Business

While projecting that global entertainment and media (E&M) revenue will grow to $2.2 trillion in 2021 from $1.8 trillion in 2016, PwC cautioned in a new report that companies need to focus a lot more on user experience (UX) than they have in the past, and artificial intelligence (AI), augmented reality (AR) and virtual reality (VR) are among several new emerging technologies that have the most potential to improve UX.

PwC’s findings and analysis were included in its 18^th annual Global E&M Outlook 2017-2021, released June 7. The compound annual growth rate (CAGR) of 4.2% that it projected for the period represents a decline from the 4.4% CAGR it forecast last year. In comparison, PwC expects U.S. E&M revenue to reach $759 billion by 2021, up from $635 billion in 2016, increasing at a CAGR of 3.6%, the same as a year ago.

Despite the continued increases in revenue, the traditional, mature segments of the E&M market are declining, while the internet and digital E&M content is growing at a slowing rate, PwC said. The next wave of content and entertainment, meanwhile, is in areas including eSports and VR that are just starting to accelerate, it said. 

The rapid changes that have taken place in the industry created a gap between how consumers want to experience and pay for E&M and how companies produce and disseminate their offerings, it noted.

“E&M companies have been accustomed to competing and creating differentiation primarily based on two dimensions: content and distribution,” PwC said in the report. “Now they must focus more intensely on a third: user experience.”

The eight emerging technologies that could have the most potential to improve UX are AI, AR, VR, the Internet of Things (IoT), big data/data analytics, the cloud, 3D printing, access and not ownership, and cybersecurity, PwC said.

“The next era of differentiation in E&M is being defined and propelled by consumers’ increased demand for live, immersive, sharable experiences,” Deborah Bothun, PwC global E&M leader, said in a news release announcing the report’s findings. She added: “Consumers want to get closer, more engaged and better connected with the stories they love – both in the physical and digital worlds. At the same time, companies can start to empower those experiences through a number of emerging technologies. Perhaps big data and artificial intelligence will create the most dramatic change, redefining how the industry can connect with all stakeholders and drive growth. We’re already seeing a number of ways that AI is being used to personalize, customize and curate entertainment content and experiences at scale.”

A total of 68 million VR headsets will be in use in the U.S. by 2021 with the installed base growing at a CAGR of 69.2% over the forecast period, PwC projected in the report. The segment is projected to add almost the same revenue as TV advertising between 2016 and 2021 — a total of $4.6 billion, it said. VR only truly started to reach consumers last year and there are “no legacy issues or false starts to look back on,” according to PwC. But it’s also a very immature market with “underdeveloped business models, flaky hardware, and lots of experimental or low-quality content,” PwC said, predicting “major advances in ‘inside out’ movement tracking and lower cost headsets” this year.

The video game market, which VR has been largely identified with so far due to the focus of games on such devices as Sony’s PlayStation VR, is still a large and growing business, but it’s also a “market where firms can fail in record time and new business models arise seemingly from nothing,” according to PwC. Video game revenue totalled $21 billion in 2016 and is expected to grow by a 6.3% CAGR to reach $28.5 billion in 2021, it said.

The development of eSports has contributed to the video game industry boom we’re seeing, according to PwC, which predicted that the still-nascent genre’s revenue will widen to $299 million in 2021 from $108 million in 2016, rising at a 22.6% CAGR. The U.S. is the largest eSports market in revenue, after surpassing South Korea in 2015, although the latter country will stay far ahead in terms of per-capita revenue, PwC said.

The U.S. internet video market is by far the largest and most established in the world, accounting for 47% of global revenue in 2016, PwC said. But that percentage is expected to fall to 43% by 2021 as Internet video becomes more established in other regions, although international growth will be driven by U.S. companies’ expansion overseas, it said. Internet video will grow at a 9.6 percent CAGR — the fourth largest U.S. E&M segment CAGR, following VR, eSports and Internet advertising, respectively — to produce revenue of $18.8 billion in 2021, it said. Almost 75% of revenue will be attributable to subscription video-on-demand (VOD) services, with transactional VOD platforms accounting for the rest, it said.

Internet advertising revenue in the U.S. hit $72.5 billion in 2016, easily the largest market in the world, it said, adding that figure is expected to reach $116.2 billion in 2021, rising at a CAGR of 9.9%. New technology innovations, especially around AI, will create challenges and opportunities for incumbent players, it said. The introduction of new screens, including those in connected cars, as well as the rollout of new content formats including VR and changes in the way we interact with technology, such as voice-activated search, create opportunities for new ways of engaging with and advertising to audiences, it said. Mobile advertising made up 50.5% of total Internet advertising revenue in 2016, rising from 34.7% the prior year and topping the contribution from wired Internet advertising, it said, predicting mobile will account for 74.4% of all U.S. internet advertising by 2021.

Movie theater revenue is expected to grow over the forecast period by only a 1.3% CAGR, with box office revenue increasing from $10.6 billion in 2016 — the biggest box office year in American history — to $11.2 billion in 2021, PwC said.

The music industry, meanwhile, has continued to improve after almost two decades of decline, it said. Total music revenue is forecast to increase at a 5.6% CAGR to reach $22.6 billion in 2021. The continued growth of digital music streaming — up 99.1 percent year-over-year in 2016 to $3 billion — happened as consumers increasingly turned to on-demand services, PwC said. It predicted that competition for new subscribers will likely heat up in 2017.

Traditional TV and home video revenue is expected to contract from $109 billion in 2016 to $105 billion in 2021, CAGR of -0.7%, PwC said. The report’s full findings are located at: www.pwc.com/us/outlook.