Media and Entertainment Forecast: Grim, Grimmer, Grimmest

Michael Hedges June 17, 2009 (follow on Twitter)

Since the dot.com bubble burst as this century began financial modelers have moved from irrational exuberance to caution to fear. With the dramatic unhinging of worldwide financial markets forecasters maintained a shred of optimism about the media and entertainment industries. Improvement would come, they said even into this years’ first quarter, in a year or so. The shred of optimism is being shredded.

PriceWaterhouseCoopers (PwC) released its grimmest assessment yet in its “Global Entertainment and Media Outlook 2009-2013. Growth, meaning a return to 2008 spending levels, won’t return until 2013. It’s enough to make the hard charging and highly paid CEO’s – and everybody below – meditate on their bonuses. A summary of the 600 page document has been affectionately digested by Handelsblatt, Reuters, the FT and others (June 16).

Worldwide entertainment and media revenues will continue falling through 2011, the PwC forecasters say, and not start to grow until 2013.  They project a compound annual growth rate of 2.7%, the bull of which will appear after 2012. The report includes both advertising and consumer spending in the mix of revenues that support entertainment and media broadly. Advertising will face even steeper cuts.

"Not only are advertising revenues falling,” said PwC’s Frank Mackenroth in Germany, but “for the first time consumers are also spending less.”

The worst will be felt in the United States and Canada, says the report, where media and entertainment revenues will fall 7.1% this year and not begin to see an upward trend until 2013. In Europe the financial and real estate melt-down will cause consumers to rein in discretionary spending. Already European households spend 20% on their allotted budgets on media and entertainment for internet access and mobile media.

Shifts in ad spending will, says the report, devastate newspapers and magazines. The print sectors’ ad revenues will shrink 15% this year alone. TV advertising will be “stagnant.” Consumers will “reallocate” entertainment and media spending to games, pay-TV and video-on-demand.

For media there is “no hiding place” from the digital world. Either go digital – meaning online – or go away. "Advertising-funded media will have to make content available online,” said Mackenroth delicately, “or to seek alternative revenue sources."

"The current decline in revenues is not because of declining demand,” said PwC’s Bill Cobourn in the company statement (June 16). In fact, demand for (entertainment and media) appears to be increasing. The challenge is to identify ad models that are able to withstand the downward pressure on ad rates in the digital environment and on subscription models that capture the consumers' preferences for premium content."

PwC says the current dismal economics – which it presumes will not turn around soon – is forcing media and advertising into digital delivery.  Consumers are demanding added value in addition to access to media and entertainment when, where and how they want it. Advertisers – those left standing – are demanding an end to “wastage” with targeted message deliver that only digital distribution can deliver.

In the broadest perspective, PwC says rather bluntly the media and entertainment environment that existed in 2008 will not exist in 2013. Reality will certainly be far more nuanced. Consumers will be expected, proportionately, to bear more of the costs directly. The advertising people, following their own survival path, will spend less generously, targeting more carefully. Neither will be scattering money indiscriminately.

Adding together radio and TV license fees, internet access, mobile access and pay-TV consumer spending on media and entertainment in the forms currently available has hit a threshold. Many economists and other watchers of social trends have forecast a protracted period of less profligate household spending in Europe and North America. The consumer preference is for on-demand services only available online, at least for discrete services ranging from sports events and games to specialized (and bite-sized) information.

If PwC’s conclusions are correct, and some of the assumptions are hazy, the biggest change in media and entertainment over the near to mid-terms will be contraction. Consumption of media and entertainment may continue to rise, particularly as broadband and wireless distribution expands. Producing media and entertainment will move the other direction. Yet to be seen is whether or not this contraction will give birth to new joy.