Forecast: UK to remain Europe’s top E&M market
June 27, 2023
The UK is forecast to maintain its position as the leading entertainment and media market in Europe over the next four years according to PwC’s Global Entertainment & Media (E&M) Outlook 2023-2027. UK E&M revenue is expected to reach £85 billion (€99.1bn) in 2023 with growth forecast at a compound annual growth rate of 4 per cent over the next four years to generate revenue of £100 billion overall by 2027.
However, amid the overall gains the rate of growth is expected to fluctuate year-to-year given variable economic conditions. Growth rates are somewhat muted by sluggish consumer spending, which is pushing companies to reset expectations, refocus inward and seek ways to recharge growth.
“2022 was a challenging year for the UK entertainment and media industry as the economy struggled to return to normality,” advises Mary Shelton Rose, partner and UK Technology, Media and Telecoms Leader at PwC. “In the midst of continued change and disruption, the industry reassessed its strategies and refocused on core operations.”
“For years, the overarching story in E&M has been a technology-inspired shift to digital and mobile. But this year, very quickly, a new force is coming into focus: Generative AI. Going forward, leaders must evaluate and embrace the potential power of AI holistically as an enabler for productivity and creativity.”
Segments driving revenue
Internet access is forecast to generate significant revenue with the Outlook expecting £16.7 billion this year before growing to £20 billion by 2027. The UK market will be driven by mobile Internet access and a tipping point will be reached in 2023 when mobile Internet will overtake fixed broadband as the biggest contributor to total Internet access revenue. By 2027 mobile internet access revenue will account for 55 per cent of total Internet access revenue.
The growth of data services will more than double as annual data consumption rises from 158,000 petabytes (PB) in 2022 to 415,000 PB in 2027. This is primarily linked to greater consumption of streaming services, social video platforms and broadcast video on demand services – which will together account for 36 per cent of all data consumption in 2027.
Subscription video on demand (SVoD) revenue is forecast to grow from £3.6 billion this year to £4.7 billion by 2027. In 2025 it is forecast that SVoD (£4.2 billion) will overtake TV subscriptions (£4.1bn) in terms of revenue reflecting a shift in audiences from linear to streaming. The major SVoD players continue to invest in content rights and original productions to maintain popularity with customers. However the rising presence of advertising-based video on demand offers consumers the chance to switch away from subscriptions models.
Overall advertising revenue in the UK is expected to be £35.7 billion in 2023, within which digital captures the lion’s share – as the accelerated structural shift during Covid has remained in place. Internet advertising revenue of £27.5 billion is forecast for 2023 before reaching £35.5 billion by 2027, at a CAGR of 6 per cent. TV advertising remains a significant medium, but has faced more challenging circumstances. It is expected to decline by 3 per cent in 2023 as budgets have tightened, but then recover with 4 per cent growth in 2024 (£4.8bn).
“The Internet advertising sector remains highly dynamic,” notes Dan Bunyan, partner at PwC Strategy&. “We continue to see spend moving into new channels (e.g., retail media, gaming), new data sets (e.g., cookieless solutions, contextual data), as brands reassess the most fruitful ways to engage consumers online. This spending growth is underpinned by continued product innovation in the sector, as well as M&A activity to enable vendors to deliver these services.”
“Generative AI is likely to play a growing role in the UK Internet advertising market, across a range of channels and content creation. For example, within the search segment of the market we have seen the integration of Generative AI technology into search engines, starting with the inclusion of Chat GPT in Microsoft’s Bing and the launch of Google’s own Bard platform. Further adoption and calibration of Generative AI tools across the digital marketing ecosystem is likely to drive further competitive innovation.”
Fastest growing segment
The Virtual Reality market in the UK is expected to see steady growth in the next four years, driven by the rising popularity of VR gaming and immersive video experiences. Total UK VR revenue is set to increase from £1.3 billion in 2023 to £2 billion in 2027 at 10 per cent CAGR. VR within video gaming remains a high growth opportunity, growing at 22 per cent p.a. from 2022 to 2027, supported by new games releases. Between 2022 and 2027 the UK’s installed base of VR headsets is forecast to grow from 1.7 million to 4.2 million units. This is largely thanks to the success of the Meta Quest 2, the largest and fastest-growing headset category is now standalone VR, which will represent over 80 per cent of the total installed base in 2027. Apple’s newly released headset may also act as another stimulus for the market, but it is too early to see the results.
Other segments returning to pre-Covid levels:
Some other segments are expected to see strong growth as they return to pre-lockdown revenues. For instance, cinema will continue its post pandemic recovery growth over the next four years forecast at a 7 per cent CAGR. Box office revenues are expected to exceed pre-pandemic levels by 2025 at £1.3 billion. Similarly, the UK out-of-home (OOH) advertising market is also being driven by a post pandemic recovery. The market grew by a record 31 per cent in 2022 and is forecast to grow at 5 per cent CAGR over the next four years and expected to return to pre pandemic levels in 2024 when revenue will hit £1.13 billion.
Along with many other media sub-segments that have continued to see strong growth (e.g., OTT Video, Video Games, Internet Advertising, etc.), this demonstrates the overall health of the Entertainment & Media sector, which has now emerged structurally larger vs pre-Covid.
“The media industry continues to add significant value to the UK via inbound investment, export value, new creative IP, tech infrastructure, and high levels of consumer engagement,” adds Bunyan. “Brands and media owners should be confident to be on the front foot as the economy recovers and consumer confidence returns.”