Australia’s leading industry forecasting report into consumer and advertising spend across 12 segments
Welcome to the 20th edition of PwC’s annual Australian Entertainment and Media Outlook.
Our 19th edition, published in November 2020, was a special report that looked at the immediate impact of the most concentrated and rapid period of change within the entertainment and media industry in recent memory. Given uncertainty as a result of COVID-19, we introduced a range of forecasts – based on a positive, gradual and negative recovery – rather than a single forecast. This approach provided our audience with a range of potential outcomes, based on Australia’s progress against factors largely outside the control of the industry, including the timing of the vaccine roll out, ongoing use of lockdowns to manage contagion, the impact of the end to JobKeeper, and the return of business and consumer confidence.
At the time, we envisaged that this year’s edition would be a return to normal reporting. However, with the vaccine rollout taking longer than originally anticipated, international borders unlikely to re-open until 2022, and sporadic lockdowns a part of the “new normal”, approaching forecasting with a “ranged” approach remains appropriate for the market for the time being – although in most cases, the gap between the three potential forecasts has narrowed. Crucially, when providing the quantified forward view of the market via a Compound Annual Growth Rate (CAGR), we have taken into account the six years of 2019-2025, rather than the usual five year range of 2020-2025. This extended CAGR allows for us to provide a more realistic projection for each of the 12 sectors we analyse and ensures that the base from which we are reporting is not distorted.
Finally, in this year’s report, our special feature includes findings from a research study that we conducted to better understand the key factors that influence what people listen to, watch, read or play. Specifically, we look at consumers’ content appetites, which we define as their capacity and desire to consume specific content. While a distinctly personal experience, we found that there are four key factors that shape people’s content appetite and determine how willing they are to stretch it to try new things. This special report also looks into the types of consumption – routine, spontaneous and planned – and what all of this means for content creators and advertisers.
The wash up at the end of 2020
In 2020, the pandemic triggered the sharpest contraction in Australian entertainment and media revenues in the history of this report. While the contraction impacted the whole market, it was clear that some sectors were hit harder than others.
Overall, total Australian advertising spend contracted by -8.0 percent to A$15.4 billion, and consumer spend dropped by -1.9 percent to A$42.5 billion.
The hardest hit sectors were Filmed Entertainment with a -41.0 percent fall from A$2.2 billion to A$1.3 billion, and Out-of-Home (OOH) falling -39.0 percent from A$1.3 billion to A$772 million. The economic disruption was such that even as some sectors saw an increase in readers (digital news) or audience (Free-to-air TV), the revenue was hard to come by for much of the calendar year, until a late surge in November and December as the country emerged out of lockdown. Momentum was strong going into the first quarter of the 2021 calendar year, although the shadow of COVID-19 had by no means been lifted from the entertainment and media sector.
One of the few winners off the back of the pandemic was Internet Advertising, which saw an increase of 3.3 percent from A$9.0 billion to A$9.3 billion in 2020, as advertisers looked for ways to stay top of mind with consumers as people retreated to their screens and devices while spending more time at home. In the consumer category, streaming services did well throughout the calendar year, with Streaming Video on Demand (SVOD) services increasing both subscribers and users and Broadcast Video on Demand (BVOD) growing audience and advertising revenue.
The pandemic fall out and the resulting power shifts
The future of the entertainment and media sector is being largely determined by the COVID-19 induced acceleration to changes in consumer behaviour that have pulled forward digital disruption, and thus industry tipping points, by several years. In 2021, these tipping points have coalesced into power shifts that are rapidly reshaping the segments, and the industry as a whole.
The five major power shifts reshaping the landscape
Across the entertainment and media landscape, we see five major shifts that are impacting the sector, albeit to varying degrees depending on the shape of the consumer interaction and revenue model. While these shifts are having a profound impact, they should not be interpreted as factors undermining the stability or resilience of the market overall. The contraction of 2020 is giving way to a solid rebound this year, and a return to 2019 revenue levels within the next three years for most parts of the industry.
The first and most powerful shift is the macro shift in consumption, powered by sustained digital disruption. This shift is, in turn, driving:
- Control shifts where power moves to the consumer
- Creative shifts that moves power to the creators and originators
- Location shifts where consumers have high expectations of their consumption experience anywhere, anytime
- Regulatory shifts where the focus on market power and privacy intensifies.
MACRO SHIFTS: POWERED BY SUSTAINED DIGITAL DISRUPTION
The overarching power shift driving change across all segments and giving rise to transformation is consumers’ ongoing migration to digital consumption. As consumers stayed home and in-person venues closed, use of digital services soared. While cinema box office revenues fell -67.4 percent in 2020, this was contrasted by increased availability, sector breadth and catalogue depth of the SVOD players, increased BVOD usage, and the sustained growth of the gaming and esports sector. While revenue growth was hard to come by for many entertainment and media sectors, including some whose audiences increased as a result of more time spent in the home, internet advertising increased overall.
One of the most profound impacts of the digital disruption was the increased use and prevalence of non-advertising supported platforms, forcing a number of key players to rethink their business model, in a world where the expectation is that consumers can access an ad-free or personalised service, provided they can pay for it.
Disruption was not limited to the entertainment and media sector, with corresponding growth in online shopping as bricks and mortar stores shut storefronts for much of the year. In addition, the now omnipresent use of video meeting services replaced most business-related air travel, and the rapid transition to online learning for many students reshaped education. Barely a sector escaped the digital disruption of the global pandemic.
Despite all of these changes in how we live, work and play, a significant proportion of the habits accrued over those restricted periods will endure. Many of the shifts that were already in play – the move towards digital products and online sales, the relentless rise of streaming, and the growing influence of gaming and user-generated content – gained momentum and are poised to continue their growth trajectories. The resulting power shifts driven by digital disruption will transform the industry in the years to come.
CONTROL SHIFTS: POWER MOVES TO THE CONSUMER
Spoilt for choice in what they watch, read, listen to and play, the consumer is firmly in control of how they spend their two largely finite resources – their time and money – and never has this been more apparent or true than during the pandemic. The traditional platforms that advertisers buy to reach audiences at scale, including television, newspapers and out of home, all had significant competition for their share of consumers’ attention, and the range of competing media platforms and channels added to the complexity of delivering a consistent message over time. In turn, this presented a challenge for advertisers and brands seeking to get in front of their consumers, as they had to rebalance their media and creative strategies in order to achieve their required reach.
While targeting through digital and programmatic channels certainly plays a role, the ability for a consumer to scroll past, skip or opt-out of an advertising message, coupled with the fact that large segments of the population are spending less time on advertising supported services means that creativity in execution and sound channel planning has never been more critical for brands seeking to attract and retain new customers.
Further adding to the power shift to consumers, in 2021, Apple launched its new operating system for its devices that had increased privacy settings that allowed users to decide which apps could track their behaviour and use the data for their own purposes or to sell to other organisations.1 Early signs are that many consumers are choosing to opt out of apps monitoring and commercialising their data, creating a challenge for some platforms, and reinforcing the fact that consumers are increasingly the ones who will decide what information is shared and with whom.
CREATIVE SHIFTS: PUTTING CONTENT CREATORS AND ORIGINATORS IN THE DRIVER’S SEAT
The democratisation of content through platforms such as TikTok, Twitch and YouTube continued to close the gap between content creators and their audiences. Amassing large numbers of followers or subscribers creates unique and direct relationships between creators and the fans that follow them. While the content is varied, the critical fact is that time spent on these platforms is time not spent on others.
Spanning content genres including activist journalism, comedy, performance art and how-to content, content creators are speaking to generations of consumers and viewers who choose to spend their time watching content across multiple online video platforms rather than solely traditional media channels. While professionally generated content (PGC) has higher production values and very often needs to conform with specific standards and regulations, the user generated content (UGC) on these platforms does not and therefore is able to use short form, low budget video that still reaches a large audience base. Unfiltered, and to a large degree unregulated, the growth in UGC as a part of their regular content repertoire for some audiences demonstrates the power of a one to one connection and the impact it can have on the rest of the media landscape.
While this is not a new phenomenon, time spent on these platforms is increasing for the core demographics. The reality is that many younger consumers simply have little awareness of – or interest in – traditional media. On the flipside, the platforms pitched toward young people, or that distribute lightly-produced authentic content, boomed. This dichotomy is fueled by twin forces: the shift from older to younger consumers, the latter of whom are increasingly setting the trends and dominating the conversation, and the shift from producers to creators, the latter of whom are increasingly benefitting from reward mechanisms for attracting and retaining audiences.
Across the board, creators are clawing back control, agency, and, increasingly, revenues from employers, publishers and distributors. Whether it is Substack, which helps independent writers establish a subscription newsletter service; TikTok, which makes creators out of anyone prepared to share their video; or the highly curated YouTube channels of key influencers, the ability for content creators to monetise their work without a third party (beyond the platform) puts pressure on some of the traditional players, and the business models that sustain them.
Non-fungible tokens (NFTs) represent a notable innovation in the ability of creators to go directly to customers. NFTs are indivisible, irreplicable blockchain-based tokens that effectively assign ownership, in some form, for a specific digital item. A robust market for NFTs has now sprung up among collectors and speculators. Key milestones in the market’s development included the sale of a digital collage artwork by the artist Beeple for US$69 million, and the sale of the first ever tweet (by Twitter founder Jack Dorsey) for US$3 million. The NBA’s Top Shot Licensed Digital Collectibles NFTs launched in June 2020 and had traded over US$550 million for video Moments by May 2021. And while musicians may have missed out on live performances and the merchandise sales that go with them, the musician Grimes sold thousands of NFTs at US$7,500 each for two short videos—the digital equivalent of signed, limited-edition prints.
LOCATION SHIFTS: ANYWHERE, ANYTIME
While mobility of content has been a feature of the entertainment and media landscape for some time, the increasing sophistication of technology – specifically 5G – means that the technology-enabled quality of the viewing, listening, reading or gaming experience is able to meet the higher expectations and demands of contemporary consumers. The delivery of high definition content, whether it is on a phone, or a HD 8K LED television, is expected to be delivered with zero lag and glitch-free – whether people are on the bus or in their lounge room.
This technology expectation is also met with an experiential one. Not only do consumers expect the technology to work wherever they are, but they also want the experience to meet with their specific requirements and personalised preferences based on their prior interactions. People do not want to be tied to a traditional method of distribution, but rather want to be able to access what they want, from wherever they are, on any device they choose.
The key media consumption locations – the lounge room, the bedroom and in transit – are changing dramatically, as the era of specific devices having control over a specific location are over. The lounge room – once the domain of linear television and appointment viewing – now offers consumers the additional options of SVOD, BVOD, Premium Video on Demand (PVOD) and gaming (to name a few), largely thanks to the growth in connected televisions and a much simpler user interface.
The challenge for the advertiser is to meet the consumers where they are. If, for example, companies want to meet younger consumers where they are already spending their time, that may mean including a gaming strategy in their approach.
Gaming was one of the bright spots for the entertainment and media sector during the pandemic. Total game revenues, which rose by 7.2 percent in 2020, are expected to grow at a 7.5 percent CAGR based on the midpoint forecast scenario through 2025. Traditional gaming was boosted by the launch of next-generation consoles from Microsoft and Sony in late 2020, notwithstanding supply issues of the consoles themselves. More broadly, most of the growth going forward will be in digital. Facebook Gaming and Amazon’s Twitch have all recently been active in acquiring premium games-related video content, including media rights to esports competitions and exclusivity deals with prominent games streamers. Google plans to integrate its cloud-gaming unit Stadia with YouTube, which will make games seamlessly playable by viewers of game-related content and live streams.
REGULATORY SHIFTS: THE FOCUS ON MARKET POWER AND PRIVACY INTENSIFIES
In the last two and a half years, Australia has been the testing ground for a number of regulatory engagements that have directly impacted the media sector, with the Australian Competition and Consumer Commission (ACCC) conducting a number of inquiries, some of which are ongoing, including but not limited to:
- Digital platforms inquiry2
- News media bargaining code3
- Customer loyalty schemes review4
- Digital advertising services inquiry5
- Digital platform services inquiry6
In addition to these programs from the regulator, the Federal Parliament, through the Senate, held a number of hearings directly related to the entertainment and media sector:
- Media diversity7
- Broadcasting Legislation Amendment (2021 Measures No.1) Bill 20218
- Inquiry into press freedom9
While a number of these inquiries and hearings are yet to report their findings, there is no doubt that the scrutiny of the media sector, specifically with relation to the digital media ecosystem, will continue for the foreseeable future.
The news media bargaining code was by far the most documented – and felt by – Australian consumers. On 20 April 2020, the Australian Government asked the ACCC to develop a mandatory code of conduct to “address bargaining power imbalances between Australian news media businesses and digital platforms, specifically Google and Facebook”.10 Following a period of consultation, the ACCC made recommendations to the Government based on the views put forward by stakeholders. The Federal Government considered these recommendations and developed its final legislation which was passed by both houses of Parliament on 25 February 2021.
The code and its implications were watched closely by many other countries as they sought to understand the proposed approach and how it would work for all players. While independent agreements were eventually reached between the major news organisations and the digital platforms, this came only after a very public challenge, with Google stating that the code “would break the way Google Search works”,11 and Facebook taking the step of temporarily removing users’ access to news content on Thursday 18 February 2021.
Given the nature of these inquiries and the ongoing focus of the regulator on privacy, fairness, market influence and related areas, their increased engagement with the media and entertainment industry in the past 12-18 months is something that is unlikely to abate any time soon.
As a result of these shifts, product and service offerings, customer engagement strategies, business models and the relative strength of participants are changing, altering the way profits are created, and reconfiguring the industry.
Almost every part of the entertainment and media sector has had to refine and adapt their offering and the business model that underpins it as a result of the new dynamics of consumer control, digitisation and the finite nature of consumers’ attention, budget and time. COVID-19 brought forward a lot of those adaptations and have created new revenue streams for those prepared to experiment, and replaced old ones where the model lacked relevance to the contemporary consumer.
A primary example of this rapid reconfiguration is the streaming boom of 2020, which has elevated the industry to a new growth trajectory. Streaming Video on Demand (SVOD) revenues will grow at a 20.4 percent CAGR based on the midpoint forecast scenario through 2025, by which point SVOD will be a US$81.3 billion industry globally,12 and an estimated A$3.3 billion in this market. But there is likely a limit to the number of streaming subscriptions a household is willing to subscribe to – and people can cancel their OTT services with relative ease. The expanding array of global and local streaming services now available in Australia – including the more recent entrants such as Disney+, Binge and Britbox – is supplemented by a slew of local BVOD providers. The stacking of multiple OTT services has triggered much debate in the industry over the maximum number of subscriptions that a consumer may be willing to take. It’s an issue that brings important implications for strategy. Experimentation in areas such as simultaneous release of blockbusters on platforms and in cinema, premium pay per view content, AVOD, and live sport continue to show that the streaming platforms are not to be underestimated in their pursuit of subscribers and revenue.
Business model evolution also occurred outside the streaming providers with news media continuing on its digitalisation strategy. Ongoing development of “news as experience” across multiple platforms continues with the launch of services such as News Corp’s “News Premium” digital service on news.com.au that promises subscribers fewer ads, member-only content and an enhanced reader experience.
However variable the impacts on segments, the outlook for revenues at an industry level remains robust.
Amid all of this, the volatility masks a certain stability. The powerful shift to digital consumption, which is spurring four concurrent and distinct power shifts, will provide a strong boost to global growth in these industries for the next several years. And as companies race to meet consumers where they are with an ever-expanding range of products, services, and experiences, the entertainment and media industries will grow more pervasive, more immersive, and more diverse.
In some instances, there will be a significant asymmetry regarding the prospects for individual entertainment and media sectors. Even in the areas that offer the most compelling topline growth, like video streaming, competition is likely to change dramatically over the coming years. And all the while, the social, political, and regulatory context in which all companies operate continues to evolve.
As we emerge from the pandemic, industry players who take stock of the shifting environment, and evolve their strategies through customer consultation, the application of data and insights and a test and learn approach come out on top.
One thing’s for sure: the central role the everexpanding array of media experiences plays in consumers’ lives is not just set to endure, but deepen over time. How consumers choose to allocate their precious time, money and data across the array of entertainment and media options will ultimately determine who succeeds and grows, and who fails to adapt fast enough to make the most of the opportunities in a market where power is constantly shifting.