Perspectives from the Global Entertainment & Media Outlook 2018–2022 Trending now: convergence, connections and trust www.pwc.com/outlook PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 1 4/27/18 4:59 PM About this report Welcome to this year’s special report on when faith in many industries is at an the findings of our Global Entertainment historically low ebb and regulators are & Media Outlook. Every year we take a targeting media businesses’ use of data, deep dive into the data and analysis that the ability to build and sustain consumer our team of researchers and industry trust is becoming a vital differentiator. specialists have unearthed – with the aim of providing fresh perspectives and The result? To succeed in the future actionable insights. that’s taking shape, companies must reenvision every aspect of what they do Our comprehensive data and projections and how they do it. It’s about having, or on the 15 defined segments across 53 having access to, the right technology territories are just the start in creating and excellent content, which is delivered these insights. As in previous years, in a cost-effective manner to an engaged Ennèl van Eeden our authors have blended the data with audience that trusts the brand. For their own observations, experiences and those able to execute successfully, the examples to turn raw information into opportunities are legion. true intelligence. Writing this report was an exciting What’s trending now? It’s clear we’re in a and energising experience – and we rapidly evolving media ecosystem that’s hope these qualities shine through. To experiencing Convergence 3.0 – a new learn more about how our findings and and different wave of convergence driven perspectives apply to your business, by different capabilities and higher please contact your local PwC team (see expectations, and manifesting itself page 32) or reach out to either of us. We simultaneously in multiple dimensions. look forward to hearing from you. In Convergence 3.0, the dynamics of Wilson Chow competition are evolving while a cohort Best regards, of ever-expanding supercompetitors and Ennèl van Eeden more focussed players strive to build Global Entertainment and Media Leader relevance at the right scale. And business Partner, PwC Netherlands models are being reinvented so all players [email protected] can tap into new revenue streams, by, for example, targeting fans and connecting Wilson Chow more effectively with customers to Global Technology, Media and develop a membership mind-set. Telecommunications Leader Partner, PwC China The pace of change isn’t going to let [email protected] up anytime soon. New and emerging technologies such as artificial intelligence and augmented reality will continue to redefine the battleground. In an era Cover photograph: Jasper James / Getty Images Photograph pages 2–3: Jena Ardell / Getty Images PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 2 4/27/18 4:59 PM Contents 04 Introduction: a new wave of convergence 08 Varieties of convergence 11 Supercompetitors and relevance at scale 15 Reinventing media business models 18 New technologies – new battlegrounds 22 Trust: from table stakes to differentiator 24 Regulation 26 Looking to the future: above and beyond 29 Methodology and definitions 30 Use and permissions 31 Contributors 32 Global Entertainment & Media Outlook territory contacts PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 1 4/27/18 4:59 PM PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 2 4/27/18 4:59 PM PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 3 4/27/18 4:59 PM Introduction: a new wave of convergence Convergence is all the rage again across entertainment and media (E&M), technology and telecommunications. The thick borders that once separated these industries – and sectors within them – are dissolving. Large access providers and platform companies are integrating vertically, while established giants are integrating horizontally. Companies that once offered only technology and distribution are moving into content. The distinctions between print and digital, video games and sports, wireless and fixed Internet access, pay-TV and over-the- top (OTT), social and traditional media are blurring. Although they all had different starting points, many companies in this converged entertainment ecosystem are now aiming at business models that revolve around direct-to-consumer relationships. The transformation unfolding before our eyes is enabling this vast global industry to keep growing at a pace close to its historical rate – even amid significant disruption see( Exhibit 1). Of course, convergence has been cited combination could accelerate growth and – and hyped – before. But this time it’s value-capture across converging media different. To explain why, we’ll start with platforms. Broadcaster CBS merged with a brief history of the convergence seen to Viacom, a pay-TV network company. date in the industry. Telecommunications provider Telefónica bought Endemol, a global television The first wave of convergence (let’s production company and creator of call it Convergence 1.0) occurred Big Brother. News Corporation added between 1999 and 2003. Hailed as DirecTV, a US-based satellite operator heralding a new paradigm in E&M, then owned by Hughes Electronics, to this convergence had at its core a series its global portfolio of video-distribution of deals involving traditional content assets. And in the biggest media deal businesses and delivery-focussed or of all time, Internet portal AOL merged 1 distribution-focussed players whose with media conglomerate Time Warner. 4 Global Entertainment & Media Outlook 2018 –2022 PwcOutlook18_042718_lj_FC-17-se_lj-ej_lj.indd 4 4/27/18 4:59 PM 2.0 – was less ambitious, deemphasising Exhibit 1: Global E&M revenue (US$ tn) enterprise-wide transformation in favour Growth rates remain steady even as the industry is being transformed. of more measured vertical and horizontal integration. Rather than viewing deals 2.5 2017–22 as an aspirational route to create entirely CAGR new businesses, companies aimed their 4.4% 2.0 efforts at owning more links of the value chain and gaining scale. CBS purchased 1.5 CNET in 2008 to bolster its digital content and advertising portfolio. In 2009, Disney 1.0 acquired Marvel Entertainment, which had a complementary set of content and character businesses. In 2011, 0.5 Comcast, primarily a cable operator, acquired NBCUniversal, which owned 0.0 cable and broadcast networks, TV and 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 film production operations and theme parks. Hearst in 2011 acquired 100 Global E&M revenue Global E&M revenue (projected data) magazines from French media outfit Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook Lagardère, seeking to increase its global reach. These transactions were, by and large, successful, even if they didn’t Exhibit 2: Global digital revenue as % of total revenue dramatically reposition the combined Digital revenues will continue to make up more and more of the industry’s income. companies in terms of new capabilities. 2022 2021 2020 56.9% Convergence 3.0 2019 55.8% 54.3% We are now in the midst of a third wave 2018 52.7 % 2017 50.8% of convergence. It is driven by a set of 2016 48.4% imperatives and trends fundamentally % 2015 45.6 different from the prior two. In essence, % 2014 42.6 the revolutions that began to reshape 2013 39.7 % the E&M industries in the 1990s and 36.8% 2000s have gathered critical mass and are now in control. Technology and communications companies have become permanent players in the Global digital revenue Global digital revenue (projected data) E&M ecosystem. Furthermore, each Source: PwC Global Entertainment & Media Outlook 2018–2022, www.pwc.com/outlook of the trends below, in its own right, places pressure on players (and creates At the time, it was believed that each cross-business collaboration, breakdowns opportunities) to diversify revenue deal would produce transformative in strategic planning and deal execution streams, position themselves in more benefits in terms of enhanced consumer and premature market timing. And in and different points in the value chain reach, new distribution and technology each of these examples, the deals were and seek relevant scale. Taken together, capabilities and increased organisational eventually unwound. they exert an irresistible force. The scale and efficiency. However, highly digital economy is several orders of optimistic projections for strategic and Driven by concerns about slowing magnitude greater in size and scope operational synergies were generally not growth in core operations in a post- than it was a decade ago, and digital met for a variety of reasons, including recession environment, the second spending is projected to gain market mismatches in culture, insufficient wave of convergence – Convergence share rapidly (see Exhibit 2). Introduction: a new wave of convergence 5 PwcOutlook18_FINAL_Archive_051018_lj.indd 5 5/10/18 12:02 PM Exhibit 3: Five fundamental drivers of change A handful of factors combine to create a new style of convergence. Consumers and their devices Ubiquitous are always connected and always on connectivity Convergence 3.0 is Data analytics and Mobile devices are technology that can Personal- The mobile becoming consumers’ starting from different support better decision- isation consumer primary means of accessing making are critical to success E&M content and services core capabilities, Convergence 3.0 business models, geographies, consumer Platforms rather than publishers Need for Revenue streams that nourished behaviours and are the primary beneficiaries of Value shift new sources companies in the past will not be to platforms of revenue users’ growth in time and spending flowing with the same force consumer expectations growth compared with the Source: PwC prior waves. Drivers of change • Need for new sources of revenue We see five fundamental drivers of growth: many sectors of the E&M change (see Exhibit 3): ecosystem are showing weak, stagnant or even declining growth.