The policies and regulations around media and entertainment are transforming as governments try to keep up with the pace of change seen in the industry. As consumers want faster, easier, and sometimes free content, industry leaders go to great lengths to meet this demand, while governments seek ways to protect their markets. The United States has a creative and entrepreneurial culture that is reflected in its share of M&E earnings across film, music, book publishing and video games. According to PwC, the U.S. M&E market comprises a third of the global industry and will reach $771 billion by 2019, up from $632 billion in 2015. China is the second largest market, followed by Japan, Germany and the United Kingdom. We also discuss India and Canada as promising markets.
China: #1 Global Market in Media and Entertainment
China has the second largest economy globally with over 1.3 billion people of which 600 million are Internet users and 500 million are mobile Internet users. China’s media and entertainment industry is expected to reach $242 billion by 2019 and is growing faster than the overall economy. With a growing middle class that seeks new entertainment options, and a government that is responding by building movie theaters at a fast pace, China is expected to overtake the USA in box office revenues by 2017. China has 23,650 screens now compared to the USA’s 40,000 screens, and is adding 15 new screens every day with estimates of reaching over 27,000 by 2020. In addition, Hollywood producers have increased cinematic appeal to Chinese audiences by featuring China in big movie hits such as Skyfall and Mission Impossible 3. The theatre market in China is the second largest with box office revenues expected to hit $8.8 billion by 2019.
The strongest growth in China will be from in-home video revenue at 31.3% CAGR. This will catapult it from the fifth in the world in 2015 to the second in 2020 with over $3 billion in revenue. This market is controlled by domestic players Tencent and Alibaba. According to the PwC, the challenge in China is M&E companies “need to first understand local consumers and consumption and create a foundation of content based on these preferences.”
The mobile gaming industry in China nets even higher than films at $9.1 billion in revenue in 2015 and is expected to grow to $12.2 billion by 2019. The gaming trend has become popular alongside mobile chat apps. After the US and Japan, China is the world’s third largest video game market with 13% of the world’s global mobile revenue. The sheer size of the population drives demand with 345 million Chinese online gaming users – or roughly the size of the USA’s entire population. Ad revenues in gaming will reach almost $400 million by 2019.
Despite the opportunity in China, there are market barriers such as censorship, import restrictions, and co-production requirements. China is also on the U.S. Special 301 Priority Watch List for IPR due to rampant piracy in online media, mobile devices and set-top boxes. Rogue manufacturers contribute to the problem by distributing pre-loaded unauthorized content onto set-top boxes sold throughout Asia. Pay TV theft through signals is also rising along with illegal recordings inside theaters.
India: #2 Global Market in Media and Entertainment
India dominates the mobile arena with 900 million users, and is the third largest Internet market after the United States and China with 302 million Internet users. The M&E industry is currently at $25 billion and is expected to reach $41.4 billion by 2019 at 10.5% CAGR. Television penetration is at 65% today, Internet access is expanding, and the lively Bollywood and Tollywood film industries help by producing the most films globally.
A growing middle class and young urban population combined with the arrival of broadband, smartphones and audio video streaming platforms has created a tipping point in the world’s second most populated country. While less populated than China, India is narrowly ahead in terms of growth in the media and entertainment industry with a 11.6% CAGR compared to China’s 10.9% . This explosive growth is double the 5.0% CAGR forecasted for the industry globally. By 2020, the projected CAGR for India will reach 14.3% – almost triple that of the global industry – an opportunity worth $33.7 billion . Advertising revenues are expected to grow at 15.9% in 2020 to $14.82 billion.
Over-the-top (OTT) streaming and subscriptions are rising dramatically, offering opportunity when licensing and piracy are under control. India’s TV market is going to expand to 165.3 million households by 2019, up from the current 150 million households. India has a large broadcasting and distribution sector, with 796 satellite TV channels; 6,000 system operators; 7 DTH operators and 4 IPTV service providers. TV penetration in India is at 65% while expected to reach 72% by 2017. The greatest growth in the film industry will come from OTT movie-streaming services, including providers such as Hungama, HotStar, Hooq, BIGFLix, Spuul, BOXTV, and ErosNow. The Government of India has supported growth, such as digitizing the cable distribution sector to attract greater institutional funding and increasing the FDI limit from 74% to 100% in cable and DTH satellite platforms.
India is the world’s second largest smartphone market with 220 million users. Price wars among smartphone manufacturers contributes to the growth and cheap data plans from cellphone service providers has increased content accessibility. Media and Entertainment companies are investing in the mobile screen to reach these populations, as well as content for OTT streaming video and subscriptions. The development of payment technologies, increased penetration of mobile phones, growth of video and audio streaming platforms and 4G services has led to a ripe environment for the M&E industry. With the wide rollout of 4G services and the increased penetration of smartphones, consumers will become accustomed to viewing content beyond the television screen, paving the way for digital dedicated content and new monetization models.
Despite the digitization of the film industry, piracy results in losses of INR 190 billion a year. Over 150 sites distribute stolen content with nearly half of these sites originating from the US. The leading 100 sites see INR 35 billion, or $510 million USD, further complicating the efforts required to stop the piracy epidemic. Access to broadband is critical in India where broadband internet is limited yet mobile penetration is high. Currently, India has approximately 150 million broadband subscribers at 12% penetration; this includes the 2.5 times increase in mobile broadband subscribers over the last two years. Considering India is one of the largest telecommunications markets globally with over 1 billion subscribers and 80% penetration, the development of broadband infrastructure has become a priority for the government.
United Kingdom: #3 Global Market in Media and Entertainment
The United Kingdom is a lucrative entertainment market and one of the largest in the world for film, TV, and music partly helped by British government subsidies. The British media and entertainment market will reach $106 billion in 2019 growing at 3% CAGR from $93 billion in 2015. This steady and stable market ranks as number one on the ITA list of top export markets, largely due to the entertainment industry growing three times faster than the overall economy and its good reputation as a U.S. trading partner.
Digital video entertainment is growing rapidly with 74 million mobile connections in the UK, representing 115% of the population. Over-the-top (OTT) services will double to reach $1.3 billion by 2019 and electronic home video revenue will grow at 12.3% to $1.9 billion. Physical home video is on the decline at 58% of home video revenues, down from 75% in 2014. Cable TV and streaming services are in fierce competition with Sky, Youview, Netflix, and Amazon releasing ad campaigns to convert customers on PCs and mobile. The UK demonstrates opportunity for growth for U.S. exporters as both countries share common interests in TV content and OTT programming with fewer regulatory hurdles, licensing and distribution issues than experienced in other export markets. Overall, the UK is strong in the TV and video sector and will account for over 35% of spend in 2020 with 80% of UK adults watching online TV and film.
Television is the fastest growing digital sector in the UK, with digital advertising trending at 19.6% per annum, reflecting the opportunity in on-demand viewing. According to PwC, 2016 was the first year digital revenues overtook non digital revenues with internet advertising expected to be worth 13.7 billion pounds (convert this to USD) by 2020. The UK’s digital advertising and innovative use of technology contributes to digital advertising growth as advertisers use platform specific, targeted services.
Broadband penetration will reach 95% in 2020, with over half being high speed broadband. Mobile internet penetration is similarly high at 90%. Over 20 billion apps will be downloaded in the UK market with over three-quarters of the time spent on video content. The UK games market will reach $6.77 billion in 2017. Game consoles are unusually strong in the region compared to a decline globally. In the UK, half of video game revenue is from consoles and is expected to see a 3.8 % growth during the five-year period.
Germany: #4 Global Market in Media and Entertainment
Germany is the third largest media and entertainment market in the world after the United States and China with $121.9 billion in revenue in 2016. The digitally-forward German culture contributes to the country’s success as does a strong GDP and high World Bank ranking. Germany is also home to many large trade shows in gaming and book publishing. However, TV is the largest sector and is growing at double the pace compared to publishing, although most of the growth will be seen from video on demand (VOD), video games and eSports. Overall, Germany has many positives due to its strong economy including the largest B2B market in Europe and the second largest B2B market worldwide after the USA.
Video on demand (VOD) presents an opportunity in Germany where consumers have been slower to adopt the service. In 2013, only 25% of households had VOD compared to 80% in the United States, creating ample opportunity for growth for U.S. licensors, producers and distributors. Considering there are 30 million broadband households, the under-served market is ripe for content providers. The over-the-top streaming market reached $398 million in 2015 and will grow to $682 million by 2019 with TV on-demand rising over 20% to $321 million. The main competitors are Netflix, Sky Europe, and Sky Deutschland.
Gaming revenues are healthy in Germany, and will reach $3.2 billion by 2019. The gaming market in Germany is the biggest gaming market in Europe with over 34 million active gamers with over half paying for gaming related services. The average age is 35 years of age and 47% of gamers are women. PC is the biggest gaming platform with 18.4 million active users followed by smartphones with 17.2 million users. The video game products are priced high and consumers are willing to pay almost 20-33% more in Germany compared to other regions. Germany’s PC market is second to the UK in Europe. Of the 23 million who play games on smartphones and tablets, 4.6 million are paying for the apps or completing in-app purchases. These transactions create 94% of the revenue for app developers. Trade shows such as Gamescom, GDC Europe, and Casual Connect Europe also add to Germany’s appeal for gaming professionals.
Canada: #5 Global Market in Media and Entertainment
The Canadian media and entertainment market will grow between 3.5% CAGR according to PwC to 5.2 % according to Trade.gov in the years between 2015 and 2019 reaching an estimated $58.5 billion. This respectable media and entertainment market is sustained through filming including foreign co-productions, a strong music sector and profitable game developer’s marketplace. Broadband penetration in Canada is at 86.8%, placing it second in the world’s major economies. The country also helps foster innovation by providing startups with large subsidies, creating competition for its neighbor to the South.
Similar to other regions, Canada is seeing a decline in subscription TV penetration hovering at $7.6 billion in revenue. Meanwhile, OTT video services will claim $1.62 billion by 2020, eating away its share of subscription TV. OTT and streaming content will grow at 17.4%. Netflix is expanding while competing with Shomi and CraveTVVideo. Other M&E companies doing well include Digiboo, a rental kiosk company, and Cineplex, which offers digital rentals.
Internet advertising revenues will rise at 9.8% CAGR hitting $6.17 billion in 2020. The growth of Internet advertising, mobile technology and video streaming help to contribute to the advertising growth. App-based games hold opportunity in Canada, known to be second worldwide for gaming development. In fact, 84% of Canadian video game companies are working on mobile-based projects.