PwC: UK streaming revenues to surpass physical
June 15, 2017
According to PwC’s Global Entertainment & Media (E&M) Outlook 2017-2021 the UK’s E&M sector will grow at a compounded annual growth rate (CAGR) of 3 per cent from 2017-2021 adding £10 billion (€11.4bn) to its value to the economy over five years. Overall, revenue will grow from £62 billion in 2016 to £72 billion by 2021 and will be the second largest market in Europe, the Middle East and Africa (EMEA) behind Germany.
“The UK’s entertainment and media sectors will play an important role in economic growth over the next five years,” advised Phil Stokes, UK head of Entertainment & Media at PwC. “Technology and digital service continues to dictate growth with companies tapping into where and how consumers are spending their time online. With consumers having more control and greater choice, companies will need to find new ways to stand out and engage with customers.”
The UK’s virtual reality industry will grow at a faster rate than any other E&M industry from 2016-2021. PwC forecasts a CAGR of 76 per cent to a value of £801m in 2021 making it the fastest growing and largest virtual reality industry in EMEA.
“We forecast the number of virtual reality headsets in use in the UK will pass 16 million by 2021,” noted Stokes. “Around 12 million of these headsets will be portable mobile VR devices that use a smartphone at their core as these are more affordable for consumers and benefit hugely from the fast evolution and replacement rate of smartphones.
“Dedicated home VR headsets – the higher end devices used for gaming and video – will account for three million consumer headsets, with portable dedicated headsets – a new category of self-contained device that are easier to use and have superior capabilities to smartphone-based devices – forecast to account for one million.”
Advertising will be the biggest contributor to Entertainment & Media growth, accounting for a third of total revenue by 2021.
With the PwC Outlook forecasting 89m smartphones to be in use in the UK by 2021, advertising spend will be increasingly directed to mobile. The UK is home to the largest Internet advertising market in Europe, and will continue to be so for the next five years. Internet advertising revenues will surpass £10 billion for the first time this year and are forecast to grow at 8.9 per cent (CAGR) over the forecast period, reaching £14.4 billion in 2021. At that time mobile advertising will overtake wired advertising to account for more than half of total Internet advertising revenue.
“Mobile Internet advertising is growing faster than any wired sub-component of total Internet advertising revenue. Advertising on mobile is an attractive proposition for brands due to high smartphone penetration and relatively good connectivity across the country,” suggested Stokes.
“The rise in ad-blocking technology which allows users to opt out of receiving ads remains a challenge as does the sheer scale of Facebook and Google for publishers to monetise their own site traffic. To counter this, publishers will need to improve their user experience of ads and work with third-party platforms to ensure they receive a fair share of the revenue their content attracts.”
The amount of data consumed annually in the UK is projected to more than double from 17 billion gigabytes in 2016 to 41 billion by 2021, driven by Internet video consumption on streaming services such as Netflix and Amazon Prime. Revenue from Internet video is forecast for overall growth of 9 per cent (CAGR). By 2018, consumer spend on streaming services and on demand video will overtake physical home video, DVD and Blu-ray, which is in terminal decline shrinking at 15 per cent year on year. By 2021, Internet video revenue will also surpass box office revenues of £1.3 billion by hitting £1.4 billion.
“Demand for Internet video shows no signs of slowing down. While the vast back catalogue of shows is often credited as the reason for subscribing to Internet video services, companies have invested heavily in producing original content. Four of the top 10 programmes watched via subscription video on demand in 2015 were original productions showing that for consumers, fresh, high quality, content is king.”
Consumer spend on Internet access is forecast for 3.6 per cent growth (CAGR) from 2016-2021. Revenue will grow from £11.7 billion to £14.1 billion during this time and in 2019 mobile access will overtake fixed broadband access and account for just over 50 per cent of all Internet access revenue.
“Government incentives and a more favourable regulatory environment for alternative operators should boost high speed fixed broadband penetration over the next five years to 77 per cent by 2021 up from 17 per cent by the end of 2016,” reported Stokes. “With smartphone ownership forecast to increase over the same period and new players entering the mobile Internet market, mobile Internet access revenue is set to overtake fixed broadband as consumers spend more time online on their phones.”
The UK’s video games industry is set to remain Europe’s largest market and the fifth largest globally behind the US, China, Japan and South Korea. Revenue is forecast for 6 per cent CAGR over the five-year period and by 2021 will be worth £5.2 billion. UK consumer spend on video games is set to overtake all spending on books, which will reach £5 billion by 2021.
“With the creative industry being identified as a priority area in the Government’s industrial strategy, entertainment and media, particularly digital services, will continue to innovate further and drive prosperity and culture throughout the country,” concluded Stokes.