668 1,756 1,868 2,015 2,166 6.1 China 128 143 187 224 263 287 312 341 377 423 10.0 Hong Kong 190 197 203 213 214 210 211 217 229 249 3.1 India 79 98 147 169 134 172 222 261 304 413 25.2 Indonesia 23 24 24 25 25 26 26 27 28 29 3.0 Japan 6,664 6,578 6,553 6,724 6,856 7,001 7,159 7,471 7,850 8,268 3.8 Malaysia 34 36 37 39 40 39 38 39 39 41 0.5 New Zealand 136 140 145 165 170 174 179 185 193 205 3.8 Pakistan 99 101 105 107 111 114 118 123 127 129 3.1 Philippines 46 47 49 49 50 50 50 50 51 52 0.8 Singapore 80 82 86 89 85 81 79 80 87 92 1.6 South Korea 504 485 461 438 425 418 410 401 393 386 –1.9 Taiwan 590 601 611 622 612 599 594 597 610 631 0.6 Thailand 199 207 214 222 223 224 225 227 231 237 1.2 Vietnam NA NA NA NA NA NA NA NA NA NA NA Total 9,972 9,947 10,017 10,489 10,822 11,063 11,379 11,887 12,534 13,321 4.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | Asia Pacific 341 Latin America

The outlook in brief • Box office spending will increase from $1.3 billion in 2008 to $1.7 billion in 2013, a 5 percent compound • Support of local productions will sustain box office annual growth. spending. • Home video sell-through will advance at a 4.4 percent • Rising DVD penetration will boost home video. compound annual rate to $862 million in 2013 from $694 million in 2008. Overview • Home video rental spending will total $533 million in • Filmed entertainment spending will rise at a 4.5 percent 2013, a 3.2 percent increase compounded annually. compound annual rate to $3.1 billion in 2013 from $2.5 • Overall home video will average 4 percent compounded billion in 2008. annually from $1.1 billion in 2008 to $1.4 billion in 2013.

Filmed entertainment market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Box office 1,128 1,101 1,189 1,260 1,337 1,398 1,459 1,532 1,616 1,703 Home video Sell-through 504 515 582 637 694 703 716 752 802 862 Rental 558 574 649 689 455 438 453 470 499 533 Total home video 1,062 1,089 1,231 1,326 1,149 1,141 1,169 1,222 1,301 1,395 Total 2,190 2,190 2,420 2,586 2,486 2,539 2,628 2,754 2,917 3,098

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Box office 20.9 –2.4 8.0 6.0 6.1 4.6 4.4 5.0 5.5 5.4 5.0 Home video Sell-through 8.6 2.2 13.0 9.5 8.9 1.3 1.8 5.0 6.6 7.5 4.4 Rental 2.2 2.9 13.1 6.2 –34.0 –3.7 3.4 3.8 6.2 6.8 3.2 Total home video 5.1 2.5 13.0 7.7 –13.3 –0.7 2.5 4.5 6.5 7.2 4.0 Total 12.7 0.0 10.5 6.9 –3.9 2.1 3.5 4.8 5.9 6.2 4.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Mexico overtook Brazil in 2008 to become the largest • Brazil declined by 16.7 percent in 2008 to $912 million, market, at $1.1 billion, up 5 percent from 2007. Strong the result of a steep decline in rentals. The decrease local films buoyed box office spending and home video in Brazil offset gains in each of the other territories, rentals, offsetting a sluggish sell-through market. and overall spending in Latin America fell by 4 percent

342 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 in 2008. Although rental spending fell by more than respectively, principally because of inflationary box half and a further drop is anticipated for 2009, Brazil office price growth. Continued price inflation will be the remains the largest rental market in Latin America. principal driver of spending growth during the next The rental market will stabilize in 2010, and Brazil will five years. return to an expansion path, growing at a 4.1 percent • High piracy rates have prevented legitimate digital compound annual rate through 2013. download and online rental subscription services from • Argentina and Venezuela were the fastest-growing getting established. countries in 2008, at 10 percent and 8.2 percent,

Filmed entertainment market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 180 177 186 201 221 237 254 272 294 315 7.3 Brazil 956 908 1,031 1,095 912 907 937 991 1,048 1,114 4.1 Chile 87 82 90 91 93 92 94 97 102 107 2.8 Colombia 84 91 115 127 133 140 146 154 164 174 5.5 Mexico 837 881 941 1,011 1,061 1,092 1,119 1,157 1,220 1,293 4.0 Venezuela 46 51 57 61 66 71 78 83 89 95 7.6 Total 2,190 2,190 2,420 2,586 2,486 2,539 2,628 2,754 2,917 3,098 4.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Box office • In Argentina, film subsidies were raised by 40 percent in late 2008 to help producers deal with explosive inflation. Admissions Argentine film agency INCAA (Instituto Nacional de Cine • With the exception of Mexico, which posted a 5.1 y Artes Audiovisuales) will now pay up to 3.5 million percent increase in 2008, admissions were relatively pesos ($2.9 million) per film compared with 2.5 million flat in each of the other territories. Increases were 0.5 pesos ($2.1 million) in 2008. INCAA also placed more percent or less, and decreases were 1.1 percent or less. restrictions on exhibitors to support local films. Local films must now be screened for a minimum of two • Local films again did well in Mexico, leading to the weeks. In addition to shortfalls in production budgets, second consecutive increase of more than 5 percent. local films are at a disadvantage with respect to prints. US films were also popular, and new multiplexes Hollywood films generally provide more than 100 prints contributed to admissions growth as well in 2008. in Argentina, giving them wide exposure. Local films, Mexico has the largest box office market in Latin by contrast, generally have only 35 prints, limiting their America, at 183 million, accounting for more than half reach. Industry regulations helped local films increase of all admissions. their share from 9 percent in 2007 to 11.5 percent in • In Brazil, the Sector Fund, a government program, will 2008. Those gains came at the expense of the market support investment in local production, which will shield as a whole, as total admissions fell by 1.1 percent. the market from the impact of the financial meltdown • We expect these local initiatives will help sustain as most local films are financed in large part from admissions. We project admissions to expand at a 1.6 government support. The Sector Fund expects to invest percent compound annual rate to 389 million in 2013 $32 million in 2009 in local films. from 359 million in 2008.

Filmed entertainment | Latin America 343 Admissions (millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 42.0 37.5 37.0 36.0 35.6 36.0 36.5 37.0 37.5 38.0 1.3 Brazil 114.0 93.5 90.3 89.3 89.6 90.0 91.0 92.0 94.0 96.0 1.4 Chile 11.5 9.9 11.2 10.5 10.4 10.5 10.7 11.0 11.3 11.6 2.2 Colombia 16.0 16.4 20.2 21.0 21.2 21.4 21.6 22.0 22.5 23.0 1.6 Mexico 164.0 162.7 165.5 174.2 183.0 185.0 187.0 190.0 195.0 200.0 1.8 Venezuela 19.0 18.9 19.7 19.2 19.3 19.4 19.5 19.7 20.0 20.3 1.0 Total 366.5 338.9 343.9 350.2 359.1 362.3 366.3 371.7 380.3 388.9 1.6

Sources: Motion Picture Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Average prices • Beyond inflation, the introduction of new theaters will • Average admission prices are soaring in Argentina and continue to support rising prices, but the incremental rising by high single digits in Venezuela, in both cases impact will lessen as the installed base of modern reflecting high inflation rates. In Colombia, mid-single-digit theaters expands. increases also reflect inflationary gains. Excluding these • On balance, we project a 3.3 percent compound annual territories, prices are growing at low-single-digit rates. increase in average prices, matching the increase in • In Argentina, average prices rose by more than 15 2008. By 2013, the average admission ticket will cost percent in 2007 and by nearly 20 percent in 2008. We $4.38 compared with $3.72 in 2008. look for the economic downturn to moderate inflation, and we project increases averaging 9.2 percent compounded annually through 2013.

Average admission price† (US$) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1.83 1.89 2.05 2.37 2.84 3.15 3.47 3.79 4.10 4.42 9.2 Brazil 3.64 3.89 4.19 4.35 4.42 4.49 4.57 4.70 4.79 4.89 2.0 Chile 3.13 3.18 3.23 3.28 3.32 3.37 3.42 3.47 3.51 3.56 1.4 Colombia 4.52 4.77 5.00 5.28 5.53 5.78 6.03 6.28 6.53 6.78 4.2 Mexico 2.97 3.14 3.30 3.37 3.43 3.55 3.64 3.73 3.82 3.91 2.7 Venezuela 2.18 2.42 2.65 2.88 3.11 3.35 3.58 3.81 4.04 4.27 6.5 Total 3.08 3.25 3.46 3.60 3.72 3.86 3.98 4.12 4.25 4.38 3.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

344 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Box office spending • Mexico and Brazil will continue to dominate the market. • Argentina paced box office growth in 2008 with an 18.8 Together they constituted 77 percent of box office percent increase as the 19.8 percent price hike offset spending in 2008, a share that will dip to 73 percent the 1.1 percent drop in admissions. Otherwise, the in 2013. disparity between admissions and box office was • Argentina will continue to be the fastest-growing less dramatic. market, with a projected 10.7 percent compound • We project box office spending to increase from $1.3 annual increase, due almost entirely to price growth. billion in 2008 to $1.7 billion in 2013, a 5 percent compound annual increase.

Box office market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 77 71 76 85 101 114 127 140 154 168 10.7 Brazil 415 364 378 388 396 404 415 433 450 470 3.5 Chile 36 31 36 34 35 35 37 38 40 41 3.2 Colombia 72 78 101 111 117 124 130 138 147 156 5.9 Mexico 487 511 546 587 628 656 680 708 744 781 4.5 Venezuela 41 46 52 55 60 65 70 75 81 87 7.7 Total 1,128 1,101 1,189 1,260 1,337 1,398 1,459 1,532 1,616 1,703 5.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Home video 2006 by new TVs and DVD players that were purchased for the FIFA World Cup. Those purchases significantly Sell-through expanded the household base, which in turn drove • The home video market in Latin America has been sell-through spending. During the past three years, hampered by high piracy rates that significantly cut sell-through in Brazil rose by a cumulative 60 percent. into legitimate spending and historically by low DVD We expect slower growth during the next two years, household penetration. reflecting the weak economy, and faster growth during 2011–13, when economic conditions improve. • During the past two years, DVD penetration doubled. There are now around 30 million DVD households • In Mexico, the economic slowdown cut into sell-through in Brazil and more than 15 million in Mexico. Brazil spending in 2008. Growth slowed to 0.7 percent fol- ranks in the top five in DVD households but is not in lowing two years of increases in excess of 8 percent. the top 10 in spending because of piracy. Home video We expect declines during the next two years, modest spending in Brazil was only 19 percent larger than in growth in 2011, and a return to mid- to high-single-digit Mexico in 2008 even though Brazil had twice as many growth in 2012–13. DVD households. • For the region as a whole, we project sell-through • The sell-through market in Brazil surged by 20 percent spending to expand at a 4.4 percent compound annual in 2008, the result of a shift in spending from rental rate to $862 million in 2013 from $694 million in 2008. to sell-through. Home video spending was buoyed in

Filmed entertainment | Latin America 345 Physical sell-through market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 12 11 12 13 13 13 13 14 15 16 4.2 Brazil 209 204 245 272 326 340 353 381 408 435 5.9 Chile 36 37 40 43 44 43 43 45 48 52 3.4 Colombia 9 10 11 12 12 12 12 12 13 14 3.1 Mexico 236 251 272 294 296 292 291 296 314 341 2.9 Venezuela 2 2 2 3 3 3 4 4 4 4 5.9 Total 504 515 582 637 694 703 716 752 802 862 4.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Rentals the reinstatement of an exclusive rental window for mid- • The rental market in Brazil plunged by 56 percent performing titles. Exclusive rental windows, when the in 2008, leading to an overall decline of 34 percent. film is available only for rental during a specified period Excluding Brazil, rentals were up 4.3 percent. between theatrical release and sell-through, had been discontinued a number of years ago to stimulate sell- • In Brazil, the jump in the DVD household base initially led through. We expect that pattern to generally continue, to a surge in rental spending. From 2005 to 2007, rental with a 4.5 percent compound annual increase. spending rose by 28 percent. In 2008, the market abruptly shifted from rental to sell-through, and rentals tumbled. • Penetration growth in DVD players will benefit the rental We expect a further 14 percent decline in 2009 before an market as well as sell-through. We project rental spending equilibrium between rental and sell-through is reached. to expand by 3.2 percent compounded annually to $533 Then the rental market will expand at accelerating rates, million in 2013 from $455 million in 2008. benefiting from an expanding economy. • The total home video market will increase from $1.1 • In Mexico, the rental market has expanded at mid- billion in 2008 to $1.4 billion in 2013, a 4 percent single-digit rates during the past two years, helped by compound annual increase.

In-store rental market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 91 95 98 103 107 110 114 118 125 131 4.1 Brazil 332 340 408 435 190 163 169 177 190 209 1.9 Chile 15 14 14 14 14 14 14 14 14 14 0.0 Colombia 3 3 3 4 4 4 4 4 4 4 0.0 Mexico 114 119 123 130 137 144 148 153 162 171 4.5 Venezuela 3 3 3 3 3 3 4 4 4 4 5.9 Total 558 574 649 689 455 438 453 470 499 533 3.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

346 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Home video market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 103 106 110 116 120 123 127 132 140 147 4.1 Brazil 541 544 653 707 516 503 522 558 598 644 4.5 Chile 51 51 54 57 58 57 57 59 62 66 2.6 Colombia 12 13 14 16 16 16 16 16 17 18 2.4 Mexico 350 370 395 424 433 436 439 449 476 512 3.4 Venezuela 5 5 5 6 6 6 8 8 8 8 5.9 Total 1,062 1,089 1,231 1,326 1,149 1,141 1,169 1,222 1,301 1,395 4.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Filmed entertainment | Latin America 347 348 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Video games

350 Summary

353 North America

364 Europe, Middle East, Africa (EMEA)

378 Asia Pacific

388 Latin America Summary

Video games Principal drivers The video game market consists of consumer spending The current generation of consoles—which includes the on console games (including handheld games), personal Wii, the Xbox 360, and PlayStation 3—will drive the market computer games, online games, and wireless games as well for the next few years. The continued success of the latest as video game advertising. The category excludes spending handheld devices—the Nintendo DS (dual screen) and on the hardware and accessories used for playing the PlayStation Portable (PSP)—is also supporting the market. games. Retail purchases of a game are included in either The online market is being driven by the rising penetration the PC or console game categories. If those games are then of broadband households as well as the current generation played online for a subscription fee, the subscription fee is of consoles that include online capabilities as a primary counted in the online game category. focus. Users of the current consoles can compete against each other through the Internet and can also purchase additional games or additional game content Market size and growth by region such as costumes or game objects from the consoles’ The video game market in North America, EMEA (Europe, marketplaces. While the ability to purchase additional Middle East, Africa), Asia Pacific, and Latin America will games is not new, what is new is the increasingly rich expand from $51.4 billion in 2008 to $73.5 billion in 2013, forms of content, graphics, and interaction they provide. growing at a 7.4 percent compound annual rate. EMEA, We expect that by 2012, the next generation of consoles the largest region, at $18.1 billion in 2008, is projected to will have begun to be introduced, which will spur renewed grow by 6.9 percent on a compound annual rate through growth in console games. The increasing popularity 2013 and reach $25.3 billion. North America, the second- of massive multiplayer online games (MMOGs)—with largest region in 2008, with $16.2 billion, is projected to their subscription fees, in-game advertising, and grow by 5.8 percent compounded annually to $21.6 billion. microtransactions—is also aiding the growth of the market. Asia Pacific will be the fastest-growing region during the Casual games are a further important component of the next five years, at 9.4 percent compounded annually from online market, helping expand the demographic base and $15.7 billion in 2008 to $24.7 billion in 2013, surpassing stimulate spending. North America in 2010 to become the second-largest Newer mobile phone handsets that are capable of region. Latin America is projected to grow to $2.0 billion downloading games and that provide larger screens in 2013 from $1.3 billion in 2008, a 9.2 percent compound and better graphics will drive demand for wireless annual gain. games. At the same time, the growth of third-generation (3G) networks, with their faster speeds, will provide an Market size and growth by component environment that will enable wireless games to approach the quality of console games. Global console games, the largest category, at $30.4 billion in 2008, will expand at a 5.5 percent compound annual Although the market for PC games will continue to rate to $39.7 billion in 2013. PC games will continue to deteriorate as consumers turn their attention to newer decline, falling at a 1.2 percent rate compounded annually technologies, the purchase of a PC game is often the to $4.1 billion from $4.3 billion in 2008. Online and wireless requirement for entry into the world of MMOGs. games will be the fastest-growing end-user categories, Video game advertising is emerging as an additional with compound annual increases of 10.6 percent and 13.8 revenue stream. The growth of the online game market will percent, respectively. Online games will total $13.7 billion fuel growth in dynamic in-game advertising. in 2013, and wireless games, $13.4 billion. There is an emerging video game advertising market, which totaled $1.4 billion in 2008, a figure that will increase to $2.6 billion in 2013, growing at a 13.8 percent compound annual rate.

350 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Console/handheld hardware PlayStation 3 The introduction of a new generation of consoles drives The PlayStation 3 (PS3) was launched in November 2006 the console game market in all regions. The Xbox in the United States, Japan, Hong Kong, Taiwan, Mexico, 360 from Microsoft, the Wii from Nintendo, and the and Canada, and in March 2007 in EMEA, Australia, and PlayStation 3 from Sony all began to be introduced in Singapore, with subsequent launches in the remaining 2005 and were available in all regions by 2007. Those territories later in 2007. As with the Xbox 360, Sony has new consolescombined with the popular handheld introduced a number of different PS3 models since the devicesdrove the console/handheld game market to a PS3’s introduction. The newest, 80-gigabyte and 160 GB 28.4 percent increase in 2007, followed by an additional models make the PS3 more competitive with the Xbox 19.4 percent increase in 2008 to $30.4 billion. Growth will 360 with respect to price, but they usually contain larger slow in 2009–11 as the cycle of the current generation hard drives and Blu-ray disc players. Additionally, Sony of consoles matures. We expect the next generation of provides an online environment where game developers consoles to begin to be introduced in 2012, which will control their own activities. The PS3 has sold about 20 provide another boost to the market. Japan is the leading million units worldwide as of the end of 2008. market in video game development, with Nintendo and Sony developing many games for their consoles. The Nintendo Wii United States—led by Microsoft, Electronic Arts, Take- The Wii, which was launched in November 2006, is being Two, and Activision Blizzard—also has a strong game marketed as a game machine, as opposed to the Sony development market, as do the UK, France, and Canada. and Microsoft machines, which are being promoted as media centers for home entertainment. Nintendo is trying Microsoft Xbox 360 to expand the universe of game players to include younger Microsoft was the first company to introduce its newest- children, older adults, and women. The Wii has outsold generation console, the Xbox 360, when it was launched the Xbox 360 worldwide despite coming to market a year prior to the holiday season in 2005 in North America, later than its competitor and is the only one of the three Europe, and Japan. Following price reductions in Japan, consoles that has not lowered its price yet. Microsoft introduced price reductions on each of its It is expected that the current cycle of consoles will last consoles in North America in September 2008. The entry- longer than previous cycles because demand remains level Xbox 360 is now priced below the Wii, leading to a high and none of the manufacturers have even hinted at marked increase in sales for the Xbox 360 in the fourth plans for the next round of consoles. The current games quarter of 2008. are vastly superior to games produced for the previous Microsoft promotes its Xbox Live service as a unique generations of consoles and would be hard to improve feature of its consoles. With the service, gamers can upon. We would expect Nintendo to be the first to download hundreds of games as well as television shows introduce a new version of its console because the Wii is and movies. Consumers can watch programming on their the only one of the three consoles that does not have high- television sets, as opposed to computers, as is common definition playback. with other download services. There are more than 17 million members of the Xbox Live community. Handheld devices The Microsoft Xbox 360 has sold a total of 28 million Despite the interest in the new generation of consoles, units worldwide as of the end of 2008—around 8 million the market for portable game consoles continued to show more than the PS3. In North America, the Xbox 360 has a strength. The Nintendo DS is the leading portable device wide lead over the PS3, while in Europe, sales of the two on a worldwide basis because of its simplicity, which has consoles are very close. By contrast, in Japan, the Xbox broadened its appeal beyond hard-core gamers. The DS 360, which appeals primarily to Western gamers, has not has two screens, providing players with two views of performed well. the action.

Video games | Summary 351 The DS has broadened the market, attracting women and The microphone can make calls using Skype without the older players with its Touch Generation brand of games, need for a handset, can communicate with other PSP which includes a number of games in the Nintendogs and players, and can be used in such games as the language Brain Training franchises, both of which are exclusive to translation game TalkMan. The PSP with Remote Play the Nintendo DS. lets users watch programs on the PSP by accessing the information wirelessly from the PS3, in which the programs The other major game in the sophisticated portable market are recorded by PlayTV. It started selling in late 2008 is the Sony PSP (PlayStation Portable), a handheld game in Europe. device equipped with a 4.3-inch LCD screen that plays music and movies on a new proprietary minidisc called the Sony’s next-generation handheld console, the Nintendo universal media disc (UMD) that holds 1.8 GB of data. DSi, was introduced in Japan in late 2008 and is expected to be released in EMEA and North America in 2009. The In October 2008, Sony introduced the PSP-3000, the DSi has two cameras, a music player, and applications newest version of the handheld device. It looks like the that enable users to download games. The DSi is also Slim & Lite version released in 2007 but has new features, backward compatible, allowing users to play DS games. including an internal microphone and an enhanced display.

Data for the global video game market by region and for the global video game market by component can be found within the Executive Summary on pages 44 and 45.

352 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief • Consumer spending on games will expand at a 5.4 percent compound annual rate to $20.1 billion from • The console video game market is being driven by the $15.5 billion in 2008, while advertising will rise from newest generation of platforms. $765 million in 2008 to $1.4 billion, a 13 percent • The online game market will benefit from new business increase compounded annually. models, the increased use of the newest consoles • Console/handheld games will continue to dominate that enhance online activity, and rising penetration of the market, increasing at a compound annual rate of broadband homes. 5.5 percent to $15.5 billion in 2013 from $11.9 billion • The deployment of game-friendly mobile phone in 2008. handsets will expand the market for wireless games. • Online games are expected to increase from $2.0 billion • The market for PC games will continue to stagnate as in 2008 to $2.7 billion in 2013, growing by 6.4 percent interest shifts to other forms of games. on a compound annual basis. • Attractive video game demographics, dynamic • Wireless games will be the fastest-growing end-user advertising, and video game viewer ratings will segment, increasing by 8.0 percent on a compound attract advertising. annual basis from $858 million to $1.3 billion in 2013. • The PC game market will decrease to $697 million Overview in 2013 from $789 million in 2008, a 2.4 percent compound annual decline. • The overall video game market is projected to grow by 5.8 percent compounded annually to $21.6 billion in 2013 from $16.2 billion in 2008.

Video game market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Console/handheld games 6,663 6,427 6,935 9,289 11,881 12,532 12,788 12,955 13,963 15,535 Online games 714 1,018 1,382 1,708 1,950 2,090 2,186 2,309 2,479 2,657 Wireless games 319 422 563 723 858 943 1,017 1,090 1,167 1,259 PC games 1,215 1,053 1,071 1,010 789 781 765 743 720 697 Total end-user spending 8,911 8,920 9,951 12,730 15,478 16,346 16,756 17,097 18,329 20,148 Advertising 30 116 350 585 765 886 1,042 1,184 1,303 1,410 Total 8,941 9,036 10,301 13,315 16,243 17,232 17,798 18,281 19,632 21,558

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | North America 353 Video game market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Console/handheld games 8.8 –3.5 7.9 33.9 27.9 5.5 2.0 1.3 7.8 11.3 5.5 Online games 51.3 42.6 35.8 23.6 14.2 7.2 4.6 5.6 7.4 7.2 6.4 Wireless games 111.3 32.3 33.4 28.4 18.7 9.9 7.8 7.2 7.1 7.9 8.0 PC games –8.0 –13.3 1.7 –5.7 –21.9 –1.0 –2.0 –2.9 –3.1 –3.2 –2.4 Total end-user spending 10.5 0.1 11.6 27.9 21.6 5.6 2.5 2.0 7.2 9.9 5.4 Advertising — 286.7 201.7 67.1 30.8 15.8 17.6 13.6 10.1 8.2 13.0 Total 10.9 1.1 14.0 29.3 22.0 6.1 3.3 2.7 7.4 9.8 5.8

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The video game market in the United States is • The Canadian video game market will increase by 6.2 expected to grow from $14.7 billion in 2008 to $19.5 percent on a compound annual growth rate, reaching billion in 2013, exhibiting a 5.8 percent compound $2 billion in 2013 from $1.5 billion in 2008. annual growth rate.

Video game market by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 8,230 8,270 9,342 12,100 14,738 15,629 16,119 16,538 17,764 19,524 5.8 Canada 711 766 959 1,215 1,505 1,603 1,679 1,743 1,868 2,034 6.2 Total 8,941 9,036 10,301 13,315 16,243 17,232 17,798 18,281 19,632 21,558 5.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Console/handheld market We expect more-moderate growth until the end of the forecast period, when the next cycle of consoles is • Following a 33.9 percent rise in 2007, the console game expected to debut. market continued to surge in 2008 with a 27.9 percent increase despite the deteriorating national economy. Hardware platforms • That pattern reflects the introduction of a new Consoles generation of video game consoles. The current cycle began with the introduction of the Microsoft Xbox • In September, Microsoft lowered the price of its 360 in November 2005. The other two manufacturers, consoles in the United States, with the Arcade model Sony and Nintendo, introduced their new machines, (without a hard drive) reduced to $199, the 60 GB Pro the Sony PlayStation 3 and the Nintendo Wii, a year model reduced to $299, and the 120 GB Elite model later, in November 2006. Games that were developed reduced to $399. The 20 GB model was discontinued. for the new platforms began to fuel the market in 2006 The Arcade version of the Xbox 360 is the first of the and provided continued strength in 2007 and 2008. current generation of consoles to break the $200 price barrier. It is now priced $50 below the Wii. Sales of the

354 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Xbox 360 increased dramatically after the reduction in maturity. We anticipate sales to pick up in 2012 and price. There was a similar price reduction in Canada, 2013 because the manufacturers are expected to with a similar spike in sales of the Xbox 360. More than introduce the next generation of consoles. The number 5 million Xbox 360 units were sold in North America in of consoles sold (excluding handheld devices) is 2008, with a cumulative total in North America of over expected to decline from 20.9 million units in 2009 to 15 million since introduction. a low of 15 million in 2011 before recovering to 18.3 million in 2013. The United States and Canada are • On November 19, 2008, Microsoft introduced the New expected to exhibit similar patterns, decreasing from Xbox Experience for the Xbox Live environment with a their historical highs in 2008 through 2011 and then new user interface, the ability to install games directly to recovering at the end of the forecast period. the console, and a partnership with Netflix in the United States that facilitates the streaming of movies to Xbox Handheld devices Live Gold members. The Xbox Live Marketplace has become the second-largest online video distribution • The Nintendo DS was introduced in North America system, surpassed only by Apple’s iTunes. in November 2004, and the redesigned DS Lite was introduced in 2006. Sales totaled around 11 million • Sony launched its PlayStation 3 in November 2006, units in North America in 2008, with cumulative totals with sales in North America totaling around 4 million of around 30 million. The next-generation Nintendo DSi, in 2008 and a cumulative total of more than 7 million already available in Japan, is expected to be introduced since introduction. in North America in 2009. • The PS3 was originally priced at $499 in the United • The other major device in the sophisticated portable States for a console with a 20 GB hard drive and $599 market is the Sony PlayStation Portable. PSP owners for one with a 60 GB hard drive. Since then there have are able to transfer content from their PS3s that has been a number of new models and price reductions, been downloaded from the PlayStation Store. Sony with the current, most popular model, the 80 GB introduced its newest version, the PSP-3000, in 2008 at version, selling for $399. a price of $169 in the United States. Sales of the PSP • In July, Sony introduced its video download store continue to trail those of the DS, with North American through its PlayStation Network service. The service sales of more than 4 million in 2008 and a cumulative includes television programs that can be purchased as total of around 15 million since introduction, half of that well as movies that can be either purchased or rented. of the DS. Additionally, downloaded content can be transferred to the PSP. Console/handheld game market • The console/handheld game market rose by 28 percent • The Wii was launched on November 19, 2006, a year in 2008 following a 34 percent increase in 2007. Rather later than the Xbox 360. By 2008, cumulative sales of than following the national economic cycles, the video the Wii had surpassed those of the Xbox 360. North game industry follows its own cycle—that of the video American sales of the Wii were around 11 million in game consoles. New games introduced for the current 2008, taking its total sales since its introduction to generation of consoles fueled growth. around 19 million. • Games are developed by the console manufacturers • The price of the Wii has remained at $249 in the United for exclusive use on their consoles. Additionally, third- States, unchanged from its original price. It is the party developers design either (1) games for exclusive only console that has not lowered its price, because use on a particular console or (2) different versions demand remains robust. for the different platforms. Console manufacturers • Console sales showed a dramatic increase in 2008. prefer exclusive titles in order to spur sales of their Sales are still expected to remain strong in 2009 though consoles. Conversely, popular consoles will drive game not at the 2008 level. Sales are expected to decline developers to produce titles for that console. through 2011 as this cycle of consoles approaches

Video games | North America 355 • The top four games in terms of sales were all Wii • With the uncertainty in the global economy, game exclusives, the most popular of the current generation developers are more likely to rely on proven product. of consoles. The top-selling game Wii Play was actually We expect sequels to be used as a safety measure in released in February 2007 and sold more than 5 million 2009. The 2009 sequels include Assassins Creed 2, Call copies in 2008. The other top-selling Wii games were of Duty: Modern Warfare 2, Resident Evil 5, BioShock 2: Mario Kart Wii, Wii Fit, and the fighting gameSuper Sea of Dreams, and Killzone 2. Some of the other major Smash Bros. Brawl. titles that are expected to do well in 2009 are Halo 3: ODST and Halo Wars for the Xbox 360, MadWorld • The only non-Wii game in the top five games was and Wii Sports Resort for the Wii, and Heavy Rain Grand Theft Auto IV for the Xbox 360, which debuted for the PS3. in April 2008. This was the first in the Grand Theft Auto (GTA) series to be released simultaneously on the • Canada is the home of a number of top video game Microsoft and Sony platforms. Previous GTA games developers. The two top game development studios in were released on the Microsoft platform after they were Canada are Ubisoft in Montreal, which developed Tom released on the Sony platform. GTA IV: The Lost and Clancy’s Splinter Cell: Double Agent and Electronics Damned was released in February 2009 as a download Arts in Burnaby, , which developed to the Xbox 360. Together with the PS3 version, the FIFA Soccer—one of the most popular games in the newest game in the popular Grand Theft Auto franchise world—as well as Need for Speed Undercover. Around sold more than 5 million copies in 2008. 20 percent of the top-selling games in North America are developed in Canada. • Casual games constitute a significant portion of the market. Within that segment are a number of • Many provinces in Canada provide tax incentives to music-related titles that have done very well, such encourage development of the video game industry. as Activision Blizzard’s Guitar Hero series. Sales for Many game developers have moved to Canada from the franchise, which began with the original Guitar the United Kingdom and France to take advantage of Hero game developed for the PlayStation 2 (PS2) in Canadian tax benefits. November 2005, have sold more than 23 million units • The game industries in Canada and the United States across all platforms worldwide. are very similar, with most of the top games popular in • First-person shooter games are quite popular in North each country. One exception is that hockey games are America. Some of the major titles in this genre are Halo much more popular in Canada than in the United States. 3, Call of Duty 4: World at War, and Gears of War 2. • With the current generation of consoles now maturing, • Video games also are being used for training. In we expect console game sales growth to slow sharply the most well-known example, the US military has beginning in 2009 to 5.5 percent, with slower gains developed a number of video games to train its troops of 2 percent in 2010 and 1.3 percent in 2011 as the for combat. The games can put commanders and platforms age. We expect the next generation of enlisted personnel in simulated positions that would consoles to begin to be introduced in 2012, which will be very difficult and expensive to re-create in real life. create a new cycle and lead to accelerating growth Airplane pilots have been using flight simulators to during 2012–13. For the forecast period as a whole, the practice their takeoffs and landings at different airports console/handheld game market in North America will around the world while sitting at their desks. First increase by 5.5 percent on a compound annual rate responders have been fine-tuning their responses to from $11.9 billion in 2008 to $15.5 billion in 2013. emergency situations through a number of different • The console/handheld game market in the United video game simulations. Games are being developed States is expected to grow by 5.5 percent on a for training purposes in the manufacturing, mining, compound annual basis from $11 billion in 2008 to utilities, and health-care industries, where accidents $14.4 billion in 2013. can result in losses of thousands of dollars or death. It is much easier to practice techniques by using a • A similar pattern is expected for the Canadian console/ computer simulation in cases where real-life mistakes handheld game market, with revenues increasing 5.1 could be deadly. percent on a compound annual basis from $881 million in 2008 to $1.1 billion in 2013.

356 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Console/handheld game market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 6,242 6,017 6,462 8,639 11,000 11,603 11,839 11,994 12,936 14,405 5.5 Canada 421 410 473 650 881 929 949 961 1,027 1,130 5.1 Total 6,663 6,427 6,935 9,289 11,881 12,532 12,788 12,955 13,963 15,535 5.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Online games emerging is that of microtransactions, whereby gamers buy in-game accessories to enhance their gaming • The PC platform was traditionally the only means to experience. Microtransactions have been very popular play games online and is still the dominant platform. in Asia, where the piracy of PC games has made the In 2002, both Sony and Microsoft introduced online retail market almost nonexistent. Instead, games are gaming capabilities using their consoles. Each of the downloaded for free, with revenues being generated consoles has features to entice online users, including through microtransactions for the purchase of weapons online marketplaces Xbox Live, PlayStation Store, and equipment that improve one’s competitive abilities and Nintendo Wii Shop to purchase games and allow in games or for personalization of avatars. competition against other players anywhere via the Internet. • In January 2008, Electronic Arts announced that it would be introducing a new distribution and pricing • The most popular games played online using the Xbox model for Battlefield Heroes. Instead of selling the Live system in 2008 were Halo 3, Call of Duty: Modern game, Electronic Arts is providing it as a free download Warfare, and Grand Theft Auto IV. Castle Crashers was to PCs. The game will generate revenue through the most downloaded Xbox Live Arcade game in 2008. advertising and microtransactions such as colorful • Wii gamers can play against other players for free, but clothing and boosts that will increase the speed and there are only about 40 games available for online play agility of the characters. Electronic Arts tried this compared with more than 100 on the PS3 and more business model successfully in South Korea with the than 350 on the Xbox 360. The Wii Shop Channel has FIFA game. Advertising will appear on the Web site many classic games such as Donkey Kong that can be and at the front end of the game rather than within the purchased. The Wii, which provides users with a news game, which takes place in a fictional world, making it channel, is the only one of the three platforms that does an inappropriate destination for advertising. Electronic not have a movie download service. Arts is hoping to reach users who do not normally buy games. It is likely that more game publishers will move • Idol Minds’ Pain was the most-often-downloaded game to the microtransaction revenue model to entice more on the PlayStation Network, helped by the fact that it players to the genre without requiring upfront costs. was bundled for free with Metal Gear: Solid 4. Additionally, players can determine how much they • A number of different business models are used for want to spend on their gaming experience. generating revenues from online gaming. Most of • There are a number of online sites such as Yahoo! the casual games are played for free, with revenues Games, MSN’s Zone, and Electronic Arts’ Pogo. being generated from advertising on the Web site com that provide some free games, with most of their and included in video game advertising. Most of the revenues coming from advertising. These sites reach massive multiplayer online games require the retail tens of millions of game players. purchase of a game and then a monthly subscription to play it online. A new business model that is

Video games | North America 357 • Most MMOGs are about conflicts between warriors, many of the casual games purchased at retail have a wizards, or aliens. Unlike most video games that have free online component. Big Fish Games and PopCap plots and endings, MMOGs are virtual worlds that are two of the major companies concentrating on continue to evolve. Most MMOGs are played on PCs, downloading casual games for the PC. with additional content being delivered over broadband • The online game market in North America has grown at connections. World of Warcraft (WoW), which was double-digit annual rates since 2004, including a 14.2 launched in November 2004, is by far the most popular percent gain in 2008. Growth has been driven by the MMOG, attracting more than 11.5 million players increase in broadband subscribers and the transition worldwide, who pay up to $15 a month to play. The to the current generation of consoles. There are more game is now available in eight languages. In November subscription services entering the market, as well as 2008, Blizzard Entertainment, a division of Activision more companies providing digital distribution. Blizzard, the developer of the game, released an expansion pack called World of Warcraft: Wrath of the • With the broadband market now mature, broadband Lich King, which adds new locations, character classes, household growth will moderate during the next five and abilities to the game. This is the second expansion years, growing at a 6.9 percent compound annual pack for the game following the successful launch of rate. From 2004 to 2008, by contrast, the number of World of Warcraft: The Burning Crusade in 2007. broadband households in North America increased at a 23.2 percent compound annual rate. The slowdown in • Since top MMOGs are quite lucrative, with a continuing broadband household growth will lead to a slowdown in revenue stream, a number of new games are being online gaming growth. developed for the format. Some of them are Star Trek Online and DC Universe Online, based on Superman, • Additionally, with the current generation of consoles Batman, and other superheroes. maturing as well, we expect the online game market to slow sharply during the next two years, dropping • Valve Corporation, creator of the popular Half- to a 7.2 percent advance in 2009 and increases Life games, pioneered in 2004 the concept of the averaging 5.1 percent annually during 2010–11. A new downloading of PC games via its online service called generation of consoles expected in 2012 will lead to the Steam, which provides games from different publishers. introduction of new online games, which will boost the In December, Electronic Arts joined the Steam network. market. We expect the growth to pick up during 2012– Unlike other publishers such as Activision, Take-Two, 13 to 7.3 percent annually, although we do not expect and Atari that have long sold games through Steam, a a return to double-digit gains, because broadband major online distributor of games, Electronic Arts had household growth is slowing. been noticeably absent, selling its games on its own Web site and through other Web sites like Direct2Drive. • For the five-year forecast period, the online game Steam has more than 15 million users worldwide. market will grow from $2.0 billion in 2008 to $2.7 billion, increasing at a 6.4 percent compound annual rate. • Although the MMOGs get the most publicity, casual games such as puzzles, cards, and arcade games that • The online game market in the United States is do not require extended periods of time to learn and expected to increase from $1.6 billion in 2008 to $2.2 to play have more players. Casual gaming attracts a billion in 2013, while the Canadian online game market wider demographic audience, including women and will increase at a slightly faster rate, growing at a 7.3 older adults. In fact, the majority of online gamers in the percent annual rate to $491 million in 2013 from $345 United States are women. By contrast with the MMOGs million in 2008. that generate most of their revenues from subscriptions,

358 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Online game market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 559 821 1,104 1,399 1,605 1,722 1,794 1,891 2,027 2,166 6.2 Canada 155 197 278 309 345 368 392 418 452 491 7.3 Total 714 1,018 1,382 1,708 1,950 2,090 2,186 2,309 2,479 2,657 6.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wireless games become more prevalent as the number of technically advanced handsets proliferates. The new handsets • The wireless game market began in 2002 when wireless have bigger screens, faster processors, 3-D graphics, carriers started selling phones capable of downloading advanced sound capabilities, and more storage for additional games. Until then, consumers played such memory-intensive games. games as Snake and Tetris that were embedded in the phones but could not download additional games. • A number of different business models are currently Those games did not generate a separate spending being used to generate revenues in the wireless game stream. Almost all of the new wireless phones are now market. The most common method is the downloading Internet enabled, thereby enhancing the potential for of a game wirelessly from the operator’s Web site and downloading games. The increasing sophistication paying a onetime fee of around $5 to $12. Alternatively, of the new handsets will make for a more enjoyable games can be downloaded to a PC and then side gaming experience. As individuals upgrade their loaded to the wireless device. A growing number of existing handsets for newer models, the number of players subscribe to a particular game and pay around game-capable handsets will increase dramatically. $2 to $6 a month to continue playing the game. • Most of the mobile games are simple and similar to • As new platforms with more-user-friendly interfaces games developed for consoles 10 to 15 years ago, emerge, we would expect more people to download because the graphics capabilities of the handsets are games. A number of these provide appealing limited. As a result, the most popular mobile games are alternatives to the operator decks as well as access single-player board games, word games, and puzzles. to game developers to sell their games directly to Additionally, the average amount of time spent playing consumers without having to go through operator is less than 30 minutes, requiring games to be much decks. There are other new platforms, including simpler than console games that can take hours to Android’s Marketplace and Nokia’s -Gage. Gameloft complete. A significant portion of wireless players are and Glu Mobile, two of the major mobile game simply looking for something to do while waiting and publishers, are launching games for all three of the thus prefer the simpler games, as opposed to the more new platforms. EA Mobile, another major mobile game advanced types of games that are more immersive. developer, is waiting to deliver games for the Android The casual games also help widen the demographics platform until a billing system is established. Until then, of the wireless game players. In fact, more than half of the Android is supplying free content. wireless gamers are women who enjoy playing casual • Apple’s iPhone and the iPod Touch are major new games such as Tetris and Bejeweled, the two most- additions to the wireless gaming market. Video often-downloaded wireless games in 2008. games are available on Apple’s App Store and can be • At the other end of the spectrum, there is a small but downloaded directly to the iPhone and iPod Touch. growing segment of the market that is interested in Many games are being developed to take advantage advanced 3-D and multiplayer games. Such games will of the touch screen. EA’s release of Spore Origins, an

Video games | North America 359 iPhone version of the very popular PC game, became • North America is behind EMEA and Asia Pacific in an instant hit for the iPhone. the wireless market because of slower adoption of 3G technology, which provides wireless high-speed • A relatively new approach is the free advertiser-supported Internet access. The growth of 3G networks combined game. Greystripe, the pioneer in the free, ad-supported with the increasing number of game-friendly handsets wireless game market, is still the leading distributor. that offer bigger screens and 3-D graphics will help Greystripe now enables advertisers to sponsor an entire drive the market. game, thereby providing maximum exposure and keeping other advertisers away. Greystripe also introduced a • Although the number of people playing games on their means for players to click to advertisers’ mobile Web phones is growing, the percentage who are paying to sites. A new company called Swoopin.org entered the download games is still quite small—in the mid-single- market in October 2008 with more than 800 games. Glu digit range. Most people are still playing embedded Mobile entered the ad-supported market by making its games or ad-supported games. Carriers are beginning Space Monkey game available to iPhone users for free. to reduce the number of embedded games and are Glu shows its ads when a level is completed. advertising the availability of games on their decks to increase the number of people downloading games. • A number of new distribution models are emerging. The newer, more advanced phones are providing a Digital Chocolate, a Silicon Valley start-up, is using more pleasant gaming experience. Facebook and other online communities to distribute community-based games. Greystripe signed a deal with • The wireless game market in North America rose by NBC Universal to distribute more than 850 free games 18.7 percent in 2008. We expect growth to drop to through NBC’s Web sites. single digits beginning in 2009, reflecting approaching saturation in the wireless telephone market, and slower • A small but growing number of wireless games provide handset sales, reflecting the economic recession. additional game content that can be downloaded to During the next five years, the market will expand at an mobile phones to facilitate competitive play. Sims 2 and 8 percent compound annual rate from $858 million in World Poker Tour: Texas Hold ’Em are among the most 2008 to $1.3 billion in 2013. popular games that use wireless network elements. Many games have leader boards to match scores with • The wireless game market in the United States is other players. expected to grow by 8.0 percent on a compound annual basis, reaching $1.1 billion in 2013, up from • A new development is the concept of motion-sensing $775 million in 2008, while the Canadian market will games that turn wireless handsets into game controllers increase from $83 million in 2008 to $121 million in similar to the Wii controller. The games use phone 2013, a 7.8 percent compound annual growth rate. cameras to detect movement, giving games a more real feel.

Wireless game market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 294 382 507 653 775 852 919 986 1,055 1,138 8.0 Canada 25 40 56 70 83 91 98 104 112 121 7.8 Total 319 422 563 723 858 943 1,017 1,090 1,167 1,259 8.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

360 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 PC games • Microsoft has been one of the major supporters of PC gaming by establishing Windows System Performance • With the exception of 2006, the retail market for PC Ratings, which measures a computer’s power. Microsoft games has been in decline for a number of years as the is also trying to improve the gaming environment by rise of the consoles has shifted the market away from branding popular PC games as Games for Windows, the PC. It must be noted that this section deals only with thereby guaranteeing their quality, adherence to the retail sales of PC games and does not include digital ratings standards, and ease of installation, as well as distribution of PC games, subscriptions to online games, identifying which computers they will work on based on or microtransactions that take place in online games. their ratings. Those revenue streams are growing in importance and are included in the online game category. • Microsoft’s Windows Vista operating system provides several enhancements for gaming, including Windows • One of the factors aiding the PC market is the growth Vista Game Explorer, parental controls, DirectX 10 of MMOGs, wherein consumers buy the packaged graphics technology, and compatibility with Xbox game and then play it online. Players typically pay to 360 controllers. The explorer puts all game icons in a buy the initial copy of the game and then pay a monthly single area. Parental controls can be established for subscription fee to play online. each child based on the game’s rating or genre. The • World of Warcraft as well as its expansion packs World new graphics technology enables game developers to of Warcraft: Burning Crusade and World of Warcraft: provide increased realism in their games. Gamers can Wrath of the Lich King were among the best-selling now use their Xbox 360 controllers on PCs. PC games in 2008. In fact, World of Warcraft: Wrath of • The long-term retail market for PC games will continue the Lich King, which sold 2.8 million copies in its first to deteriorate as console games attract more attention 24 hours and 4 million in its first month, surpassing the from gamers and developers. The increased digital previous records held by the previous expansion pack, distribution of PC games, which are included in online went on to become the top-selling PC game of the year. games, will also have a negative effect on the retail sales Two new MMOGs introduced in 2008—Age of Conan of PC games. While they have a smaller base, there will and Warhammer Online: Age of Reckoning—were both continue to be a market for PC games because they among the top-five-selling PC games in 2008. are cheaper to produce, resulting in a lower average • In addition to the World of Warcraft, the other major price compared with console games. Additionally, they franchise that continues to aid PC game sales are the will be popular with players who buy sophisticated various Sims games, including The Sims 2 FreeTime, gaming computers that can outperform even the newest The Sims 2 Apartment Life, and numerous other Sims consoles. Last, they will continue to be the portals to games. Electronic Arts is developing Sims 3 for release the world of MMOGs. Some people will continue to in 2009. purchase PC games at retail rather than downloading them, because of their portability, enabling them to take • MMOGs are more suitable for the PC platform because a game to a friend’s house to play. they have complex commands that are easier to accomplish with a keyboard and mouse than with a • We expect the number of games sold to show modest game console controller. Additionally, MMOGs store decreases throughout the forecast period. North many megabytes of data on a computer’s hard drive. American spending on PC games will decline from $789 Depending on the size of a console’s hard drive, it may million in 2008 to $697 million in 2013, decreasing at a not be feasible to download the required data with compound annual rate of 2.4 percent. game consoles. • The US PC game market will decline by 2.5 percent • Some new PC games to look forward to in 2009 are annually from $708 million in 2008 to $625 million in 2013, The Sims 3, StarCraft II, BioShock 2: Sea of Dreams, while the Canadian market will decline from $81 million to Batman: Arkham Asylum, and Resident Evil 5, some of $72 million, a 2.3 percent compound annual rate. which will be available on multiple platforms.

Video games | North America 361 PC game market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 1,105 950 969 909 708 702 687 667 646 625 –2.5 Canada 110 103 102 101 81 79 78 76 74 72 –2.3 Total 1,215 1,053 1,071 1,010 789 781 765 743 720 697 –2.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Advertising before it was officially unveiled at the Los Angeles auto show. The most famous example of advergaming was • As the number of video game players continues to produced by Burger King in 2006, when it featured the increase, advertisers are turning to games as a means company’s mascot, the King, in several games, including of reaching specific demographic groups that are Burger King’s Sneak King. The games were sold at becoming more elusive. The prime target are males Burger King restaurants for $3.99 with the purchase aged 18 to 34 years who are spending less time of a value meal and sold about 4 million copies. watching television and more time playing games. • With the advent of online gaming, a more advanced type • Game publishers have been inserting ads into games of advertising became possible. Advertisers can now almost from the time that games were first developed. place ads that can be changed dynamically through the The initial ads were in static form such as billboards Internet. For example, a billboard promoting a movie can that appeared in the background of sporting events. be updated as new films get released. In this way, the In-game advertising also includes product placements advertising will always be fresh. Additionally, advertising such as a character drinking a brand of soda or driving can be geographically targeted, with specific messages an identifiable automobile. These static ads had to be hitting different areas. Ads can also be programmed to inserted when the games were developed, and they be delivered at specific times of the day. Since online could not be changed, requiring months of planning. games are attached to the Internet, it’s also possible to • Sports games and games set in contemporary times track the number of times a gamer is exposed to the benefit from ads because they give them a more ads and the amount of time that the ads appear on realistic feeling. It would be hard to imagine a baseball the screen. outfield without advertising on the walls. Ads would • Massive Inc., owned by Microsoft, has deals with not be appropriate in games set in historical times Electronic Arts, THQ, and Activision to insert ads in or fantasy worlds. For example, Halo 3 contains a number of their games. Any advertiser that wants no advertising, while Guitar Hero III is packed with to place ads in Xbox 360 games must work through advertising. For games that are not appropriate for Massive Inc. in-game advertising, players are rewarded for watching ads before the games begin, with extra levels and • Microsoft has been placing ads in its Xbox 360 games aftermarket add-ons. for several years, while Sony began permitting in-game advertising in the middle of 2008. Nintendo still does • Advergaming is the practice of using a video game to not permit in-game advertising in any of its games. promote a product. Such games are often played for free on corporate Web sites. Nissan took a novel approach • Sony is taking a different approach to its in-game in promoting its 2009 model 370Z by unveiling the new advertising by opening up its platform to allow sports car in a video game before public introduction independent ad companies to broker deals with of the car. A virtual version of the 370Z appeared in third-party game publishers. IGA Worldwide and Electronic Arts’ Need for Speed Undercover racing game Double Fusion, two companies that also developed

362 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 the technology to insert dynamic ads in games, have • A new trend is the emergence of advertising for casual partnered with Sony to place dynamic ads in PS3 games. Unlike the in-game advertising used in action games. IGA signed exclusive deals with Activision and games, this type of advertising usually takes the form Electronic Arts to deliver in-game ads for the PS3. of a preroll, where an ad appears for several seconds before game action begins. In this way, casual games • In 2007, Google, the leader in Internet advertising, on PCs and wireless devices can be offered for free. acquired Adscape Media, another company that developed a method to insert advertising in games. In • Game publishers are actively pursuing advertising as October 2008, Google announce the launch of Google an additional stream of revenues. Dynamic in-game AdSense for Games to insert advertising in games. advertising also provides a continuing source of revenue Google’s initial advertisers include eSurance, Sprint, compared with the onetime purchase of the game. and Entertainment. Currently, the ads are • Currently, display ads, advergames, and advertising being placed in casual Web games, while Google will on Web-based game portals are the major advertising later expand to PC and console games. segments. Dynamic in-game advertising is only a small • Dynamic in-game advertising is the fastest-growing part of the advertising mix, though it is expected to segment of the market, as it provides timeliness and constitute a more important segment of the market by flexibility for the advertiser. Measurement of ads in replacing static ads as the more-important method of video games is undertaken both by Massive and by in-game advertising. Nielsen Metrics. • Video game advertising is still only a small segment of • In September 2007, Double Fusion introduced a new the video game market, with North American revenues technology called fusion runtime that allows advertisers estimated at around $765 million in 2008. We expect to insert ads in games even after the game is finished. that market to expand, fueled by growth in dynamic Even with dynamic advertising, which allows ads to be advertising as online gaming expands. By 2013, video changed dynamically through the Internet, the location of game advertising will total $1.4 billion, growing by 13 the ads could not be changed after the development of percent at a compound annual rate. the game. With the new technology, ads can be inserted • The United States is the major market in the world for after game development is complete, thereby enabling video game advertising, with revenues of $650 million advertising to be inserted in older, back-catalog games in 2008, growing to $1.2 billion in 2013. The Canadian and adding a potential source of income. French game market, being closely associated with that of the United publisher Ubisoft Entertainment and Korean online game States, is a relatively strong market for advertising, publisher NCsoft are among the first to incorporate the with revenues of $115 million in 2008, growing to $220 new technology in their games. million in 2013.

Video game advertising market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 30 100 300 500 650 750 880 1,000 1,100 1,190 12.9 Canada NA 16 50 85 115 136 162 184 203 220 13.9 Total 30 116 350 585 765 886 1,042 1,184 1,303 1,410 13.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | North America 363 Europe, Middle East, Africa (EMEA)

The outlook in brief • Consumer spending on video games will grow by 6.6 percent on a compound annual basis from $17.7 billion • Console/handheld games are being driven by the in 2008 to $24.5 billion in 2013. enthusiasm surrounding the newest game platforms. • Video game advertising is expected to grow by 14.9 • The online market will be spurred by increased percent on a compound annual basis from $400 million penetration of broadband households as well as the in 2008 to $800 million in 2013. growth of the current generation of consoles that promote the online experience. • Console/handheld games will continue to be the largest segment of the market, increasing by 6.2 percent • Wireless gaming will continue to grow, with the compounded annually from $10.7 billion in 2008 to introduction of technically advanced handsets and $14.5 billion in 2013. expansion to casual gamers. • Online games—driven by both casual games and • PC games continue to stagnate because of the MMOGs—will increase by 11.8 percent compounded increased attention paid to console games. annually to $4.1 billion in 2013 from $2.4 billion in 2008. • Dynamic ads in online games will propel video • Wireless games will increase to $3.4 billion by 2013, game advertising. up from $2.1 billion in 2008, a 10.5 percent compound annual increase. Overview • PC game sales will dip from $2.6 billion to $2.4 billion, a • The overall video game market is anticipated to increase 1.1 percent compound annual decrease. from $18.1 billion in 2008 to $25.3 billion in 2013, growing at a compound annual rate of 6.9 percent.

Video game market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Console/handheld games 6,224 6,271 6,748 8,766 10,748 11,300 11,668 12,006 13,025 14,497 Online games 674 996 1,357 1,810 2,363 2,748 3,038 3,295 3,689 4,133 Wireless games 445 828 1,141 1,608 2,063 2,321 2,584 2,861 3,117 3,401 PC games 2,413 2,512 2,627 2,647 2,559 2,538 2,525 2,505 2,471 2,425 Total end-user spending 9,756 10,607 11,873 14,831 17,733 18,907 19,815 20,667 22,302 24,456 Advertising NA 41 206 304 400 460 545 650 736 800 Total 9,756 10,648 12,079 15,135 18,133 19,367 20,360 21,317 23,038 25,256

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

364 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Video game market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Console/handheld games 13.3 0.8 7.6 29.9 22.6 5.1 3.3 2.9 8.5 11.3 6.2 Online games 68.6 47.8 36.2 33.4 30.6 16.3 10.6 8.5 12.0 12.0 11.8 Wireless games 113.3 86.1 37.8 40.9 28.3 12.5 11.3 10.7 8.9 9.1 10.5 PC games –1.5 4.1 4.6 0.8 –3.3 –0.8 –0.5 –0.8 –1.4 –1.9 –1.1 Total end-user spending 14.1 8.7 11.9 24.9 19.6 6.6 4.8 4.3 7.9 9.7 6.6 Advertising — — 402.4 47.6 31.6 15.0 18.5 19.3 13.2 8.7 14.9 Total 14.1 9.1 13.4 25.3 19.8 6.8 5.1 4.7 8.1 9.6 6.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• At $4.7 billion in 2008, the United Kingdom has the • Germany has the third-largest video game market in largest video game market in EMEA and the third EMEA, at $2.8 billion in 2008. In contrast with other largest in the world, behind the United States and countries, Germany’s PC game market is relatively Japan. The United Kingdom is an important game strong compared with the country’s console market. developing center, with such major games as Grand Console game spending is limited by the relatively Theft Auto IV. The industry is concerned that other low penetration of console hardware. Germany has countries, especially France and Canada, will lure strict laws regarding violence in video games. In fact, game developers away by providing tax incentives and Germany has its own board called the USK that reviews has asked the government for similar incentives. The and rates games; most of the other European countries UK game market grew by 20.8 percent in 2008 and is follow the Pan-European PEGI ratings system. The expected to maintain its dominance in EMEA, growing German market will expand to $3.7 billion in 2013, a by 7.5 percent on a compound annual basis, reaching 5.8 percent compound annual increase. $6.8 billion in 2013. • Spain has the fourth-largest video game market in • France is the second-largest video game market in EMEA, at $1.7 billion in 2008. Vodafone Spain is EMEA, at $3.8 billion in 2008, and is home to Vivendi launching a new system to insert ads in video games Universal Games (recently merged with Activision so that users who accept downloads with inserted ads Blizzard), Ubisoft Entertainment, and Infogrames will pay a lower price. By 2013, the Spanish video game Entertainment (owner of Atari)—3 of the top 10 video market will total $2.3 billion, a 6.9 percent compound game developers in the world. Overall, France has annual increase. more than 100 video game companies. France and the • Italy is also a significant video game market, ranking United Kingdom together have produced more video fifth among the countries in the region, with 2008 games than the rest of Europe combined. In February revenues of $1.4 billion in 2008. Italy has a number 2007, the French Parliament passed a bill for a 20 of small companies developing games; many of percent tax credit for video game production costs for the companies are subsidiaries of larger, foreign games that have cultural value. The video game market companies. The games developed locally are often in France is expected to grow by 6.8 percent on a football (soccer) related. Italian spending on video compound annual basis to $5.3 billion in 2013. games is expected to increase to $1.9 billion in 2013, growing at a 7 percent compound annual rate.

Video games | EMEA 365 Video game market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 42 48 57 66 80 86 91 96 104 115 7.5 Belgium 50 57 70 81 98 105 112 119 130 143 7.9 Denmark 41 48 55 65 79 85 90 95 103 113 7.4 Finland 110 114 126 156 177 188 198 209 225 245 6.7 France 2,164 2,281 2,527 3,165 3,795 4,043 4,238 4,434 4,798 5,275 6.8 Germany 1,614 1,729 1,889 2,340 2,779 2,920 3,042 3,154 3,387 3,681 5.8 Greece 28 32 41 47 57 61 66 71 78 85 8.3 Ireland 269 286 323 407 494 531 561 591 642 709 7.5 Italy 723 779 880 1,124 1,362 1,451 1,521 1,591 1,726 1,906 7.0 Netherlands 407 463 570 706 858 936 997 1,057 1,154 1,276 8.3 Norway 106 148 155 196 234 251 266 280 303 334 7.4 Portugal 26 30 36 42 51 54 59 64 69 76 8.3 Spain 849 949 1,084 1,373 1,661 1,771 1,857 1,938 2,100 2,315 6.9 Sweden 46 55 64 76 92 99 107 114 122 135 8.0 Switzerland 49 57 67 79 96 104 112 120 130 143 8.3 United Kingdom 2,449 2,667 3,048 3,915 4,730 5,097 5,379 5,658 6,152 6,776 7.5 Western Europe total 8,973 9,743 10,992 13,838 16,643 17,782 18,696 19,591 21,223 23,327 7.0 Central and Eastern Europe Czech Republic 18 20 25 31 36 40 43 46 50 56 9.2 Hungary 14 16 19 22 26 29 31 31 33 37 7.3 Poland 195 216 251 314 397 420 440 454 472 500 4.7 Romania 7 7 8 13 20 23 25 25 26 27 6.2 Russia 463 551 667 778 842 889 930 962 1,006 1,059 4.7 Turkey 32 37 45 51 61 67 70 75 85 91 8.3 Central and Eastern Europe total 729 847 1,015 1,209 1,382 1,468 1,539 1,593 1,672 1,770 5.1 Middle East/Africa Israel 36 38 48 59 72 78 83 89 96 107 8.2 Saudi Arabia/Pan Arab‡ NA NA NA NA NA NA NA NA NA NA NA South Africa 18 20 24 29 36 39 42 44 47 52 7.6 Middle East/Africa total 54 58 72 88 108 117 125 133 143 159 8.0 EMEA total 9,756 10,648 12,079 15,135 18,133 19,367 20,360 21,317 23,038 25,256 6.9

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

366 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Console/handheld hardware market of Blu-ray as the single high-definition home video standard could help the PS3, whose sales rose sharply Console hardware at the end of 2008. • Microsoft was the first company to introduce the new generation of consoles when it entered the European Handheld devices market with the Xbox 360 in time for the holiday • As the console manufacturers were developing their season in 2005. Since then, Microsoft has launched a next-generation machines, they introduced new number of new models and introduced a series of price handheld devices to buoy the market. reductions. The most recent price reduction lowered • Nintendo’s DS was the most popular hardware format the price of the entry-level Xbox 360 Arcade in the UK across Europe in 2008, outselling its competition by two to £129 ($237) in September 2008. to one since its debut in March 2005. The DS has two • The price reduction of the Arcade brought its price screens, which provide different views of the games. below that of the Wii. Additionally, the high-end Elite The DS features a touch-sensitive screen and enables is now priced below the PS3. As a result of the price players to draw pictures and send them to friends. The reductions, sales of the various Xbox 360 models DS is the leading platform of this generation of game increased dramatically, surpassing those of the PS3. In machines across the region. Dr. Kawashima’s Brain total, the Xbox 360 has sold more than 8 million units in Training series of games helps drive sales of the DS. EMEA since launch—1 million more than the PS3. More generally, the DS found new gamers: women and older people who appreciated its diversity and new • The Xbox 360 is also being helped by a number of game experience. franchises such as Resident Evil and Final Fantasy, which previously were exclusive to the PlayStation. The • Sony introduced its PlayStation Portable device in Xbox 360 does quite well in the UK because its console Europe on September 1, 2005. The PSP is a game player is the leader for first-person shooter games, which are combined with a portable music and movie player. It popular in the UK. By contrast, sales of the Xbox 360 uses a proprietary optical rewritable universal media are relatively weaker in much of the rest of the region. disc. Sony is hoping to attract an older audience and to appeal to those who have not been game players. • The Wii, launched in the UK on December 8, 2006, was the biggest-selling console in the UK in 2007 and by year- end 2008 had an installed base of 4.9 million, surpassing Console/handheld games that of the Xbox 360, which had been launched a year • The EMEA console/handheld game market rose by earlier and which reached 3.2 million at year-end 2008. 29.9 percent in 2007 and by an additional 22.6 percent There is pent-up demand for the Wii because demand in 2008 to $10.7 billion, reflecting the impact of the often surpasses the supply of the consoles. new generation of consoles on game sales. Revenue • Manufacturing delays associated with the Blu-ray growth will drop to mid- to low-single-digit gains during high-definition disc player delayed the launch of Sony’s the next three years as the console cycle matures. We PlayStation 3 in EMEA until March 2007. It meant the expect the growth rate to increase in 2012 and 2013 as PS3 was the third console to enter the region. Despite we anticipate next-generation devices to be introduced. that, sales of the PS3 were competing closely with Revenues will grow to $14.5 billion in 2013, a 6.2 percent those of the Xbox 360 until the recent price reductions increase on a compound annual basis from 2008. helped that console pull ahead. Sony introduced a • As would be expected, football (soccer) games are the lower-priced 40 GB model of the PS3 in an attempt most popular of the sports genre throughout the region, to broaden the market beyond hard-core gamers, but with Pro Evolution Soccer 2009 and FIFA 2009 the most the 40 GB models lack the backward compatibility to popular titles. Other popular games throughout the play PS2 games. The PS3 installed base in the UK had region are Dr. Kawashima’s Brain Training, Wii Play, and reached 1.9 million by year-end 2008. The emergence Super Mario Brothers.

Video games | EMEA 367 • Grand Theft Auto IV, which previously was released • France is the second major market in the region, with on the Microsoft platform after its PlayStation platform revenues of $2.4 billion in 2008, and is expected to release, was released simultaneously on the Xbox 360 increase to $3.3 billion in 2013, or by 6.1 percent in 2008 with exclusive content that can be downloaded compounded annually. Mario Kart Wii, Wii Fit, and Wii from the Xbox Live. GTA IV broke the record for sales in Play were the top three sellers in 2008. its first week in the UK, selling 926,000 units across all • Germany is the third-largest market, with revenues of platforms and thereby surpassing the previous record $1.7 billion. Germany has a strict ratings system that holder GTA San Andreas, which sold 677,000 units in limits sales of violent games and that holds down the two days in 2004 for the PS2. console market. In June 2008, the Federal Assembly • The UK is the biggest market in the region, with passed a law that requires age certificates to be revenues totaling $2.9 billion in 2008. Games for the prominently featured on video games and movies. Wii and the DS dominated the market, accounting for Retailers will not be permitted to sell video games to almost half of all games sold, with Mario Kart Wii and those younger than the age restriction. The legislation Wii Fit the two top-selling games in the UK in 2008 and also effectively bans games that depict realistic scenes Dr. Kawashima’s Brain Training the top-selling game of violence and death. The market is expected to grow for the DS. FIFA 2009 was the top-selling game across to $2.3 billion in 2013, a 6.2 percent compound annual all platforms, with sales totaling more than 2 million increase from 2008. units. Console/handheld game revenues are expected to show modest growth through 2011, with the price of the games declining as is common in the latter stage of the console cycle, with a pickup during 2012–13 as the next cycle begins. Revenues are expected to reach $3.9 billion in 2013, a 6.3 percent compound annual growth rate from 2008.

368 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Console/handheld game market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 30 30 32 36 42 44 45 46 50 56 5.9 Belgium 36 36 39 43 51 53 54 55 60 67 5.6 Denmark 30 30 31 35 41 43 44 45 49 54 5.7 Finland 73 70 74 94 103 108 112 116 126 138 6.0 France 1,548 1,491 1,547 1,978 2,415 2,538 2,619 2,692 2,921 3,250 6.1 Germany 792 844 957 1,323 1,693 1,775 1,836 1,890 2,054 2,286 6.2 Greece 20 20 22 24 29 30 31 32 35 39 6.1 Ireland 194 180 189 239 292 307 317 326 354 395 6.2 Italy 551 541 581 757 930 975 1,004 1,035 1,124 1,252 6.1 Netherlands 174 187 250 332 410 433 448 462 501 558 6.4 Norway 77 105 98 122 145 152 157 162 175 195 6.1 Portugal 18 18 19 22 26 27 28 29 31 34 5.5 Spain 553 654 711 931 1,135 1,190 1,227 1,261 1,366 1,516 6.0 Sweden 33 34 36 43 50 52 54 55 58 65 5.4 Switzerland 35 36 38 44 52 55 57 59 64 71 6.4 United Kingdom 1,809 1,735 1,837 2,394 2,900 3,060 3,160 3,253 3,532 3,936 6.3 Western Europe total 5,973 6,011 6,461 8,417 10,314 10,842 11,193 11,518 12,500 13,912 6.2 Central and Eastern Europe Czech Republic 13 13 15 18 21 22 23 24 26 29 6.7 Hungary 10 10 11 12 14 15 16 16 17 19 6.3 Poland 102 109 120 145 183 192 199 205 220 246 6.1 Romania 1 1 2 5 9 11 12 12 13 14 9.2 Russia 63 67 74 92 115 121 125 129 140 156 6.3 Turkey 23 23 25 28 34 36 37 38 41 46 6.2 Central and Eastern Europe total 212 223 247 300 376 397 412 424 457 510 6.3 Middle East/Africa Israel 26 24 26 33 39 41 42 43 46 51 5.5 Saudi Arabia/Pan Arab‡ NA NA NA NA NA NA NA NA NA NA NA South Africa 13 13 14 16 19 20 21 21 22 24 4.8 Middle East/Africa total 39 37 40 49 58 61 63 64 68 75 5.3 EMEA total 6,224 6,271 6,748 8,766 10,748 11,300 11,668 12,006 13,025 14,497 6.2

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | EMEA 369 Online games • A growing segment of the market is the digital distribution of games, which enables players to get new games • The online game market is composed of several without leaving their homes. Steam is the major online segments. Massive multiplayer online games are distributor of games. Through microtransactions, digital usually role-playing games that take place in fantasy distribution also enables players to purchase additional or medieval worlds and can be played over long equipment that enhances the gaming experience. Such periods of time. After purchasing copies of the game microtransactions are proving to be a significant revenue at retail stores, players pay a monthly fee to participate stream for some games. In fact, some game developers and often make additional purchases to buy online are providing online distribution of their games for free to equipment and accessories. Currently, these games encourage participation and then recouping the revenues are primarily played on PCs. World of Warcraft is the through microtransactions. In December 2008, Electronic leading MMOG in EMEA. Arts made available for digital distribution through the • Another segment of the online market consists of the Steam system in EMEA several of its PC titles, including casual gamers who go to a Web site and play strategy Spore, EA Sports, and FIFA Manager 2009. or puzzle games, often at no charge, with advertising • The increased penetration of broadband households supplying the requisite revenues. There are a number is a major driver of online games because the faster of popular sites such as Yahoo! Games that attract speeds make for a more enjoyable experience. The millions of casual players daily. number of broadband subscribers in EMEA surpassed • An online console game market is emerging with the the 100-million figure in 2007 and is expected to new generation of consoles, each of which places exceed 220 million by 2013, providing a strong impetus the online experience at the forefront. The three for the online market. manufacturers have each established an online • Online game revenues rose by 30.6 percent in 2008 to environment where consumers can buy additional $2.4 billion. We expect online games during the next content and interact with other players through online five years to increase by 11.8 percent compounded chat sessions and direct competition. Many games annually to $4.1 billion in 2013. have online leader boards that enable players to compare scores around the world. • The UK is the leading online game market in the region, with revenues of $665 million in 2008, increasing by a • Microsoft’s Xbox Live enables players to take advantage compound annual rate of 11.6 percent to $1.2 billion of a centralized environment. Sony has taken a different in 2013. approach with its online environment, establishing an open market where game developers control their own • France is second, with revenues of $419 million, activities. Nintendo, which enables the downloading growing by 11.8 percent annually to reach $733 million of its classic games in its online environment, is still in 2013. working on further functionality of the system. Nintendo • The Netherlands had the third-largest online market, provides a number of online channels that can be owing to its high broadband penetration, with revenues accessed via the Wii. The menu ranges from contests, of $288 million in 2008, surpassing its larger neighbor news, and informal polls to weather, shopping, message Germany, which had online game revenues of $219 boards, and other applications. million. The Netherlands is expected to maintain its lead over Germany through the forecast period, with revenues reaching $500 million in 2013 compared with $375 million for Germany.

370 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Online game market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 3 5 7 9 12 14 15 16 18 20 10.8 Belgium 4 6 9 12 16 18 20 22 25 28 11.8 Denmark 3 5 7 9 12 14 15 16 18 20 10.8 Finland 5 9 12 16 21 24 26 28 31 35 10.8 France 102 158 229 316 419 486 536 582 653 733 11.8 Germany 102 111 130 168 219 251 276 299 335 375 11.4 Greece 2 3 5 7 9 10 11 12 13 14 9.2 Ireland 20 30 42 57 74 85 94 102 114 128 11.6 Italy 35 57 81 112 148 172 190 206 231 261 12.0 Netherlands 114 158 190 228 288 333 367 399 446 500 11.7 Norway 8 13 18 24 31 36 40 43 48 54 11.7 Portugal 2 3 4 5 7 8 9 10 11 12 11.4 Spain 52 80 117 153 196 225 248 268 300 336 11.4 Sweden 3 6 8 11 15 17 19 21 23 26 11.6 Switzerland 4 6 8 11 15 17 19 21 23 26 11.6 United Kingdom 167 264 372 510 665 771 849 919 1,029 1,153 11.6 Western Europe total 626 914 1,239 1,648 2,147 2,481 2,734 2,964 3,318 3,721 11.6 Central and Eastern Europe Czech Republic 1 2 3 4 5 6 7 8 9 10 14.9 Hungary 1 2 2 3 4 5 6 6 7 8 14.9 Poland 3 5 7 9 12 14 15 16 18 20 10.8 Romania NA NA NA NA NA NA NA NA NA NA NA Russia 38 63 91 126 170 212 242 263 294 326 13.9 Turkey 2 4 6 8 10 12 13 14 16 18 12.5 Central and Eastern Europe total 45 76 109 150 201 249 283 307 344 382 13.7 Middle East/Africa Israel 2 4 6 8 10 12 14 16 18 20 14.9 Saudi Arabia/Pan Arab‡ NA NA NA NA NA NA NA NA NA NA NA South Africa 1 2 3 4 5 6 7 8 9 10 14.9 Middle East/Africa total 3 6 9 12 15 18 21 24 27 30 14.9 EMEA total 674 996 1,357 1,810 2,363 2,748 3,038 3,295 3,689 4,133 11.8

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | EMEA 371 Wireless games • There is a lot of potential growth for the wireless game segment as relatively few people pay to download • EMEA has a large wireless telephone subscriber base, games. Instead, the vast majority of people play the and high-speed wireless data technology is also games that are embedded in the phones. We project advanced in much of the region. Western Europe is wireless game revenues to expand at a 10.5 percent at the forefront in the deployment of 3G technology, compound annual rate to $3.4 billion by 2013 from $2.1 which provides wireless high-speed Internet access billion in 2008. comparable to the high-speed access provided by wired digital subscriber lines. Wireless carriers in • In the UK, a higher percentage of people download a number of countries are upgrading their wireless games to their phones than do people in many other networks to High-Speed Downlink Packet Access, countries, including the United States and France. But which provides substantially faster download speeds the vast majority of players in the UK still use games than conventional 3G networks do. MMOGs are being that are embedded in their phones. In December 2008, developed for the wireless market to take advantage of T-Mobile announced it has become the first UK carrier the speed of the advanced wireless networks. to provide free games for mobile phones, supported by advertising. The company started with Poker Million II • Although more-advanced games are being developed and is adding new games each week. In order to play for wireless, casual games still dominate the market. the games, customers must watch two ads before the Tetris continues to be the most popular game in many game and two after. Consumers must be subscribers of the countries. Games are being developed to take to T-Mobile’s web’n’walk unlimited Internet service advantage of the unique benefits of cell phones, such in order for there to be no charge to download the as location awareness and social interaction. games. Previously, the data charges associated with • Initially, the only games people could play were those the downloading of the games have been deterrents embedded in their phones. More recently, with the against the downloading of games in many markets. introduction of Internet-connected phones, it became Wireless game revenues in the UK were $680 million possible to download additional games for a fee. New in 2008 and are expected to grow by 10.4 percent platforms such as the iPod Touch, which enables compounded annually to $1.1 billion. users to download games from Apple’s App Store, • France, with two of the top mobile game publishers, could also propel the market. Other revenue streams Gameloft and Zenops, was the second-largest market have emerged, including subscription fees to continue in the region, with revenues totaling $431 million—more playing the games, microtransactions to enhance the than the next two largest markets combined. Revenues gaming experience, and advertising-funded games. are expected to increase by 10.4 percent annually to Games provided for free in return for watching ads $706 million. have the potential to expand the market by introducing more people to the concept of downloading games. • Wireless game revenues in Spain were $208 million in Those people could then be converted to purchasers of 2008 and are expected to grow 10.3 percent annually games in the future. to reach $339 million by 2013. • Wireless games in Europe are distributed by carriers • The major platform for mobile games in Germany like Orange and Vodafone and by off-deck (game lists is Vodafone, with a third of the market followed by from multiple developers) third-party stores such as T-Mobile with 10 percent and O2 with 10 percent. Jamba, Jamster, and Gameloft. Wireless revenues in Germany were $173 million in 2008 and will grow to $299 million in 2013, increasing • Bango, a company based in both the UK and the US, at an 11.6 percent compound annual rate. has developed an infrastructure that enables content providers to market their products directly to mobile phone users by using the mobile Internet. Capcom and Codemasters are two UK game developers that have used the Bango infrastructure to sell their mobile games directly to consumers.

372 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Wireless game market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 3 5 7 9 12 13 14 15 16 18 8.4 Belgium 3 6 9 12 15 17 19 21 23 25 10.8 Denmark 2 5 7 9 12 13 14 15 16 18 8.4 Finland 5 9 12 17 22 25 28 31 34 37 11.0 France 86 162 234 337 431 484 538 596 648 706 10.4 Germany 53 79 80 132 173 197 222 248 272 299 11.6 Greece 2 3 5 6 7 8 9 10 11 12 11.4 Ireland 16 31 43 61 78 88 98 109 119 130 10.8 Italy 29 58 83 116 148 166 185 204 222 242 10.3 Netherlands 19 31 37 47 60 68 76 84 91 99 10.5 Norway 6 13 18 26 33 37 41 45 49 53 9.9 Portugal 2 3 4 6 8 9 10 11 12 13 10.2 Spain 44 82 120 163 208 233 258 284 309 339 10.3 Sweden 3 6 8 10 13 15 17 19 21 23 12.1 Switzerland 3 6 9 11 14 16 18 20 22 24 11.4 United Kingdom 140 271 381 532 680 762 847 939 1,022 1,113 10.4 Western Europe total 416 770 1,057 1,494 1,914 2,151 2,394 2,651 2,887 3,151 10.5 Central and Eastern Europe Czech Republic 1 2 3 4 5 6 7 8 9 10 14.9 Hungary 1 2 2 3 4 4 4 4 4 4 0.0 Poland 3 5 8 10 13 15 17 19 21 23 12.1 Romania NA NA NA NA NA NA NA NA NA NA NA Russia 19 39 56 78 100 114 127 140 153 166 10.7 Turkey 2 4 6 7 9 10 11 12 13 14 9.2 Central and Eastern Europe total 26 52 75 102 131 149 166 183 200 217 10.6 Middle East/Africa Israel 2 4 6 8 12 14 16 18 20 22 12.9 Saudi Arabia/Pan Arab‡ NA NA NA NA NA NA NA NA NA NA NA South Africa 1 2 3 4 6 7 8 9 10 11 12.9 Middle East/Africa total 3 6 9 12 18 21 24 27 30 33 12.9 EMEA total 445 828 1,141 1,608 2,063 2,321 2,584 2,861 3,117 3,401 10.5

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | EMEA 373 PC games • PC games serve as the portal to many MMOGs. In order to play games like WoW, gamers must first buy • PC game revenues reflect the retail sales of packaged a retail copy of the game. Additionally, many casual PC games and do not reflect online distribution of players who do not want to spend the money to buy games or subscription fees to play PC games online, a console can still play games on a PC. At the other both of which are covered in online games. end of the spectrum, to hard-core gamers, the PC • Revenues for PC games declined in 2008 by 3.3 represents a better platform to play complicated percent to $2.6 billion, reflecting the strong growth of games, because the mouse and keyboard provide console games. As the growth of console games begins a better interface for complex commands than do to wane because of the stage in the cycle, we expect console controllers. the declines in PC games to moderate. PC game sales • Germany has the largest PC market in EMEA, at $632 are expected to stagnate throughout the forecast million in 2008. The strength of the German PC game period, declining to $2.4 billion in 2013. market is attributable to the relative weakness of the • Partially offsetting the movement to the console games console game market. Nevertheless, the console is the growth in the popularity of MMOGs, many of market is expanding in Germany, and the PC market which are PC game titles. The most popular PC games has declined during the past two years. We expect in 2008 were World of Warcraft (WoW) and WoW: Wrath that trend to continue and project spending to fall to of the Lich King, the second expansion pack of the $599 million by 2013, down 1.1 percent compounded original WoW, which became the fastest-selling PC annually from 2008. game of all time. • France is expected to maintain its position as the • Spore, a new simulation game developed by Will second-leading market, with revenues decreasing to Wright, creator of the Sims franchise, was very popular $437 million in 2013, a modest 0.7 percent decrease on in 2008. With Spore, players grow creatures in a Petri an annual basis. dish and let them evolve to become giant monsters • The UK saw the number of PC games sold decrease that take over the universe. Players can also share their significantly in 2008. The PC game market, which creations with others online. declined by 4.8 percent in 2008 to $376 million, is • Microsoft is trying to improve the gaming environment expected to decline further to $344 million by 2013, by branding popular PC games as Games for Windows, a 1.8 percent annual decline. guaranteeing their quality and adherence to ratings standards.

374 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 PC game market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 6 7 7 6 6 6 6 6 6 6 0.0 Belgium 7 8 9 8 8 8 8 8 8 8 0.0 Denmark 6 7 6 6 6 6 6 6 6 6 0.0 Finland 27 26 25 24 24 23 22 22 21 21 –2.6 France 428 463 480 476 453 449 446 443 440 437 –0.7 Germany 667 689 692 670 632 627 623 617 611 599 –1.1 Greece 4 5 5 4 4 4 4 4 4 4 0.0 Ireland 39 44 45 44 42 42 42 42 42 42 0.0 Italy 108 121 125 123 115 114 113 112 111 109 –1.1 Netherlands 100 85 83 83 79 78 77 77 77 76 –0.8 Norway 15 16 17 19 18 18 18 18 18 18 0.0 Portugal 4 5 5 4 4 4 4 4 4 4 0.0 Spain 200 132 132 121 115 115 114 113 112 110 –0.9 Sweden 7 8 8 7 7 7 7 7 7 7 0.0 Switzerland 7 8 8 8 8 8 8 8 8 8 0.0 United Kingdom 333 386 399 395 376 373 370 364 358 344 –1.8 Western Europe total 1,958 2,010 2,046 1,998 1,897 1,882 1,868 1,851 1,833 1,799 –1.1 Central and Eastern Europe Czech Republic 3 3 3 3 3 3 3 3 3 3 0.0 Hungary 2 2 3 2 2 2 2 2 2 2 0.0 Poland 87 96 112 145 182 191 199 203 200 197 1.6 Romania 6 6 6 8 11 12 13 13 13 13 3.4 Russia 343 381 442 477 450 434 426 419 406 397 –2.5 Turkey 5 5 6 5 5 5 5 5 5 5 0.0 Central and Eastern Europe total 446 493 572 640 653 647 648 645 629 617 –1.1 Middle East/Africa Israel 6 6 6 6 6 6 6 6 6 6 0.0 Saudi Arabia/Pan Arab‡ NA NA NA NA NA NA NA NA NA NA NA South Africa 3 3 3 3 3 3 3 3 3 3 0.0 Middle East/Africa total 9 9 9 9 9 9 9 9 9 9 0.0 EMEA total 2,413 2,512 2,627 2,647 2,559 2,538 2,525 2,505 2,471 2,425 –1.1

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | EMEA 375 Advertising • In-game advertising is appropriate only in sports games or other games that are set in the real world; ads would • Initially, video game advertising took the form of static not be appropriate in games set in medieval or fantasy ads that were hard coded into the games. For example, worlds. In those cases, advertisers can reward players an advertiser could put an ad for its product as a with extra levels of play or with additional content by banner in a race track to give the game a more realistic viewing ads before a game begins. feel. The ads had a few shortcomings: they had to be planned well in advance during the development of the • In addition to in-game or pregame advertising, game. Once inserted, they could not be changed, and marketers are developing advergames, or games the advertiser had no measure of how often the ads used to promote a specific brand. They can also put were seen. advertising on Web sites that gamers frequent. And they can sponsor gaming tournaments. • With the advent of the Internet and online gaming, it became possible to insert ads in games and have • Currently, display ads and advergames are the most them updated dynamically as the situation warrants. prevalent. We expect in-game advertising and, more For example, a billboard advertising a movie could specifically, dynamic in-game advertising to gain in be updated every few weeks when new titles hit the importance over time as more games are played online. box office. Similarly, different ads can be displayed • Growth in online gaming will expand the potential for different regions such as an English version for market for dynamic in-game advertising and will drive the UK and a French version for France. A number of overall spending. We project video game advertising companies—including Massive, which was acquired by revenues to double during the next five years to $800 Microsoft; IGA International; and Double Fusion—have million in 2013, a 14.9 percent compound annual all developed the technology to dynamically place ads increase from $400 million in 2008. in video games. The placement of the ads takes place while the games are being developed, but the actual • The UK accounts for more than a quarter of the EMEA ads can be changed via the Internet. Double Fusion has market, with revenues of $109 million in 2008, followed taken the process one step further by enabling an ad to by France with $77 million and Germany with $62 million. be placed in a game after it has been completed. This opens up a new revenue stream for old games that are still popular. • Advertisers who can get their products to be an integral part of a game reap additional benefits. For example, a character in the game may drive a certain type of car, drink a certain brand of soda, or talk on a certain type of phone.

376 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Video game advertising market† (US$ millions) 2009–13 EMEA 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1 4 6 8 9 11 13 14 15 13.4 Belgium 1 4 6 8 9 11 13 14 15 13.4 Denmark 1 4 6 8 9 11 13 14 15 13.4 Finland ‡ 3 5 7 8 10 12 13 14 14.9 France 7 37 58 77 86 99 121 136 149 14.1 Germany 6 30 47 62 70 85 100 115 122 14.5 Greece 1 4 6 8 9 11 13 15 16 14.9 Ireland 1 4 6 8 9 10 12 13 14 11.8 Italy 2 10 16 21 24 29 34 38 42 14.9 Netherlands 2 10 16 21 24 29 35 39 43 15.4 Norway 1 4 5 7 8 10 12 13 14 14.9 Portugal 1 4 5 6 6 8 10 11 13 16.7 Spain 1 4 5 7 8 10 12 13 14 14.9 Sweden 1 4 5 7 8 10 12 13 14 14.9 Switzerland 1 4 5 7 8 10 12 13 14 14.9 United Kingdom 11 59 84 109 131 153 183 211 230 16.1 Western Europe total 38 189 281 371 426 507 607 685 744 14.9 Central and Eastern Europe Czech Republic ‡ 1 2 2 3 3 3 3 4 14.9 Hungary ‡ 1 2 2 3 3 3 3 4 14.9 Poland 1 4 5 7 8 10 11 13 14 14.9 Romania NA NA NA NA NA NA NA NA NA NA Russia 1 4 5 7 8 10 11 13 14 14.9 Turkey 1 2 3 3 4 4 6 10 8 21.7 Central and Eastern Europe total 3 12 17 21 26 30 34 42 44 15.9 Middle East/Africa Israel ‡ 4 4 5 5 5 6 6 8 9.9 Saudi Arabia/Pan Arab†† NA NA NA NA NA NA NA NA NA NA South Africa ‡ 1 2 3 3 3 3 3 4 5.9 Middle East/Africa total 0 5 6 8 8 8 9 9 12 8.4 EMEA total 41 206 304 400 460 545 650 736 800 14.9

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | EMEA 377 Asia Pacific

The outlook in brief • End-user spending on video games will total $24.4 billion in 2013, growing by 9.4 percent on a compound • The recently introduced generation of consoles as annual basis from $15.6 billion in 2008. well as the current handheld games will support the console/handheld market for most countries, mitigating • Advertising revenues will increase from $185 million the impact of declines in Japan. to $365 million in 2013, growing by 14.6 percent compounded annually. • Rising broadband penetration will drive online gaming in general and massive multiplayer online games in • Console/handheld games will grow to $8.7 billion in particular, especially in the People’s Republic of 2013, increasing by 4.3 percent on a compound annual China (PRC). basis from $7.0 billion in 2008. • Wireless games will grow rapidly because Asia Pacific • Online games, which became the second-largest is the dominant region applying advanced wireless category in 2004, passing PC games, will increase technologies. by 11.6 percent compounded annually, reaching $6.7 billion in 2013 as compared with $3.9 billion in 2008. • The PC game market will continue to deteriorate due to competition from the other sectors. • Wireless games will surpass online games in 2009 to become the second-largest category. Spending will • Advertising in general—together with dynamic in-game grow at a 16.7 percent compound annual rate to $8.2 advertising in particular—is starting to emerge as an billion in 2013 from $3.8 billion in 2008. Together online additional revenue stream for game developers. and wireless games will constitute 60 percent of the market in 2013 compared with 49 percent in 2008. Overview • PC games will fall by 1.4 percent compounded annually • The video game market will expand from $15.7 billion to $810 million in 2013 from $870 million in 2008. in 2008 to $24.7 billion in 2013, increasing at a 9.4 percent compound annual rate.

Video game market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Console/handheld games 5,552 5,218 5,685 6,810 7,020 6,951 7,100 7,293 7,836 8,653 Online games 1,202 1,878 2,542 3,279 3,892 4,446 4,997 5,543 6,137 6,726 Wireless games 809 1,463 2,062 2,831 3,780 4,635 5,519 6,413 7,444 8,175 PC games 950 927 948 927 870 860 848 837 827 810 Total end-user spending 8,513 9,486 11,237 13,847 15,562 16,892 18,464 20,086 22,244 24,364 Advertising NA 18 100 138 185 215 255 300 336 365 Total 8,513 9,504 11,337 13,985 15,747 17,107 18,719 20,386 22,580 24,729

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

378 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Video game market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Console/handheld games 8.0 –6.0 8.9 19.8 3.1 –1.0 2.1 2.7 7.4 10.4 4.3 Online games 65.1 56.2 35.4 29.0 18.7 14.2 12.4 10.9 10.7 9.6 11.6 Wireless games 94.9 80.8 40.9 37.3 33.5 22.6 19.1 16.2 16.1 9.8 16.7 PC games –9.9 –2.4 2.3 –2.2 –6.1 –1.1 –1.4 –1.3 –1.2 –2.1 –1.4 Total end-user spending 16.0 11.4 18.5 23.2 12.4 8.5 9.3 8.8 10.7 9.5 9.4 Advertising — — 455.6 38.0 34.1 16.2 18.6 17.6 12.0 8.6 14.6 Total 16.0 11.6 19.3 23.4 12.6 8.6 9.4 8.9 10.8 9.5 9.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Japan, at $6.4 billion, is the second-largest video game foreign games, pirates often sell copies of new games market in the world, after the United States. It is home before the legitimate copies reach the market. As a to two of the three major console manufacturers—Sony result, online gaming is the dominant segment of the and Nintendo—making the console/handheld game legitimate market, surpassing console, PC, and wireless segment more important than it is in other countries gaming combined. Online games in the PRC are stored in the region. After achieving record growth of 19.3 on servers and often require subscription fees in order percent in 2007, the Japanese video game market to be played, thereby eliminating the threat of piracy. slowed to 3.1 percent growth in 2008 due to a lack Gamers pay to play on an hourly or monthly basis, of the new console launches that had stimulated the frequently using prepaid cards for payment. Most PRC market in the previous year. Console games fell by 8 gamers play in Internet cafés. MMORPGs represent the percent in 2008, and a further 7 percent decrease is dominant form of online games in the PRC—generating expected in 2009. Growth in other segments will offset around three-quarters of the revenues—though casual that decline, and the next generation of consoles will games are expected to become more important as revitalize the market during 2012–13. The Japanese the number of game players increases. Many online video game market is expected to grow to $9.2 billion games may be downloaded for free, with revenues in 2013, a 7.4 percent compound annual increase. generated through microtransactions for additional game elements. • South Korea’s high broadband penetration supports its online game market. In particular, massive multiplayer • The PRC government is promoting local games that online role-playing games (MMORPGs), which represent it views as healthy for the population while enforcing a role-playing subset of massive multiplayer online regulations that prevent the importation of games games, are very popular at Internet cafés (PC bangs). it regards as inappropriate for its citizens. The The new consoles are carving a niche in South Korea, government is allowing fewer foreign games into the and there is a growing wireless game market. The market country. As a result, domestic developers now control for PC games is relatively small because of piracy as well about two-thirds of the domestic market, whereas as the fact that most online games can be downloaded as recently as 2004, foreign titles accounted for 70 for free. The South Korean game industry is expected to percent of the market. South Korea has been the grow from $4.3 billion in 2008 to $7.1 billion in 2013, a major foreign supplier of games. NetEase.com and 10.6 percent gain compounded annually. Shanda Interactive Entertainment are two of the major domestic companies, with Fantasy Westward Journey • Retail packaged games represent a very small portion and Zhengtu Online being the most popular games. of the market in the PRC because of piracy. Since The culture of social gaming at Internet cafés and the the government is very strict about the importation of

Video games | Asia Pacific 379 paucity of alternative sources of low-cost entertainment industries in Taiwan. The goal is to transform Taiwan will continue to grow the market. The PRC market is into one of the major centers in the Asia Pacific market expected to increase by 12.6 percent on a compound for digital game design, development, and operation. annual basis from $1.8 billion in 2008 to $3.3 billion MMORPGs continue to represent the largest segment in 2013. of the online market, but casual games are growing at a faster pace due to the popularity of the content • Around 88 percent of Australian households have a and its appeal to a wider audience. The introduction device for playing interactive games, and almost 70 of free-to-play games in 2004 has helped revitalize percent of Australians play video or computer games Taiwan’s online game industry, as gamers typically end regularly. The Australian game industry is expected to up spending more under a free-to-play model—by increase from $1.1 billion in 2008 to $1.6 billion in 2013, purchasing virtual items or value-added services to an 8.1 percent gain compounded annually. enhance game play—compared with the traditional • Taiwan is an emerging video game market, with $510 subscription model. million in revenues in 2008. Market revenues are • Wireless games will be an important segment of the expected to increase to $802 million in 2013, growing gaming market in the remaining countries in the Asia at 9.5 percent annually. The market has grown steadily Pacific region because mobile phones may be the in recent years, thanks in large part to the Taiwanese only gaming device available to many residents. Low government’s investment promotion efforts and broadband penetration in many of the countries will financial aid, as the digital game industry has been stifle the online market, as will the fact that console officially designated as one of the emerging strategic penetration is generally low.

Video game market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 560 659 714 892 1,063 1,154 1,234 1,307 1,429 1,568 8.1 China 461 739 1,077 1,487 1,822 2,112 2,401 2,689 3,007 3,299 12.6 Hong Kong 153 166 193 224 254 277 300 321 350 382 8.5 India 22 33 48 63 92 126 170 221 321 376 32.5 Indonesia 156 179 211 253 297 332 363 393 434 478 10.0 Japan 4,295 4,495 5,207 6,214 6,408 6,632 7,127 7,693 8,443 9,164 7.4 Malaysia 97 105 121 142 162 175 188 201 219 240 8.2 New Zealand 87 91 105 123 140 153 165 177 193 211 8.6 Pakistan 56 59 71 85 97 106 115 122 133 146 8.5 Philippines 78 85 98 114 133 146 159 172 187 205 9.0 Singapore 100 107 121 141 161 177 192 207 227 249 9.1 South Korea 1,976 2,260 2,773 3,518 4,257 4,767 5,268 5,759 6,401 7,052 10.6 Taiwan 280 313 355 431 510 562 612 662 728 802 9.5 Thailand 162 179 202 247 290 319 349 378 415 454 9.4 Vietnam 30 34 41 51 61 69 76 84 93 103 11.0 Total 8,513 9,504 11,337 13,985 15,747 17,107 18,719 20,386 22,580 24,729 9.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

380 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Console/handheld market • As is the case in the other regions of the world, Nintendo’s Wii is the most popular console in the Consoles region. The Wii, which is priced at ¥25,000 ($242), is • Microsoft’s Xbox 360 was the first to enter the the only one of the current consoles that has not had Japanese market when it launched on December a price reduction. It was the lowest-priced console 10, 2005. Although the Xbox 360 has sold more than on the market until the recent price reduction of the the previous Xbox, its sales lag behind those of the basic Xbox 360. The Wii sold almost 3 million units in other two major consoles despite its having been in Japan in 2008 compared with about 1 million PS3s and the market a year longer. One reason given for the 300,000 Xbox 360s. poor performance of the Xbox platform is the lack of games that appeal to Japanese tastes. The Xbox 360 Handheld devices games are generally violent shooting games, while the • As they were developing their new consoles, Sony and Japanese prefer nonviolent games. Another suggested Nintendo introduced handheld devices to keep the reason is that the Japanese would rather support native market going. Sony introduced the PlayStation Portable products than American products. To counter those in Japan on December 12, 2004. The PSP is a portable issues, Microsoft is trying to spur game development game device as well as a music and video player. for Xbox 360 in Japan, which would then drive demand • Sony introduced the PSP-3000 in Japan in October for the consoles. None of the Xbox 360 games are 2008. The new version has an internal microphone and among the top sellers in Japan. a brighter display. The device sells for ¥19,800 ($191), • Microsoft lowered the price of Xbox 360 consoles the same price as the previous model, compared in Japan in September 2008 with the Arcade model, with ¥16,800 ($162) for the DS. Recently, it has been without a hard drive, priced at ¥19,800 ($191), down outselling the DS in Japan, helped by Capcom’s from ¥27,800 ($269). It is the first current-generation popular hunting game Monster Hunter Freedom 2G console to be priced at less than ¥20,000 ($193), and Square Enix’s Final Fantasy. The PSP-3000 can be considered the sweet price to increase sales. Microsoft plugged into any television to play games on a large also lowered the price of its high-end model—the Elite screen. with a 120 GB hard drive—by 17 percent to ¥39,800 • Nintendo introduced the DS handheld game device in ($385) and introduced a midlevel, 60 GB model at Japan on December 2, 2004. With more-sophisticated ¥29,800 ($287). Microsoft timed its price reductions functionality, the DS is intended for a market that is to the launch of Infinite Undiscovery, an action game older than that for the Game Boy. The DS has built- developed exclusively for the Xbox 360 by Square Enix, in wireless networking and text messaging using which publishes the popular Final Fantasy franchise. PictoChat. When the DS was launched, there was • Sony introduced the PlayStation 3 in November 2006 major support from third-party developers, including with two versions: a 20 GB model and a 60 GB model, Electronics Arts. Handheld devices are a major factor in each of which offered backward compatibility with the the market because playing games on portable devices PlayStation 2. Both models were discontinued in Japan is a part of Japanese culture. in January 2008. Taking the place of the two original • Nintendo introduced the DSi in November 2008 and models is the 40 GB model, introduced in November sold more than 500,000 units in a month despite limited 2007 at a price of ¥39,980 ($386). The PS3 was also supplies. The DSi added two built-in cameras, a secure introduced in Hong Kong and Taiwan in November digital card slot, and the ability to download games. In 2006 and finally in Australia and Singapore in March the future, the cameras will be incorporated into games. 2007, nearly a year after Xbox 360. Sony introduced the Since its introduction through the beginning of 2009, PS3 to the Malaysian market in October 2008. the DSi has outsold every other console or handheld device each week. The DS and DSi sold 4 million units in Japan in 2008 compared with 3.5 million PSPs.

Video games | Asia Pacific 381 Console/handheld game market • We expect low-single-digit growth during 2010–11 as the current generation of consoles ages. As in Japan, • Japan is by far the major market in the region, with we expect faster growth in other countries during 2008 revenues totaling $3.4 billion. Revenues declined 2012–13 as the next generation enters the market. for the first time in several years as the excitement of the current cycle of consoles has waned. We expect • South Korea is the second-largest market in the region, another year of decline in 2009, exacerbated by the with revenues of $1.9 billion in 2008, up 16 percent plunging economy, before turning around slightly in from 2007. We look for growth to average 5.9 percent 2010. We anticipate revenues to increase in 2012 and compounded annually to $2.5 billion in 2013. 2013, when the next generation of consoles is expected • Australia represents a significant console/handheld to be introduced. game market, with revenues of $660 million in 2008, • The decline in Japan in 2008 held down overall growth a 20 percent advance from 2007. As in most other to 3.1 percent, nearly offsetting double-digit gains in countries, growth will drop to mid single digits in 2009 most other countries. The rest of the region is a bit and will slow further during 2010–11 before improving behind Japan in the current console cycle. during 2012–13. We expect the market to grow to $872 million by 2013, increasing at a 5.7 percent compound • In 2009, the decrease in Japan will offset low- to annual rate. mid-single-digit growth in most other countries and a surging market in India, leading to a 1 percent decline for the region as a whole.

Console/handheld game market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 388 427 429 550 660 693 714 728 786 872 5.7 China 56 53 60 75 88 92 95 97 105 118 6.0 Hong Kong 97 89 99 114 128 133 137 140 151 168 5.6 India 12 13 14 15 16 21 23 32 34 37 18.3 Indonesia 99 95 105 125 144 154 160 165 180 203 7.1 Japan 3,040 2,850 3,100 3,650 3,358 3,120 3,142 3,230 3,460 3,775 2.4 Malaysia 66 59 64 73 81 84 87 90 96 107 5.7 New Zealand 55 48 51 59 66 69 71 73 78 87 5.7 Pakistan 38 34 37 43 48 50 52 53 57 64 5.9 Philippines 53 48 51 59 66 68 70 72 77 86 5.4 Singapore 63 57 60 68 75 77 79 81 87 98 5.5 South Korea 1,265 1,150 1,300 1,600 1,856 1,940 2,005 2,055 2,215 2,470 5.9 Taiwan 190 175 186 225 259 269 278 284 304 339 5.5 Thailand 109 101 108 129 147 152 157 162 173 192 5.5 Vietnam 21 19 21 25 28 29 30 31 33 37 5.7 Total 5,552 5,218 5,685 6,810 7,020 6,951 7,100 7,293 7,836 8,653 4.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

382 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Online games • Since piracy is so prevalent in Asia Pacific, most developers are providing their games for free and using • The PRC and South Korea are the two dominant microtransactions as a means of generating revenues. markets in the region, at $1.3 billion and $1.2 billion, Advertising is another method for developers to recoup respectively, in 2008. By contrast, Japan has lagged their costs. behind these countries, at $830 million. Most Japanese prefer single-player console and handheld games, as • The PRC has a thriving online business because it has opposed to the MMOGs popular in China and South a negligible console video game business. South Korea, Korea. In the PRC, consumers pay about five cents per Taiwan, Australia, and Japan have strong console and hour to play at one of the many Internet cafés. online markets. Outside these countries almost all online gaming takes place on PCs. • Originally, the PRC imported most of its online games from South Korea. However, the PRC government • South Korea has a fervent online gaming culture with stepped in to encourage development of the local one of the highest rates of microtransaction purchases online game development industry by establishing in the world. Real-time strategy (RTS) games—in quotas on foreign games and preferential tax policies particular, Starcraft (released in 1998)—are incredibly for local developers. Currently, there are more than popular with South Korean gamers. Professional RTS 100 companies operating over 200 online games in players are revered as celebrities, and games are often the PRC, with the top online game operators Shanda, broadcast on television. NetEase, and The9 generating 70 percent of the • Rainbow, a major animation company in Europe, is industry’s revenues. NetEase’s Fantasy Westward making a major investment to develop an online MMOG Journey, based on a well-known Chinese novel, is the in Singapore. The game, which is based on the popular most successful online game in the country. Winx Club franchise, will feature fairies and witches • The9 is the local operator of World of Warcraft (WoW), similar in nature to WoW. It will use a free-to-play which has more than 4 million players in the PRC. business model, with charges for additional content. MMOGs are often role-playing games wherein groups • Despite the popularity of the MMOGs, there is a often combine their efforts to achieve a goal. MMOGs substantial audience for simpler games played by the get the bulk of their revenues from subscriptions, pay- more casual player. Web sites like Yahoo! Games and to-play models, and microtransactions, while casual MSN Zone attract millions of gamers worldwide. Casual games get revenue from people paying to download games are fueling online growth by attracting a broader games, from advertising, and to a lesser extent from demographic basis than MMOGs do and by expanding subscriptions. The9 released the latest expansion for the overall market. WoW: Wrath of the Lich King, in the PRC market in early 2009. • In the Philippines, IPVG and GMA Network formed a joint venture, I-Play, that will focus on providing • WoW is the first Western game to do very well in Asia services for the casual online gaming market. Pacific and in the PRC in particular. WoW gets around the piracy problem by being given away for free, with • The online market will be driven from growth in the revenues being generated by players who pay to play broadband market and, in some countries, rising on either an hourly or a monthly basis. penetration of new consoles that connect to the Internet. The online game market rose by 18.7 percent • Microsoft plans to launch the Xbox Live Marketplace in 2008. We project spending will rise from $3.9 billion in Japan in 2009, almost three years after its initial in 2008, largest in the world, to $6.7 billion in 2013, an introduction in the US. The Marketplace will enable 11.6 percent increase compounded annually. Xbox 360 owners to download movies and animated cartoons (anime) to their consoles. The content will be specially designed for the Japanese market and will be limited to that market.

Video games | Asia Pacific 383 Online game market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 60 85 110 132 156 176 197 218 241 264 11.1 China 300 500 750 1,050 1,250 1,428 1,605 1,780 1,970 2,159 11.5 Hong Kong 20 30 37 44 51 58 65 72 79 86 11.0 India 1 3 5 6 9 23 27 32 37 41 35.4 Indonesia 25 39 47 56 65 73 82 90 98 107 10.5 Japan 250 400 550 700 830 945 1,062 1,178 1,304 1,435 11.6 Malaysia 14 21 26 31 36 40 44 48 52 56 9.2 New Zealand 11 17 22 27 32 36 40 44 48 52 10.2 Pakistan 8 12 16 20 23 26 29 32 35 38 10.6 Philippines 11 17 22 26 30 34 38 42 46 50 10.8 Singapore 13 20 24 29 34 39 43 47 51 55 10.1 South Korea 420 625 800 1,000 1,190 1,357 1,530 1,700 1,890 2,071 11.7 Taiwan 42 66 80 95 112 127 142 157 173 189 11.0 Thailand 23 36 44 52 61 69 77 85 93 101 10.6 Vietnam 4 7 9 11 13 15 16 18 20 22 11.1 Total 1,202 1,878 2,542 3,279 3,892 4,446 4,997 5,543 6,137 6,726 11.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wireless games • Most new phones are Internet enabled, providing a strong market for game developers who are introducing games • Asia Pacific also has the largest wireless game market in that can be played online against other competitors, the world, primarily due to strength in Japan and South which will spur demand. Korea. Japan and South Korea have gamingcentric societies in which people play games on their phones for • In a number of emerging markets such as India, the extended periods of time. By contrast, wireless games wireless phone is the dominant game playing device, are less popular in Hong Kong, where phones are used as it is often the only available device outside of primarily only for talking. Internet cafés. • The wireless game market in Asia Pacific has higher- • There are two distinct segments of the market: (1) quality games than in other regions, in part because simple casual games geared to the mass market and there are a large number of advanced 3G handsets that (2) high-end games that incorporate 3-D graphics and support 3-D games and multiplayer games. network connectivity. • Most countries in Asia Pacific have only one or two • Game developers like I-Play are developing games major wireless providers, making it easier for game specifically for mobile devices instead of simply porting developers because they do not have to customize console games. The games are being designed to be their games for a large variety of formats. played with one hand or traditional mobile controls.

384 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • The PRC is becoming more of a force in the wireless • Advertiser-supported games are an emerging segment game market due to the sales of higher-end handsets, of the market. Instead of paying for the games, some which fostered innovations in game development leading players watch a short ad before the game begins and to a better gaming experience. In 2005, Pan Asia Games then are granted free playing time. Greystripe, a major launched the PRC’s first massive multiplayer online role- company in the field of advertiser-supported wireless playing game, Age of Fantasy. In 2006, local publisher video games, reports that the PRC and India are among Gameislive.com introduced Zhan Guo, a multiplayer its major markets. game that has more than 200,000 users. • There are more wireless telephone subscribers in Asia • In October 2008, KTF, South Korea’s second-largest Pacific than in the rest of the world combined. As a result, mobile carrier, announced that it was initiating a mobile the region provides a huge potential for wireless gaming. phone gaming service that will provide games produced That market will be helped by wireless network upgrades. by more than 30 developers, including Nexon Mobile • Wireless game revenues rose by 33.5 percent in 2008 Corp. and Gamevil Inc. KTF is collaborating with NTT to $3.8 billion. We expect growth during the next five DoCoMo, Japan’s largest mobile provider, on this project. years to average 16.7 percent compounded annually to $8.2 billion in 2013.

Wireless game market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 42 70 95 127 164 200 237 274 314 343 15.9 China 99 178 250 341 458 563 668 774 890 975 16.3 Hong Kong 14 26 33 42 53 64 75 86 98 106 14.9 India 7 15 23 34 57 68 103 137 228 274 36.9 Indonesia 17 31 43 56 72 88 104 120 137 149 15.7 Japan 300 550 800 1,100 1,474 1,813 2,155 2,500 2,880 3,154 16.4 Malaysia 9 17 23 30 38 44 50 57 65 71 13.3 New Zealand 8 14 18 24 30 36 42 48 55 60 14.9 Pakistan 5 9 13 17 21 25 29 33 37 40 13.8 Philippines 8 14 18 23 31 38 45 52 58 63 15.2 Singapore 9 16 22 30 39 48 57 66 76 84 16.6 South Korea 243 435 610 850 1,135 1,393 1,652 1,915 2,202 2,413 16.3 Taiwan 29 53 69 91 119 145 171 198 228 250 16.0 Thailand 16 29 36 53 71 87 103 120 138 151 16.3 Vietnam 3 6 9 13 18 23 28 33 38 42 18.5 Total 809 1,463 2,062 2,831 3,780 4,635 5,519 6,413 7,444 8,175 16.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | Asia Pacific 385 PC games rates, the games are often downloaded for free, with revenues coming from microtransactions. • The retail PC game market is not significant in many countries in the region because of piracy. Companies • Japan and Australia are the two major PC game are developing digital distribution services to establish markets in the region, as piracy is not as much of an alternative distribution method. As a result, the PC a problem in those countries. market is relatively weak. • PC game sales have been declining during the past • Unlike the situation in other regions, where online two years. We expect continued decreases during the games often require the retail purchase of a PC version next five years, with spending falling to $810 million in of the game, in Asia Pacific, because of high piracy 2013 from $870 million in 2008, a 1.4 percent decrease compounded annually.

PC game market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 70 76 75 76 73 73 72 71 70 69 –1.1 China 6 6 6 6 5 5 5 5 5 5 0.0 Hong Kong 22 21 23 22 20 20 20 20 19 19 –1.0 India 2 2 6 7 9 13 16 19 21 23 20.6 Indonesia 15 14 14 13 12 12 12 12 12 11 –1.7 Japan 705 685 705 691 647 637 628 620 613 600 –1.5 Malaysia 8 8 7 7 6 6 6 5 5 5 –3.6 New Zealand 13 12 13 12 11 11 11 11 11 11 0.0 Pakistan 5 4 4 4 4 4 4 3 3 3 –5.6 Philippines 6 6 6 5 5 5 5 5 5 5 0.0 Singapore 15 14 14 13 12 12 12 12 12 11 –1.7 South Korea 48 46 44 42 40 36 32 30 28 26 –8.3 Taiwan 19 18 17 16 15 15 14 14 13 13 –2.8 Thailand 14 13 12 11 9 9 9 8 8 7 –4.9 Vietnam 2 2 2 2 2 2 2 2 2 2 0.0 Total 950 927 948 927 870 860 848 837 827 810 –1.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

386 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Advertising be customized for each country in the region—in different languages. Online gaming also enables • Advertising is a small but growing segment of the advertisers to know how often their ads are seen. market in Asia Pacific. Video game advertising takes many forms, including banner ads on game Web sites, • Focus Media and Bihu Technology dominate the in- in-game advertising, and advergames. game advertising market in the PRC. • Game developers are looking at advertising as an • Massive Incorporated, one of the pioneers in the additional source of revenues. Greystripe, a leader in dynamic game advertising industry, which was acquired wrapping mobile games with advertising, is quite active by Microsoft in 2006, and WEBZEN Inc., a South in the Asia Pacific region. Korean global online entertainment company, agreed to put advertising into two of Microsoft’s MMOGs: Huxley, • In-game advertising originally consisted of static ads which debuted in 2007, and All Points Bulletin. This was that were placed in games when they were developed Massive’s first entry into the Asian market. and that could not be altered. With the advent of online games played over the Internet, dynamic advertising • Growth in online gaming will fuel video game entered the market. Dynamic ads can be changed via advertising, which we expect will increase from $185 the Internet. For example, a movie studio can advertise million in 2008 to $365 million in 2013, a 14.6 percent a new movie every few weeks. Additionally, ads could compound annual advance.

Video game advertising market† (US$ millions) 2009–13 Asia Pacific 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1 5 7 10 12 14 16 18 20 14.9 China 2 11 15 21 24 28 33 37 42 14.9 Hong Kong ‡ 1 2 2 2 3 3 3 3 8.4 India ‡ ‡ 1 1 1 1 1 1 1 0.0 Indonesia ‡ 2 3 4 5 5 6 7 8 14.9 Japan 10 52 73 99 117 140 165 186 200 15.1 Malaysia ‡ 1 1 1 1 1 1 1 1 0.0 New Zealand ‡ 1 1 1 1 1 1 1 1 0.0 Pakistan ‡ 1 1 1 1 1 1 1 1 0.0 Philippines ‡ 1 1 1 1 1 1 1 1 0.0 Singapore ‡ 1 1 1 1 1 1 1 1 0.0 South Korea 4 19 26 36 41 49 59 66 72 14.9 Taiwan 1 3 4 5 6 7 9 10 11 17.1 Thailand ‡ 2 2 2 2 3 3 3 3 8.4 Vietnam ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ Total 18 100 138 185 215 255 300 336 365 14.6

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | Asia Pacific 387 Latin America

The outlook in brief • Console/handheld games will grow by 6.6 percent compounded annually from $745 million in 2008 to $1 • Continued strength in handheld games and the growth billion in 2013. of the next generation of consoles will stimulate the console game market. • The PC game market is expected to reach $164 million, up from $126 million in 2008, a 5.4 percent compound • Limited competition will enable the PC game market annual increase. to expand. • The wireless game market is expected to increase from • A growing number of wireless subscribers will help spur $327 million in 2008 to $569 million in 2013, growing at the wireless game market. 11.7 percent on a compound annual basis. • Broadband growth will fuel an emerging online • A small online game market, at $46 million in 2008, will game market. reach $163 million in 2013, growing by 28.8 percent on a compound annual basis. Overview • Advertising is expected to grow at a 15.4 percent • The overall video game market in Latin America is compound annual rate from $23 million to $47 million projected to grow by 9.2 percent compounded annually in 2013. from $1.3 billion in 2008 to $2 billion in 2013.

Video game market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Console/handheld games 438 413 461 600 745 786 824 852 927 1,027 Online games ‡ 3 4 26 46 69 96 123 148 163 Wireless games 62 107 194 262 327 367 413 460 502 569 PC games 97 102 115 120 126 134 141 147 156 164 Advertising NA 2 13 17 23 27 32 38 43 47 Total 597 627 787 1,025 1,267 1,383 1,506 1,620 1,776 1,970

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video game market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Console/handheld games 5.0 –5.7 11.6 30.2 24.2 5.5 4.8 3.4 8.8 10.8 6.6 Online games — — 33.3 550.0 76.9 50.0 39.1 28.1 20.3 10.1 28.8 Wireless games 93.8 72.6 81.3 35.1 24.8 12.2 12.5 11.4 9.1 13.3 11.7 PC games 11.5 5.2 12.7 4.3 5.0 6.3 5.2 4.3 6.1 5.1 5.4 Advertising — 0.0 550.0 30.8 35.3 17.4 18.5 18.8 13.2 9.3 15.4 Total 11.4 5.0 25.5 30.2 23.6 9.2 8.9 7.6 9.6 10.9 9.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

388 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Mexico is by far the largest video game market of market in the region, with $326 million in revenues in the region, with revenues of $638 million in 2008, 50 2008, around 25 percent of the market. percent of the region’s total. Brazil is the second-largest

Video game market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 55 54 66 82 102 111 122 133 146 157 9.0 Brazil 164 171 211 263 326 356 391 421 460 507 9.2 Chile 42 44 52 66 81 89 97 104 115 124 8.9 Colombia 36 37 45 55 66 72 77 81 89 98 8.2 Mexico 270 290 373 513 638 698 757 814 893 1,002 9.4 Venezuela 30 31 40 46 54 57 62 67 73 82 8.7 Total 597 627 787 1,025 1,267 1,383 1,506 1,620 1,776 1,970 9.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Console/handheld market Console/handheld game market • The top-selling games in Latin America are for the PS2 Consoles because it is the dominant console in the region. • There are no production or distribution facilities for consoles in Latin America. As a result, game consoles • Konami Digital Entertainment announced in October must be imported from the United States, and console 2008 that it would be featuring Mexican soccer player prices are relatively high compared with other regions. Andrés Guardano in its Pro Evolution Soccer 2009, That fact, combined with the generally low disposable the world’s best-selling soccer game. Additionally, it incomes in the region, explains the relatively weak will feature him on the cover of the games sold in video game market. Latin America. • In August 2008, Nintendo announced that it would • There are a number of companies developing games begin an aggressive marketing campaign in Latin in Latin America. These include Wanako Games, America to reach potential gamers. a subsidiary of Sierra Entertainment, in Chile and Sabarasa and QB9 in Argentina. Additionally, there are • Microsoft introduced the Xbox 360 in Mexico in more than 40 game developers in Brazil, including Jynx February 2006 and has sold over 700,000 units since Playware and Interama. then. Mexico is a major market for Microsoft, while not being as important for Nintendo and Sony. By contrast, • The retail video game market in Latin America is Nintendo introduced the Wii in Mexico in November dominated by small, independent stores. GameStop, 2006, and unlike the situation in most other markets, the world’s largest video game retailer, with over 5,500 it still trails the Xbox 360. Sony introduced the PS3 in stores worldwide, does not have a presence in Latin August 2007 and is a distant third in the console race. America. Game Quest launched an affiliate company On the other hand, Sony introduced the PS2 in Mexico called Proximo Games, which hopes to fill the void in 2004 and has been quite successful, selling a million by opening stores throughout the region. Its plan is units in Mexico. to incorporate successful retailers in each country. Proximo Games anticipates that the growing middle • The PS2 continues to be the best-selling console in the class will be a strong market for the legitimate sale of region due to its low selling price and availability. video games with manuals. The retail market has been hindered by widespread piracy.

Video games | Latin America 389 • Console/handheld game revenues rose by 24.2 percent • Mexico constituted about 50 percent of the market’s in 2008 to $745 million. As in other regions, we expect revenues, with $377 million, and is expected to grow growth to moderate to mid- to low-single-digit rates to $539 million in 2013, a 7.4 percent increase on a during the next three years as the current generation compound annual basis. of consoles ages. We then look for a pickup in growth • Brazil had revenues of $185 million in 2008 and is as the next generation begins to enter the market. We expected to increase to $246 million in 2013, an annual expect spending to total $1 billion in 2013, increasing at increase of 5.9 percent. a 6.6 percent compound annual rate from 2008.

Console/handheld game market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 40 37 40 48 60 63 67 70 77 82 6.4 Brazil 118 107 118 150 185 192 203 209 225 246 5.9 Chile 31 29 32 40 48 51 53 55 59 63 5.6 Colombia 26 25 28 34 41 43 44 45 48 53 5.3 Mexico 201 194 220 300 377 402 421 436 478 539 7.4 Venezuela 22 21 23 28 34 35 36 37 40 44 5.3 Total 438 413 461 600 745 786 824 852 927 1,027 6.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

PC game market • Many gamers rely on PCs for their gaming enjoyment. Rising PC penetration should continue to spur sales. • The PC game market is extremely limited in Latin We expect the PC game market to grow by 5.4 percent America because of the relatively low penetration of at a compound annual rate from $126 million in 2008 to PCs and the high rate of piracy, which is estimated at $164 million in 2013. over 90 percent. • Mexico’s PC game market is expected to grow from • Although small, the PC market constitutes a higher $66 million in 2008 to $87 million in 2013, growing at a share of total video game spending than other regions 5.7 percent compound annual rate. because there is less competition from online gaming due to low broadband penetration. Additionally, competition from consoles is not as strong in Latin America as it is in other regions because the consoles are priced relatively high.

390 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 PC game market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 9 8 9 10 10 11 11 12 13 13 5.4 Brazil 26 27 30 30 31 33 35 36 38 39 4.7 Chile 7 7 7 7 8 8 9 9 10 10 4.6 Colombia 6 6 6 6 6 7 7 7 8 8 5.9 Mexico 44 49 57 62 66 70 73 77 81 87 5.7 Venezuela 5 5 6 5 5 5 6 6 6 7 7.0 Total 97 102 115 120 126 134 141 147 156 164 5.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Wireless games growing 11.5 percent on a compound annual rate to $283 million. • Wireless games are starting to play a more important role in Latin America, as the generally low penetration • Brazil’s wireless market is relatively strong, at $89 of PCs and consoles means wireless phones are often million, growing to $158 million in 2013, as it has a the only gaming device available to players. higher penetration of wireless subscribers. • Wireless game spending is projected to increase by • Argentina continues to be the third-strongest market, 11.7 percent on a compound annual basis from $327 with revenues increasing from $26 million in 2008 to million in 2008 to $569 million in 2013. $45 million in 2013, growing by 11.6 percent on a compound annual basis. • Mexico had the highest wireless game market in 2008, with $164 million, and will maintain its dominance,

Wireless game market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 6 9 16 21 26 29 33 37 40 45 11.6 Brazil 20 34 58 70 89 102 114 127 139 158 12.2 Chile 4 8 12 16 20 22 25 28 31 35 11.8 Colombia 4 6 10 13 16 18 20 22 24 27 11.0 Mexico 25 45 88 131 164 183 206 229 249 283 11.5 Venezuela 3 5 10 11 12 13 15 17 19 21 11.8 Total 62 107 194 262 327 367 413 460 502 569 11.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | Latin America 391 Online games • Gamers who do not have PCs or game consoles at home frequent Locutorios—the Latin American equivalent of • Low broadband penetration has hindered the Internet cafés—to compete against other players. development of an online game market in Latin America. During the past few years, the broadband • Digital downloads of games is a relatively small segment household universe doubled, and an online game of the market, as most gamers play at Locutorio market began to emerge. cafés and will therefore not pay to download games. Microtransactions represent a growing revenue stream. • With broadband now taking off in Latin America, we look for the online gaming market to expand. We • Regnum Online is a 3-D MMOG game developed and project the online game market to more than triple from operated by NGD studios in Argentina. Most of its $46 million in 2008 to $163 million in 2013, growing at a players are in Argentina, Brazil, Spain, and Germany. 28.8 percent annual rate. While less than 40 percent of the game’s players are in Europe, they account for over 80 percent of spending, • Broadband penetration is rising in the more developed indicating that Latin American players spend relatively countries like Argentina and Brazil, which will help the little on the game. The average Latin American MMOG online game market. player tends to spend less than counterparts do in other regions of the world.

Online game market† (US$ millions) 2009–13 Latin America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina ‡ ‡ 2 4 6 8 10 12 13 26.6 Brazil 2 2 9 15 22 31 40 48 53 28.7 Chile ‡ ‡ 2 4 6 8 10 12 13 26.6 Colombia ‡ ‡ 1 2 3 4 5 6 7 28.5 Mexico 1 2 11 19 29 41 53 64 70 29.8 Venezuela ‡ ‡ 1 2 3 4 5 6 7 28.5 Total 3 4 26 46 69 96 123 148 163 28.8

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

392 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Advertising • Advertising helps pay for many of the flash games that people play at Locutorios. • Video game advertising is not very well established in Latin America, with the overall market totaling just $23 • Mexico constituted more than half of the market, with million in 2008 and growing to $47 million in 2013. $12 million in advertising in 2008 and is expected to maintain its share throughout the forecast period, • As the online market is very small in Latin America, ending with $23 million in 2013. the potential for dynamic in-game advertising, which requires an Internet connection, is limited.

Video game advertising market† (US$ millions) 2009–13 Latin America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina ‡ 1 1 2 2 3 4 4 4 14.9 Brazil 1 3 4 6 7 8 9 10 11 12.9 Chile ‡ 1 1 1 2 2 2 3 3 24.6 Colombia ‡ 1 1 1 1 2 2 3 3 24.6 Mexico 1 6 9 12 14 16 19 21 23 13.9 Venezuela ‡ 1 1 1 1 1 2 2 3 24.6 Total 2 13 17 23 27 32 38 43 47 15.4

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Video games | Latin America 393 394 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Radio and out-of-home

396 Summary

398 North America

406 Europe, Middle East, Africa (EMEA)

419 Asia Pacific

428 Latin America Summary

Radio and out-of-home weakest, declining from $21.9 billion in 2008 to $20.1 billion in 2013, a 1.7 percent decrease on an annual basis. The radio and out-of-home advertising market consists of In EMEA, a weak advertising market will more than offset a advertiser spending on radio stations and radio networks, small increase in public license fees, resulting in an overall plus out-of-home media such as billboards, street furniture 0.1 percent annual decline in the radio market from $18.4 (bus shelters, kiosks, etc.), transit displays (bus sides, billion to $18.3 billion. We expect the Asia Pacific radio on-train print, taxi toppers, etc.), sports arena displays, market to increase 0.9 percent on an annual basis from captive ad networks (in venues such as elevators) and $7.2 billion in 2008 to $7.6 billion in 2013 as an increase other formats, and satellite-delivered radio subscriptions in in public license fees augments a modest increase in the United States and Canada. Satellite radio in the United advertising. The radio market in Latin America is projected States also includes advertising. In EMEA (Europe, Middle to be relatively flat, at $1.2 billion, as decreases in 2009 East, Africa) and Asia Pacific, the market includes public and 2010 are offset by increases in later years. radio license fees. Radio advertising does not include Internet radio because we do not have a breakout for that EMEA had the largest out-of-home market in 2008, at component of the market. Advertising spending is tracked $10.7 billion, a total projected to decrease by 2.5 percent in EMEA, Asia Pacific, Latin America, and Canada net of compounded annually to $9.4 billion in 2013. Asia Pacific agency commissions. Advertising in the US and Russia is will grow at a 3.5 percent compound annual rate during the customarily reported as gross spending, which is how it is next five years, surpassing EMEA as the largest market. reflected in our analysis. North America will grow by 2.4 percent on an annual basis from $7.7 billion in 2008 to $8.7 billion in 2013. Latin America is expected to show the largest gain, growing by Market size and growth by region 3.5 percent on a compound annual basis from $723 million We project that the radio and out-of-home market will in 2008 to $859 million in 2013. decline during the next two years and then rebound, rising to an estimated $77.6 billion in 2013, barely surpassing its Market size and growth by component level in 2008. North America will decline from $29.6 billion in 2008 to $28.8 billion in 2013, a 0.6 percent compound Global radio advertising is the largest component, at annual decrease, while EMEA will decline at a 1 percent $32.5 billion, and will be the only segment expected to compound annual rate from $29.1 billion in 2008 to $27.7 show a decline over the forecast period, with a projected billion in 2013. Asia Pacific will be the fastest-growing compound annual decrease of 2.9 percent to $28.1 billion region, increasing by 2.4 percent on a compound annual in 2013. Public radio license fees will rise at a 1.6 percent basis from $16.9 billion in 2008 to $19.1 billion in 2013. compound annual rate to $14 billion from $12.9 billion Latin America will expand at a 1.6 percent compound in 2008. Satellite radio subscriptions will be the fastest- annual rate to $2.0 billion in 2013. growing component, averaging 9.4 percent compounded annually to $5.1 billion from $3.3 billion in 2008. Global The radio market will decline by 0.7 percent compounded out-of-home will rise by 1.1 percent compounded annually annually to $47.1 billion in 2013 from $48.7 billion in 2008. to $30.5 billion in 2013 from $28.8 billion in 2008. The North American radio market is expected to be the

396 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Principal drivers billboard. Improved out-of-home audience measurement will attract advertisers, and the expansion of captive video Weak economic conditions worldwide will lower spending networks will also fuel growth. As a result, out-of-home significantly in 2009 and less so in 2010. With improved will be less severely affected than radio by the economic economic conditions in 2011, we expect a return to downturn. Radio advertising will face growing competition growth. Out-of-home will be fueled by digital billboards from the Internet, but satellite radio will boost spending in that expand the effective out-of-home inventory because North America. Modest increases in public radio license multiple ads can be shown on the same display, thereby fees will help stabilize the radio markets in EMEA and generating many times the revenue of a traditional Asia Pacific.

Data for the radio and out-of-home market by region and for the radio and out-of-home market by component can be found within the Executive Summary on pages 49 and 50.

Radio and out-of-home | Summary 397 North America

The outlook in brief • Satellite radio advertising will increase from $100 million in 2008 to $230 million in 2013, an 18.1 percent • Terrestrial radio advertising will be hurt by the poor compound annual increase. economic conditions as well as competition from the Internet. • Radio advertising as a whole will total $15.0 billion in 2013, down 4.3 percent on a compound annual basis • The growth of satellite radio will be stymied by poor from 2008. auto sales. • Satellite radio subscription spending will expand from • Out-of-home advertising will be driven by digital $3.3 billion in 2008 to $5.1 billion in 2013, a 9.4 percent billboards, video networks, and improved audience increase compounded annually. measurement systems. • The overall satellite radio market including advertising will grow by 9.7 percent compounded annually to $5.3 Overview billion in 2013. • The radio and out-of-home market will decrease • The overall radio market will total $20.1 billion in 2013, to $28.8 billion in 2013, declining by a 0.6 percent declining by a 1.7 percent compound annual rate compound annual rate. from 2008. • Terrestrial radio advertising will fall by 22.8 percent • Out-of-home advertising will rise at a 2.4 percent during the next three years and at a 4.5 percent compound annual rate from $7.7 billion in 2008 to $8.7 compound annual rate through 2013 to $14.8 billion in billion in 2013. 2013 from $18.6 billion in 2008.

Radio/out-of-home market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Radio advertising Terrestrial 20,733 20,891 20,963 20,550 18,586 15,988 14,814 14,353 14,485 14,794 Satellite 4 7 71 78 100 109 135 163 195 230 Total radio advertising 20,737 20,898 21,034 20,628 18,686 16,097 14,949 14,516 14,680 15,024 Satellite radio subscriptions 385 1,012 1,796 2,527 3,255 3,606 3,940 4,321 4,715 5,110 Total satellite radio 389 1,019 1,867 2,605 3,355 3,715 4,075 4,484 4,910 5,340 Total radio 21,122 21,910 22,830 23,155 21,941 19,703 18,889 18,837 19,395 20,134 Out-of-home 6,118 6,624 7,152 7,792 7,690 7,311 7,350 7,567 7,995 8,678 Total 27,240 28,534 29,982 30,947 29,631 27,014 26,239 26,404 27,390 28,812

†At average 2008 exchange rates. Sources: Outdoor Advertising Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Universal McCann, Wilkofsky Gruen Associates

398 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Radio/out-of-home market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Radio advertising Terrestrial 2.6 0.8 0.3 –2.0 –9.6 –14.0 –7.3 –3.1 0.9 2.1 –4.5 Satellite 300.0 75.0 914.3 9.9 28.2 9.2 23.5 21.1 19.5 17.7 18.1 Total radio advertising 2.6 0.8 0.7 –1.9 –9.4 –13.9 –7.1 –2.9 1.1 2.3 –4.3 Satellite radio subscriptions 208.0 162.9 77.5 40.7 28.8 10.8 9.3 9.7 9.1 8.4 9.4 Total satellite radio 208.7 162.0 83.2 39.5 28.8 10.7 9.7 10.0 9.5 8.7 9.7 Total radio 3.8 3.7 4.2 1.4 –5.2 –10.2 –4.1 –0.3 3.0 3.8 –1.7 Out-of-home 6.0 8.3 8.0 8.9 –1.3 –4.9 0.5 3.0 5.7 8.5 2.4 Total 4.3 4.8 5.1 3.2 –4.3 –8.8 –2.9 0.6 3.7 5.2 –0.6

Sources: Outdoor Advertising Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Universal McCann, Wilkofsky Gruen Associates

• The radio/out-of-home market in the US will decline by • The Canadian market will increase by 3.3 percent on a 0.9 percent on a compound annual basis from $27.5 compound annual basis, reaching $2.5 billion in 2013 billion in 2008 to $26.3 billion in 2013. from $2.1 billion in 2008.

Radio/out-of-home market by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 25,804 26,960 28,291 28,964 27,498 24,940 24,139 24,218 25,060 26,306 –0.9 Canada 1,436 1,574 1,691 1,983 2,133 2,074 2,100 2,186 2,330 2,506 3.3 Total 27,240 28,534 29,982 30,947 29,631 27,014 26,239 26,404 27,390 28,812 –0.6

†At average 2008 exchange rates. Sources: Outdoor Advertising Association of America, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates Statistics Canada

Terrestrial radio advertising • Although the economy will adversely affect radio advertising in Canada in the near term, over the longer • Terrestrial radio advertising fell 9.6 percent in 2008. run new stations and radio station collectives will Radio advertising is declining because of the decline contribute to a recovery. A number of new licenses in retail sales, a major driver for radio, and because were issued in 2006, and new stations began to enter advertisers are shifting resources to the Internet. the market during the past two years, expanding the Additionally, the decline in advertising by auto dealers potential radio advertising inventory. Radio station is hurting all local media, including radio. In Canada, collectives, which sell advertising across a number AM stations are applying to convert to FM stations (FM of stations simultaneously, make it easier for national flips) to take advantage of the stereo capabilities of FM. advertisers to buy radio. Collectives have contributed Listening levels are generally higher on FM stations to national radio advertising growth in the past, and than on AM stations. we expect that once the economy rebounds, they will provide a lift in the future.

Radio and out-of-home | North America 399 PPM but there is no subscription fee. Thus, niche channels, • Arbitron introduced Personal People Meters (PPMs) in an important driver of satellite radio growth, will be Houston and Philadelphia in 2007 and added a number available on free terrestrial radio. HD receiver prices of major markets, including Chicago, Los Angeles, New have come down and are now less than $200. The York, and San Francisco in 2008. Arbitron expects to uptake for HD Radio has been limited, with less than a expand the service to the top 50 markets in the US million special sold. Several auto manufacturers by the end of 2010. PPMs are small sensors worn by are including HD Radio as a standard feature in their panelists that are expected to provide more accurate cars in 2009. Factory installation of satellite radio measurement than traditional paper diaries in the same receivers in automobiles is the principal driver of that way they did in the television market. PPMs were also market and should stimulate the HD market as well launched in a number of test markets in Canada in 2009. once auto sales increase. • A number of broadcasters tried to delay the intro- • In 2008, HD Radio technology was available to 80 duction of PPMs in the US because they felt that percent of the population through 1,500 stations. With the sample was inaccurate and would lead to lower the limited number of radios sold, features like the ratings for their stations, resulting in lower advertising ability to identify a song and then buy it from iTunes are revenues. Survey sampling is generally restricted going unused. to landline numbers. Some broadcasters thought • Advertising is now being sold on HD Radio, but it this meant that urban and Hispanic audiences were will take several years until significant ad revenues underrepresented, as they were more likely to be cell- are achieved. phone-only households. The lawsuits were settled in January 2009, when Arbitron agreed to double the • Currently, HD Radio does not offer much content size of its cell-phone-only sample. In a similar fashion, beyond standard radio. During the next few years, samples had to be adjusted when television migrated more stations will launch HD2 channels that will provide from diaries. content not generally available. While we do not expect HD Radio to match the offerings of satellite radio within • As with television, PPM data is leading to dramatic the next five years, it will be a new competitor. shifts in ratings, with some program categories benefiting and others being negatively impacted. As • Radio operators are involved in a new initiative called more markets are covered and as advertisers become Buy from FM whereby FM tuners are being made accustomed to the new way of evaluating radio, available on MP3 players and cell phones so consumers PPMs should have a positive effect on the market can identify from their devices and buy the songs they because they will allow for faster reporting and more hear on their radios. The first partner in FM tagging exact figures. Early results show that people listen to is Microsoft Zune, which has been introduced in 450 more radio stations than was previously reported. In stations. Currently, Zune has only 5 percent of the MP3 New York, cumulative ratings for the top five stations market. This technology has to be more widespread to doubled with the switch to PPM. make the music discovery market more significant.

HD Radio Internet radio • HD Radio is a trademarked technology that lets AM and • The streaming of radio programs on the Internet by FM stations broadcast digital signals alongside their both traditional radio broadcasters and Internet- analog signals. It was developed and licensed several only broadcasters is on the rise, with more than 50 years ago by iBiquity Digital Corp. HD Radio can deliver million listeners on a weekly basis. By streaming their better sound quality without station fading and hisses. programs online, station operators can widen their reach beyond their signal area and increase their • Through digital compression, radio stations can also potential to sell to national advertisers. Currently, broadcast multiple signals simultaneously with their Internet ad sales are modest and are not included standard analog signal using the HD2 sideband. in the figures. Listeners need an HD receiver to access HD2 stations,

400 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • In 2007, the Library of Congress’s Copyright Royalty on terrestrial radio to access Internet stations. Smart Board more than doubled the fees that Internet radio phones, with their access to the Internet, will also drive stations pay artists and record labels to air their music. interest in Internet radio. As Wi-Fi radio’s popularity Before March 2007, large broadcasters paid 76.2 cents increases, advertisers will start to take notice of the new per song for every thousand listeners, and smaller means to reach radio listeners. Currently, Wi-Fi radios stations with less than $1.25 million in sales paid 10 to cost about $200, but we expect their price to fall in the 12 percent of their revenues. The new policy mandates near future. Frontier Silicon is planning to introduce that all stations pay a per-song rate that increases each Internet radios to the market in 2009 at a price of less year until 2010, when it reaches $1.90. than $150. Blaupunkt plans to release car radios in 2009 that will enable listeners to switch between AM/ • In February 2009, SoundExchange, the organization FM stations and Internet radio at the touch of a button. that collects the royalties on behalf of artists and record companies, agreed to an 18 percent reduction Outlook for terrestrial radio advertising in royalties for 2009 and 2010 for commercial radio stations that also stream online. The new deal will cost • Terrestrial radio advertising as a whole will total $14.8 radio stations $1.50 for every song heard by 1,000 billion in 2013, 4.5 percent lower on a compound listeners in 2009, rising to $2.50 per thousand listeners annual basis from $18.6 billion in 2008. Terrestrial radio in 2015. The agreement covers several thousand advertising in the United States will decline by a 4.7 National Association of Broadcasters stations. Stations percent compound annual rate, while Canadian radio that are not members of the National Association of advertising will decrease by a 2.1 percent compound Broadcasters can also follow the agreement. annual rate. Canadian radio is less competitive than in the United States, with fewer stations per thousand • New technology is releasing Internet radio from the listeners. Additionally, many of the stations are publicly computer, allowing it to become more portable and owned and have little or no advertising, thereby helping reaching more people. Wi-Fi radios will enable those make the Canadian market less vulnerable to the consumers who are unwilling to pay for satellite economy than the American market is. radio but who want more than the limited selection

Terrestrial radio advertising market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 19,581 19,640 19,643 19,152 17,230 14,780 13,670 13,225 13,325 13,575 –4.7 Canada 1,152 1,251 1,320 1,398 1,356 1,208 1,144 1,128 1,160 1,219 –2.1 Total 20,733 20,891 20,963 20,550 18,586 15,988 14,814 14,353 14,485 14,794 –4.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Statistics Canada, Universal McCann, Wilkofsky Gruen Associates

Satellite radio • In February 2007, the two competitors, XM Satellite Radio and Sirius Satellite Radio, announced their inten- • Satellite radio entered the marketplace to resolve some tion to merge in the United States. In March 2008, the of the limitations of traditional radio, including limited Department of Justice approved the merger because range and poor transmission. Travelers cannot listen to it agreed with the companies that they compete with their favorite programming outside their local region. other forms of audio entertainment, including Internet With satellite radio, travelers can listen to their favorite radio and portable devices like the iPod. The Federal programming with clear transmissions wherever they Communications Commission approved the merger in are. They can also listen to specific programming in a July 2008 over the objection of the National Association commercial-free environment. of Broadcasters that consumers would be better off

Radio and out-of-home | North America 401 with competition between the two companies. The new satellite radio. As the automobile industry suffers in the company, called Sirius XM Radio Inc., agreed to a num- economic downturn and as the free subscriptions given ber of conditions, including a three-year price cap and away with new cars reach expiry, subscriber growth will providing an à la carte offering whereby listeners could be challenged. pay only for channels they wanted to listen to. • XM Canada launched the XMp3, a portable satellite radio • In October 2008, Sirius XM outlined a new programming and MP3 player that provides access to satellite radio. package called Best of Both, which offers subscribers • In November 2008, AT&T announced the introduction of of either of the former companies in the US the option Cruisecraft, a satellite-based in-car radio and television of adding a select group of channels from the other service scheduled to debut in 2009. The service, which service for a monthly cost of $16.99, as opposed to the utilizes a technology that can overcome line-of-sight normal monthly service of $12.95. For example, former issues like tunnels or buildings, will feature 22 television XM subscribers can now add Sirius’s Howard Stern, channels and 20 satellite radio channels. The service, Martha Stewart Living Radio, and NASCAR, among which will cost around $28 a month, will compete other channels, while former Sirius subscribers can add against Sirius XM. XM’s Oprah Winfrey channel, XM Public Radio, and select National Basketball Association games, among • Growth in satellite radio’s audience is attracting other channels. advertisers. Advertising spending in 2008 was $100 million. Satellite radio listeners are generally upscale • In February 2009, Sirius XM was wrestling with sig- and are committed to the medium, as evidenced by nificant liquidity issues, as the company had a debt their willingness to pay a subscription fee. These of $175 million that was due at the end of the month. characteristics are attractive to advertisers. Liberty Media, owner of DIRECTV, came to the rescue with a $530-million loan that will pay off the February • Although listening will remain fragmented on satellite ra- debt as well as other debt that comes due later in the dio and although many channels will remain commercial year. In return, Liberty will receive 40 percent of Sirius free, we expect that rising subscribershipsupported XM’s stock and seats on the board. Liberty Media’s by the availability of programming not available on action also prevented a possible takeover of Sirius XM terrestrial radio, as well as the bundling of subscrip- by DIRECTV’s competitor EchoStar, which has been tions with new carswill see advertisers increase their buying Sirius XM’s debt. investment in the platform. Moreover, as the audience grows, advertising will grow more than proportionally, • Satellite radio offers hundreds of stations and formats, because a larger reach commands a premium. The lack most of which are not available on terrestrial radio. Sirius of good measurement among the numerous channels XM ended 2008 with about 19 million subscribers. The will hamper growth somewhat. We expect advertising growth in the number of subscribers is expected to slow to more than double from $100 million in 2008 to $230 in 2009. million in 2013, an 18.1 percent annual rate of growth. • Many new subscribers were introduced to satellite radio • The overall satellite radio market will expand at a through factory-installed receivers in certain new cars, 9.7 percent compound annual rate to $5.3 billion in which gave them the service for free. Auto companies 2013. The US market will grow at an annual rate of are now installing satellite receivers on a wider array of 8.3 percent to $4.6 billion in 2013, while Canadian models, including economy cars. During the next five growth is expected to be much higher—increasing at a years, satellite radio will become a common option in 21.5 percent compound annual rate to $759 million— automobiles. Most of Sirius XM’s subscribers are car because the industry started later and is still in the early owners who get the service with their cars because stages of significant growth. around 50 percent of all new cars come equipped with

402 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Satellite radio market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States Subscription 385 1,012 1,772 2,409 2,968 3,201 3,434 3,730 4,040 4,351 8.0 Advertising 4 7 71 78 100 109 135 163 195 230 18.1 Total 389 1,019 1,843 2,487 3,068 3,310 3,569 3,893 4,235 4,581 8.3 Canada Subscriptions — — 24 118 287 405 506 591 675 759 21.5 Total 389 1,019 1,867 2,605 3,355 3,715 4,075 4,484 4,910 5,340 9.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Out-of-home advertising • Companies are establishing networks of digital displays in similar environments such as health clubs, • The out-of-home (OOH) market is being transformed by grocery stores, and gas stations. In this way, similar the deployment of digital billboards, the expansion of programming and advertisements can be controlled captive video networks, and new ways to reach people. from a central server and can be screened to many Except for the Internet, out-of-home has been the locations at the same time. There are now hundreds fastest-growing advertising category during the past few of digital networks nationwide, with new ones being years. Improved measurement of OOH is also spurring introduced every week. Fast-food chain Denny’s signed advertiser spending. Although digital technologies still a deal with IndoorDirect to program its network of 300 account for a relatively small proportion of the out-of- video displays. In 2007, CBS created CBS Outernet home market, they are generating a large proportion when it acquired SignStory, a video network that covers of growth. thousands of grocery stores. In 2008, NBC introduced • Digital billboards significantly increase a site’s advertising its NBC Everywhere with a portfolio of digital networks. potential compared with static posters because they can • The street furniture, transit, and alternative component accommodate multiple advertisers. A digital billboard of the out-of-home market has also been expanding. that shows sequential ads that change every 8 to 10 Municipalities are contracting out-of-home companies seconds can generate 10 times the revenue of a poster to provide bus stop shelters, public restrooms, and that displays a single ad. Digital ads can be updated other street furniture to improve urban amenities in frequently and quickly, eliminating the long advance time return for the right to sell advertising. that was required with traditional OOH billboards. • Transit ads are an increasing portion of the market. • The ability to change ads as necessary provides These ads include static ads that appear on the sides of advertisers with increased flexibility. Ads on digital buses, ads that wrap entire buses, and digital displays signs can be sold by daypart, similar to television, both inside and outside buses and taxis. with certain ads appearing in the evening and others in the morning. Additionally, OOH operators can • Airports are a growing market for out-of-home charge premium rates for prime-time commuting advertising because people spend more time prior hours, when more people will see the ads. Digital OOH to flights, have few distractions, and are in effect a operators have also developed strategies to increase captive audience. Airports also have space to provide their revenues, such as offering advertisers exclusive large displays. At JFK airport in New York, for example, category sponsorship or unlimited copy changes. tunnels are now equipped with 70-inch, high-definition video screens and hundreds of speakers.

Radio and out-of-home | North America 403 • There are a number of new technologies being intro- different digital networks will help spur the growth of duced in the OOH market that are helping expand the advertising by national advertisers. Additionally, Nielsen market. Titan Worldwide is testing LED signs on buses has its On Location media measurement tool, which in New York and Chicago. The signs are equipped provides viewership data for digital networks in various with GPS tracking devices, enabling the advertising to venues like gas stations and health clubs. Nielsen also change based on the location of the bus. measures billboard advertising with electronic meters as part of its Nielsen Outdoor system. • Lamar is testing solar-powered billboards that it hopes will be alternatives to the digital billboards that are • The Traffic Audit Bureau for Media Measurement (TAB) now becoming more prevalent in the industry. The is introducing its new measurement system called technology developed by Magink uses solar power Eyes On Ratings measuring system in 200 markets. The and light-reflecting ink rather than light-emitting diodes system combines the TAB’s out-of-home traffic audits (LEDs). The signs use less power than LED signs do, with visibility-adjusted indexes to estimate the number and since they reflect light rather than emit light, they of people who notice the billboards and for how long provide a good alternative for locations where local they are exposed to the billboards. The TAB is a not-for- residents oppose bright lights. These new billboards profit organization supported by advertisers and OOH offer higher resolution than LEDs do and make flesh operators that has provided standardized measurement tones look more realistic. of the OOH industry since 1933. • A number of companies are experimenting with projec- • Four of Canada’s largest OOH companies have launched tion lighting whereby an advertiser’s logo is seen on the TRANSIT, a reach-and-frequency measurement tool side of a building. This alternative to traditional OOH is for Canada’s transit systems, which gives advertisers a usually used for a short period of time and is commonly unified planning tool. TRANSIT is being sponsored by associated with specific events like trade shows. The CBS Outdoor, Lamar Outdoor, Plus, and projection systems can also be used to display ads on Pattison Outdoor. a ship or a river or any large structure. • Some companies are equipping billboards with small • Vancouver, Canada–based Vision Media conducted cameras that gather information about people who street stenciling campaigns for Scotts Lawn Care pass by the billboards. The information includes and the LG shine. The stencils, which last up to demographic data as well as how long the people 14 days, were very well received in ecologically are in front of the billboards. No actual pictures of the conscious Vancouver. passersby are maintained because pictures would pose privacy issues. Instead, the pictures are translated into • Interactive billboards are another new format. Using demographic characteristics that are maintained on a Bluetooth technology, mobile phone users can download server for later analysis. information from billboards. Pepsi has ads in airports that allow people to download clips of concerts; and bus • In the near term, lack of capital will be an impediment shelters in New York give commuters the opportunity to to digital growth, because conversion to digital is download clips from the Discovery network. expensive. Over the longer run, the biggest impediment to the growth of digital advertising is the local govern- • Improved measurement of the OOH audience is ment approval process. In December 2008, Los providing advertisers with the information to evaluate Angeles passed a 90-day moratorium on the installing the impact of their purchases. Improved measurement of new billboards to give the city more time to modify is generally associated with increased spending. The its 2002 ruling. In February 2009, the Los Angeles city Out-of-Home Video Advertising Bureau has established council told building owners to remove super-graphic guidelines for standardization within the industry. signs that are draped across multistory buildings, In this way, aggregators can put together groups of because they pose a fire hazard. A number of states— individual video networks that appeal to regional or including Alaska, Hawaii, Maine, and Vermont—have national advertisers. Since advertisers often prefer banned billboards. large-scale audiences, the consolidation of many

404 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • There are a number of local government initiatives in billboards and reducing the growth in street furniture, Canada to reduce the number of billboards. A billboard spending will hold up over the longer term. We project ban is moving forward in Quebec, while Ontario’s top the OOH market to grow by 2.4 percent on a compound court overturned an attempt by the city of Oakville to annual rate through 2013, reaching $8.7 billion, up from restrict billboard use. Vancouver has banned large signs $7.7 billion in 2008. The OOH market in the US will on rooftops, and some council members in Ottawa are grow by 2.5 percent annually to reach $8.2 billion, while looking for the power to ban billboards in their districts. the Canadian market will grow slightly slower, reaching $528 million in 2013. In both countries, we expect • While out-of-home has been affected by the weakened digital screens and digital networks to constitute an economy in 2008 and 2009, with cutbacks in capital increasing share of the market. spending resulting in a slower transition to digital

Out-of-home market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 5,834 6,301 6,805 7,325 7,200 6,850 6,900 7,100 7,500 8,150 2.5 Canada 284 323 347 467 490 461 450 467 495 528 1.5 Total 6,118 6,624 7,152 7,792 7,690 7,311 7,350 7,567 7,995 8,678 2.4

†At average 2008 exchange rates. Sources: Outdoor Advertising Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio and out-of-home | North America 405 Europe, Middle East, Africa (EMEA)

The outlook in brief • Public radio license fees will be the only segment of the market expected to show an increase, growing • Out-of-home advertising will be hurt by the weakened 1.6 percent annually to reach $11.4 billion in 2013, up economic conditions and offset somewhat by the from $10.5 billion in 2008. Public radio license fees increase in digital billboards and new venues. will overtake out-of-home advertising as the leading • Radio advertising will decline in the short term because segment of the market in 2009 and will maintain its of the economic slump and will recover at the end of position throughout the forecast period. the forecast period. • Radio advertising will exhibit the largest decrease • Public radio license fees will grow modestly, reflecting among the segments, declining by 17.8 percent during rate hikes. the next three years and at a 2.6 percent compound annual rate to $6.9 billion in 2013 from $7.9 billion in 2008. Overview • The total radio market will decline slightly from $18.4 • We project the radio and out-of-home market in EMEA billion in 2008 to $18.3 billion in 2013, a 0.1 percent will decline from $29.1 billion in 2008 to $27.7 billion in decrease on a compound annual basis. 2013, decreasing at a 1 percent compound annual rate. • Out-of-home advertising will decrease by 2.5 percent compounded annually from $10.7 billion in 2008 to $9.4 billion in 2013.

Radio/out-of-home market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Radio advertising 7,026 7,419 7,831 8,182 7,871 6,941 6,528 6,469 6,604 6,888 Public radio license fees 9,570 9,873 10,065 10,368 10,507 10,737 10,955 11,056 11,115 11,367 Total radio 16,596 17,292 17,896 18,550 18,378 17,678 17,483 17,525 17,719 18,255 Out-of-home advertising 8,490 9,102 9,955 10,736 10,697 9,379 8,883 8,815 9,021 9,440 Total 25,086 26,394 27,851 29,286 29,075 27,057 26,366 26,340 26,740 27,695

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio/out-of-home market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Radio advertising 9.4 5.6 5.6 4.5 –3.8 –11.8 –6.0 –0.9 2.1 4.3 –2.6 Public radio license fees 2.7 3.2 1.9 3.0 1.3 2.2 2.0 0.9 0.5 2.3 1.6 Total radio 5.4 4.2 3.5 3.7 –0.9 –3.8 –1.1 0.2 1.1 3.0 –0.1 Out-of-home advertising 5.7 7.2 9.4 7.8 –0.4 –12.3 –5.3 –0.8 2.3 4.6 –2.5 Total 5.5 5.2 5.5 5.2 –0.7 –6.9 –2.6 –0.1 1.5 3.6 –1.0

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

406 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Western Europe, which accounts for 84 percent of as well as expected increases in outdoor advertising, the region’s combined spending, will decrease by 0.6 reflecting the move to digitization. We project the UK to percent compounded annually to $23.7 billion in 2013 decline by 14.5 percent during the next three years and from $24.3 billion in 2008. by 2.5 percent on a compound annual basis through 2013 to $3.5 billion. • Central and Eastern Europe will decrease at a 4.3 percent compound annual rate to $3.1 billion from • France ranks third in total spending, at $3.5 billion, with $3.9 billion in 2008, while Middle East/Africa will be the virtually no growth during the past five years. Although only segment of the region to exhibit modest growth, public radio fees are expected to increase modestly, it increasing 1.4 percent compounded annually to $918 will not be enough to offset declines in OOH and radio million from $858 million in 2008. advertising, resulting in an overall decline of 0.6 percent compounded annually to $3.4 billion in 2013. • Germany is the largest market in the region, at $5.9 billion in 2008, with public radio license fees accounting • Italy and Russia are next, at $2.4 billion each. Increases for 65 percent of that total. Germany ranks third in radio in public license fees in Italy will offset advertising advertising and fourth in out-of-home advertising in declines in radio and OOH, resulting in an overall EMEA. The effects of the poor economic conditions will increase of 0.5 percent on an annual basis through cause the advertising segments to decline. Spending 2013 reaching $2.5 billion, up slightly from the $2.4 will dip to $5.8 billion by 2013. billion registered in 2008. • The United Kingdom is the second-largest market • We expect the economic turmoil to impact Russia in overall, at $3.9 billion, but ranks first in advertising. 2009, resulting in a 37 percent decline in revenues The continuing economic crisis will offset increased through 2011 and then rebounding somewhat to $1.7 radio listening associated with digital and Internet radio billion in 2013, a 6.6 percent annual decline from 2008.

Radio and out-of-home | EMEA 407 Radio/out-of-home market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 627 654 669 704 702 680 693 696 706 738 1.0 Belgium 727 798 852 919 970 945 937 954 985 1,031 1.2 Denmark 254 256 267 279 283 277 287 288 292 309 1.8 Finland 249 256 256 262 258 250 247 247 249 256 –0.2 France 3,551 3,576 3,607 3,589 3,508 3,383 3,330 3,335 3,363 3,398 –0.6 Germany 5,621 5,873 6,013 6,091 5,908 5,825 5,707 5,656 5,641 5,825 –0.3 Greece 556 583 643 704 670 599 562 548 551 571 –3.1 Ireland 354 394 439 477 482 446 434 437 448 469 –0.5 Italy 2,188 2,216 2,289 2,425 2,449 2,347 2,367 2,396 2,439 2,505 0.5 Netherlands 874 893 915 934 929 874 843 851 860 884 –1.0 Norway 366 411 432 462 476 464 459 465 473 488 0.5 Portugal 251 255 262 271 277 269 271 283 299 305 1.9 Spain 1,484 1,616 1,706 1,823 1,698 1,557 1,453 1,440 1,475 1,558 –1.7 Sweden 585 614 647 688 695 675 677 681 688 705 0.3 Switzerland 965 968 1,025 1,090 1,077 1,046 1,053 1,065 1,105 1,144 1.2 United Kingdom 3,854 3,950 3,976 4,125 3,946 3,567 3,379 3,374 3,397 3,468 –2.5 Western Europe total 22,506 23,313 23,998 24,843 24,328 23,204 22,699 22,716 22,971 23,654 –0.6 Central and Eastern Europe Czech Republic 214 261 281 293 298 282 276 277 279 289 –0.6 Hungary 146 162 193 203 216 188 172 168 170 177 –3.9 Poland 399 442 506 532 548 514 505 507 520 544 –0.1 Romania 136 139 159 185 221 204 195 192 194 204 –1.6 Russia 1,115 1,376 1,835 2,224 2,405 1,689 1,569 1,513 1,585 1,714 –6.6 Turkey 103 114 153 201 201 158 153 162 176 195 –0.6 Central and Eastern Europe total 2,113 2,494 3,127 3,638 3,889 3,035 2,870 2,819 2,924 3,123 –4.3 Middle East/Africa Israel 100 110 115 122 125 119 117 118 120 126 0.2 Saudi Arabia/Pan Arab‡ 87 116 191 218 240 227 220 223 240 265 2.0 South Africa 280 361 420 465 493 472 460 464 485 527 1.3 Middle East/Africa total 467 587 726 805 858 818 797 805 845 918 1.4 EMEA total 25,086 26,394 27,851 29,286 29,075 27,057 26,366 26,340 26,740 27,695 –1.0

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

408 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Out-of-home advertising • Digital billboards and digital networks will be the key drivers. In London, CBS Outdoor is investing heavily in • The out-of-home market is benefiting from digital displays in the Underground that include LCD panels technologies that expand the effective inventory and and projection systems that can be seen across train by their video displays that improve the ability to platforms. The displays are networked to enable them communicate. People are spending more time away to be changed quickly. from home, which is boosting the reach of out-of-home ads. The fact that out-of-home is also less subject to ad • In addition to their ability to provide more-effective avoidance is becoming an increasingly attractive feature. displays, digital billboards can generate many times the revenue of static billboards because they can • The out-of-home market is also benefiting from accommodate multiple advertisers through continuous the introduction of new technologies and improved scrolling. Digital billboards make ads more like a measurement techniques that reinforce advertisers’ television buy. Instead of buying the display for a two- to spending in the medium. four-week period, advertisers buy time slots. They can • In general, the OOH market is consolidated with the adjust the ads on a daily or even hourly basis, providing top three global companies controlling more than different information for morning commuters than for 50 percent of the market in Western Europe. This is evening commuters. Revenues for digital billboards beneficial to the industry because it will result in greater are higher than for traditional billboards because digital investment, stronger marketing, and better research. billboards can be sold to multiple advertisers. By contrast, developing markets like Central Europe are • Digital billboard advertising will grow as digital much less consolidated. billboards replace traditional billboards as well as • Consolidation of the industry is continuing. Clear get introduced in new locations. Digital signs can Channel Outdoor acquired Swiss billboard company be introduced in new locations where it was not Plakatron in 2005 and UK billboard company Van economically feasible to maintain traditional billboards Wagner in 2006 while taking a controlling interest in because it is possible to change the ads on digital 2007 in Klass Advertising, the market leader in banner billboard without having to make an on-site visit. advertising in Romania. In 2007, Clear Channel also • Digital billboards are also opening up the OOH market bought Italian billboard company AVIP, and in 2008 it to new advertisers. Since they lower the initial costs to bought Avenue media in Ireland. JCDecaux entered into advertisers because advertisers can purchase specific a joint venture with the Big Board Group, bringing the times on the board, they appeal to smaller advertisers company into Russia for the first time, and with Qatar that could not afford the major expenditures before. Media Services to facilitate entry into the Middle East Additionally, with their flexibility and ability to change market. In 2008, JCDecaux purchased Berlin-based content at will, they appeal to advertisers that VR-Berek. CBS Outdoor acquired Haveco and Maiden were put off by the long lead times required by Outdoor in Ireland as well as Adbus in Portugal. traditional billboards. • In October 2008, JCDecaux, the largest outdoor • Digital networks are connected to a central server that advertising company in Europe, abandoned its plans to distributes the content and advertisements to all of acquire News Outdoor Group, the Russian outdoor unit the displays. There are many digital networks being of News Corp. Both companies agreed that the current installed in doctors’ offices, elevators, gyms, grocery economic and capital market conditions would make stores, and other captive locations. They provide it difficult to complete the transaction at this time. The information as well as advertisements and can run acquisition would have created the world’s largest OOH location-specific copy across a network. company, surpassing Clear Channel. • Digital billboards and digital networks are in their infancy and constitute less than 5 percent of the OOH

Radio and out-of-home | EMEA 409 market. As the price of the hardware continues to and the installation of sites in key locations. A number decline, we expect digital OOH to grow as a percentage of sites were dismantled in Moscow and Saint Peters- of the market. The growth of digital advertising will help burg at the end of 2007 and in 2008, causing slower OOH grow relative to other media. growth. Additionally, the effects of the economy are being felt there also, with revenues projected to plunge • Street furniture is a growing segment of the market and in 2009 by 30.1 percent and to continue to fall through is attractive to advertisers because street furniture can 2011. Even with a projected rebound during the sub- reach people in the center of urban markets. The cities sequent two years, spending in 2013 will be nearly 28 benefit, because companies maintain bus shelters percent lower than in 2008. and public restrooms in return for the right to sell advertising. JCDecaux signed a new contract for street • The United Kingdom has the largest out-of home furniture in Hamburg calling for a 30 percent increase market in Western Europe and the second largest in in the number of displays from the previous contract. EMEA, at $1.6 billion. The leading operators in the Transportation centers are popular venues for street UK are CBS Outdoor, with its displays on the London furniture as well as for billboards because they are seen Underground, and JCDecaux, with its signage at by many people. Heathrow airport terminal 5. Titan Worldwide and Clear Channel are increasing their market share in the UK. • A number of new technologies are expanding the OOH We expect the continued expansion of digital signs to market. In the UK, a media company called Curb has aid growth. In the near term, poor economic conditions developed a technique to power wash advertising on are causing advertisers to pull back. We expect a streets. It is an environmentally friendly OOH technique, 23.3 percent decline during the next three years. By with the stencils lasting up to two weeks. Curb did 750 2013, spending will total $1.3 billion, down 4.3 percent street washings for Kia to promote Kia’s new car line. It compounded annually from 2008. is possible to place the ads in front of specific locations targeting specific demographic groups. • France is the third-largest market, at $1.4 billion, virtually unchanged during the past five years. France • Out-of-home ads are difficult to avoid, whereas with is home to JCDecaux, the largest OOH operator in traditional media, one can avoid advertising messages. Europe. Digital billboards are not as developed in For example, when watching television, people can France as in the UK, but they are expected to increase switch channels or leave the room, thereby avoiding in number over the next few years. We expect a 1.3 commercials. Similarly, when reading newspapers, percent compound annual decrease to $1.3 billion people can skip the pages with advertising. By in 2013. contrast, with outdoor advertising it is almost impossible to miss an ad if you are in front of it. • Germany, with revenues of $1.1 billion in 2008, is the only other country in the region with revenues above • Despite all of the innovations, the short-term growth the $1-billion mark. Unlike many of the other countries of the OOH market will be stymied by the worldwide where major international operators are the market economic crisis. OOH advertising in EMEA is expected leaders, in Germany two local companies, Stroer and to decline in 2009 and 2010 before recovering in 2011 Wall, dominate the market, along with JCDecaux. In and will then grow through 2013 to reach $9.4 billion, a Germany, as elsewhere, rising audiences and new 2.5 percent annual decrease from 2008. technologies are the driving factors for the industry. • Russia is the largest out-of-home market in EMEA, at People are spending more time out of doors, both $1.8 billion, more than twice its level in 2004. Growth driving and walking, thereby providing a bigger was fueled by the entrance of international companies audience for street furniture and roadside billboards.

410 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Stroer has installed more than 2,000 digital Infoscreens, • Middle East/Africa will be the only segment of the which provide information and advertisements in market to exhibit growth through the forecast period, transportation centers in Hamburg and Hannover. increasing by 1.7 percent annually from $432 million in Out-of-home advertising in Germany is expected to 2008 to $471 million in 2013. Saudi Arabia/Pan Arab decrease at a 2.9 percent annual rate through 2013, is projected to increase by 1.9 percent compounded falling to $973 million. annually as a result of the region’s relatively strong economies. In South Africa, digital billboards are • Out-of-home advertising in Western Europe will expanding the effective capacity, and displays in decrease at a 2.1 percent compound annual rate to new malls will contribute to a 2.0 percent compound $7.0 billion in 2013 from $7.7 billion in 2008. annual increase. • Poland is the second-largest market in Central and Eastern Europe, at $270 million in 2008. Large billboards are replacing smaller signs in much of the country. Giant Infoscreens, which combine news and sports information with advertising, are beginning to emerge in Warsaw. Clear Channel introduced a new concept called Coffee Point, which provides three advertising screens surrounding coffee-vending machines. We expect a 1.4 percent compound annual increase to $290 million in 2013. • For all of Central and Eastern Europe, out-of-home advertising will decrease by 4.6 percent compounded annually to $2.0 billion in 2013 from $2.6 billion in 2008.

Radio and out-of-home | EMEA 411 Out-of-home advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 123 139 151 152 155 146 143 145 151 160 0.6 Belgium 186 195 205 215 222 212 205 208 217 228 0.5 Denmark 49 51 56 60 63 59 57 58 60 63 0.0 Finland 41 44 45 48 50 47 45 45 47 50 0.0 France 1,346 1,343 1,346 1,368 1,354 1,288 1,244 1,251 1,259 1,266 –1.3 Germany 1,054 1,125 1,152 1,200 1,127 1,017 966 944 951 973 –2.9 Greece 344 367 424 458 476 439 417 410 413 432 –1.9 Ireland 94 104 119 130 132 117 110 110 113 117 –2.4 Italy 457 471 468 477 474 446 432 439 446 461 –0.6 Netherlands 202 220 239 240 234 212 200 202 205 212 –2.0 Norway 102 118 138 152 154 147 143 144 149 158 0.5 Portugal 157 160 161 161 158 146 139 139 142 146 –1.6 Spain 694 723 774 831 758 666 609 603 623 659 –2.8 Sweden 141 151 161 156 156 141 134 132 133 140 –2.1 Switzerland 526 516 552 612 582 554 540 545 559 591 0.3 United Kingdom 1,557 1,647 1,713 1,791 1,616 1,396 1,267 1,240 1,249 1,295 –4.3 Western Europe total 7,073 7,374 7,704 8,051 7,711 7,033 6,651 6,615 6,717 6,951 –2.1 Central and Eastern Europe Czech Republic 73 73 82 86 89 83 80 80 81 85 –0.9 Hungary 79 88 110 112 116 103 94 92 92 96 –3.7 Poland 156 182 230 251 270 263 261 265 274 290 1.4 Romania 42 44 57 77 99 89 83 81 82 89 –2.1 Russia 825 1,034 1,332 1,625 1,842 1,287 1,207 1,167 1,227 1,328 –6.3 Turkey 57 65 92 134 138 111 107 112 119 130 –1.2 Central and Eastern Europe total 1,232 1,486 1,903 2,285 2,554 1,936 1,832 1,797 1,875 2,018 –4.6 Middle East/Africa Israel 25 29 36 42 45 42 41 41 42 45 0.0 Saudi Arabia/Pan Arab‡ 65 90 155 180 200 190 185 187 200 220 1.9 South Africa 95 123 157 178 187 178 174 175 187 206 2.0 Middle East/Africa total 185 242 348 400 432 410 400 403 429 471 1.7 EMEA total 8,490 9,102 9,955 10,736 10,697 9,379 8,883 8,815 9,021 9,440 –2.5

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Communications Agencies of Russia, Fondation Statistique Suisse en Publicité, InfoAdex, Outdoor Advertising Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates, ZAW

412 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Radio advertising money into their new stations, and the audiences of the commercial stations have been increasing. We project • Radio advertising in EMEA decreased by 3.8 percent radio advertising in the UK to decrease by 5.0 percent in 2008 and is expected to decline by 11.8 percent on a compound annual basis to $744 million in 2013. in 2009, reflecting the worldwide economic crisis. We expect further declines in 2010 and 2011 before • Spain is the next-largest market, with advertising stabilization in 2012 and an increase in 2013. For revenues of $940 million in 2008. After a decline in Spain the forecast period as a whole, radio advertising is in 2008, we expect revenues to decline further—through expected to decline by 2.6 percent on a compound 2011 before turning around in 2012 and 2013. We annual basis through 2013, falling to $6.9 billion from project the Spanish radio market to surpass that of the $7.9 billion in 2008. UK in 2009 and to widen the advantage through 2013, when revenues are expected to be at $899 million. • The introduction of digital radio in a number of markets might help the advertising market in the future. Digital • Germany and Italy are the next-largest markets, at radio has a number of benefits over traditional radio, $922 million and $907 million, respectively. A DAB including better sound quality and the ability to infrastructure that reaches 85 percent of the country is broadcast a number of channels on the same amount in place in Germany, with a target date of 2015 for radio of spectrum. to become all digital. Penetration so far is low, and it will take a number of years before digital radio will make a • The UK has the largest radio advertising market meaningful contribution to advertising. DAB is expected in EMEA, at $964 million in 2008. Advertising on to be relaunched in 2009, with a number of new multi- commercial radio stations is relatively small because plexes expected to be in place. The radio market in the BBC, which has the largest audience in the UK, Germany is dominated by public stations, which have does not accept advertising. The UK has the highest about 80 percent of the listening audience. The public penetration of digital audio broadcasting (DAB) in stations receive license fees but also sell advertising. EMEA, with 29 percent of households receiving the We expect the German radio market to decline by 13.4 signals in 2008 compared with 22 percent in 2007. percent in 2009, with smaller declines in 2010 and 2011 More than 8 million DAB radios have been sold in the before turning around in 2012 and 2013. Revenues in UK, and DAB now accounts for more than 11 percent 2013 are expected to be $754 million, a 3.9 percent of listening. Despite this growth, there have not been annual decrease from the 2008 level. significant advertising revenues. Channel 4 abandoned its plan to launch three digital stations because of • Italian revenues are expected to surpass those of declining advertising revenues. Channel 4 also withdrew Germany—whose advertising market is falling even from the 4 Digital consortium, which had been awarded more rapidly—in 2009 and are expected to turn around a block of spectrum by Ofcom in 2007. It remains to in 2011, one year earlier than Germany, where the be seen what the other members of the consortium decline will be more pronounced. Italy will continue to will do. As a result, it is uncertain that any new national increase through 2013, reaching $841 million to become commercial digital stations will launch in the near future. the second-largest market, behind Spain. Despite that, the government is solidly behind the • Radio advertising in France has been sluggish in recent migration to the digital platform and is hoping to have years and declined in 2007 and 2008. President Nicolas the migration completed by the end of the next decade. Sarkozy has announced plans to eliminate advertising • There continues to be consolidation in the radio on public radio, with a start date sometime in 2009 and industry in the UK, with Global Radio acquiring Gcap in continuing through the end of 2011. We project radio April 2008 and German media company Bauer buying advertising will decrease by 3.2 percent at a compound Emap’s radio business. The new owners are pouring annual rate, falling to $739 million in 2013.

Radio and out-of-home | EMEA 413 • A number of new FM licenses have been recently and Eska. Euronet is introducing a new network with awarded in the Netherlands. However, these new jazz called Chilli Zet that will appeal to the 25- to stations are only fragmenting the market and are not 44-year-old demographic group. Radio PiN has bought expected to add significant advertising revenues. Radio Traffic and will expand from three markets to DAB is slowly entering the market, but it is uncertain six markets in 2009. Digital radio is gaining ground at what impact if any DAB stations will have on revenues the expense of terrestrial radio, while online listening because we are uncertain of the demand for DAB is growing, with the rise in broadband penetration. given the rise in number of FM stations. Until now, the Advertising revenues are projected to fall from $209 only DAB stations were run by public broadcasters million to $203 million in 2013. with little listener support. Internet radio is starting to • In Saudi Arabia/Pan Arab, new private stations have enter the marketplace with the launching of RNW24 by propelled radio advertising. Private stations were Radio Netherlands Worldwide in 2008. If that station introduced in Egypt in 2003, and new private stations proves successful, it is likely that other Internet radio have been launched in Jordan and other countries. We stations will emerge. Dutch radio advertising revenues project radio advertising in Saudi Arabia/Pan Arab to are expected to decrease from $424 million in 2008 increase at a 2.4 percent compound annual rate during to $388 million in 2013, declining by 1.8 percent on a the next five years. compound annual rate. • The introduction and expansion of digital radio and • In Central and Eastern Europe, by contrast, radio the exposure of radio to more listeners through the advertising grew at double-digit annual rates through Internet will help offset ongoing migration of advertising 2007, led by explosive growth in Russia. In 2008, to other platforms on the Internet. In the near term, Russia fell by 6 percent, and overall spending the worldwide economic crisis will result in significant decreased by 1.0 percent. We expect a steeper, declines in radio advertising in 2009 and 2010. The 28.6 percent decline in 2009, as the economy and decline will moderate in 2011 before turning positive in the advertising market are plunging, and cumulative 2012 and 2013. We project radio advertising in Western decreases of 38.5 percent through 2011 before a Europe to decrease at a 2.5 percent compound annual turnaround. Revenues are projected to be $386 million rate to $5.7 billion in 2013 from $6.4 billion in 2008. in 2013, down 7.3 percent compounded annually from $563 million in 2008. • In Central and Eastern Europe, we expect the decline to average 4.4 percent compounded annually from $1.1 • There has been a consolidation in the Polish radio billion in 2008 to $873 million in 2013. market, with very few independent stations remaining. The radio networks have been expanding to more • Radio advertising in Middle East/Africa will rise from markets, and new frequencies were allocated to a $335 million in 2008 to $347 million in 2013, a 0.7 number of networks, including Roxy FM, RMF Classic, percent gain compounded annually.

414 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Radio advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 176 177 174 170 161 146 139 138 139 142 –2.5 Belgium 259 293 329 373 410 388 373 380 395 417 0.3 Denmark 29 28 29 31 32 29 27 26 27 27 –3.3 Finland 59 57 57 57 56 51 48 48 50 51 –1.9 France 973 988 1,002 951 871 776 732 717 724 739 –3.2 Germany 904 972 995 1,013 922 798 746 732 739 754 –3.9 Greece 142 146 149 176 124 88 73 66 66 67 –11.6 Ireland 149 174 203 227 227 205 198 198 205 220 –0.6 Italy 761 762 824 893 907 820 776 783 805 841 –1.5 Netherlands 388 395 410 426 424 388 366 369 373 388 –1.8 Norway 89 108 106 114 122 117 114 114 116 120 –0.3 Portugal 76 75 70 69 66 59 56 56 57 59 –2.2 Spain 790 893 932 992 940 891 844 837 852 899 –0.9 Sweden 74 77 91 97 99 89 84 85 86 91 –1.7 Switzerland 123 131 127 126 118 109 104 105 107 109 –1.6 United Kingdom 1,177 1,128 1,069 1,047 964 799 735 716 725 744 –5.0 Western Europe total 6,169 6,404 6,567 6,762 6,443 5,753 5,415 5,370 5,466 5,668 –2.5 Central and Eastern Europe Czech Republic 81 91 100 107 108 97 92 92 92 97 –2.1 Hungary 67 74 83 91 100 85 78 76 78 81 –4.1 Poland 153 176 195 201 209 199 193 191 195 203 –0.6 Romania 21 24 31 39 50 43 39 38 39 41 –3.9 Russia 290 342 503 599 563 402 362 346 358 386 –7.3 Turkey 46 49 61 67 63 47 46 50 57 65 0.6 Central and Eastern Europe total 658 756 973 1,104 1,093 873 810 793 819 873 –4.4 Middle East/Africa Israel 42 46 43 43 41 37 35 35 35 36 –2.6 Saudi Arabia/Pan Arab‡ 22 26 36 38 40 37 35 36 40 45 2.4 South Africa 135 187 212 235 254 241 233 235 244 266 0.9 Middle East/Africa total 199 259 291 316 335 315 303 306 319 347 0.7 EMEA total 7,026 7,419 7,831 8,182 7,871 6,941 6,528 6,469 6,604 6,888 –2.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Communication Agencies of Russia, Fondation Statistique Suisse en Publicité, InfoAdex, PricewaterhouseCoopers LLP, Radio Advertising Bureau, Wilkofsky Gruen Associates, ZAW

Radio and out-of-home | EMEA 415 Public radio license fees through 2006. The government has since announced it will begin restoring funds to public radio. Funding • Public radio license fees are paid by households via increased in 2007, and we project a 0.9 percent government levies to help finance public radio stations. compound annual expansion through 2013. Households pay only one license fee, but the proceeds are distributed to both public TV and public radio broad- • In Poland, license fee revenue has been declining, casters, which are typically run by the same company. and legislation has been introduced that could abolish the fee in 2009 and replace it with a new system of • Germany was the largest market, at $3.9 billion in financing from public tax revenues and from other 2008, more than the total for the next three countries private broadcasters. As of this writing, no definitive combined, with the United Kingdom second at $1.4 action has been taken, and we assume a public license billion, followed by France at $1.3 billion and Italy at fee will remain. Revenues fell sharply in 2008 and are $1.1 billion. Together, these four territories accounted projected to fall again in 2009 to $52 million. We are for $7.6 billion, or 72 percent of EMEA’s public radio projecting that they will be flat for the remainder of the license fees. forecast period, at $51 million. • License fees were introduced in their current form in • Spain, Russia, Hungary, Turkey, and Saudi Arabia/Pan Portugal in 2004 and have grown rapidly from a small Arab do not have public radio license fees. base. We expect continued double-digit growth during the next five years as fees are expanded to more • We project total public radio license fees to rise to households. Portugal is the only country in the region $11.4 billion in 2013, up 1.6 percent on a compound expected to experience double-digit gains. annual basis from $10.5 billion in 2008. • In other territories where license fees are long established, growth will be generally modest because Total radio market fees depend on household growth and rate increases, • Radio in EMEA generated 57 percent of its revenues which generally are modest. from license fees in 2008. When we include advertising, • In Germany, the Constitutional Court in Karlsruhe in the overall radio market totaled $18.4 billion in 2008. 2007 ruled that the scaling back of the requested fee • Germany has the largest radio market by far, at $4.8 increase in 2005 was not valid because the state prime billion in 2008, with the UK and France next at $2.3 ministers exceeded their authority in overturning the billion and $2.2 billion, respectively. Italy at $2.0 billion original request. The fee does not have to be reimposed is the only other territory above $1 billion. retroactively, but a large increase is expected in 2013 on the usual rotational basis. Public radio license fees will • The 1.6 percent growth in license fees is almost decline from 2009 to 2012, reflecting a decrease in the enough to offset the 2.6 percent annual decline in radio number of households, before increasing in 2013, when advertising, as the overall radio market will exhibit the next fee hike is expected. Fees will total $4.1 billion a modest, 0.1 percent decrease on an annual basis in 2013, a 1.2 percent compound annual increase. through 2013. • We expect license fee growth in the UK to average 0.9 • The overall radio market in EMEA will decline to $18.3 percent compounded annually to $1.4 billion in 2013. billion in 2013. Western Europe will expand to $16.7 billion, a 0.1 percent compound annual increase; • In the Netherlands, although formal license fees were Central and Eastern Europe will decrease by 3.7 discontinued in 2000, the government continues to percent compounded annually; and Middle East/Africa support from general tax revenues. will rise at a 1.0 percent compound annual rate. Beginning in 2004, the government began reducing its contribution to public radio and extended that decline

416 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Public radio license fees† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 328 338 344 382 386 388 411 413 416 436 2.5 Belgium 282 310 318 331 338 345 359 366 373 386 2.7 Denmark 176 177 182 188 188 189 203 204 205 219 3.1 Finland 149 155 154 157 152 152 154 154 152 155 0.4 France 1,232 1,245 1,259 1,270 1,283 1,319 1,354 1,367 1,380 1,393 1.7 Germany 3,663 3,776 3,866 3,878 3,859 4,010 3,995 3,980 3,951 4,098 1.2 Greece 70 70 70 70 70 72 72 72 72 72 0.6 Ireland 111 116 117 120 123 124 126 129 130 132 1.4 Italy 970 983 997 1,055 1,068 1,081 1,159 1,174 1,188 1,203 2.4 Netherlands 284 278 266 268 271 274 277 280 282 284 0.9 Norway 175 185 188 196 200 200 202 207 208 210 1.0 Portugal 18 20 31 41 53 64 76 88 100 100 13.5 Spain 0 0 0 0 0 0 0 0 0 0 — Sweden 370 386 395 435 440 445 459 464 469 474 1.5 Switzerland 316 321 346 352 377 383 409 415 439 444 3.3 United Kingdom 1,120 1,175 1,194 1,287 1,366 1,372 1,377 1,418 1,423 1,429 0.9 Western Europe total 9,264 9,535 9,727 10,030 10,174 10,418 10,633 10,731 10,788 11,035 1.6 Central and Eastern Europe Czech Republic 60 97 99 100 101 102 104 105 106 107 1.2 Hungary 0 0 0 0 0 0 0 0 0 0 — Poland 90 84 81 80 69 52 51 51 51 51 –5.9 Romania 73 71 71 69 72 72 73 73 73 74 0.5 Russia 0 0 0 0 0 0 0 0 0 0 — Turkey 0 0 0 0 0 0 0 0 0 0 — Central and Eastern Europe total 223 252 251 249 242 226 228 229 230 232 –0.8 Middle East/Africa Israel 33 35 36 37 39 40 41 42 43 45 2.9 Saudi Arabia/Pan Arab‡ 0 0 0 0 0 0 0 0 0 0 — South Africa 50 51 51 52 52 53 53 54 54 55 1.1 Middle East/Africa total 83 86 87 89 91 93 94 96 97 100 1.9 EMEA total 9,570 9,873 10,065 10,368 10,507 10,737 10,955 11,056 11,115 11,367 1.6

Note: Figures in the Netherlands reflect government contributions from general tax revenues. †At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Ofcom, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio and out-of-home | EMEA 417 Total radio market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 504 515 518 552 547 534 550 551 555 578 1.1 Belgium 541 603 647 704 748 733 732 746 768 803 1.4 Denmark 205 205 211 219 220 218 230 230 232 246 2.3 Finland 208 212 211 214 208 203 202 202 202 206 –0.2 France 2,205 2,233 2,261 2,221 2,154 2,095 2,086 2,084 2,104 2,132 –0.2 Germany 4,567 4,748 4,861 4,891 4,781 4,808 4,741 4,712 4,690 4,852 0.3 Greece 212 216 219 246 194 160 145 138 138 139 –6.5 Ireland 260 290 320 347 350 329 324 327 335 352 0.1 Italy 1,731 1,745 1,821 1,948 1,975 1,901 1,935 1,957 1,993 2,044 0.7 Netherlands 672 673 676 694 695 662 643 649 655 672 –0.7 Norway 264 293 294 310 322 317 316 321 324 330 0.5 Portugal 94 95 101 110 119 123 132 144 157 159 6.0 Spain 790 893 932 992 940 891 844 837 852 899 –0.9 Sweden 444 463 486 532 539 534 543 549 555 565 0.9 Switzerland 439 452 473 478 495 492 513 520 546 553 2.2 United Kingdom 2,297 2,303 2,263 2,334 2,330 2,171 2,112 2,134 2,148 2,173 –1.4 Western Europe total 15,433 15,939 16,294 16,792 16,617 16,171 16,048 16,101 16,254 16,703 0.1 Central and Eastern Europe Czech Republic 141 188 199 207 209 199 196 197 198 204 –0.5 Hungary 67 74 83 91 100 85 78 76 78 81 –4.1 Poland 243 260 276 281 278 251 244 242 246 254 –1.8 Romania 94 95 102 108 122 115 112 111 112 115 –1.2 Russia 290 342 503 599 563 402 362 346 358 386 –7.3 Turkey 46 49 61 67 63 47 46 50 57 65 0.6 Central and Eastern Europe total 881 1,008 1,224 1,353 1,335 1,099 1,038 1,022 1,049 1,105 –3.7 Middle East/Africa Israel 75 81 79 80 80 77 76 77 78 81 0.2 Saudi Arabia/Pan Arab‡ 22 26 36 38 40 37 35 36 40 45 2.4 South Africa 185 238 263 287 306 294 286 289 298 321 1.0 Middle East/Africa total 282 345 378 405 426 408 397 402 416 447 1.0 EMEA total 16,596 17,292 17,896 18,550 18,378 17,678 17,483 17,525 17,719 18,255 –0.1

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

418 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Asia Pacific

The outlook in brief • Radio advertising will increase by 0.6 percent com- pounded annually to $5 billion in 2013 from $4.8 billion • Poor economic conditions will dampen the market in in 2008. 2009 and 2010. • Public radio license fees will rise at a 1.4 percent • Digital technologies will provide out-of-home compound annual rate to $2.6 billion in 2013 from advertising a modest increase. $2.4 billion in 2008. • Digital radio and rapid expansion in India and • The overall radio market will increase from $7.2 billion the People’s Republic of China (PRC) will sustain in 2008 to $7.6 billion in 2013, a 0.9 percent compound radio advertising. annual rate. • Rate increases will generate modest growth in public • Out-of-home advertising will be the fastest-growing radio license fees. component, rising to $11.5 billion by 2013 from $9.7 billion in 2008, a 3.5 percent compound annual increase. Overview • We project the radio and out-of home market will increase from $16.9 billion in 2008 to $19.1 billion in 2013, growing at a 2.4 percent compound annual rate.

Radio/out-of-home market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Radio Radio advertising 3,998 4,184 4,551 4,659 4,819 4,539 4,479 4,556 4,723 4,970 Public radio license fees 2,165 2,289 2,341 2,378 2,416 2,451 2,484 2,519 2,556 2,590 Total radio 6,163 6,473 6,892 7,037 7,235 6,990 6,963 7,075 7,279 7,560 Out-of-home advertising 8,270 8,439 8,974 9,824 9,700 9,512 9,626 10,075 10,765 11,507 Total 14,433 14,912 15,866 16,861 16,935 16,502 16,589 17,150 18,044 19,067

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio/out-of-home market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Radio Radio advertising 6.6 4.7 8.8 2.4 3.4 –5.8 –1.3 1.7 3.7 5.2 0.6 Public radio license fees 5.5 5.7 2.3 1.6 1.6 1.4 1.3 1.4 1.5 1.3 1.4 Total radio 6.2 5.0 6.5 2.1 2.8 –3.4 –0.4 1.6 2.9 3.9 0.9 Out-of-home advertising 11.5 2.0 6.3 9.5 –1.3 –1.9 1.2 4.7 6.8 6.9 3.5 Total 9.2 3.3 6.4 6.3 0.4 –2.6 0.5 3.4 5.2 5.7 2.4

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio and out-of-home | Asia Pacific 419 • Japan is the dominant territory in the region, at $9.0 Radio/out-of-home advertising in Asia Pacific (US$ billions) billion in 2008, 53 percent of the total. The PRC is next, 12,000 at $3.6 billion, followed by Australia at $1.2 billion. These three countries constituted 82 percent of the 10,000 entire market. • Japan’s radio advertising market is in a long-term 8,000 decline. Poor economic conditions are expected to 6,000 cause steeper decreases in radio and out-of-home Japan and South Korea advertising in 2009 and 2010. Starting in 2011, both 4,000 Rest of the region segments of the market are expected to show gains. Out-of-home advertising will show greater growth due 2,000 to new technologies that are boosting that segment of 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 the market, and we expect the overall market to decline Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates 0.5 percent compounded annually to $8.7 billion in 2013. • We expect India to be the fastest-growing territory • We expect revenues to decline at a 0.9 percent during the next five years, fueled by large increases in compound annual rate in South Korea to $794 million radio from new FM stations and an advancing out- as a result of a share decrease in 2009. of-home market. Growth will average 14.1 percent • Excluding Japan and South Korea, growth in the rest compounded annually. of the region will average 6.0 percent compounded • Continued economic growth will boost spending by 8.5 annually. Japan and South Korea together constituted percent compounded annually in the PRC. 58 percent of total spending in Asia Pacific in 2008. By 2013, their combined share will drop to 50 percent. • The decline in radio advertising will more than offset the increase in out-of-home advertising in Australia over the next five years, resulting in a slight, overall 0.3 percent annual decrease, with revenues remaining at $1.2 billion throughout the period.

420 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Radio/out-of-home market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 977 1,047 1,090 1,191 1,233 1,166 1,141 1,153 1,179 1,212 –0.3 China 2,250 2,366 2,886 3,715 3,609 3,747 4,007 4,394 4,899 5,415 8.5 Hong Kong 108 125 132 145 166 154 153 157 166 180 1.6 India 249 278 342 443 532 594 673 765 879 1,027 14.1 Indonesia 87 99 105 109 116 116 119 124 133 146 4.7 Japan 8,604 8,732 8,909 8,957 8,973 8,591 8,381 8,414 8,564 8,732 –0.5 Malaysia 37 40 48 56 60 60 61 64 68 73 4.0 New Zealand 210 231 245 248 223 202 190 185 188 195 –2.6 Pakistan 24 31 34 38 40 40 41 42 43 43 1.5 Philippines 272 309 333 335 334 320 320 316 323 341 0.4 Singapore 108 107 105 107 109 97 91 88 90 92 –3.3 South Korea 907 916 942 821 832 748 743 749 765 794 –0.9 Taiwan 241 242 273 279 272 245 237 238 244 251 –1.6 Thailand 345 373 404 399 417 403 412 440 480 540 5.3 Vietnam 14 16 18 18 19 19 20 21 23 26 6.5 Total 14,433 14,912 15,866 16,861 16,935 16,502 16,589 17,150 18,044 19,067 2.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Out-of-home advertising 2008 because of the Olympics, out-of-home advertising decreased because of government regulatory policies • The expansion in out-of-home advertising in the major eliminating numerous billboards. cities in the PRC is being driven by improvements in the airport, subway, and other infrastructure that afford • While the overall growth prospects in the PRC remain attractive locations and prime sites for advertisers. very solid, it should be noted that local municipal Out-of-home advertising is the third-largest medium, authorities are constantly reviewing the impact after television and print, and is expected to increase of the growth in the out-of-home market from an its market share over the forecast period. Out-of- environmental aspect and periodically announce home advertising growth is concentrated in the areas local regulations to control the sector in terms of new that have high levels of consumer spending, with sites that will be permitted. We expect the out-of- Beijing, Shanghai, and Guangzhou constituting the home market to increase by 9.9 percent compounded three major markets. The industry is highly scattered, annually, reaching $4.1 billion in 2013, up from $2.5 with thousands of local operators. Through a set of billion in 2008. acquisitions, four operators have become national in • New technologies are stimulating the out-of-home scope: Clear Media, Media Nation, Media Partners market in Japan, with digital and interactive signs International, and Tom.com. Clear Media has a gaining market share. Digital signs provide an monopoly in bus shelters in Shanghai and Guangzhou. opportunity for operators to sell a single sign to Although overall advertising increased dramatically in

Radio and out-of-home | Asia Pacific 421 a rotating number of advertisers, thus achieving audience, and by large billboards, street furniture, significant revenue increases. Interactive signs permit and video networks in shopping centers. In 2009, the passersby with Bluetooth-enabled handsets to receive industry will introduce its new audience measurement product information or coupons directly from the system called MOVE (Measurement of Outdoor Visibility signs. Although out-of-home advertising is expected and Exposure). MOVE will cover all outdoor audience to show a modest, 0.4 percent decrease on an annual environments, including shopping centers and airport basis from $5.2 billion in 2008 to $5.1 billion in 2013, interiors, in addition to traditional billboards. Better its market share is expected to grow relative to that of measuring methods usually translate into higher radio advertising, which is expected to decline by 4.4 revenues, as they validate advertisers’ expenditures in percent on a compound annual basis through 2013. the media. Out-of-home advertising is expected to be one of the stronger media over the next few years. Due • We expect out-of-home advertising in India to grow by to the poor worldwide economy, spending will decline 12.5 percent on a compound annual basis, reaching in 2009 and 2010 before returning to positive growth, $616 million in 2013, up from $342 million in 2008. Out- with the five-year increase averaging 1.3 percent on an of-home advertising is very fragmented in India, with annual basis and reaching $405 million in 2013. many small operators rather than the major international companies controlling the market. JCDecaux, the • In South Korea, a ban on roadside billboards led to a number one OOH operator in Europe and number two 20 percent drop in spending in 2007. The Government worldwide, announced its entry into the Indian market Regulation Reform Committee changed course in by signing an exclusive 15-year contract with the New 2008 and eliminated some of the regulations that have Delhi Municipal Council. JCDecaux plans to build and affected out-of-home advertising in the past, resulting operate 200 bus shelters in the capital and to seek in a slight increase in 2008. Revenues are expected partnerships with local companies so as to expand to decline in 2009 and to show a modest decrease its presence. Digital signs are becoming popular, through 2013, dropping to $490 million from $503 providing much of the growth in the industry. Further million in 2008. outdoor opportunities are also arising from the building • In the Philippines, an expected relaxation of the ban on of new airports and the building of metropolitan light political advertising will lead to a jump in spending in railways in many Indian cities. New malls and cinema 2010 related to the presidential election. multiplexes will also spur the market. • We project out-of-home advertising for Asia Pacific as • Out-of-home advertising in Australia rose by 39 percent a whole to expand at a 3.5 percent compound annual during the past four years. Growth is being fueled rate to $11.5 billion in 2013 from $9.7 billion in 2008. by transit ads, which take advantage of a captive

422 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Out-of-home advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 273 296 317 368 380 372 368 376 389 405 1.3 China 1,777 1,808 2,065 2,813 2,532 2,641 2,858 3,188 3,628 4,065 9.9 Hong Kong 53 64 68 74 85 80 80 82 87 95 2.2 India 194 205 228 285 342 377 422 468 537 616 12.5 Indonesia 72 79 83 85 88 87 88 90 95 103 3.2 Japan 4,880 4,906 5,066 5,150 5,217 4,976 4,831 4,879 4,995 5,121 –0.4 Malaysia 16 18 24 26 26 25 25 26 27 29 2.2 New Zealand 36 51 55 55 51 48 46 45 46 48 –1.2 Pakistan 8 9 11 13 14 14 14 14 14 14 0.0 Philippines 33 37 38 40 42 40 44 39 40 43 0.5 Singapore 30 32 37 42 46 41 39 38 40 42 –1.8 South Korea 599 603 621 499 503 458 456 459 470 490 –0.5 Taiwan 148 156 165 177 174 158 155 157 162 168 –0.7 Thailand 139 161 180 181 183 178 182 195 215 245 6.0 Vietnam 12 14 16 16 17 17 18 19 20 23 6.2 Total 8,270 8,439 8,974 9,824 9,700 9,512 9,626 10,075 10,765 11,507 3.5

†At average 2008 exchange rates. Sources: Dentsu, Outdoor Advertising Association of New Zealand, Outdoor Media Association Inc. of Australia, PricewaterhouseCoopers LLP, State Administration of Industry and Commerce, Wilkofsky Gruen Associates

Radio and out-of-home | Asia Pacific 423 Radio advertising and wider use of visual features and greater station capacity. It will remain to be seen whether advertisers • With the exception of the PRC, Indonesia, and flock to the new format as they wait for a critical mass Thailand, radio reaches more than 90 percent of the of listeners, which may take several years due to the population in Asia Pacific. Following drops in 2006 cost of replacing analog sets. and 2007, the time spent listening in an average week stabilized in 2008. • Listening to radio on the Internet is popular in Australia, and the added reach from Internet distribution is • Japan was the largest radio advertising market in Asia helping attract cross-platform advertising. Advertising Pacific, at $1.5 billion in 2008. Advertising has fallen revenues in Australia are expected to decline through steadily during the past five years, and we expect that 2010 before turning around for the remainder of the pattern to continue as the economy remains weak and forecast period. Revenues are expected to decline by the Internet attracts advertisers from radio. We project 1.1 percent on a compound annual basis, declining spending to fall at a 4.4 percent compound annual rate from $853 million in 2008 to $807 million in 2013. to $1.2 billion in 2013. • Radio advertising is surging in India, having more than • The PRC was the second-largest radio advertising tripled during the past four years. The FM market was market in 2008, with revenues of $1.1 billion. Radio deregulated in 2005, and more than 205 stations have penetration is growing as the number of cars on the been added since then, providing additional inventory road increases significantly, although the average that will continue to fuel radio advertising. The latest time spent listening is on a downtrend as other media phase of deregulation will permit stations to air current capture audience attention. Radio’s reach in four major affairs and new programs that drive growth. Total cities increased from 53 to 66 percent during the past listening has increased in some cities to as high as 22 year, while average listening per week declined from hours per week. Private FM radio stations account for 7.3 to 5.4 hours. The government plans to introduce around 70 percent of advertising dollars, with public digital audio broadcasting in 2010. Radio advertising broadcaster accounting for the rest. will increase to $1.4 billion in 2013, a 4.6 percent Radio’s share of the advertising market has grown in compound annual increase from 2008. The PRC will recent years and is expected to increase during the supplant Japan as the largest market in the region. next five years. We project increases to average 16.7 • Australia is the third-largest radio advertising market percent compounded annually through 2013, reaching in Asia Pacific, with $853 million in revenues in 2008. $411 million, up from $190 million in 2008. All of the major commercial broadcasters will join • In Malaysia, radio advertising grew by 13.3 percent in national public broadcasters ABC and SBS in the 2008 because there were a number of special events August launch of digital services in the six state capital last year, including the general election in March, Euro cities—Sydney, Melbourne, Brisbane, Adelaide, Perth, 2008 in June, and the Beijing Olympics in August, and Hobart—followed by further rollouts to regional which helped propel average listening to 22 hours a and rural areas. Austereo Group, which operates the week. Although radio will remain an important medium, Today and Triple M national networks, launched a new with vernacular stations increasingly popular, the online station, Radar, in December 2008. Radar, playing weakened economy combined with a lack of major only unsigned musical acts, is also being broadcast in events in 2009 will lead to a slowing in the growth of Sydney’s digital test market and can be picked up by advertising revenues. We expect revenues to grow 5.3 the few digital sets already in use. The improved sound percent on a compound annual rate through 2013. quality of digital radio is expected to make the medium more attractive. Digital radio gives broadcasters the • We project radio advertising for Asia Pacific as a whole ability to provide more niche programming because to increase by 0.6 percent on an annual basis to $5 more channels can be broadcast over the same billion from $4.8 billion in 2008 as declines in 2009 and spectrum. Australia will be using the more advanced 2010 will be offset by increases in the later years. DAB+ system, which promises higher sound quality

424 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Radio advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 704 751 773 823 853 794 773 777 790 807 –1.1 China 473 558 821 902 1,077 1,106 1,149 1,206 1,271 1,350 4.6 Hong Kong 55 61 64 71 81 74 73 75 79 85 1.0 India 55 73 114 158 190 217 251 297 342 411 16.7 Indonesia 15 20 22 24 28 29 31 34 38 43 9.0 Japan 1,734 1,718 1,685 1,614 1,527 1,353 1,256 1,208 1,208 1,217 –4.4 Malaysia 21 22 24 30 34 35 36 38 41 44 5.3 New Zealand 174 180 190 193 172 154 144 140 142 147 –3.1 Pakistan 2 2 2 3 3 3 3 3 3 3 0.0 Philippines 239 272 295 295 292 280 276 277 283 298 0.4 Singapore 53 50 43 40 38 30 26 24 23 23 –9.6 South Korea 172 177 184 184 190 150 147 149 153 161 –3.3 Taiwan 93 86 108 102 98 87 82 81 82 83 –3.3 Thailand 206 212 224 218 234 225 230 245 265 295 4.7 Vietnam 2 2 2 2 2 2 2 2 3 3 8.4 Total 3,998 4,184 4,551 4,659 4,819 4,539 4,479 4,556 4,723 4,970 0.6

†At average 2008 exchange rates. Sources: Commercial Economic Advisory Service of Australia, Dentsu, PricewaterhouseCoopers LLP, State Administration of Industry and Commerce, Wilkofsky Gruen Associates

Public radio license fees • At $2.2 billion, Japan accounted for 92 percent of the region’s radio license fees in 2008. South Korea at $139 • Public radio license fees exist in Indonesia, Japan, million was the only other territory with fees in excess of Pakistan, Singapore, and South Korea. In Indonesia, $100 million. households are not required to pay the fee, and collections therefore are not significant. • We project spending to rise from $2.4 billion in 2008 to $2.6 billion in 2013, a 1.4 percent compound • Fees are based on TV households, which are expected annual increase. to grow slowly during the next five years.

Radio and out-of-home | Asia Pacific 425 Public radio license fees† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia — — — — — — — — — — — China — — — — — — — — — — — Hong Kong — — — — — — — — — — — India — — — — — — — — — — — Indonesia‡ NA NA NA NA NA NA NA NA NA NA NA Japan 1,990 2,108 2,158 2,193 2,229 2,262 2,294 2,327 2,361 2,394 1.4 Malaysia — — — — — — — — — — — New Zealand — — — — — — — — — — — Pakistan 14 20 21 22 23 23 24 25 26 26 2.5 Philippines — — — — — — — — — — — Singapore 25 25 25 25 25 26 26 26 27 27 1.6 South Korea 136 136 137 138 139 140 140 141 142 143 0.6 Taiwan — — — — — — — — — — — Thailand — — — — — — — — — — — Vietnam — — — — — — — — — — — Total 2,165 2,289 2,341 2,378 2,416 2,451 2,484 2,519 2,556 2,590 1.4

†At average 2008 exchange rates. ‡There is a license fees system in place, but there is no law requiring households to pay. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total radio market • The radio market as a whole, including public license fees and advertising, will expand from $7.2 billion in • Public radio licenses accounted for 33 percent of radio 2008 to a projected $7.6 billion in 2013, a 0.9 percent revenues in 2008. In Japan they constituted 59 percent, compound annual increase. while in Pakistan they accounted for 88 percent of the radio market. • In Singapore and South Korea, the only other countries with public radio license fees, advertising was the princi- pal contributor, at 60 percent and 58 percent, respectively.

426 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total radio market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 704 751 773 823 853 794 773 777 790 807 –1.1 China 473 558 821 902 1,077 1,106 1,149 1,206 1,271 1,350 4.6 Hong Kong 55 61 64 71 81 74 73 75 79 85 1.0 India 55 73 114 158 190 217 251 297 342 411 16.7 Indonesia 15 20 22 24 28 29 31 34 38 43 9.0 Japan 3,724 3,826 3,843 3,807 3,756 3,615 3,550 3,535 3,569 3,611 –0.8 Malaysia 21 22 24 30 34 35 36 38 41 44 5.3 New Zealand 174 180 190 193 172 154 144 140 142 147 –3.1 Pakistan 16 22 23 25 26 26 27 28 29 29 2.2 Philippines 239 272 295 295 292 280 276 277 283 298 0.4 Singapore 78 75 68 65 63 56 52 50 50 50 –4.5 South Korea 308 313 321 322 329 290 287 290 295 304 –1.6 Taiwan 93 86 108 102 98 87 82 81 82 83 –3.3 Thailand 206 212 224 218 234 225 230 245 265 295 4.7 Vietnam 2 2 2 2 2 2 2 2 3 3 8.4 Total 6,163 6,473 6,892 7,037 7,235 6,990 6,963 7,075 7,279 7,560 0.9

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio and out-of-home | Asia Pacific 427 Latin America

The outlook in brief Overview • The worldwide economic crisis will take its toll in 2009 • We expect radio and out-of-home to grow at a 1.6 and 2010 on radio and out-of-home advertising. percent compound annual rate, rising from $1.9 billion in 2008 to $2.0 billion in 2013. • Advertisers will start to shift their resources to the Internet, thereby cutting into radio advertising. • Radio advertising will be flat, increasing by a modest, 0.3 percent compounded annually to $1.2 billion in • The elimination of many billboards in Brazil is leading to 2013 from a comparable level in 2008. a slowdown in out-of-home advertising. • Out-of-home spending will increase at a 3.5 percent compound annual rate to $859 million in 2013 from $723 million in 2008.

Radio/out-of-home market by component† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Radio advertising 736 852 943 1,089 1,170 1,084 1,041 1,051 1,102 1,188 % Change 12.5 15.8 10.7 15.5 7.4 –7.4 –4.0 1.0 4.9 7.8 0.3 Out-of-home advertising 226 540 607 676 723 669 659 695 762 859 % Change 16.5 138.9 12.4 11.4 7.0 –7.5 –1.5 5.5 9.6 12.7 3.5 Total 962 1,392 1,550 1,765 1,893 1,753 1,700 1,746 1,864 2,047 % Change 13.4 44.7 11.4 13.9 7.3 –7.4 –3.0 2.7 6.8 9.8 1.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Colombia is the largest market in Latin America, at $541 of-home industry. Together, these territories constituted million, with Mexico and Brazil at $494 million and $493 81 percent of total spending in 2008. million, respectively. The Mexican figures represent only • Inflation will lead to compound annual double-digit radio advertising, as we have no information on the out- increases during the next five years in Argentina.

Radio/out-of-home market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 73 87 122 176 202 207 217 245 289 340 11.0 Brazil 288 381 438 459 493 468 460 467 492 536 1.7 Chile 105 119 126 136 130 118 114 116 123 134 0.6 Colombia‡ 126 402 426 487 541 479 454 460 478 518 –0.9 Mexico 354 382 412 476 494 449 425 426 447 480 –0.6 Venezuela 16 21 26 31 33 32 30 32 35 39 3.4 Total 962 1,392 1,550 1,765 1,893 1,753 1,700 1,746 1,864 2,047 1.6

†At average 2008 exchange rates. ‡Does not include out-of-home in 2004. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

428 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Radio advertising • In Mexico, a new law was passed by the government allowing AM radio stations to broadcast on the FM band. • Unlike the situation in other regions, radio advertising in Latin America grew moderately, by 7.4 percent in 2008, • In Venezuela, new government regulation prohibits and has grown by almost 60 percent since 2004. advertising alcohol or cigarettes on radio, thereby eliminating revenue sources. • Strong economic growth stimulated the overall advertising market, and radio benefited along with other • Radio will remain an attractive medium because of its media. The Internet, which competes with radio in other large reach. The introduction of HD radio should make markets, has been less of a threat in Latin America the medium more appealing. HD provides better sound because of low penetration rates. With broadband quality than standard radio does, and it allows stations penetration now surging, the Internet is becoming to transmit additional signals, which have the potential more attractive to advertisers. As broadband expands, for generating an additional advertising stream. HD advertisers will be allocating a growing portion of radio is available in Brazil and is expected to be their ad budgets to the Internet, with a portion of that introduced in Mexico. increase diverted from radio. • For the region as whole, radio advertising will be flat, • The effects of the worldwide economic turmoil are at $1.2 billion, in 2013 after recovering from declines in catching up with Latin America, and radio advertising 2009 and 2010. is expected to show its first decline in recent years. Revenues are expected to decline in 2009 and 2010 before returning to slower growth in 2011 and then to more significant increases in 2012 and 2013.

Radio advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 26 29 35 42 44 45 45 48 52 56 4.9 Brazil 163 218 250 299 343 329 324 326 340 367 1.4 Chile 59 62 64 68 67 60 57 57 60 65 –0.6 Colombia 126 151 171 191 209 188 178 181 189 204 –0.5 Mexico 354 382 412 476 494 449 425 426 447 480 –0.6 Venezuela 8 10 11 13 13 13 12 13 14 16 4.2 Total 736 852 943 1,089 1,170 1,084 1,041 1,051 1,102 1,188 0.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Radio and out-of-home | Latin America 429 Out-of-home advertising • In Argentina, out-of-home more than tripled during the past four years as the economic recovery fueled • Out-of-home advertising grew significantly across the spending. Out-of-home advertising has been gaining region in 2005 and 2006. Growth slowed in 2007 and market share. We expect growth to slow in 2009 and 2008 as a result of a cutback in Brazil. 2010 as a result of the economic turmoil and then to • In São Paulo, as part of a Clean City law, the city return to double-digit growth during 2012–13, with eliminated billboards, neon signs, and digital panels. increases averaging 12.4 percent on a compound The demolition of the signs caused an overall decline annual basis during the next five years, reaching $284 in Brazil’s out-of home revenues because São Paulo million in 2013. accounted for more than a third of Brazil’s total out- • In Venezuela, a small market with a rapidly growing of-home market. It is possible that Rio de Janeiro will economy and relatively high inflation, out-of-home institute a similar law, causing a further cutback in the advertising rose by 11.1 percent in 2008. Transit ads on industry. As a result, we expect declines in 2009 and buses and trucks are gaining market share. Additionally, 2010 until the industry stabilizes in 2011 and advertisers there is a growing market for indoor advertising in switch their resources to other permissible forms of malls. We expect modest declines in 2009 and 2010 out-of-home advertising such as street furniture. Once before a return to double-digit growth in 2012 and this impact has been felt, the long-term positive drivers 2013, reaching $23 million in 2013, a 2.8 percent annual of out-of-home will reassert themselves, and street growth rate from 2008 levels. There is growing use of furniture will continue to grow once the slowdown buses and trucks for outdoor advertising as well as use ends. As a result, we expect that by 2013, out-of-home of shopping malls. spending in Brazil will surpass its 2008 level, growing by 2.4 percent compounded annually to $169 million. • We project out-of-home spending in Latin America to increase at a 3.5 percent compound annual rate, rising to $859 million in 2013 from $723 million in 2008.

Out-of-home advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 47 58 87 134 158 162 172 197 237 284 12.4 Brazil 125 163 188 160 150 139 136 141 152 169 2.4 Chile 46 57 62 68 63 58 57 59 63 69 1.8 Colombia NA 251 255 296 332 291 276 279 289 314 –1.1 Mexico NA NA NA NA NA NA NA NA NA NA NA Venezuela 8 11 15 18 20 19 18 19 21 23 2.8 Total 226 540 607 676 723 669 659 695 762 859 3.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

430 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer magazine publishing

432 Summary

433 North America

440 Europe, Middle East, Africa (EMEA)

450 Asia Pacific

458 Latin America Summary

Consumer magazine publishing Market size and growth by component The consumer magazine publishing market consists of Global print advertising in consumer magazines fell by spending by advertisers in consumer print magazines 4.4 percent in 2008 and will plunge by 15.9 percent in and on magazine Web sites and magazine mobile sites. 2009, with an additional 4.7 percent decrease projected Consumer magazine publishing includes spending by for 2010. The cumulative three-year drop will be an readers to purchase magazines via subscriptions or estimated 23.4 percent. Print advertising will then advance at retail outlets as well as paid online subscriptions. by 11.4 percent from 2010 to 2013. In 2013, spending Magazines published under contract, known as customer of $30.2 billion will be 2.3 percent lower on a compound magazines or custom publishing, also are included. annual basis from the $33.8 billion spent in 2008. Digital Figures do not include licensing or other ancillary advertising on magazine Web sites and mobile sites revenues. Trade magazines are covered in the “Business- totaled an estimated $1.3 billion in 2008. We project that to-Business Publishing” chapter. market to rise to $3.1 billion in 2013, an 18.3 percent compound annual increase from a small base. In 2013, digital advertising will account for 9.3 percent of total Market size and growth by region advertising compared with 3.8 percent in 2008. Digital We project overall spending in North America, EMEA growth will not offset the print decline, and total magazine (Europe, Middle East, Africa), Asia Pacific, and Latin advertising will drop from $35.2 billion in 2008 to $33.3 America to decline during the next two years by a billion in 2013, a 1.1 percent compound annual decline. cumulative 12 percent and then rebound by 8.7 percent Circulation spending fell by 1.1 percent in 2008 and will during the subsequent three years. Spending will total decline for an additional three years by a cumulative 7.1 $76.8 billion in 2013, down 0.9 percent compounded percent. Although advancing by 3.9 percent from 2011 to annually from $80.3 billion in 2008. In each region except 2013, circulation spending, at $43.5 billion in 2013, will be Latin America, declines during the next two years will be 0.7 percent lower on a compound annual basis from $45.1 steeper than the subsequent rebound, leading to lower billion in 2008. spending in 2013 than in 2008. In Latin America, gains during 2011–13 will offset the near-term declines, and Principal drivers spending will rise by 1.3 percent compounded annually to $3.6 billion in 2013 from $3.4 billion in 2008. In North The economy will be the principal driver, leading to America, spending will fall by 13.5 percent in 2009 and by steep decreases in the near term and a subsequent 1.7 percent compounded annually through 2013 to $22.6 rebound when economic conditions improve. Migration of billion from $24.5 billion in 2008. EMEA, the largest region, advertising and readers from print to digital will dampen at $36.2 billion in 2008, will fall by 7.5 percent in 2009 and print advertising over the long run while benefiting an at a 0.7 percent compound annual rate to $35 billion in emerging digital market. Broadband household growth and 2013. The Asia Pacific market will decline by 8 percent in an expanding mobile access market will also fuel digital 2009 and by 0.6 percent compounded annually to $15.7 advertising. Newsstand sales will be particularly vulnerable billion in 2013 from $16.2 billion in 2008. to the economic cycle in many countries during the next two years, and subscription sales will be at risk as well when they are due for renewal. Rising discretionary income during the latter part of the forecast period will lead to a rebound in circulation spending.

Data for the global consumer magazine publishing market by region and for the global consumer magazine publishing market by component can be found within the Executive Summary on page 46.

432 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief • Print advertising will be the most severely affected by the economy, falling by 22.7 percent through 2010. • The economic downturn will lead to sharp near-term Print advertising will begin to pick up as the economy declines in print advertising. recovers, rising by a projected 14.2 percent from 2010 • The launch of mobile sites will fuel digital advertising. to 2013. Spending in 2013 will total an estimated $11.8 billion, a 2.5 percent compound annual decline from • Magazine closings and falling discretionary income will $13.4 billion in 2008. lead to decreases in circulation spending. • Advertising on magazine Web sites and mobile sites will reach $1.9 billion in 2013, a 15.5 percent compound Overview annual increase from $909 million in 2008. • Spending on consumer magazines will decline by • Circulation spending will decrease at a 2.8 percent 16.7 percent during the next two years, reflecting the compound annual rate, falling from $10.2 billion in 2008 impact of the recession. The market will then post a to $8.9 billion in 2013. modest recovery, expanding by 10.5 percent during the subsequent three years to $22.6 billion in 2013, a figure that will be 1.7 percent lower on a compound annual basis from $24.5 billion in 2008.

Consumer magazine publishing market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 12,854 13,475 13,824 14,475 13,353 10,853 10,316 10,521 10,939 11,781 Digital NA 128 205 428 909 949 1,057 1,239 1,510 1,865 Total advertising 12,854 13,603 14,029 14,903 14,262 11,802 11,373 11,760 12,449 13,646 Circulation 10,862 11,006 10,446 10,501 10,248 9,391 9,044 8,874 8,821 8,905 Total 23,716 24,609 24,475 25,404 24,510 21,193 20,417 20,634 21,270 22,551

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 7.1 4.8 2.6 4.7 –7.8 –18.7 –4.9 2.0 4.0 7.7 –2.5 Digital — — 60.2 108.8 112.4 4.4 11.4 17.2 21.9 23.5 15.5 Total advertising 7.1 5.8 3.1 6.2 –4.3 –17.2 –3.6 3.4 5.9 9.6 –0.9 Circulation 2.7 1.3 –5.1 0.5 –2.4 –8.4 –3.7 –1.9 –0.6 1.0 –2.8 Total 5.1 3.8 –0.5 3.8 –3.5 –13.5 –3.7 1.1 3.1 6.0 –1.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing | North America 433 • We expect comparable patterns in both the United • During the entire 2009–2013 period, the United States States and Canada during the next five years: double- will decline at a 1.7 percent compound annual rate from digit declines in 2009; a further, low-single-digit $23.3 billion in 2008 to $21.4 billion in 2013. decrease in 2010; and modest but accelerating growth • Canada will decrease to $1.1 billion in 2013 from $1.2 during 2011–13. billion in 2008, a 1.1 percent decline compounded annually.

Consumer magazine publishing market by country† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 22,577 23,444 23,277 24,168 23,333 20,160 19,424 19,625 20,224 21,440 Canada 1,139 1,165 1,198 1,236 1,177 1,033 993 1,009 1,046 1,111 Total 23,716 24,609 24,475 25,404 24,510 21,193 20,417 20,634 21,270 22,551

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing market growth by country (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 5.2 3.8 –0.7 3.8 –3.5 –13.6 –3.7 1.0 3.1 6.0 –1.7 Canada 3.5 2.3 2.8 3.2 –4.8 –12.2 –3.9 1.6 3.7 6.2 –1.1 Total 5.1 3.8 –0.5 3.8 –3.5 –13.5 –3.7 1.1 3.1 6.0 –1.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Print advertising further hurt by the loss of tobacco advertising by .J. Reynolds Tobacco Co., which discontinued its • Consumer magazines have been one of the more print advertising in 2008. cyclically sensitive of the advertising segments. When the economy is expanding, advertisers often • The real estate collapse hurt magazines serving the supplement their national campaigns—typically home market, leading to several high-profile closings centered on television—with magazine buys, used for in the United States—among them, Country Home, extending their reach. When the economy is sluggish Domino, and O at Home. In other developments, Men’s or contracting, advertisers often cut back on their Vogue was folded into Vogue; CosmoGirl was folded magazine buys while trying to maintain their presence into Seventeen; and Time discontinued its Canadian on television. Consequently, magazines tend to be more edition. All told, more than 500 magazines closed in affected by the economic cycle than television does. North America in 2008. • In 2008, the declining economy had a major adverse • The weak auto market led to double-digit declines in impact on consumer magazine print advertising. Print automotive advertising, a key advertising category advertising in the United States fell by 7.9 percent; for most titles. In Canada, automotive advertising in in Canada, the decrease was 5.1 percent. In addition consumer magazines plunged by 27 percent in 2008. to the economy, the market in the United States was

434 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Declining newsstand circulation was yet another the expectation that the economies in both countries problem for consumer magazines, particularly celebrity will bottom out. We project a 4.9 percent drop in 2010 titles that rely on newsstand circulation. Lower in the United States and a 6.7 percent drop in Canada. circulation reduced the rate base for many publications • The projected declines could lead to more magazine and cut advertising revenues. A major exception to closings during the next few years. We expect that trend was Canada’s Hello! whose newsstand sales advertisers to return to consumer magazines once rose by 50 percent in the second half of the year even economic conditions improve. The glossy paper and as total newsstand sales in Canada fell by 24 percent high color quality make magazines a good platform during that period. In the United States, second-half for fashion, autos, and other advertising categories. newsstand sales declined by 11 percent. Special-interest titles allow advertisers to target likely • Ongoing migration from print to digital formats is yet customers more effectively than most media do. another impediment to the print market. A number of • We look for the economy to stabilize in 2011 and to publishers recorded substantial increases in their Web expand during 2012–13. Consumer magazines should site advertising. The gains were not nearly enough to benefit from the upside of the cycle as advertisers offset declines in print advertising. again look to enhance their national campaigns with • Those adverse trends gained momentum in the second magazine buys in a market where consumers are half of 2008, and we expect that a full-year impact in again spending. 2009 will lead to much steeper declines in consumer • We project low-single-digit growth in 2011, improve- magazine print advertising. Consumers are cutting ments to mid-single-digit gains in 2012, and a return to back on their spending, which is reducing the return high-single-digit growth in 2013. on the advertising investment. Advertisers are pulling back on their outlays because advertising is now much • Although we look for growth in 2013 to be comparable less productive in generating sales than it was during to the increases in 2004, we do not expect the recovery 2004–07, when consumer spending was growing. to be large enough to offset the declines during the next two years. We project print advertising in the United • Falling disposable income and reductions in States to decline at a 2.5 percent compound annual discretionary purchases will continue to cut into rate to $11.2 billion in 2013 from $12.7 billion in 2008. newsstand sales and will begin to reduce subscription sales when renewals are due. The decrease in • In Canada, we look for declines averaging 2.3 percent circulation will make it even harder to sell advertising. compounded annually from $653 million in 2008 to $581 million in 2013. • We expect print advertising in the United States to plunge by nearly 19 percent in 2009, and we look • We project consumer magazine print advertising for for a 15 percent decrease in Canada. We expect North America as a whole to fall to $11.8 billion in 2013 the declines to continue in 2010, mitigated by more from $13.4 billion in 2008, a 2.5 percent decrease on a favorable comparisons with a very weak 2009 and by compound annual basis.

Consumer magazine print advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 12,247 12,847 13,168 13,787 12,700 10,300 9,800 10,000 10,400 11,200 Canada 607 628 656 688 653 553 516 521 539 581 Total 12,854 13,475 13,824 14,475 13,353 10,853 10,316 10,521 10,939 11,781

†At average 2008 exchange rates. Sources: Leading National Advertisers, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Consumer magazine publishing | North America 435 Consumer magazine print advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 7.1 4.9 2.5 4.7 –7.9 –18.9 –4.9 2.0 4.0 7.7 –2.5 Canada 7.8 3.5 4.5 4.9 –5.1 –15.3 –6.7 1.0 3.5 7.8 –2.3 Total 7.1 4.8 2.6 4.7 –7.8 –18.7 –4.9 2.0 4.0 7.7 –2.5

Sources: Leading National Advertisers, PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Digital advertising Mobile Internet access subscribers in North America (millions) • The one bright spot in the consumer magazine market is digital advertising. Although still relatively modest, 120 98.88 at less than $1 billion, digital advertising more than 100 doubled in 2007 and more than doubled again in 2008. 80 • Magazine Web sites attract more than 75 million 71.1 people in the average month in North America and are 60 47.51 attracting advertisers. Time Inc. generated more than 40 $200 million in advertising across its various magazine 30.79 20.72 Web sites in 2008 and was the industry leader. 20 5.91 9.76 0.01 1.19 • Magazine Web sites routinely feature video content, 0 podcasts, and other audio content that is not available 2005 2006 2007 2008 2009 2010 2011 2012 2013 in print formats. The sites make use of the features of Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates the Internet that set it apart from print, and those efforts are generating increased revenue. • In the near term, decreased advertising spending in • Elle, for example, launched a virtual magazine on its general will affect digital advertising, although digital Stardoll Web site and introduced an avatar boutique share gains will sustain growth in 2009. We project digital that sells clothing in the United States. In Canada, advertising growth in the United States to drop to 4.3 Cosmopolitan launched Cosmo TV, which offers video percent in 2009. We expect an 11 percent increase in clips of fashion shoots. 2010 and gains in excess of 20 percent annually during 2012–13. Digital advertising in the United States will • Magazines also are expanding into mobile sites. total an estimated $1.8 billion in 2013, a 15.1 percent New York magazine in the United States has a new compound annual increase from $889 million in 2008. mobile site that features blogs and sells banner ads. Other titles such as Car and Driver, Marie Claire, and • The digital advertising market is less developed in Seventeen have mobile sites as well. Canada, generating an estimated $20 million in 2008, a $6-million increase from 2007. We expect growth • The growing number of mobile access subscribers to drop to only $2 million in 2009. We look for faster will expand this component of the market. There were increases thereafter as this market develops and as around 10 million mobile Internet access subscribers in the economy improves. We expect growth to rise North America in 2008, a figure we expect will rise by to 27 percent in 2010 and to exceed 35 percent a factor of 10 to nearly 100 million by 2013. Growth in annually during 2011–13. Digital advertising will total mobile access will drive mobile advertising, including an estimated $73 million in 2013, a 29.6 percent advertising on mobile magazine Web sites. compound annual increase from a small base. • We project overall digital advertising in magazine online and mobile sites in North America to increase to $1.9 billion in 2013 from $909 million in 2008, a 15.5 percent compound annual increase.

436 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer magazine digital advertising market† (US$ millions) 2009–13 North America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 128 198 414 889 927 1,029 1,200 1,456 1,792 15.1 Canada NA 7 14 20 22 28 39 54 73 29.6 Total 128 205 428 909 949 1,057 1,239 1,510 1,865 15.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine digital advertising market growth (%) 2009–13 North America 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 54.7 109.1 114.7 4.3 11.0 16.6 21.3 23.1 15.1 Canada — 100.0 42.9 10.0 27.3 39.3 38.5 35.2 29.6 Total 60.2 108.8 112.4 4.4 11.4 17.2 21.9 23.5 15.5

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total consumer magazine advertising • In Canada, the digital share will rise to 11 percent in 2013 from 3 percent in 2008. Total consumer magazine • The inflow of digital advertising will not be sufficient advertising will decline at a 0.6 percent compound to offset the decrease in print advertising, although it annual rate to $654 million in 2013 from $673 million will to some degree limit the decline. Total consumer in 2008. magazine advertising will fall at a 0.9 percent compound annual rate in the United States to $13 • Total consumer magazine advertising in North billion in 2013 from $13.6 billion in 2008. Digital America as a whole will decline from $14.3 billion in advertising will account for 13.8 percent of total 2008 to $13.6 billion in 2013, a 0.9 percent decrease advertising in 2013 from 6.5 percent in 2008. compounded annually.

Consumer magazine total advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 12,247 12,975 13,366 14,201 13,589 11,227 10,829 11,200 11,856 12,992 Canada 607 628 663 702 673 575 544 560 593 654 Total 12,854 13,603 14,029 14,903 14,262 11,802 11,373 11,760 12,449 13,646

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing | North America 437 Consumer magazine total advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 7.1 5.9 3.0 6.2 –4.3 –17.4 –3.5 3.4 5.9 9.6 –0.9 Canada 7.8 3.5 5.6 5.9 –4.1 –14.6 –5.4 2.9 5.9 10.3 –0.6 Total 7.1 5.8 3.1 6.2 –4.3 –17.2 –3.6 3.4 5.9 9.6 –0.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Circulation • In Canada, Canada Post stopped contributing to the Publications Assistance Program (PAP) in early 2009. Its • The economy is also having a significant adverse contribution represented 25 percent of the C$15 million impact on consumer magazine circulation. Single-copy (US$14 million) PAP total. That cutback will be restored purchases at newsstands are discretionary purchases in the new federal budget that will maintain PAP at its that tend to fall when discretionary income is tight. current level until a new magazine fund is in place. Unit sales in both the United States and Canada fell at double-digit rates during the last half of 2008. • There is also a new Canada Periodical Fund, which will provide C$75.5 million (US$70.8 million) to support • Subscription circulation was relatively steady in 2008 in publishers. Over the long run, that support will help part because subscribers had subscriptions of a year or keep prices in check and will eventually lead to more- more, and relatively few cancel before the subscription stabilized circulation. ends. A significant portion of the subscriber base represents committed readers who will stay with a • In the near term, single-copy sales are falling faster magazine for years. in Canada than in the United States, and we expect Canada to experience a sharper, 9.1 percent decrease • The marketing costs in attracting subscribers can be in circulation spending in 2009 compared with a very expensive, and subscribers who are gained through projected 8.3 percent decline in the United States. special offers often do not last. Consequently, the return on that investment can be poor and publishers • Thereafter, we expect Canada to fare somewhat better: sometimes look to trim such so-called expensive falling by 2 percent in 2010, flattening in 2011, and subscribers and instead focus on maintaining their core posting modest increases during 2012–13. Circulation readers. This was particularly the case in Canada in spending in Canada in 2013 will total an estimated 2008, and a drop in subscription circulation contributed $457 million, down 1.9 percent on a compound annual to the overall decline in circulation spending. basis from $504 million in 2008. • Circulation spending fell by 5.6 percent in Canada in • We expect circulation spending declines in the United 2008 and by 2.2 percent in the United States. States to persist through 2012. The spate of magazine closings will contribute to the longer-term decline as • We look for steeper declines in 2009 in both countries. lost readers may be difficult to recapture. We expect the double-digit decline in newsstand circulation during the last half of 2008 to persist for • Ultimately, an improved economic environment will a full year in 2009. We also look for a portion of the limit newsstand circulation declines and will support subscriber base to not renew their subscriptions in subscriptions. We expect circulation spending order to save money. decreases to moderate during 2010–12 and project an increase in 2013 of 1 percent. Circulation spending • Meanwhile, postal rate increases will put pressure on in the United States will drop from $9.7 billion in publishers to raise prices. In the United States, postal 2008 to $8.4 billion in 2013, a 2.8 percent decrease rates for magazines will rise by nearly 4 percent in 2009. compounded annually.

438 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Despite growing use of the Internet to read magazines, particularly magazines that serve special magazines—either as a source of information or for interests not routinely addressed in other media. entertainment—subscription circulation has been • For North America as a whole, circulation spending will relatively steady. We expect that once the economy decrease to $8.9 billion in 2013 from $10.2 billion in improves, consumers will resume their use of 2008, a 2.8 percent compound annual decline.

Consumer magazine circulation spending market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States 10,330 10,469 9,911 9,967 9,744 8,933 8,595 8,425 8,368 8,448 Canada 532 537 535 534 504 458 449 449 453 457 Total 10,862 11,006 10,446 10,501 10,248 9,391 9,044 8,874 8,821 8,905

†At average 2008 exchange rates. Sources: Magazine Publishers of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine circulation spending market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 2.9 1.3 –5.3 0.6 –2.2 –8.3 –3.8 –2.0 –0.7 1.0 –2.8 Canada –1.1 0.9 –0.4 –0.2 –5.6 –9.1 –2.0 0.0 0.9 0.9 –1.9 Total 2.7 1.3 –5.1 0.5 –2.4 –8.4 –3.7 –1.9 –0.6 1.0 –2.8

Sources: Magazine Publishers of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing | North America 439 Europe, Middle East, Africa (EMEA)

The outlook in brief • The near-term decline will center on print advertising, which we project will fall by 18.9 percent during • Lower discretionary income during the next few years 2009–10. As the economy recovers, print advertising will induce consumers to reduce their consumer will turn around from 2010 to 2013 and expand by 9.5 magazine purchases. percent to $12.1 billion, representing a 2.3 percent • The economic downturn will lead to steep declines in compound annual decrease from $13.6 billion in 2008. print advertising. • Digital advertising also will be affected by the recession • Growing consumer magazine Web site traffic will propel and will decline by 5.9 percent in 2009. We expect a an emerging digital advertising market from a small rebound in 2010, with spending rising to $853 million by base once economic conditions improve. 2013, a 24.1 percent compound annual increase from a small base. Overview • The gain in digital will not fully offset the decline in print, and total consumer magazine advertising will fall at a • The consumer magazine publishing market in EMEA 1.4 percent compound annual rate from $13.9 billion in will decline by 9.8 percent during the next two years, 2008 to $13 billion in 2013. reflecting the impact of the economic downturn. The market will then expand by 7 percent from 2010 to • Circulation spending will decline at low-single-digit 2013, not quite making up for lost ground. Spending rates during the next three years and then increase by will total an estimated $35 billion in 2013, down 0.7 3.5 percent cumulatively during 2012–13. Spending in percent on a compound annual basis from $36.2 billion 2013 will total $22 billion from $22.3 billion in 2008, a in 2008. 0.3 percent decrease compounded annually.

Consumer magazine publishing market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 12,790 13,153 13,668 14,042 13,644 11,585 11,067 11,123 11,465 12,119 Digital NA NA 127 184 290 273 318 453 639 853 Total advertising 12,790 13,153 13,795 14,226 13,934 11,858 11,385 11,576 12,104 12,972 Circulation 21,641 22,153 22,344 22,505 22,294 21,635 21,304 21,264 21,584 22,012 Total 34,431 35,306 36,139 36,731 36,228 33,493 32,689 32,840 33,688 34,984

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

440 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer magazine publishing market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 4.0 2.8 3.9 2.7 –2.8 –15.1 –4.5 0.5 3.1 5.7 –2.3 Digital — — — 44.9 57.6 –5.9 16.5 42.5 41.1 33.5 24.1 Total advertising 4.0 2.8 4.9 3.1 –2.1 –14.9 –4.0 1.7 4.6 7.2 –1.4 Circulation 2.8 2.4 0.9 0.7 –0.9 –3.0 –1.5 –0.2 1.5 2.0 –0.3 Total 3.2 2.5 2.4 1.6 –1.4 –7.5 –2.4 0.5 2.6 3.8 –0.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Western Europe fell by 2.1 percent in 2008, and we • Germany also declined for the second consecutive expect an additional 9.2 percent decrease during the year in 2008 and fell during three of the past four years. next two years, followed by a 6.1 percent rebound Circulation has been declining as readers are going during the subsequent three years. During the entire online, and the economy is hurting the advertising forecast period, spending will fall at a 0.7 percent market. We expect two additional years of decline, compound annual rate to $30.1 billion in 2013 from which will not be offset by a modest recovery during $31.3 billion in 2008. 2011–13. Spending will fall at a 1.3 percent compound annual rate to $6 billion in 2013. • Growth in Central and Eastern Europe slowed to 3.4 percent in 2008 from high single digits from 2004 • The UK market has been declining during the past three to 2007. We expect decreases during the next two years, and we look for three additional years of decline. years totaling 14.9 percent followed by a 12.4 percent Men’s magazines, which stimulated growth during recovery during the subsequent three years. Spending 2004 and 2005, suffered circulation and advertising will total $3.8 billion in 2013 from $4 billion in 2008, a declines during the past two years. The customer 0.9 percent decline compounded annually. magazine market, consisting of titles commissioned by companies to promote their brands, remains strong. • Middle East/Africa experienced a slowdown in 2008 to Most of the leading titles in the UK are customer 2.4 percent following three years of double-digit growth. magazines. The UK will record a 1.2 percent compound During the next two years, the market will decline by annual decrease during the next five years to $4.8 6.5 percent and then increase by 14.1 percent to $1.1 billion in 2013. billion in 2013, up 1.3 percent on a compound annual basis from $1 billion in 2008. • Italy recorded a 2.8 percent decline in 2008, and we look for two additional years of decline totaling 10.8 • France had the largest market in 2008, at $7.2 billion, percent. Most of that decrease will be recovered during followed by Germany at $6.4 billion, the UK at $5.1 the subsequent three years, and spending in 2013 of billion, and Italy at $3.8 billion. Together, these four $3.7 billion will be 0.5 percent lower on a compound countries constituted 62 percent of EMEA’s consumer annual basis from 2008. magazine market. • Economies in Central and Eastern Europe are also • The French market fell for the second consecutive year collapsing, which is affecting the consumer magazine in 2008, hurt in 2007 by a shift in retail advertising from market. We look for double-digit declines in Romania, print to television following the lifting of the ban on the Russia, and Turkey in 2009. A number of new launches advertising of retail brands on television and in 2008 in Romania and Turkey and an expanding digital market by the declining economy. We expect three additional in Russia will contribute to turnarounds during 2011–13. years of decline, the result of a weak economy and loss of share to online media. Spending in 2013 of $6.8 • Saudi Arabia/Pan Arab is being hurt by declining oil billion will be 1.1 percent lower on a compound annual revenues, which we expect will contribute to an 11.2 basis from 2008. percent decrease during the next two years.

Consumer magazine publishing | EMEA 441 Consumer magazine publishing market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 584 577 583 611 628 578 563 578 610 644 0.5 Belgium 411 420 421 428 429 408 393 400 418 438 0.4 Denmark 126 135 145 143 145 132 131 134 140 148 0.4 Finland 635 648 650 701 698 664 659 665 682 698 0.0 France 7,038 7,172 7,341 7,334 7,196 6,703 6,513 6,481 6,614 6,818 –1.1 Germany 6,818 6,659 6,714 6,660 6,429 5,951 5,780 5,795 5,857 6,009 –1.3 Greece 1,121 1,189 1,277 1,344 1,393 1,305 1,296 1,312 1,375 1,450 0.8 Ireland 80 91 95 98 98 86 81 85 90 94 –0.8 Italy 3,561 3,623 3,794 3,902 3,791 3,458 3,383 3,411 3,530 3,688 –0.5 Netherlands 1,392 1,405 1,425 1,430 1,422 1,333 1,309 1,318 1,348 1,393 –0.4 Norway 185 189 193 195 195 180 175 176 179 186 –0.9 Portugal 499 514 517 528 522 475 457 469 485 511 –0.4 Spain 1,701 1,743 1,789 1,864 1,746 1,590 1,539 1,566 1,627 1,711 –0.4 Sweden 501 508 523 537 529 502 538 548 559 566 1.4 Switzerland 908 932 943 991 984 920 911 924 966 1,009 0.5 United Kingdom 5,234 5,480 5,349 5,163 5,068 4,768 4,660 4,623 4,672 4,770 –1.2 Western Europe total 30,794 31,285 31,759 31,929 31,273 29,053 28,388 28,485 29,152 30,133 –0.7 Central and Eastern Europe Czech Republic 493 539 586 630 628 578 564 571 596 645 0.5 Hungary 417 445 475 505 509 475 463 461 479 504 –0.2 Poland 792 858 892 938 942 883 867 877 911 959 0.4 Romania 65 64 71 72 78 69 64 64 69 75 –0.8 Russia 1,057 1,184 1,313 1,515 1,645 1,351 1,298 1,313 1,363 1,466 –2.3 Turkey 114 134 154 164 152 119 109 113 120 134 –2.5 Central and Eastern Europe total 2,938 3,224 3,491 3,824 3,954 3,475 3,365 3,399 3,538 3,783 –0.9 Middle East/Africa Israel 99 105 105 107 107 103 101 104 107 112 0.9 Saudi Arabia/Pan Arab‡ 274 336 381 442 454 428 403 409 426 458 0.2 South Africa 326 356 403 429 440 434 432 443 465 498 2.5 Middle East/Africa total 699 797 889 978 1,001 965 936 956 998 1,068 1.3 EMEA total 34,431 35,306 36,139 36,731 36,228 33,493 32,689 32,840 33,688 34,984 –0.7

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

442 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Circulation • New titles and stepped-up promotions will not be strong enough to offset the impact of the economy. • The recession also is cutting into the circulation market, Overall circulation spending fell by 1 percent in Western particularly for titles relying on newsstand sales. Europe in 2008 and by 0.9 percent in EMEA as a whole. Newsstand circulation is heavily dependent on impulse We expect circulation spending declines in Western buys and is affected by discretionary income that is Europe during the next three years and in Central and now declining in most countries. Magazines themselves Eastern Europe and in Middle East/Africa during the are luxury purchases that are hurt in a recession. next two years. • In the UK, men’s magazines have experienced sharp • Improved economic conditions should provide a boost circulation declines for several years that worsened in to newsstand sales during 2012–13, and we look for 2008, while women’s titles, which are more dependent overall circulation spending to increase in each area on subscription sales, have held up relatively well. during that period. BBC Magazines, in a late 2008 promotion, reduced its newsstand prices by half in order to maintain unit • Gains in Western Europe during 2012–13 will not offset circulation and the advertising rate base. Covermounts, near-term declines, and spending will fall at a 0.3 where publishers give away CDs and other products, percent compound annual rate. In Central and Eastern are becoming more prevalent in magazines to help Europe, circulation spending in 2013 will remain 0.1 maintain circulation. Meanwhile, cover price increases percent lower compounded annually from its 2008 for other titles are helping sustain newsstand revenue. level, and in Middle East/Africa, circulation spending in Those efforts helped reduce the decrease in circulation 2013 will be higher than in 2008—by a mere 0.1 percent revenue in the UK to 1 percent in 2008 from declines on a compound annual basis. averaging 3.7 percent during 2006–07. We expect • Circulation spending in EMEA overall will decrease at a circulation spending to fall at a 0.1 percent compound 0.3 percent compound annual rate from $22.3 billion in annual rate through 2013. 2008 to $22 billion in 2013. • In general, newsstand sales are falling throughout EMEA. Subscription sales are holding up in the near term, although renewals are likely to fall during the next two years because of the economy. • Promotions and new launches will help limit the erosion. In addition to the examples cited in Central and Eastern Europe, there also have been launches in Western Europe. Examples include OK! magazine in Germany and in the German-speaking sections of Austria and Switzerland; Flow, a women’s title, in the Netherlands; a Spanish-language version of Vanity Fair in Spain; and Knitter in the UK.

Consumer magazine publishing | EMEA 443 Consumer magazine circulation spending market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 280 281 281 285 284 275 269 272 278 284 0.0 Belgium 249 255 258 260 258 252 246 247 253 259 0.1 Denmark 53 54 54 55 54 52 52 52 52 53 –0.4 Finland 508 512 511 514 514 503 499 500 505 508 –0.2 France 5,139 5,286 5,428 5,511 5,456 5,274 5,154 5,091 5,182 5,305 –0.6 Germany 4,127 4,038 3,970 3,954 3,878 3,732 3,659 3,659 3,673 3,695 –1.0 Greece 511 522 541 562 577 569 563 563 577 599 0.8 Ireland 35 38 38 40 38 37 35 35 37 37 –0.5 Italy 2,197 2,249 2,321 2,390 2,375 2,321 2,300 2,306 2,362 2,432 0.5 Netherlands 959 963 972 983 980 951 937 944 959 980 0.0 Norway 129 133 134 131 129 123 120 121 123 127 –0.3 Portugal 180 186 190 195 193 189 184 186 189 192 –0.1 Spain 757 780 796 818 795 752 724 724 738 760 –0.9 Sweden 394 400 407 415 413 401 439 447 454 454 1.9 Switzerland 421 423 426 434 430 417 414 415 422 430 0.0 United Kingdom 3,730 3,961 3,829 3,673 3,636 3,600 3,581 3,572 3,590 3,618 –0.1 Western Europe total 19,669 20,081 20,156 20,220 20,010 19,448 19,176 19,134 19,394 19,733 –0.3 Central and Eastern Europe Czech Republic 226 236 245 254 253 245 239 236 238 245 –0.6 Hungary 269 284 299 318 318 305 298 292 303 319 0.1 Poland 521 547 574 603 600 579 566 570 589 608 0.3 Romania 30 29 32 32 29 27 24 24 27 29 0.0 Russia 570 599 629 661 665 628 610 614 632 666 0.0 Turkey 54 57 61 61 62 54 48 49 51 54 –2.7 Central and Eastern Europe total 1,670 1,752 1,840 1,929 1,927 1,838 1,785 1,785 1,840 1,921 –0.1 Middle East/Africa Israel 62 66 68 69 69 67 65 66 67 69 0.0 Saudi Arabia/Pan Arab‡ 107 111 117 121 122 119 117 118 120 123 0.2 South Africa 133 143 163 166 166 163 161 161 163 166 0.0 Middle East/Africa total 302 320 348 356 357 349 343 345 350 358 0.1 EMEA total 21,641 22,153 22,344 22,505 22,294 21,635 21,304 21,264 21,584 22,012 –0.3

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: German Association of Magazine Publishers, Periodical Publishers Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

444 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print advertising advertising in Western Europe in 2013 at $9.6 billion will be 2.7 percent lower on a compound annual basis from • Print advertising fell by 4.7 percent in Western Europe $11 billion in 2008. in 2008 and by 2.8 percent in all of EMEA. • In Central and Eastern Europe and Middle East/Africa, • The market is being hurt by several concurrent by contrast, digital migration played less of a role developments. The migration of readers from print to during the past five years, and more-robust economic digital media has adversely affected print advertising growth in those areas led to double-digit annual in Western Europe during the past five years. Even increases in consumer magazine print advertising when the economy was expanding, print advertising through 2007. Growth in 2008 in these areas of EMEA in consumer magazines averaged low-single-digit slowed to single-digit gains. Central and Eastern increases. Europe is now experiencing precipitous economic • The economic decline that gained momentum in declines, which we expect will translate into a 19.4 the second half of 2008 had an adverse effect on percent decline in 2009. advertising in all media and a particular impact on • In Central and Eastern Europe, we anticipate a more consumer magazines. Consumer magazines serve modest, 3.6 percent decrease in 2010 as the economy special interests and contain advertising targeting those bottoms out, and accelerating gains thereafter, special interests. Those areas tend to be discretionary including a 9 percent rise in 2013. Nevertheless, purchases that are among the first to be reduced when spending in 2013 of $1.8 billion will be 2.1 percent the economy declines. lower compounded annually from $2 billion in 2008. • The home market, for example, has been particularly • Despite the current adverse environment, a number hurt by the real estate decline, and advertising in of new launches in Central and Eastern Europe are magazines serving that market has fallen sharply. In the anticipating a long-term recovery. In Romania, Villa UK, House & Garden, InStyle Home, and Media Home Design and InStyle Romania are new titles serving the each closed. currently declining home market, and Car and Auto Bild • Consumer magazines themselves are discretionary are new automotive titles serving that depressed sector. purchases that are subject to the economic cycle. In Turkey, Inc. magazine, a Turkish-language version Declining newsstand unit sales reduced the reach of of Newsweek, and launches of Parents, Women’s print ads and further hurt the print advertising market. Health, and Food and Travel are among the new titles that the publishers hope will ultimately benefit from an • The combination of each of these adverse trends will economic recovery. Time Out Budapest and Piknik are lead to a projected 14.9 percent decrease in print new titles in Hungary; Moje Zeme is a new launch in the advertising in Western Europe in 2009 and a further, Czech Republic; and Tatler entered the Russian market. 4.7 percent drop in 2010, resulting in a three-year cumulative decrease of nearly 23 percent from 2007. • In Middle East/Africa, the economic decline is not as severe, and we project a more modest, 4.4 percent • While the long-term trend away from print will continue, decrease in 2009 followed by a 3.8 percent drop we expect the economy to begin to expand in 2011 in 2010. The expectation of improved economic and to improve during 2012–13. Print advertising in conditions and a recovery in oil prices will lead to mid- Western Europe will hold steady in 2011 and rebound to high-single-digit increases during 2012–13. This area during the subsequent two years, helped by a pickup will be the only one in EMEA where we expect print in discretionary income, newsstand sales, and growing advertising to be higher in 2013 than in 2008. Print purchases of products advertised in consumer advertising in 2013 will total an estimated $700 million, magazines. We look for a 2.6 percent rise in 2012 and a 1.8 percent compound annual increase from $641 a 4.9 percent increase in 2013. The 2013 gain will million in 2008. represent a rebound in spending and not a sustainable rate of growth, which we expect will revert to low- • For EMEA as a whole, print advertising in consumer single-digit increases thereafter. Despite the rebound magazines will total an estimated $12.1 billion in 2013, during the latter part of the forecast period, print down 2.3 percent compounded annually from $13.6 billion in 2008.

Consumer magazine publishing | EMEA 445 Consumer magazine print advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 304 296 299 322 335 294 284 291 310 331 –0.2 Belgium 162 165 162 165 167 152 143 146 155 164 –0.4 Denmark 73 81 90 87 89 78 76 78 82 87 –0.5 Finland 127 136 138 184 180 157 154 158 165 174 –0.7 France 1,899 1,886 1,894 1,797 1,698 1,389 1,314 1,324 1,338 1,389 –3.9 Germany 2,691 2,621 2,716 2,666 2,488 2,159 2,049 2,034 2,041 2,122 –3.1 Greece 610 667 735 781 815 735 730 745 792 844 0.7 Ireland 45 53 57 57 59 48 45 47 50 53 –2.1 Italy 1,364 1,374 1,458 1,490 1,381 1,106 1,046 1,052 1,092 1,152 –3.6 Netherlands 433 442 449 440 432 372 359 356 364 379 –2.6 Norway 56 56 58 63 64 55 53 52 52 54 –3.3 Portugal 319 328 326 332 328 285 272 280 293 315 –0.8 Spain 944 963 983 1,030 928 815 787 802 830 872 –1.2 Sweden 107 108 115 120 113 98 96 96 98 103 –1.8 Switzerland 487 509 511 549 540 489 480 485 508 531 –0.3 United Kingdom 1,504 1,519 1,491 1,453 1,377 1,120 1,028 983 992 1,038 –5.5 Western Europe total 11,125 11,204 11,482 11,536 10,994 9,352 8,916 8,929 9,162 9,608 –2.7 Central and Eastern Europe Czech Republic 267 303 338 370 366 324 314 319 335 367 0.1 Hungary 148 161 176 186 190 169 164 167 174 183 –0.7 Poland 271 311 317 334 340 302 299 304 319 346 0.4 Romania 35 35 39 40 49 42 40 40 42 46 –1.3 Russia 487 585 682 851 974 718 683 693 723 790 –4.1 Turkey 60 77 93 103 90 65 61 64 69 79 –2.6 Central and Eastern Europe total 1,268 1,472 1,645 1,884 2,009 1,620 1,561 1,587 1,662 1,811 –2.1 Middle East/Africa Israel 37 39 37 38 37 35 35 36 37 39 1.1 Saudi Arabia/Pan Arab‡ 167 225 264 321 331 308 285 290 304 332 0.1 South Africa 193 213 240 263 273 270 270 281 300 329 3.8 Middle East/Africa total 397 477 541 622 641 613 590 607 641 700 1.8 EMEA total 12,790 13,153 13,668 14,042 13,644 11,585 11,067 11,123 11,465 12,119 –2.3

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Advertising Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates, ZAW

446 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Digital advertising Mobile Internet access subscribers in EMEA (millions) • Digital advertising on magazine Web sites and on 350 mobile sites is an emerging revenue stream in EMEA. 300 285.1 With readers migrating to the Internet, advertisers are 250 following them, and magazine Web sites are among the 213.1 200 sites they target. The long-term shift from print to digital 161.4 that is hurting the print market is benefiting the digital 150 128.4 market. Magazine publishers are recouping on their 106.5 100 85.9 digital sites some of the losses in print advertising. 59.6 39.0 50 21.9 • In the UK, the leading magazines experienced a 30 11.5 0 percent increase in traffic on their Web sites. Magazine 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 sites offer features not available in print. For example, IPC and Clinique introduced Marie Claire Makeovers Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates that enable users to view new looks on their computers. The Internet also provides e-commerce opportunities. • Digital advertising rose by 58 percent in 2008. The Elle launched a branded shopping site. adverse economy will dampen digital advertising in 2009, and we project a 6 percent decline. Thereafter, • In Italy, RCS launched Leiweb, targeting women by we expect that the rise in traffic and a less severe using content for RCS magazines. In Russia, Sanoma economic environment will lead to a return to double- Magazines launched a mobile phone version of digit annual growth. We project that digital advertising Cosmopolitan that users can access by sending a will increase to $853 million in 2013, a 24.1 percent text message. compound annual increase from $290 million in 2008. • With a majority of households in a number of countries on broadband, downloading graphics is no longer a problem, and enhanced features are now feasible. Total consumer magazine advertising A growing mobile access subscriber base is fueling • The increase in digital advertising will not be sufficient growth in mobile sites and mobile advertising. to offset the decline in print advertising during the next • The number of mobile Internet access subscribers in two years, and the combined growth during 2011–13 EMEA increased by 44 percent in 2008, and we expect will not be large enough to make up for the decline the mobile subscriber base to more than triple during expected during 2009–10. Total consumer magazine the next five years to 285 million in 2013 from 86 million advertising, both print and digital, will total an estimated in 2008. Growth in the mobile market will boost mobile $13 billion in 2013 from $13.9 billion in 2008, a 1.4 traffic on magazine sites and fuel digital advertising. percent decrease compounded annually. • Digital advertising will account for 6.6 percent of total consumer magazine advertising in 2013 from 2.1 percent in 2008.

Consumer magazine publishing | EMEA 447 Consumer magazine digital advertising market† (US$ millions) 2009–13 EMEA 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 3 4 9 9 10 15 22 29 26.4 Belgium 1 3 4 4 4 7 10 15 30.3 Denmark 1 1 2 2 3 4 6 8 32.0 Finland 1 3 4 4 6 7 12 16 32.0 France 19 26 42 40 45 66 94 124 24.2 Germany 28 40 63 60 72 102 143 192 25.0 Greece 1 1 1 1 3 4 6 7 47.6 Ireland ‡ 1 1 1 1 3 3 4 32.0 Italy 15 22 35 31 37 53 76 104 24.3 Netherlands 4 7 10 10 13 18 25 34 27.7 Norway 1 1 2 2 2 3 4 5 20.1 Portugal 1 1 1 1 1 3 3 4 32.0 Spain 10 16 23 23 28 40 59 79 28.0 Sweden 1 2 3 3 3 5 7 9 24.6 Switzerland 6 8 14 14 17 24 36 48 27.9 United Kingdom 29 37 55 48 51 68 90 114 15.7 Western Europe total 121 173 269 253 296 422 596 792 24.1 Central and Eastern Europe Czech Republic 3 6 9 9 11 16 23 33 29.7 Hungary ‡ 1 1 1 1 2 2 2 14.9 Poland 1 1 2 2 2 3 3 5 20.1 Romania ‡ ‡ ‡ ‡ ‡ ‡ 0 0 — Russia 2 3 6 5 5 6 8 10 10.8 Turkey ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 — Central and Eastern Europe total 6 11 18 17 19 27 36 51 23.2 Middle East/Africa Israel ‡ ‡ 1 1 1 2 3 4 — Saudi Arabia/Pan Arab†† ‡ ‡ 1 1 1 1 2 3 — South Africa ‡ ‡ 1 1 1 1 2 3 — Middle East/Africa total ‡ ‡ 3 3 3 4 7 10 — EMEA total 127 184 290 273 318 453 639 853 24.1

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

448 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer magazine total advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 304 296 302 326 344 303 294 306 332 360 0.9 Belgium 162 165 163 168 171 156 147 153 165 179 0.9 Denmark 73 81 91 88 91 80 79 82 88 95 0.9 Finland 127 136 139 187 184 161 160 165 177 190 0.6 France 1,899 1,886 1,913 1,823 1,740 1,429 1,359 1,390 1,432 1,513 –2.8 Germany 2,691 2,621 2,744 2,706 2,551 2,219 2,121 2,136 2,184 2,314 –1.9 Greece 610 667 736 782 816 736 733 749 798 851 0.8 Ireland 45 53 57 58 60 49 46 50 53 57 –1.0 Italy 1,364 1,374 1,473 1,512 1,416 1,137 1,083 1,105 1,168 1,256 –2.4 Netherlands 433 442 453 447 442 382 372 374 389 413 –1.3 Norway 56 56 59 64 66 57 55 55 56 59 –2.2 Portugal 319 328 327 333 329 286 273 283 296 319 –0.6 Spain 944 963 993 1,046 951 838 815 842 889 951 0.0 Sweden 107 108 116 122 116 101 99 101 105 112 –0.7 Switzerland 487 509 517 557 554 503 497 509 544 579 0.9 United Kingdom 1,504 1,519 1,520 1,490 1,432 1,168 1,079 1,051 1,082 1,152 –4.3 Western Europe total 11,125 11,204 11,603 11,709 11,263 9,605 9,212 9,351 9,758 10,400 –1.6 Central and Eastern Europe Czech Republic 267 303 341 376 375 333 325 335 358 400 1.3 Hungary 148 161 176 187 191 170 165 169 176 185 –0.6 Poland 271 311 318 335 342 304 301 307 322 351 0.5 Romania 35 35 39 40 49 42 40 40 42 46 –1.3 Russia 487 585 684 854 980 723 688 699 731 800 –4.0 Turkey 60 77 93 103 90 65 61 64 69 80 –2.3 Central and Eastern Europe total 1,268 1,472 1,651 1,895 2,027 1,637 1,580 1,614 1,698 1,862 –1.7 Middle East/Africa Israel 37 39 37 38 38 36 36 38 40 43 2.5 Saudi Arabia/Pan Arab‡ 167 225 264 321 332 309 286 291 306 335 0.2 South Africa 193 213 240 263 274 271 271 282 302 332 3.9 Middle East/Africa total 397 477 541 622 644 616 593 611 648 710 2.0 EMEA total 12,790 13,153 13,795 14,226 13,934 11,858 11,385 11,576 12,104 12,972 –1.4

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing | EMEA 449 Asia Pacific

The outlook in brief • Print consumer magazine advertising will be hardest- hit by the economy, falling by a cumulative 18.6 • Declining economies in many countries and unit percent during the next three years. Increases during circulation declines will lead to decreases in print 2012–13 will not offset that decline. Print advertising advertising during the next three years. will decrease from $5.5 billion in 2008 to $4.9 billion in • Broadband growth and an expanding mobile access 2013, a 2.4 percent compound annual decrease. market will propel digital consumer magazine advertising. • Digital advertising on magazine Web sites and mobile • Decreases in discretionary income will reduce magazine sites distributed to mobile phones will total consumer magazine circulation spending. an estimated $314 million in 2013 from $120 million in 2008, a 21.2 percent increase compounded annually. Overview • Even with the increase in digital, total advertising will remain lower in 2013 than in 2008, falling from $5.6 • We project the consumer magazine industry in Asia billion to $5.2 billion, a 1.6 percent compound Pacific to decline by a cumulative 11 percent during annual decline. 2009–10 and then rebound by 8.8 percent during the subsequent three years. Spending in 2013 of $15.7 • Circulation spending will fall by 7.6 percent during billion will be 0.6 percent lower on a compound annual the next two years and then grow by 7.4 percent basis from $16.2 billion in 2008. cumulatively during the subsequent three years, climbing back to $10.5 billion in 2013 but still 0.2 percent lower on a compound annual basis from $10.6 billion in 2008.

Consumer magazine publishing market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 5,333 5,529 5,577 5,636 5,527 4,784 4,519 4,498 4,618 4,904 Digital NA NA 53 73 120 127 149 195 248 314 Total advertising 5,333 5,529 5,630 5,709 5,647 4,911 4,668 4,693 4,866 5,218 Circulation 9,777 10,284 10,638 10,626 10,567 10,006 9,761 9,854 10,138 10,487 Total 15,110 15,813 16,268 16,335 16,214 14,917 14,429 14,547 15,004 15,705

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

450 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer magazine publishing market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 4.5 3.7 0.9 1.1 –1.9 –13.4 –5.5 –0.5 2.7 6.2 –2.4 Digital — — — 37.7 64.4 5.8 17.3 30.9 27.2 26.6 21.2 Total advertising 4.5 3.7 1.8 1.4 –1.1 –13.0 –4.9 0.5 3.7 7.2 –1.6 Circulation 4.2 5.2 3.4 –0.1 –0.6 –5.3 –2.4 1.0 2.9 3.4 –0.2 Total 4.3 4.7 2.9 0.4 –0.7 –8.0 –3.3 0.8 3.1 4.7 –0.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Japan is by far the largest market in the region, at $8.4 • Australia is the third-largest market, at $1.4 billion. billion in 2008, 52 percent of the total in Asia Pacific. Spending fell during the past two years by 2.7 percent, Japan’s market fell by 7.4 percent during the past and we look for a further, 7.5 percent cumulative two years, and we project further cumulative declines decline during the next two years. During the past two totaling 18.7 percent through 2011. The economy in years, declines in circulation spending caused the Japan, which has been sluggish for years, weakened downturn. During the next two years, a continuation of considerably in 2008, and a prolonged recession will that trend combined with a drop in print advertising will hurt the consumer magazine market. Additionally, print result in a steeper overall decrease. Improved economic advertising in Japan has been hurt by migration of conditions and an expanding digital market will lead to advertisers to the Internet and mobile phones. Although a rebound during 2011–13 that will offset the near-term magazine publishers will attract a portion of that decline. Spending in 2013 will be 0.6 percent higher spending, it will not be enough to offset print advertising compounded annually from 2008. and circulation declines. Spending will fall at a 3.5 • South Korea and Hong Kong are next, at $827 million percent compound annual rate to $7 billion in 2013. and $807 million, respectively, in 2008. The declining • The People’s Republic of China (PRC) is the second- economy in South Korea will lead to a projected decline largest market, at $2.8 billion in 2008. Consumer during the next three years and an overall 0.8 percent magazines in the PRC expanded at double-digit rates decrease compounded annually through 2013. Likewise through 2007 and continued to grow in 2008 with a 6.4 in Hong Kong, we look for declines during the next percent advance. Although noticeably cooling from the two years and a 0.7 percent average annual decrease explosive gains in the recent past, we still look for the through 2013. economy in the PRC to continue to grow. The market • In India, by contrast, the economy continues to is attracting international titles, and we project growth expand, albeit at a much slower rate, and new titles to average 5.5 percent compounded annually to $3.6 are stimulating the market. We expect India to be the billion in 2013. fastest-growing territory during the next five years with a 7 percent compound annual increase.

Consumer magazine publishing | Asia Pacific 451 Consumer magazine publishing market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,309 1,389 1,427 1,408 1,388 1,314 1,284 1,302 1,355 1,427 0.6 China 1,583 2,035 2,309 2,610 2,777 2,860 2,949 3,114 3,363 3,624 5.5 Hong Kong 662 710 726 782 807 734 708 720 743 778 –0.7 India 263 303 369 426 470 497 525 560 612 658 7.0 Indonesia 107 114 116 123 125 123 122 125 130 138 2.0 Japan 9,015 8,997 9,031 8,654 8,365 7,333 6,890 6,800 6,826 7,009 –3.5 Malaysia 83 83 84 89 89 83 81 81 83 88 –0.2 New Zealand 270 293 298 298 276 248 238 234 237 247 –2.2 Pakistan 8 9 12 16 17 17 17 18 20 21 4.3 Philippines 20 22 23 24 24 23 22 22 23 23 –0.8 Singapore 74 76 87 89 86 72 66 64 67 71 –3.8 South Korea 762 775 789 815 827 775 747 744 761 794 –0.8 Taiwan 499 511 505 509 479 407 369 358 366 385 –4.3 Thailand 424 462 456 453 442 388 365 357 366 386 –2.7 Vietnam 31 34 36 39 42 43 46 48 52 56 5.9 Total 15,110 15,813 16,268 16,335 16,214 14,917 14,429 14,547 15,004 15,705 –0.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Print advertising In India, a number of international magazines were launched during 2007–08, including Vogue, OK!, • Consumer magazines in a number of countries had Hello!, Maxim, Rolling Stone, People, Marie Claire, benefited from an expanding market of affluent readers, and FHM that targeted the growing affluent market. In particularly in the PRC and India. Consumer magazines early 2009, GQ, Stuff (targeting gadget buyers), and are generally more upscale than other media and CasaViva (an interior design title) entered the market. provide advertisers with a vehicle to reach affluent A new regulation enacted in 2008 will allow Indian consumers. That pattern is now working against editions of newsmagazines, with 26 percent foreign consumer magazines, as there are fewer affluent direct investment, to be sold in India. Previously, consumers, and people are cutting back on their only facsimile editions of foreign magazines, which discretionary purchases. Advertising targeting special were expensive, were permitted. Under the new interests is faltering in a number of countries. regulation, local editions will be available, and Indian • Print advertising has declined during the past five years publishers can sell local advertising. In addition, foreign in Japan and fell in 2008 in Malaysia, New Zealand, publishers can now own up to 100 percent of nonnews Singapore, Taiwan, and Thailand. Print advertising in all publications. The slowing economy will lead to a drop of Asia Pacific fell by 1.9 percent in 2008. to mid-single-digit growth during the next two years. We expect high-single-digit increases during 2011–13 • India was a major exception in 2008, with a 10.6 and an overall increase of 7.2 percent compounded percent increase, and the PRC, Hong Kong, and annually through 2013. South Korea posted mid- to high-single-digit gains.

452 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • The PRC also is attracting international titles, including rates. In Australia, the declining advertising market led Top Gear and Men’s Folio. Continued economic growth, to the cancellation of the planned launch of Glamour albeit at a slower rate, will lead to low- to mid-single- in early 2009. In Singapore, the collapsing advertising digit growth in print advertising during the next three market led to the closing of Maxim. years and a return to double-digit growth during • Declines will continue in each of those countries 2012–13. Print advertising will expand at a projected through 2010. In Japan, we expect decreases to last 7.2 percent compound annual rate during the next five through 2012, and we look for the downturn to continue years, matching India. through 2011 in New Zealand, South Korea, Taiwan, • South Korea has seen relatively healthy print advertising and Thailand. growth during the past four years, a trend we expect • In the Philippines, TV dominates the country’s overall will change abruptly in 2009 because of the rapidly media spending, with around three-quarters of the total, falling economy. We project a 10.6 percent decline in while print holds only less than 10 percent. A number 2009 and a cumulative 15.9 percent decrease through of magazines were launched in 2008—including YOU, 2011. A rebound during 2012–13 will reduce the overall AHA!, High School Musical, Town & Country, and decrease to 1.7 percent compounded annually. Wedding Belle. That trend is expected to help support • In addition to South Korea, we expect the recession print advertising. to lead to double-digit declines in print advertising in • For Asia Pacific as a whole, decreases during the 2009 in Hong Kong, Japan, Malaysia, New Zealand, next three years will offset gains during 2012–13. Print Singapore, Taiwan, and Thailand, with Australia, advertising in 2013 will fall to $4.9 billion from $5.5 billion Indonesia, and the Philippines falling at single-digit in 2008, a 2.4 percent decrease compounded annually.

Consumer magazine print advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 554 608 627 652 652 610 593 598 627 669 0.5 China 272 329 339 374 406 419 438 468 515 574 7.2 Hong Kong 297 340 353 405 430 380 365 375 396 428 –0.1 India 192 221 274 320 354 377 400 428 468 502 7.2 Indonesia 52 57 59 64 66 64 63 65 69 75 2.6 Japan 3,094 3,029 2,968 2,830 2,666 2,127 1,920 1,849 1,811 1,879 –6.8 Malaysia 38 37 36 39 38 34 33 33 34 36 –1.1 New Zealand 99 115 112 115 99 86 81 78 79 83 –3.5 Pakistan 3 4 6 9 10 10 10 11 12 13 5.4 Philippines 11 13 13 13 13 12 12 12 12 12 –1.6 Singapore 32 33 42 43 41 33 30 30 31 33 –4.2 South Korea 166 195 210 232 246 220 210 207 213 226 –1.7 Taiwan 328 336 327 331 305 245 210 195 197 209 –7.3 Thailand 182 198 196 193 183 149 134 128 131 140 –5.2 Vietnam 13 14 15 16 18 18 20 21 23 25 6.8 Total 5,333 5,529 5,577 5,636 5,527 4,784 4,519 4,498 4,618 4,904 –2.4

†At average 2008 exchange rates. Sources: Commercial Economic Advisory Service of Australia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing | Asia Pacific 453 Digital advertising • Summit Media, one of the leading magazine publishers in the Philippines, has launched three new magazine • Digital advertising is beginning to be developed in Asia Web sites—T3, Top Gear, and Real Living Space— Pacific. Japan is the dominant market, at $93 million, thereby opening up space for online advertising. with Australia next, at $10 million. Together, those two countries constituted 86 percent of total digital • Mobile sites also will become meaningful as the mobile advertising in Asia Pacific in 2008. Japan has a large access market expands. We expect the number of online and mobile advertising market, and magazine Web mobile access subscribers to more than double to 556 sites are beginning to participate in that market. After an million in 2013 from 202 million in 2008. That growth increase of 63 percent in 2008, we look for a slowdown will generate growth in mobile advertising, a portion of to only 3 percent in 2009 as the weak economy cuts which will accrue to mobile magazine sites. into digital advertising. Thereafter, growth will return • As the online and mobile advertising market as a whole to double-digit annual gains, fueled by an expanding expands, online and mobile magazine advertising mobile market. Spending will rise to $188 million by will expand as well. We project that market to rise to 2013, a 15.1 percent compound annual increase. $314 million in 2013, a 21.2 percent compound annual • In Australia, ACP Magazines launched 17 sites during increase from $120 million in 2008. the past two years, and Telstra’s BigPond mobile phone service now has licensing deals with magazines, Mobile Internet access subscribers in Asia Pacific (millions) including Marie Claire. The growing mobile market in 700 that country will boost digital advertising to a projected $50 million by 2013, five times the 2008 total. 600 556.0 • Publishers in the PRC also are developing digital 500 439.0 advertising sites. Axel Springer China in 2008 launched 400 348.6 autobild.cn.com, and publishers are beginning to 283.5 300 243.4 generate digital advertising. Although it’s currently 202.4 200 152.7 small, at only $3 million, we expect digital advertising to 119.1 80.9 grow to $22 million in by 2013. 100 41.7 0 • Growing broadband penetration in the PRC and other 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 countries will enable more readers to easily download graphical and video content. At the same time, Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates advertisers are increasingly allocating more resources to the Internet, and we expect that magazine Web sites will attract some of those funds.

454 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer magazine digital advertising market† (US$ millions) 2009–13 Asia Pacific 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 3 7 10 13 18 27 38 50 38.0 China 1 2 3 4 7 10 16 22 49.0 Hong Kong ‡ ‡ 1 1 1 2 2 3 24.6 India ‡ ‡ 1 1 1 2 3 4 32.0 Indonesia ‡ ‡ ‡ ‡ ‡ ‡ 0 1 — Japan 45 57 93 96 106 129 154 188 15.1 Malaysia ‡ ‡ 1 1 1 1 2 3 24.6 New Zealand 1 1 1 1 2 4 5 6 43.1 Pakistan ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Philippines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Singapore 0 1 1 1 1 1 2 3 24.6 South Korea 1 2 4 4 6 9 13 17 33.6 Taiwan 2 3 5 5 6 9 12 16 26.2 Thailand ‡ ‡ ‡ ‡ ‡ 1 1 1 — Vietnam ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Total 53 73 120 127 149 195 248 314 21.2

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total consumer magazine advertising advertising will drop to $5.2 billion in 2013 from $5.6 billion in 2008, a 1.6 percent decrease compounded annually. • Growth in digital advertising will not offset the decline in print advertising projected during the next three years. • Digital’s share of total advertising will increase from 2 Even with digital included, total consumer magazine percent in 2008 to 6 percent in 2013.

Consumer magazine publishing | Asia Pacific 455 Consumer magazine total advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 554 608 630 659 662 623 611 625 665 719 1.7 China 272 329 340 376 409 423 445 478 531 596 7.8 Hong Kong 297 340 353 405 431 381 366 377 398 431 0.0 India 192 221 274 320 355 378 401 430 471 506 7.3 Indonesia 52 57 59 64 66 64 63 65 69 76 2.9 Japan 3,094 3,029 3,013 2,887 2,759 2,223 2,026 1,978 1,965 2,067 –5.6 Malaysia 38 37 36 39 39 35 34 34 36 39 0.0 New Zealand 99 115 113 116 100 87 83 82 84 89 –2.3 Pakistan 3 4 6 9 10 10 10 11 12 13 5.4 Philippines 11 13 13 13 13 12 12 12 12 12 –1.6 Singapore 32 33 42 44 42 34 31 31 33 36 –3.0 South Korea 166 195 211 234 250 224 216 216 226 243 –0.6 Taiwan 328 336 329 334 310 250 216 204 209 225 –6.2 Thailand 182 198 196 193 183 149 134 129 132 141 –5.1 Vietnam 13 14 15 16 18 18 20 21 23 25 6.8 Total 5,333 5,529 5,630 5,709 5,647 4,911 4,668 4,693 4,866 5,218 –1.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Circulation Consumers generally do not cancel subscriptions, although renewal rates are likely to fall in 2009. Home- • Circulation spending declined by 0.6 percent in 2008 oriented titles such as Better Homes and Gardens did following a 0.1 percent decrease in 2007. The declining relatively well in 2008. We expect circulation spending economy is squeezing discretionary income, which in to continue to decline through 2010 and despite a turn is leading to a decline in discretionary purchases, subsequent rebound to remain 0.5 percent lower on a including consumer magazines. compound annual basis in 2013 compared with 2008. • In Australia, lad, or men’s, magazine circulation • Circulation spending in Japan fell by 2.8 percent in has been declining since 2006, in part because the 2008, its second consecutive decrease. We expect a youth audience has moved online. The companion much sharper, 8.8 percent drop in 2009, reflecting the Web sites of lad magazines represent 4 of the top accelerating economic decline, and look for decreases 10 most popular men’s Web sites. In 2008, celebrity to persist through 2011. magazines, women’s titles, and weekly magazines experienced sharp declines. Rising gasoline and food • The economy in Singapore is falling even faster than prices impacted purchases in two large distribution in Japan, and we expect that will translate into a 13.6 channels: supermarkets and gas stations. Titles relying percent decrease in 2009 and continued declines on newsstand sales were hurt also, because newsstand through 2011. purchases are easy to forgo when money is tight.

456 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • In the PRC and India, by contrast, circulation spending • For Asia Pacific as a whole, we project circulation is holding up. We look for slower growth during the next spending to fall from $10.6 billion in 2008 to $9.8 billion two years and a pickup thereafter. Circulation spending in 2010 and then rebound to $10.5 billion in 2013, will increase at a 5.7 percent compound annual rate which will be 0.2 percent lower on a compound annual through 2013 in India and by 5 percent compounded basis from 2008. annually in the PRC.

Consumer magazine circulation spending market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 755 781 797 749 726 691 673 677 690 708 –0.5 China 1,311 1,706 1,969 2,234 2,368 2,437 2,504 2,636 2,832 3,028 5.0 Hong Kong 365 370 373 377 376 353 342 343 345 347 –1.6 India 71 82 95 106 115 119 124 130 141 152 5.7 Indonesia 55 57 57 59 59 59 59 60 61 62 1.0 Japan 5,921 5,968 6,018 5,767 5,606 5,110 4,864 4,822 4,861 4,942 –2.5 Malaysia 45 46 48 50 50 48 47 47 47 49 –0.4 New Zealand 171 178 185 182 176 161 155 152 153 158 –2.1 Pakistan 5 5 6 7 7 7 7 7 8 8 2.7 Philippines 9 9 10 11 11 11 10 10 11 11 0.0 Singapore 42 43 45 45 44 38 35 33 34 35 –4.5 South Korea 596 580 578 581 577 551 531 528 535 551 –0.9 Taiwan 171 175 176 175 169 157 153 154 157 160 –1.1 Thailand 242 264 260 260 259 239 231 228 234 245 –1.1 Vietnam 18 20 21 23 24 25 26 27 29 31 5.3 Total 9,777 10,284 10,638 10,626 10,567 10,006 9,761 9,854 10,138 10,487 –0.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing | Asia Pacific 457 Latin America

The outlook in brief • Print advertising will fall by 8.7 percent during the next two years, with a projected 15.1 percent rebound to • The declining economy will lead to near-term decreases $1.4 billion in 2013, a 1 percent compound annual in print advertising. increase from $1.3 billion in 2008. • Broadband household growth will stimulate a small • Digital advertising will rise from $13 million in 2008 to digital advertising market. $58 million in 2013, a 34.9 percent compound annual • Falling discretionary income will depress circulation increase from a small base. spending during the next two years. • Total consumer magazine advertising will increase from $1.3 billion to $1.4 billion, a 1.6 percent compound Overview annual gain. • We project consumer magazine publishing in Latin • Circulation spending will follow the print advertising America to decrease during the next two years by 6.8 pattern: falling during the next two years and then percent and then rebound by 14.3 percent during the rebounding during the subsequent three years. subsequent three years to $3.6 billion in 2013, up 1.3 Spending will total $2.1 billion in 2013 from $2 billion in percent compounded annually from $3.4 billion in 2008. 2008, a 1 percent compound annual increase.

Consumer magazine publishing market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 875 1,016 1,115 1,240 1,317 1,230 1,203 1,217 1,270 1,385 Digital NA NA NA 5 13 17 22 27 42 58 Total advertising 875 1,016 1,115 1,245 1,330 1,247 1,225 1,244 1,312 1,443 Circulation 1,685 1,789 1,875 2,017 2,034 1,946 1,910 1,936 2,030 2,140 Total 2,560 2,805 2,990 3,262 3,364 3,193 3,135 3,180 3,342 3,583

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 12.0 16.1 9.7 11.2 6.2 –6.6 –2.2 1.2 4.4 9.1 1.0 Digital — — — — 160.0 30.8 29.4 22.7 55.6 38.1 34.9 Total advertising 12.0 16.1 9.7 11.7 6.8 –6.2 –1.8 1.6 5.5 10.0 1.6 Circulation 7.7 6.2 4.8 7.6 0.8 –4.3 –1.8 1.4 4.9 5.4 1.0 Total 9.2 9.6 6.6 9.1 3.1 –5.1 –1.8 1.4 5.1 7.2 1.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

458 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Brazil is the dominant market in the region, at $1.9 • We expect declines in each country in 2009 and except billion in 2008, 57 percent of the total in Latin America. for Argentina and Venezuela, further decreases in 2010. Argentina and Mexico are next, at $670 million and High inflation in Argentina will mitigate the decrease in $484 million, respectively. nominal terms and augment the rebound in later years. Argentina will record the best performance in nominal • With the exception of Chile and Mexico, a relatively terms during the next five years, with a 3.2 percent strong first half of 2008 offset a declining second half, compound annual increase. leading to overall growth in 2008 of 3.1 percent. That increase was well below the 9.1 percent gain in 2007. In • In addition to Argentina, we expect gains in Brazil, Chile, a plunging print advertising market led to an 11.3 Mexico, and Venezuela in later years to offset near- percent overall decline in 2008, while in Mexico, the term declines. In Chile and Colombia, steep decreases decrease was a more modest, 0.8 percent. during the next two years will offset the subsequent rebound, and spending in 2013 will be lower in those countries than in 2008.

Consumer magazine publishing market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 432 509 547 653 670 653 654 668 719 786 3.2 Brazil 1,482 1,603 1,700 1,815 1,906 1,825 1,792 1,816 1,895 2,017 1.1 Chile 60 63 67 71 63 54 53 54 56 60 –1.0 Colombia 159 187 204 219 224 199 187 185 191 205 –1.8 Mexico 416 432 460 488 484 447 434 442 465 497 0.5 Venezuela 11 11 12 16 17 15 15 15 16 18 1.1 Total 2,560 2,805 2,990 3,262 3,364 3,193 3,135 3,180 3,342 3,583 1.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Print advertising • Consumer magazines had benefited from an expanding middle class because high-end products and products • Consumer magazine print advertising growth slowed targeting special interests use magazines to reach their to 6.2 percent in 2008 from double-digit or high- desired audiences. With income growth now stalled, single-digit gains during each of the prior three years. advertisers are cutting back. We expect double-digit Argentina and Brazil continued to grow by double digits declines in Chile, Colombia, Mexico, and Venezuela in 2008. Colombia slowed to 3.4 percent from 8 percent in 2009; a 4.4 percent drop in Brazil, which is holding in 2007, and Venezuela was flat. The market in Chile up better than other countries; and a 1 percent gain in plunged by 16 percent, and Mexico fell by 2.1 percent. Argentina. Growth in Argentina is due to inflation rates • The advertising market as a whole began falling earlier that are running about 20 percent. In real terms, print and faster in Chile than in other countries in Latin advertising is also down by double digits. America, and consumer magazines were particularly • We project an overall decline in 2009 of 6.6 percent affected. Mexico, which is more closely tied to the US followed by a further, 2.2 percent drop in 2010 as the market than are other countries in Latin America, fell weak economy lingers. Most countries will begin to turn sharply late in the year as the US market plunged. around in 2011, and we expect each country expand during 2012–13.

Consumer magazine publishing | Latin America 459 • We expect that once the current economic downturn will experience less erosion. We therefore expect that runs its course, there will be a return to the previous growth in print advertising during 2011–13 will offset trend of a growing middle class and rising discretionary declines during the next two years, the only region income—developments that will boost the consumer where that will be the case. magazine market and lead to a robust rebound in • For the five-year period as a whole, consumer print advertising. magazine print advertising will expand at a 1 percent • The shift from traditional media to digital media is much compound annual rate from $1.3 billion in 2008 to $1.4 less pronounced in Latin America than in other regions. billion in 2013. Consequently, print media face less competition and

Consumer magazine print advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 53 68 72 89 102 103 104 110 117 127 4.5 Brazil 482 571 630 704 776 742 731 737 767 839 1.6 Chile 41 43 46 50 42 34 32 33 35 38 –2.0 Colombia 97 123 138 149 154 133 124 122 126 137 –2.3 Mexico 198 207 224 240 235 211 205 208 217 235 0.0 Venezuela 4 4 5 8 8 7 7 7 8 9 2.4 Total 875 1,016 1,115 1,240 1,317 1,230 1,203 1,217 1,270 1,385 1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Digital advertising Broadband and mobile Internet access subscribers in Latin America (millions) • Latin America does not have much of a digital advertising market. Broadband penetration is low 50 throughout the region—averaging less than 20 percent— Mobile Internet access subscribers 40 and only a third of households are online at all. Broadband households • Mobile access penetration also is low, at only 5.2 30 million users, 85 percent of whom are in Brazil. Consequently, there is not yet a critical mass to support 20 digital advertising, and publishers have not been proactive in developing Web sites for their titles and 10 marketing them to advertisers. 0 • While the recession will slow growth in broadband, both 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 the broadband and mobile access markets are expanding, Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates and growth will pick up when the economy improves. • We expect the broadband universe to more than double • That increase will create revenue opportunities for from 20 million in 2008 to 44 million by 2013. The consumer magazine publishers, and we expect they will mobile access market will jump by a factor of eight to put more resources into their Web sites, which in turn 41 million by 2013. will attract advertising.

460 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • While we are not projecting digital advertising to become • Brazil will have the largest digital market, at $38 million a major advertising segment, we are estimating that it in 2013, with Mexico well behind at $11 million. The will expand to $58 million by 2013 from only $13 million remaining countries will each have less than $10 million in 2008, a 34.9 percent compound annual increase. in digital consumer magazine advertising.

Consumer magazine digital advertising market† (US$ millions) 2009–13 Latin America 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina ‡ 1 1 2 2 3 4 32.0 Brazil 3 8 11 13 17 27 38 36.6 Chile ‡ ‡ ‡ 1 1 1 1 — Colombia 1 2 2 2 2 3 4 14.9 Mexico 1 2 3 4 5 8 11 40.6 Venezuela ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Total 5 13 17 22 27 42 58 34.9

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total consumer magazine advertising • Digital advertising will account for 4 percent of total magazine advertising in 2013 from 1 percent in 2008. • Total consumer magazine advertising will rise from $1.3 billion in 2008 to $1.4 billion in 2013, a 1.6 percent compound annual increase.

Consumer magazine total advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 53 68 72 89 103 104 106 112 120 131 4.9 Brazil 482 571 630 707 784 753 744 754 794 877 2.3 Chile 41 43 46 50 42 34 33 34 36 39 –1.5 Colombia 97 123 138 150 156 135 126 124 129 141 –2.0 Mexico 198 207 224 241 237 214 209 213 225 246 0.7 Venezuela 4 4 5 8 8 7 7 7 8 9 2.4 Total 875 1,016 1,115 1,245 1,330 1,247 1,225 1,244 1,312 1,443 1.6

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer magazine publishing | Latin America 461 Circulation where we expect circulation spending to be higher in 2013 than in 2008. • Circulation spending growth slowed to 0.8 percent in 2008 from 7.6 percent in 2007, again reflecting the • Although consumer magazines do not represent a large impact of the economy. medium in Latin America, they face less competition from digital media than they do in other regions. • We expect declining incomes to lead to a drop in Consequently, circulation will hold up better when the circulation spending during the next two years as economy recovers. consumers cut back on discretionary purchases such as consumer magazines. • We project circulation spending to fall by 6.1 percent during the next two years and increase by 12 percent • We then project a rebound in circulation spending from 2010 to 2013. Circulation spending in 2013 will as incomes increase during 2011–13. As with print total an estimated $2.1 billion, up 1 percent on a advertising, we expect that gains during the latter years compound annual basis from $2 billion in 2008. will offset near-term declines—again, the only region

Consumer magazine circulation spending market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 379 441 475 564 567 549 548 556 599 655 2.9 Brazil 1,000 1,032 1,070 1,108 1,122 1,072 1,048 1,062 1,101 1,140 0.3 Chile 19 20 21 21 21 20 20 20 20 21 0.0 Colombia 62 64 66 69 68 64 61 61 62 64 –1.2 Mexico 218 225 236 247 247 233 225 229 240 251 0.3 Venezuela 7 7 7 8 9 8 8 8 8 9 0.0 Total 1,685 1,789 1,875 2,017 2,034 1,946 1,910 1,936 2,030 2,140 1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

462 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Newspaper publishing

464 Summary

465 North America

477 Europe, Middle East, Africa (EMEA)

488 Asia Pacific

498 Latin America Summary

Newspaper publishing Market size and growth by component The newspaper publishing market consists of (1) spending Print advertising is the largest component of the on daily print newspapers by advertisers and readers and newspaper market, at $104.8 billion in 2008, 57 percent (2) advertising on newspaper Web sites and mobile phone of the total. Global print advertising fell by 8.7 percent sites. Spending by readers includes both newsstand in 2008 and will decline by an additional 24 percent purchases and subscriptions. Sunday editions issued by during the next three years. Spending in 2013 will total publishers of daily papers are included in the daily paper $83.5 billion, a 4.5 percent compound annual decrease totals, as is advertising in free daily newspapers. However, from 2008. Digital advertising on newspaper Web sites free weeklies and other weekly papers are not included will increase at a 6.8 percent compound annual rate to because they constitute a separate and distinct market $8.3 billion in 2013 from $6 billion in 2008, increasing its in terms of content, advertising base, andwhen paid share of total newspaper advertising to 9.1 percent from forsubscriber interests. 5.4 percent in 2008. Growth in digital advertising will not offset declines in print advertising, and total newspaper advertising will fall from $110.8 billion in 2008 to $91.8 Market size and growth by region billion in 2013, a 3.7 percent compound annual decline. We project the global newspaper market will decline by Global circulation spending will increase to $72.8 billion in 10.2 percent in 2009 and average a 2 percent compound 2013 from $71.6 billion in 2008, a 0.3 percent compound annual decrease to $164.6 billion in 2013 from $182.4 annual increase. billion in 2008. Spending in North America will contract by 17.7 percent in 2009 and at a 5.8 percent compound Principal drivers annual rate through 2013, falling from $50.8 billion to $37.7 billion. Spending in EMEA (Europe, Middle East, Africa), The economic downturn will lead to sharp declines in print the largest newspaper market, at $73.1 billion in 2008, advertising in all regions in 2009, with further decreases will decline by 8.8 percent in 2009 and at a 1.6 percent expected in 2010. Improved economic conditions during compound annual rate over the entire forecast period the latter part of the forecast period will lead to a modest to $67.5 billion in 2013. Asia Pacific will record a more recovery during 2012–13 in all regions. The rebound will be modest, 5.8 percent decrease in 2009, and growth during muted by continuing migration of advertising, particularly 2011–13 will lead to an overall 0.1 percent compound classified advertising, to the Internet. Declines in paid annual gain to $51.9 billion from $51.7 billion in 2008. Latin circulation in North America and EMEA will adversely America will have the best-performing market during the affect circulation spending, while rising circulation in next five years, with a projected 1.9 percent compound Latin America, India, the People’s Republic of China, and annual increase, although it too will experience declines several other territories in Asia Pacific will boost paid during the next two years. Spending in Latin America will circulation spending. Declining circulation of free papers increase from $6.8 billion in 2008 to $7.5 billion in 2013. in response to the drop in advertising will further depress print advertising in the near term in North America and EMEA. Rising Web site traffic will boost digital advertising. Latin America will outperform other regions because newspapers face less competition from the Internet.

Data for the global newspaper publishing market by region and for the global newspaper publishing market by component can be found within the Executive Summary on pages 47 and 48.

464 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief • Total newspaper advertising will fall by a cumulative 32.7 percent during the next three years before posting • The recession and the ongoing migration of advertisers a modest rebound during 2012–13. Spending will drop to the Internet will substantially reduce print advertising. from $39.9 billion in 2008 to 27.9 billion in 2013, a 6.9 • Growing Web site traffic will bolster digital advertising percent decrease compounded annually. over the long run. • Print advertising will decline by more than 35 percent • Lower disposable income and the shift in readers to the during the next four years and will average a 7.9 Internet will reduce circulation spending. percent compound annual decrease to $24.3 billion in 2013 from $36.7 billion in 2008. Overview • Digital advertising on newspaper Web sites also will decline during the next two years, although • We project the newspaper publishing industry to subsequent gains will boost spending to $3.7 billion in decline by 17.7 percent in 2009 and at a 5.8 percent 2013 from $3.2 billion in 2008, a 2.5 percent increase compound annual rate through 2013, falling to $37.7 compounded annually. billion in 2013 from $50.8 billion in 2008. • Circulation spending will decline at a compound annual rate of 2.1 percent, falling to $9.8 billion in 2013 from $10.9 billion in 2008.

Newspaper publishing market by component (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 49,151 49,902 49,083 44,621 36,657 28,206 24,860 23,819 23,693 24,265 Digital 1,541 2,077 2,738 3,263 3,243 3,066 2,973 3,036 3,281 3,674 Total advertising 50,692 51,979 51,821 47,884 39,900 31,272 27,833 26,855 26,974 27,939 Circulation 11,729 11,509 11,349 11,199 10,893 10,538 10,238 10,030 9,884 9,781 Total 62,421 63,488 63,170 59,083 50,793 41,810 38,071 36,885 36,858 37,720

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 3.9 1.5 –1.6 –9.1 –17.8 –23.1 –11.9 –4.2 –0.5 2.4 –7.9 Digital 26.7 34.8 31.8 19.2 –0.6 –5.5 –3.0 2.1 8.1 12.0 2.5 Total advertising 4.5 2.5 –0.3 –7.6 –16.7 –21.6 –11.0 –3.5 0.4 3.6 –6.9 Circulation –1.6 –1.9 –1.4 –1.3 –2.7 –3.3 –2.8 –2.0 –1.5 –1.0 –2.1 Total 3.3 1.7 –0.5 –6.5 –14.0 –17.7 –8.9 –3.1 –0.1 2.3 –5.8

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | North America 465 • The US newspaper market has been much weaker than Press and the Detroit News, which plan to limit home the Canadian market in recent years, and we expect deliveries to Thursday through Sunday so as to save on that trend to continue through 2013. production costs, although they will continue to sell at newsstands seven days a week. • During the past three years, US newspaper revenues fell by nearly 21 percent, including a 14.6 percent • The Canadian newspaper market has held up relatively decrease in 2008. We expect a steeper, 18 percent drop well, although it too has declined, falling by 4.7 percent in 2009 and continued declines through 2012. By 2013, in 2008. The Canadian newspaper market is much US newspaper publishing will have lost $25 billion from more competitive than the US market, with many its peak in 2005. During the five-year forecast period, cities served by a number of papers. Paid newspaper spending will fall at a 5.9 percent compound annual circulation has declined at a slower rate in Canada than rate to $35.1 billion from $47.7 billion in 2008. in the United States, and free dailies have expanded the reach for advertisers. Free dailies constitute a third • , USA Today, and, possibly, the of total newspaper circulation in Canada compared New York Times and the Washington Post are the only with only 6 percent in the United States. When free national newspapers in the US. We expect they will dailies are included, overall newspaper circulation be relatively well positioned to ride out the recession, increased through 2007 and was relatively flat in 2008. whereas smaller papers are more at risk. Consequently, advertising erosion has been more • Some newspapers in the US are responding to the modest in Canada. Nevertheless, the recession will challenges facing them by moving to online-only lead to a 13 percent drop in 2009 and a cumulative publication, or adopting the concept of so-called power 21 percent decline through 2011. During the forecast days to increase circulation and advertising on selected period as a whole, spending will fall at a 3.7 percent days of the week while limiting or stopping circulation compound annual rate from $3.1 billion in 2008 to $2.6 on the other days. Examples are the Detroit Free billion in 2013.

Newspaper publishing market by country† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 59,232 60,182 59,857 55,815 47,677 39,099 35,562 34,429 34,350 35,144 Canada 3,189 3,306 3,313 3,268 3,116 2,711 2,509 2,456 2,508 2,576 Total 62,421 63,488 63,170 59,083 50,793 41,810 38,071 36,885 36,858 37,720

†At average 2008 exchange rates. Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Newspaper publishing market growth by country (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 3.2 1.6 –0.5 –6.8 –14.6 –18.0 –9.0 –3.2 –0.2 2.3 –5.9 Canada 3.9 3.7 0.2 –1.4 –4.7 –13.0 –7.5 –2.1 2.1 2.7 –3.7 Total 3.3 1.7 –0.5 –6.5 –14.0 –17.7 –8.9 –3.1 –0.1 2.3 –5.8

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

466 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print advertising • Recruitment advertising in the United States fell by 42 percent in 2008, reflecting accelerating job losses; real • The print advertising newspaper market has been estate classifieds were down by 39 percent because adversely affected by two ongoing trends—long- housing prices have tumbled and mortgages have term unit circulation declines and the reallocation of become difficult to obtain; and automotive classifieds advertising from the print media to the Internet—and fell by 28 percent, the result of declining auto sales by a cyclical trend: the current economic downturn. and a shortage of credit. We expect even sharper • While all advertising is affected by the economy, decreases in 2009—50 percent for recruitment and 45 newspapers are particularly vulnerable because a percent for real estate—and a further 28 percent drop in significant portion of their revenues is generated by automotive, with further double-digit declines expected classified advertising. In 2005, before its recent in 2010. decline, classifieds accounted for 36.5 percent of • We expect real estate classifieds in the United States print advertising in the United States and 32.9 to turn around in 2011 and recruitment in 2012 as the percent in Canada. economy begins to recover. Housing responds con- currently with the economy, while employment gener- Print classified advertising ally lags. As both of these markets pick up, classified • Classified advertising is the most cyclically sensitive spending will increase, and newspapers will get a share advertising category because it is the most directly of that growth. Automotive classified is moving online, affected by macroeconomic trends. Recruitment and we project continued declines through 2013, advertising closely follows employment trends, and real averaging 12.7 percent compounded annually. estate advertising is affected by the housing cycle, and both recruitment advertising and real estate advertising • We do not expect the print classified rebound during have turned sharply negative. Automotive classifieds 2012–13 to match prior rebounds, because more of are affected by trends in auto sales, which have been the classified advertising market is moving online. falling sharply. Moreover, classified advertising is well Consequently, both the 6.5 percent increase projected suited to an online environment and was moving to the for recruitment and the 7 percent for real estate in Internet even when the economy was strong. During 2013 are well below the double-digit gains realized the past three years, print classified advertising in North as recently as 2006 for real estate and 2005 for America has fallen by a third, and in the United States, recruitment. Those projected increases also are from by a staggering 42 percent. a substantially smaller base and represent significantly smaller volumes. Recruitment classifieds in 2013 will be • The main reasons classified advertising is migrating 62.5 percent lower than in 2008, and real estate, 53.1 to the Internet are lower costthe Internet is much percent lower. Automotive classifieds will decline by a cheaperand greater flexibility: online classifieds can cumulative 49.2 percent. be inserted anytime, can be changed easily, and are not as limited with respect to word count. The shift in • Overall print classified advertising in the United States the audience also plays an important role: with print will fall from $10 billion in 2008 to $6.2 billion in 2013, readership falling while the online audience is growing, a 38.3 percent cumulative decline and a 9.2 percent advertisers are following the audience. However, in the compound annual decrease. near term Internet classified advertising, too, will be hurt by the general drop in classified advertising.

Newspaper publishing | North America 467 US print classified advertising market (US$ millions)

United States 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Recruitment 4,576 5,126 4,741 3,805 2,200 1,100 800 750 775 825 Automotive 5,015 4,589 4,000 3,266 2,360 1,700 1,400 1,275 1,225 1,200 Real estate 4,222 4,639 5,156 3,991 2,450 1,350 1,000 1,025 1,075 1,150 Other 2,795 2,957 3,089 3,124 2,970 2,800 2,750 2,775 2,850 2,980 Total 16,608 17,311 16,986 14,186 9,980 6,950 5,950 5,825 5,925 6,155

Sources: Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

US print classified advertising market growth (%) 2009–13 United States 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR Recruitment 15.1 12.0 –7.5 –19.7 –42.2 –50.0 –27.3 –6.3 3.3 6.5 –17.8 Automotive –3.4 –8.5 –12.8 –18.4 –27.7 –28.0 –17.6 –8.9 –3.9 –2.0 –12.7 Real estate 6.8 9.9 11.1 –22.6 –38.6 –44.9 –25.9 2.5 4.9 7.0 –14.0 Other 4.4 5.8 4.5 1.1 –4.9 –5.7 –1.8 0.9 2.7 4.6 0.1 Total 5.1 4.2 –1.9 –16.5 –29.6 –30.4 –14.4 –2.1 1.7 3.9 –9.2

Sources: Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The Canadian print classified market fell by 9.7 percent late 2008. We project a 24.4 percent decrease in print in 2008, a much more modest decrease compared with classifieds in Canada in 2009, a further 13 percent the 29.6 percent drop in the United States. Canada was decline in 2010, and an additional 5.1 percent decrease less affected than the United States by the downturn in 2011. By 2013, print classifieds in Canada will total in housing during the first half of 2008, although it had $469 million, down 8 percent on a compound annual become a major problem by the fourth quarter. basis from $713 million in 2008. • While we do not have category breakouts for classified • For North America as a whole, print classified advertising advertising in Canada, Canadian classified advertising will decrease at a 9.1 percent compound annual rate too is dominated by recruitment, real estate, and from $10.7 billion in 2008 to $6.6 billion in 2013. automotive, each of which began to fall sharply in

Print newspaper classified advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 16,608 17,311 16,986 14,186 9,980 6,950 5,950 5,825 5,925 6,155 Canada 806 821 816 790 713 539 469 445 455 469 Total 17,414 18,132 17,802 14,976 10,693 7,489 6,419 6,270 6,380 6,624

†At average 2008 exchange rates. Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

468 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print newspaper classified advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 5.1 4.2 –1.9 –16.5 –29.6 –30.4 –14.4 –2.1 1.7 3.9 –9.2 Canada 3.3 1.9 –0.6 –3.2 –9.7 –24.4 –13.0 –5.1 2.2 3.1 –8.0 Total 5.0 4.1 –1.8 –15.9 –28.6 –30.0 –14.3 –2.3 1.8 3.8 –9.1

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Retail advertising • In Canada, we project decreases in print retail adver- • Although more volatile than other advertising categories, tising to continue through 2011. Although growing classifieds are not the only category experiencing sharp modestly during 2012–13, retail advertising of $778 declines in newspapers. In 2008, retail advertising million in 2013 will be 5.2 percent lower on a compound consisting primarily of advertising by local retailers, plus annual basis from $1 billion in 2008. Steady unit circula- some other local advertisingfell by 11.5 percent in the tion, when free papers are included, will help limit the United States and 4.3 percent in Canada. drop in retail advertising in Canada compared with the United States. • The retail market in both countries has been weak for several years, hurt by consolidation among local • The shift in retail sales from department stores to advertisers, the shift of display advertising to the discount stores such as Wal-Mart has significantly Internet, and in late 2008, plunging retail sales. We hurt newspapers. Department stores use newspapers project accelerating declines in both countries in 2009: extensively, while Wal-Mart does not spend much on 19.4 percent in the United States and 16.2 percent newspapers and uses television instead. The same is in Canada. true for pharmacy chains and big-box hardware stores such as Home Depot, which also are spending more on • In the US, we expect a further 10 percent drop in retail the Internet. The local advertising market in general has advertising in 2010, with declines continuing through been further reduced by the movement in consumer 2012. We estimate retail print advertising in 2013 at spending from retail outlets to online purchases and by $13 billion in the United States, down 6.9 percent on a the general shift from local retailers to national retailers. compound annual basis from $18.6 billion in 2008. • The overall print retail advertising market in North America will fall by 6.8 percent on a compound annual basis from $19.6 billion in 2008 to $13.8 billion in 2013.

Print newspaper retail advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 22,012 22,187 22,121 21,018 18,600 15,000 13,500 12,900 12,750 13,000 Canada 1,080 1,101 1,088 1,064 1,018 853 769 750 760 778 Total 23,092 23,288 23,209 22,082 19,618 15,853 14,269 13,650 13,510 13,778

†At average 2008 exchange rates. Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Newspaper publishing | North America 469 Print newspaper retail advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 3.1 0.8 –0.3 –5.0 –11.5 –19.4 –10.0 –4.4 –1.2 2.0 –6.9 Canada 3.2 1.9 –1.2 –2.2 –4.3 –16.2 –9.8 –2.5 1.3 2.4 –5.2 Total 3.1 0.8 –0.3 –4.9 –11.2 –19.2 –10.0 –4.3 –1.0 2.0 –6.8

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

National advertising decline in 2009 followed by a 14.8 percent drop in • National advertising in newspapersdefined as ads 2010, with further decreases anticipated through 2012. placed by national advertisers, generally in a number Print national advertising in the United States will drop of newspapers across marketsfell by 16.8 percent to $3.5 billion in 2013 from $5.8 billion in 2008, a 9.9 in the United States and by 6.6 percent in Canada in percent compound annual decrease. 2008. The weak auto industry, a key national category, • We also expect a sharper, 10.9 percent decline in contributed to that decline, which in both countries was Canada in 2009 followed by decreases of 9.1 percent in steeper than the drop in retail advertising. 2010 and 5.5 percent in 2011. Spending for the entire • In the United States, Google discontinued its PrintAds forecast period will fall at a 4.5 percent compound program in early 2009, after only two years, because annual rate from $521 million in 2008 to $413 million the program had failed to generate meaningful revenue. in 2013. Google had been selling print ads for newspapers • The overall national print advertising market in North through an online auction. Falling auto sales and an America will decline from $6.3 billion in 2008 to $3.9 overall drop in consumer spending will continue to hurt billion in 2013, a 9.5 percent decrease compounded national print advertising. We project a 24.5 percent annually.

Print newspaper national advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 8,083 7,910 7,505 7,005 5,825 4,400 3,750 3,500 3,400 3,450 Canada 562 572 567 558 521 464 422 399 403 413 Total 8,645 8,482 8,072 7,563 6,346 4,864 4,172 3,899 3,803 3,863

†At average 2008 exchange rates. Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Print newspaper national advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 3.7 –2.1 –5.1 –6.7 –16.8 –24.5 –14.8 –6.7 –2.9 1.5 –9.9 Canada 3.3 1.8 –0.9 –1.6 –6.6 –10.9 –9.1 –5.5 1.0 2.5 –4.5 Total 3.6 –1.9 –4.8 –6.3 –16.1 –23.4 –14.2 –6.5 –2.5 1.6 –9.5

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

470 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total print advertising • The US market will decline at an 8.1 percent compound • Total print advertising in newspapers will decrease annual rate to $22.6 billion from $34.4 billion, while from $36.7 billion in 2008 to $24.3 billion in 2013, a 7.9 Canada will fall by 5.9 percent compounded annually percent compound annual decline. from $2.3 billion to $1.7 billion.

Print newspaper advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 46,703 47,408 46,612 42,209 34,405 26,350 23,200 22,225 22,075 22,605 Canada 2,448 2,494 2,471 2,412 2,252 1,856 1,660 1,594 1,618 1,660 Total 49,151 49,902 49,083 44,621 36,657 28,206 24,860 23,819 23,693 24,265

†At average 2008 exchange rates. Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Print newspaper advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 3.9 1.5 –1.7 –9.4 –18.5 –23.4 –12.0 –4.2 –0.7 2.4 –8.1 Canada 3.2 1.9 –0.9 –2.4 –6.6 –17.6 –10.6 –4.0 1.5 2.6 –5.9 Total 3.9 1.5 –1.6 –9.1 –17.8 –23.1 –11.9 –4.2 –0.5 2.4 –7.9

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Newspaper Web site advertising • A number of newspapers in the United States have benefited from the Yahoo! Newspaper Consortium • The digital newspaper advertising market is being Partnership formed in late 2006 to sell classified buoyed by growing traffic on newspaper Web sites advertising across newspaper Web sites and on its own while being buffeted by the impact of the economy. HotJobs site. By year-end 2008, there were around 800 daily papers participating—twice the number in United States 2007. Participants can implement Yahoo!’s search • In the United States, the adverse effects of the economy technology on their Web sites, and a number have prevailed, and Web site advertising fell by 1.1 percent reported generating $1 million or more in revenue from in 2008 following double-digit annual gains during the the relationship. prior four years. There was an overall decline in classified advertising across all media, including the Internet, • Newspaper Web sites also are among the most visited during the latter part of 2008. Display advertising also on the Internet. Interest in the political campaign in the experienced a sharp decline in the latter part of the United States boosted traffic in 2008. It appears that year. Newspapers were expanding their inventory in an news content provided by publishers is appealing to the attempt to make up for losses in print advertising, with public, as evidenced by a double-digit increase in traffic. the result that ad rates were substantially reduced and The difficulty lies in monetizing that interest. Thus far, ad much of the space was left unsold. revenue is still much too small to compensate for losses in print, and consumers have not yet shown a willingness

Newspaper publishing | North America 471 to pay for online content. Moreover, the recession is • This market is still in its early development stage, and causing that revenue stream to decline, albeit at a much we expect it will continue to grow despite the recession, slower rate than that of print. although at a substantially slower pace. We project a drop to only 2.7 percent growth in 2009 following three • We expect the economy to continue to curb overall years of double-digit growth. We look for a 6 percent advertising, including online advertising, during the next increase in 2010 and a return to double-digit growth two years. Classified and display advertising—the main during 2011–13. newspaper Web site categories—will be particularly hurt. We project a 5.8 percent decrease in 2009 and • Digital advertising in Canada will increase to $174 million a 3.4 percent drop in 2010. We then expect that an by 2013, a 9 percent compound annual increase. expanding economy will translate into growing online spending and project a return to double-digit growth in Total digital newspaper advertising 2013. Digital advertising in 2013 will total an estimated • By 2013, newspaper Web site advertising will total an $3.5 billion in 2013, up 2.3 percent on a compound estimated $3.7 billion, a 2.5 percent compound annual annual basis from $3.1 billion in 2008. increase from $3.2 billion in 2008.

Canada • Web sites will account for 13 percent of total daily newspaper advertising in the United States in 2013, up • The digital market in Canada is several years behind from 8 percent in 2008. In Canada, the Web site share that of the United States and is still relatively small, will rise from 5 percent in 2008 to 9 percent in 2013. at only $113 million in 2008. As in the United States, growing newspaper Web site traffic is attracting advertisers. Spending rose by 16.5 percent in 2008 from a small base.

Digital newspaper advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 1,541 2,027 2,664 3,166 3,130 2,950 2,850 2,900 3,125 3,500 Canada — 50 74 97 113 116 123 136 156 174 Total 1,541 2,077 2,738 3,263 3,243 3,066 2,973 3,036 3,281 3,674

†At average 2008 exchange rates. Sources: Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Digital newspaper advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 26.7 31.5 31.4 18.8 –1.1 –5.8 –3.4 1.8 7.8 12.0 2.3 Canada — — 48.0 31.1 16.5 2.7 6.0 10.6 14.7 11.5 9.0 Total 26.7 34.8 31.8 19.2 –0.6 –5.5 –3.0 2.1 8.1 12.0 2.5

Sources: Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

472 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total newspaper advertising advertising, including advertising on newspaper Web • The falling number of newspapers plays an important sites, will fall by 7 percent compounded annually in the role in the declines in advertising revenues. In markets United States to $26.1 billion in 2013 from $37.5 billion with multiple newspapers, the surviving newspapers in 2008. get only a portion of the advertising (and only a portion • In Canada, newspaper advertising will fall at a 5 percent of the readership) of a paper that disappeared. There compound annual rate from $2.4 billion in 2008 to $1.8 are fewer multiple-newspaper markets now than in billion in 2013. the past, meaning that the loss of a paper has an even greater impact. • For North America as a whole, advertising will decline from $39.9 billion in 2008 to $27.9 billion in 2013, a 6.9 • Gains in digital advertising will not be sufficient to percent decrease compounded annually. offset declines in print advertising. Overall newspaper

Total newspaper advertising market† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 48,244 49,435 49,276 45,375 37,535 29,300 26,050 25,125 25,200 26,105 Canada 2,448 2,544 2,545 2,509 2,365 1,972 1,783 1,730 1,774 1,834 Total 50,692 51,979 51,821 47,884 39,900 31,272 27,833 26,855 26,974 27,939

†At average 2008 exchange rates. Sources: Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total newspaper advertising market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 4.5 2.5 –0.3 –7.9 –17.3 –21.9 –11.1 –3.6 0.3 3.6 –7.0 Canada 3.2 3.9 0.0 –1.4 –5.7 –16.6 –9.6 –3.0 2.5 3.4 –5.0 Total 4.5 2.5 –0.3 –7.6 –16.7 –21.6 –11.0 –3.5 0.4 3.6 –6.9

Sources: Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Circulation long-term pattern. As younger people grow older, their incidence of newspaper readership increases. • Paid circulation in both the United States and Canada At the same time, the overall incidence of readership has been declining for years and continued to fall in has decreased across all age groups. That decrease 2008, dropping by 4.6 percent in the US and by 1.6 has contributed to low-single-digit annual declines in percent in Canada. Increased newspaper Web site circulation. In recent years, the population in North traffic has in part come at the expense of reduced America has grown older, and during the next five print circulation. years, the older segment of the population will be • Newspapers also are affected by demographic trends. growing the fastest. In principle, these demographic The incidence of newspaper readership among younger trends should be favorable to newspapers. So far, other people is much lower than among older people, a factors have offset that potential benefit.

Newspaper publishing | North America 473 • Consolidation has hurt overall newspaper circulation— • Although we expect the long-term decline in paid particularly in the United States, which has experienced circulation to continue throughout the forecast period, the largest decline in the number of papers. With fewer we expect the rate of decline to moderate when the daily papers available, there are fewer options for economy improves, disposable income rises, and readers. Typically, when a paper closes or merges, the underlying favorable demographic trends play a the surviving entity does not capture all of the readers larger role. In the US, we look for decreases averaging from the closed paper, and total readership in the 4.6 percent annually during the next two years, a 3.4 market declines. percent drop in 2011, and further declines averaging 3 percent annually—still above the long-term average— • In the US, restrictions on telephone solicitations and during 2012–13. Paid circulation will fall to 40 million in sweepstakes offers have limited the ability of publishers 2013, a 3.7 percent compound annual decline. to attract new subscribers. The added cost of gaining subscribers often does not pay off given the weak • In Canada, paid circulation fell by 1.6 percent in 2008. advertising market, and publishers are cutting back on We look for declines averaging 2.2 percent annually these expenses. Also, advertisers in the retail industry during the next two years, a 1.1 percent decrease in have little interest in reaching readers who live so far 2011, and 0.6 percent average declines during 2012– from their stores that they are unlikely to come and buy 13, when rising disposable income limits erosion. Paid goods in them. circulation will fall from 4.6 million in 2008 to 4.3 million in 2013, a 1.3 percent decrease compounded annually. • Nevertheless, more than 48 million people paid for a newspaper every day in the United States, down 4.6 • We look for free circulation to decline in both countries percent from 2007. Free papers have not played a during the next two years as the advertising decline significant role in the US, reflecting the fact that a lot leads free dailies to reduce costs by cutting print runs. of cities do not have free papers and that people who Free circulation will increase again during 2011–13, drive to work generally do not get them, because they when the economy improves and an expanded print are distributed primarily at transit locations. At 2.9 run provides enough incremental ad revenue to make million, free papers represented less than 6 percent of it worthwhile. total daily unit circulation in 2008. Circulation of free • In Canada, the increase in free circulation will offset the dailies has not offset declines among paid dailies, and decrease in paid circulation during 2012–13, although overall unit circulation in the United States has fallen overall circulation will remain lower in 2013 than in during the past five years, including a 4.1 percent 2008 by 0.5 percent on a compound annual basis. In decrease in 2008. the United States, overall unit circulation will decline • In Canada, paid circulation has fallen more slowly than throughout the forecast period, falling at a 3.5 percent in the United States, helped by spirited competition compound annual rate. between papers in many markets. Free dailies are • Overall paid circulation in North America will fall at a 3.5 an important component of the market in Canada, percent compound annual rate to 44.3 million in 2013 accounting for a third of total circulation. Circulation of from 53 million in 2008. Free circulation will expand by free dailies has grown rapidly and through 2007 offset 0.9 percent compounded annually from 5.2 million to the drop in paid circulation. Overall circulation rose at 5.4 million. Total circulation of 49.7 million in 2013 will mid-single-digit rates in 2004–07, which has helped be 3.1 percent lower on a compound annual basis from support the print advertising market. 58.2 million in 2008. • The recession will squeeze disposable income, which in turn will lead to cutbacks in discretionary purchases such as newspapers. We look for steeper declines in paid circulation in 2009 in both countries compared with 2008, with large decreases continuing through 2010.

474 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Daily newspaper unit circulation (thousands)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 United States Paid circulation 54,626 53,345 52,329 50,742 48,390 46,000 44,000 42,500 41,200 40,000 Free dailies 2,200 2,350 2,500 2,750 2,900 2,875 2,850 2,875 2,925 3,000 US total 56,826 55,695 54,829 53,492 51,290 48,875 46,850 45,375 44,125 43,000 Canada Paid circulation 4,911 4,799 4,753 4,675 4,600 4,500 4,400 4,350 4,325 4,300 Free dailies 635 1,200 1,760 2,200 2,265 2,225 2,210 2,250 2,300 2,400 Canada total 5,546 5,999 6,513 6,875 6,865 6,725 6,610 6,600 6,625 6,700 North America Paid circulation 59,537 58,144 57,082 55,417 52,990 50,500 48,400 46,850 45,525 44,300 Free dailies 2,835 3,550 4,260 4,950 5,165 5,100 5,060 5,125 5,225 5,400 Total 62,372 61,694 61,342 60,367 58,155 55,600 53,460 51,975 50,750 49,700

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Daily newspaper paid unit circulation growth (%) 2009–13 North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 CAGR United States Paid circulation –1.0 –2.3 –1.9 –3.0 –4.6 –4.9 –4.3 –3.4 –3.1 –2.9 –3.7 Free dailies 10.0 6.8 6.4 10.0 5.5 –0.9 –0.9 0.9 1.7 2.6 0.7 US total –0.6 –2.0 –1.6 –2.4 –4.1 –4.7 –4.1 –3.1 –2.8 –2.5 –3.5 Canada Paid circulation –0.4 –2.3 –1.0 –1.6 –1.6 –2.2 –2.2 –1.1 –0.6 –0.6 –1.3 Free dailies 111.7 89.0 46.7 25.0 3.0 –1.8 –0.7 1.8 2.2 4.3 1.2 Canada total 6.0 8.2 8.6 5.6 –0.1 –2.0 –1.7 –0.2 0.4 1.1 –0.5 North America Paid circulation –1.0 –2.3 –1.8 –2.9 –4.4 –4.7 –4.2 –3.2 –2.8 –2.7 –3.5 Free dailies 23.3 25.2 20.0 16.2 4.3 –1.3 –0.8 1.3 2.0 3.3 0.9 Total –0.1 –1.1 –0.6 –1.6 –3.7 –4.4 –3.8 –2.8 –2.4 –2.1 –3.1

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | North America 475 • Rising prices will offset unit declines in Canada during throughout the forecast period, dropping to $9 billion in 2011–13, although later gains will not make up for 2013 from $10.1 billion in 2008, a 2.3 percent decrease near-term declines. Circulation spending in Canada will compounded annually. decrease to $742 million in 2013 from $751 million in • The overall circulation spending market in North 2008, a 0.2 percent compound annual decline. America will fall at a 2.1 percent compound annual • In the United States, rising prices will not offset unit rate from $10.9 billion in 2008 to $9.8 billion in 2013. declines, and circulation spending will continue to fall

Newspaper circulation spending market† (US$ millions)

North America 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 United States 10,988 10,747 10,581 10,440 10,142 9,799 9,512 9,304 9,150 9,039 Canada 741 762 768 759 751 739 726 726 734 742 Total 11,729 11,509 11,349 11,199 10,893 10,538 10,238 10,030 9,884 9,781

†At average 2008 exchange rates. Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

Newspaper circulation spending market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States –2.1 –2.2 –1.5 –1.3 –2.9 –3.4 –2.9 –2.2 –1.7 –1.2 –2.3 Canada 6.3 2.8 0.8 –1.2 –1.1 –1.6 –1.8 0.0 1.1 1.1 –0.2 Total –1.6 –1.9 –1.4 –1.3 –2.7 –3.3 –2.8 –2.0 –1.5 –1.0 –2.1

Sources: Canadian Newspaper Association, Newspaper Association of America, PricewaterhouseCoopers LLP, Statistics Canada, Wilkofsky Gruen Associates

476 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Europe, Middle East, Africa (EMEA)

The outlook in brief • Print advertising will decrease by 16.2 percent in 2009 and by a cumulative 22.1 percent through 2011. • The economic downturn will lead to sharp declines in Spending will fall to $31.7 billion in 2013 from $39.1 print advertising in the near term. billion in 2008, a 4.1 percent compound annual decline. • Newspaper Web sites will benefit from the migration of • Digital advertising on newspaper Web sites will total advertising to the Internet. an estimated $2.8 billion in 2013, a 10.4 percent • Falling disposable income will reduce circulation compound annual increase from $1.7 billion in 2008. spending during the next two years. • Gains in digital advertising will not be large enough to counter the decline in print advertising. Total newspaper Overview advertising will fall at a 3.3 percent compound annual rate to $34.5 billion in 2013 from $40.8 billion in 2008. • We project the newspaper market in EMEA will decline by 8.8 percent in 2009 and by an additional 2.8 percent • Circulation spending will decline during the next two in 2010. Modest gains during the subsequent three years years and then expand during the subsequent three will not offset the near-term decline, and spending will years to $33 billion in 2013, a 0.4 percent compound fall from $73.1 billion in 2008 to $67.5 billion in 2013, a annual increase from $32.3 billion in 2008. 1.6 percent decrease compounded annually.

Newspaper publishing market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 37,493 38,565 39,766 41,194 39,106 32,775 30,829 30,451 30,853 31,705 Digital NA 710 1,077 1,449 1,698 1,750 1,932 2,193 2,463 2,790 Total advertising 37,493 39,275 40,843 42,643 40,804 34,525 32,761 32,644 33,316 34,495 Circulation 31,231 31,692 31,858 32,354 32,298 32,109 32,037 32,248 32,587 32,992 Total 68,724 70,967 72,701 74,997 73,102 66,634 64,798 64,892 65,903 67,487

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 5.1 2.9 3.1 3.6 –5.1 –16.2 –5.9 –1.2 1.3 2.8 –4.1 Digital — — 51.7 34.5 17.2 3.1 10.4 13.5 12.3 13.3 10.4 Total advertising 5.1 4.8 4.0 4.4 –4.3 –15.4 –5.1 –0.4 2.1 3.5 –3.3 Circulation 1.5 1.5 0.5 1.6 –0.2 –0.6 –0.2 0.7 1.1 1.2 0.4 Total 3.5 3.3 2.4 3.2 –2.5 –8.8 –2.8 0.1 1.6 2.4 –1.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | EMEA 477 • Newspaper publishing in Western Europe fell by 3.4 Print advertising percent in 2008, and we expect a sharper, 9.3 percent drop in 2009 followed by a further 2.9 percent decrease • Print newspaper advertising fell by 5.1 percent in in 2010. We expect the market to stabilize in 2011 and 2008 following three years of low-single-digit growth. then to advance at low-single-digit rates to $57.1 billion Through 2007, the market was bolstered by growing in 2013, which will be 1.9 percent lower on a compound circulation of free dailies that offset declines in paid annual basis from $62.9 billion in 2008. circulation and that expanded the overall reach of newspapers. Expanding economies, particularly in • Central and Eastern Europe will decline by 7.8 percent Central and Eastern Europe and Middle East/Africa, in 2009, with an additional 1.1 percent drop projected also fueled overall newspaper advertising, and growth in 2010. We expect a modest rebound thereafter to in classifieds contributed to print advertising even as $5.3 billion in 2013, 0.3 percent lower on a compound newspapers were losing share to the Internet. annual basis from $5.4 billion in 2008. • The market changed abruptly in 2008. Circulation of • Middle East/Africa will be the only area where spend- free papers began to decline, resulting in an overall ing will be higher in 2013 than in 2008: by 1.1 percent decrease in newspaper circulation; and economies compounded annually to $5.1 billion from $4.8 billion began to decline, leading to a decrease in overall in 2008. advertising and a sharp drop in classified advertising. • Germany and the United Kingdom were the largest That combination led to the fall in print advertising, newspaper markets in 2008, at $13.1 billion and $12.6 which in turn fed back into further print-run reductions billion, respectively. by free papers. • Germany decreased by 3.5 percent in 2008, the Daily newspaper unit circulation in EMEA (millions) result of a 7.5 percent drop in print advertising as the economy declined. We expect print advertising to fall 200 Free by 15 percent in 2009 and by 21 percent through 2011. Paid Price increases will offset unit circulation declines and 150 lead to modest growth in circulation spending. Overall spending will fall to $12.3 billion in 2013, 1.2 percent 100 lower compounded annually from 2008.

• The UK market has declined during the past three 50 years, the result of advertising’s shifting to the Internet, decreases in paid unit circulation, and, in 2008, a falling 0 economy. With the UK economy in a steep decline, we 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 project print advertising to fall by 26 percent in 2009— Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates the steepest in EMEA—and by a cumulative 38 percent through 2011. Overall spending will fall from $12.6 billion in 2008 to $9.9 billion in 2013, a 4.8 percent compound annual decrease.

478 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Newspaper publishing market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1,992 2,097 2,127 2,265 2,316 2,223 2,220 2,260 2,310 2,365 0.4 Belgium 2,037 2,219 2,339 2,391 2,369 2,203 2,116 2,137 2,157 2,219 –1.3 Denmark 1,562 1,635 1,791 1,811 1,811 1,708 1,678 1,667 1,690 1,718 –1.0 Finland 1,411 1,452 1,488 1,538 1,538 1,428 1,418 1,439 1,457 1,500 –0.5 France 4,835 4,910 4,961 4,962 4,899 4,786 4,743 4,764 4,819 4,889 0.0 Germany‡ 13,031 13,227 13,461 13,596 13,114 12,187 11,927 11,989 12,132 12,344 –1.2 Greece 968 1,081 1,203 1,369 1,311 1,097 993 919 904 912 –7.0 Ireland 901 963 1,035 1,064 1,073 953 913 922 948 982 –1.8 Italy 6,956 7,222 7,389 7,584 7,273 6,243 6,021 6,083 6,175 6,303 –2.8 Netherlands 2,387 2,376 2,362 2,388 2,368 2,252 2,218 2,206 2,208 2,218 –1.3 Norway 2,194 2,267 2,324 2,405 2,427 2,201 2,156 2,127 2,141 2,174 –2.2 Portugal 332 332 328 336 336 313 308 309 313 320 –1.0 Spain 4,342 4,501 4,717 5,114 4,578 4,275 4,194 4,276 4,376 4,508 –0.3 Sweden 2,272 2,374 2,472 2,514 2,485 2,337 2,345 2,365 2,400 2,447 –0.3 Switzerland 2,225 2,222 2,299 2,435 2,405 2,232 2,202 2,223 2,277 2,351 –0.5 United Kingdom 13,599 13,621 13,362 13,350 12,610 10,613 9,936 9,678 9,748 9,856 –4.8 Western Europe total 61,044 62,499 63,658 65,122 62,913 57,051 55,388 55,364 56,055 57,106 –1.9 Central and Eastern Europe Czech Republic 548 580 629 612 626 577 563 561 570 584 –1.4 Hungary 455 478 484 474 477 433 413 408 414 425 –2.3 Poland 457 518 542 531 525 472 450 420 426 438 –3.6 Romania 197 191 193 203 218 201 192 189 191 198 –1.9 Russia 1,928 1,980 2,066 2,204 2,322 2,260 2,279 2,319 2,376 2,439 1.0 Turkey 789 965 1,075 1,188 1,185 995 988 1,021 1,085 1,192 0.1 Central and Eastern Europe total 4,374 4,712 4,989 5,212 5,353 4,938 4,885 4,918 5,062 5,276 –0.3 Middle East/Africa Israel 577 612 596 606 599 556 552 559 569 582 –0.6 Saudi Arabia/Pan Arab†† 2,137 2,407 2,588 3,051 3,181 3,056 2,944 3,007 3,119 3,333 0.9 South Africa 592 737 870 1,006 1,056 1,033 1,029 1,044 1,098 1,190 2.4 Middle East/Africa total 3,306 3,756 4,054 4,663 4,836 4,645 4,525 4,610 4,786 5,105 1.1 EMEA total 68,724 70,967 72,701 74,997 73,102 66,634 64,798 64,892 65,903 67,487 –1.6

†At average 2008 exchange rates. ‡Includes weekly papers. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Bundesverband Deutscher Zeitungsverleger (Federal Association of German Newspaper Publishers, BDZV), PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | EMEA 479 • The drop in ad revenue caused some free dailies to cut delivery, and a doubling of government advertising in back on print runs, and others to close. In Denmark, newspapers. Separately, daily papers are looking to free dailies accounted for a majority of total circulation attract advertisers that have been forced off public in 2007, but this changed in 2008. Fueled by a flurry television stations in prime time. Those measures of launches in 2006, the top five papers in Denmark in will limit the decrease in print advertising in 2009 to 2007 were free dailies. With the ad market falling, not 8.9 percent, the only single-digit decrease we are all survived. One of the top free dailies in 2007, 24timer, projecting for Europe. closed in 2008. Aalborg also closed, and overall daily • In general, the print advertising market is being hurt by circulation in Denmark declined. three adverse trends. The declining economy is leading • In Spain, free daily circulation fell by more than 15 per- to significant declines in classified advertising, the cent in 2008 as publishers scrambled for advertising in most cyclically sensitive advertising category. Overall a rapidly declining market. ADN reduced its circulation circulation is declining because free dailies are no longer by 30 percent to lower costs, Que! cut its circulation by propping up the market, and the migration of readers 6 percent, and Metro closed. Print advertising plunged and advertisers from print to the Internet continues. by 20.3 percent in 2008. • We project print advertising to fall by 16.9 percent in • However, free newspapers are holding up better in Western Europe in 2009; by 19.4 percent in Central some other countries in EMEA. In Switzerland, free and Eastern Europe, whose economies are now falling papers still have good reputations, and their circulation sharply; and by a relatively more modest, 5.6 percent in levels and advertising revenues remained relatively Middle East/Africa. For EMEA as a whole, we expect a stable in 2008. The expectation is that circulation of free 16.2 percent decrease in 2009. dailies in Switzerland will either hold steady or decline • Continued economic weakness will lead to further marginally over the next few years. decreases in print advertising of 5.9 percent in 2010 and • In the UK, real estate classified advertising is falling 1.2 percent in 2011. Print advertising during the five-year as the real estate market declines, while advertising in period from 2007 to 2011 will fall by 26.1 percent. general is moving online. Print advertising fell by 7.9 • Improved economic conditions should revive the print percent in 2008, the second-steepest decline, behind advertising market during 2012–13. Overall classified Spain. With the UK economy in a steep decline, we spending in all media will increase, and newspapers will look for large decreases in recruitment advertising, and get a portion of that growth even as they continue to we expect all categories to fall at accelerating rates. We lose share to the Internet. project print advertising to decline by an additional 38 percent during the next three years. These declines are • Gains during the latter part of the forecast period will be leading to the closing of around 30 local papers. more modest than increases registered during 2005–07, because print newspapers will have lost much of their • In France, print advertising declined by 6.1 percent in classified and display markets to the Internet. 2008 and by 8.8 percent during the past two years. To bolster the ailing newspaper market, the government • For the forecast period as a whole, print advertising will enacted a three-year €600-million ($878-million) decline at a 4.1 percent compound annual rate, falling program that includes a free one-year subscription from $39.1 billion in 2008 to $31.7 billion in 2013. for all teenagers in France, a tax break for home

480 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print newspaper advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 505 556 590 651 666 571 549 556 571 593 –2.3 Belgium 1,310 1,463 1,580 1,617 1,580 1,419 1,324 1,332 1,354 1,390 –2.5 Denmark 629 688 826 834 824 710 665 634 636 643 –4.8 Finland 764 777 798 834 820 702 680 688 702 724 –2.5 France 1,945 1,968 1,990 1,932 1,815 1,654 1,566 1,537 1,544 1,566 –2.9 Germany‡ 6,939 6,920 7,014 7,078 6,549 5,561 5,232 5,180 5,188 5,239 –4.4 Greece 820 937 1,061 1,222 1,163 951 849 776 761 768 –8.0 Ireland 560 607 669 695 702 585 549 556 578 607 –2.9 Italy 5,163 5,312 5,415 5,546 5,195 4,171 3,922 3,937 3,980 4,061 –4.8 Netherlands 1,049 1,030 1,036 1,057 1,039 929 900 893 900 915 –2.5 Norway 1,313 1,366 1,419 1,488 1,499 1,274 1,224 1,189 1,193 1,215 –4.1 Portugal 142 143 140 140 139 117 110 110 111 113 –4.1 Spain 2,318 2,439 2,619 2,773 2,210 1,902 1,800 1,815 1,844 1,902 –3.0 Sweden 1,165 1,229 1,310 1,350 1,317 1,171 1,168 1,169 1,184 1,214 –1.6 Switzerland 1,512 1,491 1,558 1,685 1,653 1,486 1,454 1,473 1,523 1,593 –0.7 United Kingdom 7,972 7,658 7,331 7,302 6,722 4,959 4,408 4,178 4,187 4,224 –8.9 Western Europe total 34,106 34,584 35,356 36,204 33,893 28,162 26,400 26,023 26,256 26,767 –4.6 Central and Eastern Europe Czech Republic 291 302 348 324 333 281 263 257 260 269 –4.2 Hungary 196 211 209 213 217 180 168 162 165 171 –4.7 Poland 266 299 311 320 321 278 261 232 236 245 –5.3 Romania 58 51 50 54 67 54 48 46 48 52 –4.9 Russia 290 330 378 475 551 451 432 434 451 475 –2.9 Turkey 486 605 686 770 747 559 548 559 594 666 –2.3 Central and Eastern Europe total 1,587 1,798 1,982 2,156 2,236 1,803 1,720 1,690 1,754 1,878 –3.4 Middle East/Africa Israel 480 504 485 490 480 437 432 434 440 448 –1.4 Saudi Arabia/Pan Arab†† 770 990 1,125 1,395 1,500 1,400 1,310 1,325 1,375 1,500 0.0 South Africa 550 689 818 949 997 973 967 979 1,028 1,112 2.2 Middle East/Africa total 1,800 2,183 2,428 2,834 2,977 2,810 2,709 2,738 2,843 3,060 0.6 EMEA total 37,493 38,565 39,766 41,194 39,106 32,775 30,829 30,451 30,853 31,705 –4.1

†At average 2008 exchange rates. ‡Includes weekly papers. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Advertising Association, Asociación de Editores de Diarios Españoles (Spanish Newspaper Publishers Association, AEDE), Association of Communications Agencies of Russia, Bundesverband Deutscher Zeitungsverleger (Federal Association of German Newspaper Publishers, BDZV)

Newspaper publishing | EMEA 481 Digital advertising • While continued share gains and rising traffic will cushion the impact, we expect newspaper Web site • A portion of the migration of advertising from the print advertising growth to drop to only 3.1 percent in media to the Internet is being recaptured by newspaper 2009. In the UK, we look for a 7.7 percent decline. Web sites. Digital advertising on newspaper Web sites The economy in the UK is very weak, which is hurting rose by 17.2 percent in 2008. advertising in all media, including the Internet. Online • Publishers have been investing in their Web sites to display advertising and classified advertising are falling, help them attract online advertising and are becoming which is affecting newspaper Web sites. more proactive in selling online ads. In Italy, for • We look for growth to return to double-digit levels example, RCS MediaGroup and Gruppo Editoriale in 2010 and expect increases to average 13 percent l’Espresso formed the Premium Publisher Network, compounded annually from 2010 to 2013. a consortium to sell online advertising. The network enables advertisers to reach 40 percent of the country’s • We project total EMEA digital advertising in newspapers total online advertising audience in a single buy. to increase from $1.7 billion in 2008 to $2.8 billion in 2013, a 10.4 percent compound annual increase. • In the UK, online recruitment advertising on national newspaper Web sites rose by 35 percent in 2008 despite the weak recruitment market. Newspaper Web Total newspaper advertising site traffic rose by more than 20 percent. Advertisers • Growth in digital advertising will not be sufficient to offset are following readers and are shifting funds from print decreases during the next three years in print advertising. to the Internet. Overall newspaper Web site advertising in the UK increased by 15 percent. • Even including gains from digital, total newspaper advertising will fall by 20 percent during the next three • Although prospering in recent years, Internet years and will average a 3.3 percent compound annual advertising is still affected by macroeconomic trends. decline through 2013. Spending will drop from $40.8 Specifically, a declining economy leads to decreases billion in 2008 to $34.5 billion in 2013. in overall classified advertising, which has been one of the fastest-growing online categories in general and on • Digital advertising will constitute 8.1 percent of total newspaper Web sites. Display advertising also will be advertising in 2013, up from 4.2 percent in 2008. adversely affected by the declining economy.

482 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Digital newspaper advertising market† (US$ millions) 2009–13 EMEA 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 12 18 26 34 35 41 47 56 63 13.1 Belgium 29 40 48 56 57 60 67 61 83 8.2 Denmark 14 25 33 41 44 49 54 61 68 10.6 Finland 16 20 25 29 28 31 35 32 44 8.7 France 40 60 78 91 104 116 132 148 164 12.5 Germany 139 211 282 328 348 388 443 499 550 10.9 Greece 1 3 4 6 6 6 7 7 9 8.4 Ireland 6 10 15 18 18 19 22 26 31 11.5 Italy 107 162 222 260 260 290 337 383 426 10.4 Netherlands 20 31 42 53 59 67 76 86 97 12.8 Norway 27 43 59 75 80 91 102 115 128 11.3 Portugal 3 4 6 7 7 9 9 10 12 11.4 Spain 48 79 111 111 119 133 155 177 200 12.5 Sweden 25 39 54 66 73 86 100 114 127 14.0 Switzerland 30 47 59 66 66 73 81 91 103 9.3 United Kingdom 152 220 292 336 310 327 358 402 444 5.7 Western Europe total 669 1,012 1,356 1,577 1,614 1,786 2,025 2,268 2,549 10.1 Central and Eastern Europe Czech Republic 3 5 6 8 9 10 11 13 15 13.4 Hungary 2 3 4 5 6 6 7 8 9 12.5 Poland 3 5 6 8 9 10 10 11 13 10.2 Romania ‡ 1 1 2 2 2 2 2 3 8.4 Russia 3 6 9 14 15 16 18 22 26 13.2 Turkey 6 10 15 18 18 20 24 28 37 15.5 Central and Eastern Europe total 17 30 41 55 59 64 72 84 103 13.4 Middle East/Africa Israel 10 12 15 17 18 19 22 24 27 9.7 Saudi Arabia/Pan Arab†† 10 17 28 38 46 48 56 66 83 16.9 South Africa 4 6 9 11 13 15 18 21 28 20.5 Middle East/Africa total 24 35 52 66 77 82 96 111 138 15.9 EMEA total 710 1,077 1,449 1,698 1,750 1,932 2,193 2,463 2,790 10.4

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | EMEA 483 Total newspaper advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 505 568 608 677 700 606 590 603 627 656 –1.3 Belgium 1,310 1,492 1,620 1,665 1,636 1,476 1,384 1,399 1,415 1,473 –2.1 Denmark 629 702 851 867 865 754 714 688 697 711 –3.8 Finland 764 793 818 859 849 730 711 723 734 768 –2.0 France 1,945 2,008 2,050 2,010 1,906 1,758 1,682 1,669 1,692 1,730 –1.9 Germany‡ 6,939 7,059 7,225 7,360 6,877 5,909 5,620 5,623 5,687 5,789 –3.4 Greece 820 938 1,064 1,226 1,169 957 855 783 768 777 –7.8 Ireland 560 613 679 710 720 603 568 578 604 638 –2.4 Italy 5,163 5,419 5,577 5,768 5,455 4,431 4,212 4,274 4,363 4,487 –3.8 Netherlands 1,049 1,050 1,067 1,099 1,092 988 967 969 986 1,012 –1.5 Norway 1,313 1,393 1,462 1,547 1,574 1,354 1,315 1,291 1,308 1,343 –3.1 Portugal 142 146 144 146 146 124 119 119 121 125 –3.1 Spain 2,318 2,487 2,698 2,884 2,321 2,021 1,933 1,970 2,021 2,102 –2.0 Sweden 1,165 1,254 1,349 1,404 1,383 1,244 1,254 1,269 1,298 1,341 –0.6 Switzerland 1,512 1,521 1,605 1,744 1,719 1,552 1,527 1,554 1,614 1,696 –0.3 United Kingdom 7,972 7,810 7,551 7,594 7,058 5,269 4,735 4,536 4,589 4,668 –7.9 Western Europe total 34,106 35,253 36,368 37,560 35,470 29,776 28,186 28,048 28,524 29,316 –3.7 Central and Eastern Europe Czech Republic 291 305 353 330 341 290 273 268 273 284 –3.6 Hungary 196 213 212 217 222 186 174 169 173 180 –4.1 Poland 266 302 316 326 329 287 271 242 247 258 –4.7 Romania 58 51 51 55 69 56 50 48 50 55 –4.4 Russia 290 333 384 484 565 466 448 452 473 501 –2.4 Turkey 486 611 696 785 765 577 568 583 622 703 –1.7 Central and Eastern Europe total 1,587 1,815 2,012 2,197 2,291 1,862 1,784 1,762 1,838 1,981 –2.9 Middle East/Africa Israel 480 514 497 505 497 455 451 456 464 475 –0.9 Saudi Arabia/Pan Arab†† 770 1,000 1,142 1,423 1,538 1,446 1,358 1,381 1,441 1,583 0.6 South Africa 550 693 824 958 1,008 986 982 997 1,049 1,140 2.5 Middle East/Africa total 1,800 2,207 2,463 2,886 3,043 2,887 2,791 2,834 2,954 3,198 1.0 EMEA total 37,493 39,275 40,843 42,643 40,804 34,525 32,761 32,644 33,316 34,495 –3.3

†At average 2008 exchange rates. ‡Includes weekly papers. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Advertising Association, Asociación de Editores de Diarios Españoles (Spanish Newspaper Publishers Association, AEDE), Association of Communications Agencies of Russia, Bundesverband Deutscher Zeitungsverleger (Federal Association of German Newspaper Publishers, BDZV), InfoAdex, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

484 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Circulation spending • The recession will lead to a sharper, 2.2 percent decline in paid circulation in 2009 followed by a 1.9 percent • Paid newspaper unit circulation (volume) declined decrease in 2010. Thereafter, improved economic during the past five years, in part because of the shift conditions, rising disposable income, and favorable in readers to online sources and in part because of demographic trends will dampen further decreases, competition from free dailies. Many people read free although they will not interrupt the trend away from dailies in addition to paid dailies, although in some print and toward the Internet. cases free dailies are cutting into paid circulation. From 2004 to 2007, circulation of free dailies jumped by 16.3 • We project paid circulation volume to fall by 2.2 percent million. During the same period, paid circulation fell by in 2009 and at a 1.3 percent compound annual rate to 3.6 million. 114.5 million in 2013 from 122.5 million in 2008. • Beginning in 2008 and extending through the next five • Overall unit circulation, including free dailies, also will years, we expect competition from free dailies to have fall at a 1.3 percent compound annual rate: from 149.5 less of an impact on paid circulation. Circulation of free million in 2008 to 140.3 million in 2013. dailies fell by 1.1 percent in 2008, and the weak print • During 2004–07, price increases offset decreases in advertising market will continue to limit print runs for paid unit circulation, and overall circulation spending free dailies. We project free daily circulation to fall from rose. In 2008, unit circulation declined at a faster rate, 27 million in 2008 to 25.8 million in 2013. and circulation spending fell by 0.2 percent. In the • Despite the decline in free circulation in 2008, the rate UK, price cuts by publishers in an attempt to retain of decline in paid circulation accelerated to 1.7 percent circulation led to a 3.5 percent decrease in circulation from a compound annual average of 1 percent from spending. 2004 to 2007. Falling disposable income is leading to • We expect that above-average decreases in paid consumer cutbacks in many categories, one of which circulation during the next two years will lead to further is newspapers. declines in circulation spending. Thereafter, as paid unit • Newspapers also are affected by demographics. circulation falls at a slower rate, circulation spending On one hand, younger people have a much lower will begin to increase. We look for a 0.7 percent gain incidence of newspaper readership than older people in 2011 and increases averaging 1.1 percent during do. On the other hand, the population in EMEA is aging 2012–13. and the number of people in the principal newspaper • Circulation spending in EMEA will total an estimated demographic is growing. On balance, demographic $33 billion in 2013, up 0.4 percent on a compound trends should have a favorable impact on newspaper annual basis from $32.3 billion in 2008. circulation, although in the near term, that impact will be offset by the declining economy.

Newspaper publishing | EMEA 485 Daily newspaper unit circulation (thousands) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Paid circulation Western Europe Austria 2,420 2,430 2,360 2,410 2,400 2,350 2,320 2,310 2,300 2,290 –0.9 Belgium 1,505 1,485 1,445 1,438 1,430 1,400 1,390 1,380 1,370 1,360 –1.0 Denmark 1,320 1,285 1,260 1,233 1,205 1,185 1,170 1,160 1,150 1,140 –1.1 Finland 2,210 2,195 2,180 2,160 2,140 2,120 2,100 2,080 2,060 2,040 –1.0 France 7,900 7,775 7,650 7,613 7,575 7,525 7,470 7,420 7,370 7,320 –0.7 Germany† 28,193 27,403 26,960 26,452 25,820 25,200 24,700 24,300 24,000 23,700 –1.7 Greece 618 593 565 576 565 550 535 525 515 505 –2.2 Ireland 750 767 775 772 765 755 745 740 737 735 –0.8 Italy 6,123 6,130 6,130 6,112 6,090 6,040 6,000 5,970 5,950 5,940 –0.5 Netherlands 4,028 3,886 3,777 3,701 3,620 3,540 3,460 3,380 3,300 3,220 –2.3 Norway 2,855 2,782 2,700 2,643 2,585 2,525 2,470 2,415 2,370 2,330 –2.1 Portugal 700 673 660 670 660 645 635 630 627 625 –1.1 Spain 4,117 4,033 3,977 4,030 4,016 3,940 3,890 3,900 3,920 3,940 –0.4 Sweden 3,649 3,600 3,525 3,402 3,300 3,200 3,125 3,075 3,025 2,975 –2.1 Switzerland 2,490 2,409 2,351 2,303 2,250 2,200 2,150 2,100 2,050 2,000 –2.3 United Kingdom 17,020 17,105 16,650 16,074 15,500 14,925 14,375 14,000 13,700 13,450 –2.8 Western Europe total 85,898 84,551 82,965 81,589 79,921 78,100 76,535 75,385 74,444 73,570 –1.6 Central and Eastern Europe Czech Republic 1,795 1,883 1,850 1,853 1,840 1,820 1,800 1,790 1,780 1,770 –0.8 Hungary 1,465 1,455 1,445 1,325 1,275 1,200 1,130 1,100 1,080 1,070 –3.4 Poland 2,115 2,322 2,370 2,096 1,950 1,800 1,700 1,650 1,625 1,600 –3.9 Romania 1,150 1,140 1,132 1,165 1,156 1,105 1,065 1,040 1,030 1,025 –2.4 Russia 23,265 22,750 22,600 22,500 22,400 22,300 22,200 22,100 22,000 21,900 –0.5 Turkey 4,255 4,760 4,900 5,010 5,023 4,835 4,685 4,725 4,835 4,950 –0.3 Central and Eastern Europe total 34,045 34,310 34,297 33,949 33,644 33,060 32,580 32,405 32,350 32,315 –0.8 Middle East/Africa Israel 380 375 370 370 365 355 350 350 350 350 –0.8 Saudi Arabia/Pan Arab‡ 6,670 6,700 6,725 7,400 7,300 7,000 6,750 6,775 6,850 7,000 –0.8 South Africa 1,250 1,275 1,300 1,335 1,310 1,280 1,250 1,245 1,255 1,275 –0.5 Middle East/Africa total 8,300 8,350 8,395 9,105 8,975 8,635 8,350 8,370 8,455 8,625 –0.8 Total paid 128,243 127,211 125,657 124,643 122,540 119,795 117,465 116,160 115,249 114,510 –1.3 Free dailies 11,000 18,000 26,000 27,300 27,000 26,000 25,000 25,000 25,250 25,750 –0.9 EMEA total 139,243 145,211 151,657 151,943 149,540 145,795 142,465 141,160 140,499 140,260 –1.3 †Includes weekly papers. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Asociación de Editores de Diarios Españoles (Spanish Newspaper Publishers Association, AEDE), Bundesverband Deutscher Zeitungsverleger (Federal Association of German Newspaper Publishers, BDZV), German Audit Bureau of Circulations, Mediebedriftenes Landsforening (Norwegian Media Businesses’ Association), PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates, World Newspaper Association, ZDKP

486 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Newspaper circulation spending market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1,487 1,529 1,519 1,588 1,616 1,617 1,630 1,657 1,683 1,709 1.1 Belgium 727 727 719 726 733 727 732 738 742 746 0.4 Denmark 933 933 940 944 946 954 964 979 993 1,007 1.3 Finland 647 659 670 679 689 698 707 716 723 732 1.2 France 2,890 2,902 2,911 2,952 2,993 3,028 3,061 3,095 3,127 3,159 1.1 Germany‡ 6,092 6,168 6,236 6,236 6,237 6,278 6,307 6,366 6,445 6,555 1.0 Greece 148 143 139 143 142 140 138 136 136 135 –1.0 Ireland 341 350 356 354 353 350 345 344 344 344 –0.5 Italy 1,793 1,803 1,812 1,816 1,818 1,812 1,809 1,809 1,812 1,816 0.0 Netherlands 1,338 1,326 1,295 1,289 1,276 1,264 1,251 1,237 1,222 1,206 –1.1 Norway 881 874 862 858 853 847 841 836 833 831 –0.5 Portugal 190 186 184 190 190 189 189 190 192 195 0.5 Spain 2,024 2,014 2,019 2,230 2,257 2,254 2,261 2,306 2,355 2,406 1.3 Sweden 1,107 1,120 1,123 1,110 1,102 1,093 1,091 1,096 1,102 1,106 0.1 Switzerland 713 701 694 691 686 680 675 669 663 655 –0.9 United Kingdom 5,627 5,811 5,811 5,756 5,552 5,344 5,201 5,142 5,159 5,188 –1.3 Western Europe total 26,938 27,246 27,290 27,562 27,443 27,275 27,202 27,316 27,531 27,790 0.3 Central and Eastern Europe Czech Republic 257 275 276 282 285 287 290 293 297 300 1.0 Hungary 259 265 272 257 255 247 239 239 241 245 –0.8 Poland 191 216 226 205 196 185 179 178 179 180 –1.7 Romania 139 140 142 148 149 145 142 141 141 143 –0.8 Russia 1,638 1,647 1,682 1,720 1,757 1,794 1,831 1,867 1,903 1,938 2.0 Turkey 303 354 379 403 420 418 420 438 463 489 3.1 Central and Eastern Europe total 2,787 2,897 2,977 3,015 3,062 3,076 3,101 3,156 3,224 3,295 1.5 Middle East/Africa Israel 97 98 99 101 102 101 101 103 105 107 1.0 Saudi Arabia/Pan Arab†† 1,367 1,407 1,446 1,628 1,643 1,610 1,586 1,626 1,678 1,750 1.3 South Africa 42 44 46 48 48 47 47 47 49 50 0.8 Middle East/Africa total 1,506 1,549 1,591 1,777 1,793 1,758 1,734 1,776 1,832 1,907 1.2 EMEA total 31,231 31,692 31,858 32,354 32,298 32,109 32,037 32,248 32,587 32,992 0.4

†At average 2007 exchange rates. ‡Includes weekly papers. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Asociación de Editores de Diarios Españoles (Spanish Newspaper Publishers Association, AEDE), Bundesverband Deutscher Zeitungsverleger (Federal Association of German Newspaper Publishers, BDZV), PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | EMEA 487 Asia Pacific

The outlook in brief billion in 2013 from $51.7 billion in 2008, a 0.1 percent compound annual increase. • Economic declines will reduce print newspaper advertising during the next two years. • Growth will be generated by circulation spending, which will increase from $25.4 billion in 2008 to $26.6 billion in • Growth in paid unit circulation, particularly in the 2013, a 0.9 percent rate compounded annually. People’s Republic of China (PRC), will boost circulation spending. • Advertising will fall at an 0.8 percent compound annual rate to $25.3 billion in 2013 from $26.3 billion in 2008. • Broadband growth and rising Web site traffic will boost digital advertising. • Print advertising will decline by 12.2 percent in 2009 and at a 1.4 percent compound annual rate through 2013, falling to $23.6 billion in 2013 from $25.3 billion Overview in 2008. • We project the newspaper publishing industry in • Digital advertising will rise from $1 billion in 2008 to Asia Pacific to decline during the next two years by a $1.7 billion in 2013, an 11 percent compound annual cumulative 7.2 percent and then recoup lost revenues increase. during the subsequent three years, expanding to $51.9

Newspaper publishing market by component† (US$ Millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 22,866 23,670 24,678 25,558 25,342 22,259 21,451 21,637 22,425 23,637 Digital NA 218 436 743 1,000 1,068 1,147 1,293 1,473 1,686 Total advertising 22,866 23,888 25,114 26,301 26,342 23,327 22,598 22,930 23,898 25,323 Circulation 23,512 24,065 24,359 24,961 25,375 25,391 25,411 25,757 26,141 26,553 Total 46,378 47,953 49,473 51,262 51,717 48,718 48,009 48,687 50,039 51,876

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 5.6 3.5 4.3 3.6 –0.8 –12.2 –3.6 0.9 3.6 5.4 –1.4 Digital — — 100.0 70.4 34.6 6.8 7.4 12.7 13.9 14.5 11.0 Total advertising 5.6 4.5 5.1 4.7 0.2 –11.4 –3.1 1.5 4.2 6.0 –0.8 Circulation 2.4 2.4 1.2 2.5 1.7 0.1 0.1 1.4 1.5 1.6 0.9 Total 4.0 3.4 3.2 3.6 0.9 –5.8 –1.5 1.4 2.8 3.7 0.1

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

488 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • Japan is the largest market in the region, at $20.7 • Australia is the third-largest market, at $4.7 billion billion in 2008, and has the highest incidence of in 2008, followed by South Korea at $3.7 billion and newspaper sales in the world, at 624 purchases per India at $3.2 billion. In Australia, display advertising is 1,000 people. Newspapers in Japan are prohibited holding up reasonably well despite the weak economy, from discounting prices, and they operate under a helped by strong retail campaigns in late 2008, while resale price maintenance system, which allows them classified advertising is falling rapidly. Overall spending to determine the subscription fees that delivery agents rose by 1 percent in 2008. We expect a reversal during are permitted to charge. Delivery services reach the the next three years as print advertising falls and as entire country, which contributes to the high level of unit circulation declines because of readers’ shifting to readership. The market fell by 5.4 percent in 2008, online editions. Spending will recover during 2012–13 the result of a declining economy that led to a 13.9 and return to the 2008 level by 2013. percent decline in print advertising. With economic • The economic downturn led to a 1.2 percent decline conditions deteriorating, we expect a much steeper, in South Korea in 2008. Print advertising fell by 3.7 25 percent decrease in print advertising in 2009, with percent, and circulation spending continued to dip decreases extending through 2012. Spending will fall because free dailies are cutting into paid circulation. We to an estimated $17.5 billion in 2013, a 3.4 percent look for continued declines during the next three years compound annual decline. and a 0.9 percent compound annual decrease through • The PRC is the next-largest market, at $11.3 billion, 2013 to $3.5 billion. up 11.9 percent from 2007. Advertising associated • Newspaper market growth in India slowed to 8.4 with the Beijing Olympics and rising circulation fueled percent following years of double-digit gains. We look growth. A slowing economy and the loss of Olympics- for growth to drop to 4.1 percent in 2009 and to remain related advertising will lead to a 0.6 percent decline in at mid-single-digit increases through 2013. We expect 2009. We look for steadily improving growth thereafter, India to be the fastest-growing market in Asia Pacific helped by growing unit sales, an emerging digital during the next five years, with a projected 5.7 percent advertising market, and a rebound in print advertising. compound annual increase to $4.2 billion in 2013. Spending will rise to $13.9 billion in 2013, a 4.2 percent compound annual increase.

Newspaper publishing | Asia Pacific 489 Newspaper market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 4,093 4,290 4,309 4,675 4,722 4,517 4,415 4,410 4,510 4,730 0.0 China 7,734 8,620 9,636 10,080 11,280 11,213 11,569 12,151 12,916 13,863 4.2 Hong Kong 917 998 1,122 1,189 1,168 1,027 986 1,005 1,047 1,111 –1.0 India 1,987 2,197 2,551 2,974 3,223 3,356 3,553 3,824 4,095 4,249 5.7 Indonesia 1,182 1,336 1,583 1,951 2,151 2,096 2,072 2,125 2,231 2,402 2.2 Japan 22,688 22,557 22,269 21,888 20,711 18,594 17,711 17,435 17,368 17,465 –3.4 Malaysia 600 636 645 891 992 997 1,004 1,067 1,124 1,183 3.6 New Zealand 705 736 727 742 730 646 612 602 610 624 –3.1 Pakistan 70 75 83 98 108 108 110 113 118 124 2.8 Philippines 354 356 352 364 370 365 363 364 367 373 0.2 Singapore 585 581 604 671 653 566 525 524 526 537 –3.8 South Korea 3,461 3,513 3,577 3,744 3,700 3,517 3,446 3,433 3,471 3,529 –0.9 Taiwan 979 1,015 969 924 838 727 680 664 666 671 –4.3 Thailand 942 954 949 967 958 874 844 845 858 876 –1.8 Vietnam 81 89 97 104 113 115 119 125 132 139 4.2 Total 46,378 47,953 49,473 51,262 51,717 48,718 48,009 48,687 50,039 51,876 0.1

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Print advertising its sharpest decline in decades, we expect print ad- vertising to fall by 25 percent in 2009. We project a 30 • Print advertising fell by 0.8 percent in 2008, the result percent decrease in Taiwan and double-digit declines of double-digit declines in Taiwan and Japan, as well in Hong Kong, New Zealand, Singapore, South Korea, as decreases in Australia, Hong Kong, New Zealand, and Thailand. Singapore, South Korea, and Thailand that offset increases elsewhere, including a 17.9 percent rise in the • We also expect slowdowns in India and the PRC, PRC, a 10.7 percent increase in India, and double-digit whose economies have been growing rapidly in recent gains in Indonesia, Pakistan, and Vietnam. years. We project a 5.3 percent decrease in the PRC in 2009, in part because of slower economic growth • Newspapers are particularly sensitive to the economy and in part because of the loss of Olympics-related because a significant component consists of classi- advertising that boosted spending in 2008. fied advertising, which reacts more quickly and more strongly to economic fluctuations than traditional brand • In India, we expect an 8 percent increase in 2009, advertising does. largest in the region. In early 2009, the government announced that 100 percent foreign direct investment • With economic conditions deteriorating throughout in facsimile editions of foreign newspapers would be the region, we look for the market to worsen in each permitted. Previously, foreign newspapers could be country, with steep declines projected for a number of sold in India only if the foreign direct investment was no countries. In Japan, whose economy is experiencing

490 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 higher than 26 percent. The new rule should open up • Thereafter, improved economic conditions will lead to the market to more papers and should provide a boost a rebound in print advertising. The print advertising to advertising once economic conditions improve. market also will be helped by rising circulation. In addi- We expect India to have the fastest-growing print tion to rising paid circulation in a number of countries— advertising market in Asia Pacific during the next five most notably, India and the PRC—growing circulation years, with an 8.1 percent compound annual increase. of free dailies, particularly in Hong Kong, Malaysia, and South Korea, is contributing to circulation growth. • We expect Australia to hold up relatively well compared with other countries, in part because the volatile clas- • Although slowing in the near term, we expect modest sified advertising category constitutes a lower share growth in both free and paid circulation to provide a of total print advertising than it does in many other boost over the longer run. Total unit circulation will countries and in part because publishers have invested expand at a 1.6 percent compound annual rate to 348.6 in color printing and magazine inserts that appeal to million in 2013 from 321.8 million in 2008. advertisers. Nevertheless, the economy will reduce de- mand, and we project a 6.6 percent decrease in 2009. Daily newspaper unit circulation in Asia Pacific (millions) • Taiwan’s newspaper market is suffering badly from 400 sagging sales and competition from broadcast and Paid Free electronic media. This has been reflected in the demise 300 of the financially troubled China Times Groupthe island’s largest newspaper group, with two newspaper dailies and three TV channelswhich in November 200 2008 was bought as a personal investment by the chairman of snack maker Want Want Group. With 100 print businesses suffering from declining advertising revenues, both the China Times Group and Hong 0 Kong’s Next Media Group, which publishes local 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 editions of the Apple Daily newspaper and Next Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates magazine, are looking to diversify into TV in Taiwan. However, Taiwan’s media regulator, the National Communications Commission, has expressed concern • The combination of improved economic conditions about the integration of print and television, and it plans and rising unit circulation will lead to a rebound in print to review the media ownership rules. advertising during 2011–13 that will average 3.3 percent compounded annually. • In Indonesia, spending on newspaper advertising rose by 12 percent in 2008, boosted by political campaign • That improvement will not offset the near-term decline, advertising around regional and local elections. and print advertising will remain lower in 2013 than in 2008, falling by 1.4 percent compounded annually from • With the economic decline expected to continue be- $25.3 billion in 2008 to $23.6 billion in 2013. yond 2009, we project a further 3.6 percent decrease in 2010, with more modest declines or stronger growth projected in each country.

Newspaper publishing | Asia Pacific 491 Print newspaper advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 3,013 3,168 3,112 3,407 3,402 3,176 3,051 3,009 3,059 3,218 –1.1 China 3,303 3,677 4,488 4,628 5,458 5,171 5,314 5,601 6,032 6,607 3.9 Hong Kong 668 735 860 916 896 758 719 738 777 838 –1.3 India 1,062 1,217 1,507 1,815 2,009 2,169 2,397 2,626 2,854 2,968 8.1 Indonesia 819 950 1,178 1,529 1,715 1,653 1,622 1,663 1,756 1,911 2.2 Japan 10,202 10,026 9,648 9,142 7,874 5,894 5,121 4,831 4,734 4,783 –9.5 Malaysia 319 332 328 367 398 367 350 352 359 377 –1.1 New Zealand 555 583 569 579 562 477 442 428 432 442 –4.7 Pakistan 34 38 44 59 68 68 69 72 76 82 3.8 Philippines 74 73 65 74 78 72 69 68 69 71 –1.9 Singapore 392 389 403 438 427 353 318 318 321 332 –4.9 South Korea 1,533 1,560 1,597 1,742 1,678 1,497 1,429 1,397 1,415 1,451 –2.9 Taiwan 453 475 452 418 338 238 201 186 184 185 –11.4 Thailand 406 409 383 394 382 307 286 280 283 292 –5.2 Vietnam 33 38 44 50 57 59 63 68 74 80 7.0 Total 22,866 23,670 24,678 25,558 25,342 22,259 21,451 21,637 22,425 23,637 –1.4

†At average 2008 exchange rates. Sources: Advertising Standards Authority, Commercial Economic Advisory Service of Australia, Dentsu, Korean Federation of Advertising Agencies, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Paid circulation unit circulation to increase by an additional 14.5 million during the next five years, a 2.6 percent compound Unit circulation annual gain. • Asia Pacific has the highest paid newspaper unit • Paid circulation in India rose by 11 million from 2004 to circulation in the world, at 309 million in 2008. The 2008, bolstered by hundreds of new titles entering the PRC at 107 million and India at 85 million together market. The relaxation of foreign ownership restrictions account for 62 percent of that total and are the two also contributed to growth in India. Indian publications largest markets in the world in newspaper circulation. can now include up to 20 percent of their content from Moreover, in contrast with EMEA and North America, foreign publications. In addition, foreign companies can paid circulation in Asia Pacific has been rising. Paid own up to 26 percent of Indian publications, which will circulation rose at a 2.5 percent compound annual rate attract foreign investment. We project paid circulation from 2004 to 2008. in India to reach 100 million by 2013, a 3.3 percent • In the PRC, paid unit circulation rose by nearly 19 compound annual increase. million from 2004 to 2008, helped by an expanding economy that supported more titles. We expect paid

492 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • The PRC and India will provide most of the growth in million from 2004 to 2008. We expect that pattern to paid circulation, together adding 29.5 million during the reverse in the near term as the economy declines, next five years. followed by a pickup in subsequent years as economic conditions improve. Nevertheless, paid circulation • Paid unit circulation in the rest of the region decreased in other countries will be lower in 2013 than in 2008, by 479,000 from 2004 to 2008, and we expect a 4.2 because migration of readers to the Internet limits million decline during the next five years, 3.5 million of the recovery. which will occur in Japan. • For the region as a whole, paid unit circulation will • In Japan, falling population and the shift of print readers increase at a 1.6 percent compound annual rate to to the Internet is hurting the newspaper market over 334.1 million in 2013. the longer run, and in the near term, the declining economy will further reduce paid circulation. From 2004 to 2008, paid circulation in Japan fell by 2.6 million. We Paid daily newspaper unit circulation in expect a 2-million decline during the next two years Asia Pacific (millions) alone, in large part because of the economy. During the 250 following three years, we project a more modest, 1.5 million decrease. Although declining in total, Japan’s 200 population is aging, which will help dampen newspaper 150 Japan circulation erosion, because older people have a higher PRC and India incidence of newspaper readership. 100 All other countries • In the Philippines, the three major Philippine broad- sheets maintained their circulation levels in the fourth 50 quarter of 2008 despite the financial crisis that broke 0 in September 2008. 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

• Excluding India, Japan, and the PRC, paid circulation Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates for the remaining countries in Asia Pacific rose by 2.1

Newspaper publishing | Asia Pacific 493 Daily newspaper unit circulation (thousands) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Paid circulation Australia 2,539 2,535 2,550 2,560 2,500 2,425 2,375 2,350 2,340 2,335 –1.4 China 88,150 96,600 98,700 102,500 107,000 109,000 111,000 114,000 117,500 121,500 2.6 Hong Kong 1,280 1,330 1,300 1,333 1,310 1,275 1,245 1,230 1,220 1,215 –1.5 India 74,000 76,000 79,000 83,000 85,000 88,000 91,000 94,000 97,000 100,000 3.3 Indonesia 4,505 4,680 4,800 4,900 4,950 4,925 4,900 4,930 4,975 5,050 0.4 Japan 70,620 69,700 69,100 68,435 68,000 67,000 66,000 65,500 65,000 64,500 –1.1 Malaysia 2,755 2,905 2,960 4,790 5,300 5,500 5,600 6,000 6,300 6,500 4.2 New Zealand 680 670 665 660 655 645 635 630 625 620 –1.1 Pakistan 2,315 2,375 2,425 2,437 2,450 2,440 2,430 2,435 2,445 2,460 0.1 Philippines 4,020 4,010 4,000 3,980 3,950 3,900 3,850 3,825 3,800 3,790 –0.8 Singapore 1,090 1,088 1,130 1,310 1,275 1,200 1,165 1,160 1,155 1,150 –2.0 South Korea 14,610 14,580 14,565 14,415 14,300 14,100 13,900 13,850 13,800 13,750 –0.8 Taiwan 6,720 6,730 6,280 5,980 5,800 5,600 5,400 5,300 5,250 5,200 –2.2 Thailand 5,535 5,560 5,700 5,700 5,650 5,500 5,350 5,350 5,375 5,400 –0.9 Vietnam 560 580 600 605 610 605 600 600 605 610 0.0 Total paid 279,379 289,343 293,775 302,605 308,750 312,115 315,450 321,160 327,390 334,080 1.6 Free dailies 5,000 6,650 9,700 12,000 13,000 13,100 13,300 13,600 14,000 14,500 2.2 Total 284,379 295,993 303,475 314,605 321,750 325,215 328,750 334,760 341,390 348,580 1.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Circulation spending • For the forecast period as a whole, circulation spending • Circulation spending rose by 1.7 percent in 2008. We will rise at a 0.9 percent compound annual rate to $26.6 expect increases averaging only 0.1 percent annually billion in 2013 from $25.4 billion in 2008. during the next two years as growth in unit circulation slows because of the economy. • We then look for circulation spending to average 1.5 percent compounded annually from 2011 to 2013 as economic conditions improve.

494 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Newspaper circulation spending market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,080 1,090 1,133 1,155 1,149 1,135 1,132 1,139 1,154 1,171 0.4 China 4,431 4,925 5,103 5,373 5,686 5,871 6,058 6,304 6,582 6,893 3.9 Hong Kong 249 262 260 270 268 264 261 261 262 264 –0.3 India 925 979 1,041 1,153 1,204 1,173 1,138 1,175 1,213 1,250 0.8 Indonesia 363 386 405 422 436 443 450 462 475 491 2.4 Japan 12,486 12,391 12,351 12,298 12,286 12,170 12,052 12,024 11,995 11,965 –0.5 Malaysia 281 302 314 518 584 618 641 699 747 785 6.1 New Zealand 150 150 152 153 154 154 154 155 156 157 0.4 Pakistan 36 37 39 39 40 40 41 41 42 42 1.0 Philippines 280 283 287 290 292 293 294 296 298 302 0.7 Singapore 193 192 200 232 225 212 206 205 204 203 –2.0 South Korea 1,928 1,937 1,948 1,941 1,938 1,923 1,908 1,914 1,919 1,924 –0.1 Taiwan 526 535 508 491 483 474 464 462 464 466 –0.7 Thailand 536 545 565 572 574 565 556 563 572 581 0.2 Vietnam 48 51 53 54 56 56 56 57 58 59 1.0 Total 23,512 24,065 24,359 24,961 25,375 25,391 25,411 25,757 26,141 26,553 0.9

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Digital advertising • In the PRC, the 2005–10 Five-Year Plan calls for pub- lishers to develop online newspapers. Print publishers • Digital advertising in Asia Pacific is concentrated in have been selling ads on their Web sites as well, and Australia, Japan, the PRC, and South Korea, which a rapidly growing online advertising market will boost together constituted 94 percent of the total market newspaper Web site advertising. We project a 21.7 in 2008. percent compound annual increase to $363 million in • Japan is the leader, at $551 million in 2008, 55 percent 2013 from $136 million in 2008. of the Asia Pacific total. A number of publishers in • In general, Web site traffic is increasing, and the Internet Japan have joined forces to operate joint Web sites. is attracting advertising. We expect publishers to par- Japan also has the largest online advertising market ticipate in that growth and project digital advertising in in Asia Pacific, and publishers are tapping into that newspapers to increase to $1.7 billion in 2013 from $1 market. Nevertheless, the adverse economy in Japan billion in 2008, an 11 percent compound annual increase. will reduce overall newspaper advertising, including Web site advertising. We project a 3.8 percent decline in 2009 and a modest, 1.5 percent rise in 2010. We expect faster growth thereafter as economic conditions ease. By 2013, digital advertising will total an estimated $717 million, up 5.4 percent compounded annually from 2008.

Newspaper publishing | Asia Pacific 495 Digital newspaper advertising market† (US$ millions) 2009–13 Asia Pacific 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 32 64 113 171 206 232 262 297 341 14.8 China 18 45 79 136 171 197 246 302 363 21.7 Hong Kong 1 2 3 4 5 6 6 8 9 17.6 India 1 3 6 10 14 18 23 28 31 25.4 Indonesia ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Japan 140 270 448 551 530 538 580 639 717 5.4 Malaysia 2 3 6 10 12 13 16 18 21 16.0 New Zealand 3 6 10 14 15 16 19 22 25 12.3 Pakistan ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Philippines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Singapore ‡ 1 1 1 1 1 1 1 2 14.9 South Korea 16 32 61 84 97 109 122 137 154 12.9 Taiwan 5 9 15 17 15 15 16 18 20 3.3 Thailand ‡ 1 1 2 2 2 2 3 3 8.4 Vietnam ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Total 218 436 743 1,000 1,068 1,147 1,293 1,473 1,686 11.0

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

496 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total newspaper advertising • We project overall advertising to decline by 14.2 • Digital advertising will constitute 6.7 percent of percent during the next two years and at an 0.8 percent newspaper advertising in 2013 from 3.8 percent in compound annual rate through 2013, falling to $25.3 2008. Nevertheless, growth in digital advertising will not billion from $26.3 billion in 2008. be large enough to offset declines in print advertising.

Total newspaper advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 3,013 3,200 3,176 3,520 3,573 3,382 3,283 3,271 3,356 3,559 –0.1 China 3,303 3,695 4,533 4,707 5,594 5,342 5,511 5,847 6,334 6,970 4.5 Hong Kong 668 736 862 919 900 763 725 744 785 847 –1.2 India 1,062 1,218 1,510 1,821 2,019 2,183 2,415 2,649 2,882 2,999 8.2 Indonesia 819 950 1,178 1,529 1,715 1,653 1,622 1,663 1,756 1,911 2.2 Japan 10,202 10,166 9,918 9,590 8,425 6,424 5,659 5,411 5,373 5,500 –8.2 Malaysia 319 334 331 373 408 379 363 368 377 398 –0.5 New Zealand 555 586 575 589 576 492 458 447 454 467 –4.1 Pakistan 34 38 44 59 68 68 69 72 76 82 3.8 Philippines 74 73 65 74 78 72 69 68 69 71 –1.9 Singapore 392 389 404 439 428 354 319 319 322 334 –4.8 South Korea 1,533 1,576 1,629 1,803 1,762 1,594 1,538 1,519 1,552 1,605 –1.8 Taiwan 453 480 461 433 355 253 216 202 202 205 –10.4 Thailand 406 409 384 395 384 309 288 282 286 295 –5.1 Vietnam 33 38 44 50 57 59 63 68 74 80 7.0 Total 22,866 23,888 25,114 26,301 26,342 23,327 22,598 22,930 23,898 25,323 –0.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | Asia Pacific 497 Latin America

The outlook in brief • Print advertising will fall by 9 percent from 2008 to 2010 and then increase by 14.5 percent during the • The recession will lower the amount of print advertising subsequent three years, averaging an 0.8 percent during the next two years. compound annual growth rate for the entire forecast • Falling incomes will cut into unit circulation growth and period from $3.7 billion in 2008 to $3.9 billion in 2013. circulation spending in the near term. • Digital advertising will total an estimated $183 million in • Broadband growth will boost digital advertising for 2013, growing at a 29.1 percent compound annual rate newspaper publishers. from a small base. • Total newspaper advertising will increase by 1.5 percent Overview compounded annually from $3.8 billion to $4.1 billion. • We project newspaper publishing in Latin America will • Circulation spending will expand at a 2.5 percent decrease by a relatively modest, 3.1 percent during the compound annual rate to $3.4 billion in 2013 from next two years and then rise to $7.5 billion in 2013, a $3 billion in 2008. compound annual gain of 1.9 percent from $6.8 billion in 2008.

Newspaper publishing market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Advertising Print 2,481 2,789 3,115 3,480 3,725 3,476 3,389 3,446 3,588 3,880 Digital NA NA NA 25 51 71 92 114 143 183 Total advertising 2,481 2,789 3,115 3,505 3,776 3,547 3,481 3,560 3,731 4,063 Circulation 2,138 2,233 2,374 2,621 3,040 3,084 3,125 3,199 3,307 3,443 Total 4,619 5,022 5,489 6,126 6,816 6,631 6,606 6,759 7,038 7,506

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Advertising Print 7.6 12.4 11.7 11.7 7.0 –6.7 –2.5 1.7 4.1 8.1 0.8 Digital — — — — 104.0 39.2 29.6 23.9 25.4 28.0 29.1 Total advertising 7.6 12.4 11.7 12.5 7.7 –6.1 –1.9 2.3 4.8 8.9 1.5 Circulation 1.9 4.4 6.3 10.4 16.0 1.4 1.3 2.4 3.4 4.1 2.5 Total 4.9 8.7 9.3 11.6 11.3 –2.7 –0.4 2.3 4.1 6.6 1.9

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

498 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • The newspaper market has held up better in Latin less than $800 million each, followed by Chile at $607 America than in other regions, growing by 11.3 percent million and Venezuela at $126 million. in 2008, the second consecutive double-digit increase. • The newspaper market in Brazil is booming, posting a • Newspapers face less competition from the Internet in 19.5 percent increase in 2008. High inflation accounted Latin America, and growing circulation of free dailies for Argentina’s 9.3 percent increase and Venezuela’s has been fueling print advertising. 4.1 percent increase. Mexico slowed to a 2.8 percent increase, and Chile and Colombia declined as well. • Brazil is the dominant market, at $3.8 billion in 2008. Argentina, Colombia, and Mexico were well behind, at

Newspaper market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 483 545 657 718 785 790 796 840 898 976 4.5 Brazil 2,325 2,542 2,760 3,186 3,806 3,753 3,775 3,867 4,015 4,264 2.3 Chile 505 547 574 622 607 582 571 582 601 636 0.9 Colombia 571 615 681 735 727 681 654 649 666 709 –0.5 Mexico 643 672 706 744 765 708 696 707 733 783 0.5 Venezuela 92 101 111 121 126 117 114 114 125 138 1.8 Total 4,619 5,022 5,489 6,126 6,816 6,631 6,606 6,759 7,038 7,506 1.9

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Print advertising when free papers are included. Free papers boosted circulation growth by mid- to high-single-digit rates • Print newspaper advertising in Latin America rose by during 2005–07. The overall gain in unit circulation 7 percent in 2008, much stronger than in other regions has made newspapers a more appealing medium although down from double-digit gains during 2005–07. for advertisers. Double-digit growth in Brazil and Argentina offset decreases in Chile and Colombia. Daily newspaper circulation in Latin America (millions) • In other regions, migration of readers and advertisers 25 from the print media to the Internet has adversely Paid Free affected the print media, particularly newspapers 20 that have lost classified advertising to the Internet. In Latin America, the Internet has not had as much 15 of a competitive impact. Until recently, broadband penetration has been low, and advertisers have not 10 shifted spending to online to the degree that they have in other regions. 5

• Print advertising has also benefited from large gains in 0 unit circulation. Paid circulation rose by 10 percent in 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2008, and overall circulation increased by 11.8 percent Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | Latin America 499 • Despite those underlying strengths, the economy still • We then expect a rebound in the economy to lead to plays an important role. We expect the recession to a rebound in print advertising. We are projecting a 1.7 lead to decreases in print advertising in each country percent rise in 2011, with increases accelerating to 4.1 except Argentina during the next two years. In Argen- percent in 2012 and 8.1 percent in 2013. Those gains will tina, inflation-adjusted advertising will be down sharply, be less than the growth achieved during the recent past, but high inflation rates will lead to nominal increases of because we expect that growing broadband penetration less than 1 percent. will make the Internet a more potent competitive factor during 2012–13 than it is at present. • Overall, we expect a 6.7 percent decline in print adver- tising in 2009 and a 2.5 percent decrease in 2010. Also, • For the forecast period as a whole, we project print high inflation is masking underlying weakness in Argen- advertising to expand at an 0.8 percent compound tina and, to a lesser degree, in other countries, making annual rate to $3.9 billion in 2013 from $3.7 billion nominal growth appear stronger. in 2008.

Print newspaper advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 325 375 476 517 574 576 577 615 662 726 4.8 Brazil 840 979 1,077 1,270 1,468 1,360 1,332 1,346 1,387 1,496 0.4 Chile 313 353 378 416 395 369 357 363 374 401 0.3 Colombia 424 467 528 580 573 528 503 498 513 553 –0.7 Mexico 516 543 575 606 620 557 539 543 561 602 –0.6 Venezuela 63 72 81 91 95 86 81 81 91 102 1.4 Total 2,481 2,789 3,115 3,480 3,725 3,476 3,389 3,446 3,588 3,880 0.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper circulation years, with somewhat faster increases thereafter. Paid circulation growth will average a more sustainable, 1.8 • Paid circulation in Brazil rose by 34 percent during percent compound annual increase during the next five the past two years and by 49 percent since 2004. years to 10.2 million in 2013 from 9.3 million in 2008. Newspaper circulation in Brazil appears to be highly sensitive to changes in disposable income. Unit • The remaining countries in Latin America have exhibited circulation fell by 21 percent from 2000 to 2003, when a much less volatile pattern. Paid circulation grew at a the economy was declining. Since then, strong growth 1.5 percent compound annual rate from 2004 to 2008, in disposable income led to the increase in circulation. reflecting expanding economies. We look for decreases It was not until 2008 that unit circulation exceeded during the next two years and modest growth during the its previous peak in 2000. With circulation having subsequent three years. By 2013, paid circulation for the recovered lost ground, we do not anticipate growth rest of the region will total an estimated 8.1 million, up to approach the levels of the past four years. We 0.2 percent compounded annually from 2008. expect relatively flat unit circulation during the next two

500 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • For the region as a whole, unit circulation of paid dailies Paid circulation in Latin America (thousands) will grow at a 1.1 percent compound annual rate to 18.3 12,000 million in 2013 from 17.4 million in 2008.

• We expect circulation spending to advance at a 2.5 10,000 percent compound annual rate, rising to $3.4 billion in 2013 from $3 billion in 2008. That projected gain will represent a marked slowdown from the 9.2 percent 8,000 compound annual increase achieved from 2004 to 2008. 6,000 Brazil Other countries 4,000 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Daily newspaper paid unit circulation (thousands) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Paid circulation Argentina 1,755 1,860 1,950 2,097 2,150 2,125 2,120 2,130 2,175 2,225 0.7 Brazil 6,275 6,532 6,955 7,775 9,330 9,400 9,450 9,600 9,850 10,200 1.8 Chile 965 968 970 1,009 1,025 1,020 1,015 1,025 1,050 1,075 1.0 Colombia 1,065 1,065 1,100 1,086 1,070 1,050 1,030 1,025 1,020 1,015 –1.0 Mexico 1,710 1,725 1,735 1,740 1,745 1,750 1,755 1,760 1,765 1,770 0.3 Venezuela 2,080 2,065 2,055 2,055 2,050 2,040 2,035 2,030 2,025 2,020 –0.3 Total paid 13,850 14,215 14,765 15,762 17,370 17,385 17,405 17,570 17,885 18,305 1.1 Free dailies 750 1,000 1,300 1,750 2,200 2,300 2,400 2,550 2,750 3,000 6.4 Total 14,600 15,215 16,065 17,512 19,570 19,685 19,805 20,120 20,635 21,305 1.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper circulation spending market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 158 170 181 198 207 208 211 215 223 232 2.3 Brazil 1,485 1,563 1,683 1,903 2,309 2,352 2,390 2,454 2,545 2,663 2.9 Chile 192 194 196 206 211 212 213 217 225 232 1.9 Colombia 147 148 153 152 150 148 145 145 145 145 –0.7 Mexico 127 129 131 132 133 134 135 137 138 139 0.9 Venezuela 29 29 30 30 30 30 31 31 31 32 1.3 Total 2,138 2,233 2,374 2,621 3,040 3,084 3,125 3,199 3,307 3,443 2.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | Latin America 501 Digital advertising Broadband households in Latin America (millions) • Digital advertising on newspaper Web sites is not 50 43.85 yet a material component of the market. In 2008, 37.70 digital advertising constituted only 1.4 percent of 40 total newspaper advertising. 31.65 30 26.70 • We expect digital advertising to become more 23.25 20.25 important during the next five years as broadband 20 15.63 penetration expands, which in turn will create 10.66 opportunities for publishers to generate advertising 10 7.09 3.88 revenues from Web sites. 0 • There were more than five times as many broadband 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 households in Latin America in 2008 as in 2004. We Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates expect that during the next five years, the broadband universe will more than double to nearly 44 million from • As the overall Internet advertising market expands, 20 million in 2008. newspapers will have more to gain from establishing a • As the broadband universe passes 30 million in 2011, strong online presence and actively selling advertising. its impact will become significant. For newspapers, the • We expect digital advertising on newspaper Web sites Internet will begin to be a competitive factor, attracting to increase from $51 million in 2008 to $183 million advertisers and readers and dampening growth in print in 2013. advertising in unit circulation.

Digital newspaper advertising market† (US$ millions) 2009–13 Latin America 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 3 4 6 8 10 13 18 35.1 Brazil 13 29 41 53 67 83 105 29.3 Chile ‡ 1 1 1 2 2 3 24.6 Colombia 3 4 5 6 6 8 11 22.4 Mexico 6 12 17 22 27 34 42 28.5 Venezuela ‡ 1 1 2 2 3 4 32.0 Total 25 51 71 92 114 143 183 29.1

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

502 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total newspaper advertising • Digital advertising will raise overall compound annual advertising growth from 0.8 percent for print alone to • Although still small relative to other regions, digital 1.5 percent. advertising in Latin America will generate 4.5 percent of total newspaper advertising by 2013. • Total newspaper advertising will rise from $3.8 billion in 2008 to $4.1 billion in 2013.

Total newspaper advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 325 375 476 520 578 582 585 625 675 744 5.2 Brazil 840 979 1,077 1,283 1,497 1,401 1,385 1,413 1,470 1,601 1.4 Chile 313 353 378 416 396 370 358 365 376 404 0.4 Colombia 424 467 528 583 577 533 509 504 521 564 –0.5 Mexico 516 543 575 612 632 574 561 570 595 644 0.4 Venezuela 63 72 81 91 96 87 83 83 94 106 2.0 Total 2,481 2,789 3,115 3,505 3,776 3,547 3,481 3,560 3,731 4,063 1.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Newspaper publishing | Latin America 503 504 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer and educational book publishing

506 Summary

507 North America

515 Europe, Middle East, Africa (EMEA)

528 Asia Pacific

538 Latin America Summary

Consumer and educational book publishing books will expand at a 0.4 percent compound annual rate from $41.7 billion to $42.5 billion. The overall print The consumer and educational book publishing market market will increase to $114.4 billion in 2013 from $114.2 consists of retail spending by consumers on consumer billion in 2008. Electronic books totaled $1.1 billion in books; spending by schools, government agencies, 2008, accounting for 0.9 percent of total consumer and and students on elementary, high school, and college educational books. Spending on electronic books will textbooks, including graduate textbooks; and spending rise to $4.1 billion in 2013, and the electronic share will on books in electronic formats, called electronic books increase to 3.4 percent. Electronic consumer books will or e-books. Spending includes library and institutional total $2.3 billion in 2013, 3.1 percent of total consumer subscriptions to electronic book databases. Print sales book spending, and electronic educational books will include audio books. Educational books do not include generate $1.7 billion in 2013, 3.9 percent of the overall supplemental educational spending, administrative educational book market. Consumer book sales as a software, or testing materials. Professional books are whole, including print and electronic, will increase from covered in the “Business-to-Business Publishing” chapter. $73.2 billion in 2008 to $74.2 billion in 2013, a 0.3 percent compound annual increase. The educational book market Market size and growth by region will grow at a 1 percent compound annual rate to $44.3 billion from $42.1 billion in 2008. We project that spending in North America, EMEA (Europe, Middle East, Africa), Asia Pacific, and Latin America will decrease by 3.2 percent during the next two years and Principal drivers then expand by 6.1 percent during the subsequent three The economic cycle will influence spending during the years, rising to $118.5 billion in 2013 from $115.3 billion next five years, leading to near-term decreases and in 2008, a 0.6 percent compound annual increase. Asia a subsequent rebound. Elementary and high school Pacific will be the fastest-growing region, expanding at textbooks are the most cyclically sensitive component, a 2.3 percent compound annual rate to $30.9 billion in while college textbooks have a countercyclical element 2013 from $27.6 billion in 2008. EMEA, the largest region and will benefit from people returning to college to improve in 2008, at $50.3 billion, will decline at a 0.6 percent their job prospects while employment opportunities are compound annual rate, falling to $48.9 billion in 2013. limited. Historically, consumer books have shown relatively North America and Latin America will each grow at a 0.7 little sensitivity to the economy, but we expect that pattern percent compound annual rate. North America will rise to change during the current downturn because of its from $32.6 billion in 2008 to $33.8 billion in 2013, and relatively severe impact on consumer spending. Publishers Latin America will increase to $4.9 billion in 2013 from and booksellers will look to mitigate the decline by holding $4.8 billion in 2008. prices steady or offering lower prices, so spending will fall faster than unit sales. Independent of the impact of the Market size and growth by component economy, the market will benefit from digitization projects. Electronic browsing technologies will raise awareness Print consumer books, the largest component, at $72.5 of titles and stimulate consumer book sales, while new billion in 2008, will fall by 4.6 percent during the next portable eReaders will boost electronic book sales in two years and then rise back to $71.9 billion by 2013, a selected countries. 0.2 percent compound annual decline. Print educational

Data for the consumer and educational book publishing market by region and for the consumer and educational book publishing market by component can be found within the Executive Summary on page 52.

506 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 North America

The outlook in brief • Total print sales will fall from $32.1 billion in 2008 to $31.7 billion in 2013, declining by 0.2 percent • Digital browsing and electronic books will boost compounded annually. consumer book spending once the economy rebounds. • The electronic book market will expand from $522 • The adverse economy will hurt the elementary and high million in 2008 to $2.1 billion in 2013, a 31.6 percent school textbook market in the near term while providing compound annual increase. a lift to college textbooks. • Consumer electronic books will increase at a 44 percent compound annual rate to $1.3 billion in 2013 Overview from $203 million in 2008. • We project spending on consumer and educational • Educational electronic books will total $803 million books will decline by 2.5 percent during the next two in 2013 from $319 million in 2008, a 20.3 percent years and then expand to $33.8 billion in 2013, a 0.7 compound annual gain. percent compound annual increase from $32.6 billion in 2008. • Consumer books as a whole (print plus electronic) will decrease by 4.5 percent during the next two years and • Consumer print books will decrease by a cumulative then rise to $21.5 billion in 2013, returning to its level 6.3 percent during the next three years and will decline in 2008. at a 1 percent compound annual rate through 2013 to $20.3 billion from $21.3 billion in 2008. • The overall educational book market will grow at a 2.1 percent compound annual rate to $12.2 billion in 2013 • Print educational textbook spending will rise from $10.7 from $11 billion in 2008. billion in 2008 to $11.4 billion in 2013, a 1.3 percent compound annual increase.

Consumer and educational book publishing market by component† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Print/audio Consumer books 20,161 21,573 21,065 22,644 21,344 20,531 20,078 19,997 20,065 20,269 Educational books 9,661 10,381 10,266 10,747 10,726 10,640 10,740 10,907 11,135 11,429 Total print/audio 29,822 31,954 31,331 33,391 32,070 31,171 30,818 30,904 31,200 31,698 Electronic books Consumer books 55 75 96 122 203 304 505 756 1,008 1,259 Educational books 154 182 221 265 319 372 450 534 642 803 Total electronic 209 257 317 387 522 676 955 1,290 1,650 2,062 Total consumer 20,216 21,648 21,161 22,766 21,547 20,835 20,583 20,753 21,073 21,528 Total educational 9,815 10,563 10,487 11,012 11,045 11,012 11,190 11,441 11,777 12,232 Total 30,031 32,211 31,648 33,778 32,592 31,847 31,773 32,194 32,850 33,760

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | North America 507 Consumer and educational book publishing market growth by component (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Print/audio Consumer books –1.3 7.0 –2.4 7.5 –5.7 –3.8 –2.2 –0.4 0.3 1.0 –1.0 Educational books 1.0 7.5 –1.1 4.7 –0.2 –0.8 0.9 1.6 2.1 2.6 1.3 Total print/audio –0.6 7.1 –1.9 6.6 –4.0 –2.8 –1.1 0.3 1.0 1.6 –0.2 Electronic books Consumer books 57.1 36.4 28.0 27.1 66.4 49.8 66.1 49.7 33.3 24.9 44.0 Educational books 51.0 18.2 21.4 19.9 20.4 16.6 21.0 18.7 20.2 25.1 20.3 Total electronic 52.6 23.0 23.3 22.1 34.9 29.5 41.3 35.1 27.9 25.0 31.6 Total consumer –1.2 7.1 –2.2 7.6 –5.4 –3.3 –1.2 0.8 1.5 2.2 0.0 Total educational 1.5 7.6 –0.7 5.0 0.3 –0.3 1.6 2.2 2.9 3.9 2.1 Total –0.3 7.3 –1.7 6.7 –3.5 –2.3 –0.2 1.3 2.0 2.8 0.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• We expect both the United States and Canada to • For the five-year forecast period as a whole, we expect decline by 2.5 percent during the next two years. We the United States to grow at a 0.7 percent compound expect Canada to be somewhat faster growing from annual rate to $32 billion from $30.9 billion in 2008. 2010 to 2013, with a projected 6.8 percent increase Canada will expand from $1.6 billion to $1.7 billion, an compared with 6.2 percent for the US because of 0.8 percent increase compounded annually. a stronger rebound in print sales and a pickup in electronic educational books.

Consumer and educational book market by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 28,563 30,684 30,100 32,153 30,945 30,226 30,167 30,569 31,186 32,044 0.7 Canada 1,468 1,527 1,548 1,625 1,647 1,621 1,606 1,625 1,664 1,716 0.8 Total 30,031 32,211 31,648 33,778 32,592 31,847 31,773 32,194 32,850 33,760 0.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

508 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer books initiatives are intended to attract interest to new books and to drive print sales. Print • In Canada, the market in 2008 was affected by the • Consumer book print sales fell 5.7 percent in 2008, the Canadian Copyright Act, which requires that list prices result of a 6 percent drop in the United States and flat of imported books be no more than 10 percent above sales in Canada. The absence of a Harry Potter title the Canadian dollar equivalent of the list price charged that had contributed to the 7.6 percent increase in 2007 in the country of origin. Otherwise, bookstores would be led to the sharp drop in the US in 2008. In Canada, the permitted to acquire their books from abroad. Historically, flat sales were comparable to the 2006 experience, the the Canadian dollar has been valued lower than the US previous post–Harry Potter year. dollar, and US publishers typically had a higher list price • Although not as cyclical as other segments of the in Canada to reflect that difference. The appreciation of entertainment and media industry, consumer books are the Canadian dollar in late 2007 and early 2008 created being hurt by the adverse economy. Steep discounts problems for the two-price policy because the Canadian are limiting unit volume declines but are cutting into price was high enough to trigger the provision that revenue. We expect print sales to fall during the next allowed bookstores to acquire books directly from the two years in Canada and the next three years in the US. During the latter part of 2008, the Canadian dollar fell United States. in value against the US dollar, and the issue subsided. Prices of US books are now higher than in early 2008, • Over the longer run, we expect that digital browsing putting less pressure on Canadian publishers. will provide a lift to the print market. In late 2008, the dispute between Google and the Authors Guild and the • We expect that an expanding economy during 2011–13 American Association of Publishers was settled. Google will raise disposable income, which will help consumer has been developing a digital library (Google Book books. The various digital browsing options should Search) that would include books in search results, generate incremental sales of print books, particularly thereby assisting consumers in finding books that meet for special-interest titles that consumers previously may their interests, which in turn can generate incremental not have been aware of. print sales. • At the same time, the expansion of an electronic • Under the settlement, Google agreed to pay authors book market that offers titles at a lower cost compared $60 for each title that had already been scanned. with print will provide incremental competition and Google also is establishing a Books Rights Registry that will limit the expansion during the latter part of the will develop a database of rightsholders and set up a forecast period. system for paying royalties in the future. • We project the US market to decline by 6.4 percent • In other provisions, Google users will now be able to through 2011 and then increase by 1.2 percent during access up to 20 percent of the content of out-of-print 2012–13 to $19.3 billion, leaving spending 1.1 percent books. For books in print, only snippets will be available lower on a compound annual basis from $20.4 billion unless rightsholders choose to allow more content to in 2008. be viewed. Google Book Search also will allow users to • In Canada, we expect a 4.1 percent decrease during purchase books online. the next two years and a subsequent 4.9 percent • In addition to Google, major publishers such as increase. Spending will total an estimated $994 million Random House, Simon & Schuster, HarperCollins, in 2013 from $989 million in 2008, a 0.1 percent and Penguin have digital versions of their titles on compound annual increase. their Web sites that visitors can browse—and in • For North America as a whole, print consumer books some cases download. These services are intended will decrease from $21.3 billion in 2008 to $20.3 billion to replicate the bookstore browsing experience in an in 2013, a 1 percent compound annual decline. online environment and to generate print sales. These

Consumer and educational book publishing | North America 509 Print/audio consumer book market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 19,266 20,635 20,128 21,655 20,355 19,565 19,130 19,045 19,095 19,275 –1.1 Canada 895 938 937 989 989 966 948 952 970 994 0.1 Total 20,161 21,573 21,065 22,644 21,344 20,531 20,078 19,997 20,065 20,269 –1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Electronic • In Canada, Indigo introduced an electronic book • The electronic book market in the United States was service, Shortcovers, which allows users to download bolstered by the introduction of new eReaders. The books to smart phones and computers. Kindle from Amazon sold an estimated 500,000 units • We expect that the electronic book market will evolve in its first year, putting it ahead of the iPod, which sold along the lines of the digital download music market. fewer than 400,000 units in its first year. The Sony Initially, competing services had limited content. Reader sold around 300,000 in its first year. Given Over time, virtually all music became available the high price points, $300 to $500, and the weak on all services. Currently, Amazon provides more economy, these sales levels suggest an interest in than 240,000 titles through its Kindle service, and the technology. Shortcovers has 50,000 titles. Some of the leading • The new devices use electronic ink, which reads like titles, such as the Harry Potter series or the John paper and is much easier on the eyes than backlit Grisham books, are not yet available. We expect over images used on previous portable devices. They can time, most books by most authors will be available in also be read in full sunlight. electronic form on all services. • The Kindle allows readers to download books wirelessly • We also expect hardware prices to fall, the typical directly to the device, which promotes impulse buying, pattern for new technologies. As these trends develop, while the Sony Reader requires books to be download- we expect the electronic book market to expand. ed online and then transferred to the Reader. The Kindle • We do not expect electronic books to reach the share also allows readers to sample the first dozen pages or of the market achieved by digital music, because songs so before buying. Books are around $10, with lower on an album have a stand-alone appeal that is not prices for older titles. comparable to chapters in a book that do not have a • Kindle users appear to be avid buyers. Kindle down- significant stand-alone demand. loads accounted for 20 percent of total sales for the • We project consumer electronic book sales in the Oprah Book Club—helped by Oprah Winfrey’s promo- United States to increase from $200 million in 2008 to tion of the Kindle—and 6 percent of all Amazon sales of $1.3 billion in 2013. In Canada, which has Shortcovers books available in both print and via the Kindle. but neither the Kindle nor the Sony Reader, the con- • In early 2009, Amazon introduced an application that sumer electronic book market is just developing. We will allow books to be downloaded to iPhones and expect spending to increase from $3 million in 2008 to iPods and read on those devices. $9 million in 2013. • Sony in late 2008 launched a next-generation Reader, • Overall consumer electronic sales will expand from the PRS-7000, which has a touch screen and more $203 million in 2008 to $1.3 billion in 2013, a 44 percent memory than the previous versions. compound annual increase.

510 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Electronic consumer book market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 55 75 95 120 200 300 500 750 1,000 1,250 44.3 Canada 0 0 1 2 3 4 5 6 8 9 24.6 Total 55 75 96 122 203 304 505 756 1,008 1,259 44.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total consumer books • In Canada, overall consumer book spending will fall • Gains in electronic book sales will not be large enough by 3.9 percent from 2008 to 2010 and then rise by 5.2 to offset near-term declines in print. In the United States, percent from 2010 to 2013. The overall consumer book we project overall consumer book sales to fall by 4.5 market will rise at a 0.2 percent compound annual rate percent during the next two years and then grow by 4.6 to $1 billion from $992 million in 2008. Electronic books percent from 2010 to 2013. For the five-year forecast will account for 0.9 percent of consumer book spending period, spending will be essentially flat at around $20.5 in 2013 from 0.3 percent in 2008. billion. Electronic books will account for 6.1 percent of • The total consumer book market for North America will total sales in 2013 from 1 percent in 2008. total $21.5 billion in both 2008 and 2013.

Total consumer book market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 19,321 20,710 20,223 21,775 20,555 19,865 19,630 19,795 20,095 20,525 0.0 Canada 895 938 938 991 992 970 953 958 978 1,003 0.2 Total 20,216 21,648 21,161 22,766 21,547 20,835 20,583 20,753 21,073 21,528 0.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Educational books state and local governments but will not offset it. We expect that state and local outlays will be reduced. Print • With respect to the elhi market, spending on print • The economic downturn will lead to falling tax revenue books fell by 4.1 percent in 2008, and we expect a and cutbacks in local government spending. Because steeper, 5.7 percent decrease in 2009 followed by a schools are a major component of local governments, further 2.4 percent drop in 2010. we expect there will be cutbacks in education. Elemen- tary and high school (elhi) textbooks likely will be • The expected economic recovery should lead to affected. Book purchases can be postponed, and we improved tax revenues during 2011–13. With purchases expect they will be. having been delayed in many areas, books will be older and there should be pent-up demand for new books. • In the United States, the stimulus package enacted We expect that print sales will expand during that in early 2009 will provide states with federal funding, period, rising by 4.9 percent. Elhi spending in 2013 at some of which will support education. Federal funding $4.3 billion will be 0.7 percent lower on a compound will mitigate the impact of the declining economy on annual basis from $4.4 billion in 2008.

Consumer and educational book publishing | North America 511 Size of the 6- to 17-year-old population (millions) are reporting significant increases in applications for the fall 2009 academic school year. Percent Country 2008 2013 change (%) • We expect rising enrollment in the near term to boost the college textbook market. Spending on college United States 49.916 50.922 2.0 textbooks in the United States rose by 2.7 percent Canada 4.715 4.513 –4.3 in 2008. We expect increases of 3 percent or higher Total 54.631 55.435 1.5 during the next two years, followed by annual gains in the 2.4- to 2.5-percent range during 2011–13. Print Sources: PricewaterhouseCoopers LLP, US Census Bureau International Database, college textbook spending in the United States will rise Wilkofsky Gruen Associates from $5.7 billion in 2008 to $6.5 billion in 2013, a 2.7 percent compound annual increase. • Demographic trends will have a positive impact on the elhi market in the United States and a negative impact • The overall print educational book market in the United in Canada. In the US, the size of the 6- to 17-year- States will expand at a 1.3 percent compound annual old population will grow by 2 percent during the next rate from $10.1 billion in 2008 to $10.8 billion in 2013. five years, which means that when new books are • We do not have a breakout in Canada between elhi and purchased, more copies will be needed, which will raise college textbooks. Nevertheless, Canada is experiencing spending. In Canada, by contrast, the size of the 6- to a similar pattern. The economic downturn is boosting 17-year-old population will fall by 4.3 percent, which college textbook sales while hurting elhi sales. will cut into spending on elhi books as fewer copies will be needed. • On balance, we expect Canada to experience a 0.9 percent decrease in 2009, a flat market in 2010, and • In contrast with elhi sales, the college textbook market increases totaling 6.1 percent during 2011–13. For in the United States is doing relatively well. The college the forecast period as a whole, print educational book market has a countercyclical element to it. People spending in Canada will increase from $646 million to who have become unemployed often go to college to $679 million, a 1 percent compound annual gain. improve their skills and credentials and/or prepare for a new career. People who have yet to enter the labor • Print educational books for North America as a whole force often pursue advanced degrees when current will grow at a 1.3 percent compound annual rate from employment opportunities are poor. Colleges in the US $10.7 billion in 2008 to $11.4 billion in 2013.

Print educational book market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States Elhi 4,295 4,745 4,470 4,590 4,400 4,150 4,050 4,060 4,125 4,250 –0.7 College 4,795 5,050 5,191 5,530 5,680 5,850 6,050 6,200 6,350 6,500 2.7 US total 9,090 9,795 9,661 10,120 10,080 10,000 10,100 10,260 10,475 10,750 1.3 Canada 571 586 605 627 646 640 640 647 660 679 1.0 Total 9,661 10,381 10,266 10,747 10,726 10,640 10,740 10,907 11,135 11,429 1.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

512 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Electronic passages and make notes. Prices are around half those • Electronic books are thriving in the college market in of print versions. the United States. Electronic educational books are • The educational electronic book market in the United not simply digital versions of print books. Instead, States totaled $310 million in 2008, virtually all of which they include interactive learning tools that provide was at the college level. That total includes spending enhanced value. A number of colleges have institutional by students and subscriptions by colleges. We expect subscriptions through Google that provide online this market to expand to $769 million in 2013, a 19.9 access to library collections throughout the world. percent compound annual increase. • Colleges such as Princeton and Yale have deals with • Canada’s educational electronic book market is just in its Ingram Digital for access to Ingram’s Search and development stage. College students are accustomed Discover software that allows students to access books to accessing material digitally, and publishers have an online. Duke University introduced its e-Duke Books incentive to offer electronic books because they are less Scholarly Collection in early 2009. Subscribers will be expensive to manufacture and distribute. able to access the scholarly titles published by Duke. • We expect the electronic textbook market in Canada • There also is a growing direct-to-student electronic to grow to $34 million in 2013 from $9 million in 2008, book market. Colleges are assigning electronic a 30.5 percent compound annual increase from a textbooks instead of print versions as a way to save small base. costs. In 2007, a number of major college textbook publishers formed CourseSmart to promote electronic • The overall educational electronic book market in North textbooks. CourseSmart provides more than 2,000 America will total $803 million in 2013 from $319 million titles and the software permits students to highlight in 2008, a 20.3 percent compound annual increase.

Electronic educational book market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States Elhi 2 4 6 8 10 11 12 14 16 19 13.7 College 150 175 210 250 300 350 425 500 600 750 20.1 US total 152 179 216 258 310 361 437 514 616 769 19.9 Canada 2 3 5 7 9 11 13 20 26 34 30.5 Total 154 182 221 265 319 372 450 534 642 803 20.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Total educational books When we include elhi books, the overall share for • When electronic books are included, the overall electronic books is 6.7 percent in 2013 from 3 percent educational book market in North America will grow at in 2008. a 2.1 percent compound annual rate to $12.2 billion in • The educational book market in Canada will increase 2013 from $11 billion in 2008. from $655 million in 2008 to $713 million in 2013, a • The US will expand from $10.4 billion to $11.5 billion, 1.7 percent compound annual increase. Electronic also a 2.1 percent increase compounded annually. books will constitute 4.8 percent of spending in 2013 Electronic books will constitute 10.3 percent of the compared with 1.4 percent in 2008. college textbook market in 2013 from 5 percent in 2008.

Consumer and educational book publishing | North America 513 Total educational book market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States Elhi 4,297 4,749 4,476 4,598 4,410 4,161 4,062 4,074 4,141 4,269 –0.6 College 4,945 5,225 5,401 5,780 5,980 6,200 6,475 6,700 6,950 7,250 3.9 US total 9,242 9,974 9,877 10,378 10,390 10,361 10,537 10,774 11,091 11,519 2.1 Canada 573 589 610 634 655 651 653 667 686 713 1.7 Total 9,815 10,563 10,487 11,012 11,045 11,012 11,190 11,441 11,777 12,232 2.1

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

514 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Europe, Middle East, Africa (EMEA)

The outlook in brief on a compound annual basis during the forecast period as a whole, falling from $16.6 billion in 2008 to $15.8 • Digital browsing will boost consumer book sales once billion in 2013. economic conditions improve. • The total print book market will decrease by 0.7 percent • The adverse economy will lead to declines in the compounded annually to $48.4 billion in 2013 from educational book market through 2011. $50.2 billion in 2008. • The electronic book market will increase from Overview $29 million in 2008 to $491 million in 2013. • We project that the consumer and educational book • Consumer electronic books will total $148 million in publishing market in EMEA will decrease by 6.6 per- 2013, and educational electronic books will reach cent during the next two years and at a 0.6 percent $343 million. compound annual rate through 2013, falling from $50.3 billion in 2008 to $48.9 billion in 2013. • The overall consumer book market, including both print and electronic, will fall at a 0.5 percent compound • Print consumer books will mirror that trend with a 6.5 annual rate to $32.8 billion. percent decrease through 2010 and a 0.6 percent compound annual decline to $32.6 billion in 2013 from • The overall educational book market will total $16.1 $33.6 billion in 2008. billion in 2013, a 0.6 percent compound annual decline from 2008. • Spending on print educational books will fall by 7.5 percent during the next three years and by 1 percent

Consumer and educational book publishing market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Print/audio Consumer books 29,996 31,860 32,151 34,277 33,639 32,098 31,449 31,506 31,926 32,640 Educational books 16,628 16,764 16,865 16,380 16,609 15,804 15,457 15,371 15,499 15,767 Total print/audio 46,624 48,624 49,016 50,657 50,248 47,902 46,906 46,877 47,425 48,407 Electronic books Consumer books — — — 3 13 26 39 58 98 148 Educational books — — 2 11 16 20 34 70 166 343 Total electronic — — 2 14 29 46 73 128 264 491 Total consumer 29,996 31,860 32,151 34,280 33,652 32,124 31,488 31,564 32,024 32,788 Total educational 16,628 16,764 16,867 16,391 16,625 15,824 15,491 15,441 15,665 16,110 Total 46,624 48,624 49,018 50,671 50,277 47,948 46,979 47,005 47,689 48,898

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | EMEA 515 Consumer and educational book publishing market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Print/audio Consumer books 2.3 6.2 0.9 6.6 –1.9 –4.6 –2.0 0.2 1.3 2.2 –0.6 Educational books 0.6 0.8 0.6 –2.9 1.4 –4.8 –2.2 –0.6 0.8 1.7 –1.0 Total print/audio 1.7 4.3 0.8 3.3 –0.8 –4.7 –2.1 –0.1 1.2 2.1 –0.7 Electronic books Consumer books — — — — 333.3 100.0 50.0 48.7 69.0 51.0 62.7 Educational books — — — 450.0 45.5 25.0 70.0 105.9 137.1 106.6 84.6 Total electronic — — — 600.0 107.1 58.6 58.7 75.3 106.3 86.0 76.1 Total consumer 2.3 6.2 0.9 6.6 –1.8 –4.5 –2.0 0.2 1.5 2.4 –0.5 Total educational 0.6 0.8 0.6 –2.8 1.4 –4.8 –2.1 –0.3 1.5 2.8 –0.6 Total 1.7 4.3 0.8 3.4 –0.8 –4.6 –2.0 0.1 1.5 2.5 –0.6

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The consumer and educational book market in Western • We expect comparable patterns in most countries Europe will decline to $43.5 billion in 2013 from $44.1 during the next five years, with near-term low-single- billion in 2008, a 0.2 percent compound annual decrease. digit decreases followed by low-single-digit increases. For each country except Russia, which will experience • Central and Eastern Europe will decrease at a 4 percent a precipitous decline in 2009, and Hungary, spending compound annual rate. Spending will total $3.8 billion in 2013 will be within one percentage point on a in 2013 from $4.7 billion in 2008. compound annual basis from its level in 2008. • Middle East/Africa will edge up from $1.52 billion in 2008 to $1.53 billion in 2013 at a rate of 0.2 percent compounded annually. • Germany had the largest consumer and educational book market in EMEA in 2008, at $9.4 billion. France was second, at $8.5 billion, followed by the United Kingdom and Italy at $6.3 billon each, and Spain at $4.5 billion.

516 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer and educational book publishing market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 1,345 1,368 1,380 1,412 1,413 1,387 1,376 1,379 1,386 1,398 –0.2 Belgium 651 667 673 701 700 684 677 681 694 718 0.5 Denmark 781 878 846 919 881 839 818 827 840 858 –0.5 Finland 710 727 732 758 760 748 741 745 754 779 0.5 France 7,610 8,180 8,048 8,664 8,488 8,137 7,917 7,939 8,019 8,158 –0.8 Germany 10,054 10,348 10,204 9,532 9,366 9,073 8,890 8,890 9,021 9,220 –0.3 Greece 391 399 403 414 411 401 394 392 395 403 –0.4 Ireland 402 417 418 495 469 441 422 416 438 465 –0.2 Italy 5,327 5,694 5,868 6,351 6,278 6,088 5,986 6,014 6,102 6,241 –0.1 Netherlands 1,260 1,277 1,288 1,346 1,334 1,300 1,287 1,298 1,331 1,393 0.9 Norway 914 941 1,033 1,102 1,102 1,069 1,047 1,055 1,072 1,097 –0.1 Portugal 273 280 281 288 284 272 266 267 271 278 –0.4 Spain 4,218 4,290 4,456 4,570 4,539 4,459 4,404 4,434 4,486 4,565 0.1 Sweden 816 830 832 850 843 821 812 816 830 858 0.4 Switzerland 791 829 835 858 857 832 822 828 846 872 0.3 United Kingdom 5,949 6,150 6,152 6,368 6,331 6,104 5,983 5,941 6,037 6,231 –0.3 Western Europe total 41,492 43,275 43,449 44,628 44,056 42,655 41,842 41,922 42,522 43,534 –0.2 Central and Eastern Europe Czech Republic 361 374 375 388 385 374 367 369 374 383 –0.1 Hungary 311 323 329 336 338 325 316 312 313 319 –1.2 Poland 780 819 844 887 900 868 855 857 873 897 –0.1 Romania 40 46 59 86 106 102 99 99 100 104 –0.4 Russia 2,004 2,116 2,278 2,605 2,745 1,920 1,818 1,761 1,799 1,903 –7.1 Turkey 206 212 217 226 225 216 210 209 213 224 –0.1 Central and Eastern Europe total 3,702 3,890 4,102 4,528 4,699 3,805 3,665 3,607 3,672 3,830 –4.0 Middle East/Africa Israel 802 816 811 833 835 819 812 813 820 838 0.1 Saudi Arabia/Pan Arab‡ 395 402 411 426 434 425 419 421 428 441 0.3 South Africa 233 241 245 256 253 244 241 242 247 255 0.2 Middle East/Africa total 1,430 1,459 1,467 1,515 1,522 1,488 1,472 1,476 1,495 1,534 0.2 EMEA total 46,624 48,624 49,018 50,671 50,277 47,948 46,979 47,005 47,689 48,898 –0.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | EMEA 517 Consumer books Internet as they might do in a bookstore. Digitization also allows books to be included in online searches Print books through the use of keywords, which will make potential • The print/audio consumer book market fell by 1.9 consumers aware of information contained in books percent in 2008, in large part because of the absence that could lead to increased sales. of sales from the final Harry Potter installment that • Google’s Library Project, introduced in 2006 in Europe, boosted spending by 4.3 percent in 2007. The Harry allows browsing of thousands of books. Google’s Potter cycle will no longer play a role in the consumer settlement of class-action lawsuits in the United book market. States is having repercussions internationally. Google • Historically, consumer books have shown relatively little is setting up a system to pay royalties to authors sensitivity to the economy. On a cost-per-hour basis, whose books have been scanned and is devoting books fare well against most other entertainment and resources to contact those authors. On one hand, with media products and have been generally stable during a royalty system in place, opposition from authors and economic downturns. publishers is waning. Booksellers, on the other hand, generally view Google as a threat because it could lead • We expect that pattern to change during the current to the migration of print books to digital. downturn because it is more severe than recent reces- sions and is leading to steeper cutbacks in consumer • There are a number of other digital browsing services spending, which we expect also will affect books. being introduced in EMEA. In late 2008, a number of national libraries launched Europeana, which consists • Publishers are looking to mitigate the decline by holding of a database of more than 2 million books that can be prices steady and in some cases offering lower prices. accessed over the Internet. In countries that permit price competition, booksellers are offering steep discounts. The result is that unit sales • In Germany, the Libreka! project, launched in late are showing only modest declines, with somewhat 2007, provides a scanning service for participating larger declines in spending. publishers that assists consumers in finding books. Gallica 2 in France provides digital access to titles • We expect spending to fall by 4.6 percent in 2009 and from the National Library of France as well as from by an additional 2 percent in 2010. With respect to the other copyrighted books. Individual publishers also are long-term pattern for consumer books, these declines introducing digital versions on their Web sites that allow will be a significant break in the trend. With respect to users to sample a book online. many other entertainment and media segments, these projected decreases will be small. • We expect that electronic browsing will ultimately enhance the print consumer book market once • While consumer books do not suffer much from economic conditions improve. We expect print/audio economic downturns, they also do not benefit much sales of consumer books to expand by 3.8 percent from economic expansions. We therefore do not from 2010 to 2013. expect a dramatic rebound in spending once the economy recovers. • For the entire five-year forecast period, near-term declines will offset the subsequent rebound, and spending will fall • Independent of the impact of the economy, the market to $32.6 billion in 2013 from $33.6 billion in 2008, a 0.6 will benefit from digitization projects that allow readers percent compound annual decrease. to browse through books electronically from the

518 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print/audio consumer book market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 820 841 849 878 877 860 856 859 865 874 –0.1 Belgium 388 402 402 424 417 407 404 405 408 413 –0.2 Denmark 661 750 716 787 746 707 687 697 710 726 –0.5 Finland 512 527 527 549 547 541 537 539 541 549 0.1 France 4,976 5,590 5,429 6,015 5,817 5,561 5,415 5,451 5,524 5,634 –0.6 Germany 5,791 6,032 6,139 6,421 6,293 6,146 6,073 6,110 6,219 6,366 0.2 Greece 215 222 224 234 231 225 221 221 222 227 –0.3 Ireland 241 256 249 300 271 249 236 231 244 256 –1.1 Italy 3,951 4,317 4,463 4,917 4,829 4,683 4,610 4,646 4,719 4,829 0.0 Netherlands 755 771 773 820 798 776 768 776 790 812 0.3 Norway 754 758 777 800 781 759 745 745 758 779 –0.1 Portugal 152 157 155 161 157 151 146 148 151 155 –0.3 Spain 2,479 2,540 2,605 2,618 2,565 2,461 2,385 2,390 2,412 2,461 –0.8 Sweden 525 539 539 555 546 531 523 525 529 539 –0.3 Switzerland 505 535 540 559 554 535 526 529 535 545 –0.3 United Kingdom 4,140 4,334 4,334 4,507 4,439 4,270 4,178 4,132 4,151 4,224 –1.0 Western Europe total 26,865 28,571 28,721 30,545 29,868 28,862 28,310 28,404 28,778 29,389 –0.3 Central and Eastern Europe Czech Republic 216 228 228 240 237 230 225 226 228 231 –0.5 Hungary 214 225 229 240 243 235 229 226 227 232 –0.9 Poland 477 508 527 562 570 550 539 541 552 564 –0.2 Romania 21 27 36 54 66 64 62 62 62 64 –0.6 Russia 1,199 1,267 1,372 1,557 1,581 1,106 1,046 1,006 1,026 1,086 –7.2 Turkey 134 138 142 149 148 142 138 137 139 146 –0.3 Central and Eastern Europe total 2,261 2,393 2,534 2,802 2,845 2,327 2,239 2,198 2,234 2,323 –4.0 Middle East/Africa Israel 504 518 510 525 521 515 512 514 517 522 0.0 Saudi Arabia/Pan Arab‡ 225 230 235 245 248 243 240 241 245 250 0.2 South Africa 141 148 151 160 157 151 148 149 152 156 –0.1 Middle East/Africa total 870 896 896 930 926 909 900 904 914 928 0.0 EMEA total 29,996 31,860 32,151 34,277 33,639 32,098 31,449 31,506 31,926 32,640 –0.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Book Publishing and Periodic Publications, PricewaterhouseCoopers LLP, Publishers Association, Spanish Ministry of Culture, Wilkofsky Gruen Associates

Consumer and educational book publishing | EMEA 519 Electronic books • In the Netherlands, the iLiad e-book reader was • The electronic book market in EMEA is not well devel- launched in December 2007. The iLiad and other new oped. In countries with strict retail price maintenance eReaders use electronic ink that reads like paper and is (RPM) programs, discounting is either not permitted or much easier on the eyes than was the previous genera- very limited. We do not believe people will buy elec- tion of readers that used liquid crystal display devices. tronic books unless they are less expensive than their The iLiad has Wi-Fi capability that allows books to be print versions. downloaded wirelessly at Wi-Fi hotspots. Titles from Selexyz and Mobipocket can be downloaded to the • In Germany, for example, a number of new eReaders iLiad. Currently, only English-language books have have been introduced, including Bebook, eSlick, and been digitized, which will limit the market potential. the PRS-505 from Sony. In 2009, the Txtr is expected to be launched, which would allow users to access a • In contrast with the music industry, where piracy put virtual library through a mobile device. Nevertheless, pressure on recording companies to make their product we are currently not projecting a measurable market to available in a digital format for legitimate spending, the emerge because e-books are priced at hardcover rates, book publishing industry does not face that pressure. which we believe are much too high to generate much Piracy is not a significant issue, and publishers are not activity. We will monitor developments in Germany and losing sales to pirated copies. Consequently, there is in other RPM countries to see whether an electronic less of an incentive to digitize books. book market can emerge. • We do not expect electronic books to become a major • In non-RPM countries—and in countries where RPM component of the consumer book market during the provides some price latitude, as in the Netherlands—we next five years. The UK will be the leading market, at expect an electronic book market to become established. an estimated $64 million in 2013, 43 percent of total spending. Overall consumer e-book spending will • The United Kingdom is currently the most active market. increase to $148 million in 2013 from only $13 million In the fall of 2008, the Sony Reader was launched and in 2008. was being sold through Waterstone. The Kindle from Amazon is expected in 2009. W.H. Smith also sells Total consumer books electronic books. • Including electronic books, the overall consumer book market will total $32.8 billion in 2013, a 0.5 percent compound annual decrease from $33.7 billion in 2008.

520 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Electronic consumer book market† (US$ millions) 2009–13 EMEA 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 0 0 0 0 0 0 0 — Belgium 0 1 1 1 3 4 6 43.1 Denmark 0 0 0 0 0 0 0 — Finland 0 1 1 3 4 6 9 55.2 France 0 0 0 0 0 0 0 — Germany 0 0 0 0 0 0 0 — Greece 0 0 0 0 0 0 0 — Ireland 0 0 1 1 1 3 4 — Italy 0 0 0 0 0 0 0 — Netherlands 0 1 3 4 6 7 12 64.4 Norway 0 0 0 0 0 0 0 — Portugal 0 0 0 0 0 0 0 — Spain 0 0 0 0 0 0 0 — Sweden 0 1 1 2 3 5 8 51.6 Switzerland 0 1 1 2 3 6 8 51.6 United Kingdom 2 4 9 13 20 42 64 74.1 Western Europe total 2 9 17 26 40 73 111 65.3 Central and Eastern Europe Czech Republic 0 0 1 1 2 2 3 — Hungary 0 0 0 0 0 0 0 — Poland 0 1 2 3 4 5 8 51.6 Romania 0 0 0 0 0 1 1 — Russia 0 2 2 3 4 6 9 35.1 Turkey 0 0 1 1 1 2 2 — Central and Eastern Europe total 0 3 6 8 11 16 23 50.3 Middle East/Africa Israel 1 1 2 3 4 5 8 51.6 Saudi Arabia/Pan Arab‡ 0 0 1 1 2 2 4 — South Africa 0 0 0 1 1 2 2 — Middle East/Africa total 1 1 3 5 7 9 14 69.5 EMEA total 3 13 26 39 58 98 148 62.7

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | EMEA 521 Total consumer book market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 820 841 849 878 877 860 856 859 865 874 –0.1 Belgium 388 402 402 424 418 408 405 408 412 419 0.0 Denmark 661 750 716 787 746 707 687 697 710 726 –0.5 Finland 512 527 527 549 548 542 540 543 547 558 0.4 France 4,976 5,590 5,429 6,015 5,817 5,561 5,415 5,451 5,524 5,634 –0.6 Germany 5,791 6,032 6,139 6,421 6,293 6,146 6,073 6,110 6,219 6,366 0.2 Greece 215 222 224 234 231 225 221 221 222 227 –0.3 Ireland 241 256 249 300 271 250 237 232 247 260 –0.8 Italy 3,951 4,317 4,463 4,917 4,829 4,683 4,610 4,646 4,719 4,829 0.0 Netherlands 755 771 773 820 799 779 772 782 797 824 0.6 Norway 754 758 777 800 781 759 745 745 758 779 –0.1 Portugal 152 157 155 161 157 151 146 148 151 155 –0.3 Spain 2,479 2,540 2,605 2,618 2,565 2,461 2,385 2,390 2,412 2,461 –0.8 Sweden 525 539 539 555 547 532 525 528 534 547 0.0 Switzerland 505 535 540 559 555 536 528 532 541 553 –0.1 United Kingdom 4,140 4,334 4,334 4,509 4,443 4,279 4,191 4,152 4,193 4,288 –0.7 Western Europe total 26,865 28,571 28,721 30,547 29,877 28,879 28,336 28,444 28,851 29,500 –0.3 Central and Eastern Europe Czech Republic 216 228 228 240 237 231 226 228 230 234 –0.3 Hungary 214 225 229 240 243 235 229 226 227 232 –0.9 Poland 477 508 527 562 571 552 542 545 557 572 0.0 Romania 21 27 36 54 66 64 62 62 63 65 –0.3 Russia 1,199 1,267 1,372 1,557 1,583 1,108 1,049 1,010 1,032 1,095 –7.1 Turkey 134 138 142 149 148 143 139 138 141 148 0.0 Central and Eastern Europe total 2,261 2,393 2,534 2,802 2,848 2,333 2,247 2,209 2,250 2,346 –3.8 Middle East/Africa Israel 504 518 510 526 522 517 515 518 522 530 0.3 Saudi Arabia/Pan Arab‡ 225 230 235 245 248 244 241 243 247 254 0.5 South Africa 141 148 151 160 157 151 149 150 154 158 0.1 Middle East/Africa total 870 896 896 931 927 912 905 911 923 942 0.3 EMEA total 29,996 31,860 32,151 34,280 33,652 32,124 31,488 31,564 32,024 32,788 –0.5

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

522 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Educational books Size of the 6- to 17-year-old population (millions) Percent Print books Country 2008 2013 change (%) • The print educational book market is affected by Western Europe tax receipts, which makes it more cyclical than Austria 1.065 0.976 –8.4 the consumer book market. Declining economies throughout the region will lead to falling tax receipts Belgium 1.419 1.356 –4.4 throughout the region, which will put pressure Denmark 0.835 0.821 –1.7 on governments to cut back on spending. While Finland 0.740 0.697 –5.8 governments will try to shield education from the steepest cuts, we expect school funding to be affected. France 9.418 9.628 2.2 • Spending on new textbooks can be postponed or Germany 9.916 9.208 –7.1 delayed with less disruption than laying off teachers Greece 1.235 1.230 –0.4 causes. Accordingly, we look for spending on textbooks Ireland 0.679 0.714 5.2 to decline during the next three years. Italy 6.528 6.391 –2.1 • The market also will be hurt by adverse demographic trends. In most countries, the 6- to 17-year-old Netherlands 2.428 2.380 –2.0 population will decline during the next five years. This Norway 0.748 0.745 –0.4 means that when new books are purchased, fewer Portugal 1.433 1.431 –0.1 copies will be needed, which will cut into spending growth once economic conditions improve. Spain 4.623 4.716 2.0 Sweden 1.272 1.167 –8.3 Switzerland 1.037 0.969 –6.6 United Kingdom 8.798 8.272 –6.0 Western Europe total 52.174 50.701 –2.8 Central and Eastern Europe Czech Republic 1.234 1.124 –8.9 Hungary 1.295 1.197 –7.6 Poland 5.195 4.606 –11.3 Romania 2.998 2.825 –5.8 Russia 17.549 16.421 –6.4 Turkey 16.561 16.705 0.9 Central and Eastern Europe total 44.832 42.878 –4.4 Middle East/Africa Israel 1.499 1.618 7.9 Saudi Arabia/Pan Arab† 55.676 57.064 2.5 South Africa 11.887 11.182 –5.9 Middle East/Africa total 69.062 69.864 1.2 EMEA total 166.068 163.443 –1.6

†Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, US Census Bureau International Database, Wilkofsky Gruen Associates

Consumer and educational book publishing | EMEA 523 • Decreases will be mitigated somewhat by the college spending will fall at a 4.8 percent compound annual textbook market. In a weak employment environment, rate to $1.4 billion from $1.8 billion in 2008. people often go back to school—or attend for the • Middle East/Africa will decline at a 0.6 percent first time—to improve their job prospects when hiring compound annual rate during the next five years to resumes. Higher enrollment will support spending on $575 million in 2013 from $593 million in 2008. college textbooks. • On balance, we expect print educational books to fall Electronic books by a cumulative 7.5 percent during the next three years. • We expect a larger educational electronic book market, We then look for a recovery when economic conditions which is centered on the college market, than a consumer improve and project a 2.6 percent increase from 2011 electronic market. Electronic educational books are more to 2013. than digital versions of print books and include interactive • For the five-year forecast period as a whole, print learning tools that provide enhanced value. educational books will decline at a 1 percent compound • College students are accustomed to accessing annual rate to $15.8 billion in 2013 from $16.6 billion information electronically, and electronic books in 2008. enable them to avoid the need to carry around heavy • Germany is the largest market in EMEA, at $3.1 textbooks. The introduction of portable devices will billion in 2008. The market is substantially smaller stimulate this market because college students will not than in 2006 because of a recategorization of certain be limited to accessing books online. components from educational to professional, which • For publishers, electronic books are much less resulted in a 23.5 percent drop in reported sales in expensive to manufacture and distribute than print 2007. The underlying market has been declining since books and they do not have to deal with returns or 2005 and fell by 1.2 percent in 2008. We expect steeper competition from used books. decreases during the next two years, reflecting the weakening economy. • We expect spending on educational electronic books to total $343 million in 2013, with the UK and the • For Western Europe as a whole, the print educational Netherlands being the largest markets, at $143 million book market will decline from $14.2 billion in 2008 to and $42 million, respectively, together accounting for $13.7 billion in 2013. 54 percent of total spending. • Economies in Central and Eastern Europe are falling at a fast rate, and college textbooks constitute a Total educational books smaller component of the total, resulting in a smaller • Growth in electronic books will not offset the decline offset to the falling elementary and secondary school in print. Total spending on educational books will textbook market. The market in Russia is plunging, decrease to $16.1 billion in 2013 from $16.6 billion and we expect a 30.2 percent decrease in 2009 and in 2008, a 0.6 percent compound annual decline. a 25 percent decrease during the next three years for Central and Eastern Europe as a whole. Through 2013,

524 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print educational book market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 525 527 531 534 536 527 520 520 521 524 –0.5 Belgium 263 265 271 277 281 275 271 269 272 277 –0.3 Denmark 120 128 130 132 135 132 131 130 130 132 –0.4 Finland 198 200 205 209 212 205 200 199 200 205 –0.7 France 2,634 2,590 2,619 2,649 2,671 2,576 2,502 2,488 2,495 2,524 –1.1 Germany 4,263 4,316 4,065 3,111 3,073 2,927 2,817 2,780 2,802 2,854 –1.5 Greece 176 177 179 180 180 176 173 171 173 176 –0.4 Ireland 161 161 168 195 198 190 184 181 184 190 –0.8 Italy 1,376 1,377 1,405 1,434 1,449 1,405 1,376 1,368 1,383 1,412 –0.5 Netherlands 505 506 515 525 534 520 512 509 514 527 –0.3 Norway 160 183 256 302 321 310 302 310 314 318 –0.2 Portugal 121 123 126 127 127 121 120 119 120 123 –0.6 Spain 1,739 1,750 1,851 1,952 1,974 1,998 2,019 2,044 2,074 2,104 1.3 Sweden 291 291 293 294 295 288 285 284 285 288 –0.5 Switzerland 286 294 295 298 301 295 292 291 293 295 –0.4 United Kingdom 1,809 1,816 1,818 1,855 1,882 1,818 1,781 1,763 1,772 1,800 –0.9 Western Europe total 14,627 14,704 14,727 14,074 14,169 13,763 13,485 13,426 13,532 13,749 –0.6 Central and Eastern Europe Czech Republic 145 146 147 148 148 142 140 140 142 145 –0.4 Hungary 97 98 100 96 95 90 87 86 86 87 –1.7 Poland 303 311 317 324 328 315 311 309 311 315 –0.8 Romania 19 19 23 32 40 38 37 37 37 38 –1.0 Russia 805 849 905 1,046 1,159 809 764 744 756 784 –7.5 Turkey 72 74 75 77 77 73 70 70 71 74 –0.8 Central and Eastern Europe total 1,441 1,497 1,567 1,723 1,847 1,467 1,409 1,386 1,403 1,443 –4.8 Middle East/Africa Israel 298 298 301 306 312 301 295 292 294 299 –0.8 Saudi Arabia/Pan Arab‡ 170 172 176 181 185 180 177 176 178 182 –0.3 South Africa 92 93 94 96 96 93 91 91 92 94 –0.4 Middle East/Africa total 560 563 571 583 593 574 563 559 564 575 –0.6 EMEA total 16,628 16,764 16,865 16,380 16,609 15,804 15,457 15,371 15,499 15,767 –1.0

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Book Publishing and Periodic Publications, PricewaterhouseCoopers LLP, Spanish Ministry of Culture, Wilkofsky Gruen Associates

Consumer and educational book publishing | EMEA 525 Electronic educational book market† (US$ millions) 2009–13 EMEA 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 0 0 0 0 0 0 0 0 — Belgium 0 0 1 1 1 4 10 22 85.6 Denmark 0 0 0 0 0 0 0 0 — Finland 0 0 0 1 1 3 7 16 — France 0 0 0 0 0 0 0 0 — Germany 0 0 0 0 0 0 0 0 — Greece 0 0 0 0 0 0 0 0 — Ireland 1 0 0 1 1 3 7 15 — Italy 0 0 0 0 0 0 0 0 — Netherlands 0 1 1 1 3 7 20 42 111.2 Norway 0 0 0 0 0 0 0 0 — Portugal 0 0 0 0 0 0 0 0 — Spain 0 0 0 0 0 0 0 0 — Sweden 0 1 1 1 2 4 11 23 87.2 Switzerland 0 1 1 1 2 5 12 24 88.8 United Kingdom 0 4 6 7 11 26 72 143 88.6 Western Europe total 1 7 10 13 21 52 139 285 95.4 Central and Eastern Europe Czech Republic 0 0 0 1 1 1 2 4 — Hungary 0 0 0 0 0 0 0 0 — Poland 0 1 1 1 2 3 5 10 58.5 Romania 0 0 0 0 0 0 0 1 — Russia 1 2 3 3 5 7 11 24 51.6 Turkey 0 0 0 0 1 1 1 2 — Central and Eastern Europe total 1 3 4 5 9 12 19 41 59.3 Middle East/Africa Israel 0 1 1 1 2 3 4 9 — Saudi Arabia/Pan Arab‡ 0 0 1 1 1 2 3 5 38.0 South Africa 0 0 0 0 1 1 1 3 — Middle East/Africa total 0 1 2 2 4 6 8 17 53.4 EMEA total 2 11 16 20 34 70 166 343 84.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

526 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total educational book market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 525 527 531 534 536 527 520 520 521 524 –0.5 Belgium 263 265 271 277 282 276 272 273 282 299 1.2 Denmark 120 128 130 132 135 132 131 130 130 132 –0.4 Finland 198 200 205 209 212 206 201 202 207 221 0.8 France 2,634 2,590 2,619 2,649 2,671 2,576 2,502 2,488 2,495 2,524 –1.1 Germany 4,263 4,316 4,065 3,111 3,073 2,927 2,817 2,780 2,802 2,854 –1.5 Greece 176 177 179 180 180 176 173 171 173 176 –0.4 Ireland 161 161 169 195 198 191 185 184 191 205 0.7 Italy 1,376 1,377 1,405 1,434 1,449 1,405 1,376 1,368 1,383 1,412 –0.5 Netherlands 505 506 515 526 535 521 515 516 534 569 1.2 Norway 160 183 256 302 321 310 302 310 314 318 –0.2 Portugal 121 123 126 127 127 121 120 119 120 123 –0.6 Spain 1,739 1,750 1,851 1,952 1,974 1,998 2,019 2,044 2,074 2,104 1.3 Sweden 291 291 293 295 296 289 287 288 296 311 1.0 Switzerland 286 294 295 299 302 296 294 296 305 319 1.1 United Kingdom 1,809 1,816 1,818 1,859 1,888 1,825 1,792 1,789 1,844 1,943 0.6 Western Europe total 14,627 14,704 14,728 14,081 14,179 13,776 13,506 13,478 13,671 14,034 –0.2 Central and Eastern Europe Czech Republic 145 146 147 148 148 143 141 141 144 149 0.1 Hungary 97 98 100 96 95 90 87 86 86 87 –1.7 Poland 303 311 317 325 329 316 313 312 316 325 –0.2 Romania 19 19 23 32 40 38 37 37 37 39 –0.5 Russia 805 849 906 1,048 1,162 812 769 751 767 808 –7.0 Turkey 72 74 75 77 77 73 71 71 72 76 –0.3 Central and Eastern Europe total 1,441 1,497 1,568 1,726 1,851 1,472 1,418 1,398 1,422 1,484 –4.3 Middle East/Africa Israel 298 298 301 307 313 302 297 295 298 308 –0.3 Saudi Arabia/Pan Arab‡ 170 172 176 181 186 181 178 178 181 187 0.1 South Africa 92 93 94 96 96 93 92 92 93 97 0.2 Middle East/Africa total 560 563 571 584 595 576 567 565 572 592 –0.1 EMEA total 16,628 16,764 16,867 16,391 16,625 15,824 15,491 15,441 15,665 16,110 –0.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | EMEA 527 Asia Pacific

The outlook in brief • Total print sales will expand at a 1.6 percent compound annual rate to $29.4 billion in 2013 from $27.1 billion • An expanding electronic book market and gains in the in 2008. People’s Republic of China (PRC) will boost consumer book sales. • Sales of electronic consumer books will total $908 million in 2013 from $490 million in 2008, a compound • The adverse economy and a declining school-age annual growth rate of 13.1 percent. population will limit the educational book market. • Electronic educational books will rise to $598 million in 2013 from only $28 million in 2008. Overview • Total electronic book sales will increase at a 23.8 • We project spending on consumer and educational percent compound annual rate to $1.5 billion in 2013 books will grow at a compound annual rate of 2.3 from $518 million in 2008. percent, increasing from $27.6 billion in 2008 to $30.9 billion in 2013. • The consumer book market as a whole, including both print and electronic books, will increase to $17.7 billion • Consumer print books will increase from $15.3 billion in 2013, a 2.3 percent compound annual gain. in 2008 to $16.8 billion in 2013, averaging 1.8 percent growth compounded annually. • The overall educational book market also will expand at a 2.3 percent rate compounded annually to • Educational print books will rise at a 1.4 percent com- $13.2 billion. pound annual rate, increasing from $11.8 billion in 2008 to $12.6 billion in 2013.

Consumer and educational book publishing market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Print/audio Consumer books 12,598 12,979 13,799 14,682 15,314 15,304 15,488 15,897 16,305 16,781 Educational books 9,540 9,938 10,345 11,378 11,793 11,938 12,111 12,260 12,425 12,616 Total print/audio 22,138 22,917 24,144 26,060 27,107 27,242 27,599 28,157 28,730 29,397 Electronic books Consumer books 26 82 207 339 490 534 579 659 776 908 Educational books 1 2 7 14 28 37 74 143 368 598 Total electronic 27 84 214 353 518 571 653 802 1,144 1,506 Total consumer 12,624 13,061 14,006 15,021 15,804 15,838 16,067 16,556 17,081 17,689 Total educational 9,541 9,940 10,352 11,392 11,821 11,975 12,185 12,403 12,793 13,214 Total 22,165 23,001 24,358 26,413 27,625 27,813 28,252 28,959 29,874 30,903

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

528 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer and educational book publishing market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Print/audio Consumer books 3.9 3.0 6.3 6.4 4.3 –0.1 1.2 2.6 2.6 2.9 1.8 Educational books 3.6 4.2 4.1 10.0 3.6 1.2 1.4 1.2 1.3 1.5 1.4 Total print/audio 3.8 3.5 5.4 7.9 4.0 0.5 1.3 2.0 2.0 2.3 1.6 Electronic books Consumer books 116.7 215.4 152.4 63.8 44.5 9.0 8.4 13.8 17.8 17.0 13.1 Educational books — 100.0 250.0 100.0 100.0 32.1 100.0 93.2 157.3 62.5 84.5 Total electronic 125.0 211.1 154.8 65.0 46.7 10.2 14.4 22.8 42.6 31.6 23.8 Total consumer 4.0 3.5 7.2 7.2 5.2 0.2 1.4 3.0 3.2 3.6 2.3 Total educational 3.7 4.2 4.1 10.0 3.8 1.3 1.8 1.8 3.1 3.3 2.3 Total 3.9 3.8 5.9 8.4 4.6 0.7 1.6 2.5 3.2 3.4 2.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The PRC and Japan are the dominant countries in the sustain spending. A growing electronic book market will region at $10.2 billion and $9.1 billion, respectively. contribute to a 0.4 percent compound annual increase Together they constituted 70 percent of total spending in overall spending through 2013. in Asia Pacific in 2008. The PRC rose by 5.2 percent in • India and South Korea were next-largest markets, 2008, down from the 16.2 percent jump in 2007 but more at $1.9 billion and $1.7 billion, respectively, in 2008. in line with increases during prior years. Continued, albeit India has a dynamic publishing industry and is the slower, economic expansion and a growing educational third-largest producer of English-language books in electronic book market will sustain continued increases the world, behind the United States and the United in spending in the PRC. We project a 4.1 percent Kingdom. India will be the fastest-growing territory compound annual increase to $12.5 billion in 2013. during the next five years, with a 5.9 percent compound • Japan rose by 4.4 percent in 2008, helped by the final annual growth. Harry Potter installment, which boosted consumer • South Korea also has a thriving electronic book market spending. A falling economy will reduce print consumer and a strong children’s market that will contribute to book spending in the near term. The print educational a 2.3 percent compound increase during the next five book market will hold up better because rising college years, third highest, behind India and the PRC. enrollment and continued investment in education will

Consumer and educational book publishing | Asia Pacific 529 Consumer and educational book publishing market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,246 1,294 1,315 1,393 1,432 1,403 1,392 1,402 1,433 1,484 0.7 China 7,339 7,843 8,348 9,699 10,205 10,644 11,101 11,502 11,988 12,493 4.1 Hong Kong 171 176 182 189 192 186 187 186 185 187 –0.5 India 1,210 1,356 1,578 1,795 1,942 2,060 2,182 2,353 2,473 2,592 5.9 Indonesia 44 46 48 50 51 51 50 50 53 54 1.1 Japan 8,020 8,063 8,500 8,693 9,077 8,887 8,821 8,907 9,057 9,246 0.4 Malaysia 426 437 450 467 479 469 466 467 478 501 0.9 New Zealand 439 453 459 477 478 467 459 462 468 476 –0.1 Pakistan 22 23 24 24 26 25 24 25 25 26 0.0 Philippines 60 61 63 66 68 66 66 66 66 67 –0.3 Singapore 261 267 272 281 281 261 251 246 250 255 –1.9 South Korea 1,486 1,489 1,546 1,634 1,732 1,711 1,713 1,759 1,848 1,941 2.3 Taiwan 802 829 853 886 884 827 798 788 792 804 –1.9 Thailand 639 664 720 759 778 756 742 746 758 777 0.0 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 22,165 23,001 24,358 26,413 27,625 27,813 28,252 28,959 29,874 30,903 2.3

†At average 2008 exchange rates. Sources: Australian Bureau of Statistics, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer books One China allows users to access the first chapters of books, which helps stimulate interest and ultimately Print books sales of print books. During the next five years, growth • Two divergent patterns will characterize the market will average 5.9 percent compounded annually in India during the next two years: continued expansion in and 5 percent in the PRC. India and the PRC and flat or declining spending in the rest of the region. Although slowing noticeably, Print/audio consumer book growth in Asia Pacific (%) the economies of India and the PRC continue to grow 15 and are boosting the consumer book markets in those 12 countries. During the next two years, print consumer PRC and India books will increase by a combined 11.5 percent in India 9 Rest of the region and the PRC while falling by 4.9 percent in the rest of 6 the region. 3 • In addition to economic growth, digitization projects are 0 expanding the markets in India and the PRC. In India, Google is digitizing -language books, enabling –3 them to be included in keyword search results. In the –6 2005 2006 2007 2008 2009 2010 2011 2012 2013 PRC, the government is supporting the digitization of books as part of the Universal Library project. Chapter Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

530 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • In the rest of the region, the adverse economy will be the publishers lose their exclusivity, and bookstores and the dominant factor. Gains during 2011–13 will not be other distributors can obtain the book from any other sufficient to offset decreases during the next two years, source. Publishers and authors are interested in retaining and spending during the entire five-year forecast period the rules because the exclusivity period keeps prices will fall at a 0.4 percent compound annual rate. high. A determination is expected in 2009. If the rules are rescinded, booksellers would benefit because they could • In Japan, a post–Harry Potter falloff and a weak offer lower prices, which would have a positive effect on economy will lead to a 3.2 percent decline in 2009 and sales. Our forecasts do not assume a change in policy. a cumulative 4.9 percent decrease through 2010. Sales of children’s books are holding up despite a decrease • Print spending in South Korea has been bolstered by in that segment of the population. Children’s stories a strong children’s market that has offset a relatively distributed for free to mobile phones and the Internet weak adult market. The economy will lead to near-term are helping stimulate interest in print books. decreases and a 0.1 percent compound annual decline through 2013. • In Australia, the government asked the Productivity Commission in late 2008 to consider revisiting parallel • For Asia Pacific as a whole, gains in India and the import restrictions. Under current rules, Australian PRC will offset declines elsewhere, and overall print publishers that have exclusive rights to foreign titles are consumer book sales will rise to $16.8 billion in 2013 now required to publish those books in Australia within from $15.3 billion in 2008, a 1.8 percent compound 30 days of their foreign publication. If they do not do so, annual increase.

Print/audio consumer book market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 833 865 869 928 945 928 919 924 940 970 0.5 China 3,016 3,246 3,490 3,950 4,165 4,381 4,632 4,883 5,099 5,314 5.0 Hong Kong 68 71 74 78 80 77 76 76 76 78 –0.5 India 913 1,027 1,210 1,393 1,507 1,598 1,690 1,827 1,918 2,009 5.9 Indonesia 20 21 22 24 24 24 24 24 25 26 1.6 Japan 5,314 5,266 5,565 5,652 5,942 5,749 5,652 5,671 5,720 5,797 –0.5 Malaysia 112 115 118 123 124 121 120 120 121 124 0.0 New Zealand 267 277 278 291 288 281 277 279 282 286 –0.1 Pakistan 10 10 11 11 12 11 11 11 11 12 0.0 Philippines 29 30 31 33 34 33 33 33 33 34 0.0 Singapore 148 152 155 161 159 145 138 134 136 139 –2.7 South Korea 980 971 980 984 971 943 930 934 948 966 –0.1 Taiwan 460 477 491 513 507 475 460 452 455 467 –1.6 Thailand 428 451 505 541 556 538 526 529 541 559 0.1 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 12,598 12,979 13,799 14,682 15,314 15,304 15,488 15,897 16,305 16,781 1.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | Asia Pacific 531 Electronic books 2012 and rise to $454 million by 2013, up 14.9 percent • The electronic consumer book market is concentrated compounded annually from $227 million in 2008. in Japan and South Korea, which together constituted Growth is being fueled by the availability of electronic 98 percent of spending in 2008. books through online bookstores and by mobile phone distribution. Electronic books will account for 32 • In Japan, mobile distribution accounts for the majority percent of total consumer book spending in 2013, up of electronic book sales. Digital versions of the popular from 19 percent in 2008. manga comic books are driving the market, as are novels written specifically for mobile phones. The weak • In Australia, Dymocks launched an electronic book economy will lead to a slowdown during the next two service in 2008 and introduced the iLiad eReader years, but we expect stronger growth thereafter. We from the Netherlands. Users need to either buy the expect electronic consumer book sales in Japan to electronic book at a bookstore or download it over the increase to $406 million in 2013 from $251 million in Internet and then transfer it to the device. Sales of the 2008, a 10.1 percent compound annual gain. Electronic iLiad have been growing rapidly since its introduction. books accounted for 4.1 percent of total consumer Cybook and Gen3 are other eReaders that have book spending in 2008 and will increase to 6.5 percent been introduced in Australia. These new devices use by 2013. electronic ink that looks like print on paper and is easy to read. • The electronic book market grew explosively in South Korea through 2008. We expect growth to moderate • We expect overall electronic consumer books to during the next two years because of the recession and increase from $490 million in 2008 to $908 million in then accelerate. South Korea will overtake Japan in 2013, a 13.1 percent compound annual increase.

Electronic consumer book market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 0 1 2 3 4 5 6 7 9 14 28.5 China 0 0 1 1 2 3 3 5 10 16 51.6 Hong Kong 0 0 0 0 0 0 1 1 1 1 — India 0 0 0 0 1 1 1 2 4 6 43.1 Indonesia 0 0 0 0 0 0 0 0 0 0 — Japan 19 62 145 204 251 271 290 319 357 406 10.1 Malaysia 0 0 0 0 1 1 1 1 1 1 — New Zealand 0 0 1 1 1 1 1 2 2 3 24.6 Pakistan 0 0 0 0 0 0 0 0 0 0 — Philippines 0 0 0 0 0 0 0 0 0 0 — Singapore 0 0 0 1 1 1 1 1 1 1 0.0 South Korea 7 19 57 127 227 249 272 317 386 454 14.9 Taiwan 0 0 1 2 2 2 3 3 4 4 14.9 Thailand 0 0 0 0 0 0 0 1 1 2 — Vietnam NA NA NA NA NA NA NA NA NA NA — Total 26 82 207 339 490 534 579 659 776 908 13.1

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

532 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total consumer books compounded annually during the next five years from • The addition of electronic books will increase total 1.8 percent from print alone. Spending will rise from consumer book spending growth to 2.3 percent $15.8 billion in 2008 to $17.7 billion in 2013.

Total consumer book market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 833 866 871 931 949 933 925 931 949 984 0.7 China 3,016 3,246 3,491 3,951 4,167 4,384 4,635 4,888 5,109 5,330 5.0 Hong Kong 68 71 74 78 80 77 77 77 77 79 –0.3 India 913 1,027 1,210 1,393 1,508 1,599 1,691 1,829 1,922 2,015 6.0 Indonesia 20 21 22 24 24 24 24 24 25 26 1.6 Japan 5,333 5,328 5,710 5,856 6,193 6,020 5,942 5,990 6,077 6,203 0.0 Malaysia 112 115 118 123 125 122 121 121 122 125 0.0 New Zealand 267 277 279 292 289 282 278 281 284 289 0.0 Pakistan 10 10 11 11 12 11 11 11 11 12 0.0 Philippines 29 30 31 33 34 33 33 33 33 34 0.0 Singapore 148 152 155 162 160 146 139 135 137 140 –2.6 South Korea 987 990 1,037 1,111 1,198 1,192 1,202 1,251 1,334 1,420 3.5 Taiwan 460 477 492 515 509 477 463 455 459 471 –1.5 Thailand 428 451 505 541 556 538 526 530 542 561 0.2 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 12,624 13,061 14,006 15,021 15,804 15,838 16,067 16,556 17,081 17,689 2.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Educational books prospects in the future by attending college. In Japan, for example, the educational book market is holding up Print books relatively well because of a steady college market. We • The print educational book market is generally more project only a 0.7 percent dip in 2009, a steady market cyclical than the consumer book market because in 2010, and modest growth thereafter, for a 0.2 percent much of the spending is generated by the government, compound annual increase through 2013. whose resources in turn are affected by tax revenues. • As in the consumer market, we expect India and Falling tax revenues in most countries will squeeze the PRC to override the recession in the near term. government spending. We expect education to be Continued economic growth, although at a slower rate, affected and project a decline in spending on textbooks will propel the education market in those countries. in most countries. During the next five years, we project India and the • At the college level, by contrast, enrollment tends to PRC to expand at a 2.7 percent compound annual rate. rise when economic conditions are weak because • The government of the PRC is actively supporting people look to invest in improving their employment educational publishers by providing tax rebates and

Consumer and educational book publishing | Asia Pacific 533 encouraging state-owned publishers to access private Size of the 6- to 17-year-old population (millions) capital. In 2008, 11 educational publishers went Percent public; spending rose by 5 percent in 2008; and we Asia Pacific 2008 2013 change (%) project gains of 3 percent or more during the next Australia 3.232 3.257 0.8 two years. Leading sellers include books that assist in test taking, which taps into the test-oriented nature of China 234.456 210.381 –10.3 the educational system. A 10.3 percent decline in the Hong Kong 0.814 0.710 –12.8 school-age population during the next five years will cut into spending growth on educational books. We project India 279.025 288.683 3.5 a 2.5 percent compound annual increase through 2013. Indonesia 53.302 53.784 0.9 • In India, an expanding economy and a growing school- Japan 14.521 13.878 –4.4 age population will boost spending on educational Malaysia 6.239 6.424 3.0 books. The school-age population will increase by 9.7 New Zealand 0.710 0.707 –0.4 million during the next five years, the largest increase in absolute terms in Asia Pacific. We expect India to Pakistan 50.124 51.779 3.3 have the fastest-growing print educational book market Philippines 24.050 25.675 6.8 during the next five years, with a 5.6 percent compound Singapore 0.598 0.550 –8.0 annual increase. South Korea 7.597 6.618 –12.9 • For the rest of the region, a weak near-term economy will lead to declines during the next two years and a Taiwan 3.599 3.114 –13.5 declining school-age population; and in some cases, Thailand 11.671 10.923 –6.4 migration to electronic books will cut into spending over Vietnam 19.121 17.312 –9.5 the long run. Total 709.059 693.795 –2.2 • The school-age population in most countries in Asia Pacific will decrease during the next five years. The Sources: PricewaterhouseCoopers LLP, US Census Bureau International Database, total number of people in the 6- to 17-year-old age- Wilkofsky Gruen Associates group will fall to 693.8 million in 2013 from 709.1 million in 2008, a 2.2 percent decline. • In addition to the PRC, we expect double-digit declines in Hong Kong, South Korea, and Taiwan. • With fewer students, fewer copies of textbooks will need to be purchased, which will dampen growth even when the economy recovers. We project the overall print market for educational books to expand at a 1.4 percent compound annual rate to $12.6 billion in 2013 from $11.8 billion in 2008.

534 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print educational book market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 413 428 443 461 481 468 464 466 470 476 –0.2 China 4,323 4,596 4,855 5,745 6,032 6,248 6,434 6,549 6,679 6,822 2.5 Hong Kong 103 105 108 111 112 109 109 108 105 103 –1.7 India 297 329 368 402 434 461 491 523 548 571 5.6 Indonesia 24 25 26 26 27 27 26 26 27 27 0.0 Japan 2,686 2,734 2,787 2,831 2,870 2,850 2,850 2,860 2,879 2,898 0.2 Malaysia 314 322 332 343 353 346 343 343 346 358 0.3 New Zealand 172 176 180 184 188 184 180 179 178 178 –1.1 Pakistan 12 13 13 13 14 14 13 14 14 14 0.0 Philippines 31 31 32 33 34 33 33 33 33 33 –0.6 Singapore 113 115 117 119 120 114 111 110 109 109 –1.9 South Korea 499 499 508 522 532 517 508 503 499 496 –1.4 Taiwan 342 352 361 370 374 349 333 330 323 317 –3.3 Thailand 211 213 215 218 222 218 216 216 215 214 –0.7 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 9,540 9,938 10,345 11,378 11,793 11,938 12,111 12,260 12,425 12,616 1.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Electronic books • In Japan, we expect the proliferation of portable readers • The electronic educational book market is much less to generate a market for electronic textbooks. Students developed than the electronic consumer book market. are comfortable with accessing information online, and Spending totaled only $28 million in 2008, with Japan most of them connect to the Internet via broadband. and the PRC together accounting for $20 million. In College students also are among the buyers of contrast with electronic consumer books, South Korea electronic consumer books, and we expect they will does not yet have a significant electronic educational be open to accessing textbooks electronically. There is book market. a large potential market in Japan, and we expect that publishers will introduce electronic textbooks to serve • The electronic educational book market will receive that potential market. We project electronic educational a major lift during the next few years in the PRC. The books in Japan to increase to $145 million in 2013. government is undertaking a program to provide digital readers for students so that students will have access • The overall electronic educational book market in Asia to all reading material required for their courses without Pacific will rise to $598 billion by 2013. having to carry around heavy books. Schools will be adopting electronic books. We expect the electronic educational book market in the PRC to increase to $341 million in 2013.

Consumer and educational book publishing | Asia Pacific 535 Electronic educational book market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 0 0 1 1 2 2 3 5 14 24 64.4 China 0 1 2 3 6 12 32 65 200 341 124.3 Hong Kong 0 0 0 0 0 0 1 1 3 5 — India 0 0 0 0 0 0 0 1 3 6 — Indonesia 0 0 0 0 0 0 0 0 1 1 — Japan 1 1 3 6 14 17 29 57 101 145 59.6 Malaysia 0 0 0 1 1 1 2 3 10 18 78.3 New Zealand 0 0 0 1 1 1 1 2 6 9 55.2 Pakistan 0 0 0 0 0 0 0 0 0 0 — Philippines 0 0 0 0 0 0 0 0 0 0 — Singapore 0 0 0 0 1 1 1 1 4 6 43.1 South Korea 0 0 1 1 2 2 3 5 15 25 65.7 Taiwan 0 0 0 1 1 1 2 3 10 16 74.1 Thailand 0 0 0 0 0 0 0 0 1 2 — Vietnam NA NA NA NA NA NA NA NA NA NA — Total 1 2 7 14 28 37 74 143 368 598 84.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

536 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total educational books gain. Electronic books will account for 4.5 percent of • Total spending on educational books, including total educational book spending in 2013 from only 0.2 electronic books, will reach $13.2 billion in 2013 from percent in 2008. $11.8 billion in 2008, a 2.3 percent compound annual

Total educational book market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 413 428 444 462 483 470 467 471 484 500 0.7 China 4,323 4,597 4,857 5,748 6,038 6,260 6,466 6,614 6,879 7,163 3.5 Hong Kong 103 105 108 111 112 109 110 109 108 108 –0.7 India 297 329 368 402 434 461 491 524 551 577 5.9 Indonesia 24 25 26 26 27 27 26 26 28 28 0.7 Japan 2,687 2,735 2,790 2,837 2,884 2,867 2,879 2,917 2,980 3,043 1.1 Malaysia 314 322 332 344 354 347 345 346 356 376 1.2 New Zealand 172 176 180 185 189 185 181 181 184 187 –0.2 Pakistan 12 13 13 13 14 14 13 14 14 14 0.0 Philippines 31 31 32 33 34 33 33 33 33 33 –0.6 Singapore 113 115 117 119 121 115 112 111 113 115 –1.0 South Korea 499 499 509 523 534 519 511 508 514 521 –0.5 Taiwan 342 352 361 371 375 350 335 333 333 333 –2.3 Thailand 211 213 215 218 222 218 216 216 216 216 –0.5 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 9,541 9,940 10,352 11,392 11,821 11,975 12,185 12,403 12,793 13,214 2.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | Asia Pacific 537 Latin America

The outlook in brief years and then advance by 6.6 percent to $4.9 billion in 2013, up 0.7 percent compounded annually from $4.8 • A growing school-age population will lead to a billion in 2008. rebound in the educational book market when the economy improves. • Consumer books will grow from $2.18 billion in 2008 to $2.23 billion in 2013, a 0.5 percent compound • The adverse economy will lead to near-term declines annual increase. in consumer book sales. • Educational books will expand at an 0.8 percent rate compounded annually, reaching $2.7 billion in 2013 Overview from $2.6 billion in 2008. • We project that spending on consumer and educational • There is no material electronic book market in books will decrease by 3 percent during the next two Latin America.

Consumer and educational book publishing market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Consumer books 1,995 2,027 2,070 2,127 2,177 2,149 2,134 2,142 2,175 2,230 Educational books 2,298 2,372 2,445 2,525 2,595 2,532 2,496 2,523 2,601 2,702 Total 4,293 4,399 4,515 4,652 4,772 4,681 4,630 4,665 4,776 4,932

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Consumer books 0.3 1.6 2.1 2.8 2.4 –1.3 –0.7 0.4 1.5 2.5 0.5 Educational books 2.5 3.2 3.1 3.3 2.8 –2.4 –1.4 1.1 3.1 3.9 0.8 Total 1.5 2.5 2.6 3.0 2.6 –1.9 –1.1 0.8 2.4 3.3 0.7

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Brazil is the dominant market in the region, at $3.3 • Fueled largely by high inflation rates, Argentina will be billion in 2008, 69 percent of the total. the fastest-growing country during the next five years, with a 1.9 percent compound annual increase. • Mexico is second largest, at $872 million, with Argentina and Colombia next at $207 million and $206 million, respectively.

538 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer and educational book publishing market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 178 185 191 199 207 206 208 212 220 227 1.9 Brazil 2,969 3,045 3,124 3,217 3,298 3,236 3,195 3,220 3,304 3,426 0.8 Chile 150 154 158 164 168 166 163 164 166 170 0.2 Colombia 179 184 191 199 206 200 198 200 204 210 0.4 Mexico 799 813 831 853 872 853 846 849 862 880 0.2 Venezuela 18 18 20 20 21 20 20 20 21 21 0.0 Total 4,293 4,399 4,515 4,652 4,772 4,681 4,630 4,665 4,777 4,934 0.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Educational books Books spending growth in Latin America (%) • Educational books are more sensitive to economic 6 conditions than are consumer books because they are funded largely by government, and government 4 spending is affected by tax receipts. With tax receipts 2 expected to fall as the economy declines, we expect cutbacks in government spending in general, with 0 educational spending likely to be affected as well. Consumer books • Because education is viewed as critical to the –2 Educational books region’s economic growth, we do not expect dramatic –4 declines in either educational spending in general or in 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 textbook spending. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates • We project decreases totaling 3.8 percent during the next two years, which will be steeper than the projected • The educational book market will also be boosted by 2 percent decline for consumer books. an expanding school-age population in most countries, • When the economy rebounds, we look for a larger gain which will require more books. in educational books because rising tax revenues and • Increases in the number of people in the 6- to 17-year- postponed purchases will fuel demand. We expect an old age-group are expected in each country except 8.3 percent increase in educational book spending from Chile and Mexico during the next five years. Brazil and 2010 to 2013 compared with a projected 4.5 percent Argentina will have the largest gains, at 2.6 percent increase in consumer books. and 2.4 percent, respectively. In Chile, by contrast, the school-age population will fall by 6 percent, and there will be an expected 1.9 percent decrease for Mexico. For Latin America as a whole, the school-age population will increase from 95.8 million in 2008 to 96.5 million in 2013, a 0.7 percent gain.

Consumer and educational book publishing | Latin America 539 Size of the 6- to 17-year-old population (millions) • Accordingly, we expect the fastest growth in education- al book spending in Argentina and Brazil and a decline Percent in Chile. Country 2008 2013 change (%) • For the five-year forecast period as a whole, the Argentina 8.163 8.356 2.4 educational book market in Latin America will increase Brazil 41.294 42.369 2.6 at an 0.8 percent compound annual rate to $2.7 billion Chile 3.284 3.088 –6.0 in 2013 from $2.6 billion in 2008. Colombia 10.469 10.532 0.6 Mexico 26.066 25.574 –1.9 Venezuela 6.521 6.535 0.2 Total 95.797 96.454 0.7

Sources: PricewaterhouseCoopers LLP, US Census Bureau International Database, Wilkofsky Gruen Associates

Print educational book market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 80 84 87 90 93 91 90 91 95 99 1.3 Brazil 1,577 1,631 1,680 1,735 1,781 1,740 1,713 1,735 1,795 1,876 1.0 Chile 84 87 89 92 94 92 90 90 91 92 –0.4 Colombia 114 118 123 128 133 129 128 129 132 136 0.4 Mexico 431 440 453 467 480 467 462 465 474 485 0.2 Venezuela 12 12 13 13 14 13 13 13 14 14 0.0 Total 2,298 2,372 2,445 2,525 2,595 2,532 2,496 2,523 2,601 2,702 0.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

540 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer books • That economy is now turning around; we look for consumers to reduce their spending during the next • Spending on consumer books rose at a 2.2 percent two years; and consumer books will be affected. compound annual rate from 2004 to 2008, buoyed by rising disposable income that freed up resources to • The economic recovery expected by 2011 will then lead spend on leisure products. While pleasure reading is to a modest improvement in consumer book spending. not a major activity in Latin America, consumer books • For the forecast period as a whole, we project spending benefited from the improved economic environment. to rise at a 0.5 percent compound annual rate, which will translate to a modest, $53,000 increase.

Print consumer book market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 98 101 104 109 114 115 118 121 125 128 2.3 Brazil 1,392 1,414 1,444 1,482 1,517 1,496 1,482 1,485 1,509 1,550 0.4 Chile 66 67 69 72 74 74 73 74 74 76 0.5 Colombia 65 66 68 71 73 71 70 71 72 74 0.3 Mexico 368 373 378 386 392 386 384 384 388 395 0.2 Venezuela 6 6 7 7 7 7 7 7 7 7 0.0 Total 1,995 2,027 2,070 2,127 2,177 2,149 2,134 2,142 2,175 2,230 0.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Consumer and educational book publishing | Latin America 541 542 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business-to-business publishing

544 Summary

546 North America

557 Europe, Middle East, Africa (EMEA)

580 Asia Pacific

597 Latin America Summary

Business-to-business publishing will decrease to $74.7 billion in 2013 from $88.1 billion in 2008, declining by 3.2 percent compounded annually. The business-to-business publishing market consists EMEA will fall at a 1.8 percent compound annual rate to of spending on business information, print and online $53.6 billion in 2013. The Asia Pacific market will decline directory advertising, print advertising in trade magazines, at a 0.3 percent average rate, decreasing from $21 billion advertising on trade magazine Web sites, and trade in 2008 to $20.7 billion in 2013. Business-to-business magazine circulation spending. It also includes spending publishing in Latin America will total $3.9 billion in 2013, on print and electronic professional books. Business rising by 0.8 percent compounded annually from $3.8 information is an industry increasingly characterized by billion in 2008, the only region where spending will be multinational suppliers selling to multinational buyers. higher in 2013 than in 2008. Figures reflect spending by buyers of information in the various countries. Market size and growth by component We classify business information into financial, marketing, and industry information categories. Global business information, the largest component, at $86.7 billion in 2008, will total $76.4 billion in 2013, down • Financial information involves securities, economic, and 3.8 percent on a compound annual basis. Print directory credit data. advertising will fall at a 6.5 percent compound annual rate • Marketing information is used to sell products or to $22.8 billion from $31.8 billion, the steepest decline of services and to monitor sales and includes survey the business-to-business publishing components during research, mailing lists, and demographic databases. the next five years. Online directories will reach $5.9 billion in 2013 from $2.9 billion in 2008, a 14.9 percent • Industry information consists of data and content, compound annual increase. Total directory advertising will such as market share information and competitive decline by 3.8 percent compounded annually from $34.7 intelligence, focused on specific industry categories billion in 2008 to $28.6 billion in 2013. Online directories such as accounting, energy, health care, law, will constitute 20.5 percent of total directory advertising in manufacturing, real estate, technology, and 2013 from 8.4 percent in 2008. telecommunications. Print advertising in trade magazines will fall from $17.9 billion to $14.6 billion, a 4.1 percent decrease Market size and growth by region compounded annually. Digital advertising on trade We project overall spending in North America, EMEA magazine Web sites will increase from $1.7 billion to $2.9 (Europe, Middle East, Africa), Asia Pacific, and Latin billion, growing at an 11.1 percent compound annual America to decline by 11.7 percent in 2009 and by a rate. Total trade magazine advertising will still fall at a 2.3 cumulative 17.7 percent through 2011. A modest rebound percent compound annual rate to $17.4 billion from $19.6 during the subsequent two years will leave spending 2.3 billion. Digital advertising will constitute 16.4 percent of percent lower on a compound annual basis from 2008, total trade magazine advertising in 2013 from 8.6 percent falling from $171.6 billion to $152.9 billion. North America in 2007. Circulation spending will decrease from $8.4

544 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 billion to $8.3 billion, a 0.4 percent annual decline. Total Principal drivers trade magazine spending will decrease at a 1.8 percent compound annual rate, dropping to $25.7 billion in 2013 Each segment of the market is sensitive to the economy. from $28.1 billion in 2008. The recent financial collapse will lead to steep near-term declines in financial information; decreases in consumer The print professional book market will decline at a 0.9 spending will lead to cutbacks in advertising, marketing, percent annual rate to $20.2 billion in 2013. Electronic and marketing information; and falling investment will books will total $2.1 billion in 2013, growing at a 15.5 lower spending on industry information. While those percent compound annual rate. The overall professional factors will play roles in each region, the impact on book market will grow from $22.1 billion to $22.3 billion, a business information spending will vary from region to 0.2 percent increase compounded annually. region. Directory advertising will be hurt in the near term Total business-to-business advertising will decline at a 3.3 by the recession, and over the longer run by migration of percent annual rate to $46 billion from $54.3 billion. End- advertising from print to the Internet. Even though online user spending on business information, trade magazine rates are much lower than print rates, gains in online circulation, and professional books will fall at a 1.8 percent advertising will generally not be large enough to offset compound annual rate to $106.9 billion in 2013 from losses in print. Trade magazines will be adversely affected $117.2 billion in 2008. by the declining economy and falling employment. Falling employment will also cut into spending on professional books in the near term. A rebounding economy during the latter part of the forecast period will lead to rebounds in each category during 2012–13.

Data for the global business-to-business publishing market by region and for the global business-to-business publishing market by component can be found within the Executive Summary on pages 53 and 54.

Business-to-business publishing | Summary 545 North America

The outlook in brief • Print advertising in trade magazines will decline by nearly 20 percent in 2009 and by nearly 27 percent • Falling credit availability and lower consumer spending during the next three years. During the entire forecast will lead to declines in business information in the near period, spending will fall at a 4.5 percent compound term. annual rate from $10.2 billion in 2008 to $8.1 billion • Business closings will lead to near-term declines in in 2013. directory advertising. • Advertising on trade magazine Web sites will reach $1.8 • Declines in corporate profits will lower trade magazine billion in 2013, an 8 percent compound annual increase revenues during the next two years. from $1.2 billion in 2008. • Falling employment will reduce spending on profes- • Total trade magazine advertising will fall from $11.4 sional books in the near term. billion to $9.8 billion, a 2.9 percent decline on a com- pound annual basis. Overview • Circulation spending will decrease at a 1.5 percent compound annual rate to $1.5 billion. • The business-to-business publishing market will decline by 14.4 percent in 2009 and by a cumulative 22 percent • The total trade magazine market will decline at a 2.7 through 2011. A modest rebound during 2012–13 percent compound annual rate from $13 billion to will leave spending at $74.7 billion in 2013, down 3.2 $11.4 billion. percent on a compound annual basis from $88.1 billion • Spending on professional print books will total $6.3 in 2008. billion in 2013 from $6.4 billion in 2008, a 0.4 percent • Business information will decline from $51.3 billion in decrease compounded annually. 2008 to $43.3 billion in 2013, falling at a 3.3 percent • Electronic professional books will expand at a 9 percent compound annual rate. compound annual rate to $1.2 billion in 2013 from $779 • Print directory advertising will plunge by 36.5 percent million in 2008. during the next four years and will average an 8.4 • The overall professional book market will grow to $7.5 percent compound annual decrease through 2013 to billion from $7.2 billion, an 0.8 percent compound $9.7 billion from $15 billion in 2008. annual increase. • Online directory advertising will dip by 3.8 percent in • Total business-to-business advertising will decrease 2009 before rebounding in 2010 and growing to $2.8 from $27.9 billion to $22.3 billion, a 4.3 percent billion by 2013, a 14.3 percent increase compounded compound annual decline. annually from $1.5 billion in 2008. Online directories will be the fastest-growing business-to-business publishing • Total end-user spending will fall at a 2.8 percent category during the next five years. compound annual rate to $52.3 billion in 2013 from $60.2 billion in 2008. • Despite growth in online directory advertising, the overall directory advertising market will still decline, falling at a 5.4 percent compound annual rate to $12.5 billion from $16.5 billion in 2008.

546 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business-to-business publishing market† (US$ millions)

North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Business information 45,255 48,079 51,495 53,182 51,338 44,155 40,626 39,764 40,881 43,332 Directory advertising Print 15,097 15,361 15,578 15,469 15,040 12,008 10,477 9,844 9,553 9,677 Digital NA 285 743 1,189 1,456 1,401 1,537 1,837 2,259 2,837 Total directory advertising 15,097 15,646 16,321 16,658 16,496 13,409 12,014 11,681 11,812 12,514 Trade magazines Print advertising 10,312 11,018 11,156 10,960 10,165 8,164 7,550 7,445 7,502 8,059 Digital advertising NA 324 660 1,062 1,207 1,133 1,201 1,336 1,500 1,774 Total advertising 10,312 11,342 11,816 12,022 11,372 9,297 8,751 8,781 9,002 9,833 Circulation spending 1,878 1,727 1,780 1,756 1,673 1,568 1,517 1,517 1,528 1,548 Total trade magazines 12,190 13,069 13,596 13,778 13,045 10,865 10,268 10,298 10,530 11,381 Professional books Print 6,164 6,112 6,251 6,428 6,396 6,113 6,006 6,029 6,132 6,262 Electronic 437 511 590 690 779 794 849 929 1,051 1,198 Total professional books 6,601 6,623 6,841 7,118 7,175 6,907 6,855 6,958 7,183 7,460 Total advertising 25,409 26,988 28,137 28,680 27,868 22,706 20,765 20,462 20,814 22,347 Total end user 53,734 56,429 60,116 62,056 60,186 52,630 48,998 48,239 49,592 52,340 Total 79,143 83,417 88,253 90,736 88,054 75,336 69,763 68,701 70,406 74,687

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | North America 547 Business-to-business publishing market growth (%) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Business information 5.3 6.2 7.1 3.3 –3.5 –14.0 –8.0 –2.1 2.8 6.0 –3.3 Directory advertising Print 1.0 1.7 1.4 –0.7 –2.8 –20.2 –12.7 –6.0 –3.0 1.3 –8.4 Digital — — 160.7 60.0 22.5 –3.8 9.7 19.5 23.0 25.6 14.3 Total directory advertising 1.0 3.6 4.3 2.1 –1.0 –18.7 –10.4 –2.8 1.1 5.9 –5.4 Trade magazines Print advertising 3.8 6.8 1.3 –1.8 –7.3 –19.7 –7.5 –1.4 0.8 7.4 –4.5 Digital advertising — — 103.7 60.9 13.7 –6.1 6.0 11.2 12.3 18.3 8.0 Total advertising 3.8 10.0 4.2 1.7 –5.4 –18.2 –5.9 0.3 2.5 9.2 –2.9 Circulation spending –0.3 –8.0 3.1 –1.3 –4.7 –6.3 –3.3 0.0 0.7 1.3 –1.5 Total trade magazines 3.1 7.2 4.0 1.3 –5.3 –16.7 –5.5 0.3 2.3 8.1 –2.7 Professional books Print 2.0 –0.8 2.3 2.8 –0.5 –4.4 –1.8 0.4 1.7 2.1 –0.4 Electronic 54.4 16.9 15.5 16.9 12.9 1.9 6.9 9.4 13.1 14.0 9.0 Total professional books 4.3 0.3 3.3 4.0 0.8 –3.7 –0.8 1.5 3.2 3.9 0.8 Total advertising 2.1 6.2 4.3 1.9 –2.8 –18.5 –8.5 –1.5 1.7 7.4 –4.3 Total end user 5.0 5.0 6.5 3.2 –3.0 –12.6 –6.9 –1.5 2.8 5.5 –2.8 Total 4.0 5.4 5.8 2.8 –3.0 –14.4 –7.4 –1.5 2.5 6.1 –3.2

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The United States and Canada will exhibit comparable • The US market will fall from $81 billion in 2008 to patterns during the next five years—double-digit $68.5 billion in 2013, a 3.3 percent compound annual declines in 2009, high-single-digit decreases in 2010 decrease. Canada will decline at a 2.6 percent and low-single-digit declines in 2011 followed by low- compound annual rate to $6.1 billion in 2013 from to mid-single-digit growth during 2012–13. $7 billion in 2008.

Business-to-business publishing market by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 72,841 76,890 81,412 83,623 81,032 69,190 64,074 63,124 64,633 68,538 –3.3 Canada 6,302 6,527 6,841 7,113 7,022 6,146 5,689 5,577 5,773 6,149 –2.6 Total 79,143 83,417 88,253 90,736 88,054 75,336 69,763 68,701 70,406 74,687 –3.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

548 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business information • The cutback in consumer spending reverberated throughout the economy, making the downturn • The collapse of the housing market and the financial particularly severe. With consumers spending less, markets brought lending activity to a virtual standstill vendors are slashing their advertising and marketing during the latter part of 2008. There also was a expenditures, in the process reducing their need sharp falloff in merger and acquisition activity, and for marketing information. Spending on marketing securities values plummeted. As a consequence of information fell 3.9 percent in 2008, and we look for a these developments, the need for financial information 15.4 percent decrease in 2009 and a cumulative decline dropped off, and spending in 2008 fell by 6.1 percent, of 23.2 percent through 2011. most of which was centered in the fourth quarter. • Once consumers build up their savings to a comfortable • We expect a much steeper decline during the next level, we expect they will begin spending again, which two years. In addition to depressed lending activity, will help expand the economy. It will also revitalize the employment in the financial sector is declining, and advertising and marketing industries and boost spending there will be fewer potential purchasers of financial on marketing information. We expect marketing infor- information. We project spending to fall by 18 percent mation to expand by 10.2 percent from 2011 to 2013. in 2009 and by an additional 12.1 percent in 2010. By During the entire forecast period, marketing information 2011, spending on financial information will have fallen will fall at a 3.3 percent compound annual rate to $14.5 by 31 percent from 2008. billion in 2013 from $17.1 billion in 2008. • When economic conditions improve and financial • With credit difficult to obtain and with consumers companies fix their balance sheet problems, lending cutting back on their spending, there are both little activity should increase, which will generate increased demand for new investment and limited capital demand for financial information. We expect spending available for those companies that do wish to invest. to rise by 2.3 percent in 2012, and by 6.7 percent in Consequently, overall investment activity will decline, 2013. Those gains will not offset the near-term declines, and the need for investors to seek information to and spending of $14.3 billion in 2013 will be 5.5 percent evaluate new opportunities will likewise decline. lower compounded annually from $19 billion in 2008. • We project spending on industry information to fall • Since 2005, consumers had been financing spending during the next two years, stabilize in 2011, and then through home equity loans and other credit instruments expand at modest rates during 2012–13. Spending will even as savings from disposable income fell. In early drop from $15.2 billion in 2008 to $14.6 billion in 2013, 2008, the plunge in housing values dried up the a 0.9 percent compound annual decline. home equity market and reduced consumer wealth. Consumers reacted by cutting back on their spending and increasing their savings. In the US, savings in the fourth quarter reached their highest level since 1992.

Business-to-business publishing | North America 549 Business information market by component† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Financial 17,660 18,685 20,079 20,245 19,001 15,576 13,688 13,094 13,391 14,282 % Change 4.8 5.8 7.5 0.8 –6.1 –18.0 –12.1 –4.3 2.3 6.7 –5.5 Marketing 15,094 16,032 17,029 17,825 17,121 14,485 13,414 13,141 13,669 14,485 % Change 5.1 6.2 6.2 4.7 –3.9 –15.4 –7.4 –2.0 4.0 6.0 –3.3 Industry 12,501 13,362 14,387 15,112 15,216 14,094 13,524 13,529 13,821 14,565 % Change 6.4 6.9 7.7 5.0 0.7 –7.4 –4.0 0.0 2.2 5.4 –0.9 Total 45,255 48,079 51,495 53,182 51,338 44,155 40,626 39,764 40,881 43,332 % Change 5.3 6.2 7.1 3.3 –3.5 –14.0 –8.0 –2.1 2.8 6.0 –3.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Overall spending on business information will decrease • The US market will decline at a 3.4 percent compound at a 3.3 percent compound annual rate to $43.3 billion annual rate, falling to $38.9 billion in 2013 from $46.3 in 2013 from $51.3 billion in 2008. billion in 2008. In Canada, spending will decrease from $5.1 billion in 2008 to $4.4 billion in 2013, a 2.7 percent decline compounded annually.

Business information market by country† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 40,650 43,300 46,500 48,000 46,250 39,700 36,500 35,750 36,750 38,900 –3.4 Canada 4,605 4,779 4,995 5,182 5,088 4,455 4,126 4,014 4,131 4,432 –2.7 Total 45,255 48,079 51,495 53,182 51,338 44,155 40,626 39,764 40,881 43,332 –3.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Directory advertising the market compared with television or newspapers. Although the current economic decline is hurting Print virtually all businesses, small businesses typically fare • The directory advertising market is being affected worse than larger companies, and many often go out over the long run by a spending shift from print to the of business. Internet and in the short run by the falling economy. • We expect the combination of an overall cutback in • The falling economy is leading to cutbacks in all forms advertising and major reductions on the part of small of advertising, including directory advertising. Directory businesses to lead to a 20.2 percent drop in print advertising is particularly vulnerable because small directory advertising in 2009. We expect a 12.7 percent businesses make up a relatively large component of decline in 2010, with decreases continuing through 2012.

550 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • A stronger economy will lead to a modest increase of decrease. We expect print directory advertising to be 1.3 percent in 2013, helped by new business formation the weakest component of the business-to-business that also is typical on the upside of the economic cycle. publishing market during the next five years. Nevertheless, that gain will be muted by the ongoing • The US market will fall at an 8.7 percent compound shift of spending to online directories. annual rate to $8.8 billion from $13.8 billion in 2008. • For the forecast period as a whole, we project print Canada will decline from $1.2 billion to $877 million, directory advertising to fall from $15 billion in 2008 to falling by 6.1 percent on a compound annual basis. $9.7 billion in 2013, an 8.4 percent compound annual

Print directory advertising market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 14,002 14,229 14,393 14,250 13,840 11,000 9,600 9,000 8,700 8,800 –8.7 Canada 1,095 1,132 1,185 1,219 1,200 1,008 877 844 853 877 –6.1 Total 15,097 15,361 15,578 15,469 15,040 12,008 10,477 9,844 9,553 9,677 –8.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Online directories for online directory advertising to rebound with a 9.1 • Online directories can be updated continuously, and percent increase, followed by accelerating growth the content of ads can be changed. The flexibility of through 2013. Online directory advertising in the US will Internet directories gives them an advantage over print. rise to $2.6 billion in 2013 from $1.4 billion in 2008, a For those reasons, we expect online directories to 13.8 percent compound annual increase. continue to gain share during the next five years. • In Canada, we expect a pickup in growth in 2010 to • The Internet is not immune to the economy, and we 19.8 percent followed by gains in excess of 30 percent expect online directory advertising to be adversely during 2011–12 and a 15.2 percent increase in 2013. affected in 2009. We project a 4.6 percent decline in Online directory advertising will increase from $72 2009 in the United States. In Canada, which is a year or million in 2008 to $197 million in 2013, a 22.3 percent two behind the US, digital directory advertising growth compound annual gain. will slow to 12.5 percent from a 46.9 percent increase • Overall online directory advertising in North America will in 2008. grow at a 14.3 percent compound annual rate to $2.8 • We expect that online share gains will override the billion in 2013 from $1.5 billion in 2008. weak economy in the United States by 2010 and look

Digital directory advertising market† (US$ millions) 2009–13 North America 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 285 720 1,140 1,384 1,320 1,440 1,710 2,088 2,640 13.8 Canada NA 23 49 72 81 97 127 171 197 22.3 Total 285 743 1,189 1,456 1,401 1,537 1,837 2,259 2,837 14.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | North America 551 Total directory advertising • In Canada, total directory advertising will fall from $1.3 billion in 2008 to $1.1 billion in 2013, a 3.3 percent • Growth in online directory advertising will not be decrease compounded annually. sufficient to offset declines in print. In the United States, total directory advertising will decline at a 5.6 percent • Overall directory advertising will total $12.5 billion compound annual rate from $15.2 billion in 2008 to in 2013, down 5.4 percent on a compound annual $11.4 billion in 2013. basis from $16.5 billion in 2008. Online directories will constitute 22.7 percent of total directory advertising in 2013 compared with 8.8 percent in 2008.

Total directory advertising market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 14,002 14,514 15,113 15,390 15,224 12,320 11,040 10,710 10,788 11,440 –5.6 Canada 1,095 1,132 1,208 1,268 1,272 1,089 974 971 1,024 1,074 –3.3 Total 15,097 15,646 16,321 16,658 16,496 13,409 12,014 11,681 11,812 12,514 –5.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Trade magazines • With the economic climate worsening, we expect print advertising in trade magazines to fall by 19.7 percent in Print advertising 2009 and by a cumulative 26.8 percent through 2011. • Trade magazine print advertising historically has been From 2006 to 2011, print advertising in trade magazines one of the more cyclical media and has generally been will have dropped by a third. driven by trends in corporate profits. Trade magazines • We expect the market to stabilize in 2012 as economic also are experiencing migration of advertising to the conditions begin to trend upward and then grow by Internet, which has cut into print growth during the past 7.4 percent in 2013 as corporate profits again rise and few years. Print advertising in trade magazines fell by 7.3 as companies look to expand. Trade magazines are percent in 2008, the second consecutive annual decline. one of the vehicles companies use to boost sales in an • Corporate profits are now falling sharply, and compa- expanding economy. nies are cutting back on their ad spending. Employment • Print advertising in trade magazines will total an esti- is falling, which is reducing the potential audience for mated $8.1 billion in 2013, still a 4.5 percent compound trade magazine advertising, and magazines are closing, annual decline from the $10.2 billion in 2008. which will reduce the number of outlets for advertisers. Ziff-Davis, for example, is ending its print publication of • The US market will fall at a 4.5 percent compound annual PC Magazine and making the title available only online. rate to $7.9 billion in 2013 from $10 billion in 2008. In Canada, Masthead, the trade publication covering Canada will decline from $211 million in 2008 to $159 the magazine industry, is closing as well. million in 2013, a 5.5 percent compound annual decrease.

552 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Trade magazine print advertising market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 10,104 10,807 10,940 10,740 9,954 8,000 7,400 7,300 7,350 7,900 –4.5 Canada 208 211 216 220 211 164 150 145 152 159 –5.5 Total 10,312 11,018 11,156 10,960 10,165 8,164 7,550 7,445 7,502 8,059 –4.5

†At average 2008 exchange rates. Sources: American Business Media, Leading National Advertisers, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Digital advertising • Thereafter, we expect digital advertising to expand in • Trade magazines, particularly publications serving the the US in 2010 and to return to double-digit growth computer and technical industries, generally attract during 2011–13. In Canada, which has a very small proportionally more digital advertising than consumer digital advertising market, double-digit annual gains are magazines do. In 2008, digital advertising in North expected during 2010–13. America accounted for 10.6 percent of total trade • Digital advertising will total an estimated $1.8 billion in magazine advertising compared with 6.4 percent for 2013, up 8 percent compounded annually from $1.2 consumer magazines. billion in 2008. • The economic downturn and the associated cutback • The US market will grow at a 7.8 percent compound in advertising will also affect the digital market in 2009. annual rate, and Canada will advance by 22.6 percent Despite continued share gains, we expect digital ad- compounded annually to $36 million from only $13 vertising on trade magazine Web sites to fall in 2009 million in 2008. by 6.2 percent in the United States and to remain flat in Canada.

Trade magazine digital advertising market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States NA 324 656 1,053 1,194 1,120 1,184 1,314 1,470 1,738 7.8 Canada NA NA 4 9 13 13 17 22 30 36 22.6 Total NA 324 660 1,062 1,207 1,133 1,201 1,336 1,500 1,774 8.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | North America 553 Trade magazine total advertising market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 10,104 11,131 11,596 11,793 11,148 9,120 8,584 8,614 8,820 9,638 –2.9 Canada 208 211 220 229 224 177 167 167 182 195 –2.7 Total 10,312 11,342 11,816 12,022 11,372 9,297 8,751 8,781 9,002 9,833 –2.9

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Total trade magazine advertising • Circulation spending fell by 4.7 percent in 2008. We • Growth in digital will not offset the decline in print. Total expect decreases in employment to further reduce trade magazine advertising will fall at a 2.9 percent circulation spending during the next two years by a compound annual rate to $9.8 billion from $11.4 billion. cumulative 9.3 percent. By 2013, digital advertising will account for 18 percent • As economic conditions improve and as employment of total trade magazine advertising. rebounds, paid circulation will post modest increases during 2011–13. Circulation • Paid circulation in 2013 will total an estimated $1.5 • Most trade magazines are distributed on a controlled billion, a 1.5 percent compound annual decrease basis to targeted readers who do not pay for the from 2008. magazine. Consequently, circulation spending accounts for a much smaller component of revenues for trade Overall trade magazine market magazines than it does for consumer titles. At $1.7 billion in 2008, circulation spending represented 13 • The overall trade magazine market will decline at a 2.7 percent of trade magazine revenues in North America. percent compound annual rate from $13 billion in 2008 By contrast, circulation spending generated 42 percent to $11.4 billion in 2013. of the total for consumer magazines.

Trade magazine circulation spending market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 1,800 1,650 1,705 1,680 1,600 1,500 1,450 1,450 1,460 1,480 –1.5 Canada 78 77 75 76 73 68 67 67 68 68 –1.4 Total 1,878 1,727 1,780 1,756 1,673 1,568 1,517 1,517 1,528 1,548 –1.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

554 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total trade magazine publishing market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 11,904 12,781 13,301 13,473 12,748 10,620 10,034 10,064 10,280 11,118 –2.7 Canada 286 288 295 305 297 245 234 234 250 263 –2.4 Total 12,190 13,069 13,596 13,778 13,045 10,865 10,268 10,298 10,530 11,381 –2.7

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Professional books • The professional book market also is affected by the economy. The recession affects professionals, Print particularly those in the business and financial markets. • The professional book market serves the scientific, Falling employment will lead to cutbacks in professional technical, and medical industries, as well as the book purchases. We project spending to fall by 4.4 legal and business (financial services) industries. percent in 2009 and an additional 1.8 percent in 2010. The print professional book market declined by 0.5 • An improved economy will have a positive impact on percent in 2008 following gains averaging 2.6 percent the professional book market during the latter part compounded annually during the prior two years. of the forecast period. We project spending on print • Print sales have been helped by the emergence of online professional books to rebound during the 2011–13 browsing services. Professionals looking for information period with a 1.4 percent compound annual increase. online were able to search professional books for the Nevertheless, spending will be lower in 2013 than in first time. Many were made aware of information in those 2008, falling from $6.4 billion to $6.3 billion. books, and purchases were generated through links to Web sites and online retailers.

Professional book print market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 5,855 5,795 5,928 6,100 6,070 5,800 5,700 5,725 5,825 5,950 –0.4 Canada 309 317 323 328 326 313 306 304 307 312 –0.9 Total 6,164 6,112 6,251 6,428 6,396 6,113 6,006 6,029 6,132 6,262 –0.4

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Business-to-business publishing | North America 555 Electronic books • Once economic conditions improve, the entrance of • Professional books are generally used for reference young professionals accustomed to accessing material purposes, which makes them suitable for electronic electronically should contribute to growth in electronic formats. Publishers have invested in electronic products books. We project a return to double-digit growth and created tools to enable users to customize during 2012–13. material. During the past few years, professionals have • For the forecast period as a whole, spending on elec- migrated from print versions to electronic formats. tronic professional books will increase to $1.2 billion in • Spending on electronic professional books totaled 2013, a 9 percent compound annual increase from 2008. $779 million in 2008, representing 11 percent of total • The US market will expand at an 8.8 percent compound professional book spending. annual rate, and the Canadian market will grow by an • In the near term, the drop in employment will cut into estimated 11.8 percent compounded annually from a electronic growth even as electronic books continue much smaller base. to gain share. We expect low- to mid-single-digit increases during the next two years.

Professional book electronic market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 430 500 570 660 740 750 800 875 990 1,130 8.8 Canada 7 11 20 30 39 44 49 54 61 68 11.8 Total 437 511 590 690 779 794 849 929 1,051 1,198 9.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

Total professional books • The total professional book market, including print and • Gains in the electronic book market will offset decreas- electronic books, will grow at an 0.8 percent compound es in print, and total spending will be higher in 2013 annual rate to $7.5 billion in 2013 from $7.2 billion than in 2008, the only business-to-business publishing in 2008. category projected to expand during the next five years.

Total professional book market† (US$ millions) 2009–13 North America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR United States 6,285 6,295 6,498 6,760 6,810 6,550 6,500 6,600 6,815 7,080 0.8 Canada 316 328 343 358 365 357 355 358 368 380 0.8 Total 6,601 6,623 6,841 7,118 7,175 6,907 6,855 6,958 7,183 7,460 0.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Universal McCann, Wilkofsky Gruen Associates

556 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Europe, Middle East, Africa (EMEA)

The outlook in brief • Print advertising in trade magazines will decline at a 3.6 percent compound annual rate to $4.9 billion from • Plunging credit markets and decreased consumer $5.9 billion. spending will lead to near-term declines in business information. • Advertising on trade magazine Web sites will reach $928 million in 2013, up 17.1 percent compounded • The economic downturn will lead to steep declines in annually from $421 million in 2008. directory advertising. • Gains in digital advertising will not offset declines in • Web site advertising will boost the trade magazine print, and total trade magazine advertising will fall from market once economic conditions improve. $6.3 billion to $5.9 billion, a 1.6 percent compound • The adverse economy will lead to decreases in the annual decrease. professional book market during the next three years. • Circulation spending will be flat, at $5.2 billion, falling during the next two years and recovering during Overview 2011–13. • The business-to-business publishing market in EMEA • The total trade magazine market will fall at a 0.9 percent will decrease by a cumulative 15 percent during the next compound annual rate from $11.6 billion to $11.1 billion. three years followed by low- to mid-single-digit growth • Spending on professional print books will total $9.1 during 2012–13. The rebound will not be large enough to billion in 2013 from $9.7 billion in 2008, a 1.2 percent offset the near-term decline, and spending in 2013 will decrease compounded annually. be 1.8 percent lower on a compound annual basis from 2008, falling from $58.7 billion to $53.6 billion. • Electronic professional books will expand from $88 million to $346 million, a 31.5 percent compound • Business information will total $23.3 billion in 2013, a annual rate from a small base. 2 percent compound annual decline from $25.7 billion in 2008. • The overall professional book market at $9.5 billion in 2013 will be 0.7 percent lower on a compound annual • Print directory advertising will fall at a 6.7 percent basis from $9.8 billion in 2008. compound annual rate from $10.4 billion in 2008 to $7.4 billion in 2013. • Total business-to-business advertising will decrease from $18 billion to $15.6 billion, a 2.7 percent • Online directory advertising will increase at a 14.8 compound annual decline. percent compound annual rate to $2.4 billion in 2013 from $1.2 billion in 2008. • Total end-user spending on business information, trade magazine circulation, and professional books will fall • Total directory advertising will still decline during the at a 1.4 percent compound annual rate to $38 billion in next five years, but at a more moderate, 3.4 percent 2013 from $40.7 billion in 2008. compound annual rate to $9.8 billion in 2013 from $11.6 billion in 2008.

Business-to-business publishing | EMEA 557 Business-to-business publishing market by component† (US$ millions)

EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Business information 22,111 23,278 24,891 26,343 25,744 23,355 22,102 21,619 21,984 23,301 Directory advertising Print 9,884 10,213 10,522 10,676 10,397 8,693 7,657 7,269 7,199 7,353 Digital NA NA 553 828 1,226 1,189 1,297 1,595 2,018 2,443 Total directory advertising 9,884 10,213 11,075 11,504 11,623 9,882 8,954 8,864 9,217 9,796 Trade magazines Print advertising 5,920 6,009 6,146 6,264 5,917 4,933 4,616 4,556 4,683 4,922 Digital advertising NA NA 212 299 421 402 456 578 751 928 Total advertising 5,920 6,009 6,358 6,563 6,338 5,335 5,072 5,134 5,434 5,850 Circulation spending 4,992 5,050 5,115 5,213 5,221 5,106 5,067 5,093 5,165 5,223 Total trade magazines 10,912 11,059 11,473 11,776 11,559 10,441 10,139 10,227 10,599 11,073 Professional books Print 8,447 8,275 8,618 9,817 9,677 9,283 9,105 9,019 9,037 9,102 Electronic 9 15 28 54 88 100 121 164 255 346 Total professional books 8,456 8,290 8,646 9,871 9,765 9,383 9,226 9,183 9,292 9,448 Total advertising 15,804 16,222 17,433 18,067 17,961 15,217 14,026 13,998 14,651 15,646 Total end user 35,559 36,618 38,652 41,427 40,730 37,844 36,395 35,895 36,441 37,972 Total 51,363 52,840 56,085 59,494 58,691 53,061 50,421 49,893 51,092 53,618

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

558 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business-to-business publishing market growth by component (%) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Business information 3.7 5.3 6.9 5.8 –2.3 –9.3 –5.4 –2.2 1.7 6.0 –2.0 Directory advertising Print 2.9 3.3 3.0 1.5 –2.6 –16.4 –11.9 –5.1 –1.0 2.1 –6.7 Digital — — — 49.7 48.1 –3.0 9.1 23.0 26.5 21.1 14.8 Total 2.9 3.3 8.4 3.9 1.0 –15.0 –9.4 –1.0 4.0 6.3 –3.4 Trade magazines Print advertising 1.3 1.5 2.3 1.9 –5.5 –16.6 –6.4 –1.3 2.8 5.1 –3.6 Digital advertising — — — 41.0 40.8 –4.5 13.4 26.8 29.9 23.6 17.1 Total advertising 1.3 1.5 5.8 3.2 –3.4 –15.8 –4.9 1.2 5.8 7.7 –1.6 Circulation spending 0.1 1.2 1.3 1.9 0.2 –2.2 –0.8 0.5 1.4 1.1 0.0 Total trade magazines 0.8 1.3 3.7 2.6 –1.8 –9.7 –2.9 0.9 3.6 4.5 –0.9 Professional books Print –0.1 –2.0 4.1 13.9 –1.4 –4.1 –1.9 –0.9 0.2 0.7 –1.2 Electronic 350.0 66.7 86.7 92.9 63.0 13.6 21.0 35.5 55.5 35.7 31.5 Total professional books 0.0 –2.0 4.3 14.2 –1.1 –3.9 –1.7 –0.5 1.2 1.7 –0.7 Total advertising 2.3 2.6 7.5 3.6 –0.6 –15.3 –7.8 –0.2 4.7 6.8 –2.7 Total end user 2.3 3.0 5.6 7.2 –1.7 –7.1 –3.8 –1.4 1.5 4.2 –1.4 Total 2.3 2.9 6.1 6.1 –1.3 –9.6 –5.0 –1.0 2.4 4.9 –1.8

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• The business-to-business publishing market in Western • Germany and the United Kingdom had the largest Europe will decline by 15.3 percent during the next markets in 2008, at $16.6 billion and $12.9 billion, three years and then grow by 7.1 percent cumulatively respectively, together accounting for 50.3 percent of during 2012–13 to $47.5 billion, which will be 1.9 total spending in EMEA. percent lower on a compound annual basis from $52.4 • Germany will decline at a 1.4 percent compound billion in 2008. annual rate to $15.5 billion in 2013. The UK economy • Central and Eastern Europe will follow a similar pattern, is particularly weak, and we project a 20.9 percent falling from $4.8 billion in 2008 to $4 billion in 2011 and cumulative decline during the next three years and a then rising to $4.4 billion in 2013, down 1.4 percent 3.4 percent compound annual decrease through 2013 compounded annually from 2008. to $10.8 billion. • Middle East/Africa will decline by 6.8 percent during the • France is the third-largest country, at $7.9 billion. We next two years and then grow by 12.9 percent during project a 1.7 percent compound annual decrease to the subsequent three years, rising to $1.6 billion in $7.3 billion in 2013. 2013 from $1.5 billion in 2008, a 1 percent compound • Italy was fourth largest, at $3.4 billion, and the Nether- annual increase. lands, Spain, and Russia had markets above $2 billion. Poland was the only other country to reach $1 billion in business-to-business publishing in 2008.

Business-to-business publishing | EMEA 559 Business-to-business publishing market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 693 716 767 800 803 745 713 713 739 775 –0.7 Belgium 830 845 902 952 958 879 848 856 895 952 –0.1 Denmark 404 420 454 474 479 441 418 415 430 454 –1.1 Finland 470 478 508 526 532 491 472 475 490 518 –0.5 France 7,200 7,403 7,750 8,107 7,918 7,133 6,797 6,730 6,904 7,263 –1.7 Germany 14,107 14,203 15,147 16,877 16,636 15,361 14,850 14,690 14,963 15,539 –1.4 Greece 276 312 335 356 357 322 299 295 301 321 –2.1 Ireland 210 221 246 267 267 234 215 213 219 241 –2.0 Italy 2,931 3,068 3,264 3,403 3,389 2,989 2,786 2,739 2,802 2,945 –2.8 Netherlands 2,495 2,531 2,713 2,812 2,851 2,606 2,514 2,521 2,630 2,767 –0.6 Norway 570 605 655 686 697 640 612 607 621 656 –1.2 Portugal 227 235 244 254 251 224 210 209 211 221 –2.5 Spain 2,198 2,303 2,444 2,582 2,537 2,239 2,083 2,056 2,103 2,211 –2.7 Sweden 866 906 965 1,002 988 910 904 914 945 988 0.0 Switzerland 749 767 810 852 848 786 757 768 803 847 0.0 United Kingdom 12,186 12,492 13,060 13,350 12,876 11,266 10,427 10,191 10,348 10,849 –3.4 Western Europe total 46,412 47,505 50,264 53,300 52,387 47,266 44,905 44,392 45,404 47,547 –1.9 Central and Eastern Europe Czech Republic 381 397 422 444 443 407 386 379 388 413 –1.4 Hungary 298 313 334 338 333 300 284 278 281 296 –2.3 Poland 865 915 978 1,032 1,050 980 944 938 957 1,016 –0.7 Romania 123 132 141 153 153 134 123 118 123 130 –3.2 Russia 1,558 1,725 1,954 2,099 2,169 1,969 1,834 1,830 1,903 2,041 –1.2 Turkey 465 512 569 619 607 531 502 498 509 546 –2.1 Central and Eastern Europe total 3,690 3,994 4,398 4,685 4,755 4,321 4,073 4,041 4,161 4,442 –1.4 Middle East/Africa Israel 367 373 378 387 390 376 371 372 380 389 –0.1 Saudi Arabia/Pan Arab‡ 610 663 715 770 797 754 738 751 797 868 1.7 South Africa 284 305 330 352 362 344 334 337 350 372 0.5 Middle East/Africa total 1,261 1,341 1,423 1,509 1,549 1,474 1,443 1,460 1,527 1,629 1.0 EMEA total 51,363 52,840 56,085 59,494 58,691 53,061 50,421 49,893 51,092 53,618 –1.8

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

560 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business information percent in 2013 as economic activity picks up. During the entire five-year forecast period, spending on financial • The business information market in EMEA declined by information will fall at a 4.7 percent compound annual 2.3 percent in 2008. Financial information, the largest rate to $9.3 billion in 2013 from $11.8 billion in 2008. component of the market, fell by 4.4 percent, and mar- keting information decreased by 2.3 percent, offsetting • As consumers cut back on their spending, companies a modest 0.7 percent rise in industry information. are cutting back on their marketing and advertising and are spending less on marketing information. We project • The collapse of the mortgage market and the decline a 7 percent decrease in 2009 and a cumulative 15 per- in real estate values and sales volumes decreased the cent decline through 2011. We anticipate a rebound in ability of financial institutions to provide credit, which in advertising during the latter part of the forecast period, turn decreased demand for credit information. which will be accompanied by a rebound in spending • The securities market fell sharply during the latter on marketing information. We project a 9.4 percent part of 2008, further dampening demand for financial cumulative increase from 2011 to 2013. Marketing information. Staff cutbacks at banks and brokerage information will total an estimated $4.8 billion in 2013, institutions are reducing the number of people in the down 1.5 percent compounded annually from $5.1 market for financial information. billion in 2008. • Companies faced with declining sales are not looking • Although virtually all segments of the economy have to expand, and their demand for investment funds been adversely affected by the economic downturn, the is falling as well. Likewise, consumers are looking to nonfinancial and nonmarketing sectors have been less shore up their savings and not take on new debt. The volatile. Consequently, demand for industry information combination of reduced demand for credit, reduced has held up relatively well. supply of credit, and falling securities markets is • Nevertheless, international trade volumes are decreasing, reducing spending on financial information. The decline and interest in foreign investment is waning, although India in the market is leading information providers to and the People’s Republic of China are still compelling consolidate. Most notably, in the fall of 2008 markets. The relaxation of foreign ownership restrictions in was acquired by Canadian-based Thomson Company those countries is making them more inviting. Companies to form Thomson Reuters. are purchasing industry information to help them evaluate • Worsening market conditions will lead to more precipi- the status and prospects of industries in those areas. tous declines during the next two years. We project • On balance, we project relatively modest decreases in spending on financial information to fall by 16.2 percent spending on industry information during the next two in 2009 and by a further 9.8 percent in 2010 followed by years. Industry information will be the only business a 4.6 percent drop in 2011, for a cumulative decrease information category that will be larger in 2013 than in of nearly 28 percent during the next three years. 2008, growing by 1 percent compounded annually from • We expect an economic recovery to lead to a rebound $8.8 billion to $9.2 billion. in demand for financial information as investment • The business information market as a whole will decline activity resumes and companies again look to expand. from $25.7 billion in 2008 to $23.3 billion in 2013, falling We project the financial information market to stabilize at a 2 percent compound annual rate. in 2012 with a 1.7 percent advance and to grow by 7.3

Business-to-business publishing | EMEA 561 Business information market by component† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Financial 10,443 10,991 11,754 12,381 11,842 9,926 8,951 8,540 8,683 9,320 % Change 3.2 5.2 6.9 5.3 –4.4 –16.2 –9.8 –4.6 1.7 7.3 –4.7 Marketing 4,642 4,915 5,227 5,269 5,149 4,788 4,531 4,367 4,507 4,777 % Change 3.2 5.9 6.3 0.8 –2.3 –7.0 –5.4 –3.6 3.2 6.0 –1.5 Industry 7,026 7,372 7,910 8,693 8,753 8,641 8,620 8,712 8,794 9,204 % Change 4.7 4.9 7.3 9.9 0.7 –1.3 –0.2 1.1 0.9 4.7 1.0 Total 22,111 23,278 24,891 26,343 25,744 23,355 22,102 21,619 21,984 23,301 % Change 3.7 5.3 6.9 5.8 –2.3 –9.3 –5.4 –2.2 1.7 6.0 –2.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Western Europe fell by 2.8 percent in 2008 compared decline during the next three years, a 10.7 percent with increases of 0.6 percent in Central and Eastern increase during the subsequent two years, and an Europe and 3.2 percent in Middle East/Africa. We overall 1 percent compound annual decrease from expect Western Europe to continue to experience the $2.6 billion to $2.4 billion. steepest declines during the next three years, with a • Economies in Middle East/Africa are not suffering as projected 16.6 percent cumulative decrease followed much as in the rest of EMEA, although decreases are by a relatively modest, 7.2 percent recovery from 2011 expected there as well. Slower economic activity will to 2013. Spending on business information in Western lead to declines in spending on business information. Europe will average a 2.2 percent compound annual We project a cumulative 7.5 percent drop during the decline, falling to $20 billion in 2013 from $22.4 billion next two years and a 15.1 percent increase during the in 2008. subsequent three years, for an overall advance of 1.3 • Economies in Central and Eastern Europe also are percent on a compound annual basis. Spending will declining, and the trends in Western Europe are being rise from $765 million in 2008 to $815 million in 2013. reflected there as well. We project a 14.1 percent

562 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business information market by country† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 186 196 208 220 212 195 184 179 184 195 –1.7 Belgium 228 239 253 268 263 241 228 221 227 239 –1.9 Denmark 181 188 198 209 206 191 182 177 181 190 –1.6 Finland 120 126 135 143 140 132 124 121 123 130 –1.5 France 3,154 3,359 3,585 3,805 3,695 3,366 3,219 3,146 3,205 3,410 –1.6 Germany 6,600 6,790 7,193 7,573 7,463 6,878 6,585 6,439 6,527 6,878 –1.6 Greece 132 143 155 167 167 154 146 143 145 155 –1.5 Ireland 117 127 139 151 146 132 124 121 123 132 –2.0 Italy 1,098 1,134 1,193 1,251 1,229 1,127 1,061 1,039 1,054 1,098 –2.2 Netherlands 388 405 432 454 446 410 388 380 395 417 –1.3 Norway 166 186 209 223 222 204 195 191 193 208 –1.3 Portugal 114 119 124 130 129 117 111 110 113 117 –1.9 Spain 659 717 783 834 798 702 659 644 651 695 –2.7 Sweden 209 220 235 247 243 228 220 216 219 231 –1.0 Switzerland 221 228 240 251 249 235 231 231 237 249 0.0 United Kingdom 5,996 6,327 6,740 7,116 6,795 5,969 5,510 5,326 5,372 5,693 –3.5 Western Europe total 19,569 20,504 21,822 23,042 22,403 20,281 19,167 18,684 18,949 20,037 –2.2 Central and Eastern Europe Czech Republic 218 230 246 262 263 240 228 222 225 240 –1.8 Hungary 149 156 165 174 168 151 142 139 140 148 –2.5 Poland 510 539 581 622 633 581 550 539 543 581 –1.7 Romania 79 85 91 97 95 85 79 75 77 81 –3.1 Russia 648 744 873 945 965 893 845 855 901 978 0.3 Turkey 337 375 421 460 452 402 383 383 391 421 –1.4 Central and Eastern Europe total 1,941 2,129 2,377 2,560 2,576 2,352 2,227 2,213 2,277 2,449 –1.0 Middle East/Africa Israel 106 109 113 118 120 114 111 111 113 117 –0.5 Saudi Arabia/Pan Arab‡ 375 410 445 480 500 475 470 485 515 560 2.3 South Africa 120 126 134 143 145 133 127 126 130 138 –1.0 Middle East/Africa total 601 645 692 741 765 722 708 722 758 815 1.3 EMEA total 22,111 23,278 24,891 26,343 25,744 23,355 22,102 21,619 21,984 23,301 –2.0

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | EMEA 563 Directory advertising 12.2 percent decrease during the next three years and an 0.8 percent compound annual decrease through Print 2013 to $347 million from $361 million in 2008. • Print directory advertising is being hurt in the long • For EMEA as a whole, print directory advertising will run by a shift to the Internet and in the near term by decline by 30.8 percent cumulatively through 2012 and the declining economy. Small companies that do not at a 6.7 percent compound annual rate through 2013. have the funds to advertise in the main media often Spending will fall from $10.4 billion in 2008 to $7.4 have a presence in directories. A number of small billion in 2013. companies have gone out of business, and others are facing revenue declines. Many small companies are Online directories eliminating their print directory advertising in the • Online directory advertising jumped by 48.1 percent in current environment. 2008 to $1.2 billion, which offset the decline in print. • Even large companies are going out of business or • Nevertheless, we expect the adverse economy to affect consolidating in order to survive. Surviving companies online spending as well as print in 2009 and project a 3 are cutting back on their advertising expenditures and percent decline in online directory advertising. are reducing their spending in print directories. • We look for migration from print to online to continue • Print directory advertising fell by 3.3 percent in West- throughout the forecast period. Online directories are ern Europe in 2008, primarily because of a shift from attractive because of their lower costs and conve- print directories to online directories, and only in part nience. Online directories can easily be updated, which because of the economy. The impact of the economy provides flexibility not available in print. will begin to be felt in 2009. We project a 17.2 per- cent decrease followed by a 12.4 percent decline in • With a less severe economy in 2010, we expect a 9.1 2010. We look for a further 6.7 percent drop during the percent increase in online directory advertising. subsequent two years. The impact of the economic • By 2011–13, with economic conditions improving, we expansion will begin to be felt in 2013, although the look for gains in online directory advertising in excess continued shift from print to the Internet will hold down of 20 percent annually. growth to a projected 1.9 percent. From 2008 to 2012, print directory advertising in Western Europe will fall by • Online directory advertising will total $2.4 billion in 32 percent. Directory advertising will total $6.2 billion 2013, a 14.8 percent compound annual increase from in 2013, a 7.2 percent compound annual decline from $1.2 billion in 2008. $8.9 billion in 2008. Total directory advertising • There is less migration from print to the Internet in Central and Eastern Europe and in Middle East/Africa • Including digital, total directory advertising rose by 1 because Internet and broadband penetration in those percent in 2008 to $11.6 billion. areas is lower than in Western Europe. Nevertheless, • Although digital advertising gains will not offset print the weak economy in Central and Eastern Europe declines, we expect the overall decrease will be will lead to double-digit decreases in print directory substantially more modest. advertising during the next two years and a cumulative 25.2 percent decline through 2012. For the entire • We expect total directory advertising to fall at a 3.4 five-year forecast period, print directory advertising in percent compound annual rate, around half the decline Central and Eastern Europe will fall at a 5.2 percent projected for print alone. compound annual rate to $848 million in 2013 from • Spending in 2013 will total an estimated $9.8 billion, $1.1 billion in 2008. of which digital will account for 24.9 percent. In 2008, • We also expect declines in Middle East/Africa, although digital advertising accounted for 10.5 percent of total decreases will be less severe because the economic directory advertising. climate is relatively healthier. We project a cumulative

564 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print directory advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 123 127 133 135 132 117 102 95 94 97 –6.0 Belgium 149 154 160 162 158 139 124 117 113 116 –6.0 Denmark 121 125 130 132 132 118 103 98 96 97 –6.0 Finland 79 82 85 86 85 73 66 63 61 63 –5.8 France 1,171 1,207 1,237 1,251 1,171 937 805 768 761 776 –7.9 Germany 1,750 1,752 1,755 1,777 1,756 1,463 1,317 1,244 1,237 1,251 –6.6 Greece 83 86 91 94 92 78 66 63 61 64 –7.0 Ireland 76 79 83 86 85 72 61 59 57 60 –6.7 Italy 1,493 1,544 1,588 1,610 1,573 1,317 1,171 1,098 1,083 1,105 –6.8 Netherlands 863 893 915 929 922 805 732 695 688 702 –5.3 Norway 104 107 112 115 116 102 89 84 83 85 –6.0 Portugal 75 78 82 85 83 73 66 63 61 64 –5.1 Spain 811 862 884 935 893 732 628 593 585 599 –7.7 Sweden 138 142 147 152 148 129 114 110 109 111 –5.6 Switzerland 148 152 161 166 162 138 115 111 111 114 –6.8 United Kingdom 1,515 1,561 1,598 1,524 1,423 1,102 918 863 845 854 –9.7 Western Europe total 8,699 8,951 9,161 9,239 8,931 7,395 6,477 6,124 6,045 6,158 –7.2 Central and Eastern Europe Czech Republic 56 58 60 62 61 53 47 45 45 46 –5.5 Hungary 40 42 45 46 46 39 35 33 32 33 –6.4 Poland 129 135 143 149 151 147 146 148 152 158 0.9 Romania 25 26 27 29 28 24 20 19 18 19 –7.5 Russia 555 591 644 680 704 603 523 503 499 511 –6.2 Turkey 96 103 111 119 115 92 84 80 80 81 –6.8 Central and Eastern Europe total 901 955 1,030 1,085 1,105 958 855 828 826 848 –5.2 Middle East/Africa Israel 53 54 56 57 57 54 52 50 50 51 –2.2 Saudi Arabia/Pan Arab‡ 175 190 205 220 225 210 200 195 205 220 –0.4 South Africa 56 63 70 75 79 76 73 72 73 76 –0.8 Middle East/Africa total 284 307 331 352 361 340 325 317 328 347 –0.8 EMEA total 9,884 10,213 10,522 10,676 10,397 8,693 7,657 7,269 7,199 7,353 –6.7

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Communication Agencies of Russia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | EMEA 565 Digital directory advertising market† (US$ millions) 2009–13 EMEA 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 7 12 19 19 20 25 32 38 14.9 Belgium 10 15 22 22 25 31 38 47 16.4 Denmark 8 12 18 19 21 26 33 39 16.7 Finland 4 7 12 12 13 16 20 25 15.8 France 75 113 164 149 161 200 259 310 13.6 Germany 105 160 246 234 263 323 420 500 15.2 Greece ‡ 1 1 1 1 3 3 4 32.0 Ireland 4 7 12 12 12 15 19 23 13.9 Italy 72 113 165 158 176 220 271 332 15.0 Netherlands 56 83 129 129 146 181 234 281 16.8 Norway 7 10 16 16 18 22 28 34 16.3 Portugal ‡ 1 1 1 1 3 3 4 32.0 Spain 53 85 124 117 126 154 199 240 14.1 Sweden 9 14 21 21 23 29 37 44 15.9 Switzerland 9 15 23 22 23 29 38 45 14.4 United Kingdom 116 152 208 213 220 263 310 371 12.3 Western Europe total 535 800 1,181 1,145 1,249 1,540 1,944 2,337 14.6 Central and Eastern Europe Czech Republic 1 1 2 2 2 2 3 5 20.1 Hungary 1 1 2 1 2 2 2 3 8.4 Poland 2 3 5 5 6 7 10 14 22.9 Romania ‡ 1 1 1 1 1 1 2 14.9 Russia 10 15 25 23 23 25 35 51 15.3 Turkey 2 3 4 4 4 4 5 8 14.9 Central and Eastern Europe total 16 24 39 36 38 41 56 83 16.3 Middle East/Africa Israel 1 1 2 2 2 3 4 5 20.1 Saudi Arabia/Pan Arab†† 1 2 3 4 6 8 10 13 34.1 South Africa ‡ 1 1 2 2 3 4 5 38.0 Middle East/Africa total 2 4 6 8 10 14 18 23 30.8 EMEA total 553 828 1,226 1,189 1,297 1,595 2,018 2,443 14.8

†At average 2008 exchange rates. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. ††Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

566 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total directory advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 123 127 140 147 151 136 122 120 126 135 –2.2 Belgium 149 154 170 177 180 161 149 148 151 163 –2.0 Denmark 121 125 138 144 150 137 124 124 129 136 –1.9 Finland 79 82 89 93 97 85 79 79 81 88 –1.9 France 1,171 1,207 1,312 1,364 1,335 1,086 966 968 1,020 1,086 –4.0 Germany 1,750 1,752 1,860 1,937 2,002 1,697 1,580 1,567 1,657 1,751 –2.6 Greece 83 86 91 95 93 79 67 66 64 68 –6.1 Ireland 76 79 87 93 97 84 73 74 76 83 –3.1 Italy 1,493 1,544 1,660 1,723 1,738 1,475 1,347 1,318 1,354 1,437 –3.7 Netherlands 863 893 971 1,012 1,051 934 878 876 922 983 –1.3 Norway 104 107 119 125 132 118 107 106 111 119 –2.1 Portugal 75 78 82 86 84 74 67 66 64 68 –4.1 Spain 811 862 937 1,020 1,017 849 754 747 784 839 –3.8 Sweden 138 142 156 166 169 150 137 139 146 155 –1.7 Switzerland 148 152 170 181 185 160 138 140 149 159 –3.0 United Kingdom 1,515 1,561 1,714 1,676 1,631 1,315 1,138 1,126 1,155 1,225 –5.6 Western Europe total 8,699 8,951 9,696 10,039 10,112 8,540 7,726 7,664 7,989 8,495 –3.4 Central and Eastern Europe Czech Republic 56 58 61 63 63 55 49 47 48 51 –4.1 Hungary 40 42 46 47 48 40 37 35 34 36 –5.6 Poland 129 135 145 152 156 152 152 155 162 172 2.0 Romania 25 26 27 30 29 25 21 20 19 21 –6.3 Russia 555 591 654 695 729 626 546 528 534 562 –5.1 Turkey 96 103 113 122 119 96 88 84 85 89 –5.6 Central and Eastern Europe total 901 955 1,046 1,109 1,144 994 893 869 882 931 –4.0 Middle East/Africa Israel 53 54 57 58 59 56 54 53 54 56 –1.0 Saudi Arabia/Pan Arab‡ 175 190 206 222 228 214 206 203 215 233 0.4 South Africa 56 63 70 76 80 78 75 75 77 81 0.2 Middle East/Africa total 284 307 333 356 367 348 335 331 346 370 0.2 EMEA total 9,884 10,213 11,075 11,504 11,623 9,882 8,954 8,864 9,217 9,796 –3.4

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Association of Communication Agencies of Russia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | EMEA 567 Trade magazines in 2013, nearly matching the gains during the recent past. By 2013, trade magazine advertising in Germany Print advertising will total an estimated $1.1 billion, a 3.9 percent • Trade magazines are among the more cyclical advertis- decrease from 2008. ing media, as they react relatively quickly to changes in • Although the near-term trend in print trade magazine corporate profits. Profits were falling sharply during the advertising and print directory advertising will be latter half of 2008, particularly in Western Europe, and comparable for EMEA as a whole—a 16.6 percent those declines were reflected by a 6 percent drop in decrease for trade magazines and a 16.4 percent print advertising in trade magazines in 2008. By con- decline for print directories—we believe trade trast, Central and Eastern Europe rose by 3.9 percent magazines have a stronger upside potential once in 2008, and there was a 0.9 percent increase in Middle economic conditions improve, because for reaching East/Africa. professionals, they remain important vehicles that are • The UK and Germany are the dominant markets in difficult to duplicate in other media. Directories, by EMEA, at $1.6 billion and $1.4 billion, respectively, contrast, are used primarily as reference resources, in 2008, together accounting for half of the region’s and the search capabilities of the Internet make them total spending. particularly suitable to that environment. • The UK has been weak for a number of years, with • Consequently, we expect more-modest decreases in print advertising falling by 18 percent since 2004, trade magazine advertising than in directories during including an 8 percent decline in 2008. With the UK 2010–11 and a stronger performance during 2012–13. economy now falling at an accelerating rate, we look For the five-year forecast period, trade magazine print for steeper declines during the next two years. We advertising will average a 3.6 percent compound annual project spending to fall by 20 percent in 2009, by an decline, which will be much less than the projected additional 10 percent in 2010, and by a cumulative 6.7 percent annual decrease in print directories. Trade 31 percent through 2011. Compared with 2004, print magazine advertising will total $4.9 billion in 2013 from advertising in trade magazines will be 44 percent $5.9 billion in 2008. lower in 2011. Improved economic conditions during • We expect Western Europe to experience the steepest the latter part of the forecast period should lead to a decline in EMEA—3.9 percent compounded annually— rebound in corporate profits and an increase in trade because there will be a larger shift from print to the magazine advertising. We project a 5 percent increase Internet because the Internet is more commonly used from 2011 to 2013. Trade magazine print advertising as an advertising medium compared with Central and in 2013 will be an estimated $1.2 billion, down 6.4 Eastern Europe and Middle East/Africa. percent compounded annually from 2008, the steepest projected five-year decline in EMEA. • In Central and Eastern Europe, we project a cumulative 17.1 percent decline during the next two years and a • In Germany, by contrast, trade magazine advertising 0.6 percent compound annual decrease through 2013 benefited from acceleration in economic growth to $233 million from $240 million in 2008. from 2004 to 2007, leading to increases in excess of 6 percent annually during 2006–07. In 2008, the • We project trade magazine print advertising in Middle declining economy led to an 8.9 percent decline. We East/Africa to fall by 7 percent during the next two years expect a 16.2 percent drop in 2009 and a cumulative and to increase by 20 percent during the subsequent 23.3 percent decline through 2011. We then look for a three years, rising to $121 million from $109 million in relatively healthy rebound, including a 5.5 percent gain 2008, a 2.1 percent compound annual increase.

568 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Trade magazine print advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 111 114 126 136 140 123 119 121 129 138 –0.3 Belgium 203 199 211 227 228 199 193 198 211 224 –0.4 Denmark 53 57 65 66 67 59 57 58 61 65 –0.6 Finland 100 102 108 113 114 100 95 97 101 108 –1.1 France 764 733 719 727 680 550 515 520 528 550 –4.2 Germany 1,266 1,320 1,399 1,487 1,354 1,134 1,061 1,039 1,054 1,112 –3.9 Greece 41 57 63 67 70 63 60 60 64 70 0.0 Ireland 10 9 12 13 13 10 10 10 10 12 –1.6 Italy 92 119 123 127 119 94 88 89 94 100 –3.4 Netherlands 541 531 585 606 593 506 483 479 492 514 –2.8 Norway 115 121 126 134 136 117 111 108 109 114 –3.5 Portugal 9 9 9 9 9 7 6 6 7 7 –4.9 Spain 28 25 23 23 23 19 18 18 19 20 –2.8 Sweden 218 233 250 257 240 206 200 201 205 216 –2.1 Switzerland 134 140 146 157 148 129 125 126 134 143 –0.7 United Kingdom 1,987 1,956 1,864 1,776 1,634 1,304 1,175 1,120 1,139 1,175 –6.4 Western Europe total 5,672 5,725 5,829 5,925 5,568 4,620 4,316 4,250 4,357 4,568 –3.9 Central and Eastern Europe Czech Republic 26 28 31 32 31 27 25 26 28 31 0.0 Hungary 33 36 41 38 38 34 32 33 35 37 –0.5 Poland 34 40 42 41 42 36 35 36 38 41 –0.5 Romania 8 9 9 8 9 8 7 7 8 8 –2.3 Russia 60 75 91 106 115 100 97 97 102 112 –0.5 Turkey 3 4 5 6 5 4 3 3 4 4 –4.4 Central and Eastern Europe total 164 192 219 231 240 209 199 202 215 233 –0.6 Middle East/Africa Israel 20 21 20 21 20 19 19 19 20 21 1.0 Saudi Arabia/Pan Arab‡ 13 15 16 19 19 17 15 15 16 18 –1.1 South Africa 51 56 62 68 70 68 67 70 75 82 3.2 Middle East/Africa total 84 92 98 108 109 104 101 104 111 121 2.1 EMEA total 5,920 6,009 6,146 6,264 5,917 4,933 4,616 4,556 4,683 4,922 –3.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: Advertising Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates, ZAW

Business-to-business publishing | EMEA 569 Digital advertising Total advertising • Trade magazine Web sites are beginning to attract • Gains in digital advertising will not be large enough to advertising, generating $421 million in 2008, a 40.8 offset declines in print advertising. percent increase from 2007. • Total advertising in trade magazines will decline by 20 • Web site advertising also will be affected by the econo- percent during the next two years and at a 1.6 percent my. We expect a 4.5 percent decline in 2009, which will compound annual rate through 2013. Spending will fall be much less than the 16.6 percent decrease we are to $5.9 billion from $6.3 billion in 2008. projecting for print, as digital continues to gain share. • Digital advertising will account for 15.9 percent of total We expect a return to double-digit growth in 2010, with trade magazine advertising in 2013, up from 6.6 percent gains in excess of 20 percent annually during 2011–13. in 2008. • Web site advertising will rise to $928 million in 2013, a 17.1 percent compound annual increase. • Virtually all of the spending will be in Western Europe, which accounted for 99 percent of the total in 2008 and will constitute 98.3 percent in 2013.

570 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Trade magazine digital advertising market† (US$ millions) 2009–13 EMEA 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 4 6 10 10 12 16 22 28 22.9 Belgium 6 10 16 16 19 26 35 45 23.0 Denmark 2 3 5 5 6 7 10 13 21.1 Finland 3 4 7 7 10 13 18 22 25.7 France 22 32 48 44 51 67 89 110 18.0 Germany 42 67 95 91 107 135 179 222 18.5 Greece ‡ ‡ ‡ ‡ 1 1 1 1 — Ireland ‡ ‡ 1 1 1 1 1 3 24.6 Italy 4 6 9 7 9 12 16 20 17.3 Netherlands 18 28 41 41 48 63 83 102 20.0 Norway 4 6 10 9 11 14 19 23 18.1 Portugal ‡ ‡ ‡ ‡ ‡ 1 1 1 — Spain ‡ 1 1 1 1 3 3 4 32.0 Sweden 7 12 17 16 20 26 35 43 20.4 Switzerland 5 7 10 10 13 17 23 29 23.7 United Kingdom 94 116 147 138 141 169 206 246 10.8 Western Europe total 211 298 417 396 450 571 741 912 16.9 Central and Eastern Europe Czech Republic ‡ ‡ ‡ 1 1 1 1 2 — Hungary ‡ ‡ 1 1 1 1 1 2 14.9 Poland ‡ ‡ 1 1 1 1 1 2 14.9 Romania ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Russia 1 1 2 2 2 2 4 6 24.6 Turkey ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Central and Eastern Europe total 1 1 4 5 5 5 7 12 24.6 Middle East/Africa Israel ‡ ‡ ‡ ‡ ‡ 1 1 1 — Saudi Arabia/Pan Arab†† ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 — South Africa ‡ ‡ ‡ 1 1 1 2 2 — Middle East/Africa total ‡ ‡ ‡ 1 1 2 3 4 — EMEA total 212 299 421 402 456 578 751 928 17.1

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | EMEA 571 Trade magazine total advertising market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 111 114 130 142 150 133 131 137 151 166 2.0 Belgium 203 199 217 237 244 215 212 224 246 269 2.0 Denmark 53 57 67 69 72 64 63 65 71 78 1.6 Finland 100 102 111 117 121 107 105 110 119 130 1.4 France 764 733 741 759 728 594 566 587 617 660 –1.9 Germany 1,266 1,320 1,441 1,554 1,449 1,225 1,168 1,174 1,233 1,334 –1.6 Greece 41 57 63 67 70 63 61 61 65 71 0.3 Ireland 10 9 12 13 14 11 11 11 11 15 1.4 Italy 92 119 127 133 128 101 97 101 110 120 –1.3 Netherlands 541 531 603 634 634 547 531 542 575 616 –0.6 Norway 115 121 130 140 146 126 122 122 128 137 –1.3 Portugal 9 9 9 9 9 7 6 7 8 8 –2.3 Spain 28 25 23 24 24 20 19 21 22 24 0.0 Sweden 218 233 257 269 257 222 220 227 240 259 0.2 Switzerland 134 140 151 164 158 139 138 143 157 172 1.7 United Kingdom 1,987 1,956 1,958 1,892 1,781 1,442 1,316 1,289 1,345 1,421 –4.4 Western Europe total 5,672 5,725 6,040 6,223 5,985 5,016 4,766 4,821 5,098 5,480 –1.7 Central and Eastern Europe Czech Republic 26 28 31 32 31 28 26 27 29 33 1.3 Hungary 33 36 41 38 39 35 33 34 36 39 0.0 Poland 34 40 42 41 43 37 36 37 39 43 0.0 Romania 8 9 9 8 9 8 7 7 8 8 –2.3 Russia 60 75 92 107 117 102 99 99 106 118 0.2 Turkey 3 4 5 6 5 4 3 3 4 4 –4.4 Central and Eastern Europe total 164 192 220 232 244 214 204 207 222 245 0.1 Middle East/Africa Israel 20 21 20 21 20 19 19 20 21 22 1.9 Saudi Arabia/Pan Arab‡ 13 15 16 19 19 17 15 15 16 19 0.0 South Africa 51 56 62 68 70 69 68 71 77 84 3.7 Middle East/Africa total 84 92 98 108 109 105 102 106 114 125 2.8 EMEA total 5,920 6,009 6,358 6,563 6,338 5,335 5,072 5,134 5,434 5,850 –1.6

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

572 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Circulation during 2009–10. Circulation spending will fall from $5.2 • Trade magazines are often distributed for free on a billion in 2008 to $5.1 billion in 2010 and then return to controlled basis to targeted readers that advertisers $5.2 billion by 2013. want to reach. • We expect Western Europe to be flat, while Central • Job losses during the latter part of 2008 led to a slow- and Eastern Europe will fall at a 0.2 percent compound down in circulation spending growth to 0.2 percent annual rate and Middle East/Africa will decrease by 1.1 from gains averaging 1.5 percent during the prior percent compounded annually. Circulation spending in three years. Central and Eastern Europe and Middle East/Africa is very small, and the projected decreases reflect declines • With employment expected to fall at faster rates of only $1 million in Central and Eastern Europe and during the next two years, the potential audience for only $2 million in Middle East/Africa. In Western Europe, trade magazines will decline. We project a 2.2 percent spending will rise by $5 million from 2008 to 2013. decrease in circulation spending in 2009 and an 0.8 percent drop in 2010. Total trade magazine spending • Improved economic conditions should lead to rising • Overall spending on trade magazines will decrease employment and increased circulation spending. We from $11.6 billion in 2008 to $11.1 billion in 2013, a 0.9 expect increases during 2011–13 to offset decreases percent compound annual decline.

Business-to-business publishing | EMEA 573 Trade magazine circulation spending market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 42 45 50 50 50 47 45 47 48 48 –0.8 Belgium 95 97 101 105 105 100 98 100 102 104 –0.2 Denmark 14 14 15 15 15 14 14 14 14 15 0.0 Finland 143 140 145 145 145 140 138 139 139 140 –0.7 France 860 860 865 928 910 872 846 836 855 878 –0.7 Germany 1,263 1,285 1,305 1,332 1,361 1,390 1,419 1,449 1,478 1,478 1.7 Greece 16 22 22 23 23 23 22 22 23 23 0.0 Ireland 4 3 4 4 4 3 3 3 3 4 0.0 Italy 72 92 94 98 98 94 92 94 97 100 0.4 Netherlands 275 275 277 278 281 285 290 293 296 296 1.0 Norway 65 69 70 68 66 63 61 62 63 65 –0.3 Portugal 3 3 3 3 3 1 1 1 1 3 0.0 Spain 12 10 9 9 10 9 7 7 9 9 –2.1 Sweden 198 207 212 215 213 206 224 228 232 233 1.8 Switzerland 52 53 54 55 54 54 53 54 54 54 0.0 United Kingdom 1,736 1,723 1,726 1,724 1,723 1,653 1,607 1,598 1,601 1,616 –1.3 Western Europe total 4,850 4,898 4,952 5,052 5,061 4,954 4,920 4,947 5,015 5,066 0.0 Central and Eastern Europe Czech Republic 11 10 11 11 10 10 9 9 9 10 0.0 Hungary 27 29 31 29 29 28 27 26 27 29 0.0 Poland 30 33 36 35 35 33 32 32 33 34 –0.6 Romania 7 7 8 8 8 8 8 8 9 9 2.4 Russia 33 36 39 39 39 36 34 34 35 38 –0.5 Turkey 2 2 2 2 2 2 2 2 2 2 0.0 Central and Eastern Europe total 110 117 127 124 123 117 112 111 115 122 –0.2 Middle East/Africa Israel 13 14 14 15 15 14 14 14 14 14 –1.4 Saudi Arabia/Pan Arab‡ 4 4 3 3 3 3 3 3 3 3 0.0 South Africa 15 17 19 19 19 18 18 18 18 18 –1.1 Middle East/Africa total 32 35 36 37 37 35 35 35 35 35 –1.1 EMEA total 4,992 5,050 5,115 5,213 5,221 5,106 5,067 5,093 5,165 5,223 0.0

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: FachPresse-Statistik, German Association of Magazine Publishers, Periodical Publishers Association, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

574 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Trade magazine publishing market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 153 159 180 192 200 180 176 184 199 214 1.4 Belgium 298 296 318 342 349 315 310 324 348 373 1.3 Denmark 67 71 82 84 87 78 77 79 85 93 1.3 Finland 243 242 256 262 266 247 243 249 258 270 0.3 France 1,624 1,593 1,606 1,687 1,638 1,466 1,412 1,423 1,472 1,538 –1.3 Germany 2,529 2,605 2,746 2,886 2,810 2,615 2,587 2,623 2,711 2,812 0.0 Greece 57 79 85 90 93 86 83 83 88 94 0.2 Ireland 14 12 16 17 18 14 14 14 14 19 1.1 Italy 164 211 221 231 226 195 189 195 207 220 –0.5 Netherlands 816 806 880 912 915 832 821 835 871 912 –0.1 Norway 180 190 200 208 212 189 183 184 191 202 –1.0 Portugal 12 12 12 12 12 8 7 8 9 11 –1.7 Spain 40 35 32 33 34 29 26 28 31 33 –0.6 Sweden 416 440 469 484 470 428 444 455 472 492 0.9 Switzerland 186 193 205 219 212 193 191 197 211 226 1.3 United Kingdom 3,723 3,679 3,684 3,616 3,504 3,095 2,923 2,887 2,946 3,037 –2.8 Western Europe total 10,522 10,623 10,992 11,275 11,046 9,970 9,686 9,768 10,113 10,546 –0.9 Central and Eastern Europe Czech Republic 37 38 42 43 41 38 35 36 38 43 1.0 Hungary 60 65 72 67 68 63 60 60 63 68 0.0 Poland 64 73 78 76 78 70 68 69 72 77 –0.3 Romania 15 16 17 16 17 16 15 15 17 17 0.0 Russia 93 111 131 146 156 138 133 133 141 156 0.0 Turkey 5 6 7 8 7 6 5 5 6 6 –3.0 Central and Eastern Europe total 274 309 347 356 367 331 316 318 337 367 0.0 Middle East/Africa Israel 33 35 34 36 35 33 33 34 35 36 0.6 Saudi Arabia/Pan Arab‡ 17 19 19 22 22 20 18 18 19 22 0.0 South Africa 66 73 81 87 89 87 86 89 95 102 2.8 Middle East/Africa total 116 127 134 145 146 140 137 141 149 160 1.8 EMEA total 10,912 11,059 11,473 11,776 11,559 10,441 10,139 10,227 10,599 11,073 –0.9

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | EMEA 575 Professional books Electronic books • Print professional books are subject to competition Print from electronic books because they are used principally • The print professional book market also is cyclically for reference purposes, which makes them suitable for sensitive, and the onset of the recession led to a 1.4 electronic formats. Users can search electronic books percent decrease in spending in 2008, a turnaround for the specific information they need. from the 13.9 percent increase in 2007. • In markets where there are strict retail price main- • The 2007 growth was due largely to a 34 percent tenance programs that severely limit the latitude for increase in Germany, the largest market in EMEA. price discounting, an electronic book market has not That gain was the result of a recategorization of some developed. Electronic books generally depend on types of books from the educational category to the discounting in order to make inroads on print sales. professional categorya change that inflated the The search characteristics of professional books could professional books total while deflating the educational make electronic books viable even without discounting. total. Excluding Germany, professional book spending • Unless or until a viable electronic book market develops rose 1.3 percent in 2007. in countries with strong retail price maintenance • With employment among professionals falling, we programs, we are not assuming electronic books expect spending on print professional books to decline will have a presence. In other territories, we expect by 4.1 percent in 2009 and by an additional 2.8 percent electronic books to make inroads in the print market. during 2010–11. We then expect a modest increase • We expect electronic books to grow to $346 million during 2012–13 as economic conditions improve and in 2013 from only $88 million in 2008, a 31.5 percent employment rises. For the entire forecast period, we compound annual increase. project spending on print professional books to fall at a 1.2 percent compound annual rate to $9.1 billion in Total professional books 2013 from $9.7 billion in 2008. • Gains in electronic books will not offset decreases • In most countries in Western Europe, print books do in print. Total spending on professional books, both not face competition from electronic versions. However, print and electronic, will decrease from $9.8 billion in in countries in Western Europe and in other areas of 2008 to $9.5 billion in 2013, a 0.7 percent compound EMEA where an electronic book market has emerged, annual decline. electronic books will cut into the print market. We project spending in Western Europe to fall at a 1.3 • Electronic books will constitute 3.7 percent of total percent annual rate from $8.8 billion in 2008 to $8.2 spending in 2013 compared with only 0.9 percent billion in 2013. in 2008. • We expect smaller decreases of 0.7 percent com- pounded annually in Central and Eastern Europe and 0.6 percent compounded annually in Middle East/Africa because there will be less migration from print to elec- tronic books in those areas.

576 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Print professional book market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 231 234 239 241 240 234 231 230 230 231 –0.8 Belgium 154 155 158 161 160 155 152 151 151 152 –1.0 Denmark 35 36 36 37 36 35 35 35 35 35 –0.6 Finland 28 28 28 28 28 26 25 25 25 26 –1.5 France 1,251 1,244 1,247 1,251 1,250 1,215 1,200 1,193 1,207 1,229 –0.3 Germany 3,228 3,056 3,348 4,481 4,361 4,171 4,098 4,061 4,068 4,098 –1.2 Greece 4 4 4 4 4 3 3 3 4 4 0.0 Ireland 3 3 4 6 6 4 4 4 6 6 0.0 Italy 176 179 190 198 196 192 189 187 187 190 –0.6 Netherlands 427 424 424 424 421 410 402 398 395 392 –1.4 Norway 120 122 127 130 131 129 127 126 126 127 –0.6 Portugal 26 26 26 26 26 25 25 25 25 25 –0.8 Spain 688 689 692 695 688 659 644 637 637 644 –1.3 Sweden 103 103 103 102 102 99 97 96 96 95 –1.4 Switzerland 194 194 195 196 195 189 186 185 184 183 –1.3 United Kingdom 946 918 909 918 909 845 808 790 781 771 –3.2 Western Europe total 7,614 7,415 7,730 8,898 8,753 8,391 8,226 8,146 8,157 8,208 –1.3 Central and Eastern Europe Czech Republic 70 71 73 75 75 73 72 71 72 72 –0.8 Hungary 49 50 51 50 49 46 45 44 44 44 –2.1 Poland 162 167 173 180 180 174 170 168 168 169 –1.3 Romania 4 5 6 10 12 8 8 8 9 10 –3.6 Russia 261 278 294 310 314 306 302 302 306 314 0.0 Turkey 27 28 28 29 28 26 25 25 25 27 –0.7 Central and Eastern Europe total 573 599 625 654 658 633 622 618 624 636 –0.7 Middle East/Africa Israel 175 174 173 173 173 170 169 167 166 164 –1.1 Saudi Arabia/Pan Arab‡ 43 44 45 46 46 44 43 43 45 48 0.9 South Africa 42 43 45 46 47 45 45 45 45 46 –0.4 Middle East/Africa total 260 261 263 265 266 259 257 255 256 258 –0.6 EMEA total 8,447 8,275 8,618 9,817 9,677 9,283 9,105 9,019 9,037 9,102 –1.2

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | EMEA 577 Electronic professional book market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Belgium 1 1 3 4 6 7 9 12 18 25 33.0 Denmark ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Finland ‡ ‡ ‡ ‡ 1 1 1 1 3 4 32.0 France ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Germany ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Greece ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Ireland ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 — Italy ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Netherlands 1 3 6 10 18 20 25 32 47 63 28.5 Norway ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Portugal ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Spain ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Sweden ‡ 1 2 3 4 5 6 8 12 15 30.3 Switzerland ‡ ‡ ‡ 5 7 9 11 15 22 30 33.8 United Kingdom 6 7 13 24 37 42 48 62 94 123 27.2 Western Europe total 8 12 24 46 73 84 100 130 196 261 29.0 Central and Eastern Europe Czech Republic ‡ ‡ ‡ 1 1 1 2 3 5 7 47.6 Hungary ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Poland ‡ 1 1 2 3 3 4 7 12 17 41.5 Romania ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 1 — Russia 1 1 2 3 5 6 8 12 21 31 44.0 Turkey ‡ ‡ ‡ ‡ 1 1 1 1 2 3 24.6 Central and Eastern Europe total 1 2 3 6 10 11 15 23 41 59 42.6 Middle East/Africa Israel ‡ 1 1 2 3 3 4 7 12 16 39.8 Saudi Arabia/Pan Arab†† ‡ ‡ ‡ ‡ 1 1 1 2 3 5 38.0 South Africa ‡ ‡ ‡ ‡ 1 1 1 2 3 5 38.0 Middle East/Africa total ‡ 1 1 2 5 5 6 11 18 26 39.1 EMEA total 9 15 28 54 88 100 121 164 255 346 31.5

†At average 2008 exchange rates. ‡Less than US$500,000. ††Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

578 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total professional book market† (US$ millions) 2009–13 EMEA 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Western Europe Austria 231 234 239 241 240 234 231 230 230 231 –0.8 Belgium 155 156 161 165 166 162 161 163 169 177 1.3 Denmark 35 36 36 37 36 35 35 35 35 35 –0.6 Finland 28 28 28 28 29 27 26 26 28 30 0.7 France 1,251 1,244 1,247 1,251 1,250 1,215 1,200 1,193 1,207 1,229 –0.3 Germany 3,228 3,056 3,348 4,481 4,361 4,171 4,098 4,061 4,068 4,098 –1.2 Greece 4 4 4 4 4 3 3 3 4 4 0.0 Ireland 3 3 4 6 6 4 4 4 6 7 3.1 Italy 176 179 190 198 196 192 189 187 187 190 –0.6 Netherlands 428 427 430 434 439 430 427 430 442 455 0.7 Norway 120 122 127 130 131 129 127 126 126 127 –0.6 Portugal 26 26 26 26 26 25 25 25 25 25 –0.8 Spain 688 689 692 695 688 659 644 637 637 644 –1.3 Sweden 103 104 105 105 106 104 103 104 108 110 0.7 Switzerland 194 194 195 201 202 198 197 200 206 213 1.1 United Kingdom 952 925 922 942 946 887 856 852 875 894 –1.1 Western Europe total 7,622 7,427 7,754 8,944 8,826 8,475 8,326 8,276 8,353 8,469 –0.8 Central and Eastern Europe Czech Republic 70 71 73 76 76 74 74 74 77 79 0.8 Hungary 49 50 51 50 49 46 45 44 44 44 –2.1 Poland 162 168 174 182 183 177 174 175 180 186 0.3 Romania 4 5 6 10 12 8 8 8 10 11 –1.7 Russia 262 279 296 313 319 312 310 314 327 345 1.6 Turkey 27 28 28 29 29 27 26 26 27 30 0.7 Central and Eastern Europe total 574 601 628 660 668 644 637 641 665 695 0.8 Middle East/Africa Israel 175 175 174 175 176 173 173 174 178 180 0.5 Saudi Arabia/Pan Arab‡ 43 44 45 46 47 45 44 45 48 53 2.4 South Africa 42 43 45 46 48 46 46 47 48 51 1.2 Middle East/Africa total 260 262 264 267 271 264 263 266 274 284 0.9 EMEA total 8,456 8,290 8,646 9,871 9,765 9,383 9,226 9,183 9,292 9,448 –0.7

†At average 2008 exchange rates. ‡Comprises Algeria, Bahrain, Egypt, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Syria, and the United Arab Emirates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | EMEA 579 Asia Pacific

The outlook in brief • Print advertising in trade magazines will fall by 23.8 percent during the next three years and at a 3.6 percent • The economic downturn will reduce business compound annual rate through 2013 to $1.3 billion from information spending during the next two years. $1.6 billion in 2008. • The recession will lead to declines in directory • Advertising on trade magazine Web sites will reach advertising during the next three years. $136 million in 2013, a 17 percent compound annual • Declining economies will lead to steep near-term increase from $62 million in 2008. decreases in trade magazines. • Growth in digital advertising will not be large enough • Electronic books will expand the professional to offset the decline in print, and total trade magazine book market. advertising will fall from $1.6 billion in 2008 to $1.4 billion in 2013, a 2.5 percent compound annual decrease. Overview • Circulation spending will decline at a 1 percent annual rate to $1.3 billion in 2013 from $1.36 billion in 2008. • The business-to-business publishing market in Asia Pacific will decrease by 10.5 percent during the • The total trade magazine market will contract at a next two years and then grow by 10 percent during 1.8 percent compound annual rate from $3 billion to the subsequent three years. The $20.7-billion total $2.7 billion. projected for 2013 will be 0.3 percent lower on a • Spending on professional print books will edge down at compound annual basis from $21 billion in 2008. a 1 percent annual rate to $4 billion in 2013 from $4.3 • Business information will fall from $7.95 billion in 2008 billion in 2008. to $7.22 billion in 2010 and then rise to $7.98 billion • Electronic professional books will expand from $161 by 2013, a 0.1 percent compound annual increase million to $569 million, a 28.7 percent compound from 2008. annual rate from a small base. • Print directory advertising will decline during the next • The overall professional book market will grow to three years and will remain 2.2 percent lower on a $4.6 billion from $4.4 billion, a 0.9 percent compound compound annual basis in 2013 than in 2008, falling annual increase. from $5.5 billion to $4.9 billion. • Total business-to-business advertising will decrease • Online directories will drive a portion of that decline, from $7.3 billion to $6.8 billion, a 1.3 percent compound rising at an 18 percent compound annual rate to $507 annual decline. million in 2013 from $222 million in 2008. • Total end-user spending on business information, trade • Total directory advertising will fall at a 1 percent magazine circulation, and professional books will rise at compound annual rate from $5.7 billion in 2008 to a 0.2 percent compound annual rate to $13.9 billion in $5.4 billion in 2013. 2013 from $13.7 billion in 2008.

580 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business-to-business publishing market by component† (US$ millions)

Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Business information 6,411 6,782 7,266 7,768 7,951 7,482 7,219 7,263 7,480 7,981 Directory advertising Print 4,887 5,120 5,124 5,416 5,462 4,835 4,561 4,516 4,645 4,896 Digital NA NA 128 178 222 228 251 322 404 507 Total directory advertising 4,887 5,120 5,252 5,594 5,684 5,063 4,812 4,838 5,049 5,403 Trade magazines Print advertising 1,488 1,589 1,604 1,619 1,565 1,298 1,206 1,193 1,220 1,300 Digital advertising NA NA 36 50 62 61 65 85 108 136 Total advertising 1,488 1,589 1,640 1,669 1,627 1,359 1,271 1,278 1,328 1,436 Circulation spending 1,243 1,336 1,387 1,392 1,363 1,266 1,218 1,222 1,253 1,297 Total trade magazines 2,731 2,925 3,027 3,061 2,990 2,625 2,489 2,500 2,581 2,733 Professional books Print 3,777 3,840 3,956 4,199 4,250 4,160 4,083 4,049 4,037 4,036 Electronic 5 16 47 81 161 187 232 315 427 569 Total professional books 3,782 3,856 4,003 4,280 4,411 4,347 4,315 4,364 4,464 4,605 Total advertising 6,375 6,709 6,892 7,263 7,311 6,422 6,083 6,116 6,377 6,839 Total end user 11,436 11,974 12,656 13,440 13,725 13,095 12,752 12,849 13,197 13,883 Total 17,811 18,683 19,548 20,703 21,036 19,517 18,835 18,965 19,574 20,722

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | Asia Pacific 581 Business-to-business publishing market growth by component (%) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Business information 3.7 5.8 7.1 6.9 2.4 –5.9 –3.5 0.6 3.0 6.7 0.1 Directory advertising Print 5.6 4.8 0.1 5.7 0.8 –11.5 –5.7 –1.0 2.9 5.4 –2.2 Digital — — — 39.1 24.7 2.7 10.1 28.3 25.5 25.5 18.0 Total directory advertising 5.6 4.8 2.6 6.5 1.6 –10.9 –5.0 0.5 4.4 7.0 –1.0 Trade magazines Print advertising 1.1 6.8 0.9 0.9 –3.3 –17.1 –7.1 –1.1 2.3 6.6 –3.6 Digital advertising — — — 38.9 24.0 –1.6 6.6 30.8 27.1 25.9 17.0 Total advertising 1.1 6.8 3.2 1.8 –2.5 –16.5 –6.5 0.6 3.9 8.1 –2.5 Circulation spending 1.7 7.5 3.8 0.4 –2.1 –7.1 –3.8 0.3 2.5 3.5 –1.0 Total trade magazines 1.4 7.1 3.5 1.1 –2.3 –12.2 –5.2 0.4 3.2 5.9 –1.8 Professional books Print –0.6 1.7 3.0 6.1 1.2 –2.1 –1.9 –0.8 –0.3 0.0 –1.0 Electronic 66.7 220.0 193.8 72.3 98.8 16.1 24.1 35.8 35.6 33.3 28.7 Total professional books –0.5 2.0 3.8 6.9 3.1 –1.5 –0.7 1.1 2.3 3.2 0.9 Total advertising 4.5 5.2 2.7 5.4 0.7 –12.2 –5.3 0.5 4.3 7.2 –1.3 Total end user 2.1 4.7 5.7 6.2 2.1 –4.6 –2.6 0.8 2.7 5.2 0.2 Total 2.9 4.9 4.6 5.9 1.6 –7.2 –3.5 0.7 3.2 5.9 –0.3

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Japan is the largest market in the region, at $9.1 billion • South Korea has the third-largest market, at $2.7 billion. in 2008, 43 percent of total business-to-business pub- We expect decreases during the next three years and lishing spending in Asia Pacific. The plunging economy a modest expansion during 2012–13 that will not offset in Japan will lead to a 13.6 percent decrease in 2009 the near-term declines. Spending will fall at a 1.4 percent and a cumulative 24 percent decline through 2012. The compound annual rate to $2.5 billion in 2013. market in 2013 will total an estimated $7.2 billion, down • Australia is the fourth-largest market, at $2 billion. We 4.8 percent compounded annually from 2008. expect declines totaling 8.1 percent during the next two • The People’s Republic of China (PRC) is the second- years, with spending returning to its 2008 level by 2013. largest market, at $5.3 billion in 2008. The economy is • No other country reached $1 billion in 2008. The next slowing in the PRC from its torrid pace from 2004 to largest was India, at $533 million. As in the PRC, the 2007. We expect the business-to-business publishing economy in India is slowing following strong growth market to grow more slowly as well during the next two during the prior four years. Business-to-business years and then improve to high-single-digit gains during publishing rose at double-digit annual rates since 2012–13. For the entire forecast period, we project 2004. We expect a drop to low-single-digit increases business-to-business publishing to average 5.6 percent during the next two years followed by accelerating growth compounded annually. gains during the subsequent three years and a return to double-digit growth in 2013, averaging 6.6 percent compounded annually during the entire forecast period.

582 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business-to-business publishing market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,792 1,903 1,816 1,992 2,038 1,923 1,873 1,876 1,934 2,040 0.0 China 3,299 3,806 4,283 4,918 5,317 5,437 5,597 5,901 6,392 6,996 5.6 Hong Kong 187 199 206 220 238 208 204 208 217 233 –0.4 India 273 327 406 476 533 552 573 611 662 733 6.6 Indonesia 97 110 122 132 138 131 132 136 144 159 2.9 Japan 8,846 8,983 9,216 9,331 9,131 7,893 7,194 6,992 6,936 7,150 –4.8 Malaysia 57 60 62 66 66 60 56 58 64 71 1.5 New Zealand 183 194 197 200 193 183 176 175 183 193 0.0 Pakistan 30 33 40 45 48 47 46 46 49 52 1.6 Philippines 52 55 59 62 61 55 51 50 51 53 –2.8 Singapore 85 87 93 93 89 80 68 65 67 69 –5.0 South Korea 2,497 2,490 2,589 2,695 2,713 2,512 2,451 2,430 2,444 2,524 –1.4 Taiwan 270 282 294 301 298 268 244 242 247 255 –3.1 Thailand 126 131 138 141 138 132 131 133 139 144 0.9 Vietnam 17 23 27 31 35 36 39 42 45 50 7.4 Total 17,811 18,683 19,548 20,703 21,036 19,517 18,835 18,965 19,574 20,722 –0.3

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business information • We expect economic conditions to improve during the latter part of the forecast period, which in turn will lead • The business information market slowed to a 2.4 to a shift in focus toward expansion and an increased percent increase in 2008 from gains averaging 6.6 demand for funding. Financial institutions should be percent compounded annually from 2004 to 2007. better positioned to lend funds, helped in some cases With credit markets tightening and investment slowing by government assistance. An increase in economic during the latter part of 2008, demand for financial activity will lead to an increase in demand for financial information dropped. Growth averaged only 0.3 percent information. We expect a 3.2 percent recovery in 2012 for the year as a whole. and a 7.1 percent increase in 2013, matching the 7.1 • With economies slowing in the PRC and India and percent gain achieved in 2006. We project the financial falling in South Korea, Australia, and particularly information market to total $3.7 billion in 2013, a 1.1 in Japan, financial institutions are facing capital percent compound annual decline from $3.9 billion shortages and do not have the resources to provide in 2008. funding. The demand for credit is also falling because • The financial squeeze is leading financial information companies are not looking to expand in the face of providers to consolidate or to team up. In Australia, for declining consumer spending. Securities markets also example, D&B Australia acquired Decision Intellect. are down significantly, further impeding investment activity. Consequently, the need for credit and financial • There also is pressure to permit more foreign invest- information is declining. We project this component of ment. In India, the Reserve Bank of India is considering the business information market to fall by 8 percent in allowing foreign credit bureaus to own up to 49 percent 2009 and by a cumulative 14.2 percent through 2011. of local credit bureaus. The current limit is 10 percent.

Business-to-business publishing | Asia Pacific 583 • In the PRC, rules established in 2006 authorized the should pick up as well. As consumer spending rises, Xinhua News Agency as both the exclusive agent and businesses will devote more resources to marketing the regulator of foreign data providers. Xinhua News and advertising and will spend more on marketing Agency subsequently launched its own data service in information. We expect spending to increase at low- competition with foreign providers, leading to protests on single-digit rates during 2011–12 and to rise by 7.4 the part of foreign providers. In 2008, the rules making percent in 2013 as the economy returns to healthy the Xinhua News Agency the regulator of foreign data growth. Marketing information will total an estimated providers were discontinued, which could induce more $1.43 billion in 2013 from $1.42 billion in 2008, a 0.1 foreign participation in the PRC financial data market. In percent compound annual increase. November 2008, United Business Media announced its • Industry information held up relatively well in 2008, with acquisition of Xinhua PR Newswire, the PRC’s largest a 5.9 percent advance. A number of industries are still corporate announcement distribution service. expanding, and there remains interest in investing in the • The financial crisis also is leading providers to develop growing markets in the PRC and India. new products. In Hong Kong in early 2009, for example, • Nevertheless, the weak economic environment will TransUnion launched TrendInsight, a product that is affect this component of the business information intended to help lenders predict changes in consumer market as well. We project a relatively modest, 2.8 spending and consumer payment patterns. percent decrease in 2009 and a recovery beginning • The economic slowdown also is leading to cutbacks in 2010. or slower growth in consumer spending, which in turn • While industry information will be less hurt by the is leading to cutbacks in advertising and marketing. economic downturn than other sectors will be in As businesses reduce their advertising and marketing the near term, it will benefit less from the expected outlays, they are also reducing their spending on rebound. While growing faster than either financial marketing information. Marketing information growth or marketing information through 2011, industry slowed to 1.8 percent in 2008 following increases of 6 information will grow at a slower rate during 2012–13. percent or more during the prior three years. Spending in 2013 will total an estimated $2.9 billion • We expect a 5.9 percent decline in marketing from $2.6 billion in 2008, a 1.7 percent compound information in 2009 and a cumulative 9.7 percent annual increase. decrease through 2010. Economic conditions should begin to improve in 2011, and consumer spending

Business information market by component† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Financial 3,270 3,429 3,672 3,884 3,896 3,584 3,357 3,341 3,449 3,695 % Change 4.0 4.9 7.1 5.8 0.3 –8.0 –6.3 –0.5 3.2 7.1 –1.1 Marketing 1,154 1,223 1,304 1,398 1,423 1,339 1,285 1,293 1,331 1,429 % Change 3.7 6.0 6.6 7.2 1.8 –5.9 –4.0 0.6 2.9 7.4 0.1 Industry 1,987 2,130 2,290 2,486 2,632 2,559 2,577 2,629 2,700 2,857 % Change 3.2 7.2 7.5 8.6 5.9 –2.8 0.7 2.0 2.7 5.8 1.7 Total 6,411 6,782 7,266 7,768 7,951 7,482 7,219 7,263 7,480 7,981 % Change 3.7 5.8 7.1 6.9 2.4 –5.9 –3.5 0.6 3.0 6.7 0.1

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

584 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 • We project overall spending on business information in • Of the three, the PRC will be the only one to be larger Asia Pacific to average 0.1 percent compound annual in 2013 than in 2008, by 6.3 percent on a compound growth to $7.98 billion in 2013 from $7.95 billion in 2008. annual basis to $3 billion. The PRC will overtake Japan in 2012 to become the largest market in Asia • Japan, the PRC, and South Korea are the leading Pacific. Japan will decline at a 5.1 percent compound territories, at $3.4 billion, $2.2 billion, and $1.7 billion, annual rate to $2.6 billion in 2013, and South Korea respectively, in 2008, together constituting 92 percent will drop to $1.6 billion in 2013, a 1.4 percent decrease of total spending in Asia Pacific. compounded annually.

Business information market by country† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 206 216 233 247 251 238 230 226 234 251 0.0 China 1,232 1,501 1,771 2,025 2,226 2,298 2,370 2,513 2,729 3,016 6.3 Hong Kong 5 6 7 7 8 7 7 7 7 8 0.0 India 135 166 212 253 285 297 308 331 365 411 7.6 Indonesia 7 9 12 13 14 13 13 13 14 16 2.7 Japan 3,176 3,214 3,304 3,430 3,382 2,947 2,657 2,560 2,512 2,609 –5.1 Malaysia 4 5 6 7 7 7 6 6 7 7 0.0 New Zealand 3 4 4 4 4 4 4 4 4 4 0.0 Pakistan 3 3 4 4 5 5 5 5 5 5 0.0 Philippines 3 4 5 5 5 5 5 5 5 5 0.0 Singapore 4 5 6 6 5 4 3 3 4 4 –4.4 South Korea 1,615 1,628 1,678 1,742 1,733 1,633 1,587 1,565 1,569 1,619 –1.4 Taiwan 11 12 13 14 14 13 13 13 13 13 –1.5 Thailand 6 7 9 9 9 8 8 8 8 8 –2.3 Vietnam 1 2 2 2 3 3 3 4 4 5 10.8 Total 6,411 6,782 7,266 7,768 7,951 7,482 7,219 7,263 7,480 7,981 0.1

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Directory advertising the economy in Japan now falling at a rapid pace, we expect a sharp deceleration in spending. We project a Print 20.5 percent decrease in 2009 followed by a 14.3 per- • The print directory advertising market in Asia Pacific cent drop in 2010 and continued declines through 2012 is dominated by Japan, Australia, and the PRC, which totaling 38.7 percent. We expect an improved economic together accounted for 83 percent of spending in 2008. environment to offset the continued shift to the Internet and look for a modest, 0.8 percent uptick in 2013. For • Japan, the largest market, at $2.1 billion, has experi- the entire forecast period, directory advertising will fall enced a shift from print to online ads that contributed to at a 9.2 percent compound annual rate to $1.3 billion declines in print directory advertising since 2004. With in 2013.

Business-to-business publishing | Asia Pacific 585 • Although also weakening, the economy in Australia is forecast period will lead to mid-single-digit growth in healthier than that of Japan. Consequently, we do not 2011 and a return to double-digit annual increases anticipate declines nearly as precipitous. We project a during 2012–13. There is less migration from print to the 6.7 percent drop in 2009 and a cumulative 11.6 percent Internet than in Japan or Australia, and print directories decrease through 2011. While the Internet will continue remain an important channel for businesses and are to attract resources, we expect Australia’s stronger increasingly used by buyers. During the next five years, economy to mean print directories will remain a staple print directory advertising in the PRC will expand at in the market. We look for a pickup in advertising during a 6.6 percent compound annual rate to $1.6 billion in 2012–13. We project spending in 2013 to total $1.2 2013. The PRC will overtake Australia in 2010 and will billion, a 1.6 percent compound annual decrease pass Japan in 2012 to become the largest market in from 2008. Asia Pacific. • In the PRC, by contrast, rapid economic growth led to • South Korea has the only other significant market, at double-digit annual gains in directory advertising from $290 million. We expect directory advertising to plunge 2004 to 2007 as new businesses added listings and by 20.7 percent in 2009 and at a 4.4 percent compound existing businesses spent more to generate attention. annual rate to $231 million in 2013. Growth slowed to 8.1 percent in 2008, and we expect • Print directory advertising in all of Asia Pacific will total a further drop to low-single-digit gains during the next an estimated $4.9 billion in 2013, down 2.2 percent two years as the economy slows. Improved economic compounded annually from $5.5 billion in 2008. conditions expected during the latter part of the

Print directory advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,142 1,219 1,092 1,230 1,254 1,170 1,128 1,108 1,120 1,154 –1.6 China 722 833 934 1,063 1,149 1,163 1,206 1,278 1,422 1,580 6.6 Hong Kong 58 61 65 67 72 63 61 62 65 70 –0.6 India 16 20 24 27 30 31 33 36 40 45 8.4 Indonesia 73 83 91 98 103 97 97 100 106 116 2.4 Japan 2,251 2,249 2,222 2,203 2,126 1,691 1,449 1,353 1,304 1,314 –9.2 Malaysia 43 45 47 49 48 42 39 40 43 48 0.0 New Zealand 37 39 41 42 40 35 32 30 31 32 –4.4 Pakistan 25 28 32 37 39 38 37 37 40 42 1.5 Philippines 36 38 40 43 42 36 33 32 32 34 –4.1 Singapore 42 43 45 44 42 35 28 25 25 26 –9.1 South Korea 242 251 267 280 290 230 230 227 222 231 –4.4 Taiwan 120 124 130 133 127 105 86 82 83 85 –7.7 Thailand 66 69 72 74 72 70 71 73 76 80 2.1 Vietnam 14 18 22 26 28 29 31 33 36 39 6.9 Total 4,887 5,120 5,124 5,416 5,462 4,835 4,561 4,516 4,645 4,896 –2.2

†At average 2008 exchange rates. Sources: Commercial Economic Advisory Service of Australia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

586 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Online directories updated at any time, while print directories are generally • Online directory advertising is concentrated in Japan, set for a year. The flexibility of online directories will Australia, the PRC, and South Korea, which together continue to attract advertisers. totaled $213 million in 2008, 96 percent of total spending. • We expect growth to improve to 10.1 percent in 2010, • Spending rose by 24.7 percent in 2008, and we expect with annual gains in excess of 20 percent during a 2.7 percent rise in 2009. Although the adverse 2011–13 as economic conditions improve. economy will cut into overall spending, online share • For the forecast period as a whole, online directory gains will lead to a modest gain. advertising will grow at an 18 percent compound annual • The Internet is an excellent platform for directory rate, rising to $507 million in 2013 from $222 million advertising because it facilitates search, which is how in 2008. directories are used. Online directories also can be

Digital directory advertising market† (US$ millions) 2009–13 Asia Pacific 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 22 37 50 59 68 89 112 139 22.7 China 6 16 23 29 42 64 92 126 40.5 Hong Kong ‡ ‡ ‡ ‡ ‡ 1 1 1 — India ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 — Indonesia ‡ ‡ ‡ ‡ 1 1 1 2 — Japan 89 110 128 118 116 135 157 184 7.5 Malaysia 1 1 2 2 2 3 4 6 24.6 New Zealand 1 1 1 2 2 2 3 4 32.0 Pakistan ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 — Philippines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Singapore 1 1 1 2 1 2 3 3 24.6 South Korea 5 8 12 11 14 18 22 28 18.5 Taiwan 3 4 5 5 5 7 8 10 14.9 Thailand ‡ ‡ ‡ ‡ ‡ ‡ 1 1 — Vietnam ‡ ‡ ‡ ‡ ‡ ‡ ‡ 1 — Total 128 178 222 228 251 322 404 507 18.0

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | Asia Pacific 587 Total directory advertising • Spending will total $5.4 billion in 2013 from $5.7 billion • Total directory advertising will still decline during the in 2008. Digital advertising will account for 9.4 percent next five years, but the projected decrease of 1 percent of total directory advertising in 2013 compared with 3.9 compounded annually will be less than half the projected percent in 2008. decrease for print alone.

Total directory advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 1,142 1,219 1,114 1,267 1,304 1,229 1,196 1,197 1,232 1,293 -0.2 China 722 833 940 1,079 1,172 1,192 1,248 1,342 1,514 1,706 7.8 Hong Kong 58 61 65 67 72 63 61 63 66 71 –0.3 India 16 20 24 27 30 31 33 36 40 46 8.9 Indonesia 73 83 91 98 103 97 98 101 107 118 2.8 Japan 2,251 2,249 2,311 2,313 2,254 1,809 1,565 1,488 1,461 1,498 –7.8 Malaysia 43 45 48 50 50 44 41 43 47 54 1.6 New Zealand 37 39 42 43 41 37 34 32 34 36 –2.6 Pakistan 25 28 32 37 39 38 37 37 40 43 2.0 Philippines 36 38 40 43 42 36 33 32 32 34 –4.1 Singapore 42 43 46 45 43 37 29 27 28 29 –7.6 South Korea 242 251 272 288 302 241 244 245 244 259 –3.0 Taiwan 120 124 133 137 132 110 91 89 91 95 –6.4 Thailand 66 69 72 74 72 70 71 73 77 81 2.4 Vietnam 14 18 22 26 28 29 31 33 36 40 7.4 Total 4,887 5,120 5,252 5,594 5,684 5,063 4,812 4,838 5,049 5,403 –1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Trade magazines • Japan is the dominant trade magazine print advertising market, at $976 million in 2008, 62 percent of the total. Print advertising Advertising fell by 6.8 percent in 2008, and we expect • Trade magazine advertising is particularly sensitive a 21 percent dive in 2009, with continued decreases to the economy because it is driven by corporate through 2012 totaling 33.1 percent. In addition to the profits, which can grow rapidly when the economy is very weak economy, print magazines are losing share expanding, but trade magazine advertising tends to fall to the Internet. Although we expect a rebound in 2013, sharply when the economy is contracting. The current when economic conditions and corporate profits are economic environment is hurting the trade magazine anticipated to be on the upswing, print advertising will market. The PRC and India are the only countries where have fallen to $681 million, a 6.9 percent compound we expect trade magazine print advertising to increase annual decrease from 2008. in 2009, and gains in those countries will be modest, at • Australia is the second-largest market, at $209 million only $1 million in each case. in 2008, down 0.9 percent from 2007. We look for a

588 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 near-term decline of 12 percent during the next two million in Hong Kong, a 1.3 percent compound annual years, with spending returning to its 2008 level by 2013 decrease from 2008, and $80 million in South Korea, as economic conditions pick up. down 2.3 percent compounded annually. • Hong Kong, South Korea, and the PRC have the only • In the PRC, we expect slower economic growth, but not other material markets, at $95 million, $90 million, a decline. We therefore look for continued gains during and $82 million, respectively. In each of those areas, the next two years, albeit at low-single-digit rates, trade magazine advertising continued to grow in 2008, a stronger 7 percent rise in 2011, and double-digit buoyed by a relatively healthy first half. With economic increases from 2011 to 2013 as the economy returns to conditions deteriorating rapidly in South Korea and a strong growth path. Spending will rise to $115 million Hong Kong, we project double-digit declines in both by 2013, a 7 percent compound annual increase. countries in 2009 and a low-single-digit drop in 2010. • Total print advertising in trade magazines will decrease We expect both countries to begin to expand in 2011. to $1.3 billion in 2013 from $1.6 billion in 2008, a 3.6 In 2013, trade magazine print advertising will total $89 percent compound annual decline.

Trade magazine print advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 192 210 205 211 209 192 184 184 192 209 0.0 China 57 69 70 77 82 83 86 92 103 115 7.0 Hong Kong 63 71 73 83 95 77 76 77 82 89 –1.3 India 20 23 29 34 40 41 44 48 53 59 8.1 Indonesia 10 11 12 13 14 13 13 14 15 17 4.0 Japan 1,026 1,064 1,070 1,047 976 771 689 663 653 681 –6.9 Malaysia 3 3 2 2 2 2 2 2 2 2 0.0 New Zealand 34 39 37 37 31 27 25 24 25 26 –3.5 Pakistan ‡ 0 1 1 1 1 1 1 1 1 0.0 Philippines 1 1 1 1 1 1 1 1 1 1 0.0 Singapore 3 3 3 3 2 2 1 1 1 2 0.0 South Korea 55 68 76 86 90 70 68 71 75 80 –2.3 Taiwan 21 23 21 20 18 15 12 11 12 13 –6.3 Thailand 2 2 2 2 2 1 1 1 2 2 0.0 Vietnam 1 2 2 2 2 2 3 3 3 3 8.4 Total 1,488 1,589 1,604 1,619 1,565 1,298 1,206 1,193 1,220 1,300 –3.6

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: Commercial Economic Advisory Service of Australia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | Asia Pacific 589 Digital advertising in Japan will total a projected $89 million from $49 million • Trade magazine Web sites are beginning to attract in 2008, a 12.7 percent compound annual increase. advertising in some countries. Japan is by far the leader, • Australia is the only other material market, at $7 million with 79 percent of total digital advertising in 2008. in 2008. Advertisers are moving funds to the Internet • The weak economy in Japan that is cutting into the from traditional media, and we expect digital advertising print market will also affect digital advertising in 2009. in trade magazines to more than triple during the next We project a 6.1 percent decrease. Share gains in five years to $23 million in 2013. subsequent years will lead to a rebound in digital • Total digital advertising in Asia Pacific will increase from advertising in 2010, three years before we expect an $62 million in 2008 to $136 million in 2013, a 17 percent increase in print advertising. By 2013, digital advertising compound annual gain.

Trade magazine digital advertising market† (US$ millions) 2009–13 Asia Pacific 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 2 4 7 8 9 13 18 23 26.9 China ‡ 1 1 2 3 4 6 9 55.2 Hong Kong ‡ ‡ ‡ ‡ ‡ 1 1 1 — India ‡ ‡ ‡ ‡ ‡ ‡ 1 1 — Indonesia ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Japan 32 42 49 46 48 60 72 89 12.7 Malaysia ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — New Zealand 1 1 1 1 1 1 2 3 24.6 Pakistan ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Philippines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Singapore ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — South Korea 1 2 3 3 4 5 7 9 24.6 Taiwan ‡ ‡ 1 1 1 1 1 1 — Thailand ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Vietnam ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Total 36 50 62 61 66 85 108 136 17.0

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

590 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total trade magazine advertising • That growth will not offset declines in print advertising. • Digital advertising will account for 9.5 percent of total Total trade magazine advertising will still be lower in trade magazine advertising in 2013, up from 3.8 percent 2013 than in 2008, falling at a 2.5 percent compound in 2008. annual rate to $1.4 billion from $1.6 billion in 2008.

Total trade magazine advertising market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 192 210 207 215 216 200 193 197 210 232 1.4 China 57 69 70 78 83 85 89 96 109 124 8.4 Hong Kong 63 71 73 83 95 77 76 78 83 90 –1.1 India 20 23 29 34 40 41 44 48 54 60 8.4 Indonesia 10 11 12 13 14 13 13 14 15 17 4.0 Japan 1,026 1,064 1,102 1,089 1,025 817 737 723 725 770 –5.6 Malaysia 3 3 2 2 2 2 2 2 2 2 0.0 New Zealand 34 39 38 38 32 28 26 25 27 29 –1.9 Pakistan ‡ 0 1 1 1 1 1 1 1 1 0.0 Philippines 1 1 1 1 1 1 1 1 1 1 0.0 Singapore 3 3 3 3 2 2 1 1 1 2 0.0 South Korea 55 68 77 88 93 73 71 76 82 89 –0.9 Taiwan 21 23 21 20 19 16 13 12 13 14 –5.9 Thailand 2 2 2 2 2 1 1 1 2 2 0.0 Vietnam 1 2 2 2 2 2 3 3 3 3 8.4 Total 1,488 1,589 1,640 1,669 1,627 1,359 1,271 1,278 1,328 1,436 –2.5

†At average 2008 exchange rates. Sources: Commercial Economic Advisory Service of Australia, PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | Asia Pacific 591 Circulation spending • Paid circulation in Japan, the leading market, at $867 • Although trade magazines are often distributed for million in 2008, will fall at a 2.7 percent compound free to targeted readers, there is a significant paid annual rate to $758 million in 2013. circulation market that totaled $1.4 billion in 2008. • In the PRC, by contrast, circulation spending will • Circulation spending fell by 2.1 percent in 2008, and we increase by 4.9 percent compounded annually to $276 expect falling employment to lead to further declines million from $217 million in 2008. during the next two years. We expect a cumulative 10.6 • Australia, the only other territory above $100 million, percent drop through 2010. will fall by 9.1 percent during the next two years, remain • Improved economic conditions will lead to employment flat through 2012, and then edge up to $103 million in growth and an expanding audience for trade magazines 2013, 1.3 percent lower on a compound annual basis during 2011–13 in most countries. We expect a 6.5 from $110 million in 2008. percent increase during that period. Spending of $1.3 billion in 2013 will be 1 percent lower on a compound Total trade magazine spending annual basis from 2008. • Overall spending on trade magazines will decrease from $3 billion in 2008 to $2.7 billion in 2013, a 1.8 percent compound annual decline.

Trade magazine circulation spending market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 112 115 114 112 110 103 100 100 100 103 –1.3 China 125 161 185 208 217 220 225 237 256 276 4.9 Hong Kong 35 35 35 35 35 32 31 31 31 32 –1.8 India 4 4 5 6 6 6 7 7 7 8 5.9 Indonesia 5 5 5 6 5 5 5 5 5 5 0.0 Japan 842 892 919 900 867 784 740 733 742 758 –2.7 Malaysia 2 2 1 1 1 1 1 1 1 1 0.0 New Zealand 25 26 26 25 24 22 20 20 20 21 –2.6 Pakistan ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Philippines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Singapore 1 1 1 1 1 1 1 1 1 1 0.0 South Korea 85 87 88 91 89 84 81 80 82 84 –1.1 Taiwan 5 6 6 5 5 5 4 4 5 5 0.0 Thailand 1 1 1 1 1 1 1 1 1 1 0.0 Vietnam 1 1 1 1 2 2 2 2 2 2 0.0 Total 1,243 1,336 1,387 1,392 1,363 1,266 1,218 1,222 1,253 1,297 –1.0

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

592 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Trade magazine publishing market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 304 325 321 327 326 303 293 297 310 335 0.5 China 182 230 255 286 300 305 314 333 365 400 5.9 Hong Kong 98 106 108 118 130 109 107 109 114 122 –1.3 India 24 27 34 40 46 47 51 55 61 68 8.1 Indonesia 15 16 17 19 19 18 18 19 20 22 3.0 Japan 1,868 1,956 2,021 1,989 1,892 1,601 1,477 1,456 1,467 1,528 –4.2 Malaysia 5 5 3 3 3 3 3 3 3 3 0.0 New Zealand 59 65 64 63 56 50 46 45 47 50 –2.2 Pakistan ‡ 0 1 1 1 1 1 1 1 1 0.0 Philippines 1 1 1 1 1 1 1 1 1 1 0.0 Singapore 4 4 4 4 3 3 2 2 2 3 0.0 South Korea 140 155 165 179 182 157 152 156 164 173 –1.0 Taiwan 26 29 27 25 24 21 17 16 18 19 –4.6 Thailand 3 3 3 3 3 2 2 2 3 3 0.0 Vietnam 2 3 3 3 4 4 5 5 5 5 4.6 Total 2,731 2,925 3,027 3,061 2,990 2,625 2,489 2,500 2,581 2,733 –1.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Professional books • Japan also is experiencing migration to electronic books. The declining economy will lead to steeper Print decreases during the next three years. Improved • The professional print book market is dominated by the economic conditions will limit declines thereafter, but PRC, at $1.6 billion, and Japan, at $1.5 billion, together the continued shift to electronic books will result in constituting 73 percent of total spending in 2008. The continued low-single-digit decreases in print books. PRC passed Japan in 2008 with a 4.8 percent gain to The print market will drop to $1.3 billion by 2013, a become the largest territory. Spending in Japan fell by 3.2 percent compound annual decrease from 2008. 2.1 percent in 2008. • South Korea has the next-largest market, at $472 million • Economic growth and the expansion of its professional in 2008, down 0.4 percent from 2007. As in Japan, workforce boosted the professional book market in migration to electronic books and a declining economy the PRC by 36 percent from 2004 to 2008. A slower are hurting the print professional market. We expect economy and a shift to electronic books will limit decreases averaging 3.1 percent compounded annually spending on print books during the next five years. We during the next five years to $404 million in 2013. project growth to average 1.1 percent compounded • For Asia Pacific as a whole, we expect the print annually to $1.7 billion in 2013. professional book market to decline at a 1 percent compound annual rate, falling from $4.3 billion in 2008 to $4 billion in 2013.

Business-to-business publishing | Asia Pacific 593 Professional book print market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 140 142 145 148 149 145 143 142 140 138 –1.5 China 1,163 1,239 1,307 1,508 1,580 1,594 1,601 1,616 1,637 1,666 1.1 Hong Kong 26 26 26 27 27 27 27 26 27 27 0.0 India 98 114 136 156 171 176 180 187 194 205 3.7 Indonesia 2 2 2 2 2 3 3 3 3 3 8.4 Japan 1,547 1,556 1,557 1,560 1,527 1,449 1,391 1,353 1,324 1,295 –3.2 Malaysia 5 5 5 6 6 6 6 6 6 6 0.0 New Zealand 84 85 86 88 88 87 86 86 87 88 0.0 Pakistan 2 2 3 3 3 3 3 3 3 3 0.0 Philippines 12 12 13 13 13 13 12 12 13 13 0.0 Singapore 35 35 36 37 36 34 32 30 29 28 –4.9 South Korea 499 454 467 474 472 454 435 422 413 404 –3.1 Taiwan 113 116 119 122 122 117 114 113 111 109 –2.2 Thailand 51 52 54 55 54 52 50 50 50 51 –1.1 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 3,777 3,840 3,956 4,199 4,250 4,160 4,083 4,049 4,037 4,036 –1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

594 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Electronic • During the next five years, Australia, Taiwan, and • The electronic professional book market totaled $161 New Zealand will also develop material electronic million in 2008, with virtually all of those sales in professional book markets. Japan, the PRC, and South Korea. Large broadband • We expect the overall electronic professional book markets in those countries make electronic books market in Asia Pacific to increase to $569 million in feasible. Because professional books are often used for 2013, a 28.7 percent gain compounded annually. reference, they lend themselves to electronic formats that facilitate search.

Professional book electronic market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia ‡ 1 3 3 8 8 11 14 18 23 23.5 China ‡ 3 10 20 39 48 64 97 147 208 39.8 Hong Kong ‡ ‡ ‡ 1 1 2 2 3 3 5 38.0 India ‡ ‡ ‡ ‡ 1 1 1 2 2 3 24.6 Indonesia ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Japan 4 8 23 39 76 87 104 135 172 220 23.7 Malaysia ‡ ‡ ‡ ‡ ‡ ‡ ‡ 0 1 1 — New Zealand ‡ 1 1 2 4 5 6 8 11 15 30.3 Pakistan ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Philippines ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Singapore ‡ ‡ 1 1 2 2 2 3 4 5 20.1 South Korea 1 2 7 12 24 27 33 42 54 69 23.5 Taiwan ‡ 1 2 3 6 7 9 11 14 19 25.9 Thailand ‡ ‡ ‡ ‡ ‡ ‡ 0 0 1 1 — Vietnam NA NA NA NA NA NA NA NA NA NA — Total 5 16 47 81 161 187 232 315 427 569 28.7

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | Asia Pacific 595 Total professional books • Electronic books will account for 12.4 percent of • Electronic books will provide a boost to the market, spending in 2013, up from 3.6 percent in 2008. converting a 1 percent compound annual decrease in • Total spending on professional books will increase from print to a 0.9 percent gain compounded annually in $4.4 billion in 2008 to $4.6 billion in 2013. total spending.

Total professional book market† (US$ millions) 2009–13 Asia Pacific 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Australia 140 143 148 151 157 153 154 156 158 161 0.5 China 1,163 1,242 1,317 1,528 1,619 1,642 1,665 1,713 1,784 1,874 3.0 Hong Kong 26 26 26 28 28 29 29 29 30 32 2.7 India 98 114 136 156 172 177 181 189 196 208 3.9 Indonesia 2 2 2 2 2 3 3 3 3 3 8.4 Japan 1,551 1,564 1,580 1,599 1,603 1,536 1,495 1,488 1,496 1,515 –1.1 Malaysia 5 5 5 6 6 6 6 6 7 7 3.1 New Zealand 84 86 87 90 92 92 92 94 98 103 2.3 Pakistan 2 2 3 3 3 3 3 3 3 3 0.0 Philippines 12 12 13 13 13 13 12 12 13 13 0.0 Singapore 35 35 37 38 38 36 34 33 33 33 –2.8 South Korea 500 456 474 486 496 481 468 464 467 473 –0.9 Taiwan 113 117 121 125 128 124 123 124 125 128 0.0 Thailand 51 52 54 55 54 52 50 50 51 52 –0.8 Vietnam NA NA NA NA NA NA NA NA NA NA — Total 3,782 3,856 4,003 4,280 4,411 4,347 4,315 4,364 4,464 4,605 0.9

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

596 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Latin America

The outlook in brief • Total directory advertising will increase at a 0.2 percent compound annual rate, from $891 million in 2008 to • Declining economic activity will lower spending on $898 million in 2013. business information during the next two years. • After falling by 11.4 percent during the next two years, • Cutbacks in ad spending will lower directory advertising print advertising in trade magazines will rebound with a during the next three years. projected 15.3 percent advance during the subsequent • Trade magazines will be adversely affected by the three years, reaching $287 million in 2013 from $281 economic downturn in the near term. million in 2008, a 0.4 percent compound annual increase. • Falling employment will lead to decreased spending on • Advertising on trade magazine Web sites will total $24 professional books during the next two years. million in 2013 from only $4 million in 2008, a 43.1 percent compound annual increase from a tiny base. Overview • Total trade magazine advertising will rise to $311 million in 2013, a 1.8 percent compound annual increase. • Business-to-business publishing in Latin America will decrease by 6.6 percent during the next two years and • Circulation spending will grow at a 0.4 percent annual then expand by 11.1 percent during 2011–13, rising rate to $195 million in 2013 from $191 million in 2008. to $3.9 billion from $3.8 billion in 2008, an 0.8 percent • The total trade magazine market will expand at a 1.2 compound annual increase. percent compound annual rate from $476 million in • Business information will total $1.8 billion in 2013 from 2008 to $506 million in 2013. $1.7 billion in 2008, growing at a 1 percent compound • Spending on professional print books will advance at annual rate. a 0.5 percent annual rate to $758 million in 2013 from • Print directory advertising will fall from $875 million in $738 million in 2008. 2008 to $833 million in 2013, a 1 percent decrease on a • Total business-to-business advertising will rise from compound annual basis. $1.18 billion in 2008 to $1.21 billion in 2013, a 0.6 • Online directory advertising will increase from $16 percent compound annual increase. million in 2008 to $65 million in 2013, a 32.4 percent • Total end-user spending will rise at an 0.8 percent compound annual increase from a small base. compound annual rate to $2.7 billion in 2013 from $2.6 billion in 2008.

Business-to-business publishing | Latin America 597 Business-to-business publishing market by component† (US$ millions)

Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 Business information 1,325 1,443 1,522 1,634 1,669 1,606 1,574 1,594 1,663 1,756 Directory advertising Print 590 693 784 879 875 819 786 773 787 833 Digital NA NA NA 7 16 18 22 31 45 65 Total directory advertising 590 693 784 886 891 837 808 804 832 898 Trade magazines Print advertising 209 235 253 276 281 256 249 250 263 287 Digital advertising NA NA NA 2 4 5 7 10 17 24 Total advertising 209 235 253 278 285 261 256 260 280 311 Circulation spending 162 170 178 192 191 181 175 176 185 195 Total trade magazines 371 405 431 470 476 442 431 436 465 506 Professional books 637 662 687 721 738 720 712 717 732 758 Total advertising 799 928 1,037 1,164 1,176 1,098 1,064 1,064 1,112 1,209 Total end user 2,124 2,275 2,387 2,547 2,598 2,507 2,461 2,487 2,580 2,709 Total 2,923 3,203 3,424 3,711 3,774 3,605 3,525 3,551 3,692 3,918

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

598 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business-to-business publishing market growth by component (%) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Business information 5.4 8.9 5.5 7.4 2.1 –3.8 –2.0 1.3 4.3 5.6 1.0 Directory advertising Print 15.5 17.5 13.1 12.1 –0.5 –6.4 –4.0 –1.7 1.8 5.8 –1.0 Digital — — — — 128.6 12.5 22.2 40.9 45.2 44.4 32.4 Total directory advertising 15.5 17.5 13.1 13.0 0.6 –6.1 –3.5 –0.5 3.5 7.9 0.2 Trade magazines Print advertising 10.0 12.4 7.7 9.1 1.8 –8.9 –2.7 0.4 5.2 9.1 0.4 Digital advertising — — — — 100.0 25.0 40.0 42.9 70.0 41.2 43.1 Total advertising 10.0 12.4 7.7 9.9 2.5 –8.4 –1.9 1.6 7.7 11.1 1.8 Circulation spending 7.3 4.9 4.7 7.9 –0.5 –5.2 –3.3 0.6 5.1 5.4 0.4 Total trade magazines 8.8 9.2 6.4 9.0 1.3 –7.1 –2.5 1.2 6.7 8.8 1.2 Professional books 3.2 3.9 3.8 4.9 2.4 –2.4 –1.1 0.7 2.1 3.6 0.5 Total advertising 14.0 16.1 11.7 12.2 1.0 –6.6 –3.1 0.0 4.5 8.7 0.6 Total end user 4.9 7.1 4.9 6.7 2.0 –3.5 –1.8 1.1 3.7 5.0 0.8 Total 7.2 9.6 6.9 8.4 1.7 –4.5 –2.2 0.7 4.0 6.1 0.8

Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

• Latin America does not have a well-developed • Brazil and Mexico are the largest markets in the region, business-to-business publishing market. Economic at $1.7 billion and $1.2 billion, respectively, in 2008, instability during the 1990s and the early part of the together constituting 78 percent of total spending in current decade limited demand, and a market only Latin America. Argentina is next, at $314 million. began to develop in recent years as the economy has • Argentina has been the fastest-growing market in become able to achieve a sustained expansion. Latin America during the past three years, the result • From 2004 to 2007, business-to-business publishing of a surging advertising market and high inflation. expanded at an 8.3 percent compound annual rate. High inflation will continue to boost nominal spending, Growth slowed to 1.7 percent in 2008 as economic although the underlying market has weakened. We conditions again began to decline. In contrast with project a 3.4 percent compound annual increase during the early part of the decade, the economic problems the next five years. facing Latin America are largely the result of falling • High inflation in Venezuela will lead to a 1.3 percent demand from the United States and Europe and of compound annual increase. the international credit decline rather than structural imbalances in the region. Nevertheless, the Latin • The remaining countries will record declines during the American economy will be adversely affected during next two to three years that will roughly be offset by the next two years, which in turn will lead to declines in subsequent increases so that spending in 2013 will be business-to-business publishing. within one percentage point on a compound annual basis from spending in 2008.

Business-to-business publishing | Latin America 599 Business-to-business publishing market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 221 239 266 302 314 312 314 320 343 372 3.4 Brazil 1,274 1,456 1,558 1,705 1,746 1,676 1,640 1,647 1,710 1,808 0.7 Chile 145 152 163 172 171 163 160 160 165 175 0.5 Colombia 143 161 174 187 189 176 170 170 175 185 –0.4 Mexico 1,030 1,078 1,136 1,210 1,215 1,143 1,111 1,121 1,161 1,230 0.2 Venezuela 110 117 127 135 139 135 130 133 138 148 1.3 Total 2,923 3,203 3,424 3,711 3,774 3,605 3,525 3,551 3,692 3,918 0.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business information then look for a recovery in consumer spending that will generate a pickup in advertising and marketing • The financial crisis began to affect Latin America in and increased spending on marketing information. the latter part of 2008. Financial institutions are facing Spending will expand by 10.1 percent during 2011–13. capital shortages and have cut back on their lending. During the entire forecast period, spending will rise at a In the process, the need for credit information has 0.3 percent compound annual rate from $364 million in declined. Spending on financial information fell 0.4 2008 to $369 million in 2013. percent in 2008 following a 7.4 percent gain in 2007. • Industry information was the fastest-growing compo- • As economic conditions worsen, investment and lend- nent of business information in 2008, with a 5.7 per- ing activity will decline, as will spending on financial cent advance. Industry information is less affected by information. We project decreases of 8 percent in 2009 the declining economy as long-term interest in Latin and a further, 5.5 percent drop in 2010. We then look America remains. We expect industry information to for a pickup in the economy that will lead to increased continue to expand during the next two years, although borrowing and growing demand for financial informa- at slower rates compared with the past few years. We tion. We project spending from 2010 to 2013 to rise by also expect a slower rebound during 2011–13, as this 13.2 percent, bringing the total in 2013 to $739 million, segment is less cyclical. Spending in 2013 will total an 0.3 percent lower on a compound annual basis from estimated $648 million, a 3.2 percent compound annual $751 million in 2008. increase from $554 million in 2008. • Cutbacks in consumer spending are leading to • Spending on business information will advance at a 1 cutbacks in advertising and marketing, which in percent compound annual rate to $1.8 billion in 2013 turn will lead to cutbacks in spending on marketing from $1.7 billion in 2008. information. We expect a 5.2 percent decline in 2009 followed by a 2.9 percent decrease in 2010. We

600 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Business information market by component† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Financial 610 664 702 754 751 691 653 654 690 739 % Change 5.5 8.9 5.7 7.4 –0.4 –8.0 –5.5 0.2 5.5 7.1 –0.3 Marketing 282 310 329 357 364 345 335 338 349 369 % Change 5.3 9.9 6.1 8.5 2.0 –5.2 –2.9 0.9 3.3 5.7 0.3 Industry 433 469 492 524 554 570 586 603 624 648 % Change 5.3 8.3 4.9 6.5 5.7 2.9 2.8 2.9 3.5 3.8 3.2 Total 1,325 1,443 1,522 1,634 1,669 1,606 1,574 1,594 1,663 1,756 % Change 5.4 8.9 5.5 7.4 2.1 –3.8 –2.0 1.3 4.3 5.6 1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business information market by country† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 107 109 116 123 129 131 134 139 147 156 3.9 Brazil 474 557 593 663 680 653 639 647 680 723 1.2 Chile 80 82 85 88 90 86 84 85 88 92 0.4 Colombia 73 80 85 90 93 88 85 85 89 94 0.2 Mexico 513 534 557 579 584 557 543 548 566 593 0.3 Venezuela 78 81 86 91 93 91 89 90 93 98 1.1 Total 1,325 1,443 1,522 1,634 1,669 1,606 1,574 1,594 1,663 1,756 1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Directory advertising • The directory market has now experienced the downside of that cycle. Small businesses—and businesses in Print general—are reducing their marketing outlays, and • Print directory advertising surged at double-digit annual directories have been affected by that trend. Directory rates from 2004 to 2007. Economic expansion during advertising fell 0.5 percent in 2008, and we expect that period fueled overall advertising, and directories additional declines totaling 11.7 percent through 2011. were adopted as an easy and relatively inexpensive way • When economic conditions improve, we look for for companies to enhance their presence in the market, directories to again expand, although not at double- particularly for small businesses. digit levels, because the Internet is beginning to attract • At the same time, the trend of advertisers to shift funds advertising in Latin America, some of which will likely to the Internet has been much less pronounced in Latin come from print directories. America. Consequently, print directories face less com- • We expect print directory advertising to remain lower in petition from the Internet than they do in other regions. 2013 than in 2008, with spending falling from $875 million to $833 million, a 1 percent compound annual decrease.

Business-to-business publishing | Latin America 601 Print directory advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 46 56 71 87 88 85 84 82 87 95 1.5 Brazil 216 280 315 348 345 326 313 305 307 321 –1.4 Chile 36 40 47 51 50 47 46 45 46 49 –0.4 Colombia 31 37 42 46 45 41 39 38 38 39 –2.8 Mexico 230 246 271 305 303 278 265 263 267 283 –1.4 Venezuela 31 34 38 42 44 42 39 40 42 46 0.9 Total 590 693 784 879 875 819 786 773 787 833 –1.0

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Online directories • The broadband market is now expanding, and we • The online directory advertising market in Latin America expect that rising penetration will lead to increased use is small, at only $16 million in 2008. of online directories. • Only in the past few years has a market developed. Pre- • We project online directory advertising in Latin America viously, low broadband penetration and limited Internet to grow at a 32.4 percent compound annual rate to $65 access discouraged publishers from going online. million by 2013.

Digital directory advertising market† (US$ millions) 2009–13 Latin America 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 1 2 2 3 3 5 8 32.0 Brazil 3 7 7 9 13 20 27 31.0 Chile ‡ ‡ 1 1 1 1 2 — Colombia ‡ 1 1 1 2 2 3 24.6 Mexico 3 6 7 8 11 16 23 30.8 Venezuela ‡ ‡ ‡ ‡ 1 1 2 — Total 7 16 18 22 31 45 65 32.4

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

602 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total directory advertising • Digital advertising will constitute 7.2 percent of total • Total directory advertising in Latin America will edge up directory advertising in 2013 from only 1.8 percent at a 0.2 percent compound annual rate to $898 million in 2008. in 2013 from $891 million in 2008.

Total directory advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 46 56 71 88 90 87 87 85 92 103 2.7 Brazil 216 280 315 351 352 333 322 318 327 348 –0.2 Chile 36 40 47 51 50 48 47 46 47 51 0.4 Colombia 31 37 42 46 46 42 40 40 40 42 –1.8 Mexico 230 246 271 308 309 285 273 274 283 306 –0.2 Venezuela 31 34 38 42 44 42 39 41 43 48 1.8 Total 590 693 784 886 891 837 808 804 832 898 0.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Trade magazines • The economy reversed course during the latter part of 2008. Oil revenues began to fall, the building and Print advertising financial services markets tumbled, and advertising in • Trade magazine print advertising benefited during the trade magazines weakened. Growth fell to 1.8 percent. 2004–07 period (1) by an expanding economy that • With a full-year downturn in the economy, we expect created opportunities for smaller companies to compete an 8.9 percent decline in trade magazine advertising, a and (2) from international suppliers’ entering the market figure that would be lower if it were not for high inflation and advertising in trade magazines in Latin America. in Argentina and other countries. • Growth was fueled by an expanding telecommunica- • We look for the downturn to continue through 2010, tions market—a key component of trade magazine with the market stabilizing in 2011 and then returning to advertising—and by rising oil revenues in Mexico and a growth path, with a projected 9.1 percent rise in 2013. Venezuela, which led to increased investment in other industries. From 2004 to 2007, print advertising in trade • For the forecast period as a whole, print advertising in magazines rose at a 9.7 percent compound annual rate. trade magazines will increase to $287 million from $281 million in 2008, a 0.4 percent compound annual increase.

Business-to-business publishing | Latin America 603 Trade magazine print advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 15 17 18 21 25 25 25 26 28 30 3.7 Brazil 67 82 91 101 108 101 98 98 103 113 0.9 Chile 10 10 11 12 10 8 8 8 8 9 –2.1 Colombia 14 18 20 22 21 18 17 16 17 19 –2.0 Mexico 103 108 112 119 116 103 100 101 106 115 –0.2 Venezuela ‡ ‡ 1 1 1 1 1 1 1 1 0.0 Total 209 235 253 276 281 256 249 250 263 287 0.4

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Digital advertising years. Broadband will become common, and online • Latin America does not have a significant digital advertising will be more routinely used in conjunction advertising market. Broadband penetration is still low, with more-traditional media. and advertisers are not yet using the Internet to the • As the Internet market develops, trade magazines will degree they are in other regions. Trade magazines put resources into their Web sites, which in turn will generated only $4 million in Web site advertising in 2008. attract advertising. We project trade magazine digital • We expect the Internet to become a much more advertising to increase to $24 million by 2013. important advertising channel during the next five

Trade magazine digital advertising market† (US$ millions) 2009–13 Latin America 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina ‡ ‡ 1 1 1 2 3 — Brazil 1 2 2 3 4 7 10 38.0 Chile ‡ ‡ ‡ ‡ ‡ 1 1 — Colombia ‡ ‡ ‡ ‡ 1 1 1 — Mexico 1 2 2 3 4 6 9 35.1 Venezuela ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Total 2 4 5 7 10 17 24 43.1

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

604 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Total advertising annual rate to $311 million in 2013. Digital advertising • Total trade magazine advertising, including digital will constitute 7.7 percent of total advertising in 2013 advertising, will increase at a 1.8 percent compound compared with only 1.4 percent in 2008.

Trade magazine total advertising market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 15 17 18 21 25 26 26 27 30 33 5.7 Brazil 67 82 91 102 110 103 101 102 110 123 2.3 Chile 10 10 11 12 10 8 8 8 9 10 0.0 Colombia 14 18 20 22 21 18 17 17 18 20 –1.0 Mexico 103 108 112 120 118 105 103 105 112 124 1.0 Venezuela ‡ ‡ 1 1 1 1 1 1 1 1 0.0 Total 209 235 253 278 285 261 256 260 280 311 1.8

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Circulation • By 2013, circulation spending will total an estimated • Circulation spending fell by 0.5 percent in 2008 follow- $195 million, up 0.4 percent compounded annually from ing a 7.9 percent gain in 2007. With employment begin- $191 million in 2008. ning to fall, the potential audience for trade magazines is shrinking. Total trade magazine spending • Total trade magazine spending will grow from $476 • We project circulation spending to decline by an million in 2008 to $506 million in 2013, a 1.2 percent additional 8.4 percent during the next two years. We compound annual increase. then look for employment to rise as the economy improves and expect circulation spending to increase during 2011–13.

Trade magazine circulation spending market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 45 48 52 61 61 59 58 59 64 70 2.8 Brazil 66 69 72 75 74 70 67 66 68 70 –1.1 Chile 2 2 2 2 2 2 2 2 2 2 0.0 Colombia 4 4 4 5 5 4 4 4 4 4 –4.4 Mexico 45 46 47 49 49 46 44 45 47 49 0.0 Venezuela ‡ 1 1 ‡ ‡ ‡ ‡ ‡ ‡ ‡ — Total 162 170 178 192 191 181 175 176 185 195 0.4

†At average 2008 exchange rates. ‡Less than US$500,000. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Business-to-business publishing | Latin America 605 Total trade magazine publishing market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 60 65 70 82 86 85 84 86 94 103 3.7 Brazil 133 151 163 177 184 173 168 168 178 193 1.0 Chile 12 12 13 14 12 10 10 10 11 12 0.0 Colombia 18 22 24 27 26 22 21 21 22 24 –1.6 Mexico 148 154 159 169 167 151 147 150 159 173 0.7 Venezuela ‡ 1 2 1 1 1 1 1 1 1 0.0 Total 371 405 431 470 476 442 431 436 465 506 1.2

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

Professional books from print to electronic formats that has characterized professional book markets in other regions. We are not • The professional book market is small in Latin America expecting electronic books to play a role in the market and concentrated in Brazil and Mexico, which together during the next five years. account for 93 percent of total spending. As with other components of business-to-business publishing, • We expect spending to decline during the next two professional books are affected by the economy. years as employment falls, with a rebound expected Spending growth slowed in 2008 to 2.4 percent during 2011–13 as economic conditions improve and following compound annual increases of 4.2 percent as employment rebounds. from 2004 to 2007. • Spending on professional books will total an estimated • In contrast with other regions, electronic books do $758 million in 2013 from $738 million in 2008, a 0.5 not have a significant presence in Latin America. percent increase compounded annually. Consequently, there has not been the material migration

Professional book print market† (US$ millions) 2009–13 Latin America 2004 2005 2006 2007 2008p 2009 2010 2011 2012 2013 CAGR Argentina 8 9 9 9 9 9 9 10 10 10 2.1 Brazil 451 468 487 514 530 517 511 514 525 544 0.5 Chile 17 18 18 19 19 19 19 19 19 20 1.0 Colombia 21 22 23 24 24 24 24 24 24 25 0.8 Mexico 139 144 149 154 155 150 148 149 153 158 0.4 Venezuela 1 1 1 1 1 1 1 1 1 1 0.0 Total 637 662 687 721 738 720 712 717 732 758 0.5

†At average 2008 exchange rates. Sources: PricewaterhouseCoopers LLP, Wilkofsky Gruen Associates

606 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Index of tables and charts†

Executive summary 608 Internet access: wired and mobile 609 Internet advertising: wired and mobile 610 Television subscriptions and license fees 611 Television advertising 612

Recorded music 612 Filmed entertainment 613 Video games 613 Radio and out-of-home 614 Consumer magazine publishing 614 Newspaper publishing 615 Consumer and educational book publishing 615

Business-to-business publishing 616

†Key to symbols used in the tables and charts p = preliminary NA = not available — = no spending that year Totals in tables and charts may not total arithmetically due to rounding. Index of tables and charts†

Executive summary Global recorded music digital distribution market by region ...... 41 Global recorded music physical distribution market by region . . . . . 41 Global recorded music market by component ...... 42 Viewpoint: the global entertainment Global filmed entertainment market by region 43 and media outlook Global filmed entertainment market by component ...... 43 Global video game market by region ...... 44 Introduction Global video game market by component 45 Regions/countries covered ...... 9 Global consumer magazine publishing market by region ...... 46 The E&M landscape in 2013: Global consumer magazine publishing market by component . . . . . 46 “no hiding place” from the migration to digital Global newspaper publishing market by region ...... 47 Digital versus nondigital spend, 2008 ...... 12 Global newspaper publishing market by component ...... 48 Digital versus nondigital spend, 2013 ...... 12 Global radio/out-of-home market by region ...... 49 Spending growth by segment ...... 13 Global radio market by region ...... 49 Market share by segment, 2008 ...... 14 Global out-of-home advertising market by region 50 Market share by segment, 2013 ...... 14 Global radio/out-of-home market by component ...... 50 Nominal GDP growth by region (%) ...... 14 Global consumer and educational book publishing market by region ...... 52 Global E&M and nominal GDP growth (%) 15 Global consumer and educational book publishing market Spending/GDP growth comparison ...... 16 by component ...... 52 Growth of consumer spend on digital/mobile platforms 18 Global business-to-business publishing market by region ...... 53 Advertising targeted to new consumer behaviors ...... 20 Global business-to-business publishing market by component . . . . . 54 Summaries by segment and region Global market by region

Global industry summary North America Global entertainment and media market by region ...... 28 Entertainment and media market by segment 56 Global E&M and nominal GDP growth (%) 29 Entertainment and media market by country ...... 57 Global Internet access market: wired and mobile ...... 29 Entertainment and media spending, United States ...... 58 Global advertising ...... 30 Entertainment and media spending, Canada ...... 59 Global consumer/end-user spending ...... 31 Internet access market: wired and mobile 60 Internet access market: wired and mobile by country 60 Global market by segment Advertising by segment ...... 61 Global entertainment and media market by segment ...... 33 Advertising by country ...... 61 Global Internet access market: wired and mobile by region 34 Consumer/end-user spending by segment ...... 63 Global Internet access market: wired and mobile by component 35 Consumer/end-user spending (excluding Internet access) Global Internet advertising market: wired and mobile by region 36 by country ...... 63 Global Internet advertising market: wired and mobile by component 36 Europe, Middle East, Africa (EMEA) Global TV subscription and license fee market by region ...... 37 Global TV subscription and license fee market by component . . . . . 38 Entertainment and media market by segment 64 Global television advertising market by region ...... 39 Entertainment and media market by country ...... 66 Global television advertising market by component 39 Entertainment and media spending, United Kingdom 67 Global recorded music market by region ...... 40 Entertainment and media spending, Germany 68

608 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Entertainment and media spending, France 69 Forecasts and economic analyses of Entertainment and media spending, Russia ...... 70 12 industry segments Internet access market: wired and mobile 71 Internet access market: wired and mobile by country 72 Advertising by segment ...... 73 Internet access spending: wired and mobile Advertising by country ...... 74 Consumer/end-user spending by segment ...... 75 North America Consumer/end-user spending (excluding Internet access) Internet access market: wired and mobile by component 103 by country ...... 76 Internet access market growth: wired and mobile by component (%) ...... 103 Asia Pacific Internet access market: wired and mobile by country 104 Entertainment and media market by segment 77 Broadband households ...... 106 Entertainment and media market by country ...... 78 Broadband household penetration (%) ...... 106 Entertainment and media spending, Japan ...... 79 Broadband access spending ...... 107 Entertainment and media spending, China ...... 80 Broadband household growth in North America (%) ...... 107 Entertainment and media spending, India ...... 81 Dial-up household growth in North America (%) 108 Internet access market: wired and mobile 82 Dial-up households 108 Internet access market: wired and mobile by country 82 Dial-up household penetration (%) ...... 108 Advertising by segment ...... 83 Dial-up access spending 109 Advertising by country ...... 84 Internet households ...... 109 Consumer/end-user spending by segment ...... 85 Internet household penetration (%) ...... 109 Consumer/end-user spending (excluding Internet access) Mobile access subscribers as a percent of wireless by country ...... 86 telephone subscribers in North America ...... 110 Mobile access market ...... 111 Latin America Entertainment and media market by segment 87 Europe, Middle East, Africa (EMEA) Entertainment and media market by country 88 Internet access market: wired and mobile by component 112 Entertainment and media spending, Brazil ...... 89 Internet access market growth: wired and mobile Internet access market: wired and mobile 90 by component (%) ...... 112 Internet access market: wired and mobile by country 90 Internet access market: wired and mobile by country 113 Advertising by segment ...... 91 Wired broadband households ...... 116 Advertising by country ...... 92 Wired broadband household penetration (%) ...... 117 Consumer/end-user spending by segment ...... 93 Dial-up household growth in EMEA (%) ...... 118 Consumer/end-user spending (excluding Internet access) Wired dial-up households ...... 119 by country ...... 93 Wired dial-up household penetration (%) ...... 120 Wired Internet households 121 Methodology Wired Internet household penetration (%) 122 Broadband access spending growth in EMEA (%) ...... 123 Exchange rates per US$ (2008 average) 95 Wired broadband access spending ...... 124 Nominal GDP growth by country (%) ...... 96 Wired dial-up access spending ...... 125 Mobile access subscribers as a percent of wireless telephone subscribers in EMEA ...... 127 Mobile access market ...... 128

Index of tables and charts 609 Asia Pacific Wired Internet classified advertising market 154 Wired Internet classified advertising market growth (%) 154 Internet access market: wired and mobile by component 129 Wired Internet search advertising market ...... 155 Internet access market growth: wired and mobile by component (%) ...... 129 Wired Internet search advertising market growth (%) ...... 155 Internet access market: wired and mobile by country 130 Wired Internet rich media/video advertising market 156 Broadband households ...... 133 Wired Internet rich media/video advertising market growth (%) 156 Broadband household penetration (%) ...... 134 Wired Internet advertising market ...... 156 Wired broadband access spending ...... 135 Wired Internet advertising market growth (%) ...... 157 Wired dial-up households ...... 136 Mobile Internet subscribers in North America ...... 157 Wired dial-up household penetration (%) ...... 137 Mobile Internet advertising market 158 Wired dial-up access spending ...... 138 Mobile Internet advertising market growth (%) ...... 158 Wired Internet households 139 Europe, Middle East, Africa (EMEA) Wired Internet household penetration (%) 140 Mobile access subscribers as a percent of wireless Internet advertising market: wired and mobile by component 159 telephone subscribers in Asia Pacific ...... 141 Internet advertising market growth: wired and mobile Mobile access market ...... 141 by component (%) ...... 159 Internet advertising market: wired and mobile by country 160 Latin America Wired Internet advertising market by component ...... 162 Internet access market: wired and mobile by component 142 Wired Internet advertising market growth by component (%) 162 Internet access market growth: wired and mobile Wired Internet advertising market by country ...... 163 by component (%) ...... 142 Mobile Internet subscribers in EMEA ...... 164 Internet access market: wired and mobile by country 143 Mobile Internet advertising market by country 165 Broadband households ...... 144 Broadband household penetration (%) ...... 144 Asia Pacific Internet households in Latin America ...... 145 Internet advertising market: wired and mobile by component . . . . . 166 Dial-up households ...... 145 Internet advertising market growth: wired and mobile Dial-up household penetration (%) ...... 145 by component (%) ...... 166 Internet households ...... 146 Internet advertising market: wired and mobile by country 167 Internet household penetration (%) ...... 146 Wired Internet advertising and broadband household growth in Asia Pacific (%) ...... 168 Broadband access spending ...... 147 Wired Internet advertising market by country ...... 169 Dial-up access spending 147 Mobile Internet subscribers in Asia Pacific ...... 170 Mobile access subscribers as a percent of wireless telephone subscribers in Latin America ...... 148 Mobile TV subscribers in Asia Pacific ...... 170 Mobile access market ...... 148 Mobile Internet advertising market by country 171 Latin America Internet advertising: wired and mobile Internet advertising market: wired and mobile by component 172 Internet advertising market growth: wired and mobile North America by component (%) ...... 172 Internet advertising market: wired and mobile by component 151 Internet advertising market: wired and mobile by country 173 Internet advertising market growth: wired and mobile Annual Internet advertising per broadband household, 2008 . . . . . 173 by component (%) ...... 151 Broadband households in Latin America ...... 174 Internet advertising market: wired and mobile by country 152 Wired Internet advertising market by country ...... 174 Internet advertising market growth: wired and mobile Mobile access subscribers in Latin America 175 by country (%) ...... 152 Mobile TV subscribers in Latin America ...... 175 Wired Internet display advertising market ...... 153 Mobile Internet advertising market by country 175 Wired Internet display advertising market growth (%) 153

610 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Television subscriptions and license fees TV subscription market by country ...... 207 VOD households in Western Europe 208 North America Annual VOD spending per household in Western Europe ...... 208 Video-on-demand and subscription VOD ...... 209 TV subscription and license fee market by component ...... 179 Pay-per-view spending 210 TV subscription and license fee market growth by component (%) 179 Mobile TV market ...... 212 TV subscription and license fee market by country ...... 180 Public TV license fees ...... 214 TV subscription and license fee market growth by country (%) . . . . 180 Cumulative change in TV subscription households Asia Pacific in North America from 2008 ...... 181 Subscription TV households 181 TV subscription and license fee market by component ...... 215 Subscription TV penetration of TV households (%) ...... 181 TV subscription and license fee market growth by component (%) 215 Telephone company/IPTV households 182 TV subscription and license fee market by country ...... 216 Telephone company/IPTV TV penetration of TV households (%) . . . 182 Subscription TV households 217 Cable households ...... 183 Subscription TV penetration of TV households (%) ...... 218 Cable penetration of TV households (%) ...... 183 IPTV households 220 Satellite households ...... 184 IPTV penetration of TV households (%) ...... 221 Satellite penetration of TV households (%) ...... 184 Cable households ...... 222 Basic subscription spending 185 Cable penetration of TV households (%) ...... 223 TV subscription market by country ...... 185 Satellite households ...... 224 TV subscription market growth by country (%) ...... 185 Satellite penetration of TV households (%) ...... 225 Digital and analog cable TV households 186 TV subscription market by country ...... 226 VOD household universe in North America ...... 187 VOD households in Asia Pacific ...... 226 Video-on-demand/subscription video-on-demand market ...... 187 Annual spending per VOD household in Asia Pacific ...... 227 Video-on-demand/subscription video-on-demand Video-on-demand and subscription VOD ...... 227 market growth (%) ...... 187 Pay-per-view spending 228 Pay-per-view market 188 Mobile TV market ...... 230 Pay-per-view market growth (%) 188 TV households in countries with public TV license fees 230 Mobile TV subscription market 190 Public TV license fees ...... 231 Mobile TV subscription market growth (%) ...... 190 Latin America Europe, Middle East, Africa (EMEA) TV subscription and license fee market by component ...... 232 TV subscription and license fee market by component ...... 191 TV subscription and license fee market growth by component (%) 232 TV subscription and license fee market growth by component (%) 192 TV subscription and license fee market by country ...... 233 TV subscription and license fee market by country ...... 193 Subscription TV households 234 Subscription TV household growth in EMEA (%) ...... 194 Subscription TV penetration of TV households (%) ...... 234 Subscription TV households 195 Cable households ...... 235 Subscription TV penetration of TV households (%) ...... 196 Cable penetration of TV households (%) ...... 235 IPTV households 198 IPTV households 236 IPTV penetration of TV households (%) ...... 199 Subscription satellite households ...... 236 Cable/subscription DTT households 201 Subscription satellite penetration of TV households (%) ...... 237 Cable/subscription DTT penetration of TV households (%) ...... 202 TV subscription market ...... 237 Subscription satellite households ...... 204 VOD households in Latin America ...... 238 Subscription satellite penetration of TV households (%) ...... 205 Video-on-demand and subscription VOD ...... 238 Subscription spending growth per household in EMEA (%) 206 Mobile TV market ...... 239

Index of tables and charts 611 Television advertising Multichannel advertising market 271 Terrestrial advertising market ...... 272 North America Television advertising market by component ...... 243 Recorded music Television advertising market growth by component (%) ...... 243 Television advertising market by country ...... 244 North America Television advertising market growth by country (%) ...... 244 Recorded music market by component ...... 276 2008 networks advertising growth in North America (%) ...... 245 Recorded music market growth by component (%) 276 Broadcast network and local television advertising market ...... 245 Recorded music market by country ...... 277 Broadcast network and local television advertising Broadband households in North America ...... 278 market growth (%) ...... 245 Licensed Internet recorded music market ...... 278 Television station and multichannel systems advertising market . . . 247 Mobile phone recorded music market 279 Television station and multichannel systems advertising Digital recorded music market 280 market growth (%) ...... 247 Physical recorded music market 280 DVR households ...... 248 Broadcast network advertising market ...... 250 Europe, Middle East, Africa (EMEA) Broadcast network advertising market growth (%) ...... 250 Recorded music market by component ...... 281 Cable network advertising market ...... 252 Recorded music market growth by component (%) 281 Cable network advertising market growth (%) 252 Recorded music market by country ...... 283 Europe, Middle East, Africa (EMEA) Broadband households in EMEA ...... 284 Licensed Internet recorded music market ...... 285 Television advertising market by component ...... 253 Mobile phone recorded music market 287 Television advertising market growth by component (%) ...... 253 Digital recorded music market 289 Television advertising market by country ...... 255 Physical recorded music market 290 TV advertising growth by area in EMEA (%) ...... 257 Multichannel advertising market 259 Asia Pacific Terrestrial advertising market ...... 261 Recorded music market by component ...... 291 Asia Pacific Recorded music market growth by component (%) 291 Recorded music market by country ...... 293 Television advertising market by component ...... 262 Mobile phone recorded music market 294 Television advertising market growth by component (%) ...... 262 Broadband subscribers in Asia Pacific ...... 295 Television advertising market by country ...... 264 Licensed Internet recorded music market ...... 296 Television advertising growth in Asia Pacific (%) ...... 264 Digital recorded music market 297 Multichannel advertising growth in Asia Pacific (%) 265 Physical recorded music market 298 Multichannel advertising market 266 Terrestrial advertising growth in Asia Pacific (%) ...... 267 Latin America Terrestrial advertising growth in Japan and the rest of Recorded music market by component ...... 299 Asia Pacific (%) ...... 267 Recorded music market growth by component (%) 299 Terrestrial advertising market ...... 268 Recorded music market by country ...... 300 Latin America Mobile phone recorded music market 301 Broadband households in Latin America ...... 301 Television advertising market by component ...... 269 Licensed Internet recorded music market ...... 302 Television advertising market growth by component (%) ...... 269 Digital recorded music market 302 Television advertising market by country ...... 270 Physical recorded music market 303 Television advertising in Latin America 270

612 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Filmed entertainment Filmed entertainment market by country ...... 343 Admissions 344 North America Average admission price 344 Box office market ...... 345 Filmed entertainment market by component ...... 307 Physical sell-through market 346 Filmed entertainment market growth by component (%) ...... 308 In-store rental market ...... 346 Filmed entertainment market by country ...... 308 Home video market ...... 347 Average admission price 310 Admissions 310 Box office market ...... 311 Video games Physical sell-through market 312 In-store rental market ...... 312 North America Digital download market ...... 313 Video game market by component ...... 353 Online rental subscriptions market 314 Video game market growth by component (%) ...... 354 Home video market ...... 315 Video game market by country ...... 354 Shares of filmed entertainment revenue in North America (%) . . . . 315 Console/handheld game market 357 Online game market ...... 359 Europe, Middle East, Africa (EMEA) Wireless game market ...... 360 Filmed entertainment market by component ...... 316 PC game market 362 Filmed entertainment market growth by component (%) ...... 317 Video game advertising market ...... 363 Filmed entertainment market by country ...... 318 Admissions 321 Europe, Middle East, Africa (EMEA) Average admission price 322 Video game market by component ...... 364 Box office market ...... 323 Video game market growth by component (%) ...... 365 Physical sell-through market 325 Video game market by country ...... 366 In-store rental market ...... 327 Console/handheld game market 369 Digital download market ...... 328 Online game market ...... 371 Online subscription rental market ...... 329 Wireless game market ...... 373 Home video market ...... 330 PC game market 375 Video game advertising market ...... 377 Asia Pacific Filmed entertainment market by component ...... 331 Asia Pacific Filmed entertainment market growth by component (%) ...... 331 Video game market by component ...... 378 Filmed entertainment market by country ...... 332 Video game market growth by component (%) ...... 379 Admissions 334 Video game market by country ...... 380 Average admission price 335 Console/handheld game market 382 Box office market ...... 336 Online game market ...... 384 Physical sell-through market 337 Wireless game market ...... 385 In-store rental market ...... 338 PC game market 386 Online subscription rental market ...... 339 Video game advertising market ...... 387 Digital download market ...... 340 Latin America Home video market ...... 341 Video game market by component ...... 388 Latin America Video game market growth by component (%) ...... 388 Filmed entertainment market by component ...... 342 Video game market by country ...... 389 Filmed entertainment market growth by component (%) ...... 342 Console/handheld game market 390

Index of tables and charts 613 PC game market 391 Consumer magazine publishing Wireless game market ...... 391 Online game market ...... 392 North America Video game advertising market ...... 393 Consumer magazine publishing market by component ...... 433 Consumer magazine publishing market growth by component (%) 433 Radio and out-of-home Consumer magazine publishing market by country ...... 434 Consumer magazine publishing market growth by country (%) 434 North America Consumer magazine print advertising market 435 Radio/out-of-home market by component ...... 398 Consumer magazine print advertising market growth (%) 436 Radio/out-of-home market growth by component (%) ...... 399 Mobile Internet access subscribers in North America 436 Radio/out-of-home market by country 399 Consumer magazine digital advertising market ...... 437 Terrestrial radio advertising market ...... 401 Consumer magazine digital advertising market growth (%) 437 Satellite radio market 403 Consumer magazine total advertising market ...... 437 Out-of-home market ...... 405 Consumer magazine total advertising market growth (%) 438 Consumer magazine circulation spending market 439 Europe, Middle East, Africa (EMEA) Consumer magazine circulation spending market growth (%) . . . . 439 Radio/out-of-home market by component ...... 406 Radio/out-of-home market growth by component (%) ...... 406 Europe, Middle East, Africa (EMEA) Radio/out-of-home market by country 408 Consumer magazine publishing market by component ...... 440 Out-of-home advertising market 412 Consumer magazine publishing market growth by component (%) 441 Radio advertising market ...... 415 Consumer magazine publishing market by country ...... 442 Public radio license fees ...... 417 Consumer magazine circulation spending market 444 Total radio market ...... 418 Consumer magazine print advertising market 446 Mobile Internet access subscribers in EMEA ...... 447 Asia Pacific Consumer magazine digital advertising market ...... 448 Radio/out-of-home market by component ...... 419 Consumer magazine total advertising market ...... 449 Radio/out-of-home market growth by component (%) ...... 419 Radio/out-of-home advertising in Asia Pacific 420 Asia Pacific Radio/out-of-home market by country 421 Consumer magazine publishing market by component ...... 450 Out-of-home advertising market 423 Consumer magazine publishing market growth by component (%) 451 Radio advertising market ...... 425 Consumer magazine publishing market by country ...... 452 Public radio license fees ...... 426 Consumer magazine print advertising market 453 Total radio market ...... 427 Mobile Internet access subscribers in Asia Pacific ...... 454 Consumer magazine digital advertising market ...... 455 Latin America Consumer magazine total advertising market ...... 456 Radio/out-of-home market by component ...... 428 Consumer magazine circulation spending market 457 Radio/out-of-home market by country 428 Radio advertising market ...... 429 Latin America Out-of-home advertising market 430 Consumer magazine publishing market by component ...... 458 Consumer magazine publishing market growth by component (%) 458 Consumer magazine publishing market by country ...... 459 Consumer magazine print advertising market 460 Broadband and mobile Internet access subscribers in Latin America ...... 460

614 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Consumer magazine digital advertising market ...... 461 Newspaper market by country 490 Consumer magazine total advertising market ...... 461 Daily newspaper unit circulation in Asia Pacific ...... 491 Consumer magazine circulation spending market 462 Print newspaper advertising market ...... 492 Paid daily newspaper unit circulation in Asia Pacific ...... 493 Newspaper publishing Daily newspaper unit circulation 494 Newspaper circulation spending market 495 North America Digital newspaper advertising market ...... 496 Newspaper publishing market by component 465 Total newspaper advertising market 497 Newspaper publishing market growth by component (%) 465 Latin America Newspaper publishing market by country 466 Newspaper publishing market by component 498 Newspaper publishing market growth by country (%) 466 Newspaper publishing market growth by component (%) 498 US print classified advertising market ...... 468 Newspaper market by country 499 US print classified advertising market growth (%) 468 Daily newspaper circulation in Latin America ...... 499 Print newspaper classified advertising market 468 Print newspaper advertising market ...... 500 Print newspaper classified advertising market growth (%) ...... 469 Paid circulation in Latin America 501 Print newspaper retail advertising market ...... 469 Daily newspaper paid unit circulation ...... 501 Print newspaper retail advertising market growth (%) 470 Newspaper circulation spending market 501 Print newspaper national advertising market ...... 470 Broadband households in Latin America ...... 502 Print newspaper national advertising market growth (%) ...... 470 Digital newspaper advertising market ...... 502 Print newspaper advertising market ...... 471 Total newspaper advertising market 503 Print newspaper advertising market growth (%) 471 Digital newspaper advertising market ...... 472 Digital newspaper advertising market growth (%) 472 Consumer and educational book publishing Total newspaper advertising market 473 North America Total newspaper advertising market growth (%) 473 Daily newspaper unit circulation 475 Consumer and educational book publishing market by component ...... 507 Daily newspaper paid unit circulation growth (%) ...... 475 Consumer and educational book publishing market growth Newspaper circulation spending market 476 by component (%) ...... 508 Newspaper circulation spending market growth (%) ...... 476 Consumer and educational book market by country ...... 508 Europe, Middle East, Africa (EMEA) Print/audio consumer book market ...... 510 Electronic consumer book market 511 Newspaper publishing market by component 477 Total consumer book market 511 Newspaper publishing market growth by component (%) 477 Size of the 6- to 17-year-old population 512 Daily newspaper unit circulation in EMEA ...... 478 Print educational book market 512 Newspaper publishing market by country 479 Electronic educational book market ...... 513 Print newspaper advertising market ...... 481 Total educational book market 514 Digital newspaper advertising market ...... 483 Total newspaper advertising market 484 Europe, Middle East, Africa (EMEA) Daily newspaper unit circulation 486 Consumer and educational book publishing market Newspaper circulation spending market 487 by component 515 Consumer and educational book publishing market growth Asia Pacific by component (%) ...... 516 Newspaper publishing market by component 488 Consumer and educational book publishing market by country . . . 517 Newspaper publishing market growth by component (%) 488 Print/audio consumer book market ...... 519

Index of tables and charts 615 Electronic consumer book market 521 Trade magazine digital advertising market 553 Total consumer book market 522 Trade magazine total advertising market ...... 554 Size of the 6- to 17-year-old population 523 Trade magazine circulation spending market ...... 554 Print educational book market 525 Total trade magazine publishing market ...... 555 Electronic educational book market ...... 526 Professional book print market ...... 555 Total educational book market 527 Professional book electronic market 556 Total professional book market ...... 556 Asia Pacific Consumer and educational book publishing market Europe, Middle East, Africa (EMEA) by component ...... 528 Business-to-business publishing market by component ...... 558 Consumer and educational book publishing market growth Business-to-business publishing market growth by component (%) ...... 529 by component (%) ...... 559 Consumer and educational book publishing market by country . . 530 Business-to-business publishing market by country ...... 560 Print/audio consumer book growth in Asia Pacific (%) ...... 530 Business information market by component ...... 562 Print/audio consumer book market ...... 531 Business information market by country 563 Electronic consumer book market 532 Print directory advertising market ...... 565 Total consumer book market 533 Digital directory advertising market ...... 566 Size of the 6- to 17-year-old population 534 Total directory advertising market ...... 567 Print educational book market ...... 535 Trade magazine print advertising market ...... 569 Electronic educational book market ...... 536 Trade magazine digital advertising market 571 Total educational book market 537 Trade magazine total advertising market ...... 572 Trade magazine circulation spending market ...... 574 Latin America Trade magazine publishing market 575 Consumer and educational book publishing market Print professional book market 577 by component ...... 538 Electronic professional book market ...... 578 Consumer and educational book publishing market growth Total professional book market 579 by component (%) ...... 538 Consumer and educational book publishing market by country . . . 539 Asia Pacific Books spending growth in Latin America (%) ...... 539 Business-to-business publishing market by component ...... 581 Size of the 6- to 17-year-old population 540 Business-to-business publishing market growth Print educational book market 540 by component (%) ...... 582 Print consumer book market 541 Business-to-business publishing market by country ...... 583 Business information market by component ...... 584 Business-to-business publishing Business information market by country 585 Print directory advertising market ...... 586 North America Digital directory advertising market ...... 587 Business-to-business publishing market ...... 547 Total directory advertising market ...... 588 Business-to-business publishing market growth (%) ...... 548 Trade magazine print advertising market ...... 589 Business-to-business publishing market by country ...... 548 Trade magazine digital advertising market 590 Business information market by component ...... 550 Total trade magazine advertising market ...... 591 Business information market by country 550 Trade magazine circulation spending market ...... 592 Print directory advertising market ...... 551 Trade magazine publishing market 593 Digital directory advertising market ...... 551 Professional book print market ...... 594 Total directory advertising market ...... 552 Professional book electronic market 595 Trade magazine print advertising market ...... 553 Total professional book market ...... 596

616 PricewaterhouseCoopers | Global entertainment and media outlook: 2009–2013 Latin America Business-to-business publishing market by component ...... 598 Business-to-business publishing market growth by component (%) ...... 599 Business-to-business publishing market by country ...... 600 Business information market by component ...... 601 Business information market by country 601 Print directory advertising market ...... 602 Digital directory advertising market ...... 602 Total directory advertising market ...... 603 Trade magazine print advertising market ...... 604 Trade magazine digital advertising market 604 Trade magazine total advertising market ...... 605 Trade magazine circulation spending market ...... 605 Total trade magazine publishing market ...... 606 Professional book print market ...... 606

†Key to symbols used in the tables and charts p = preliminary NA = not available — = no spending that year Totals in tables and charts may not total arithmetically due to rounding.

Index of tables and charts 617 To order further copies, please visit: pwc.com/outlook pwc.com/outlook

Our commitment to the environment

The paper and printer used in the production of the Global entertainment and media outlook: 2009–2013 are all certified to Forest Stewardship Council (FSC) standards, which promote environmentally appropriate, socially beneficial, and economically viable management of the world’s forests. The text of the publication was printed on paper containing 30% post-consumer waste material, using soy based inks, resulting in nearly zero volatile organic compound (VOC) emissions. The materials used in the production of this book were created using 100% renewable energy.

By using postconsumer recycled fibre in lieu of virgin fibre:

129 trees were preserved for the future 4,057 lbs of solid waste were not generated

372 lbs of waterborne waste were not created 11,925 lbs net of greenhouse gases were prevented

54,740 gallons of wastewater flow were saved 91,277,760 of BTUs energy were not consumed