Global entertainment and media outlook 2010-2014

Towards 2014: the search for position

in the digital value chain


Presenters

Jerry Brown
Associate Partner, Entertainment & Media Practice

Michael Paterson
Partner, Entertainment & Media Practice

PricewaterhouseCoopers LLP pwc.com/outlook | 2

Consumer and advertising spending forecasts in 48 countries

• Internet access spending

• Internet advertising
• TV subscriptions and license fees
• Television advertising
• Recorded music
• Filmed entertainment
• Video games
• Consumer magazine publishing
• Newspaper publishing
• Radio
• Out-of-home advertising
• Consumer and educational book publishing
• Business-to-business

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Towards
2014:

the search
for position
in the digital
value chain
Part one
• 2009: the economy took center stage
• The Outlook to 2014

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2009: the economy
took centre stage

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Pace of change faster than expected

Projected and Actual Global Growth by Segment - 2009

2009 Actual 2009 Projected

Internet Access
TV Subscriptions and License Fees
Internet Advertising
Filmed Entertainment
Video Games
Consumer and educational books
Recorded music
Radio
TV Advertising
Business-to-business
Consumer magazine publishing
Newspaper publishing
Out-of-home
-15 -10 -5 0 5 10

% Growth
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Projected and Actual Canadian Growth by Segment – 2009

2009 Actual 2009 Projected

Internet Access

TV Subscriptions and License Fees

Internet Advertising
Filmed Entertainment

Video Games
Consumer / Educational Book Publishing

Recorded Music

Radio
TV Advertising
Business-to-Business
Consumer Magazine Publishing
Newspaper Publishing
Out-of-Home Advertising

-20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 15.0

% Growth
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The Outlook to 2014

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Digital dampens spending growth; E&M lags behind GDP
% Growth

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Canada - Digital dampens spending growth; E&M lags behind GDP
20.0

15.0

10.0
% Growth

5.0

0.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
-5.0

-10.0

-15.0
Canadian Nominal GDP Canadian Internet Access Spending
Canadian Advertising Canadian Consumer/End-User Spending

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 E&M market growth 2010-2014

2010-14 CAGR
Canada
North America 5.0% Russia
3.9% 9.3%
UK Germany
3.7% 3.3%
USA
3.8%
Europe, Middle China
East, Africa (EMEA) 12.0%
4.6%
Asia Pacific
Brazil Saudi Arabia/ 6.4%
8.7% Pan Arab
16.5% India
11.8%

Latin America Global:

8.8%
5.0% CAGR, $1.7 trillion
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Component share of Canadian E&M spend

2009 2014

Internet
access Internet
12% access
16%

Consumer/ Consumer/
end-user Advertising end-user Advertising
52% 29% 50% 26%

Total spending 2009: US$36.77 billion Total spending 2014: US$47.52 billion

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Component share of global E&M spend

2009 2014

Total spending 2009: US$1.32 trillion Total spending 2014: US$1.69 trillion

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Global growth by segment

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 Canadian growth by segment

Internet Advertising 11.7

Video Games 6.6
Internet Access 12.0
TV Subscriptions and License Fees 6.8
TV Advertising 3.8
Filmed Entertainment 4.4
Out-of-Home 4.0
Radio 4.1
Consumer and Educational Book Publishing 3.1
Recorded Music -1.1
Business-to-Business 0.7
Newspaper Publishing -0.7
Consumer Magazine Publishing 1.2
-2 0 2 4 6 8 10 12 14

% CAGR 2010 2014

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Advertising spending – selected territories

200

180

160 United States

Russia
140
Germany
120 Canada
Saudi Arabia/Pan Arab
100
China
80 India
Japan
60
Brazil
40

20

0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

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Global advertising spending by segment

CAGR
5.1%

0.1%

11.4%

-4.6%

3.9%

0.1%

4.5%

-0.9%

12.9%

US$ billions
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Canadian advertising spending by segment

CAGR
Television - excl. mobile and online 3.8%
Newspapers - print -0.4%
Internet advertising 11.7%
Directories - print -0.2%

Radio 1.0%
Consumer Magazines - print 2.7%

Out-of-Home 4.0%

Trade Magazines - print 2009

1.8 %
2014
Video Games 12.0%

0 500 1000 1500 2000 2500 3000 3500

US$ millions
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Global advertising spending by segment

2009 2014

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Canadian advertising spending by segment

2009Video Games
2014
Video Games
1% 2%
Trade Magazines – print Trade Magazines – print
2% 1%
Out-of-Home Out-of-Home
4% Consumer 4% Consumer
Magazines – print
Magazines – print
5%
5%

Television - Television -
excl. mobile excl. mobile Radio
and online Radio and online 11%
30% 13% 30%

Directories - print
Directories - 7%
print
Newspapers 10% Newspapers
Internet
– print – print
advertising
18% 15%
Internet 25%
advertising
17%

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Global consumer/end-user spending
CAGR
10.5%

6.8%

4.8%

2.9%

1.9%

1.5%

1.1%

0.8%

0.3%

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Canadian consumer/end-user spending
CAGR

Video Games 6.0%

TV Subscriptions and License Fees 6.8%

Filmed Entertainment 4.4%

Satellite Radio 17.4%

Consumer and Educational Books 3.1%

Business-to-Business 0.8%

Recorded Music -1.1%

Newspapers 0.7%

Consumer Magazines 0.8%

-5 0 5 10 15 20
%

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Internet Access – wired and mobile households

562 million

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Digital migration

Digital share of Canadian E&M spending

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Excluding Internet Access Including Internet Access

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Digital migration

Canadian digital and non-digital spending growth

Digital Non-Digital
30.00

25.00

20.00

15.00

10.00

5.00

0.00
2006 2007 2008 2010 2011 2012 2013 2014
-5.00
2009
-10.00

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Geographical diversity – including Canada
Digital / non-digital share of total revenues – 2014:
including Internet Access

Digital Non-digital

United States
Japan
China
Canada
United Kingdom
South Korea
Saudi Arabia/Pan Arab
Brazil
India

0% 20% 40% 60% 80% 100%

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Geographical diversity – including Canada
Digital / non-digital share of total revenues – 2014:
excluding Internet Access
Digital Non-digital

United States
Japan
China
Germany
United Kingdom
South Korea
Saudi Arabia/Pan Arab
Canada
India

0% 20% 40% 60% 80% 100%

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The enduring importance of non-digital revenues

Global segment revenues in 2014

US$ billions
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The enduring importance of non-digital revenues
Canadian segment revenues in 2014
Digital
Non-digital

TV Subscriptions and License Fees

TV Advertising
Newspaper Publishing
Business-to-Business
Consumer and Educational Book Publishing
Filmed Entertainment
Internet Advertising
Video Games
Consumer Magazine Publishing
Radio
Out-of-Home Advertising
Recorded Music

0 2,0004,000 6,000 8,000 10,000

US$ millions
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Television Subscription Spending

• Overall spending will grow by 6.8% CAGR.

Driven by a recovering economy and
consumer willingness to pay

• Within the overall growth the key driver will be

Video on Demand (16.0% CAGR) as an
increasing number of households move to
digital services (9.5% CAGR for cable) and
IPTV (45.5% CAGR) is rolled out..

• Mobile TV will also start to be rolled out. Pay

subscription services have not worked well
overall in other markets but there is strong
demand from consumers

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Television Advertising

• Overall TV advertising market will grow at

3.8% CAGR

• Conventional TV advertising market will

grow at 2.4% CAGR to US $2,167 million.
Continues to be the largest component of
the TV advertising market by a wide
margin.

• Specialty advertising market will grow at

4.6% CAGR to US$1,086 million

• On-line and mobile TV advertising market

will contribute US$169 million by 2014

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Filmed Entertainment

• Overall Canadian film entertainment market

will grow at 4.4% CAGR

• Box office revenues will grow at 5.3% CAGR

driven by 0.7% increase in attendance and
remainder driven by price increases supported
by 3-D

• Physical sell through and rental market will

grow marginally as digital downloads and the
on-line rental market takes off

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Video Games

• Canadian video game market will grow at

6.6% to US$1.953 billion.

• On-line and wireless game market will grow at

fastest rates at 9.0% and 7.5% supported by
social gaming and increased access to new
games via smart phones and other devices.

• Console games while more mature will

continue to introduce new technology and will
grow at 5.7%. Consoles continue to innovate
to attempt to take over our living rooms and
become media centers.

• The PC based game market will be

challenged given competing technologies
which are more interactive.

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Towards
2014:

the search
for position
in the digital
value chain
Part two
• Consumer behaviour drives change
• Experimenting with business models
• Imperatives in the search for position
in the digital value chain

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Consumer behaviour
drives change

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Theme 1:
The rising power of mobility
Mobile markets in selected countries
AND devices
• Mobile comes of
age in 2010-2011
• Mobile will be
driven further and
faster by NGNs

United Kingdom

Germany
Saudi Arabia
/Pan Arab

Italy

United States
China

South Korea
Japan
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Theme 1:
The rising power of mobility
AND devices

• Loyalty shifts from service provider to

device and content
• Open or closed systems?

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 I love my TV
series, and we
leave Facebook
status
comments:
‘Watch this,
don’t watch that.’
I’ve introduced a
lot of my friends
to the series
Californication.
Theme 2:
The growing
dominance of
the Internet -- Capetown,
experience 19-year-old

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 I basically think
that movies are
going to be stored
in one location at
your home and
you can just
transmit them to
any media that
you own, whether
it be a laptop or a
PC, or your TV or
your cell phone.
You can just push
a button and the
movie shows up
on whatever you
send it to.
Theme 2:
The growing dominance
of the Internet experience -- Los Angeles,
PricewaterhouseCoopers LLP 28-year-old
pwc.com/outlook | 39
Theme 3:
Increasing engagement and
readiness to pay for content…
driven by improved consumption
experiences and convenience

• Experience drives revenue

• Convenience pays off
• Going “hyperlocal” to boost
engagement
• Media consumption returns to being a
collective social experience

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Theme 3:
Media consumption
returns to being a I’d rather chat on
the Xbox online
collective social experience with friends.
Sometimes, if
there’s a TV
program we like,
we keep the
Xbox on, and we
can talk to each
other in the
chatroom while
we’re watching it

-- 14-year-old
London, UK
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Experimenting with
business models

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Experimenting with business models

Addressable
• Future hope for digital advertising?
ad revenues?
• Testing the limits of Freemium?
paid-for content
• From ad-supported to Micro-payments?
“hybrid”

Paywalls?

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Imperatives in the
search for position
in the digital value chain

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Four legacy challenges

Digital rights are often uncertain, and

at worst impossible to untangle 1 IP Rights

Geography and platforms won’t work

as basis for release windows in multi-
channel world
2 Release windows

Policymakers struggle to keep pace,

and E&M companies need a firm
grasp on trends
3 Regulation

Delivery of strategic intent requires Operational step

deep understanding of own operating
model
4 change
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Redrawing the value
chain: where –
and how – will you fit in?

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 www.pwc.com/outlook

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