India Telecom

September 30, 2004
Outlook for entertainment and media industry

NEW DELHI -- PricewaterhouseCoopers recently launched a report called the 'Global Entertainment and Media Outlook' to identify key trends and developments affecting the industry, and relate them to spending forecasts across 14 entertainment and media segments for the period 2004-08.

The report assesses the entertainment and media industry as 14 individual segments that span five regions of the world. Together, these segments constituted a $1.2 trillion industry in 2003. In addition to analyzing economic data, the report also considers numerous strategic, operational, technological, demographic, political and cultural factors affecting the industry's growth and evolution. According to the report, the global entertainment and media industry is in an upswing following three years of sluggish growth in reaction to economic weakness and terrorism. While terrorism remains a grave threat, economic conditions in most countries have improved, and the entertainment and media industry is expanding. The rising penetration by digital and wireless technologies is also fueling the growth. In many cases, however, it comes at the expense of the traditional print media.

Media, entertainment to grow 6.3 percent CAGR
The report projects the entertainment and media industry in the US, Europe, the Middle East and Africa (EMEA), Asia Pacific, Latin America and Canada to increase from $ 1.2 trillion in 2003 to $1.7 trillion in 2008, growing at a CAGR of 6.3 percent. The US will expand at a 5.4 percent compound annual rate, rising from $523 billion in 2003 to $680 billion in 2008. EMEA will increase from $420 billion in 2003 to $549 billion in 2008, growing at 5.5 percent compounded annually. Spending in Asia Pacific will average 9.8 percent annual growth, the highest of any region, increasing from $229 billion in 2003 to $366 billion in 2008. The market in Latin America will total $45 billion in 2008, up from $33 billion in 2003, advancing at a compound annual rate of 6.5 percent. In Canada, spending will increase from $24 billion in 2003 to $31 billion in 2008, for an average annual gain of 5.9 percent.

Growth in most regions will pick up in 2004 and sustain faster increases during the entire forecast period compared with the past three years, reflecting improved economic conditions. Canada, having experienced relatively healthy increases during the past three years, will sustain that growth during the next five years. While improving significantly compared 2001-03, global growth in 2004-08 will generally be slower than the increases recorded in 1999-2000, the most recent period of rapid industry expansion.

Broadband Internet access is growing rapidly, boosting overall access spending and creating new opportunities for online advertising while simultaneously propelling spending in other segments. Viable licensed digital music services began to affect the recorded music market in 2003 and will help the industry grow via these new revenue streams. People are playing video games online, renting movies online, and buying electronic books.

Mobile phones are also emerging as a distribution channel for entertainment and media. Wireless video games are growing explosively, and wireless phones are being used for accessing the Internet, downloading music, and getting sports results and game highlights. Even consumer books are being distributed to wireless devices. These distribution channels will become significant during the next five years. Digital TV and radio are expanding the opportunities in those media and will ultimately replace analog technologies. Though, the outlook is brighter in 2004 than it was a year or two ago, there are also growing constraints on budgets, including rising energy costs and increased spending on security, which will limit the resources available to entertainment and media.

Total global entertainment and media spending grew by 4.2 percent in 2003 to $1.2 trillion, a modest improvement from the 3.9 percent increase of the 2002. Global advertising rose by 4 percent, up from the 0.1 percent gain in 2002. Internet advertising soared by 22.9 percent. TV advertising, including broadcast and cable rose by 5.5 percent, up from its 4.6 percent rise in 2002.

Major growth projected for entertainment and media markets in APAC, Hong Kong
The entertainment and media market in Asia Pacific is on the verge of major growth. Spending in the region will average 9.8 percent annual growth, the highest of any global region. India and the People's Republic of China (PRC) will be the principal growth catalysts. Economic expansion in these two countries is among the fastest in the world. Both are investing heavily in communications and media infrastructures, and are opening up their markets to foreign investment. Both countries are aggressively expanding Internet availability and are positioning themselves for growth in the TV distribution market as well.

The local industries in these countries are also in the process of consolidating a previously fragmented sector and are taking advantage of the opportunity to leapfrog a stage of technological development by investing in new digital equipment. Further, India and the PRC have huge populations and relatively low penetration of media usage, which provides them with significant room for expansion.

Both countries are aggressively expanding Internet availability. The report projects the number of Internet users to increase from 75 million in 2003 to 260 million in 2008 in the PRC and from 22 million in 2003 to 70 million in 2008 in India, for a combined increase of 233 million in those two countries alone. Even, with that projected growth, penetration would rise to only 19.2 percent in the PRC and 6.2 percent in India. In the PRC, there will be an estimated increase of 71 million broadband households during the next five years, which will contribute significantly to the projected 26.5 percent compound annual increase in Internet spending for the region as a whole. Therefore, Asia Pacific will become the world's largest Internet market.

The Asia Pacific is emerging as a driver of growth within the global entertainment and media industry. The industry will be fighting for resources against a backdrop of rising security concerns and higher energy prices. The entertainment and media market in Asia Pacific is on the verge of major growth. India and the People's Republic of China (PRC) will be the principal catalysts of growth.

Principal industry drivers for global entertainment and media industry

Improved economic growth: The economy would be the principal driver of entertainment and media industry. Although the current economic picture is not without threats, such as terrorism and high-energy prices, the economic outlook in each region in improving.

Underlying demand for broadband fueling penetration: Online distribution of entertainment will be facilitated by rapid growth in the number of households that access the Internet through a broadband connection. The number of broadband households rose to 82 million in 2003. In each of the past four years, more broadband households were added than in the previous year. During the next five years, the number of broadband households will grow to nearly 320 million, a 31.3 percent compound annual increase.

While lower prices will play an important role in making broadband financially accessible to most people, underlying demand for broadband is what's fueling penetration. An important contributor to that demand is the growing availability of entertainment applications that benefit from a broadband connection. The entrance of more such services into the market will further stimulate demand for broadband. At the same time, rising broadband penetration will facilitate online distribution of entertainment.

Wireless likely to be used for entertainment: There has been a fundamental change with respect to usage of wireless telephony. There were 1.2 billion global wireless telephone subscribers in 2003 compared with 465 million in 1999. Nearly half of the 2003 figure -- 510 million -- was in APAC, with EMEA next, at 385 million. In APAC and Latin America, wireless penetration is still less than 20 percent, which means there is ample room for growth in those regions. According to the report, the overall market will expand to nearly 2 billion by 2008, an 11.4 percent compound annual increase.

It is not only the growth in number of wireless subscriptions that has changed the market, but also the increasing dependence on wireless phones. The wireless phone has moved beyond being simply a device people use for making telephone calls. Wireless phones and related wireless devices are now used for taking pictures, sending messages, listening to music, playing games and even downloading books. With text messaging, wireless phones are becoming mobile extensions of the Internet. As people increasingly consider their wireless devices as their out-of-home Internet connection, which will be facilitated by faster connection speeds and expanded data capabilities, they will increasingly use these devices to access entertainment while away from home. By 2008, the majority of Internet users will connect via broadband, and next-generation technologies to boost spending.

In addition to the emergence of new distribution channels, next-generation technologies are helping re-invigorate maturing segments. Digital TV is replacing analog, and by the end of the decade, analog broadcasting would have disappeared in many regions. Digital TV allows for the transmission of more channels on the same bandwidth, thereby expanding the potential market for both advertising and subscription services. While next-generation technologies will boost spending, the multi-channel market is maturing, and penetration growth for the Internet and DVDs is slowing. On balance, the advent of next-generation technologies will offset the process of natural maturation in many areas of the market.

Contact:
PricewaterhouseCoopers' Entertainment & Media Practice
Tel: +91-11-5135-0501
Fax: +91-11-5125-0250
deepak.kapoor@in.pwc.com
www.pwc.com